WASHINGTON — A New York state issuer has applied for relief under the Internal Revenue Service's voluntary closing agreement program so that tax-law violations relating to bonds issued in 1998 for New York Medical College can be settled.
The issuer, the Dormitory Authority of the State of New York, filed its request for a VCAP settlement on May 14 and disclosed the filing in an event notice posted with the Municipal Securities Rulemaking Board's EMMA system on Friday.
DASNY and NYMC expect the VCAP application will be favorably resolved with a penalty paid to the IRS. Funds for the settlement payment will be provided by the school, according to the event notice.
NYMC is a not-for-profit university located in Valhalla, N.Y. DASNY issued $66.89 million of NYMC revenue bonds for it in 1998, $44.39 million of which are still outstanding. Bond proceeds were used to finance the construction and renovation of the university's Basic Sciences Building, which houses classrooms, a library, research facilities and administrative space. Proceeds were also used to refund bonds issued in 1985 and 1992, according to the official statement.
NYMC is planning to refund the outstanding 1998 bonds. As part of the tax due diligence procedures undertaken ahead of the expected refunding, the borrower examined the ownership and use of the facilities financed or refinanced with the proceeds of the bonds, the event notice said.
NYMC determined that two of the properties refinanced with the bonds were sold in 2005. Under federal tax law, when the properties were sold, the portion of the bonds allocable to them should have been defeased to the first optional call date of the bonds, according to the event notice.
Additionally, a portion of the facilities financed or refinanced with the bonds have private business use that exceeds the limitations set by federal tax law, the event notice said. In order for bonds to be considered qualified 501(c)(3) bonds, no more than 5% of the proceeds can be used for a private business use and no more than 5% of the debt service can be paid by private parties.
About $7.9 million of the bonds will be redeemed with funds provided by NYMC, and the remaining bonds will be redeemed with a portion of the proceeds of bonds that DASNY plans to issue on behalf of NYMC in mid-June, the event notice said.
The tax-law violations occurred prior to NYMC joining the Touro College and University System in 2011. "We anticipate that any penalty arising from the [VCAP] process will not have a material adverse effect on either New York Medical College or the Touro College and University System," Melvin Ness, Touro senior vice president and chief financial officer, said in a statement.
