IRS auditing 2009 bonds issued for Texas senior living facility

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The Tarrant County Cultural Education Facilities Finance Corp. in Texas reported Thursday in a public filing that the Internal Revenue Service is auditing bonds it served as a conduit issuer for in 2009 for construction of a senior living facility in Dallas.

The public filing on the Municipal Securities Rulemaking Board EMMA database came the day after the conduit issuer received a letter from the C.C. Young Foundation that it was notified of the audit by the IRS almost three months ago in an Oct. 22 letter.

“Based on the information and documents requested, C.C. Young management believes the bonds were randomly selected in connection with a routine examination,” the letter said. “Management has no reason to believe that the examination was targeted to the bonds.”

The C.C. Young letter also specifically says the audit involves the four CUSIPs for the $53.995 million in bonds it issued in 2009.

The official statement for the $53.995 million issuance said it consisted of $26.995 million in Series 2009A fixed-rate bonds, $10.6 million in Series 2009B-1 tax-exempt mandatory pay-down securities, and $16.4 million in Series 2009B-2 tax-exempt mandatory pay-down securities.

“C.C. Young’s management is fully complying with the IRS’s requests, and will provide additional information as it becomes available,” the EMMA filing said.

The proceeds of the bonds were used for the construction of a 232,100 square foot residential facility with 108 living units located on the main campus of an existing facility in Dallas known as The Overlook.

The $58 million project, according to the official statement, was to be financed with $53.995 million in bonds, $703,699 in obligor contributions and $4 million in resident entrance fees. They also have been subject to optional redemption since February 2015.

The Tarrant County Cultural Education Facilities Finance Corp. served as the conduit issuer for the Retirement Facility Revenue bonds.

The bonds were issued for the development of a new senior living facility for low-income seniors on Umphress Road in southeast Dallas by the nonprofit C.C. Young Foundation.

The foundation already owned a retirement community known as C.C. Young in northeast Dallas with 131 independent living units, 66 assisted living units, 47 memory care units and a 134-bed nursing home.

The foundation was incorporated in 1922 as an affiliate of the North Texas Conference of the United Methodist Church. According to the official statement, its local volunteer group known as the “Auxiliary” is “dedicated to involving its members in the mission of the community, to serve as a voice in the local churches and local community, to promote volunteerism, and to provide funds in support of its ministries including, but not limited to, sponsoring speakers and soliciting funds.”

However, the OS said that neither the North Texas Conference of the United Methodist Church nor any individual church has any financial liability in connection with the bond issue.

This latest public announcement of an IRS audit does not appear to fit within the parameters of the service’s 2020 fiscal year compliance strategy which is focusing on three areas.

The 2020 strategy includes audits of jail bonds in respect to whether federal government use of locally built facilities or management contracts with localities cause excessive private business use.

Also part of the 2020 strategy is whether sinking fund over-funding causes the tax credit bonds to be arbitrage bonds.

And last area is whether variable rate bonds comply with the rebate and yield restriction rules under Internal Revenue Code Section 148.

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Tax audits Tax-exempt bonds Tarrant County Cultural Education Facilities Finance Corp., TX IRS Washington DC Texas