WASHINGTON - The Internal Revenue Service is conducting audits of $38.2 million of revenue bonds issued by Howard County, Md., for a continuing-care retirement community and $49.3 million of revenue bonds issued by the Tompkins County, N.Y., Industrial Development Agency for Ithaca College.

The audits were disclosed last week in material event notices filed with the nationally recognized municipal securities information repositories by the borrowers in the transactions.

The Columbia Vantage House Corp., which was the borrower in the Howard County deal, disclosed last week that the IRS initiated an audit of its debt on May 7, but stated in the notice: "It is our understanding this is a random audit."

The bonds were issued in two series. The Series 2002A bonds, totaling $29.2 million, were issued to finance an advance refunding of $26.3 million of revenue bonds that were issued in 2000, as well as to finance administrative costs tied to the issuance of the refunding bonds, according to bond documents. The $9 million of Series 2002B bonds were issued to finance general renovations and improvements to the Vantage House, a continuing-care retirement community.

The corporation also stated in the notice that it and the issuer are cooperating with the IRS, and Vantage House hosted an IRS agent on a tour of the facility on June 10.

The Vantage House audit comes as another CCRC audit has attracted attention in the muni market. The Montana Facility Finance Authority is appealing the IRS' proposed adverse determination that interest earned on $14.15 million of variable-rate demand revenue bonds it issued to finance an expansion of a nursing home is taxable.

The IRS claimed the CCRC's refundable entrance fees, which are common in the industry, constitute "replacement proceeds" whose investment should have been yield restricted for arbitrage purposes.

The Vantage House offers a 90% refundable entrance fee, according to its Web site, but it is not clear from the notice whether the fee is of concern to the IRS. Vantage House officials could not be reached for comment.

Ziegler Capital Markets Group was the underwriter on the deal. Miles & Stockbridge PC and the Law Offices of Addison-Darden PC were co-bond counsel.

The Tompkins County audit was disclosed by Ithaca College, the borrower in that transaction. The bonds were issued to finance the advance refunding of a portion of $54.7 million of revenue bonds issued in 1998 and all of $42.6 million of bonds issued in 1997 to finance the construction and renovation of some campus buildings.

The notice did not state whether the audit was targeted, sector-related, or random, and college officials could not be reached for comment.

The bonds were sold as $9.1 million of 2005 Series A bonds, and $40.2 million of Series B bonds.

First Albany Capital Inc., which was bought by the Jefferies Group Inc., was underwriter on the deal.Harris Beach PLLC was bond counsel. XL Capital Assurance Inc., now Syncora Guarantee Inc., insured the debt.

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