WASHINGTON — The Internal Revenue Service is auditing the tax-exempt bonds in a number of conduit deals where the borrowers entered into total return swaps and is questioning whether the bonds may be taxable because of arbitrage rule violations, market participants said Monday.

The first IRS audit of this kind to publicly surface involves $16.6 million of revenue bonds issued by the New Jersey Health Care Facilities Financing Authority in 1994. The conduit borrower, which was originally the Jersey Shore Medical Center Obligated Group but is now Meridian Hospitals Corp., entered into a total return swap with a dealer in 2006, sources said.

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