WASHINGTON — The Internal Revenue Service is looking into the tax compliance of $195 million of lease revenue bonds issued by the Pima County, Ariz., Industrial Development Authority in 2008 for a nonprofit borrower that used them to finance the development of a detention facility for Clark County, Nev.
The IRS also has begun auditing $219.2 million of facilities bonds issued in 2006 by the Curators of the University of Missouri, before the university refunds some of the bonds in early May. That audit does not appear to stem from tax problems. The audits were disclosed in event notices filed with the Municipal Securities Rulemaking Board’s online EMMA system this week.
According to the notice filed for the Pima IDA bonds, which was filed by Wells Fargo Bank, the dissemination agent, the issuer responded to a routine correspondence audit request from the IRS on Feb. 7. Then on March 6, the IDA received another letter from the IRS saying it had decided “further development on one or more issues is necessary to determine whether” the bonds are in compliance with federal tax law requirements.
Wells Fargo’s notice was based on a letter it received from Gary Molenda, the designated representative of the nonprofit corporation, Nevada Correctional Services LLC, formerly Community Finance Corp., that borrowed the bond proceeds.
“Neither the authority nor the borrower is aware of any basis for questioning the tax-exemption of the bonds, and [they] intend to cooperate with the IRS in its examination,” Molenda’s letter said.
Steven Russo, a lawyer with Russo, Russo & Slania PC, which represents the IDA, said the detention facility was built and is in operation.
The University of Missouri said it received a notice from the IRS in January saying it had selected $219.22 million of bonds for audit.
“The university is not aware of any issue relating to the Series 2006A bonds that would affect the exclusion from gross income of interest,” it said, adding that it “has been cooperating, and intends to cooperate fully with the IRS in connection with its examination, but cannot predict the outcome of the examination.”
The notice said the university expects to issue refunding bonds on May 2 to refund a portion of the 2006 Series A bonds. Sources said about $75 million of the bonds will be refunded.