IRS Begins Audit of $47 Million of Louisville Airport Authority Bonds

The Internal Revenue Service has begun auditing about $47 million of bonds the Louisville Regional Airport Authority,formerly the Regional Airport Authority of Louisville and Jefferson County, Ky., sold in 2002 as part of its arbitrage-rebate compliance initiative, the authority disclosed Friday.

The IRS is examining $46.8 million of Series 2002 A airport system revenue bonds, the airport authority said in a material event notice sent to the nationally recognized municipal securities information repositories.

The authority said it is cooperating with the IRS in its investigation.

"In its letter to the authority, the IRS stated that it routinely examines municipal debt issuances to determine compliance with federal tax requirements and that it has no reason to believe the bonds fail to comply with applicable federal tax requirements," the authority said in its disclosure notice.

The airport authority's bonds are one of about 200 correspondence examinations the IRS has planned for private-activity bond issuers as part of its arbitrage-rebate compliance initiative. The examinations ask for several copies of documents related to arbitrage rebate, such as rebate computations including bond yield computations, yield restriction analyses, overpayment claims made to the IRS, and any forms filed with the IRS when submitting rebate payments or penalties in lieu of payments.

The IRS in late April opened a similar audit of $59.6 million of the South Dakota Health and Educational Facilities Authority's 2002 revenue bonds and then closed it in less than five weeks later without a change to the bonds' tax-exempt status, which is a relatively speedy turnaround for a service that sometimes takes years with audits. The Illinois Health Facilities Authority disclosed in late-May that $40 million of its revenue bonds were being audited under the initiative.

The Louisville airport authority's bonds were used to refinance two series of bond anticipation notes issued to fund capital improvement costs of the Louisville airport improvement program, according to bond offering documents. First Albany Corp., now Depfa First Albany Securities LLC, was financial advisor. Bear Sterns & Co. was the underwriter on the deal. The bonds were insured by MBIA Insurance Corp. Branch Banking & Trust Co. was the trustee. Ogden Newell & Welch PLLC was bond counsel.

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