The Internal Revenue Service has closed audits of bonds issued by North Las Vegas in 2006 and a Texas board in 2002 without any change to the tax-exempt status of the bonds. However, the IRS found arbitrage yield calculation errors with the city's bonds said if they are not fixed, penalties or a finding of taxable interest could ensue.

North Las Vegas officials and the Texas Water Development Board and disclosed the IRS actions in event notices filed with the Municipal Securities Rulemaking Board's EMMA system.

Under audit were $105 million of North Las Vegas' general obligation (limited tax) building bonds and $62.985 million of the Texas Board's Series 2002B water financial assistance and refunding bonds.

The North Las Vegas bonds were used to finance the acquisition, construction and improvement of a civic center plaza and other building projects, according to the official statement.

JPMorgan was underwriter. The Nevada State Bank Public Finance was financial advisor and Swendseid & Stern, a member of Sherman & Howard LLC, was bond counsel. The bonds were insured by MBIA.

In a Feb. 11 letter to city officials, Allyson D. Belsome, manager of field operations for IRS' tax-exempt bond office, said that an agent found "errors in arbitrage yield calculation" and that further noncompliance could result "in penalties and/or the taxability of interest" received by bondholders.

"Generally, proceeds transferred between internal funds will not result in the amounts transferred being considered spent on the date of transfer for purposes of computing arbitrage," Belsome said in the letter. "As a result, certain proceeds transferred from the City Hall Fund to the Library Construction Fund and/or Mitigation Fund should not generally be treated as spent on the date of the internal fund transfer."

The error does not mean the city has to rebate any additional arbitrage, Belsome said.

But she urged the problem be corrected, warning another examination of the bonds could be opened.

The Texas board's refunding bonds were used to refund some outstanding water development bonds.

The underwriting syndicate was led by Salomon Smith Barney, the financial advisor was First Southwest Co., and the co-bond counsel were McCall, Parkhurst & Horton, LLP and Delgado, Acosta, Braden & Jones, PC. The attorney general of Texas also provided a legal opinion on the bonds. Vinson & Elkins was underwriter's counsel.

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