WASHINGTON — The Internal Revenue Service is auditing $228 million of tax-exempt LIBOR floating rate bonds issued by the Oklahoma Student Loan Authority in 2010 as part of an expanded audit it had initiated last fall on $40.63 million of 2002 bonds.
The audit was disclosed in an event notice the authority filed on the Municipal Securities Rulemaking Board’s EMMA system earlier this week.
In October 2012, the IRS began examining almost $40.63 million of variable rate student loan bonds and notes issued by the authority on Jan. 31, 2002. Those bonds were retired in full on Oct. 6, 2010, according to the authority.
The authority received a letter from the IRS on Jan. 14 requesting additional information on the Series 2002 bonds and notifying them that an examination had been opened on the Series 2010 bonds.
“We are in the process of responding to the additional requests,” the authority said in the event notice. “Previously, the authority had not been audited by the Internal Revenue Service regarding our tax-exempt bond and note issues.”
Sources said the audit was focused on the student loan bonds and not the fact that the 2010 bond rates were based on LIBOR, the London Interbank Offered Rate U.S. and European regulators have taken enforcement actions Barclays and UBS for manipulating LIBOR.
The authority also said it did not submit a settlement request to the IRS under its student loan industry voluntary closing agreement program.
The IRS created the VCAP last Spring as a way issuers could settle tax disputes over whether they improperly reallocated student loans to bonds other than the ones used to finance them.
Steve Chamberlin, acting director of the IRS’ tax-exempt bond office, said late last year that the TEB has been working with 16 issuers under the voluntary closing agreement program.
Under federal tax rules, the yields on student loans cannot be more than 2% above the yields of the bonds that were used to make the loans. The IRS contends some issuers tied higher-yielding student loans to higher-yielding student loan bonds to ensure they stayed under the 2% limit and were not forced to make yield-reduction payments to the federal government.
Representatives with the Oklahoma Student Loan Authority could not be reached for comment.
Kutak Rock LLP was bond counsel for both transactions. Bank of America Merrill Lynch underwrote the Series 2010 bonds and the former William R. Hough & Co. underwrote the 2002 bonds.