In an action that could affect numerous transactions across the country, the Internal Revenue Service has determined that revenue bonds issued by a New Jersey authority for the Deborah Heart and Lung Center are taxable because the borrower entered into a total return swap.

The IRS' "proposed adverse determination," disclosed by the center (the borrower) in a material event notice filed with EMMA, is likely to spell trouble for a number of conduit deals in which the borrowers, including many hospitals and health care providers, entered into total return swaps after bonds were issued.

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