WASHINGTON — The Internal Revenue Service is auditing $800 million of hospital revenue bonds that were issued by the South Miami, Fla., Health Facilities Authority in May 2007 to finance projects for affiliates of Baptist Health South Florida and to refund previously issued bonds.
In a separate matter, the IRS also has notified Vernon, Calif., that it closed its audit of $360.75 million of electric system revenue bonds issued by the city in May 2009 without changes to their tax-exempt status.
The audits were disclosed in event notices the issuers filed with the Municipal Securities Rulemaking Board’s EMMA system last week.
The South Miami authority said in its notice that the IRS told it in a Nov. 28 letter that it selected the bonds “for a routine examination.”
The proceeds from the bonds were used to provide financing for construction, renovation, and equipping of health care facilities on behalf of Baptist Health South Florida. BHSF controls six not-for-profit hospitals and nonprofit corporations.
A portion of the bonds also were used to refund bonds previously issued by the authority in 1993, 1995, 1998, 2003, and 2004, as well as to pay issuance costs.
The lead underwriter on the transaction was Merrill Lynch & Co., now Bank of America Merrill Lynch. Jones Day was bond counsel, according to bond documents.
The IRS’ Dec. 22 letter informing Vernon officials of its closure of its audit of the bonds is good news for the city, which has had two troubled years.
The city was nearly disincorporated by the California Legislature in September after three of its former senior officials had been convicted of crimes relating to city activities — the mayor for voter fraud and conspiracy, the city administrator for misappropriation of funds, and the director of light and power on a felony conflict-of-interest charge related to the hiring of his wife as a contractor.
The Los Angeles Times reported Wednesday that the law firm Latham & Watkins LLP was paid $7 million this year to help defend the city against disincorporation.
But the IRS said in its Dec. 22 letter, “We have made a determination to close the examination with no change to the position that interest received by the beneficial owners of the bonds is excludable from gross income.”
The proceeds from the bonds were used to refinance obligations payable from the city’s electric system revenues; fund a deposit to the debt service reserve fund; and pay costs of issuance of the bonds, according to bond documents.
Citi and De La Rosa & Co. were underwriters. Orrick, Herrington, & Sutcliffe LLP was bond counsel.
