WASHINGTON — The Internal Revenue Service is questioning the tax-exempt status of $9.95 million of industrial development revenue bonds that were issued by the New York City Industrial Development Agency in December 2007 in a conduit transaction so that Metro Biofuels LLC could finance the construction of a biodiesel plant.

The IRS sent the issuer a “Notice of Proposed Issue” on July 25, warning that the bonds might not be tax-exempt qualified small-issue IDBs because Metro Biofuels may have violated a tax law limit of $20 million on capital expenditures made in the county, according to an event notice the NYCIDA filed with the Municipal Securities Rulemaking Board’s EMMA system.

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