The Internal Revenue Service has closed an audit of $15 million of variable-rate demand solid-waste disposal revenue bonds issued in 2003 by Gilliam County, Ore., with no change to their tax-exempt status. Meanwhile, the IRS has initiated an apparently random audit of $76.4 million of utilities system revenue and refunding bonds issued in 2002 by Brownsville, Tex.
The city disclosed its examination late Monday, and Gilliam County's borrower, Waste Management Inc., disclosed the conclusion of the audit last week. Both filed material event notices with the nationally recognized municipal securities information repositories.
Brownsville said it received a letter from the IRS dated March 23 announcing the beginning of a random audit of the bonds, which were issued in two series on Nov. 19, 2002. In its response to the IRS, Brownsville notified the agency that the bonds are no longer outstanding. They were fully redeemed on May 15, 2008, according to Thomson Municipal Market Monitor.
A.G. Edwards & Sons Inc., was underwriter on the $38.2 million of Series 2002A bonds, and UBS PaineWebber Inc., now UBS Securities LLC, was underwriter for the $38.2 million of Series 2002B bonds, according to bond documents. Fulbright & Jaworski LLP was bond counsel, and First Southwest Co. was financial adviser.
Waste Management says in its notice that it received a letter from the IRS dated April 8 stating that its examination is complete and the bonds would remain tax-exempt. The examination began March 16, 2006, according to the notice.
The bond proceeds were loaned to Waste Management to finance two solid-waste facilities in the county, as well as two additional sites located elsewhere in Oregon, according to bond documents.
That audit marks the latest IRS action involving a number of deals for which Waste Management served as a borrower. In October, the agency determined that the Arkansas Development Finance Authority did not violate tax laws when it issued $15 million of tax-exempt facility bonds and loaned the proceeds to Waste Management.
However, a second Waste Management deal in Gilliam is apparently still under audit. The IRS is still examining $25 million of solid-waste disposal bonds issued in 2002 for which Waste Management was the borrower.
The examinations appear to have stemmed from a nationwide IRS initiative to examine solid-waste disposal facility revenue bonds, including $10 million of solid-waste disposal revenue bonds issued in 2003 by the Nevada Department of Business and Industry.
Despite the scrutiny, the IRS has noted at the outset of each of the audits that it had no reason to suspect the bonds violate tax law, according to material event notices.
Banc of America Securities LLC was underwriter on the deal, according to bond documents. Orrick, Herrington & Sutcliffe LLP was bond counsel.