The Internal Revenue Service is auditing $100 million of general obligation bonds that the Reading School District in Berks County, Pa., issued in 2005 to finance school construction and improvements.
The IRS notified the school district of the audit in a letter dated March 16, according a material event notice posted on the Municipal Securities Rulemaking Board’s EMMA system that disclosed the audit.
The IRS told the school district that it routinely examines muni debt issues to determine compliance with federal tax requirements and asked for information and documents, including the closing transcript for the bonds, according to the notice.
“The school district is in the process of providing the information requested in the IRS letter ... and will cooperate with the IRS in the course of its examination,” the event notice stated.
“While the IRS letter appears to be a random audit and does not specify any particular concerns or violations, if the school district is found by the IRS to have violated the tax laws in connection with the 2005 bonds, the 2005 bonds could be declared taxable and a tax liability could be assessed against the holders of all or some portion of the 2005 bonds.”
The notice was submitted by Concord Public Financial Advisors Inc., the financial adviser on the transaction.
The bonds, which were rated triple-A, were issued to finance school building construction and improvement projects, capitalize the interest on the bonds, estimated at about $9.9 million, and pay projected issuance costs of almost $1.3 million.
The bonds were payable from the school district’s tax and other general revenues but also were insured by Financial Security Assurance Inc., which was acquired by Assured Guaranty Ltd. in 2009 and has been renamed Assured Guaranty Municipal Corp.
The bonds were underwritten by Wachovia Bank NA and Sovereign Securities Corp., both in Philadelphia. Bond counsel was Stevens & Lee in Reading.
Goldman Masano & Bradley, now Masano Bradley, in Wyomissing, Pa., and Brumback, Mancuso & Fegley PC represented the school district.
Neither school district officials nor a principal at Concord Public Financial Advisors could be reached for comment.
