The Internal Revenue Service has announced plans to audit a $112 million Carmel municipal bond issue, the proceeds of which were used to finance the bankrupt Barrington retirement community.
The bonds were purchased by a securities firm in New York which assumes liability if the bonds cannot be repaid. Correspondence from the IRS indicates the audit may be conducted because of problems with the bonding process or may be only a random audit conducted on municipal issues routinely by the IRS.
The City of Carmel agreed to issue the bonds in order to get Barrington tax-free status as a nonprofit entity.
The Barrington parent company, Mayflower Communities of Dallas, Texas, filed Chapter 11 bankruptcy earlier this year reporting liabilities of $152 million and assets of $97 million. The filing came after Mayflower failed to make three bond payments.
A letter from the IRS to Carmel Clerk-Treasurer Christine Pauley did not say the audit comes about because of the bankruptcy, but the timing would indicate the federal agency’s possible interest in the matter. Under normal circumstances the bankruptcy court would order reorganization and order that bond holders be paid first from any assets.
In some cases, the court can order that a facility be sold if there seems no likelihood of regaining financial stability.
Residents of the upscale retirement center are considered unsecured creditors. The residents paid $250,000 or more as an entrance fee at Barrington with a promise that if they moved or upon death their estate would get most of the fee refunded. They were guaranteed care for their lifetime assuming they paid a monthly maintenance fee.
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