What does an IRS audit examine in relation to bonds?

An IRS audit focuses primarily on ensuring compliance with regulations related to the issuance and management of bonds. This includes examining whether the governmental or nonprofit entities that issued the bonds are adhering to federal tax regulations, particularly in regard to the use of proceeds and the ongoing compliance with tax-exempt status requirements.

The IRS is particularly concerned with factors such as how bond proceeds are spent, whether the bonds maintain the proper use in accordance with given regulations, and whether the issuer is properly reporting the bond's tax status. Compliance issues could include the restrictions on private use of bond-financed facilities and the maintenance of required records.

In contrast, although interest rates, market values, and reinvestment strategies are important in the context of bond investments, they do not typically fall under the purview of what an IRS audit would scrutinize when it comes to compliance with tax-exempt bonds. Instead, the primary focus of the audit is on debt compliance for regulations to ensure adherence to the legal framework governing tax-exempt financing.