The IRS is auditing Wayne County over $200 million in bonds for a jail that was never completed.
The Wayne County Building Authority issued the bonds to construct a new jail in 2010.
The county shut down the project in 2013, after costs skyrocketed beyond original projections.
According to a filing with the Municipal Securities Rulemaking Board, the IRS informed Wayne County it was auditing the bonds "because of information we received from external sources or developed internally that causes a concern that the debt issuance may fail one or more provisions ... of the Internal Revenue Code."
Wayne County spokesman James Canning said the county is "unsure as to the nature or content" of the information.
"Nothing has been brought to [the county's] attention that suggests the bond usage was non-compliant. We believe we've been fully compliant with all the tax requirements," Canning said.
Canning said the county is cooperating with the IRS as it moves through the audit process.
Wayne County pays debt service on the bonds, but the federal government pays the Building Authority tax credits equal to 45% of the interest paid.
The filing says it's not clear whether the audit will result in the loss of the tax credits, which currently total over $36 million.
"Such a loss of the tax credits could materially adversely impact the county's ability to pay debt service with respect to the ... bonds or other obligations of the county," according to the filing.