[katezbox]

Originally Posted by SNOK

The outstanding question is what happens if the tax exemption is revoked by the IRS? The bond holders will loose the tax exemption and the bond offering documents most likely have provisions setting out what happens to the interest rate, if the tax exemption is revoked. If the interest rate adjusts to compensate the bond holders for a lost tax exemption, there will be a higher cost to someone to fund the cost of the higher interest rates. While it could be possible that the residents would bear some or all of the cost if the district erred, I suspect the developer who benefited from the ability to sell tax exempt bonds will have some of the liability. Also, if the IRS initially approved the tax exempt status, it would have been based on information submitted by the developer and the district. I would think that, in order for the IRS to revoke the status, it would have to contend that the informaiton used to approve it initially was in error. Since that information would have been provided, at least in part by the developer, I suspect the developer would be in line to bear a significant part of any resulting increased cost.

Well said!