Quote:
Originally Posted by Lauren Ritchie
snok,
the developer and the district are legally separate entities. the developer will not take a hit on this, unless he decides for reasons of his own that he wishes to become involved. he was simply the seller in a series of transactions, and he has two appraisals showing that the price is reasonable. (the IRS disagrees with the appraisal methods, but that only goes to the issue of whether this was an 'arm's length' transaction. the IRS doesn't care whether the district overpaid.)
the IRS is NOT investigating gary morse. as i've said in other posts, he paid taxes on his gains. he is not liable for any taxes on the bonds because he didn't issue the bonds -- your district did.
think of it as selling a car....if you sell a car to someone who gets a loan, you get paid, right? if later, the bank realizes that the person paid too much for the car and maybe didn't fill out the loan forms right, the car doesn't come back to you, does it? well, it's the same here.
these sales were structured so that morse is simply a willing seller and the district a willing buyer.
any "liability" that morse might have would have to come from a judgment in court...if someone takes him there. but it won't be the IRS.
hope that helps.
lauren
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I understand that the IRS is not investigating the developer. I am not referring to his taxes on his gain, but to the amount of the gain itself, and wether it was properly calculated, if the cost of financing is changed. While the district is a separate entity, the sale to the district was not an arms length transaction due to the effective control of the district by the developer. The developer was in control of the valuation of the assets and, even if not the entity arranging the financing, certainly very influential in the financing. I think the asset value paid by the district was, at least to some extent, dependent on the lower cost of the tax-free financing to the purchaser. Therefore, the developer profited to some extent from the financing method used. While the developer is not subject to the IRS ruling, I still think the district will have a legitimate claim against the developer for unjust profits based on over valuation of the assets, if the district loses the benefit of low cost tax-free financing. I'm sure there are lawyers that could make a good case if it comes to it. I also suspect that, before the cost is ultimately born by the residents, it will be an issue that must be investigated by the district.