[EdV]

The makeup of the two ‘special’ CDDs that contain all the amenity facilities is that The Developer still controls them via appointed membership on their board of trustees since he still owns a majority of the land that makes up those two CDDs.

Initially, the developer leased the amenities to those CDDs and was paid out of the funds collected from your contractual amenity fees. But over time, the developer has been selling those amenity facilities to the two respective CDDs. I know, I know, sounds like he’s selling them to himself, but that’s what’s been happening and so far it’s legal.

When the developer sold each facility to the CDD, the price was not based on the asset value plus some appropriate value for good will. Instead, the accounting team for the developer based the price on the asset value plus the expected lease revenue that the developer would be expected to receive over a decade or two into the future. But before you jump on this and say ‘that’s outrageous’, remember that those executive golf courses are contractually tied into your amenity fees. In other words, you will be paying for them whether you use them or not. That’s how a 2 million dollar executive course becomes a 20 or 30 million dollar course. The accountants said, ‘you can pays me now or pays me later but either way you pays’.

Why didn’t the developer submit a request to the IRS for approval to issue the tax free bonds? Well, I don’t know all of the possible details of what could or could not have been done but I do know that all of the bonds were posted to the Municipal Securities Rulemaking Board and you can search for them under the names of the two CDDs if you wish: http://emma.msrb.org/Search/Search.aspx

Who will the IRS go after for settlement? That’s actually an easy one in my mind. It won’t be the buyers of those tax free bonds (John Q Public) because the IRS has almost never done that. How about The Developer? Nope, can’t do that either because The Developer merely sold assets that he owned to the CDDs. So the only logical choice would be the two CDDs that issued the bonds as ‘federally tax free’ when they shouldn’t have, according to the IRS agent making the accusations. OK, so now we’re finally getting to the bottom of this. But wait, isn’t The Developer effectively the two special CDDs because it has total control over them? Yes, but remember that I pointed out in an earlier post that no homeowner in TV has nor ever will have any title to or ownership of any part of the amenities including golf courses, recreation centers, etc. Given that, it shouldn’t be a major concern but the press loves a story that involves millions of dollars and they ran with it.

Does this IRS audit threaten the numbered CDDs in TV as well as the 500 or so other CDDs that have been established in Florida? I would like to say that that’s a crock of you know what. But I can’t because I couldn’t possibly know every detail of those entities. What I can tell you is that as far as I’ve seen, the 10 numbered districts in TV that are essentially private homes and that have or will be governed by election of officers to The Board of their respective CDDs is evolving in accordance with the intent of the Florida CDD law and should also be recognized by the IRS as being able to issue tax free bonds.