The IRS mission is to collect taxes, and if they determine that the bonds sold were not eligible for tax free status, it seems to me that their recourse is against the buyers of the bonds that did not pay taxes on the interest earned. If that came to pass, the bond buyers would then sue the bond sellers to recover their losses. That would be a very long lawsuit, and would draw in all the players that had a hand in creating and marketing the tax free bonds, including the developer, bankers, accountants and investment advisers. If it was found that the VCDD acted in good faith in selling the bonds, they would be the least culpable in this cast of characters.
Anyway, that's the way I see it.
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