Quote:
Originally Posted by EdVinMass
Well once again we have some new TOTV members trying to understand the facts of this ‘IRS investigation’ and raising a lot of uncertainties. So I thought a little refresher course is in order, so here goes:
What is the likely resolution to all of this? It won’t be to penalize the bond buyers. That would be way, way, way too complicated. You’d be talking about thousands of bond holders and municipal bond mutual funds and reassessing past tax filings over many years. There’s a much simpler resolution. In fact, it’s the one already proposed by the initial IRS agent.
In a letter dated May 18 2009, IRS agent Dominick Servadio told the Village Center CCD it could settle the audit by redeeming $355.35 million of bonds it issued from 1993 to 1995, paying the federal government at least $2.85 million, and agreeing to refrain from issuing any more tax-exempt bonds. The bonds are ‘callable’ so they can be bought back at any time by the issuer without recourse from the bondholders, but the VCCDD rejected the offer.
The whole IRS investigation is likely to end up in Federal Tax Court for a final ruling. But if the IRS were to prevail and a settlement similar to Servadio’s proposal were issued, who would be financially responsible? It certainly won’t be TV homeowners or the numbered CDD’s that the homes are a part of. It would be the two special CDDs that all of the amenities (exec golf courses, sports courts, pools, and Rec centers) are organized under. And who is the majority land owner of the property in those two CDDs? Why none other than Gary Morse the developer and/or his myriad holding companies. And we know he’s the majority landowner in those two CDDs because he and he alone appoints their board members every year. Now consider this:
When you purchase a home in TV, it is placed under one of the ten numbered CDDs. Each of these CDDs have taxing power over the properties within them, but not against any property outside that CDD. And each year you pay a property tax to your CDD to cover the cost of maintenance of the common grounds. It’s called a ‘Development District Assessment’ and can be roughly $1000-$2000 per year. So that pays for all those beautiful flowers at your village entrance that are replaced 4 times a year, among other things.
Similarly, the two special CDDs have taxing power over the owners of property within them but not property outside of them. Their sole relationship with TV homeowners is a contractual agreement to provide ongoing maintenance of the amenities within them in exchange for a guaranteed monthly amenity fee. And by contractual agreement with you, that fee can never be raised by more than the rise in the Consumer Price Index within a given year. So there’s no capability for the two special CDDs to pass on any substantial settlement obligations to TV homeowners. They already customarily raise the amenity fee by the CPI increase anyway.
And they’re not going to try to siphon off amenity funds by drastically cutting back on maintenance of the amenities. Remember that a few years ago they got a little too cavalier about dealing with mold issues in some Rec centers as well as trying to pass off maintenance of the multimodal paths onto the numbered CDDs that had these paths. The Villages Property Owners Association (POA) sued them and got an out of court settlement of 40 million dollars to be pumped back into the special CDD over the next nine years. The first major benefit of this was the funding of widening of the paths that was just completed.
So while I can’t predict exactly what will happen with this, I can say with certainty and facts what cannot happen and that it will have little if any impact on TV homeowners unless of course they allow some of the fear uncertainty and doubt (FUD) being tossed about, to get to them.
The financial impact of this rests solely with the developer and/or the companies he controls that own the majority of the property within the two CDDs that are being audited by the IRS. And let’s face it, he can afford it.
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The IRS investigation is complicated enough so as to make a brief summary difficult. The above is a good one of the basic facts, including the relationship of the facts in the IRS investigation to those underlying the class-action lawsuit settled by the Developer. However, I would like to make an important addition to the summary, clarify a point about the "Developer", and raise three questions about the conclusions in the last two paragraphs.
First, the addition: It is important to understand that, after the VCCDD rejected the IRS settlement offer, the IRS further expanded its audit (in July 2009) to include all recreational and utility revenue bonds issued by VCCDD, as well as similar bonds issued by Sumter Landing CDD. (The IRS has not included the numbered Districts.)
Second, a clarification about the Develper. I completely agree that the ultimate responsibility rests with the Developer. But having responsibilty is not the same as paying. In the event that the IRS prevails and imposes significant costs on the VCCDD, collecting from the Developer may not be so easy.
In Villagese, we refer to the developer as "he", but the Developer is not a "he". Technically, the Developer is an "it"-- a corporation: The Villages of Lake Sumter, Inc. That corporation is one of a large number of corporations owned by the Morse family, directly or indirectly. I have no idea as to the present net worth of that corporation or what it will be at the time of of a hypothetical IRS victory. In any event, one would think that there might just be resistance to any attempt to "pierce the corporate veil" in order to reach a large enough pool of assets to make the VCCDD whole and to continue the amenity system.
Three questions of EdVin, and they are honest ones:
1. Are you confident that the IRS will not expand its investigation still further?
2. Do you have any information about the present net worth of The Villages of Lake Sumter, Inc. (I don't think the financial statements are public.)?
3. Who do you think will take the necessary legal action to actually collect from the Developer in the event that an IRS "victory" results in the VCCDD not having adequate cash to continue the amenities system? I note that the Developer is sticking the VCCDD with the responsibility for paying the legal fees involved in defense of the IRS investigation and has not issued a word of assurance to Villagers about the possible impact on them of the investigation.
BTW, I have never commented on, and do not intend to do so for the time being, the merits of the IRS case. I also am not saying Doomsday is upon us. My view is that the IRS investigation is a matter with potentially serious consequences for us and that it behooves us to try to understand it, to follow developments, and to be prepared to act IF necessary.
I certainly do not consider myself a Villages "basher", as has been alleged. I have never said anything derogatory about The Villages. In fact, I like it here-- but I don't like to close my eyes to reality.