[clekr]

IF the agent's ascertain that the bonds are tainted due to the relationship between the developer and the CDD's this just means that the interest paid on the bonds is taxable to the purchasers of the bonds. Nothing more. Also, most bonds of this type are purchased by pension funds and insurance companies. Since pension funds don't pay taxes anyway it is irrelevant to them. Tongue in cheak - most insurance companies don't pay taxes either. To the extent that the interest would then be taxable in the hands of a purchaser who thought it was going to be nontaxable whether or not they would have recourse against the issuer (the central CDD's) only a bond attorney could answer. Or, there may be terms in the bonds themselves that address this.

Having had some experience with the IRS and the its administrative appeals process, I think it highly unlikely the agent's postion will be sustained. Particularly in light of the fact the Service previousiy approved a prior bond issue after a similar examination process.