Quote:
Originally Posted by 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.
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I hope that you are right about it being unlikely that the IRS's not prevailing, but, unfortunately, I don't think that we have any basis for that belief. In fact, the situation seems to be getting worse (no conclusion of the matter, expanded investigation, and the latest IRS finding on the Developer's overpricing of the amenity assets sold to the CCDs). Meantime, we Villagers get no word of assurance from the Developer to the effect that our amenities are not at risk.
In any event, if the bonds are held to be taxable, the bondholders will sue the Center Districts that issued them. The basis for the suits will be that the Center Districts warranted that the bonds were tax exempt. (Refer to the Official Statement for each issue of the bonds.) In other words, the cost of the IRS's sustaining its position will, directly or indirectly, fall on the Center Districts.
If that cost prevents the Center Districts from being financially able to furnish amenities, then Villagers will have to again sue the Developer in order to try to rectify the situation-- which could take time. (By the way, contrary to your post, I think that you will find that pension funds and other tax-exempt entities generally don't buy municipal bonds. This is because the bonds are tax exempt and therefore pay a lower interest rate than taxable bonds. In other words, if the CDD bonds are held to be taxable, the bondholders will very much care.)
Incidentally, for members trying to get a basic understanding of this matter: rather than slogging through the numerous posts on this site, check archived editions of the POA Bulletin. There is an analysis in the September 2009 edition:
http://poa4us.org/bulletins_files/bulletin200909.pdf See later editions for subsequent developments, but that edition basically describes what is still at stake.