Quote:
Originally Posted by EdV
I decided to do a little exercise to get an approximate value of the penalty that might be involved if the VCCDD decides to negotiate a settlement with the IRS.
The press loves to throw the 355 million dollar figure around because it turns head and sells newspapers. But the truth is that the IRS is only staking a claim on the taxes that should have been paid on the interest by the bondholders if the bonds had been issued as taxable municipal bonds.
Keep in mind that these are very rough estimates for discussion purposes (see the attached images). So I looked up the budgets that have been posted for the VCCDD in the current and recent years and with some extrapolation was able to construct a table of values representing the interest paid by the VCCDD starting back in 2003 and continuing through 2012.
Next I computed the tax based on a 29% tax rate. That is rate purported to be the rate that the IRS uses in settlement discussions as reported on page 12 of this document. And finally I added in the interest rate that the IRS used during those years. This yielded the sum total of 43 million dollars in uncollected taxes with interest.
However, if the VCCDD were to refuse to negotiate a settlement and the IRS were forced to go after the bondholders, the statute of limitations limits them to going back only 3 years prior to the year they notify the taxpayer of the deficiencies. So I recomputed the values based on that and come up with a new figure of around 13 million dollars owed to the IRS.
So if a negotiated settlement is reached, I’m guessing it will be in the 10-12 million dollar range.
Now this does not include the actual cost to the VCCDD for buying back the outstanding bonds at their present value and issuing new taxable Muni bonds. But keep in mind that the VCCDD has already paid off over fifty million of those bonds in principal payments to date. |
I think the problem with negotiating a settlement on the previous purchases is that it would impact all future purchases. As I mentioned in a previous post, most of the amenities south of both 466 and 466A have not been purchased by the central districts. If they have to purchase these facilities with taxable bonds that carry a higher interest rate, it could significantly impact the amount that the developer will receive for these facilities.
In reviewing your figures in the first table, the principal amount does not agree with the total bonds issued which is $426 million, not $50 million. I don't know why the budgets would have the principal and interest for these bonds, they were purchased by outside interests, not the central districts.