[Stantheman]

Lauren,

Since you appear to be the most knowledgeable on the subject at this time who is supplying us information, using your non-legal best guess is there any conflict between Florida law that established the VCDD (S) throughout Florida, and the preliminery IRS determination that the closeness between the Developer appointed supervisors and the "government-like" VCDD is what is putting the tax-fee status in jeopardy?

My understanding is that through the years the Florida Courts have sided with the Developers ability to choose the supervisors despite the obvious conflict of interest. If I read this correctly then is there a possibility of a state vs. federal conflict and a supreme court challenge? or am i reading a heck of alot more then is necessary in this issue?

If so, can the Developer retroactively allow residents to choose the supervisors today and thus make the past bonds "tax-free"?

your thoughts please

[Lauren Ritchie]

edvinmass,
to clear up the questions of the developer being the district and vice versa.

the IRS has been trying to prove the developer IS the district in the sense that he exerts considerable control over it, not that he is [I]legally[I] one and the same entity. the IRS' attempt to prove that is in the context of whether these are 'arm's length' transactions, not whether the district and the developer are legally the same critter.

legally, they are separate entities, and i don't there anyone has raised a question otherwise. hope that helps on that issue.

ed, you are totally correct that the two powerful CDDs do not have ad valorum taxing power outside their geographic boundaries and that their only real source of income is the amenity fees, which they receive because they've bought the rights to receive them. the amounts of amenity fees, i believe, are tied to the consumer price index by a covenant in your deeds.

one last thot -- i don't disagree with your common sense conclusion that the district and the developer are one, even tho i know that legally they aren't. however, don't let janet tutt hear you say that the district is morse's government. she will chop your tongue off. the district very carefully preserves the distinction that the developer and the district are totally separte -- which, of course, is totally what the developer wants. the last thing he needs right now is for someone to prove that they are one and the same.

opus - regarding the bond counsel that gave the opinion that the bonds are A-OK. you are right on. that is one of the things that bond experts i've been talking to all week are buzzing about. of course, it's not automatic...someone has to take them to court. the one thing you have to realize is that this proably will not affect other CDDs. i don't know of any others in florida that have "perverted" the law (to us the IRS agent's phrase) in the way that these have to enrich the developer. the irregularities are what attracted the IRS to these bonds, along with the blue sky purchases.

12rideHD -- you have hit the main issue on the head. what the IRS is trying to force is for the CDD to issue taxable bonds. however, your spread may be a little off. the bonds experts i've been on the phone all week with are saying that the district may end up paying a pretty serious premium for past transgressions -- IF they can get money in the market. however, by the time this shakes out, the market could be in better condition. let's hope.

chuckinca -- you ask if the developer had influence over the district and the district issued the bonds, why isn't the developer liable? jimjoe who responded is correct. what we've been discussing here is tax liability, not general liability. morse bears no TAX liability because he is a separate legal entity. he paid his taxes on profits he made from the sales. if this were to somehow come back on the homeowners and they sued, the question of whether the developer might be liable in court is a different one.

my guess is that it all boils down to whether morse wants to keep developing here. (he does have another 'downtown' district already approved and ready to go). if he wants to keep going, i suspect he's going to have to step up in some way and help settle this. if not, i think he could walk away without fear of repercussion, at least from the IRS. (remember -- he paid taxes on gains from the sales) what the homeowners might do is another issue. this all comes from that oh-so-convenient (for morse) arrangement where he gets to control a government of his own, including perks that go with it like tax exempt bonds. that's the "perverted" part of this to which the agent referred. others CDDs in florida have migrated the power of the governmental district from the developer to the homeowners.

hope that all helps.

steve, sorry if we're boring you. i realize your interest in this is your pocketbook and lifestyle. other folks, however, have broaders interests in it, including some pretty fascinating public policy questions if you're intrigued by that sort of thing. i'm pretty much of a political science junkie, so i find the whole situation with its tentacles nin private/public partnerships worth consideration. it's certainly unique situation, even though districts such as this one exist elsewhere, such as calfornia. i'm looking at some of those this week and will write something if i find anything that might have a bearing on this particular situation.

[Lauren Ritchie]

Stantheman,

there's no "conflict" between florida law and federal law because they address different things.

florida law creates a community development district and gives it power to issue bonds. i do not believe the law says does not say "tax exempt bonds."

the federal tax codes specify what makes a bond issue meet the test of "tax exempt." the IRS is applying the code to this issue and saying that it doesn't meet the test.

the district's defense is that it is a government under florida law and as such, it should be able to issue tax-exempt bonds.

the IRS says that argument is specious. its response: 'well, you might be a government under florida law, but state law doesn't matter to us when determining whether bonds are tax exempt. the two do NOT necessarily go together.'

that is what the agent meant when when he declared that the district's attorney archie lowry had made an "irrelevant" argument.

the IRS has a set of tests that it applies to any bond issue anywhere in the united states. pass, and it's tax-exempt. fail and it's not.

so, at the end of the day, these bonds could be declared formally as taxable and the district is still just as much a valid government under florida law as it was yesterday.

hope that helps.

--lauren

[villages07]

I've been reading this thread with a lot of interest. Although I don't always agree with Ms Ritchie's editorial slant, it appears she has done a lot of homework on this topic. I agree with SteveZ..only time will tell.

A couple of other points to ponder...

1. The 2003 tax exempt recreation bonds in question were probably issued at 6+%; If they had to be paid off now and re-issued as taxable at today's bond market rates, they might go out at 5%; the net result to a bondholder is probably a wash. 6+% tax exempt interest is probably equivalent to 5% taxable. And, wouldn't the central districts benefit by issuing bonds at lower rates?

2. The bigger issue to me, beyond taxable vs tax exempt, is the nature of the transaction...i.e. the value the central districts and developer put on the amenities being sold to the district. These certainly don't appear to be arms length's transactions and the price paid is so far above the cost to construct that it does smell fishy. And, since the supervisors are the developer's people, the residents get no say so in the transaction.

3. Lastly, and this may be petty.... but Agent Servidio works out of an IRS office in Salisbury, MD a small city on the eastern shore of Maryland about a 100 miles from DC. Not to belittle him or his office, but, I find it hard to believe that he or they will have the final say so in this. The Morse family has a lot of powerful allies in Washington (not as many now as they did a year ago) so I tend to believe someone higher up in the bureaucracy will quash this.

[SteveZ]

Originally Posted by Lauren Ritchie

....

steve, sorry if we're boring you. i realize your interest in this is your pocketbook and lifestyle. other folks, however, have broaders interests in it, including some pretty fascinating public policy questions if you're intrigued by that sort of thing. i'm pretty much of a political science junkie, so i find the whole situation with its tentacles nin private/public partnerships worth consideration. it's certainly unique situation, even though districts such as this one exist elsewhere, such as calfornia. i'm looking at some of those this week and will write something if i find anything that might have a bearing on this particular situation.

Ms. Ritchie,

On the contrary. This is far from boring, but is still a matter of considerable conjecture.

What is surprising is "why now?" regarding these bonds, which were issued several years ago, in broad daylight, in full public view, and with IRS visibility? What has changed in the last 5-6 years to make this matter, especially well after-the-fact in the bond sale, important now versus then? It's not that IRS is any "smarter"or that the bonds have morphed into something other than what they were advertised to be, or that The Villages' structure is any different now versus then. Is there a political reason why this is now coming forward?

In all of the information on this matter, and I may have missed reading some things along the way, I haven't seen anything regarding the above questions. As a "political science junkie," it would seem the prior questions would be of interest.

And yes, "pocketbook and lifestyle" are important to many retirees. Getting out of the rat race brings with it a lot more focus on those things. In fact, both are so important that if you and yours desire to roam north a few miles to Lake Sumter Landing some evening, the first of the $1.75 Margaritas are on LindaZ and me.

[djl8412]

Panic over the on-going Villages CDD vs. IRS issue is certainly not adviseable, but neither is an attitude of becoming totally disconnected with events that could potentially impact your life.

It just amazes me how some look at hundreds of millions of dollars in possible CDD liability to satisfy the IRS as if it's a mere check for dinner at a local restaurant.

Again, we see examples of the automatic, knee-jerk "disgruntled reporter" response to information being provided by the fourth estate, as is their responsibility. Do these reporters have axes to grind with all of the subjects and/or individuals they write about. I don't think it's possible to manufacture that many axes.

IMHO, being informed and making rational decisions is a great balance. Making off-the-cuff, unsubstantiated insults because the news may not suit you is not a rational exchange.

[SteveZ]

Originally Posted by djl8412

Panic over the on-going Villages CDD vs. IRS issue is certainly not adviseable, but neither is an attitude of becoming totally disconnected with events that could potentially impact your life.

It just amazes me how some look at hundreds of millions of dollars in possible CDD liability to satisfy the IRS as if it's a mere check for dinner at a local restaurant.

Again, we see examples of the automatic, knee-jerk "disgruntled reporter" response to information being provided by the fourth estate, as is their responsibility. Do these reporters have axes to grind with all of the subjects and/or individuals they write about. I don't think it's possible to manufacture that many axes.

IMHO, being informed and making rational decisions is a great balance. Making off-the-cuff, unsubstantiated insults because the news may not suit you is not a rational exchange.

First of all, there is no "hundreds of millions of dollars in possible CDD liability" here. At the greatest possible extent, there is tax on bond interest, and that is truly negotiable as IRS' hands are not squeaky clean here. Call of the bonds, and reissue as taxable has a cost, but in today's market, bonds are popular.

What has been at the crux is the presentation of the information in a manner which inflames and creates (albeit unintentional ) a measure of panic among a target demographic. There is a distinct difference between "fact presentation" and a columnist's license to interject opinion within a writing. While the columnist has been professionally correct in her actions, that does not discount the fact that people have been frightened at a time they hoped to have achieved their greatest security. Again, there's a significant difference between "news" and "commentary."

Is there anything to be frightened of? I guess that depends on the person, and the facts, and the real consequences ( not the insinuated ones). To each their own, and to me (and speaking only for me) there is nothing that has occurred which has shaken my decision to move to TV or to continue living in TV. As nothing has appeared to have been done with "bad faith" or "criminal intent," - and if there was, the warrants (search and arrest) would have already been served - then its one of those "stuff happens" despite the best advice from competent counsel. What is lousy (and mighty peculiar) is that, for whatever reasons, this becomes an IRS matter so many years after the bonds were issued and sold.

[ricthemic]

I think if they ever allow Villages voting for district (what ever they call themselves) reps, Steve Z should be elected.

[SteveZ]

Originally Posted by ricthemic

I think if they ever allow Villages voting for district (what ever they call themselves) reps, Steve Z should be elected.

I'm too politically incorrect for almost everyone (but my dog likes me)......

[djl8412]

Originally Posted by SteveZ

At the greatest possible extent, there is tax on bond interest, and that is truly negotiable as IRS' hands are not squeaky clean here.

What is lousy (and mighty peculiar) is that, for whatever reasons, this becomes an IRS matter so many years after the bonds were issued and sold.

Can you elaborate on why the IRS' hands are not squeaky clean? Is it possible that the IRS agents back in 2003 could have been pressured to "back off" of this investigation then? If I recall, the IRS, while supposedly not finding direct violations, did hint that they still had concerns about how these bonds were being issued?

I too, have not been concerned to the point where I would leave TV. but I would never assume it's impossible that much more in the way of $ could be at stake in the future, especially if this becomes a "urinating" contest between the two parties.

[Advogado]

Originally Posted by djl8412

Panic over the on-going Villages CDD vs. IRS issue is certainly not adviseable, but neither is an attitude of becoming totally disconnected with events that could potentially impact your life.

It just amazes me how some look at hundreds of millions of dollars in possible CDD liability to satisfy the IRS as if it's a mere check for dinner at a local restaurant.

Again, we see examples of the automatic, knee-jerk "disgruntled reporter" response to information being provided by the fourth estate, as is their responsibility. Do these reporters have axes to grind with all of the subjects and/or individuals they write about. I don't think it's possible to manufacture that many axes.

IMHO, being informed and making rational decisions is a great balance. Making off-the-cuff, unsubstantiated insults because the news may not suit you is not a rational exchange.

To djl8412:
You (and Lauren Ritchie) are right about this matter. The implications are POTENTIALLY huge for Villagers, but it is still too early to say how the matter will play out. Unfortunately, the posters who ascribe the IRS's position to a low-level agent gone wild are overly optimistic about what is going on and misinformed about how the IRS operates. The current investigation is, in fact, part of a well-organized, national IRS crackdown on perceived abuses in the issuance of tax-exempt bonds. One can be fairly certain that a matter of this size is receiving high-level IRS attention.

To try to put this in perspective, set forth below is an attempt to quantify the costs and analyze the consequences of an acceptance of the IRS settlement offer, based on what we know now. Remember, if this settlement offer is turned down, the IRS is threatening to go after even bigger bucks.

According to the IRS, the current TOTAL tax exposure on all Series of bonds is $16,458,484. The first condition in the IRS settlement offer is that the IRS will settle for just "the tax exposure for the Series 2003 bonds", which is ONLY $2,877,366 plus post-2008 taxes that accrue until the bonds are redeemed.

The real cost, however, to the Central Districts (the owners and providers of our amenities) and to the Developer (technically, the Villages of Lake Sumter, Inc.-- a corporation that is owned by the Morse family) lies in conditions #2 and #3 of the IRS settlement offer:

Condition 2. The Center Districts would have to buy back about $360 million of outstanding bonds. How do the Districts raise this money? They would either have to (a) tax properties within their Districts, i.e., the Developer's properties, which the Central Districts obviously won't voluntarily do, since they are controlled by the Developer and, in any event, the Developer does not have $360 million in cash lying around, or (b) sell taxable bonds. Taxable bonds will presumably have to pay a higher interest rate than the Districts are currently paying on the tax-exempt bonds. How much more? I don't know since it would depend on the bond market, and the financial condition of the Central Districts, when the bonds are issued.

In fact, one would think that, with their underlying history, such taxable bonds might be a little tough to sell at all. But let's assume the cost is an extra 3%/year, which seems reasonable, over the interest now paid. That would be an extra ANNUAL cost of about $11 million. Amenity-fee increases are contractually capped at the CPI rate. So, how do the Central Districts cover this additional cost and still provide our amenities???

Condition 3. The Center Districts can no longer issue tax-exempt bonds. The Developer's strategy has been based on the ability of the Center Districts to issue low-cost tax-exempt bonds to pay the Developer for physical-amenity assets and for the assignment of the amenities' contracts, the latter resulting in a huge profit for the Developer. What happens to the future viability of the Developer's business model if that ability is lost???

The answers to the questions arising out of #2 and #3 are unclear at this point. If there is an attempt to offload the additonal costs on the Villagers or if the amenities that we were all promised by the Developer are reduced or destroyed, then another class action against the Developer, as well as against the two Central Districts and the others involved in the bond transactions, may be necessary. In that case, as an earlier Poster said, "Thank God for the Property Owners' Association."

[katezbox]

... but I have to agree with Steve Z and V07.

We could speculate about this endlessly - and generate lots of heat but very little light.

IRS agents are people too - just like folks at Bear Stearns, et al. They can be ambitious and lose perspective in their quest for promotion, or to be kinder, justice.

We can read about this and learn the facts - keeping in mind that Ms, Ritchie is ONE viewpoint. Or, we can gnash our teeth and worry ourselves into a frenzy, while in reality we are some of the luckiest people in the world to live in this place.

In the meantime, offers will be made, negotiated, refuted or accepted. We have little (if any) influence in this. We do have influence over ourselves, and I don't plan to ruin a single day of my life worrying over this.

Kate

PS - and lest I be accused of burying my head in the sand... I am a CPA who has actually been involved in the issue of tax free bonds.. so have personally dotted the i's and crossed the t's etc.

[SUNNYMARYANN]

I hate to admit my ignorance but this is all way over my head. I have never been intereted in bonds or political issues and that is to my disadvantage. I am waiting to sell my house in La and a devout Wannabee to TV. My concern is whether this issue is going to someday affect the homeowners in TV in their pocketbooks? I was already surprised to learn about the 'bond' involved in buying into TV and had never heard of it anywhere else. This latest dialogue involving the IRS and taxable non-taxable bonds is making me think perhaps TV in not the right place for me on a retirees income. I dont want anymore $$$ surprises than life already throws my way.

[katezbox]

Originally Posted by SUNNYMARYANN

I hate to admit my ignorance but this is all way over my head. I have never been intereted in bonds or political issues and that is to my disadvantage. I am waiting to sell my house in La and a devout Wannabee to TV. My concern is whether this issue is going to someday affect the homeowners in TV in their pocketbooks? I was already surprised to learn about the 'bond' involved in buying into TV and had never heard of it anywhere else. This latest dialogue involving the IRS and taxable non-taxable bonds is making me think perhaps TV in not the right place for me on a retirees income. I dont want anymore $$$ surprises than life already throws my way.

Mary Ann,

The bond associated with your home in TV is a common practice in many areas.

Again, we can speculate until the Buffalo "come home" but it is just speculation.

There are a couple of threads on this topic that may be worth a search for your own piece of mind. I went through some basics of how bonds work a couple of times.

[graciegirl]

Originally Posted by katezbox

... but I have to agree with Steve Z and V07.

We could speculate about this endlessly - and generate lots of heat but very little light.

IRS agents are people too - just like folks at Bear Stearns, et al. They can be ambitious and lose perspective in their quest for promotion, or to be kinder, justice.

We can read about this and learn the facts - keeping in mind that Ms, Ritchie is ONE viewpoint. Or, we can gnash our teeth and worry ourselves into a frenzy, while in reality we are some of the luckiest people in the world to live in this place.

In the meantime, offers will be made, negotiated, refuted or accepted. We have little (if any) influence in this. We do have influence over ourselves, and I don't plan to ruin a single day of my life worrying over this.

Kate

PS - and lest I be accused of burying my head in the sand... I am a CPA who has actually been involved in the issue of tax free bonds.. so have personally dotted the i's and crossed the t's etc.

Kate. Very good advice indeed.
I used to think that I was in charge of the universe. When I quit believing that, it continued on. We can't ruin our lives over this.

Kate. You are my kinda gal!