Advo.... that $955M might be the total of bonds issued ... utility, infrastructure, and amenity ... but, certainly, folks realize that not every dollar of bond issue went into the Developers bank account. The bonds were issued to construct the infrastructure, construct the wastewater treatment facilities, construct golf courses and rec centers, etc. Those costs are a substantial part of the $955M, the developers net profit the remainder.

As to the question of bondholders.... most of the original bond purchases were done by mutual funds, hedge funds, and other high dollar or institutional investors. Over time, these entities have sold off bonds that have been purchased by smaller individual investors, so there is a mix.

I have purchased the numbered district CDD bonds from the resale market. I declined an opportunity to buy 5% tax free recreation/amenity bonds because of the uncertainty with the IRS investigation.

I can understand the IRS's concern about a developer controlled board issuing tax-free bonds...it does seem to stretch the definition of local government. I don't understand why this wasn't addressed when the bonds were first issued. The valuation method used for the amenities can be argued from all sides... the good news is future purchases of amenities will undergo much closer scrutiny.

Time will tell how this gets resolved. No reason to panic, but, good reason to stay informed.

Always informed, reasonable and well thought out posts from this poster. Always.

According to a schedule prepared by the Center Districts and presented to the the IRS, here are some numbers for the amenity purchases:

Principal Amount: $426,600,000
Net Proceeds: 332,057,406
Book Value: 80,016,561

Principal Amount equals 5.33 times Book Value
Net Proceeds equals 4.15 times Book Value

As you can see, the costs (Book Value) is NOT a substantial amount of the funds received for the amenity purchases. The difference between the $955M mentioned in the article and the $427M amenity purchases probably represents the infrastructure bonds issued by the number CCD's and which were never questioned by IRS.

The concept of tax free bonds goes way beyond this and probably amounts to many billions or trillions of dollars around the country. Sure, the net recipient of these dollars are the developers who build the public swimming pools, airports, parks, etc. However, the PRIMARY beneficiaries of the tax free nature of these bonds is the general public who pay them off - whether it be in the form of property taxes in most municipalities or, in our case, the amenity fees. So, if Congress wants to eliminate the tax advantage of these bonds, it will be the general public (who they are supposed to represent) that would be hurt the most. Yes, the developers will also be hurt to a limited extent because some worthwhile projects won't be done because the cost to pay for them will go up as a result of the higher cost of debt ... but it is the public that will have to do without that park or airport or bridge.

None of the things you mention are for-profit businesses, such as public swimming pools, airports, parks, bridges. Isn't that the difference between tax-free or taxable bonds, one is for non-profit and the other is for for-profit?

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.

Did the legal opinion attached to these bonds indicate that the IRS may have a different opinion of the taxable status of the bonds or were these purchasers totally in the dark about the possibility that the bonds may be declared untaxable? How about the liability of the sellers of these bonds, the brokers, who may have had some idea of what they were selling but did or did not disclose these facts to the purchasers? This has been in the news one way or the other for the last 10 years and these brokers should have disclosed these facts to purchasers. If they were disclosed, then the owners of these bonds could be held accountable to pay any taxes that may be due. The IRS may be focusing on the wrong people in going after Morse and the VCCDD if Morse was relying on professional legal advice. People differ with the IRS every day and in many cases they win.

Where did you get that idea?

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.

You’re misunderstanding what I’m showing here. The $50 million represents the total principal paid by the VCCDD to the bondholders between 2003 and 2012. The $113 million is the total interest paid by the VCCDD to the bondholders during that period. It’s that column that is being used to compute the approximate back taxes owed by the bondholders.

But since the IRS can only go back three years, I shortened the table to get a more realistic estimate of what is legally owed to the government if they were forced to collect it from each individual bondholder.

And as things stand right now (short of an absolute final judgment) the VCCDD is scheduled to make that approx. $116 million annual repayment on the bonds until around 2032.

The core issue here is the viability of the IRS claim regarding the poltical status of the district as qualifying for tax-exempt status and what each of the respective parties have a financial interest will do.

As to the actual transactions one should look to the Notice of Proposed Issue because it explains how and why the IRS came to their conclusions. what Iam leading up to is if in fact residents are left with this mess an obvious class action is going to take place. If that happens then it is going to be encumbent on the residents to argue that point because if the assets were over valued then the district purchased more in bonds needed to cover the sale.

My response to glowing praise of the Developer since 2006 have been consistent. I understand business but in doing my due diligence since moving here a common theme in the Developer's methods of operating left me uneasy. I do not want to be right here. I mention this only as a caveat because I am still seeing some well meaning people continuing these glowing praises. To my way of thinking residents need to shift their thinking to one of self preservation.

Most of us paid for a house, land that it rests on and a bond for the initial infrastructure. We pay monthly amenity fees, taxes and other fees. We may be asked to pay taxes and penalities for a bond issue that according to the IRS finding wasn't even in control by the District which is suppose to protect us and hansomely benefited the Developer.

On that add the fact that it now brings into question the remaining financing method of completing the build out.

No one knows the outcomes nor the amounts involved what we do know is that those people (person) in charge has left us all with a stomach ache

I believe the POA needs to establish a series of meetings so that residents can gaher and exchanged ideas...Perhaps someone close to POA officials can make that suggest.

Nice summary Rubicon.

Google it.

Wouldn't the meeting just be a rehash of all the Opinions posted on TOTV? Ideas are nothing more than just opinions.

If you take a step back, you will see that parks, swimming pools, bridges, etc. in a city are no different than such things in a CDD like TV. The developer in both scenarios is very much a for-profit institution. Likewise those who benefit from the projects are the general public - residents of a city/county on one hand or residents of TV on the other. And, the owners of these "amenities", the city/municipality and the CDD are both not for profit entities.

Why should the residents of a municipality be able to 1) have low taxes because their "amenities" are paid for in tax-free bonds and 2) further benefit from this by being able to deduct the property taxes that are used to pay for these "amenities"? As you will note, city residents get a two-fold tax advantage for their amenities whereas people in a CDD like TV only benefit from the lower interest rates of tax-free bonds (we can't deduct our amenity fees). And now the IRS wants to take even that one single benefit away from us.

There seems to be a lot of foaming at the mouth about Morse doing something "shady" when it is we who are the primary beneficiaries. I think that the wrath should be directed at the IRS who wants to punish those of us who live in a CDD while those who have their amenities provided by a city/county get a double tax benefit.