| Advogado |
06-07-2013 12:42 PM |
POA Alert
For the benefit of those of you who are not members of the POA, here is the e-mail alert that the POA sent its members last night. Incidentally, if you have yet joined the POA, you might think about doing so now. If the IRS investigation does not end well, the POA is the only organization that we Villagers have to protect our interests.
IRS UPDATE – JUNE 6, 2013
On June 6, 2013, the Daily Sun, buried on page 6 of the Local Section, published the following article:
“District weighing options after IRS ruling by David Corder
THE VILLAGES - In a nonbinding opinion*, the Internal Revenue Service has ruled the Village Center Community Development District is not a political subdivision of the state. The ruling, contained in a memorandum released Wednesday to the district, means that about $364 million of the CDDs bonds could be declared taxable. ‘It’s a setback for the district, but it’s not the end of the process,’ said Perry Israel, the attorney representing the VCCDD. We’re going to be continuing with the examination process. ’Israel maintains the IRS is overstepping its bounds. ‘I’m concerned the IRS seems to still be trying to make law through the enforcement process rather than through the regulatory process,’ he said. ‘They have the ability to write regulations. They didn’t do that. What they did is they came up with a rule that’s not easy to interpret.’”
*The POA is unsure what this statement means, as this language was not found in the IRS Opinion.
In the April, 2013 POA Bulletin we advised that there were actually three questions, not just one, that had to be answered affirmatively in order to achieve tax exempt status, which are identified below. On February 23, 2009, the IRS Agent notified the VCCDD that after reviewing all of the documents, he had three questions regarding the tax exempt status of thebonds:
1. Is the VCCDD, the Issuer of the Bonds under investigation, a qualified issuer of tax exempt bonds? (This is the subject of today’s IRS finding that the VCCDD is not qualified to be an issuer of tax exempt bonds because it does not meet the criteria to be a political subdivision of the state.) It should be noted that by using the “income approach” (Revenue minus cost and expense) for determination of the acquisition price for the various amenity transfers, it made no difference to the District if the bonds issued were tax exempt or not. The issuing of tax exempt bonds by the District simply increased the Developer’s profit on the transaction, by lowering the interest cost.
2. Did the Series 2003 facilities acquisition price reflect the fair market value of the assets? i.e., were the Bond Issues properly sized to carry out the government purpose of the Bonds or were the amenity facilities overpriced and thus the bonds over-issued? (This is the subject of the April Bulletin article dealing with the valuation procedures in which the VCCDD claimed 'victory'. 3. Were the Bond proceeds used for an essential governmental function or do the nature of the facilities acquired with the Bonds result in private business use, and hence are the Bonds Private Activity Bonds? A negative response to any of the three questions could result in the bonds not being tax exempt.
The potential impact on the Villages amenities system of an IRS finding that the bonds are not entitled to be tax exempt has been discussed in earlier issues of the POA Bulletin. In a nutshell, the amenities system would be threatened if the outcome of the IRS investigation leaves the Center Districts with such large financial liabilities that the Districts can no longer continue to maintain and furnish the amenities. A complete analysis can be found in the August 2009 Bulletin, which is available on the POA website: poa4us.org. (Click on archived Bulletins) Copies of relevant documents can be found at districtgov.org, by clicking on the IRS Updates link.
The POA's Position. Because of the potential implications for Villagers of an adverse determination on valuation of the assets, the POA sincerely hopes the IRS (or a court, if litigation ensues) eventually agrees with Mr. Israel’s analysis. With respect to the entire IRS investigation, the POA has not taken a position on the relative merits of the positions of the IRS and the VCCDD / SLCCDD, although we sincerely hope that the VCCDD and SLCCDD are able to prevail in regard to all three questions. The POA's objectives in this matter are to keep residents informed of developments and to try to protect your rights by doing what we can to try to ensure that any resolution of the IRS investigation does not jeopardize your amenities or result in the costs of an IRS victory being passed on to you. We have previously written to the IRS to express our concerns, and we will continue to report to you at POA meetings, in the Bulletin, and in the E-Mail alerts to our members all publicly available news in this matter.
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