Since you asked, I will correct you. I am afraid you are mistaken, mislead by an article in the Daily Sun.

As confirmed by Janet Tutt, herself, when questioned at a POA meeting (and as later reported in the POA Bulletin): The valuation question has NOT been resolved. The under-payment calculation you cite was merely an argument made by the Center District's attorney in a letter to the IRS. The Daily Sun then reported his argument as fact, even though it has not been agreed to by the IRS. You can read the attorney's letter at districtgov.org.

Now, maybe the attorney's calculation will turn out to be right; I won't even try to get into the proper way to calculate an arm's-length price of a future income stream (which can be manipulated by using different discount rates). In any event, whatever I (or any of us) think about it really doesn't matter at this juncture) since the IRS is taking the position that the bonds would be taxable no matter what the valuation of the underlying assets sold to the Center Districts by the Developer.

The point is that, despite what the Daily Sun claimed, there is no publicly available information that the valuation question has been resolved in favor of the Developer/Center District. But to me the central thing that we should be watching is how this darn thing gets resolved, and trying to make sure that the resolution doesn't prejudice the residents. It is not easy to do this when our local paper either doesn't report, or distorts, the facts.

Morals regarding the above: (1) Be very skeptical l about what you read in the Daily Sun about the IRS investigation and about the Developer in general. (2) The POA Bulletin will be the most reliable source of information, but also look at the documents at districtgov.org. (3) Thank Lauren Ritchie of the Orlando Sentinel for keeping a spotlight on this (even though she gets some of her facts wrong).

Again for the record, it Does Not Matter what he was paid, with regard to the IRS matter at this point in time. You folks are really beating the death out of that poor horse!

You are correct Ed ... for the purpose of determining if or not the district qualified / qualifies to sell "tax free" bonds per the determination by the IRS (and perhaps ultimately the court(s) ) as a "public" district is the heart of the matter.

Nor does it matter if or not TV residents like the current system of VCDD control. Because that is not pertinent to the issue for the same reason.


However, it should be of great interest to all TV landowners that "The Developer" was paid a fair and not inflated price for the amenity's purchased with these bonds. IF they were inflated, then a far greater % of amenity fee revenue is going to retiring the bonds than it should be. Resulting in less funding for upkeep and improvement.

Wouldn't that be wonderful if he did pay. I have a feeling, though, he won't. Would love to be proven wrong. We'll see.

Aren't the central districts which are funded by Villagers amenities fees paying?

Per a memo dated 6/12 Janet Tutt said the the IRS reviewed and changed it's earlier valuation and that TV landowners received a bargain.

http://www.districtgov.org/images/IR...%206.12.13.pdf

Per the second paragraph of my last post, I am in violent agreement with you. However, the validity of the purchase price is very relevant in other contexts, as evidenced by the class action suit against the Developer. Thus, if you will excuse the pun, equating it to a dead horse may be overkill.

So.... propaganda or truth??? I don't know who to believe anymore.

I would like to thank the mod for deleting my post and the one I was responded to. I don't like me when I get nasty and it is my weakness that I will respond when baited. Again, all cheers to the mod.

If you read that memo carefully, Ms. Tutt does not say that the IRS has agreed to the adjustments. I suspect that the matter is still not resolved, although I would be happy if it has been. Again, the only public document, of which I am aware, substantiating the "bargain" claim is the letter from the District's tax attorney to the IRS. I have seen no IRS reply to that letter. If one existed,it presumably would be on the districtgov.org website. Maybe somebody can ask Ms. Tutt about it at the POA meeting next week.

I have followed this thread fairly closely with great interest. One item does not seem to have been discussed. That is the bondholders. There was some mention of mutual funds but nothing definite.

Is it possible to obtain the name (s) of bondholders?

Are we to believe mutual funds would invest blindly in tax free bonds without making certain they were valid?

Is it conceivable the bonds were purchased by a smaller entity? Maybe a private sale?

A lot of tax free money has been made by someone. Now are the bondholders are going to be told it wasn't tax free? Will they be liable to pay the tax along with penalties?

There have been many intelligent and thought provoking posts on this thread. I would like to hear your thoughts on my questions.

So whats the big deal----issue more bond to pay the ruling against the villages - and start all over again - let the residents buy them. call them kool aid coupon bonds

Why it's a big deal has already been explained numerous times in this thread, in the POA Bulletin, and in various newspaper (other than the Daily Sun) and magazine articles. It's nothing to joke about.

I did not mean to imply that the manner in which the VCCDD spends the amenity funds is of no importance to the residents. Quite the contrary. If anything, that should be the subject of a separate thread topic.

I was simply trying to get us back on topic and focused on the direction that the IRS is headed with their investigation and what effect it might have on the residents of TV.

Here is a very interesting article that partially answers some of your questions:Billionaire Morse

It sets forth some very interesting information, of which I was not previously aware, e.g.:

At least $955 million of Morse’s fortune comes directly
from money paid to him from the issuance of tax-free municipal
bonds — including the bonds ruled taxable by the IRS, according
to data compiled by Bloomberg from an analysis of 38 bond-offering statements since 1992.

Wow, our tax dollars (or, more precisely, tax subsidies or loopholes) at work. It makes you think that Congress ought to be taking a close look at who, if anybody, should be able to issue tax-free bonds. Maybe there is something to be said for eliminating them altogether, an idea that is currently being kicked around in Congress.

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.

Several of the POA leaders were plaintiffs in the successful class action lawsuit against the Developer and are exceptionally well informed about what's going on in regard to the IRS lawsuit. Their opinions are worth listening to.

I assume if there is anything new (factually) the POA would share it in the monthly bulletin.

How about doing a "little exercise" on the value of homes in the Villages over the last Downturn and compare them with the value of homes during the downturn with other similar developments, say like Stonecrest or Del Webb for example.

I still own a home in a Del Webb project in South Carolina. The value of that home is about $100,000 less than it was in 2007. In fact it was listed originally with a realtor (his value) for $365,000 and now I am lucky if i can get $240,000 or less for this 2040 s/f home with a wooded view close to all amenities. The value of my home in The Villages would list for $335,000 for a Golf Course CYV with just 1600 s/f. I paid just over $300,000 for that home. THAT is attributed to the way the Morses run things here. The trouble with some of these so called analyses is that they analyze everything, concentration on what they perceive to be negative issues. Even if had to pay a penalty, I am still way ahead of the game

----------

This seems to explain it pretty well. Although I just ran across it most of you have probably seen it since it is a couple of days old.

IRS rule ending some Villages tax-free bonds won't affect all CDDs - OrlandoSentinel.com

an excerpt:

"Consider, for example, that the Village Center District in 1998 paid the family of developer H. Gary Morse $31 million for items that the Sumter County property appraiser valued at $1.1 million. They included retention ponds, a nine-hole golf course, an RV parking lot, a pool, a tennis court and a guardhouse.

What is the "wholly public purpose" in buying those items? Those are things the residents already paid for in the price of their house, and they're not necessary infrastructure, such as a road or wastewater plant. The ownership and maintenance of the things bought by the bonds should have been simply transferred to the CDD where they are situated, along with the right to collect the amenity fees to cover the expenses.

Instead, the residents paid ridiculously inflated prices for their golf courses and pools a second time, and then, because of the interest on the bonds, they paid thrice."

Thank you. You could not be more right. All through the downturn the Villages was selling 150-200 homes a month. While values declined somewhat they did not decline as much as similar developments and that is attributed to the Morses and they way then run things. See my other reply about my home in a Sun City Development.

What makes you think that the price that the developer will get for these amenities will be dictated by the tax status of the bonds used to pay for them? When you buy a car, does the car dealer ask you how much your financing will cost before he tells you how much he will sell the car to you for? While this may be part of the sale-price equation for Morse, it certainly doesn't have to be.

Why do you think it was the developer who benefitted from tax free nature of the bonds? I suggest that you look at the CDD budget line item associated with interest on debt repayment and then increase that amount by 30 percent or so to reflect taxable bond interest rates. Then look to see how the result gets covered by our amenity payments. Which other line item expense of the CDD would you have reduced to pay for the additional interest fees? Or, how much additional in amenity fees do you want to pay to cover the shortfall? It is WE who have benefitted handsomely because of the tax free nature of the bonds.

Why should I Google it when you're the one making the claim about this situation being in the news 10 years ago. How about providing a reference link like I usually do to support your statements.

Bogie Shooter I envision meetings with a written agenda setting out the facts, definitions, parties involved and in what manner, applicable laws/rules regarding this issue, limitations, plans goals etc. so everyone is on the same page. The meeting will need a strong gatekeeper to ensure we are getting objective and factual dialogue and not just belly aching. People coming together will grow closer with one another because we all have a common goal ( we are all stakeholders) and once people meet in most instances frienships/understanding will be found but mostly the collective commitment to a just cause. Also the people attending will not on ly be TOTV people but other residents also