[Advogado]

Originally Posted by villagerjack

The issuer of the bonds, The Center Districts, are paying a lower rate of interest to the bondholders who receive tax free income. Now that interest rates have come down substantially (creeped up last week) The "problem" is lessened and it may be an advantageous time to buy back those bonds with Developer assistance and issue taxable bonds. Maybe a hybrid, Fed Taxable, Fl Tax free would work.?

True, now may be a better time to issue replacement taxable bonds. However, the current bondholders would presumably claim that the lower current interest rates have increased the value of their existing bonds and thus the current bondholders' losses from the Center Districts' breach of the Districts' warranty that the current bonds are tax exempt. Furthermore, who knows what interest rates will be when, and if, it is necessary for the Center Deistricts to issue replacement bonds. In summary, it cannot be predicted how the issuance of replacement bonds, if that becomes necessary, would work out--but it wouldn't be pretty.

[tommy steam]

As the months move ahead ,we will see if new home sales are declining because of this news. IMHO ,I think it might have some impact on home sales here, but then again I could be wrong. We will see.

[EdV]

Originally Posted by rubicon

EdV: Re your comments "From your lips to God's ears". Please tell us who in an official capacity can guarantee that won't happen?. Who in an official capacity can speak to the effect this ruling will have/not respecting residents? ...

Rubicon,

I was merely responding to the other post that suggested that throughout this entire 5 year (or more) ordeal, that the developer has never said word one regarding the potential financial impact on TV residents, when in fact he has.

You will also note that throughout my many posts here on this subject over the years I�ve never professed to claim I know the outcome, only what cannot legally happen based on reading the applicable legal documents.

By the way, one option that I�ve not seen mentioned is that instead of requiring the Center District to recall all the tax free bonds in question and then sell a new set as taxable, is to simply agree to pay a penalty to the IRS each year for the remaining life of the bonds in question.

Pure speculation on my part but certainly appears to be the path of least resistance if the IRS assertions prevail through the legal system.

[gomoho]

Originally Posted by villagerjack

The issuer of the bonds, The Center Districts, are paying a lower rate of interest to the bondholders who receive tax free income. Now that interest rates have come down substantially (creeped up last week) The "problem" is lessened and it may be an advantageous time to buy back those bonds with Developer assistance and issue taxable bonds. Maybe a hybrid, Fed Taxable, Fl Tax free would work.?

If what you say is correct- "the bondholders who receive tax free income" how in the world could residents in TV be held responsible for their tax debt?
Even if the were sold as "tax free bonds" wouldn't it be a "buyer beware" situation?

[villagerjack]

[QUOTE=Advogado;689065]True, now may be a better time to issue replacement taxable bonds. However, the current bondholders would presumably claim that the lower current interest rates have increased the value of their existing bonds and thus the current bondholders' losses from the Center Districts' breach of the Districts' warranty that the current bonds are tax exempt. Furthermore, who knows what interest rates will be when, and if, it is necessary for the Center Deistricts to issue replacement bonds. In summary, it cannot be predicted how the issuance of replacement bonds, if that becomes necessary, would work out--but it wouldn't be pretty.[

It depends on the deal. Since you have no numbers,even you cannot predict the outcome. Pretty is in the eye of the beholder.

[villagerjack]

Originally Posted by gomoho

If what you say is correct- "the bondholders who receive tax free income" how in the world could residents in TV be held responsible for their tax debt?
Even if the were sold as "tax free bonds" wouldn't it be a "buyer beware" situation?

It would seem so. Most tax free bonds are sold with a legal opinion. We would have ti see what it said in that document. I would have to assume that full risks were disclosed. I doubt the IRS would go after someone who purchased these bonds for back interest if they were called. IMHO.

[villagerjack]

Originally Posted by Advogado

True, now may be a better time to issue replacement taxable bonds. However, the current bondholders would presumably claim that the lower current interest rates have increased the value of their existing bonds and thus the current bondholders' losses from the Center Districts' breach of the Districts' warranty that the current bonds are tax exempt. Furthermore, who knows what interest rates will be when, and if, it is necessary for the Center Deistricts to issue replacement bonds. In summary, it cannot be predicted how the issuance of replacement bonds, if that becomes necessary, would work out--but it wouldn't be pretty.

Does the legal opinion attached to the tax free bonds disclose all risks? If so, the holders of the bonds could not claim anything. Besides, I imagine after this ruling that the price of the bonds will drop, possibly below par reflecting the uncertainty. In that case the CD would have to pay out less particularly if these bonds are no longer tax free, but taxable.

[ilovetv]

I looked thru the thread and didn't see this article by Bond Buyer Online posted here, and I think it has some good information:

".......Sanford said the facts in the Village Center CDD are unusual. CDDs typically are initially created by developers, which issue bonds to finance the development of infrastructure in a community, and then sell lots to homeowners. While the developer or related parties may initially control the board of supervisors that governs the CDD, under Florida law once there are 250 residents members of the board must be elected by the �qualified electorate,� meaning residents who can vote.

The Village Center CDD was set up as a non-residential CDD with a board of supervisors controlled by the developer or affiliated parties for about 20 years, according to the IRS. The CDD�s bond documents stated that because of the non-residential nature of the development, there would never be �qualified electors� of board members, the IRS said.

The CDD�s board petitioned four times to shrink or otherwise move the district�s boundaries so that it would not include residences. Sanford said he had never seen a CDD take such actions.

The Village Center CDD contained recreational, water and sewer, and postal facilities as well as fire stations, that were constructed or acquired, owned and operated by the developer. Bonds were issued by the CDD to finance the purchase of these facilities from the developer. In its TAM, the IRS said that in some cases the �amount of [bond] proceeds paid to the developer and its affiliates significantly exceeded the developer�s costs of the assets acquired.�

Lots sold in other nearby CDDs were subject to deed restrictions requiring services to be provided by the developer, including an obligation by the developer to �perpetually provide the recreational facilities.� Property owners were required to pay the developer a monthly �amenities fee,� even if recreational facilities were located outside of their districts.

The IRS said in its TAM: �The issuer [CDD] was organized and operated to perpetuate private control and avoid indefinitely responsibility to a public electorate, either directly or through another elected state or local governmental body. That fact is not consistent with qualification as a political subdivision.�.......

Bond Buyer Online - IRS Ruling Against Fla. CDD May Have Limited Reach

[rubicon]

Originally Posted by EdV

Rubicon,

I was merely responding to the other post that suggested that throughout this entire 5 year (or more) ordeal, that the developer has never said word one regarding the potential financial impact on TV residents, when in fact he has.

You will also note that throughout my many posts here on this subject over the years I�ve never professed to claim I know the outcome, only what cannot legally happen based on reading the applicable legal documents.

By the way, one option that I�ve not seen mentioned is that instead of requiring the Center District to recall all the tax free bonds in question and then sell a new set as taxable, is to simply agree to pay a penalty to the IRS each year for the remaining life of the bonds in question.

Pure speculation on my part but certainly appears to be the path of least resistance if the IRS assertions prevail through the legal system.

Edv: Thank you this is the sort of thing we need to explore as options. You are other posters have made some excellent suggestions. While we are not in the loop we can at least offer these solutions to the powers to be via the POA. This is all I have ever suggested regarding this issue....that is we have some input since we have some risk.

The issue has a satisfactory solution. It may be that the parties IRS Developer et are so invested that they have become inflexible.. egos getting in the way. The reputation of the IRS the fact that the Developer is a huge Republican contributor are side issues and don't belong in this mix. A deal can be struck that satisifies both and as always leaves both parties feeling they gave something up....that's the nature of compromises

I appreciate your input and I am gald that you are well informed about this issue because we need all the friends that we can muster.

[NJblue]

Advogado wrote:

Is the Developer going to voluntarily return the huge profits (illegitimately made at the expense of the US taxpayer, according to the IRS) made from the sale of the amenity facilities?

What is your supporting documentation for this statement? The only thing that I recall coming from the IRS with respect to the amount of money that the developer made on this was that he was actually paid LESS than what the amenities were truly worth. Unfortunately for us, the real benefactor of the tax-free status of the bonds was the entity that we the residents pay for with our amenity fees - the central districts. If the bonds were sold as taxable bonds, the interest rates would have been higher and therefore our amenity fees would have been stretched tighter to pay off the bonds.

[manaboutown]

Originally Posted by NJblue

Advogado wrote:

What is your supporting documentation for this statement? The only thing that I recall coming from the IRS with respect to the amount of money that the developer made on this was that he was actually paid LESS than what the amenities were truly worth. Unfortunately for us, the real benefactor of the tax-free status of the bonds was the entity that we the residents pay for with our amenity fees - the central districts. If the bonds were sold as taxable bonds, the interest rates would have been higher and therefore our amenity fees would have been stretched tighter to pay off the bonds.

LESS??? Like paying $84,000,000 for $8,800,000 worth of property?

THE POA BULLETIN

[villagerjack]

Originally Posted by manaboutown

LESS??? Like paying $84,000,000 for $8,800,000 worth of property?

THE POA BULLETIN

IRS recently ruled that the CDD paid LESS yes LESS tan the proprty was wrth.,

[Advogado]

Originally Posted by villagerjack

IRS recently ruled that the CDD paid LESS yes LESS tan the proprty was wrth.,

I am afraid that you are mistaken about the IRS ruling, probably because of a misleading article that appeared in the Daily Sun. As confirmed by Janet Tutt at a POA meeting, the assertion that the CDD paid less than market value is NOT an IRS conclusion or ruling. It is merely an argument made by the CDD's attorney, which has not been agreed to by the IRS. I would you suggest that you read the article about the IRS in the following POA Bulletin: http://www.poa4us.org/bulletins_file...etin201304.pdf

[Advogado]

To expand on my previous post, not only has the IRS never ruled that the CDD's paid less than the assets were worth, in its recent TAM, the IRS is still complaining about the size of the Developer's profits.

Furthermore, if taxable bonds had been used, the amenity fees would not have been higher. Using the income-stream-valuation methodology employed in the transaction, if taxable bonds had been used, the amenity fees would have stayed the same, but the Developer's profits would have been less.

[jimbo2012]

Orlando sentinel

Bond profits go to developer

Morse, 76, is the developer of The Villages, one of the world's largest retirement communities, located on 33 square-miles south of Ocala. Through his fully owned Holding Company of The Villages, he has built and sold more than 44,400 homes since 1983.

Morse has a fortune of $2.6 billion, at least $955 million of which 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.

Under Florida's community-development district arrangement, Morse built amenities in The Villages -- primarily golf courses, pools and guard houses -- and then sold them to residents through district boards that decided how much to pay for the assets. The boards were appointed by Morse, as state law allows, and in every case the majority of the members worked for Morse; one board included Morse, according to Bloomberg's analysis.

AND

Herald Tribune


In 2008, a sharp IRS agent conducting an audit figured out how the greedy Villages had perverted the law even further, adding a unique twist that kept the district's board of directors from ever being elected by the people who live there. That allowed the family of developer Gary Morse to pocket $925 million from the sale of tax-free bonds alone, according to Bloomberg News.

Morse, whose fortune Bloomberg estimated at $2.9 billion, used some of the proceeds of the bonds to pay for The Villages' expansion, but the biggest chunk of the cash went to purchase from him the right to collect amenity fees and the actual amenities themselves, such as golf courses and swimming pools.

As Agent Dominick Servadio Jr.'s audit got close to the heart of the matter, he began to write letters to the district questioning whether the proceeds from tax-free bonds were being used for a public purpose, whether the purchases were worth what was paid and whether the district was acting in the best interest of the public. Excellent questions, all.

Indeed, why would a board with the interest of the public at heart take out multimillion-dollar loans to buy the developer's responsibility and assets — unless, of course, the real goal was to make him rich? Consider that the developer is required by deeds to provide amenities to Villages homebuyers. Why not just stay out of enormous debt and let the developer collect amenity fees and take care of pools and such?

Suddenly, Servadio ran into trouble. The 25-year IRS bond expert found himself under investigation by agents of the Treasury Department's inspector general who accused him of illegally leaking his colorfully written documents to the press.

They tried — unsuccessfully — to charge him with a crime. The treasury agent who interviewed this columnist in 2011 stared in disbelief when told that the newspaper got all the IRS agent's documents through public-records requests. Obviously, the agent was uninformed about breadth of Florida's open-records law.

At the time, the agent denied that the investigation into Servadio's actions was a result of Morse's political influence. The developer, his family members and employees are among the largest contributors nationally to the Republican Party, its causes and committees. They kicked in at least $11.6 million in the last 13 years, including $2.4 million alone in the 2012 election cycle, according to OpenSecrets.org, an organization that tracks contributions.

Servadio retired to care for his ailing wife, and the case got bounced around to various agents of the IRS in different cities.

Meanwhile, in January 2012, dissatisfaction with community-development districts was brewing across the state, and Gov. Rick Scott ordered an investigation of Florida's 1,634 special districts. (The probe isn't expect to be done until January.)

Two months after Scott signed the executive order, Morse, his three children and The Villages itself donated a total of $180,000 to Let's Get to Work, a political-action committee whose millions in contributions are expected to help Scott get re-elected in 2014.

Then, in the last quarter of 2012, The Villages hired the two-time chairman of the Florida Republican Party to lobby for its CDDs in Washington. Apparently it didn't work.

Fast-forward six months to today and the IRS ruling.

Florida's director of bond finance says the ruling will have an icy effect on districts that want to issue tax-free bonds, which have been used to build much of the infrastructure inside Florida developments.

Good. CDD bonds are a rip-off — just a not-so-subtle way to shift the cost of doing business from developers to the people buying homes. Buyers in average developments with a CDD get to pay for some infrastructure twice: once in the price of the house and again as they pay off bonds.

In The Villages, however, it's more like paying triple: once in the price of the house, once (with interest) as the bonds are paid off and again (with more interest) in a bond attached to individual homes at the closings.