[Advogado]

Originally Posted by Mr.Kris

Wish I could explain it, but I'm a spectator like the rest of the residents and all I have is an opinion, not professional advice. And all I have been asking for is others informed opinion.

My personal opinion is: (1) The IRS has a compelling position and it does not appear the IRS will let this go. (2) If the IRS prevails, see opinion number 1, someone will have to pay and that someone, and amount, has not been determined yet, only the issue of taxable/tax exempt has been addressed so far. (3) Everyone is in the mix for liability regarding taxes on these bonds, i.e. the holders of the bonds, the issuer/developer, and the residents. It appears to be a spider web of responsibilities. (4) I will live long enough that the results may, see opinion number 3, affect me. Remember, I said this is my personal opinion. I'm along for the ride like everyone else. And "what a long strange trip it's been."

With respect to your item 3, if you have not yet read it, you should take a look at the POA's explanation of how the IRS investigation could impact residents: http://poa4us.org/bulletins_files/bulletin200908.pdf Although the article was written over 5 years ago, I believe that the analysis remains valid. Subsequent POA Bulletins have given residents updates on major developments. The Daily Sun's reporting, or lack thereof, on the matter has been disgraceful.

[Villages Kahuna]

Originally Posted by Mr.Kris

Interestingly, from all of the publicly available documents I have reviewed, for the first time it appears the IRS is deemphasizing the original argument of whether the Issuer is a political subdivision and whether its debt is issued on behalf of a State or local governmental to the argument that under the 10% rule the bonds meet the private security or payment test. In other words, the argument is being moved from the subjective, i.e. is the issuer a government entity, to the objective, i.e. 10% rule. It's easier, in my opinion, to win an objective argument.

If you have been following this as deeply as I have, I would like much to hear from you and see your analysis. If you want to talk about your grandkids or dirty politicians not so much.

I haven't followed the IRS case as closely as you have, and probably not enough. But one question I've had is..."what about the Disney CCD's and the bonds they've issued?"

My understanding has been that The Villages bond issuances for the construction of utilities, roads and common facilities in the districts were closely patterned after how Disney financed much of it's development in Orlando, particularly the City of Celebration and other residential developments they've done in and around the theme parks.

But I've never read about any IRS challenge of the Disney bonds. Or have I just missed that news?

[Villages Kahuna]

Originally Posted by Mr.Kris

Wish I could explain it, but I'm a spectator like the rest of the residents and all I have is an opinion, not professional advice. And all I have been asking for is others informed opinion.

My personal opinion is: (1) The IRS has a compelling position and it does not appear the IRS will let this go. (2) If the IRS prevails, see opinion number 1, someone will have to pay and that someone, and amount, has not been determined yet, only the issue of taxable/tax exempt has been addressed so far. (3) Everyone is in the mix for liability regarding taxes on these bonds, i.e. the holders of the bonds, the issuer/developer, and the residents. It appears to be a spider web of responsibilities. (4) I will live long enough that the results may, see opinion number 3, affect me. Remember, I said this is my personal opinion. I'm along for the ride like everyone else. And "what a long strange trip it's been."

I can understand your opinion that the issuer and holders of the bonds might have an obligation were the tax court to rule in favor of the IRS. But the residents? Their only role is as obligors to repay the bonds. Why would they be at risk?

The other party that may be at the most significant risk is the law firm or law firms who issued the legal opinions at the time of each bond issuance that each specific issuance was tax exempt. Both the issuer (the Developer and the CCD's) and the buyers of the bonds relied on that legal opinion. The law firm almost certainly contracted with a bonding company to insure the risk created by their issuance of an opinion. Even if they didn't, most law firms are organized as partnerships or limited liability corporations for the specific purpose of limiting liabilities such as this. So even if a ruling favored the IRS, the first party in line to assume the costs of a reversal of the tax exemption would be the law firm and their bonding company, then the issuer, then the holder of the bonds. And like I said, I can't see how the residents are at risk at all.

But one thing is for certain--even if a ruling favors the IRS, there will be additional years of litigation over who will actually pay any resulting unpaid taxes.

[2BNTV]

Originally Posted by Villages Kahuna

I can understand your opinion that the issuer and holders of the bonds might have an obligation were the tax court to rule in favor of the IRS. But the residents? Their only role is as obligors to repay the bonds. Why would they be at risk?

The other party that may be at the most significant risk is the law firm or law firms who issued the legal opinions at the time of each bond issuance that each specific issuance was tax exempt. Both the issuer (the Developer and the CCD's) and the buyers of the bonds relied on that legal opinion. The law firm almost certainly contracted with a bonding company to insure the risk created by their issuance of an opinion. Even if they didn't, most law firms are organized as partnerships or limited liability corporations for the specific purpose of limiting liabilities such as this. So even if a ruling favored the IRS, the first party in line to assume the costs of a reversal of the tax exemption would be the law firm and their bonding company, then the issuer, then the holder of the bonds. And like I said, I can't see how the residents are at risk at all.

But one thing is for certain--even if a ruling favors the IRS, there will be additional years of litigation over who will actually pay any resulting unpaid taxes.

This is very enlightning information.

I always took the position of not being too concerned over this issue as I always thought it would be many years before this would get resolved.

If I had to stay up nights worrying over this issue, I would have never moved here.

Why worry when you have no control over something. IMHO

[Mr.Kris]

Originally Posted by Villages Kahuna

I haven't followed the IRS case as closely as you have, and probably not enough. But one question I've had is..."what about the Disney CCD's and the bonds they've issued?"

Good question. I have often wondered that myself. However, I have not reviewed the operations of Celebration and The Villages side-by-side so I cannot address the similarities or differences. "The devil is in the details." There are also a number of CDD type communities in other states. But, it appears that the IRS' current use of the 10% rule concerning the private security or payment test pretty much singles out The Villages.

[Mr.Kris]

Originally Posted by Villages Kahuna

I can understand your opinion that the issuer and holders of the bonds might have an obligation were the tax court to rule in favor of the IRS. But the residents? Their only role is as obligors to repay the bonds. Why would they be at risk?

My opinion, and my opinion alone, is that the residents are liable precisely because of what you stated. "Obligors to repay the bonds." How this shakes out is anybody's guess.

[Mr.Kris]

Originally Posted by Villages Kahuna

The other party that may be at the most significant risk is the law firm or law firms who issued the legal opinions at the time of each bond issuance that each specific issuance was tax exempt.

I have never known a lawyer/firm to incur liability for giving bad advice unless there was personal gain involved. The recipient of that legal advice can either accept that advice or reject it. Once the recipient accepts that advice it becomes his/her position. But again, that's my personal understanding and opinion.

[Mr.Kris]

Originally Posted by Villages Kahuna

So even if a ruling favored the IRS, the first party in line to assume the costs of a reversal of the tax exemption would be the law firm and their bonding company, then the issuer, then the holder of the bonds.

The first party is the bond holder and the second would be the party that issued the bonds. Remember here that technically the VCCDD issued the bonds on behalf of the village residents. In this case I believe there are facts that will alter that view. Again my personal opinion. My statements are only meant to stimulate thought and discussion. Please consider my caveats throughout this thread.

[Challenger]

Underwriters and Bond Counsel must be very nervous.

[dbussone]

Originally Posted by Challenger

Underwriters and Bond Counsel must be very nervous.

While I agree they must be nervous, they rely upon the statements and information provided by the client. This could be an epic "he said" "they said" situation when it plays out.

[Advogado]

Originally Posted by Villages Kahuna

I haven't followed the IRS case as closely as you have, and probably not enough. But one question I've had is..."what about the Disney CCD's and the bonds they've issued?"

My understanding has been that The Villages bond issuances for the construction of utilities, roads and common facilities in the districts were closely patterned after how Disney financed much of it's development in Orlando, particularly the City of Celebration and other residential developments they've done in and around the theme parks.

But I've never read about any IRS challenge of the Disney bonds. Or have I just missed that news?

There are several posts that raise that basic question.

The answer is: The original, shotgun attack on CDDs by the IRS could well have made all CDD bonds taxable.

However, as time passed, the IRS seemed to conclude, without ever admitting it, that it had bitten off more than it wanted to chew, and narrowed its rationale so that it would only make Villages Center District Bonds taxable. The current IRS rationale would only apply to The Villages because apparently none of the other CDDs pushed the envelope the way the Developer did when he set up the forever-Developer-controlled Center Districts and then used them to purchase and administer the amenity facilities from the Developer--issuing the "tax exempt" bonds to finance the purchase.

Again, for a coherent explanation of what is going on, refer to the 2009 POA article that I cited in an earlier post. Post-2009 developments are described in subsequent POA Bulletins.

Allegations that all this has to do with Obama targeting the Morse family are totally groundless. The investigation started under Bush, was part of a general IRS crack down on perceived abuses of municipal-bond financing, and the issue remains the same as originally raised. In fact, with the passage of time, the IRS has toned down the vehemence of its attack on the Developer. However, the fact that the investigation has dragged out this long, without some kind of conclusion, gives credence to allegations concerning the incompetence of the IRS.

Incidentally, there is no doubt that our amenity fees are being used to pay the attorney bills in this matter. This has been widely reported and can be confirmed by just calling the District Office.

[mickey100]

As usual Advogado, your comments are spot on. From what i've read, most of the CDD's do not operate like the Villages, and do in fact, have governing boards that are controlled eventually by the residents, unlike The villages. However, it appears Disney could be on shaky ground. The following link is to an article entitled "As IRS Cracks down on The Villages, Disney Watches". As IRS Cracks Down on The Villages, Disney World Watches

[Advogado]

Originally Posted by mickey100

As usual Advogado, your comments are spot on. From what i've read, most of the CDD's do not operate like the Villages, and do in fact, have governing boards that are controlled eventually by the residents, unlike The villages. However, it appears Disney could be on shaky ground. The following link is to an article entitled "As IRS Cracks down on The Villages, Disney Watches". As IRS Cracks Down on The Villages, Disney World Watches

That is a good article. Thanks for pointing it out. It does seem strange that the IRS has waited to go after Disney, in light of the IRS's rationale for attacking the tax-exempt status of The Villages' bonds. Tax revenue would seem to be slipping away as the statute of limitations continues to run in regard to the Reedy Creek bonds.

It is interesting that Reedy Creek/Disney is going to issue additional purportedly tax-exempt bonds, while the Villages Center District, controlled by the Developer, has blinked and issued taxable bonds to pay off its purportedly tax-exempt bonds. See: Village Center CDD to Sell Taxable Refunding Bonds - The Bond Buyer

[mickey100]

The article did say there were some key differences between Disney and The Villages, but didn't say what they were. Maybe Disney's attorneys think this gives them an edge with IRS. I found it interesting that Reedy Creek was created by the state legislature, but is privately run.

[TVMayor]

United States: IRS Decision on Florida CDD: Commercial Is Out; Residential May Be In

The IRS ruled that the Village Center CDD was not a political subdivision when the bonds were issued. The decision centers around one issue: that from the actions of the Village Center CDD and the developer, it appeared that the Village Center CDD was organized and operated in a manner intended to perpetuate private control, and to indefinitely avoid responsibility to a public electorate. In the case of the Village Center CDD, control of the entity has not been turned over to residents in the 20 years of the CDD's existence, despite the developer selling 44,000 homes in The Villages. The IRS found that the developer intentionally structured the Village Center CDD so as to ensure that control would never be turned over to anyone other than the developer's insiders. The Village Center CDD's actions included petitioning the town of Lady Lake, Florida to change the boundaries of the CDD to remove land upon which future residential development was to occur, thereby ensuring that the residential threshold requiring election of the Board of Supervisors by residents would never be reached. SNIP

IRS Decision on Florida CDD: Commercial Is Out; Residential May Be In - Real Estate and Construction - United States