IRS questions millions in bonds from The Villages

Article Courtesy of The Daily Commercial
By Staff Report    
Published June 12, 2013


The Villages is controlled by about a dozen Community Development Districts (CDDs), most of which provide and maintain roads and transportation paths. The Internal Revenue Service is questioning whether The Villages CDDs deserve a tax-exempt status.

The Internal Revenue Service is questioning hundreds of millions worth of tax-free bonds issued by The Villages.

The IRS has been embroiled in a dispute with the retirement community for several years over whether community development districts used to help create the enclave deserve a tax-exempt status. The latest answer from the IRS is still no.

A “technical advice memorandum” issued in May contends that H. Gary Morse, the developer of The Villages, continues to assert control over the district that has issued more than $400 million worth of tax-free bonds. The IRS says that means the district should not enjoy a tax-exempt status like other governments.

“We believe that an entity that is organized and operated in a manner intended to perpetuate private control, and to avoid indefinitely responsibility to a public electorate, cannot be a political subdivision of a state,” states the IRS memo.

The Villages and the IRS have butted heads in the past over CDDs, with the government questioning the relationship between Village Center Community Development District and Morse since the VCCDD has no residents and its Board of Supervisors consists solely of individuals who work for or have an affiliation with the developer. Essentially, the IRS position is that the VCCDD is an “alter ego” for Morse, it said.

In a letter sent on its behalf to the IRS last year, The Villages contends a single landowner district can be a political subdivision. In December, The Villages hired Washington lobbyist Cardenas Partners, headed by lobbyist Al Cardenas, to specifically address the community’s “Community Development Districts and IRS interpretations,” according to a lobbyist registration form.

Cardenas is former chairman of t he Florida Republican Party and current chairman of the American Conservative Union. Morse, along with his family, is a prominent GOP donor at the federal and state levels who has made his private jet and yacht available to the Republican Party of Florida.

Last year The Villages gave a total of $350,000 to the state party and a political committee controlled by Gov. Rick Scott. So far this year, the development, along with Morse himself, his son and his two daughters, gave Scott’s “Let’s Get to Work” PAC another $180,000.

Perry Israel, a bond attorney representing the district, said his options include getting the IRS to change the decision or asking bondholders to pay the taxes. He said VCCDD could try to settle the case but that could result in an expense that may ultimately be paid by area residents.

But Israel still disputed the IRS decision.

“I’m concerned that the IRS appears to be making new law through an enforcement process,” Israel said.

The IRS decision comes at a time when its scrutiny of political groups, particularly those linked to the Tea Party movement, has created a fierce backlash in Congress. The dispute over The Villages predates the election of President Barack Obama but it has gotten strident at times.