BRADENTON, Fla. — The recent adverse determination by the Internal Revenue Service regarding the Village Center Community Development District in central Florida will not impact other Village CDD bonds that Fitch rates, the rating agency said in a special comment Wednesday.

Fitch assigns an A rating, and stable outlook, to the special assessment bonds sold by Village CDD No. 5 and Village CDD No. 6. Those districts had $40.7 million and $86.2 million of outstanding bonds at the end of fiscal 2012.

In a May 30 memorandum, the IRS said it determined that the Village Center is not a political subdivision that can issue tax-exempt bonds.

The district, created by the developer, issued $426 million in tax exempt bonds to purchase recreation amenities and utilities, according to Fitch, which does not rate those bonds. Village Center had $288.08 million of bonds outstanding at the end of fiscal 2012.

As a result of the IRS ruling, the Village Center bonds could be declared taxable.

In addition to the Village Center, there are separate residential CDDs under the Village moniker, each numbered one through 10 with a combined total of $420 million of outstanding bonds at the end of fiscal 2012. There are also two other related commercial CDDs with different names.

"We are not aware of any current or pending investigation into the taxability of bonds issued by CDDs No. 5 and 6, and believe their independent governance structure insulates them from the IRS decision," said Fitch analyst Sara Ketchum.

"They are exclusively residential and governed by representative boards elected by residents within the districts," she said. "The developer has no control over the internal affairs of either district. In our view, this structure is positive as the interests of the developer, property owners, and bondholders are not always aligned."

The IRS said the developer retained exclusive control of the Village Center board over the past 20 years, and that the board, by not being accountable, directly or indirectly, to a general electorate did not meet the definition of a political subdivision, Fitch's review of the IRS ruling said.

When asked if the district would appeal the IRS' determination, Village District Manager Janet Tutt pointed to her two-page written statement on the CDD's website.

Tutt's stated that the IRS memorandum has not closed the agency's examination into Village Center's bonds, and that the review, now in its sixth year, is a process that may continue for some time. She also said the district is still weighing its options, and hopes for a favorable conclusion.

Tutt said she believed that the ruling does impact the residential Village CDDs.

Moody's Investors Service said late Wednesday that it does not rate any of the Village CDDs, but the agency is analyzing the IRS ruling.

The Village CDDs are part of a master-planned, manufactured retirement and golfing community that was begun near Lady Lake. Over the years, it has grown to include 21,464 acres in portions of Lake, Sumter and Marion counties. At anticipated build-out in 2018, the Villages is expected to have 56,508 homes.

The IRS determination has received mixed reviews from bond attorneys. Some believe that it could have an impact on land-secured bonds across the country. In Florida alone there are 573 active CDDs with bonding authority, according to the state Department of Economic Opportunity.

Some attorneys said that the IRS ruling may not be broadly construed because of the unique set of facts pertaining to the Village Center CDD that were found to be abusive.

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