The Internal Revenue Service has told a U.S. congressman from Florida that the agency is not planning on issuing any new guidance that would affect whether community development districts in the state can issue tax-exempt bonds.
Acting commissioner for the IRS' tax exempt and government entities division, Joseph Grant, relayed the message to Rep. Richard Nugent, R-Fla., in a letter dated April 5.
In March Nugent wrote to Neal Wolin, acting secretary and deputy secretary of the Treasury, about his concerns that the IRS may be preparing to take a position on CDDs that would have adverse effects on his constituents.
"The issues you raised are not part of any general guidance project we are considering at this time," Grant wrote in the letter. "Whether the issues are presented in the context of a particular taxpayer's liability is not something we can address in this response. The law does not allow us to share information about a taxpayer absent consent from that taxpayer."
Grant went on to say that the agency publishes a priority guidance plan every year and considers requests for guidance when they periodically update the plan throughout the year.
At issue is whether the Village Center Community Development District in Florida is a political subdivision that can issue tax-exempt bonds, an issue that the CDD and the IRS have been wrangling over for several months.
The IRS, as the result of audits of CDD bonds, contends the CDD overpaid for its properties and that the municipal bonds used to finance the development may have arbitrage or private-activity bond use problems. A recent IRS appraisal valuation showed that the CDD did not overpay on all of its properties.
The chief counsel's office "tentatively" concluded that the CDD is not a political subdivision and therefore, at least $364 million of recreational revenue and subordinate refunding bonds issued by the district between 1998 and 2003 are not tax exempt. Market participants have been worried that the IRS' final conclusion on the issue may hold precedence for other similar projects.
Nugent argued that any change to the tax exempt status of the CDD would have a harmful impact on Florida homeowners already burdened by a weak economy.