The Internal Revenue Service closed its audit of $28.72 million of special assessment bonds issued by the Bartram Park Community Development District in Jacksonville, Fla., in 2005 without any changes to the tax-exempt status of the bonds.
However, the IRS issued a warning, telling the district that it must continue to comply with Florida laws by electing district residents to the district’s board at the next election.
“The examination has resulted in the determination that the issuer of the bonds needs to make sure that they remain in compliance by continuing to meet the requirements of the Florida Statute 190.006,” Robert Henn, IRS manager of tax-exempt bonds field operations, told the district in an Oct. 21 letter.
“At this time, the district has not reached the six-year period in which an election of qualified board members will be held. This advisory is issued to ensure that the district will elect qualified electors at the next election.”
IRS agents have become concerned that the boards for many of the community development districts in Florida are made up of employees or others associated with the developers, rather than the residents of the district.
Florida law says generally that regardless of whether a CDD has proposed to levy ad valorem taxes, six years after the initial appointment of board members, those members whose terms have expired shall be replaced by residents of the district who are at least 18 years old and who have been elected by other district residents.
“Future noncompliance could result in penalties and-or the taxability of interest received by the beneficial owners of the bonds,” Henn said. “If the need arises to open another examination on the bonds, any change resulting from the future examination may affect all open years of the beneficial owners of the bonds.”
The Bartram Park district disclosed the IRS letter in a notice to bondholders that was posted as an event notice on the Municipal Securities Rulemaking Board’s EMMA system.
Wesley Haber, a lawyer with Hopping Green & Sams, which represents the CDD, could not be reached for comment.