IRS wants $1.5 million for Villages settlement, District offering $300,000

A cash settlement could come soon to end the long-running dispute between the Internal Revenue Service and the Villages Community Center Development District.

District supervisors voted Thursday to offer $300,000 to settle the dispute, which centered on whether $426 million bonds issued by district between 1993 and 2004 were allowed to be tax-exempt. The IRS asked for $1.5 million to settle the issue.

Despite the substantial gap between the two offers, Supervisor Gary Moyer said the IRS might be willing to accept the smaller amount.

“Do I think the IRS will accept the offer?” he asked. “I have no idea. I think they are tired of this also.”

He said the board’s offer is based on estimated cost of legal fees needed to appeal a negative IRS ruling. The Lake Sumter district would pay a third of the settlement cost.

“I think the IRS is looking for a response from the board on their offer,” Moyer said. “I can’t do it at $1.5 million.”

If agreement on a cash figure can’t be reached, he said the case likely would proceed to the IRS appeals division.

“Don’t think if we go to appeals that we’re going to come away with a victory,” he said. “We don’t know that. We’ve been advised that appeals (division) is a pretty independent group.”

Moyer said two IRS issues have been settled. They were a challenge to the value of recreational assets sold to community development districts and a claim by the agency that the center district board lacked political subdivision status required to issue tax-exempt bonds.

The IRS had argued that the district wasn’t a political subdivision because supervisors are chosen by landowners instead of residents. The district’s attorney accused the agency of altering the definition of a political subdivision.

Moyer said the issue that remains involves use of recreational amenities.

A proposed settlement of the marathon dispute was rejected in 2009 because it would have required the remaining 30-year bonds to be recalled and reissued as taxable bonds with the cost paid from amenity fees of homeowners living north of County Road 466.

Over the past few years, the center and Lake Sumter districts have refinanced hundreds of millions of those tax-exempt bonds as taxable bonds, taking advantage of low interest rates.