The Villages' big IRS problem (pt. 2)

IRS-Villages dispute shows no sign of resolution

Lauren Ritchie
COMMENTARY
September 1, 2010
Second of two parts.
OrlandoSentinel.com


In May, the Internal Revenue Service agent conducting the review of $355.4 million in outstanding bonds issued by the Village Center and the Sumter Landing community development districts suggested a settlement in the ongoing war between the two.

The district should redeem all its bonds and repay the debt. It should pony up $16 million in back taxes on the bonds and should agree never to issue tax-free bonds again.

The settlement suggested by the agent wasn't received with dancing in the streets. Though there is no written rejection in the files at the district office, the answer that filtered back to the IRS was quite clear.

And it touched off a new set of skirmishes in what has become an expensive battle — already $209,000 spent in mostly lawyer fees — that I described in Sunday's column.

IRS Agent Dominick Servadio responded to the district's disdain for his idea in July by officially opening new investigations on another $60 million worth of bonds issued by the Sumter Landing Community Development District.

Complaints about agent

The district retaliated by calling Servadio's boss and complaining.

On July 20, he fired back in a letter: "All of the complaints/issues you have raised are totally without merit, and I would only hope that in the future you would have the courtesy to direct any similar comments or complaints to me instead of going behind my back.

"I can only assume that the intent of these recent phone calls is to distract attention away from the examination issues, or possibly to indirectly intimidate me or impede me in the performance of my officials duties.

"I can assure you that you will accomplish none of those things."

He stated that "everyone's best interest" would be served if the district honored his request to deal directly with him and quit calling his bosses.

The district's next move was to file a Freedom of Information Act demand, wanting to know with what third parties (especially the evil media) Servadio had discussed the case. That's because the district seemed convinced from the beginning that this is all about a conspiratorial smear campaign by Villages haters or else a career-building maneuver by the agent. (That's standard response to criticism in The Villages. Anyone who questions the financial structure is either jealous or has a secret agenda to destroy the happiness of 80,000 lucky people. It couldn't be anything else.)

The IRS just laughed and said no. It wasn't releasing any documents from an ongoing review to determine whether nearly a half billion dollars in bonds should be considered tax-free.

Outcome of dispute unclear

Since then, Servadio has been promoted. A field agent in Charlotte, N.C., was assigned the case, and in March she asked for hundreds of pages of information about how the districts function and what they own.

The agent wants evidence of the written consent for establishing the districts from all the landowners whose property is included in the district, a legal description of the external boundaries of the district and a land-use plan showing what is intended for the property in the future.

Meanwhile, an IRS appraiser from Palm Beach County came tocalculate the value of what the district bought from the developer with the bond money. Part of the dispute involves the IRS contention is that the developer made as much as 700 percent profit, which Servadio said would never have happened if the developer hadn't controlled the district.

So, there you have it. Nobody's position has changed much, and the dispute is just humming along through the system.

Millions of dollars are still at stake, and the future for homeowners in The Villages is no more clear when this investigation started several years ago.


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