TALLAHASSEE, Fla. (AP) — The Internal Revenue Service is questioning hundreds of millions worth of bonds issued by a sprawling Central Florida retirement community built by a major Republican donor.

The IRS has been embroiled in a dispute with The Villages for several years over whether community development districts used to help create the enclave an hour north of Orlando deserved tax-exempt status.

The latest answer from the IRS is still no.

A “technical advice memorandum” issued in May contends that the developer of The Villages continues to assert control over the district that has issued more than $400 million worth of tax-free bonds. The IRS says that means the district should not enjoy a tax-exempt status like other governments.

“We believe that an entity that is organized and operated in a manner intended to perpetuate private control, and to avoid indefinitely responsibility to a public electorate, cannot be a political subdivision of a state,” states the IRS memo.

The company that developed The Villages is controlled by Gary Morse and his family. Morse is a prominent GOP donor at the federal and state levels who has made his private jet available to the Republican Party of Florida. Last year The Villages gave a total of $350,000 to the state party and a political committee controlled by Gov. Rick Scott.

Perry Israel, a bond attorney representing the district, said the options include getting the IRS to change the decision or asking bondholders to pay the taxes.

He said the community development district, known officially as the Village Center Community Development District, could try to settle the case but that could result in an expense that may ultimately be paid by area residents.

But Israel still disputed the IRS decision.

“I’m concerned that the IRS appears to be making new law through an enforcement process,” Israel said.

A call to the IRS was not immediately returned Wednesday.

The IRS decision comes at a time when its scrutiny of political groups, particularly those linked to the Tea Party movement, has created a fierce backlash in Congress.

The dispute over The Villages predates the election of President Barack Obama but it has gotten strident at times.

One IRS agent who questioned transactions suggested that control by Morse’s company over the Village Center Community District resulted in the district using $60 million in bond proceeds to purchase guardhouses, golf courses and parks that cost the developer less than $8 million to build.

Israel said the most recent IRS decision could have ramifications through Florida and the rest of the country where developers rely on similar bonds.

(© Copyright 2013 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.)


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