Municipal Bond Forum
Disputes over status of bonds usually between IRS and issuer
Q
We live in the Villages, Florida. Villages bonds have been issued as municipal and are now being questioned as to the legality of their municipal status. If these bonds are determined not to fit the requirements for municipal bonds, what will be the consequences for the bondholders?
A
James A. Klotz responds:
Although we don’t think it likely, the worst-case scenario would be that
the interest from these bonds would become taxable. Most of these situations, however, are settled between the IRS and the issuer without impacting the bondholders.
It is important to note that not all of the Villages issues are under IRS scrutiny. If you have avoided the bonds issued for the recreational facilities, you probably need not be concerned at all.
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