IRC Section 103: The Bond-Financed Property Will be OWNED by the Governmental Unit.
October 25, 2016
IRS – Department of Treasury
501 W. Ocean Blvd. 2nd Floor
Long Beach, CA 90802
Internal Revenue Service
1160 W. 1200 S
Ogden, Utah 84201
RE: City of Beaumont CFD Mello Roos Bonds
Enclosed are documents to supplement the compliant submitted on May 9, 2016.
On November 18, 2014 the Beaumont City Council Approved Agenda Item 6.a.16 to pay off the 2001 Wastewater Bond: http://www.ci.beaumont.ca.us/D…
Although the Staff Report Stated that the $8,270,000 would be paid with Sewer Funds and Developer Impact Fees, the money was removed from the CFD Bond Fund Accounts.
On September 6, 2016 the Beaumont City Council Approved Transferring $5 Million from the Sewer Fund to the General Fund on the pretense of repaying the CFD Bond Fund Accounts: http://www.ci.beaumont.ca.us/DocumentCenter/View/28276
Beaumont City Manager Richard Warne and Public Works Director Amer Jakher forged a Certificate of Completion stating that a Recycled Water Facility, Fire Station, Regional Park, and Roadways were completed although Council Members acknowledged in the Meeting that the facilities did not exist.
On October 18, 2016 the Beaumont City Council Approved a Revised Certificate of Completion: http://www.ci.beaumont.ca.us/D…
The Revised Certificate of Completion removed the Bond Documentation and submitted a Certificate of Completion omitting information that correlated with the Bonds and submitted statements referencing the houses within the Development Areas: “All of the real property within the boundaries of the CFD has been fully developed (with certificates of occupancy)..”
Internal Revenue Code Section 103 clearly states that one of the characteristics of tax-exempt bonds are that the bond-financed property will be owned by the government unit.
The City of Beaumont does not own the property financed by the bonds because the money was either embezzled or traded for Mitigation Fees with Developers. Either way you slice it; the Bonds are not Tax-Exempt.
To this day the City of Beaumont continues to collect Mitigation Fees from the Developers with the promise that the City will reimburse the Developers’ Mitigation Fees with Bond Funds. Also enclosed is a Claim from Pardee Homes requesting reimbursement of $2.8 Million in Mitigation Fees.
IRC Section 103: Federal Taxation of Municipal Bonds
Distinguishing between Governmental Bonds and Private Activity Bonds. Two distinguishing characteristics of governmental bonds are that the bond proceeds:
- Will be USED by the governmental entity for its own purposes, and
- the bond-financed property will be OWNED by the governmental unit.
Treas. Reg. Section 1.150-1(b) defines a governmental bond as any bond of an issue of tax-exempt bonds in which none of the bond’s are private activity bonds.
Private Activity Bonds: Generally, private activity bonds are bonds issued by a governmental unit (or related agency):
- the proceeds of which will be used by an entity OTHER THAN a governmental unit, and
- the debt service of which will be paid from private payments.
IRC Section 141: Test for Private Activity Bonds.
Private Business Tests and Private Loan Security or Payment Test.
Definition of Arbitrage: Arbitrage is the purchase and sale of the same or equivalent security in order to profit from price differences. The term arbitrage is not exclusive to municipal securities; it applies to all types of investments.