Possible IRS Troubles Ahead for WDW/RCID

[fillerup]

This won't be all that interesting to most people here as it's a pretty dry technical story and it doesn't yet affect WDW directly, but very well could. And it may affect Disney Springs and the plan to issue $360M in tax free bonds.

Disney tax lawyers are spinning it that they don't think this will affect the company, but at the same time, they're warning potential investors in their tax frees that it might.

From the 7/14 O'Sentinel, headline and a few paragraphs:

As IRS cracks down on The Villages, Disney World watches

"The federal government recently cracked down on a lucrative tax break used by the developer of The Villages, the sprawling community northwest of Orlando that has been called Disney World for retirees.

That could be an ominous sign for the real Walt Disney World.

In a scathing decision issued in May, the Internal Revenue Service ruled that The Villages did not have the right to use tax-free debt to finance golf courses, swimming pools and other assets. The reason: The Villages sold the debt through an obscure government district whose leaders were ultimately controlled by the developer, rather than the general public, and therefore couldn't be considered real governments.

That's a lot like Disney World's personal government, the Reedy Creek Improvement District, which also gets to use tax-free debt — and whose leaders are all handpicked by Disney."

For those of you who care to slog through the full article, here it is:

Orlando Sentinel

 

[71jason]

Thanks for the post.

"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," the IRS wrote in its ruling.

Sounds a lot like Reedy Creek to me. Interesting that we can get 200 posts on whether Fastpass creates big lines or refillable mugs, but when Garcia finally breaks a real story, crickets.

 

[rael ramone]

Time to take profits in $DIS?....

 

[englanddg]

Development bad...taxes good...

 

[OFTeric]

This is really interesting. since the RCID should be dissolved, or public elections should be held. It is an unfair business advantage that Disney has over other tourism companies here in Florida.

 

[Monty]

I'd be willing to bet Disney's lawyers have it well in hand. For starters, to my knowledge the "general public" within RCID are all Disney employees, no doubt set up in such a manner as to be "arms-length" from the investment/development side of the operation.

 

[OFTeric]

Isn't this the voting population for Bay Lake, FL and the RCID? https://www.google.com/maps/preview#!data=!1m4!1m3!1d2522!2d-81.5692846!3d28.4260528!2m1!1e3&fid=7

http://en.wikipedia.org/wiki/Bay_Lake,_Florida

http://www.rcid.org/About/CityofBayLake.aspx

 

[Killnme]

I bet Disney beats the IRS. I have read a book on how the whole area was set up and somehow Disney will win, because something past by the state of Florida back when Disney broke ground.

 

[lazyboy97o]

I bet Disney beats the IRS. I have read a book on how the whole area was set up and somehow Disney will win, because something past by the state of Florida back when Disney broke ground.

The Federal Government is not necessarily concerned with whether or not the District was approved by the State.

 

[OFTeric]

in the end it is an unfair competitive advantage that Disney has over it's competitors.

 

[WDWDad13]

in the end it is an unfair competitive advantage that Disney has over it's competitors.

How is it unfair when they set this up legally

 

[lazyboy97o]

How is it unfair when they set this up legally

Disney controls their own zoning and building codes. Other companies do not get the same access to tax-free bonds either. Married to the Mouse:Walt Disney World and Orlando by Richard Fogelsong has a good overview of the situation.

 

[WDWDad13]

Disney controls their own zoning and building codes. Other companies do not get the same access to tax-free bonds either. Married to the Mouse:Walt Disney World and Orlando by Richard Fogelsong has a good overview of the situation.

I'm aware of all of that but how is it "unfair"

 

[ParentsOf4]

I'm aware of all of that but how is it "unfair"

As @lazyboy97o alludes to in mentioning Married to the Mouse, RCID gives WDW some incredibly unfair business advantages. WDW basically has its own government with, for example, its own building code. WDW might never have been built if it had to navigate the "normal" local government approval process. Perhaps more than anything, this is what Walt and Roy wanted to be able to avoid when they negotiated the move to Orlando.

There have been many laws created by local governments later ruled by the Courts to be "unfair" and overturned. Ultimately, the IRS doesn't care about RCID. It wants its money and it doesn't care what legislation the State of Florida passed in 1965. If the IRS moves forward on this, look for WDW to work out a financial compromise without actually giving up its autonomy.

 

[WDWDad13]

I understand that but again now is it unfair? Seems to me it's brilliant....gives it business advantages....not unfair business advantages....it's perfectly fair....Uni or SeaWorld could have done the same thing in place of Disney back in the day

 

[lazyboy97o]

I'm aware of all of that but how is it "unfair"

Because Disney avoids hurdles that others must navigate. You dont think its be easier to make your own rules versus following ones made by others?

There have been many laws created by local governments later ruled by the Courts to be "unfair" and overturned. Ultimately, the IRS doesn't care about RCID. It wants its money and it doesn't care what legislation the State of Florida passed in 1965. If the IRS moves forward on this, look for WDW to work out a financial compromise without actually giving up its autonomy.

I don't think this would have any impact on the actual existence of the District and the other issues they handle, just the issuance of bonds.

 

[lazyboy97o]

I understand that but again now is it unfair? Seems to me it's brilliant....gives it business advantages....not unfair business advantages....it's perfectly fair....Uni or SeaWorld could have done the same thing in place of Disney back in the day

Except that it was all needed for EPCOT, something that never happened, and not tourism projects.

 

[OFTeric]

I'm aware of all of that but how is it "unfair"

I am sure that SeaWorld, Universal, even Fun Spot, etc would love access to interest free loans. Along with all the other perks of controlling your regulators, codes, property taxes etc

 

[fillerup]

I am sure that SeaWorld, Universal, even Fun Spot, etc would love access to interest free loans. Along with all the other perks of controlling your regulators, codes, property taxes etc

Please understand the nature of the bonds being discussed here. These are bonds that are issued by Disney and the interest income to the investors in these bonds is not subject to income taxes, like any bond issued by a municipality, state, or county.

If IRS prevails in this, Disney still can issue these bonds but they'd have to pay a higher interest rate to the investors to offset the tax consequences.

Disney isn't getting interest free loans.

 

[Nemo14]

I am sure that SeaWorld, Universal, even Fun Spot, etc would love access to interest free loans. Along with all the other perks of controlling your regulators, codes, property taxes etc

I'd like some too please.