Seminole dodge IRS fight over conduit tax-exempts

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HOLLYWOOD, Fla. -- A major Internal Revenue Service fight with Indian
tribes will have one less combatant, according to a spokesman for the
Seminole Tribe of Florida.

The Seminoles announced Sept. 25 that they intended to retire more than
$430 million in "conduit" tax-exempt financing issued through Florida's
Capital Trust Agency. In a controversial move, the IRS has challenged the
tax-exempt status of the bonds, which allows them to be sold at a lower
interest rate than bonds subject to federal income tax.

The IRS Bond Division has brought a similar challenge to tribal bonds
issued in California. According to The Wall Street Journal, IRS officials
are reviewing about a dozen tribal issues. If the IRS prevails, people
drawing interest from the bonds could be hit with a back tax bill, and the
issuers could be open to lawsuits and federal fines.

Several tribes have turned to state and local public financing agencies to
issue bonds for their own economic development because federal law imposes
stricter limits on tribal tax-exempt issues than it does on state and
municipal ones. The conflict dates to the 1982 Indian Tribal Governmental
Tax Status Act, which supposedly gave tribes equal treatment with states
and municipalities on bond issues. But language inserted by then U.S. Rep.
Sam Gibbons, R-Fla., permitted bond financing only for facilities serving
"an essential government function."

Although economic development is widely seen as a government function for
states and municipalities, as the U.S. Supreme Court affirmed to great
uproar in its recent Kelo v. New London decision, the IRS has been loathe
to give tax breaks to anything connected with tribal casinos. It has
intensified its crackdown in the past year.

Rather than fight it through, the Seminole Tribe said it would issue about
$730 million of its Gaming Division Bonds this October in a private
transaction. The proceeds would used to refinance five series of the
Capital Trust Agency revenue bonds and notes.

Another $133 million would refinance loans and lease obligations. The
remaining funds, it said, would "pay related fees and expenses" and be used
for "general business purposes."

Tribal officials were not available for comment. But the Seminoles are
facing a major strategic decision, and possibly heavy capital investments,
in their gaming operations. The tribe presently operates six Class II
casinos, where the slot machines mimic bingo games. But state voters last
November approved a constitutional amendment allowing "racinos," slot
machine parlors at dog and horse tracks, in the two southern counties. The
measure gives tribes possibly decisive leverage for Class III gaming on
reservations, a development long vehemently resisted by the state
government.

The tribe said it plans to refinance the following Capital Trust Agency
issues:

* $258.3 million in Capital Trust Agency Revenue Bonds, Convention and
Resort Hotel Facilities, Series 2002A.

* $25 million Variable Rate Revenue Bonds, Series 2002B.

* $26.5 million Revenue Bonds, Series 2002C.

* $74 million Revenue Bonds, series 2003.

* $50 million Revenue Bonds, Series 2004A.

The Seminoles also intend to refinance $21 million of their own Taxable
Revenue Bonds (Resort Gaming Facilities Project), Series 2003, $120 million
of loans issued under its Senior Secured Term Loan Facility and $15.6
million of lease obligations under a Master Lease Agreement with PDS Gaming
Corp.

The bonds would not be registered under federal or state securities laws,
meaning they would not be eligible for sale in public markets.

According to a Seminole release, the transaction is expected to be
completed this October. Information on potential buyers and interest rates
was not available.