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Tax Credit Structures Called into Question by Historic Boardwalk Hall Decision

In a much anticipated decision, the Court of Appeals for the Third Circuit reversed the Tax Court and held that the tax credit investor in a historic rehabilitation project was not a bona fide partner for tax purposes, and therefore could not be allocated any of the federal historic tax credits generated by the project. The unanimous decision found that the investor, Pitney Bowes, was not a partner because it had no meaningful downside risk or any meaningful upside potential in the business conducted by the purported partnership. While no clear rules were established by the decision, we expect the industry to closely review the impact and necessity of the various guarantees typically provided to tax credit investors, as well as the share of economics that tax credit investors should receive on their investment.

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