Spring 2014 issue of Horizons

REAL ESTATE

Positive News for the Historic Tax Credit Industry by Bryan Keller, CPA & Dave Herdlick, CPA

L ast December, the Internal Revenue Service (IRS) issued the much anticipated Revenue Procedure 2014-12 establishing a safe harbor under which allocations by partnerships to partners of historic rehabilitation tax credits (HTCs) under Section 47 of the Internal Revenue Code will be respected. Two amendments to Revenue Procedure 2014-12 were subsequently published in January. The safe harbor was issued in response to the August 2012 Court of Appeals for the 3rd Circuit decision in Historic Boardwalk, LLC v. Commissioner in which the court denied HTCs to an investor on the basis that it was not a partner in a partnership entitled to HTCs. The ruling, along with an increase in HTC audit activity, had the adverse effect of bringing the HTC industry to its knees as a majority of large investors withdrew from the market due

to uncertainty of what facts and tax structure the IRS would view as acceptable.

The revenue procedure’s purpose was intended to answer questions left unanswered in the August 2012 Boardwalk ruling. The most significant of which included the ruling that the Boardwalk HTC investor was not a partner because it did not share in either the upside potential or downside risks of a partnership structured to rehabilitate Historic Boardwalk Hall in Atlantic City. Understanding the requirements of the safe harbor is necessary to properly structure a HTC transaction post-safe harbor. HTC developers, investors, attorneys and CPAs have worked diligently, interpreting the safe harbor guidance since it was released.

The IRS provided guidance and a basic framework which, if followed, will allow a

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