The U.S. Court of Appeals for the 3rd Circuit filed has issued an opinion overturning the U.S. Tax Court’s Jan. 3, 2011 decision on Historic Boardwalk Hall (HBH) v. IRS Commissioner. The 3rd Circuit Court found that the project’s historic tax credit (HTC) equity investor, Pitney Bowes Inc., was not a bona fide partner in HBH because it lacked a meaningful stake in the project’s success or failure. The court remanded the case for further proceedings consistent with its opinion. This case could have significant implications on how tax credit transactions are structured going forward. NH&RA’s Historic Preservation Development Council (HPDC) will be providing further analysis in the weeks to come.
The New Jersey Sports and Exposition Authority (NJSEA) formed a partnership, Historic Boardwalk Hall (“HBH”), in order to syndicate federal historic rehabilitation tax credits generated when it redeveloped an Atlantic City property known as East Hall. A number of investors, including Pitney Bowes participated as limited partners.
The IRS challenged the validity of the partnerships in the U.S. Tax Court. The Tax Court found in favor of the taxpayers in Historic Boardwalk Hall v. Commissioner, 136 T.C. No. 1 (2011) and the IRS appealed.
The 3rd Circuit concluded that that Pitney Bowes “should not be treated as a bona fide partner in HBH because [it] did not have a meaningful stake in the success or failure of the partnership.” The Third Circuit cited several cases including the Second Circuit’s opinion in TIFD III-E v. United States, 459 F.3d 220 (2d Cir. 2006) (better known as “Castle Harbour“) and the recent Fourth Circuit’s holding in Virginia Historic Tax Credit Fund LLC 2001 v. Commissioner, 639 F.3d 129 (4th Cir. 2011).
Tax Court Opinion: Historic Boardwalk Hall v. Commissioner, 136 T.C. No. 1 (2011)
3rd Circuit Opinion:
Historic Boardwalk Hall v. Commissioner, No. 11-1832 (3d Cir. August 27, 2012)
Virginia Historic Tax Credit Fund LLC 2001 v. Commissioner, 639 F.3d 129 (4th Cir. 2011)