Academic journal article Journal of Accountancy

Safe Harbor Offered for Allocating Rehab Credits

Academic journal article Journal of Accountancy

Safe Harbor Offered for Allocating Rehab Credits

Article excerpt

In the wake of an appellate decision denying allocations of Sec. 47 credits to investor partners in a historic rehabilitation project, the IRS issued guidance including a safe harbor for such allocations.

The guidance, Rev. Proc. 2014-12, had been anticipated after the IRS won reversal of a Tax Court opinion in Historic Boardwalk Hall, LLC, 694 E3d 425 (3d Cir. 2012), cert. denied, No. 12-901 (U.S. 5/28/13). The Third Circuit held that a limited liability company created by a New Jersey state authority with a corporate investor member to rehabilitate and operate a historic theater on Atlantic City's Boardwalk was not a valid partnership and the corporation was not a bona fide partner. For previous coverage, see "Tax Matters: Supreme Court Declines to Hear Historic Boardwalk Hall," JofA, Aug. 2013, page 63.

The safe harbor requires (1) allocations of rehabilitation credits under a partnership agreement to satisfy the requirements of Sec. 704(b) and the regulations and (2) the rehabilitation credit to be allocated in accordance with Regs. Sec. 1.704-1(b)(4)(ii). The principal partner and the investor partners in the partnership are required to hold certain minimum interests in each material item of partnership income, gain, loss, deduction, and credit throughout the partnership's existence. …

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