Third Circuit Invalidates Historic Credit Partnership

On August 27, 2012 a three (3) judge panel of the Third Circuit Court of Appeals, in Historic Boardwalk Hall, LLC v. Commissione of Internal Revenue, 2012 WL 3641769 (No. 11-1832, 8/27/12), held that a historic tax credit partnership funded by the Pitney Bowes corporation, was not a valid partnership for federal income tax purposes and denied the investor partner the allocation of historic tax credits.  The Third Circuit found that although Pitney Bowes invested over $18 million as purported capital contributions to renovate the Atlantic City Convention Center, it's entrepreneurial upside and downside as a partner did not exist in substance.  Pitney's partnership interest included a 3% preferred return and it held 99% of the cash flow and profits but the Third Circuit said it was protected against any appreciable risk of loss because the historic credits returned its investment and the New Jersey Sports Authority had a right to call its partnership interest at the net present value of capital out of pocket rather than a full market price for its residual partnership interest.

It is not clear yet whether a petition for en bang reconsideration by the full Third Circuit would be made, but the decision will be controversial and will foster much discussion in the tax professional literature in the coming days and months. 

Stay tuned.

NEW INNOCENT SPOUSE GUIDELINES ISSUED

The IRS recently issued important new guidelines for innocent spouse relief under IRC section 6015 to override prior guidelines under Rev. Proc. 2001-61.  The new guidelines, issued under Notice 2012-8, liberalize innocent spouse treatment where factors such as spousal abuse and excessive control of finances and financial information by the non-requesting spouse exist.  Additionally, an objective standard is adopted to determine whether the requesting spouse will suffer economic hardship, and guidelines as to the weight of the factors to consider are provided.  Moreover, the new guidelines provide for more streamlined review of innocent spouse cases, and for reconsideration of pending cases on the Tax Court docket which are not yet scheduled for trial in which equitable relief under IRC Section 6015(f) is at issue.

These new guidelines are effective immediately pending the finalization of the new proposed revenue procedure.  For any questions, please do not hesitate to contact Curtis Elliott at 704-372-6322.