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.