Today, the Supreme Court denied a petition to review the 3rd Circuit’s opinion in favor of the IRS in the Historic Boardwalk Hall case which involved eligibility for federal historic tax credits for rehabilitation of a historic building.1
In Historic Boardwalk Hall, an affiliate of Pitney Bowes entered into a highly structured transaction in which it was insulated from much of the risk and reward with respect to the operation of a convention hall in Atlantic City; nonetheless, the transaction was intended to result in the allocation of a large federal investment tax credit to Pitney Bowes.
The structure included a “call” right for the acquisition of Pitney Bowes’ interest in the investment partnership that if it was not exercised gave Pitney Bowes the right to “put” its interest in the partnership. The prices to exercise either the put or the call were based on comparable formulas. The transaction also included a “tax benefit guaranty agreement” for the benefit of Pitney Bowes.2 The IRS challenged the transaction. The Tax Court ruled for the taxpayer. On appeal, the 3rd Circuit reversed and ruled for the IRS.
In sum, the 3rd Circuit had concluded that the parties “in substance, did not join together … to rehabilitate and operate the East Hall. Rather, the parties’ focus from the very beginning was to effect a sale and purchase of” tax credits. It added that Pitney Bowes “had no meaningful downside risk because it was, for all intents and purposes, certain to recoup the contributions it had made … and to receive the primary benefit it sought – the [tax credits] or their cash equivalent.”3
The Pitney Bowes affiliate petitioned the Supreme Court to grant certiorari and review the 3rd Circuit’s opinion. The brief in support of the petition provided:
This is a case of exceptional national importance, particularly because thousands of partnership projects with HRTCs have been structured in a manner indistinguishable from the one herein. The Congressional purpose in enacting 26 U.S.C. § 47 is clear and there can be no doubt that the Third Circuit's opinion imperils that mandate. The petition demonstrates that the court's reasoning and conclusions are legally indefensible, and that the opinion conflicts with the precedent of this Court and with courts of appeals. All of these factors establish an urgent need for this Court to grant review.4
The Supreme Court was apparently unmoved by this rationale as today it denied that petition. There is no published opinion associated with the denial, so it is difficult to deduce the Supreme Court’s view of the case. The votes of four Supreme Court justices are required to grant the petition, so less than four Supreme Court justices were sufficiently concerned by the 3rd Circuit’s approach to vote in favor of reviewing the case.
The historic tax credit community appears to have been prepared for the fact that the Supreme Court would not come to its rescue. The IRS has been asked to publish a revenue ruling blessing acceptable structures for historic tax credit transaction.5 If that revenue ruling is published, it will provide helpful guidance and certainty for historic tax credit structures. Like the federal tax credit for solar project, the historic tax credit is an “investment tax credit”. Therefore, the revenue ruling may also provide some insights as to acceptable structure for allocating investment tax credits from solar projects.
1 Historic Boardwalk Hall v. Commissioner, 585 F.3d 425 (3d Cir. 2012), cert. denied 2013 WL 249846 (May 28, 2013) (No. 12-901).
2 Brief of Respondent, Historic Boardwalk Hall v. Commissioner, 585 F.3d 425 (3d Cir. 2012) (No. 12-901), 2013 WL 1780821 (Apr. 24, 2013).
3 Historic Boardwalk Hall v. Commissioner, 585 F.3d 425 (3d Cir. 2012).
4 Reply Brief for Petitioner, Historic Boardwalk Hall v. Commissioner, 585 F.3d 425 (3d Cir. 2012) (No. 12-901), 2013 WL 1910987 (May 6, 2013).
5 Cf. Letter from Rep. Niki Tsongas (D-MA) to Jack Lew, Secretary of the Treas. (Apr. 26, 2013) (available at TNT DOC 2013-11090)