IRS Issues Historic Tax Credit Safe Harbor Guidance– January 03, 2014 by Mike McGivney

The IRS issued Revenue Procedure 2014-12 on December 30, 2013. This long-awaited guidance provides a safe harbor for structuring investments in federal Historic Rehabilitation Tax Credits (HTCs) available under IRC Section 47. The safe harbor is effective for all partnership allocations of HTCs occurring on or after December 30, 2013, and for buildings placed in service prior to December 30, 2013, if the partnership and its partners meet the safe harbors set forth in the revenue procedure.

Since Historic Boardwalk Hall, in which the Third Circuit Court of Appeals unwound an HTC transaction and disallowed the tax credits allocated to the investor, there has been a significant amount of uncertainty regarding what types of transaction structures would be challenged by the IRS. This recent guidance should allow developers and investors to structure transactions with more certainty using either a partnership flip or master tenant structure. However, those seeking to fall under the safe harbor should be aware that it only applies when the transaction is structured to meet the detailed requirements of the safe harbor structures as outlined by this revenue procedure. Failure to meet these requirements does not automatically prohibit special allocations of the rehabilitation credit, but such transactions would be subject to a greater degree of scrutiny and would need to stand on their own merits as non-tax avoidance transactions.

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