The Internal Revenue Service has issued a revenue procedure providing a safe harbor to those who invest in renovations of historic commercial buildings, addressing concerns stemming from a 2012 appeals court decision that upset users of historic tax credits, or rehabilitation credits.

Revenue Procedure 2014-12 establishes the requirements under which the Internal Revenue Service will not challenge partnership allocations of rehabilitation credits under Section 47 of the Tax Code by a partnership to its partners. The revenue procedure comes in response to an August 2012 federal appeals court decision involving Historic Boardwalk Hall on the boardwalk in Atlantic City, N.J. The U.S. Court of Appeals for the Third Circuit decided that a tax credit investor was not a bona fide partner because it didn’t have a meaningful stake in the success or failure of the project, reversing an earlier U.S. Tax Court decision. The Third Circuit determined that the investor’s return from the partnership was effectively fixed, and that the investor also had no meaningful downside risk because its investment was guaranteed.

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