IRS Issues Rehabilitation Credit Safe Harbor

The IRS has issued guidance (Rev. Proc. 2014-12) that responds to Historic Boardwalk Hall, LLC v. Commissioner (694 F.3d 725), in which the Third Circuit held that an investor in a partnership who did not have any meaningful downside risk or upside potential was not a bona fide partner for federal tax purposes, and was therefore not entitled to an allocation of 99.9% of the historic rehabilitation tax credits under Section 47.

Rev. Proc. 2014-12 provides safe harbor guidance on when an investor in a historic rehabilitation credit partnership would be respected as a partner for tax purposes. Such partner status is essential for the investor to receive an allocation of the rehabilitation credits.