Boardwalk Hall, known today also as the Historic Atlantic City Convention Hall, opened in Atlantic City, New Jersey, in 1929. Famous for having hosted the Miss America Pageant, the Hall was added to the National Register of Historic Places as a National Historic Landmark in 1987. The Hall has become even more famous in the tax law world as the site of a long-running battle over historic rehabilitation tax credits, ultimately won by the Internal Revenue Service when the U.S. Court of Appeals for the Third Circuit disallowed the claimed tax credits. Tax credits, contrary to popular belief, cannot be sold. In practice, the developer will admit a tax credit investor into the partnership or LLC that owns or leases the property, in order to allow an allocation of tax credits to the investor. In the typical case, the tax credit investor’s economic benefits are almost entirely derived from the tax credits it is receiving. The Third Circuit’s decision on Aug. 27, 2012 in the Boardwalk Hall case contained broad language about looking to the substance of the transaction and how the tax credit investor was not a partner for federal income tax purposes. This holding paralyzed the tax credit industry, which became unsure of how to structure a tax credit investment.
To address this confusion, the Internal Revenue Service (IRS) issued Revenue Procedure 2014-12 earlier this year, which creates a safe harbor that allows the historic rehabilitation tax credit for partnerships or LLCs that meet all of the safe harbor requirements.1 The revenue procedure can be best understood against the factual background of the Hall. This article reviews the safe harbors and how they would not have been met by the Hall’s rehabilitation.
The Revenue Procedure
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