In Play: Appeals Court Decision Spurs Concerns About Bifurcated Transactions With State Tax Credits
By Caitlin Jones
1 min read
Tax Credit Advisor, May 2011: In a decision with broad implications for the tax credit syndication industry, the U.S. Court of Appeals for the Fourth Circuit has sided with the Internal Revenue Service and overturned a U.S. Tax Court decision that affirmed the validity of transactions in which Virginia state historic rehabilitation tax credits were allocated to investors with very small interests – of short duration – in upper-tier investment partnerships.
A three-judge panel of the appeals court ruled that the exchange between the investment funds and the investors of the Virginia state tax credits for money was not an allocation of tax credits in return for capital contributions but rather a sale of property by the funds to the investors that triggered taxable income for the funds. (Virginia Historic Tax Credit Fund 2001 LP et al vs. Commissioner of Internal Revenue Service, Nos. 10-1333, 10-1334, 10-1336, 3/29/11)
