Historic Boardwalk Hall, LLC v. Comm'r of Internal Revenue
| Decision Date | 27 August 2012 |
| Docket Number | No. 11–1832.,11–1832. |
| Parties | HISTORIC BOARDWALK HALL, LLC, New Jersey Sports and Exposition Authority, Tax Matters Partner v. COMMISSIONER OF INTERNAL REVENUE, Appellant. |
| Court | U.S. Court of Appeals — Third Circuit |
OPINION TEXT STARTS HERE
Tamara W. Ashford, Arthur T. Catterall [Argued], Richard Farber, Gilbert S. Rothenberg, William J. Wilkins, United States Department of Justice, Washington, D.C., for Appellant.
Robert S. Fink, Kevin M. Flynn [Argued], Kostelanetz & Fink, LLP, New York, NY, for Appellees.
Paul W. Edmondson, Elizabeth S. Merritt, William J. Cook, National Trust for Historic Preservation, David B. Blair, Alan I. Horowitz, John C. Eustice, Miller & Chevalier, Chartered, Washington, D.C., for Amicus National Trust for Historic Preservation.
A. Duane Webber, Richard M. Lipton, Robert S. Walton, Derek M. Love, Samuel Grilli, Baker & McKenzie LLP, Chicago, IL, for Amicus Real Estate Roundtable.
Before: SLOVITER, CHAGARES, and JORDAN, Circuit Judges.
This case involves the availability of federal historic rehabilitation tax credits (“HRTCs”) in connection with the restoration of an iconic venue known as the “East Hall” (also known as “Historic Boardwalk Hall”), located on the boardwalk in Atlantic City, New Jersey. The New Jersey Sports and Exposition Authority (“NJSEA”), a state agency which owned a leasehold interest in the East Hall, was tasked with restoring it. After learning of the market for HRTCs among corporate investors, and of the additional revenue which that market could bring to the state through a syndicated partnership with one or more investors, NJSEA created a New Jersey limited liability company, Historic Boardwalk Hall, LLC (“HBH”), and subsequently sold a membership interest in HBH 1 to a wholly-owned subsidiary of Pitney Bowes, Inc. (“PB”).2 Through a series of agreements, the transactions that were executed to admit PB as a member of HBH and to transfer ownership of NJSEA's property interest in the East Hall to HBH were designed so that PB could earn the HRTCs generated from the East Hall rehabilitation. The Internal Revenue Service (“IRS”) determined that HBH was simply a vehicle to impermissibly transfer HRTCs from NJSEA to PB and that all HRTCs taken by PB should be reallocated to NJSEA.3 The Tax Court disagreed, and sustained the allocation of the HRTCs to PB through its membership interest in HBH. Because we agree with the IRS's contention that PB, in substance, was not a bona fide partner in HBH, we will reverse the decision of the Tax Court.
I. BackgroundA. Background of the HRTC Statute
We begin by describing the history of the HRTC statute. Under Section 47 of the Internal Revenue Code of 1986, as amended (the “Code” or the “I.R.C.”), a taxpayer is eligible for a tax credit equal to “20 percent of the qualified rehabilitation expenditures [“QREs” 4] with respect to any certified historic structure.5” I.R.C. § 47(a)(2). HRTCs are only available to the owner of the property interest. See generallyI.R.C. § 47; see also I.R.S. Publication, Tax Aspects of Historic Preservation, at 1 (Oct. 2000), available at http:// www. irs. gov/ pub/ irs- utl/ faqrehab. pdf. In other words, the Code does not permit HRTCs to be sold.
The idea of promoting historic rehabilitation projects can be traced back to the enactment of the National Historic Preservation Act of 1966, Pub. L. No. 89–665, 80 Stat. 9156 (1966), wherein Congress emphasized the importance of preserving “historic properties significant to the Nation's heritage,” 16 U.S.C. § 470(b)(3). Its purpose was to “remedy the dilemma that ‘historic properties significant to the Nation's heritage are being lost or substantially altered, often inadvertently, with increasing frequency.’ ” Pye v. United States, 269 F.3d 459, 470 (4th Cir.2001) (quoting 16 U.S.C. § 470(b)(3)). Among other things, the National Historic Preservation Act set out a process “which require[d] federal agencies with the authority to license an undertaking ‘to take into account the effect of the undertaking on any ... site ... that is ... eligible for inclusion in the National Register’ prior to issuing the license.” Id. (quoting 16 U.S.C. § 470f). It also authorized the Secretary of the Interior to “expand and maintain a National Register of Historic Places.” 16 U.S.C. § 470a(a)(1)(A).
The Tax Reform Act of 1976 furthered the goals of the 1966 legislation by creating new tax incentives for private sector investment in certified...
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