Tax Court - Transfers of historic preservation credits as partnership distributions, taxable sale 

January 9: The U.S. Tax Court today released a memorandum opinion in a case concerning financing and redevelopment issues with respect to two historical hotel properties in St. Louis, Missouri. In brief, the issues were:
  • Whether the tax matters partner must recognize approximately $18.5 million of income from three transfers it made of certain Missouri historic preservation tax credits in 2002—specifically, whether the transfers represented partnership distributions or taxable sales
  • Whether the tax matters partner must include in income the return of approximately $3 million that it had previously contributed to a deferred-development-fees fund in connection with the hotel projects
  • Whether the tax matters partner was liable for the accuracy-related penalty for 2002 on the portion of the underpayment resulting from the sale of the historic preservation tax credits

Gateway Hotel Partners, LLC v. Commissioner, T.C. Memo. 2014-5 (January 9, 2014). Read the 76-page opinion [PDF 249 KB]


Concerning the first issue—whether the historic preservation tax credit transfers were partnership distributions or sales—the Tax Court held that two of the transfers were partnership distributions, but that the third transfer was a taxable sale.

Concerning the second issue, the Tax Court concluded that the return of the $3 million previously contributed to the deferred-development-fees fund was not includible in income.

The Tax Court, however, sustained the final issue, i.e., the accuracy-related penalty with respect to the transfer of the historic preservation tax credit that was to be treated as a taxable sale.

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