• Fourth Circuit finds Virginia Historic Rehabilitation Tax Credits Sold in Taxable Sale, Reverses Tax Court Finding of Nontaxable Partnership Contribution
  • June 22, 2011
  • Law Firm: Hirschler Fleischer A Professional Corporation - Richmond Office
  • In a new decision the Fourth Circuit Court of Appeals has concluded that a fund established to syndicate Virginia historic tax credits must treat the transfer of credits to its investors as a taxable sale in exchange for money paid by such investors. The court noted that the tax credits may continue to be used to offset Virginia income tax despite treatment as a sale. Nonetheless, due to the uncertainty created by the decision, developers and investors should make a point to discuss and agree upon the appropriate reporting of credit investment arrangements and any appropriate tax-related allocations or other steps that might be available to address whether the investment will be treated as a taxable sale. The decision is not clear as to whether investments that are structured differently from the facts of the case may still be treated as nontaxable credit allocations or must be treated as a disguised sale, but developers and investors seeking treatment of a state credit investment as a partnership allocation should consider the following that may help to characterize the transaction as a partnership investment rather than a sale of state credits: