Third Circuit Denies Rehearing in ‘Historic Boardwalk Hall' Tax Credit Case

The U.S. Court of Appeals for the Third Circuit Oct. 22 denied a petition for a rehearing en banc in the closely watched Historic Boardwalk Hall case in which the court held that an investor in a syndicated partnership that shared in federal historic rehabilitation tax credits was not a bona fide partner (Historic Boardwalk Hall LLC v. Commissioner, 3d Cir., No. 11-1832, filed 10/22/12).

HBH filed a petition for rehearing Oct. 10, arguing that the Third Circuit's decision was contrary to the U.S. Supreme Court's holding in Commissioner v. Culbertson, 337 U.S. 733 (1949), because it constituted “a holding that a partner who has no right to a return of its capital contribution either directly or indirectly from a partnership nonetheless has no risk with respect to its capital, and therefore is not a partner for federal income tax purposes.”

In 2011, the U.S. Tax Court had held that a partnership formed to allow Pitney Bowes to invest in the historic rehabilitation of the East Hall of the Atlantic City, N.J., convention center was entitled to claim historic rehabilitation tax credits because the partnership was not a sham lacking economic substance.

The Third Circuit reversed Aug. 27, 2012, holding that Pitney Bowes was a partner in form, not in substance, and could not claim the tax credits regardless of whether the transaction otherwise had economic substance.