We have written about Code Section 50(d) income issues in the past (see CreditBryanCave posts of January 30, 2015 and August 14, 2014) and a treasury regulation project remains open under the IRS priority guidance plan. Based upon conversations with IRS and Treasury personnel involved with the project, and subject to the caveat that nothing is final and everything in the guidance process is subject to change until it is issued, the guidance has taken the form of an amendment to the treasury regulations governing the pass-through of investment tax credit to a master tenant. Assuming that the guidance would take the form of a regulatory change, it is reasonable to believe that the guidance will have a prospective effective date.

As a likely change to Treasury Regulation Section 1.48-4, the new guidance will be applicable to all investment tax credit property, including personal property such as solar and other renewable energy property. While Code Section 50(d) income issues have arisen primarily with respect to historic rehabilitation projects, the concept and resulting basis adjustment issues clearly apply to all property whose basis is reduced when investment tax credit is claimed. The IRS asked specifically for input as to whether energy property should be subject to the same effective date rules as will be applicable to real property.

With the issuance of CCA 201505038 on January 30th, the IRS appears to have adopted a rifle shot approach to the issuance of Code Section 50(d) guidance. This may mean that guidance with respect to whether Code Section 50(d) income produces an increase in basis will be issued prior to and separate from guidance as to whether (i) Code Section 50(d) income remains with the master tenant or is somehow personal to the investor; (ii) the Code Section 50(d) income is accelerated upon disposition of the investor’s interest in the master tenant; or (iii) other issues. With such a rifle shot approach, the basis inclusion guidance may be issued more quickly, even within the next 90 to 120 days. As to the probability that Code Section 50(d) income will or will not increase basis in the investor’s interest in a master tenant that is either a corporation, or a pass-through entity, it appears to be increasingly clear that the IRS position will be adverse to taxpayers and conclude that Code Section 50(d) income does NOT produce basis.