The Internal Revenue Service has included the treatment of Section 50(d) income in its priority guidance list for the current year. Representatives of the Historic Tax Credit Coalition (“HTCC”) met with IRS and Treasury personnel who have been assigned to work on Section 50(d) guidance to discuss a written submission to the IRS that was prepared by the HTCC. A copy of the HTCC letter may be accessed here. After the meeting, the HTCC representatives concluded based on the tenor of the discussions that any guidance issued by the IRS would likely require that the amount of Section 50(d) income will be 100% of the credit passed through the Master Tenant, not the 50% adjustment calculation previously indicated in preliminary IRS discussions in an audit context.
Inclusion of Section 50(d) income treatment in the IRS priority guidance list, along with 316 other guidance projects means that the IRS intends to issue guidance under Section 50(d) prior to the end of its business year on June 30, 2015. While inclusion of the list is by no means a guarantee that guidance will be issued by the scheduled date, it is a strong indication that the IRS and Treasury continue to commit substantial resources to tax issues that significantly affect the historic rehabilitation community.
The primary issues that are expected to be addressed in the guidance are whether (1) Section 50(d) income increases the basis of investor interests in entities that receive the Section 50(d) income; (2) whether the Section 50(d) income is accelerated upon the disposition of an investor’s interest in a master tenant and (3) the effective date of the guidance and the effect of the guidance upon current audits that have raised Section 50(d) income issues. Based upon the discussions in the HTCC meeting, it is not clear how these issues will be resolved in the guidance. There remains a significant possibility that the guidance will be issued adversely to taxpayers, and the participants in HTC transactions should consult with their tax advisors with respect to these issues and make their own determination about how to price transactions and how to report the Section 50(d) income generated under master lease pass through transactions.