Supreme Court declines to hear Historic Boardwalk rehabilitation credit case

The U.S. Supreme Court on May 28 declined to hear an appeal of the Third Circuit’s decision denying historic rehabilitation credits for a state authority’s partnership with Pitney Bowes Inc. to redevelop the Atlantic City, N.J., historic Boardwalk Hall (Historic Boardwalk Hall, LLC, No. 11-1832 (3d Cir. 8/27/12), cert. denied, Sup. Ct. Dkt. No. 12-901 (U.S. 5/28/13)).

Historic Boardwalk Hall LLC, with Pitney Bowes as investor member, funded the venue’s restoration. The Third Circuit, reversing the Tax Court, held in 2012 that the LLC, formed by the New Jersey Sports and Exposition Authority (NJSEA), was not a valid partnership and Pitney Bowes was not a bona fide partner.

The partnership agreement guaranteed Sec. 47 rehabilitation credits for Pitney Bowes, plus a 3% preferred return. Put and call options gave NJSEA the right and duty under certain conditions to purchase Pitney Bowes’s interest, and NJSEA indemnified Pitney Bowes against certain risks. Despite those features, the Tax Court held the transaction had economic substance, considering the legislative purpose of Sec. 47 of encouraging otherwise unprofitable rehabilitation projects (Historic Boardwalk Hall, LLC, 136 T.C. No. 1 (2011)).

Like the Tax Court, the Third Circuit applied the factors of Culbertson, 337 U.S. 733 (1949), to determine the validity of the partnership and of Pitney Bowes as a partner. However, focusing on what it said was the lack of any meaningful downside risk for Pitney Bowes or upside potential for Historic Boardwalk Hall, the appellate court reached the opposite conclusion.

The Supreme Court’s denial of the LLC’s petition for certiorari lets the Third Circuit’s decision stand.

—Paul Bonner (pbonner@aicpa.org) is a JofA senior editor.