New York Advisory Opinion TSB-A-10(3)C: Could a bank claim the historic-rehabilitation credit against its Article 32 franchise tax under proposed Governor's Program Bill #228?
Plain-English summary
A bank planned to invest in the redevelopment of a historic building in Buffalo (48 loft apartments plus ground-floor commercial space) through a master-tenant partnership structure, with the federal historic rehabilitation credit passed through to it. It asked whether it would be able to claim a historic-property credit against its Article 32 bank franchise tax under a then-pending bill, Governor's Program Bill #228, which would add a new subsection (u) to Tax Law section 1456.
The Department explained the mechanics of the proposed credit and concluded the bank would qualify if the bill became law. Under the proposed Tax Law section 1456(u), for tax years 2010 through 2014 a bank would get a credit equal to 100% of the federal credit allowed under IRC section 47 for a certified historic structure in New York, capped at $5 million, claimed in the year the rehabilitation is placed in service. To be eligible, the project must be a targeted-area residence (IRC section 143(j)) or located in a census tract at or below 100% of the state median family income. The Buffalo project sat in a qualifying census tract, was expected to be placed in service in 2010, and the credit claimed by all owners of the master-tenant LLC could not exceed $5 million. The opinion assumed (without deciding) that the project qualified as a certified historic structure and that the federal credit could be validly passed through under IRC section 50(d)/former section 48(d).
What this means for you
Banks and Article 32 taxpayers investing in historic projects
This is a roadmap for a then-new credit: it tracks the federal IRC section 47 credit dollar-for-dollar, is capped at $5 million per project (applied at the entity level for partnerships/S corporations), and is tied to the placed-in-service year. The geographic eligibility (qualifying census tract or targeted-area residence) is essential.
Accountants and tax professionals
Note this opinion rests on proposed legislation -- it tells you how the credit would work if enacted, not that it was law on the date of the opinion. The pass-through of the federal credit to a lessee/master tenant relies on IRC section 50(d) carrying forward the repealed IRC section 48(d) rules; the Department expressly declined to opine on those federal assumptions.
Common questions
Q: How big is the proposed bank historic-rehab credit?
A: 100% of the federal IRC section 47 credit for a qualifying New York certified historic structure, capped at $5 million per project.
Q: When is it claimed?
A: In the taxable year the qualified rehabilitation is placed in service under IRC section 167.
Citations and references
- Tax Law § 1456 (credits against the Article 32 bank franchise tax); proposed Tax Law § 1456(u) (Governor's Program Bill #228)
- IRC § 47 (federal rehabilitation credit for certified historic structures)
- IRC § 50(d) (pass-through rules; continuation of former IRC § 48(d))
- IRC § 143(j) (targeted area residence)
Source
- Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_2010.htm
- Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a10_3c.pdf
Original ruling text
New York State Department of Taxation and Finance
TSB-A-10(3)C
Corporation Tax
April 30, 2010
Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION
PETITION NO. C100409A
A petition received April 9, 2010 requests an advisory opinion concerning Governor’s Program Bill
228 relating to the application of the credit for the rehabilitation of historic properties under the Article 32
bank franchise tax. Specifically, name redacted, (“Petitioner”) requests an opinion that states that Petitioner
will be entitled to claim a historic property credit under the facts below if Governor’s Program Bill #228 is
signed into law. We conclude that petitioner will be able to claim the historic property credit.
Facts
The redevelopment project consists of the redevelopment of a historic building located in Buffalo,
New York (“historic building”) that, upon its completion, will accommodate forty-eight loft-style
apartments, fifteen thousand square feet of ground floor commercial space, and associated parking. The
project is located within a census tract that is at or below 100 percent of New York’s median family income,
based on the most recent federal census. It is estimated the project will incur $9,900,000.00 of qualified
rehabilitation expenditures.
The project developer is a New York limited liability company. The project developer will lease the
project, including the historic building, to a New York limited liability company (“master tenant”) under a
triple-net master lease agreement (“master lease”) for a term of thirty-two years. The master tenant is
treated as a partnership for federal and New York State tax purposes. Pursuant to the master lease
agreement, the project developer and the master tenant will agree to make an election to pass through to the
master tenant the federal historic tax credits allowed with respect to the historic building. Petitioner, a
calendar year taxpayer, intends to acquire a ninety-nine and ninety-nine hundredths percent interest in the
master tenant, and master tenant will acquire a ten percent interest in the project developer.
Petitioner states that former Internal Revenue Code (“IRC”) § 48(d), which was repealed by the
Revenue Reconciliation Act of 1990, authorized the lessor of property that qualified for the federal
rehabilitation credit for historic properties to elect to pass the credit through to a lessee of the property under
certain circumstances that are applicable in this case. Petitioner also states that, although IRC § 48(d) has
been repealed, the pass-through election remains in effect pursuant to current IRC § 50(d), which provides,
among other things, that rules similar to the rules repealed in 1990, including IRC § 48(d), continue to apply
to the rehabilitation of historic properties tax credit, despite such repeal. Also, Petitioner states that the
project and historic building qualify for the federal tax credit under IRC § 47 and the project developer has
received approval from the National Parks Service of the project’s part I application and part II application.
Finally, Petitioner anticipates that the historic building will be placed in service for federal and NY historic
tax credit purposes on or before May 1, 2010.
Proposed Governor’s Program Bill
Governor’s Program Bill No. 228, which has been introduced in the New York State Legislature as
Senate Bill No. 7556/Assembly Bill No. 10839, makes a number of amendments to the tax credit for the
rehabilitation of historic properties under the Tax Law. Section 5 of Governor’s Program Bill No. 228 would
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TSB-A-10(3)C
Corporation Tax
April 30, 2010
add new subsection (u) to section 1456 of the Tax Law to provide for a credit for the rehabilitation of historic
properties against a taxpayer’s banking corporation franchise tax. The pertinent parts of this bill are as
follows:
Proposed Tax Law § 1456(u)(1)
(A) For taxable years beginning on or after January first, two thousand ten and before January first,
two thousand fifteen, a taxpayer will be allowed a credit as hereinafter provided, against the tax imposed by
this article, in an amount equal to one hundred percent of the amount of credit allowed the taxpayer with
respect to a certified historic structure under subsection (a)(2) of section 47 of the federal internal revenue
code with respect to a certified historic structure, located within the State. Provided, however, the credit
shall not exceed five million dollars.
(B) If the taxpayer is a partner in a partnership or a shareholder of a New York S corporation, then
the credit caps imposed in subparagraph (A) of this paragraph shall be applied at the entity level, so that the
aggregate credit allowed to all the partners or shareholders of each such entity in the taxable year does not
exceed the credit cap that is applicable in that taxable year.
(2) Tax credits allowed pursuant to this subsection shall be allowed in the taxable year that the
qualified rehabilitation is placed in service under section 167 of the federal internal revenue code.
(3) If the credit allowed the taxpayer pursuant to section 47 of the internal revenue code with respect
to a qualified rehabilitation is recaptured pursuant to subsection (a) of section 50 of the internal revenue
code, a portion of the credit allowed under this subsection must be added back in the same taxable year and
in the same proportion as the federal recapture.
(4) The credit allowed under this subsection for any taxable year shall not reduce the tax to less than
the dollar amount fixed as a minimum tax by subsection (b) of section fourteen hundred fifty-five. If the
amount of credit allowable under this subsection for any taxable year reduces the tax to such amount, the
excess may be carried over to the following year or years, and may be deducted from the taxpayer's tax for
such year or years.
(5) To be eligible for the credit allowable under this subsection the rehabilitation project shall be in
whole or in part a targeted area residence within the meaning of section 143(j) of the internal revenue code or
located within a census tract which is identified as being at or below one hundred percent of the state median
family income in the most recent federal census.
The language in Governor’s Program Bill #228 also appears in The Assembly’s Revenue Bill A.9710-B, Part
X.
Analysis
For purposes of this Advisory Opinion, it is presumed that the project qualifies as a certified historic
structure under IRC § 47(a)(3) and the rehabilitation of the project is a certified rehabilitation within the
meaning of the applicable rehabilitation credit provisions under IRC § 47. Also, it is presumed that the
project developer will be able to pass through its rehabilitation credits to the master tenant, of which
petitioner is a 99.99 percent owner pursuant to IRC § 50(d), by application of the rules under former IRC §
48(d) which were in effect on the day before the date of enactment of the Revenue Reconciliation Act of
1990. This Opinion expresses no conclusion with regard to these assumptions.
TSB-A-10(3)C
Corporation Tax
April 30, 2010
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In accordance with the requirements of the proposed legislation, the historic structure is located in
New York and is identified as being in a qualifying area that is at or below one hundred percent of the State
median family income in the most recent federal census. Therefore, if Petitioner is allowed to claim a federal
rehabilitation credit under IRC § 47(a)(2) for the qualified rehabilitation expenses of the certified historic
structure, Petitioner will be allowed to claim a tax credit against its banking corporation franchise tax for up
to one hundred percent of that federal credit amount. Also, if the certified historic structure is placed in
service in 2010, the credit allowed under the Governor’s Program Bill will be allowed in Petitioner’s 2010
taxable year. Finally, the credit claimed by all owners of the master tenant LLC cannot exceed five million
dollars.
DATED: April 30, 2010
NOTE:
/S/
Jonathan Pessen
Director of Advisory Opinions
Office of Counsel
An Advisory Opinion is issued at the request of a person or entity. It is limited to the
facts set forth therein and is binding on the Department only with respect to the
person or entity to whom it is issued and only if the person or entity fully and
accurately describes all relevant facts. An Advisory Opinion is based on the law,
regulations, and Department policies in effect as of the date the Opinion is issued or
for the specific time period at issue in the Opinion.