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Virginia Historic Tax Credit Fund 2001 LP v. Commissioner

639 F.3d 129 (2011)

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Virginia Historic Tax Credit Fund 2001 LP v. Commissioner

United States Court of Appeals for the Fourth Circuit
639 F.3d 129 (2011)

Facts

Virginia Historic Tax Credit Fund 2001 LP (plaintiff) was one of four funds (the funds) that comprised a partnership that funded historic renovation projects. The funds recruited investors to contribute capital in exchange for a specified amount of tax credits for the investors’ 2001 taxes and a limited partnership interest (generally a 0.01-percent interest). To limit risk, the funds promised to use the contributions for approved projects only and to refund the contributions if the investors did not ultimately receive the tax credits. The funds raised capital from almost 300 investors, and, within six months, the funds delivered the promised tax credits. The funds reported the contributions from the investors as nontaxable contributions to capital. However, the Commissioner of Internal Revenue (the Commissioner) (defendant) determined that the transactions were in fact disguised sales of the tax credits under § 707 of the Internal Revenue Code, which gives the Commissioner authority to recharacterize purported contributions to capital as sales for tax purposes. The tax court rejected the Commissioner’s characterization. The Commissioner appealed.

Rule of Law

Issue

Holding and Reasoning (Duncan, J.)

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Casebooks

Corporate and Partnership Tax

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