On Historic Boardwalk: Substance is Key Regarding Partner Status
By Jeffrey A. Galant
“The core issue in Historic Boardwalk was whether an investor in a partnership would be considered to be a partner and as such would be eligible to receive an allocation of historic rehabilitation credits. More specifically, the question was whether the parties, a New Jersey state agency and a subsidiary of Pitney Bowes Corporation, acting with a business purpose, intended to join together as partners in a profit-making activity and share the gains and losses.
In reaching its decision, the Court was not unmindful of Congress’ goal of encouraging rehabilitation of historic structures, pointing out, however, that such statute was not in question here. The issue for the Court was whether the transaction as a whole involved the prohibited sale of tax credits.
The recurrent theme throughout the Court’s decision is its reliance on the principle that for income tax purposes a transaction must be judged by its substance rather than its form, and to be a bona fide partner for tax purposes, a party must have a meaningful stake in the success or failure of the enterprise.”