IRS challenges court ruling that allowed use of historic-preservation tax credits in 1998 restoration of Boardwalk Hall
Posted: Sunday, May 1, 2011 12:15 am | Updated: 8:38 am, Sun May 1, 2011.
By EMILY PREVITI Staff Writer
Press of Atlantic City
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ATLANTIC CITY - The Interal Revenue Service says a tax-credit deal involving Boardwalk Hall is a "sham" that could cost the Atlantic City Convention & Visitors Authority as much as $40 million.
The IRS filed an appeal March 30 of a federal tax-court decision that validated the New Jersey Sports & Exposition Authority's use of historic-preservation tax credits to generate investment for a $108 million restoration of Boardwalk Hall in 1998, court documents show.
The renovation, use of the tax credits and tax-court case all predate the ongoing transfer of the hall's ownership from the NJSEA to the ACCVA that began more than two years ago.
Once the transfer is complete, the ACCVA will inherit liabilities from the NJSEA. Those commitments include the NJSEA's guarantee of the tax credits sold to Pitney Bowes, a private company headquartered in Stamford, Conn., that invested nearly $20 million in the hall's rehabilitation.
In the event the IRS succeeds, the ACCVA would have to make good on the NJSEA's promise by remitting the full or partial value of the tax credits: about $40 million, ACCVA attorney John Donnelly has said.
However, the amount likely would not reach $40 million, ACCVA Executive Director Jeff Vasser said.
"We don't know how much we're talking about. That's the hard part. And it depends on timing," said Vasser, who added that he is unsure when the ownership transfer will be completed.
The authority's annual budget is $35.2 million.
Donnelly has said the initial ruling gives him confidence the IRS will not succeed.
Boardwalk Hall is an 85-year-old national historic landmark that qualifies for the Federal Historic Preservation Tax Incentives Program. The program aims to encourage upkeep and survival of historic buildings by providing rebates for expenses incurred during restoration projects.
The NJSEA sold the credits because, as a tax-exempt government agency, it could not benefit from them, said Donnelly, who previously described the practice as fairly common and the IRS fight as a "test case" for the federal agency.
IRS spokesman Gregg Semanick declined comment, citing the agency's policy against discussing pending litigation. But court files show the IRS thinks the NJSEA improperly sold tax benefits to Pitney Bowes.
The IRS attempted to reclaim the $40 million rebate and issue penalty fines in 2007, which the NJSEA and Pitney Bowes immediately challenged. U.S. Tax Court Judge Joseph Robert Goeke ruled against the IRS on Jan. 3.
The tax credits provided an incentive for Pitney Bowes to invest the money the NJSEA needed to complete financing of Boardwalk Hall's restoration. But because the venue operated at a deficit before the renovations, the NJSEA could not use profit sharing to entice private investment.
That's what the tax-credit program was designed to do: leverage private investment into the restoration of publicly owned historic buildings, Goeke wrote.
Donnelly anticipates the case will take at least a year to be resolved.
Contact Emily Previti:
609-272-7221
EPreviti@pressofac.com
