United States

Clarification on reporting for building rehabilitation expenses

TAX BLOG  | 


If your business has investment properties or is a pass through entity serving as a conduit to passing through qualified rehabilitated expenditures to another entity, new IRS advice may impact your filing for the section 47 rehabilitation credit. A recent legal memorandum provides Form 3468 filing directions that differ from the instructions provided with the form.

The IRS’s stated reason for the change is to track the ownership chain and properly trace the credit.

Original instructions to Form 3468, which is used to file the investment credit, including rehabilitation credit, only require pass though entities to file the form if the entity is the owner of the qualified rehabilitation building and the certified historic structure. The IRS noted that under these instructions, a pass though entity that is not the owner of the building would not have to file Form 3468.

However, relying on the Treasury regulations, the IRS is requiring entities that are not the owners of the property to file the form. This allows a complete view into the credit.

The IRS also addressed the issue of whether a lessor who elects to treat new investment property as being acquired directly by a lessee needs to provide the lessee with the National Park Service project number and the date of the final certification received from the Secretary of the Interior. The IRS stated that the lessor must provide the lessee with this information as it is necessary to complete Form 3468. Without this information the lessee would not be eligible to take the credit.

The rehabilitation tax credit can be valuable for businesses that invest in qualifying properties. However it is a complicated credit to claim. You should work with an experienced professional to make sure you are following proper procedures to maximize the available credit. 


Trina Pinneau

Manager

Trina consults on a range of federal tax credits and incentives issues and serves as an instructor for RSM’s tax training programs. Reach her at trina.pinneau@rsmus.com.

Areas of focus: Federal Credits & IncentivesWashington National Tax