Category Archives:Taxation

Crafting the Historic Tax Credit Deal

Kennedy Sutherland attorney, Patrick J. Kennedy, Jr., is honored to present at the “Crafting the Historic Tax Credit Deal” seminar on June 23, 2016 from 8am – 10am at the St. Anthony Hotel in downtown San Antonio, Texas.

With the new Texas Historic Preservation Tax Credit program enacted in 2015 (worth 25% of eligible rehabilitation costs for building listed on the National Register of Historic Places), historic and rehabilitation tax credits are increasingly part of the capital stack providing the equity gap between real construction costs and the value of the building once complete. There are a multitude of strategies being used to bring life back to underutilized properties.

Kennedy Sutherland will join other panelist in the field and walk through the basics of the federal and state historic rehabilitation tax credits and structuring deals as well as use a regional case study to highlight the process and important issues to consider when using this financing tool.

Speakers for this forum include:

  • Moderator: Albert Rex – Partner | MacRostie Historic Advisors LLC (Boston, MA)
  • Historic Consultant: Bill MacRostie – Senior Partner | MacRostie Historic Advisors LLC (Washington, DC)
  • Tax Attorney: Patrick Kennedy, Jr. – Managing Partner | Kennedy Sutherland LLP (San Antonio, TX)
  • Tax Syndicator: Scot Butcher – Principal | Tax Incentive Finance (Providence, RI)
  • Developer: Brandon Raney – Founding Principal | BC Lynd Hospitality (San Antonio, TX)

ULI Members: $25
Non-Members: $35
ULI Young Leaders (U35) & Students: $20
ULI Non-Member (U35) & Students: $30

Register Now

Sutherland to Present at Texas Rural Challenge

Kennedy Sutherland attorney, Dub Sutherland, is honored to present at the 17th Annual Texas Rural Challenge Conference “Small Towns Big Ideas” which is being held in Waco, Texas on June 9-10. Other speakers at the conference included representatives from the governor’s office and the Texas Workforce Commission, as well as mayors, county judges, city managers and economic development directors from rural areas. Notable keynote speakers included Agriculture Commissioner Sid Miller and Texas Secretary of State Carlos Cascos.

The Texas Rural Challenge conference is organized annually by the University of Texas at San Antonio Rural Business Program, which is part of the Small Business Development Center network. The Small Business Development Center network focuses on providing assistance to small businesses and works with local leaders in typically underserved cities and towns in Texas to create revitalization strategies intended to increase economic opportunity and improve the quality of life in rural communities. At the conference Mr. Sutherland will discuss opportunities by utilizing state and federal tax credits for many small businesses who remain challenged by a lack of capital and the ability to build assets. Other panelist joining Mr. Sutherland on the Innovative Financing for Public and Private Projects at the Texas Rural Challenge Conference include:

  • Amber Howard, US EPA Region 6
  • Bill Cummings, The P4 Group
  • Sheri Woodsgreen, The P4 Group
  • JD King, BBVA Compass

NPS Releases 2015 Historic Tax Credit Study

The National Park Service (NPS) has released its Federal Tax Incentives for Rehabilitating Historic Buildings Annual Report for Fiscal Year 2015 and a supplementary Statistical Report and Analysis for Fiscal Year 2015. With over 41,250 completed projects since its inception in 1976, the historic tax credit program has generated over $78 billion in the rehabilitation of income-producing historic properties. According to the report, in fiscal year 2015, the number of approved proposed projects were 1,283. The investment in these projects totaled an estimated $6.63 billion, while the investment in the 870 certified completed projects totaled $4.47 billion. The median cost for proposed projects was $937,865 and $950,000 for certified projects. Completed Historic Tax Credit projects certified in fiscal year 2015 created an estimated 85,058 jobs, and 48 percent of completed projects certified in fiscal year 2015 used both federal and state historic tax credits. The four states with the most historic rehabilitation activity in fiscal year 2015 were Lousiana, Virginia, Missouri and Ohio.

The study further states, “While the historic preservation tax credit encourages the rehabilitation of historic buildings of national, state, and local significance, it also stimulates major private investment in our older, disinvested neighborhoods. Older cities and small towns across the country rely upon the historic tax credit program as an important tool to foster economic revitalization. Sometimes it takes only a single project to be a catalyst for other development on a Main Street or in a downtown neighborhood. Other times, several historic tax credit projects scattered within a commuity are needed to have a similar effect.”

Funding Strategies for Endangered Structures

Join Kennedy Sutherland LLP at the Preservation Texas 2016 Summit on February 18, 2016 at the historical Central Christian Church located on 1110 Guadalupe Street in Austin, Texas. The Preservation Texas 2016 Summit include education sessions, announcement of the 2016 Most Endangered Places list and the presentation of the 2016 Honor Awards. Join us and others for an excellent opportunity to learn, network and celebrate historic preservation in Texas!

See the Agenda & Register

MAKING HOMES FOR THE ARTS IN SACRED PLACES: The briefing will present findings from research conducted by Karen DiLossi, Director of the Arts in Sacred Places program at Partners for Sacred Places. Building on Partners’ successful Arts in Sacred Places program, the space needs of dance, theater, and other performing arts groups in Austin along with Baltimore and Detroit were examined in a national study. This presentation will focus on Austin’s results.  Representative sacred places in Austin were assessed to determine the availability of space and willingness to share it with Austin’s artists. The findings illuminate the dire situations faced by these artists and include recommendations for potential space-sharing models that can be adopted across the country.

HISTORIC TRUSS BRIDGES IN TEXAS: Over the past 30 years, Texas lost approximately 90% of its metal truss bridges due to deterioration, increased traffic needs like oil and gas exploration, and lack of continued maintenance.  Only 140 truss bridges remain in vehicular service across the state, so the Texas Department of Transportation (TxDOT) is developing a management plan to ensure these bridges remain in viable use.  TxDOT is partnering with the Texas Historical Commission and the Historic Bridge Foundation on these planning efforts.  Rebekah Dobrasko, a historic preservation specialist at TxDOT, will explain the benefits of a management plan and will highlight some of TxDOT’s toolkits and support for local owners and bridge enthusiasts wanting to maintain and save their historic truss bridges.

TEXAS FREEDOM COLONIES: DIASPORIC IDENTITY AND MEMORY: From 1870 to 1890, in the shadow of Reconstruction, former slaves founded more than 500 “Freedom Colonies” or Freedmen’s Towns across Texas.  For those settlements threatened by development, gentrification, or population loss, accessing resources and technical assistance can be challenging.  The panelists will share insight into how identity and memory among the descendants associated with Freedom Colonies catalyze their planning and historic preservation activities, including the example of Shankleville’s preservation and heritage tourism activities, research on a network or “cultural region” of Deep East Texas Freedom Colonies and lessons learned from public engagement with descendants of Freedom Colonies in Austin.

SAVING HISTORIC RURAL PLACES: Across rural Texas, changing demographics impact the continuity of important traditions, institutions and infrastructure.  The preservation of rural historic resources, from dance halls to churches to small schools to bridges, often requires advocates to reach beyond their local communities and build statewide networks around a specific building type.  Hear from Texans engaged in saving rural Texas by building grassroots support and local political commitment, including a county judge who has been dedicated to preserving his rural county.

THE FINANCIAL SUSTAINABILITY OF HISTORICAL ORGANIZATIONS: A recent report by the Summerlee Foundation sought to answer the question: What makes some history-based organizations sustainable, and others not?  By studying a range of organizations in Texas, the report reached some important conclusions.  Findings will be presented, with examples of sustainability practices being implemented at Dallas Heritage Village, one of the study’s participants.  This session will demonstrate that authentic historic places with integrity, strong and collaborative leadership, sound governance, diverse revenue streams and a business-minded plan for the future can thrive in Texas.

FUNDING STRATEGIES FOR ENDANGERED STRUCTURES: Many at-risk historic places are owned by nonprofit organizations.  The struggle to find the funds necessary to restore and rehabilitate these buildings can be daunting, particularly for smaller organizations that are struggling to operate day-to-day.  Learn about a powerful new opportunity for nonprofits to participate in the state historic preservation tax credit program, and about grant programs with the Texas Historical Foundation, Texas Historical Commission and National Trust for Historic Preservation that can be leveraged to make your project a success. Speakers include:

 Sehila CasperField Officer, National Trust for Historic Preservation
 Lisa Harvell – Texas Preservation Trust Fund Grant Program Coordinator,
                      Architecture Division, Texas Historical Comm.
 Patrick J. Kennedy, Jr., Esq.Kennedy Sutherland LLP
 Gene Krane – Executive Director, Texas Historical Foundation

HANDS-ON PRESERVATION TRAINING: NEEDS AND OPPORTUNITIES: At its core, preservation is about protecting and repairing historic resources to ensure that they remain standing for generations to come.  Yet there is a lack of opportunity for people to learn how to properly maintain and restore old buildings.  With greater access to hands-on preservation training, it might be possible to preserve much more of our irreplaceable past. Participants will share programs that are happening across Texas, and will discuss how we might expand those efforts statewide to benefit projects in your community. Speakers include:

PRESERVING THE LEGACY OF THE MODERN CIVIL RIGHTS MOVEMENT: Over the last sixty years, Texans of diverse backgrounds have worked to ensure that African-Americans, Mexican-Americans and LGBT citizens are able to share in the ideals of liberty that are at the foundation of our democracy.  Documenation, protection and interpretation of sites associated with those efforts and the people who were at the forefront of the civil rights movement is an essential part preserving the legacy of a turbulent period in our state and history.  Advocates working to protect these places and the complicated stories they tell will share their experiences and insight from a preservation perspective.

Patrick J. Kennedy, Jr. Quoted in Galveston News

Kennedy Sutherland attorney, Patrick J. Kennedy, Jr. was quoted in the Galveston County Daily News article, “New state law could financially boost some Galveston nonprofits.” The article covers House Bill 3230, which passed the Texas legislature during the 84th session and allows nonprofits to sell the tax credits earned on their qualified historic preservation projects. In the article Kennedy states, “Opportunities to sell the credits could arise from corporations who have franchise tax liability but want to help nonprofits. The law can bolster the economic impact of historic preservation in Texas, a sector that already financially infuses the state enormously. In addition to rehabilitation of historic buildings, preservation activities include heritage tourism and history museum operations.”

According to Preservation Texas historic preservation contributes more than $4.6 billion annually to the state. Several preservationist and Galveston nonprofits are already exploring how the new legislation can help revitalize many of their projects.

Read the entire article which ran on December 31st by Joseph Baucum in The Galveston County Daily News here.

Protecting Americans from Tax Hikes Act

Just before recessing for the holidays, the House and Senate passed the “Protecting Americans from Tax Hikes Act of 2015” (PATH Act.) On December 18th President Obama signed the PATH Act ” into law; which as a result allows over 50 expired tax provisions to be retroactively extended for the 2015 tax year. Unlike prior years, this year’s extender bill makes permanent over 20 of the expired tax provisions, including: the increased Section 179 fixed asset expensing limit, 100% gain exclusion for Qualified Small Business Stock, reduced recognition period for S-corp built in gains tax and others. In addition, many extenders have been enhanced.

Prior to approval of the Act, the Code Sec. 179 expensing dollar limit was $25,000 with an investment limit of $200,000. The Act permanently raises the dollar limit to $500,000 with an investment limit of $2,000,000 with both limits indexed to inflation starting in 2016.  The Act extended the 50 percent bonus depreciation for the 2015-2017 tax years with a gradual reduction through 2019.  Bonus depreciation allows taxpayers to claim an extra first-year depreciation deduction for new property placed in service during 2015-2019.

Several other important business tax provisions were either temporarily or permanently extended:

  • 100% gain exclusion for Qualified Small Business Stock
  • Reduced recognition period for S-corp built in gains tax- permanently a five year recognition period
  • Availability of 15 year straight line cost recovery for qualified leasehold improvements
  • Employer wage credits for employees who are active duty members of the armed forces
  • Work opportunity tax credit extended for five years
  • Energy Efficient Commercial Building deduction extended through 2016

The Act and the Omnibus budget bill passed the same day made several changes to the Affordable Care Act (Obamacare).  The excise tax on the so called “Cadillac” health insurance plans was delayed for two years.  Also, there is a one year moratorium on the health insurance provider fee which imposed a fee on entities providing health insurance.

The PATH Act proves to be extremely beneficial for businesses and individuals for the 2015 tax year and beyond, and is an estimated cost of over 800 billion dollars.

This article only highlights some of the many provisions in the 233 page Act.

Historic Tax Credit Improvement Act Introduced

Representative Mike Kelly (R-PA) introduced this week HR 3846, also known as the Historic Tax Credit Improvement Act of 2015. The Historic Tax Credit Improvement Act of 2015 proposes changes to the federal Historic Tax Credit to further encourage reuse and redevelopment in small, midsize and rural communities. The bill will increase the credit from 20 to 30 percent for projects with rehabilitation expenses of less than $2.5 million, which will help inject new private investment into smaller and more rural communities.  Other improvements include simplifying the process for the transfer of historic tax credits to investors for projects under $2.5 million. The bill provisions would be the first major changes to the federal Historic Tax Credit since the 1986 tax bill. The bill at introduction has bipartisan support with 9 original cosponsors.

The new legislation adds several provisions and eliminates others from the Creating American Prosperity through Preservation (CAPP) Act that was introduced in previous sessions.

Federal Historic Tax Credits Stimulate Economy

The National Park Service (NPS) and Rutgers University today released the Annual Report on the Economic Impact of the Federal Historic Tax Credit for FY 2014. The report reveals that the historic tax credit (HTC) yields a net benefit to the Treasury Department, generating $28.6 billion in federal tax receipts since the program’s inception, compared to $22.6 billion in credits allocated. From fiscal years 1978 through 2014, those $22.6 billion in federal HTCs allocated spurred $117.6 billion (in inflation-adjusted 2014 dollars) in historic rehabilitation. Those investments generated about 2.5 million new jobs and billions of dollars in direct and secondary economic gains. In short, the federal HTC is a good investment for local communities, individual states, and the natioon. The cumulative impacts of the program to date (FY 1978 through FY 2014) as shown in the study support this conclusion.

Historic Tax Credit Improvement Act Coming

The Historic Tax Credit Improvement Act (HTCIA) is scheduled for introduction in the House of Representatives in September.

The bill’s new Ways and Means champion is Rep. Mike Kelly, R-Pa. Rep. Earl Blumenauer, D-Ore., who represents Oregon’s 3rd district, will again serve as the Democratic original co-sponsor. Proponents of the measure also expect introduction in the U.S. Senate later this fall, with Sen. Ben Cardin, D-Md., as the lead Senate Finance Committee Democratic champion.

Bill Summary (By Novogradac)
The HTCIA is the successor bill to the CAPP Act that had been introduced in the last two Congresses. Some old provisions, notably the 2 percent energy-efficiency incentive, have been dropped and several new modifications have been added that would modernize the HTC and increase its economic impact.

  • Sections 2 and 3 modify the previously proposed 30 percent small-deal credit by lowering the maximum transaction size to $2.5 million in qualified rehabilitation expenditures (QREs), and making the credits transferable via a tax certificate, similar to many state HTC statutes. These changes should increase the use of the federal HTC on smaller transactions in Main Street communities across the country.
  • Section 4 creates a new substantial rehabilitation, or minimum property expenditure definition. The substantial rehab test would be reduced to 50 percent of adjusted basis rather than the current 100 percent. This provision would increase the use of the HTC on “moderate rehabilitation” projects and will hopefully increase the overall number of transactions completed each year. While QREs have returned to their pre-recession level of about $4.3 billion, the number of transactions, according to National Park Service (NPS) records, has remained relatively flat–between 750 and 850 buildings annually. The change should also increase the number of qualifying projects in areas where property values are the highest.
  • Section 5 reduces the current depreciable basis adjustment from 100 percent of the credit amount to 50 percent. This provision would put the HTC in line with new markets tax credits (NMTCs) and renewable energy credits. There is no basis adjustment for the low-income housing tax credit (LIHTC). The Tax Equity and Fiscal Responsibility Act of 1982 set the HTC basis adjustment at 50 percent. It was increased to 100 percent as part of changes to Section 47 made by the Tax Reform Act of 1986.
  • Section 6 would eliminate federal taxation of the proceeds of state HTCs. This change would end market uncertainty over federal tax treatment of state HTCs that began in 2011 with the U.S. Court of Appeals 4th Circuit decision in Virginia Historic Tax Credit Fund v. Commissioner. This provision would certainly be a fairer outcome for state tax payers whose incentives for historic rehabilitation are worth only 65 cents on the dollar after reductions for federal ordinary income tax.
  • Section 7 proposes to make nonprofit sponsorship of HTC transactions easier by eliminating 3 of 4 “disqualified lease rules” which apply when more than 50 percent of the leasable space is rented to tax-exempt organizations and the sponsoring nonprofit developer has used the building before the certified rehabilitation. Prohibitions on a future fixed sale price back to the nonprofit, use of tax exempt bonds and the 20-year nonprofit tenant lease limitations would be removed. Only the rule against a sale and lease back of the property to the original nonprofit owner would be retained.
  • Section 8 is drafted to end current NPS regulations related to Part 3 certification for buildings that are part of a functionally related site such as a mill complex. The current ability of the NPS to delay Part 3 approval on an initial phase of such projects until subsequent phases are reviewed and approved would be replaced by a rule that every building in a functionally related site would be approved individually without regard to the later treatment of other properties.

Advocates who want to urge their members of Congress to co-sponsor the HTCIA should go to to take action.

Joint IRS-HUD Administration for LIHTC Proposed

A report by the U.S. Government Accountability Office (GAO) says that Congress should consider designating the Department of Housing and Urban Development (HUD) as a joint administrator with the Internal Revenue Service (IRS) of the Low-Income Housing Tax Credit (LIHTC) program. The GAO suggests HUD should be given responsibility for regular monitoring of housing finance agencies and analyzing the effectiveness of the program. Joint administration with HUD could better align program responsibilities with each agency’s mission and more efficiently address existing oversight challenges.

The report, conducted at the request of Senate Judiciary Committee Chairman Charles Grassley, R-Iowa, cites “minimal” oversight by the IRS of the LIHTC and points out that the IRS already shares joint administration duties with other agencies both the New Markets Tax Credit (NMTC) program and the Historic Tax Credit (HTC) program.

What GAO Recommends

Congress should consider designating HUD as a joint administrator of the program. HUD’s role should include oversight responsibilities (such as regular monitoring of HFAs) to help address deficiencies GAO identified. Treasury agreed HUD could be responsible for analyzing the effectiveness of LIHTC, with IRS continuing to enforce tax law. HUD and IRS did not comment on the matter for congressional consideration. HUD supported consideration of a structure for enhanced interagency coordination. The association representing HFAs disagreed with the matter. GAO maintains that joint administration would strengthen program oversight.