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IRS Issues Guidance for Section 50(d) Income Inclusion Rules



After much anticipation, the IRS issued long awaited guidance for the 50(d) income inclusion rules under the Internal Revenue Code in the form of Temporary Regulations. These regulations provide rules for master lease pass-through (also known as inverted lease) structures in Historic Tax Credit and Renewable Energy Tax Credit transactions.

The temporary regulations also provide rules to coordinate Section 50(a) recapture rules with the section 50(d)(5) income inclusion rules, along with rules pertaining to income inclusion upon lease termination, lease disposition by a lessee partnership or a lessee, and disposition of a partner’s or S corporation shareholder’s entire interest in a lessee partnership or S corporation outside of the recapture period.

Summary of Temporary Regulations

  • The 50(d) income is recognized by the credit user ratably over the shortest recovery period applicable under the accelerated cost recovery system provided in Section 168, beginning on the date the investment credit property is placed in service and continuing on each anniversary date of the property having been placed in service until the end of the applicable recovery period.
  • The amount of 50(d) income recognized is not subject to limitations on the amount of credit allowed based on the amount of the lessee’s income tax.
  • The 50(d) income is a partner item not a partnership item (other than in the case of an electing large partnership) and as such this income does not increase the partner’s outside basis in its investment. Likewise, it is a S corporation shareholder item not an item of S corporation income. The preamble to the regulations expressly critiques the tax position that this income is a partnership or S corporation item and states that such a position would confer an unintended benefit to partners and S corporation shareholders.
  • The 50(d) income stays with the partner(s) or shareholder(s) in the lessee partnership or S corporation who claimed the credit even if the entire interest in the master tenant is disposed of.
  • The partner(s) in the lessee partnership or the S corporation shareholder(s) that claimed the credit has the option to elect to accelerate the balance of the yet unrecognized 50(d) income in the taxable year in which one of the following two events occurs (i) the master lease terminates or (ii) the partner(s) (shareholder) disposes of their entire interest in the lessee partnership (S corporation).  The election to accelerate the income inclusion must be made by the due date (including any extension of time) of the lessee’s return or, in the case of a partnership or S corporation, by the due date (including any extension of time) of the ultimate credit claimant’s return for the taxable year in which the relevant event occurs ((i) or (ii) above).
  • If the income is not accelerated, the partner(s) will continue to recognize the income ratably over the remaining portion of the applicable recovery period of the property.
  • The election to accelerate the 50(d) income is only available outside of the 50(a) recapture period.

The regulations will apply to investment credit property placed in service on or after September 19, 2016.

What Does CohnReznick Think?
The Temporary Regulations provide guidance from the IRS that eliminates some of the uncertainty that has existed in the tax equity market for Historic Tax Credit and Energy Tax Credits. One concern was that acceleration of the yet unrecognized 50(d) income would be required upon exit from the master tenant partnership – this concern has been eliminated. The optional election to accelerate allows for flexibility.

This may entice new investors to consider these programs and ultimately expand the total number of potential tax credit investors.

The guidance issued is counter to a position that is typically taken in the industry which allowed partners in the lessee partnership to increase their basis in the partnership as a result of the 50(d) income. This position, which the guidance states is inconsistent with Congressional intent, was a factor in negotiating the business terms of a transaction with a tax credit investor.

The impact of the 50(d) income at the state level may vary by state. Therefore, further consultation may be needed.

The September 19, 2016 applicability date allows property placed in service to remain unaffected. The date also provides a window to allow developers and investors to adapt and alter their business arrangements to comply with the new Temporary Regulations for property yet to be placed in service.


CohnReznick's tax and consulting experts are actively participating in a variety of industry discussions and forums related to the new guidance and are available to discuss potential transaction impacts and address questions as needed.

The text of the temporary regulations can be read here.

For additional information or questions, please contact your CohnReznick tax or consulting partner, or Marshall Phillips at or 704-900-2650.

Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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