IRS Issues Long-Awaited 50(d) Guidance

Published by Michael Novogradac on Thursday, July 21, 2016 - 12:00am

The Internal Revenue Service (IRS) today published highly anticipated temporary regulations that provide guidance regarding the income inclusion rules under section 50(d) of the Internal Revenue Code (IRC). This guidance has been eagerly awaited by the tax credit community, particularly historic tax credit (HTC) and renewable energy tax credit (RETC) stakeholders, because it has implications for the pass-through of tax credits to a master tenant.


The IRS issued Rev. Proc. 2014-12 in late 2013, providing a safe harbor for HTC developments, but did not address specifically the proper tax treatment of Section 50(d) income. While 50(d) issues have primarily risen with HTCs because of the prevalence of master-lease structured HTC investments, they also apply to all investment tax credit property, including solar and other renewable energy.

While it hasn’t had as chilling of an effect as the Historic Boardwalk Hall court ruling, uncertainty about how Section 50(d) income should be handled has been a factor in the HTC investment market. Now that guidance is available, tax credit partnerships will be able to structure their investments with more confidence.

Overview of the Guidance

Under previous guidance, a lessee was required to include in gross income an amount equal to the investment credit amount, or 50 percent of the amount for Section 48 energy credits.

In the temporary regulations published today, the IRS amends the Income Tax Regulations (26 CFR part 1) under section 50(d)(5) to provide that:

  • Section 50(d) income is a partner item not a partnership item.
  • Section 50(d) income goes to the partner in the lessee that used the tax credits.
  • Partners are not entitled to increase their bases in their partnership interests as a result of the Section 50(d) income inclusion.
  • Section 50(d) income will not increase capital accounts.

In addition, the regulations coordinate the existing Section 50(a) recapture rules with the Section 50(d)(5) income inclusion rules and provide for a new optional election to accelerate the income inclusion by a partner or S corporation shareholder outside the tax credit recapture period. 

The regulations will apply to properties placed in service on or after September 19, 2016. The IRS also published a withdrawal notice of previous proposed rulemaking on the subject.

Learn More

This guidance will be a key topic at the Novogradac 2016 Historic Tax Credit Conference September 21-22 in Cleveland, Ohio.

The September issue of the Novogradac Journal of Tax Credits will feature two articles about the regulations’ implications for HTCs, RETCs and other investment tax credits.

Novogradac & Company will also present a webinar on the guidance in the near future. Stay tuned for details as they become available.