A U.S. Tax Court decision entered on Feb. 20, 2024, in 23rd Chelsea Associates LLC v. Commissioner of Internal Revenue held that bond issuance and related financing costs incurred in connection with the development of a low-income housing tax credit (LIHTC) project are includible in eligible basis, regardless of whether the bonds are taxable or tax-exempt. The holding reverses a longstanding Technical Advice Memorandum (TAM) first issued by the IRS in 2000 (TAM 200043015), which held that bond issuance costs incurred in connection with tax-exempt volume cap bonds were not includible in eligible basis because such costs are “bad” costs that do not constitute residential real property under Internal Revenue Code Section 142, which provides for the tax-exemption of bonds issued to finance affordable housing.
The Project and Audit
23rd Chelsea Associates LLC is a development sponsored by The Related Companies LP (Related), one of the…
