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The Sale of State Tax Credits  

Author:  Erik M.  Jensen.

Source: Volume 28, Number 04, Summer 2011 , pp.91-96(6)

Journal of Taxation of Investments

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In Tempel v. Commissioner , the Tax Court came to a number of important conclusions about sales of state income tax credits that occurred shortly after the credits had been received. The gain was held to be capital gain (with the court implicitly concluding that the credits were property), but the holding period for the credits began at receipt and the taxpayers had no basis in the credits. The bottom line was that the gain was short-term capital gain,with no basis offset, a negative result for these taxpayers. But the Tax Court’s conclusion that the credits were capital assets creates planning opportunities for others.

Keywords: Tempel v. Comm’r; Virginia Historic Tax Credit Fund 2001 LP v. Comm’r; state income tax credit; income tax credits as capital assets; holding period; basis; relinquishment of contract rights; substitute-for-ordinary-income test

Affiliations:  1: Case Western Reserve University School of Law.

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