Tax credits allowed for claiming city payment to construction contractor was an investment.
February 15, 2010
A city's payments to a construction contractor were taken from a TIF (tax increment Fund) and channeled through a Capco to claim as an investment to obtain tax credits. In an attempt to disguise the act, the tax credits were mislabeled as "Metro Credits," a nonexistent credit. A scheme similar to another "Tax-exempt state agency supplying investments funds for others to receive tax credits?"
Overly redacted (blacked out) by request, OTC letter LR-07-207 121807.PDF states:
Excessively redacted (blacked out) by request, OTC letter LR-07-207 121807.PDF states:
FACTS 1. "ABCD intends to finance the development through a combination of debt, equity, and tax increment financing provided by the ."
FACTS 5. "ABCD will contribute cash to the Fund in exchange for 'Common Units'" ..... "To raise additional capital(1), the Fund intends to issue its 'Preferred Units' to Investors."
"RULINGS REQUESTED" 5. "The Metro Credits earned by the Fund may be allocated by it 100% to the
(1) In cases involving public funding, the amount budgeted, in this case, what appears to be $7 million, in TIF
(tax increment financing) funds where intended to pay the entire construction cost, leaving "Preferred Units" to serve no benefit other than Capco gain.
RULINGS REQUESTED: (Key elements)
3. The Fund will be entitled to the 20% tax credit described in 68 O.S. § 2357.62
resulting from its investment in the Capital Company to the extent of the Capital
Company's investment in the Contractor.
The amount of the credit is 20% of the qualified investment in the Capital Company, which is subsequently invested in the Contractor, provided all statutory requirements are met.
4. The Fund will also be entitled to the 20% tax credit described in 68 O.S. §
2357.62 resulting from its direct investment in the Contractor.
Yes, the Fund will be entitled to the 20% tax credit described in 68 O.S. § 2357.63 provided all statutory requirements are met.
5. The Metro Credits earned by the Fund may be allocated by it 100% to the
Preferred Unitholders, which parties will be entitled to claim their pro rata share of the
The Tax Policy Division agrees that shareholders, partners or members of a pass-through entity that are entitled to a credit under §§2357.62 and 2357.63 of Title 68 may receive an allocation of the credits from the pass-through entity, subject to the provisions of §2357.62(G) and §2357.63 (E). If the members of the Fund are pass-through entities, the allocation of credits is subject to the provisions of §2357.62(G) and §2357.63(E).
For complete ruling LR-07-207 121807.PDF
How the tax credit scheme works: CAPCOs structure investments with two classes of investors. One class of investors, "Common" or in this case, "Common Units" investors, was the channel for all funds, going to the contractor. The other class of investors, "Preferred " or in this case, Preferred Unitholders, make token investment, then gets all the tax credits.
The Capco then claimed the construction payment passed through the Capco as "Common Unit" was an investment. All the tax credits go to the "Preferred" investors that may have invested as little as $1 each.
Who was involved?
Although the identities are withheld to prevent the public from learning; comparing the OTC ruling LR-07-207 121807.PDF
, IRS Capco reports
TIF Districts in Oklahoma
the apparent closest matches are:
- Foxborough as the Capco. View
- The City Of The Village Economic Development And Revitalization Project Plan. View