COURTS DENIED INVESTMENT TAX CREDITS to two more companies trying to claim them under a “world headquarters” exception in the Tax Reform Act of 1986

COURTS DENIED INVESTMENT TAX CREDITS to two more companies trying to claim them under a “world headquarters” exception in the Tax Reform Act of 1986

August 01, 2001
COURTS DENIED INVESTMENT TAX CREDITS to two more companies trying to claim them under a “world headquarters” exception in the Tax Reform Act of 1986.

Congress repealed the investment tax credit at the end of 1985.  However, it made a long list of exceptions where companies that had committed to investments before the repeal could still claim tax credits as late as 1990.  One such exception was for any company that had signed an “agreement to lease” space for its world headquarters before September 26, 1985.  Such a company could claim tax credits on the cost of the buildout and on the equipment and furniture purchased for the space through 1990.  Congress intended the exception to cover only Merrill Lynch and Drexel Burnham Lambert, but the provision was poorly drafted and, on its face, applies to many more companies.

Kimberly Clark and Airborne Freight have both managed to persuade courts that they were entitled to the credit.

However, in late July, the courts turned down tax credit claims by two more companies.  The US Claims Court denied tax credits to National Data Corp.  The company signed a lease for its Atlanta headquarters in 1971 to run through April 1993.  The company made $34.8 million in leasehold improvements to its space during the period 1986 through 1990.  It did not claim tax credits on the cost of the improvements when filing its original tax returns for those years, but decided later in 1994 to make a claim on the government for a tax refund of $1.7 million on grounds that it was entitled to tax credits.  The Claims Court said use of the phrase “agreement to lease” in the headquarters exception contemplates a lease where the taxpayer has not yet moved in.

The Chicago Mercantile Exchange lost a similar case in late July in the US Tax Court.  The exchange leased space for two trading floors and its headquarters in a new office building that was under construction in Chicago.  The lease was signed in 1981.

Keith Martin