North Carolina Business Court Decides in Favor of Brooks Pierce Clients in Tax Credit Case

The North Carolina Business Court issued a decision in favor of Brooks Pierce clients John and Rebecca McCabe in their judicial review of a North Carolina Department of Revenue decision denying income tax credits on an investment they made in renewable energy infrastructure.

The decision potentially has broad implications for more than 300 taxpayers, represented by Brooks Pierce, making their way through the Department’s administrative review process and in judicial review. Those cases could be worth more than 400 million of dollars in tax credits to the appellants.

At issue was whether the McCabe’s investment in solar projects was as a “bona fide partner” in the entity that constructed the renewable energy property or as the recipient of a “disguised sale” of credits for tax advantages. The state denied the McCabe’s initial claim to the credits based on the argument they were not bona fide partners and, if they were, had participated in an improper disguised sale of the tax credits, rendering them ineligible to claim the credits. The McCabes countered that, even though their investment was miniscule compared to larger, institutional investors, they were indeed a bona fide partner. The court’s decision cites witness testimony that a solar energy generating facility in which they invested would “not have been feasible without contributions by the fund,” a limited liability company in which the McCabes invested and were partners.

The case, effectively an appeal of a denial by the North Carolina Department of Revenue (NCDOR) to grant tax credits claimed by the McCabes, had been moving slowly through the NCDOR’s administrative review process. The McCabes sought the tax credits in 2014.

The case was led by Brooks Pierce partners Howard Williams and Jimmy Adams. Williams has been practicing law for over 40 years, began his career as a trial lawyer for the Office of Chief Counsel, Internal Revenue Service, in Washington, D.C. and now focuses on representing clients in matters in connection with tax planning and litigation, general corporate work, employee benefits and executive compensation, and aviation. Adams’ practice focuses on dispute and litigation issues related to noncompetition agreements, taxation, health care, professional malpractice, ERISA and estate litigation, and all types of corporate and commercial disputes. Both attorneys are based in the firm’s Greensboro office.