Reps. Pat Tiberi, R-Ohio, and Danny Davis, D-Illinois, Tuesday introduced the Preserving Investment in Neighborhoods (PIN) Act, to protect state and local governments’ ability to invest in communities for critical economic development projects.
The PIN Act would modify Section 118(a) of the federal tax code to extend federal income tax exemptions to partnerships and Limited Liability Companies taxed as partnerships on capital contributions from state and local governments.
“We want to ensure that we provide the right incentives for state and local governments to work with partnerships to help our communities grow and thrive,” Tiberi said. “The PIN Act is a commonsense fix to boost private sector investment and encourage job creation in places that need it the most.”
“Chicago is a community of neighborhoods as are many other cities and villages around the country,” said Rep. Davis. “This bill addresses the need for targeted investment in a practical way. Investment in our neighborhoods will stimulate additional investment and leverage each dollar for maximum impact.”
State and local governments invest in economic development in order to leverage private capital for important local projects. This public investment can be in the form of real property or easements, or it can be in the form of capital to assist with the costs of demolition, environmental remediation, or infrastructure for new development or re-development. These investments are intended to help provide additional services and revenues to the community, a news release states.
Dating back to 1925, courts have treated this type of investment as a tax-free “contribution to capital.” However, codification of this rule under Section 118 did not specifically list “partnerships” within its scope, since partnerships were not widely utilized at the time. Due to this omission, the IRS currently does not extend federal income tax exemptions to partnerships on capital contributions from state and local governments.
This decision significantly limits the impact of state and local funds dedicated to underserved markets and effectively discourages real estate partnerships from investing in areas with the greatest need.
The PIN Act extends the application of Section 118(a) principles to partnerships to support much needed private sector investment in critical economic development projects.