Following its ruling and logic in Tempel v. Commissioner, 136 T.C. No. 15 (2011) [refer to E-Flash 13:4], the Tax Court determined that state income tax credits are capital assets and the sale of such credits should not be taxed as ordinary income. Further the Tax Court again determined that the holding period for such credits begins upon receipt of the credit (i.e., after the donation of the conservation easement, not upon the acquisition of the real property underlying the conservation easement).
The Takeaway The Tax Court determined that formula clauses reached at arm’s-length can be used to determine fair market value. Further, the Court decided that formula clauses are not void as a matter of public policy.