Tax Lawyer Works to Preserve Historic Sites

By Ean Marshall

As the nation’s capital, Washington D.C. is home to a long and rich historical legacy. The Smithsonian Institutions, the monuments on the mall, the plaques and signs marking historical events in various neighborhoods, and the many historical buildings that can be found across the city all keep this legacy alive and well.

But sometimes, in the rush to gentrify and redevelop neighborhoods, some of these historic buildings and sites are threatened. They are in danger of being redeveloped or renovated for commercial purposes or being razed down to the ground to make way for apartment complexes and shopping malls for residents by commercial developers. When a historic building in D.C. is torn down, a piece of precious history is erased from collective memory, buried beneath the shiny new veneer of whatever is built on that land.

That’s when the DC Preservation League steps in to help. Founded in 1971 as the activist lobbying group Don’t Tear It Down (referring to the Old Post Office Pavilion on Pennsylvania Avenue), the League (or DCPL for short) works to help save these historic sites by doing a variety of conservation work to preserve them. It sponsors historic landmarks to be nominated for the DC Inventory for Historic Sites, and has raised public awareness for historic sites by releasing an annual list of Washington’s Most Endangered Places since 1996. In conjunction with the DC Historic Preservation Office, it has used grants from the National Park Service Historic Preservation Fund to survey and preserve buildings in neighborhoods as diverse as Columbia Heights, Brightwood, and the Strivers Section in Dupont Circle.

One of its prominent members is the Vice President of the Board of Trustees, Scott DeMartino. DeMartino has an atypical background when it comes to conservation leaders because he is an attorney at the firm Bryan Cave LLP, and practices with the tax credit group. He mainly focuses his practice on structuring and financing tax-advantaged real estate transactions that use historic rehabilitation tax credit and new markets tax credits, the latter of which stimulates revitalizations of low-income communities across the United States by providing tax credit incentives to investors for equity investments in these neighborhoods.

With tax law degrees from NYU and Washington and Lee University, DeMartino jokes, “Well, I’ve always been a disgruntled sort of tax lawyer, and so very early on in my career in big law in Boston I was introduced to low income housing tax credits by my partner there.” When the partner moved to another firm in D.C., DeMartino joined him, discovering the DCPL and its mission through a mutual friend, and said by getting involved, “I thought it was a great way to be able to apply tax law to something practical and helpful to society, which is nice. Different than pushing papers along.” Although he advises people on their tax credits, he makes sure to prevent a conflict of interest from occurring.

So what exactly are historic tax credits? “It’s kind of a gap filler”, DeMartino explains, saying that if someone wants to rehab an old building that they own, like the historic Howard Theater (a site that the DCPL helped save), they can look into tax credits for an extra financial boost. “What tax credits do is that they give you twenty percent of the costs of rehabbing your building,” he says. “So if it’s $1000 to repair your building, then $200 of tax credits are available with respect to your project, then you’ve got that extra cash stuff to use to rehab the old building, which is great.”

However, these owners generally don’t have enough income to use the tax credits, as the costs for the repairs or restoration can be a million dollars or more. So what the DCPL does according to DeMartino is “ create these structures where Joe Schmo will partner up with an investor who can use the tax credits.” These investors tend to be banks and nationwide insurance companies, which can pool their cash as partners, “and they give the cash to Joe, and through the structure the credits flow out to nationwide or US banks, which take advantage of the credits.” This Federal Historic Preservation Tax Incentives Program, jointly administered by the U.S. Department of the Interior (through the National Park Service) and by the Department of the Treasury (through the IRS), has been in place since 1976, and its provisions are outlined in Sections 38 and 47 of the IRS Code.

Using historic tax credits, DeMartino has worked on some impressive projects in the D.C. area, although he admits “Locally in all of D.C., we only really see about one to three tax credit deals a year if we’re lucky.” Some projects included the aforementioned Howard Theater, charter schools, and “The Boilermaker project, which houses Bluejacket Brewery in Navy Yard. There’s been a number of tax credit projects down in the Navy Yard, so that’s been triggering a lot of development down there.”

The DCPL also occasionally works in collaboration on big projects nationwide as well, and one particular area they’ve been concentrating on has been Detroit. “We’re having significant buildings, $50 million plus dollar projects, and investors have been chasing a number of those deals,” he says.

As for current local projects that he is working on, DeMartino says “There’s the list that just came out of endangered buildings across D.C., kind of the white elephants around the city.” The Endangered List that the DCPL released on their website include the Carnegie Library, the Anacostia Commercial Corridor, and the Washington Canoe Club.

However, this historic tax credit system is currently in danger because House Ways and Means Committee chairman Rep. Dave Camp (R-Mich.) introduced a bill last December to repeal the historic tax credit entirely. This is due to a tax reform plan the Republicans introduced last February, which would retain low-income housing credit, has no mention of new-market tax credits, and would repeal both the historic tax credit program and renewable energy tax credits.

But removal of the historic tax credit would have devastating consequences, as DeMartino cites “A National Park Service study from 2014 showed that almost $6 billion with a b dollars of historic tax credits were utilized last for rehabs of historic buildings.” Without those billions worth of historic tax credits, there will be less incentive to repair old buildings, because those owners won’t be able to close the gap to get the money needed. The result would be the demolition of these historic buildings, replaced by housing developments and malls, amongst other buildings. The DCPL works with local DC organizations and investors to prevent this kind of activity.

Fortunately, DeMartino explains, “Because the historic tax credit is written into the law as part of the code, its much harder to remove than the new-market tax credit, which is an allocated kind of credit.” For DeMartino and the rest of the DCPL, this means that they can continue their efforts to preserving the important cultural and historical buildings of Washington D.C.

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