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A New York federal judge agreed to toss a housing partnership's suit accusing accounting firm CohnReznick LLP of professional negligence and fraud, finding that the district court doesn't have jurisdiction over the dispute.

U.S. District Judge Naomi Reice Buchwald said Tuesday that the court lacks subject matter jurisdiction over the case brought by AMTAX Holdings 227 LLC, rejecting AMTAX's argument that the action raises substantial issues that relate to federal tax law. Rather, the judge said the issues are related to a right of refusal and purchase option agreement.

AMTAX was formed exclusively to build 185 affordable housing units in Boston in exchange for low-income tax credits. The partnership sued in early 2023, claiming CohnReznick had violated its fiduciary duty when it created a secret calculator of the project's mandated selling price to benefit the general partner.

CohnReznick's calculation threatens to shift an $8.5 million tax burden from the general partner's nonprofit parent company in Boston, Tenants Development Corp., to the partnership in a case before a state court in Massachusetts that has cost the partnership $500,000 in legal fees, AMTAX said at the time.

The partnership said it's governed by rules surrounding affordable housing tax credits, and that means it can offer its general partner's parent the rights to purchase the housing when it goes up for sale, typically after 15 years, when the partnership has used up all the tax credits. The regulated minimum price for such a sale to a parent company must include all taxes triggered by the sale, AMTAX said.

A related case was filed in federal court in Massachusetts as well.

In arguing that the case should be tossed, CohnReznick pointed to the test established by the U.S. Supreme Court in Grable & Sons Metal Products Inc. v. Darue Engineering & Manufacturing for determining whether federal question jurisdiction exists. AMTAX had met none of the four factors in that test, and thus the court lacks jurisdiction, the firm argued.

On top of that, CohnReznick said the related action in Massachusetts federal court has already made its way to the First Circuit, which held that disputes related to the partnership's right of refusal and purchase option agreement with the nonprofit don't support federal question jurisdiction.

Judge Buchwald said Tuesday that AMTAX hasn't "sustained its burden of proving by a preponderance of the evidence that its claims depend on federal tax law rather than the parties' interpretation of a sui generis contract."