SEIA Solar Tax Manual Update: What's New?

Transcription

1 SEIA Solar Tax Manual Update: What's New? Keith Martin

2 The IRS has now issued three private rulings confirming that investment tax credits can be claimed on batteries that are installed as part of utility-scale and solar rooftop projects. A 75% cliff applies, at least in the case of solar rooftop installations. The battery must be considered part of the generating equipment. knob on a motor charge

3 The IRS issued two more private rulings confirming that investment credits can be claimed on solar projects in Puerto Rico. At least one more ruling request is pending. The project must be owned by US corporations or citizens. partnerships

4 The IRS ruled privately that an Indian tribe can transfer tax benefits on its project through an inverted lease -- or, by extension, a saleleaseback -- with a tax equity investor. The tribe is not considered a tax-exempt entity for this purpose. The ruling may be controversial within the IRS, but nine months have passed and it has not been withdrawn. slower depreciation

5 The IRS said two utility-scale solar projects will be in service in time to qualify for tax credits, even if actual use is curtailed for a period of time while the utility completes network upgrades that were delayed by litigation with local residents. December 31, 2016

6 The Treasury said it will allow companies filing for cash grants to file up to 180 days after a project is completed rather than within 90 days.

7 Failure to file annual reports with Treasury confirming continued ownership of equipment and how the equipment is being used could lead to a demand for repayment.

8 Grants approved for payment are currently subject to an 8.7% haircut due to sequestration. OMB estimated last spring that the percentage will drop to 7.3% after September 30. The haircut does not apply to the investment tax credit. A company that receives a smaller grant due to the haircut should be entitled to more depreciation.

9 Treasury has not hesitated to challenge the tax bases claimed by many solar companies. It is asserting in some cases that the project value is less than the cost to construct. In other cases, it is allowing a small mark up above cost or setting the value by discounting projected cash flow using the tax equity yield as the discount rate for the contracted revenue. Some of the same issues raised by Treasury are now being raised by the IRS in audits of projects on which tax credits were claimed. sale-leasebacks

10 Treasury is strictly enforcing a deadline to respond to questions that its reviewers ask after looking at grant applications. Responses are due within 21 days. Grant applicants who need more time should be sure to ask for an extension.

11 There are eight lawsuits now pending against Treasury about the section 1603 program. A ninth suit was withdrawn by the solar company that filed it "with prejudice" after the government filed a counterclaim against the company charging it with fraud. Another suit is expected shortly. False Claims Act

12 Treasury is allowing companies that are unhappy with the grants they were paid to pay back the money and claim tax credits instead. There does not appear to be a hard deadline to do so.

13 Some solar companies are interested in using REITs to raise money. REITs only work for assets that are largely "real property." The IRS has been unwilling to rule that solar panels are real property, but it issued one ruling to a "mortgage REIT" that the REIT can make loans secured by interests in the buildings and other real property on which solar systems are mounted.

14 However, interest in REITs appears to be receding as "yield cos" become more popular. Yield cos offer many of the same benefits as MLPs. NRG made a successful launch in the US while Silver Ridge Power and Threshold Power withdrew offerings in Canada. de-risked assets

15 Two solar securitization deals are before the rating agencies. The first such transaction could hit the street before year end. There have been three main impediments to such deals, but two working groups have been tackling them. forms defaults servicing

16 The IRS is expected to release new guidance imminently on tax equity transactions. The government has been concerned about the aggressiveness of some tax equity structures in the wake of a US appeals court decision in a case called Historic Boardwalk. entrepreneurial downside risk inverted lease?

17 SEIA Solar Tax Manual Update: What's New? Keith Martin