What s New? Keith Martin kmartin@chadbourne.com

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1 What s New? Keith Martin kmartin@chadbourne.com

2 The IRS made it easier last Friday for wind, geothermal, biomass and landfill gas projects to qualify for federal tax credits. Developers do not have to prove they worked continuously on projects that are completed by Many are taking a fresh look at the physical work test for starting construction. Lawyers are being asked whether proposed work in 2013 is "significant." PLRs?

3 The odds of massive corporate tax reform this Congress have been steadily receding, but could improve if Congress insists on a deadline for tax reform as part of a deal on the federal debt limit. Meanwhile, the House Ways and Means Committee staff is working on the text and plans to release it as early as October in advance of any "mark up" by the committee. retirements Cantor rumors revenue increase

4 The solar industry wants Congress to allow projects to qualify for a 30% investment tax credit if they are merely under construction rather than completed by December The next shot at this may be an "extenders" bill to extend expiring tax provisions. However, the chairman of the Senate tax-writing committee, Max Baucus, said last week there will not be an extenders bill this year in order to keep the focus on corporate tax reform. Camp

5 Support continues to build in Congress for letting renewable energy companies operate as master limited partnerships at the same time that the MLP community is lobbying to prevent Congress from eliminating MLPs altogether. Any expansion of MLPs for renewable energy would create a vehicle for raising capital against operating projects, but not for expanding the potential pool of tax equity. Coons ITC recapture

6 Interest in REITs is waning. The IRS issued one private ruling to a mortgage REIT confirming that the security it plans to take back on rooftop solar installations and other energy efficiency improvements is a "mortgage" over real property, but the agency seems unwilling to treat solar panels as real property. In the meantime, the market has moved to yield cos, which produce many of the same benefits as MLPs and REITs, but do not require action by Congress. machinery FAITs

7 The Treasury has been taking a harder line on eligible basis in solar projects, especially projects that are financed in sale-leasebacks. The sequestration percentage is expected to drop from 8.7% to approximately 7.3% for grants approved after this month. Failure to file annual reports confirming continued ownership and use of solar equipment could lead to a demand for repayment. Treasury is strictly enforcing a deadline to respond to questions that its reviewers ask after looking at grant applications. developer fees

8 Treasury believes that a distribution or contribution of equipment on which a grant was paid will trigger recapture of the grant unless the transferee agrees to joint liability for recapture.

9 There are 10 lawsuits now pending against Treasury about the section 1603 program. The government lawyer who argued a motion last week to dismiss one of the cases was poorly prepared, suggesting anyone who is unhappy about the grant he or she was paid might do well to file a protective claim. six years False Claims Act

10 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.

11 The IRS is expected to issue new guidance on tax equity transactions in the next month. The guidance will create a "safe harbor" for tax equity deals involving tax credits for rehabilitating historic buildings, but will be read closely by the broader tax equity community. A Treasury lawyer said last week the delay is over when to allow puts and calls. entrepreneurial risk inverted leases?

12 Purchase options are getting closer attention from tax lawyers after two federal courts said options that were "reasonably likely" to be exercised were a problem. In both cases, the government relied on internal marketing presentations and similar materials to prove the options were expected to be exercised. LILOs and SILOs

13 Some companies bidding to acquire development rights or completed projects have been using unwarranted theories to justify allocating none of the purchase price to the power contract. The IRS position on contract value is still unclear after the agency withdrew a private letter ruling on the subject last year. in the money when? encumbrance?

14 The federal bank regulatory agencies are expected to decide by year end whether the "Volcker rule" prohibits some kinds of tax equity investments. National banks cannot invest in anything considered a "covered fund." Some partnership structures involving more than two tiers of entities are potentially a problem. What started as a 1 1/2-page outline by Paul Volcker is expected to be a 900+-page regulation. public welfare exception sidelines

15 The Comptroller of the Currency has decided against declaring that investments in wind and solar projects qualify automatically as public welfare investments, despite urging from the solar and wind trade associations. Such a declaration might have tripled the number of banks that are potential tax equity investors and insulated tax equity from problems under the Volcker rule. However, the OCC believes most projects qualify. jobs new markets tax credits

16 The Federal Reserve Board is expected to decide in advance of a Senate hearing in October whether bank holding companies can continue to own assets like power plants and gas pipelines and trade in electricity and other commodities. The top eight banks controlled 10.25% of the US wholesale power market at the end of Q In ERCOT, six banks had a combined market share above 60%. WECC

17 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. 100% curtailment?

18 Nine months have passed without the IRS withdrawing a controversial IRS ruling that an Indian tribe can transfer tax benefits on its project through an inverted lease with a tax equity investor. By extension, a sale-leaseback would also work. The tribe is not considered a taxexempt entity for this purpose. slower depreciation

19 What s New? Keith Martin kmartin@chadbourne.com