Senator Martin Heinrich (D-NM) introduced  S. 3159 (available at: www.heinrich.senate.gov/download/energystoragetaxincentiveanddeploymentact2016) to make energy storage eligible for an investment tax credit (ITC) under section 48.  The bill introduced last month would make energy storage systems with a capacity of at least five kilowatt hours, regardless of whether it was supplied by a renewable resource, investment tax credit eligible.  For instance, a stand-alone storage project that drew power from the grid would be ITC eligible under this bill.

The bill would also allow individuals to own a storage system with a capacity of at least three kilowatt hours used at their homes and to claim a residential energy efficient property tax credit under section 25D.  Like the proposed ITC rules for storage, an individual could qualify for the credit even if the storage system was unrelated to a solar system.

Importantly, the bill has a Republican co-sponsor: Senator Dean Heller (NV). To emphasize, the bipartisan support of the bill, Senator Heller issued a press release (available at http://www.heller.senate.gov/public/index.cfm/pressreleases?ID=E2A22E55-5453-4CD6-B6B7-49AF0D22F0F6).  Five other Democrats co-sponsored it: Franken (MN), Merkley (OR), Reed (RI) and Hirono (HI); further, Senator King (I-ME) co-sponsored it. Continue Reading Senators Introduce Storage ITC Bill

First Published in Tax Notes on July 18, 2016

Below is a link to my  Tax Notes article that discusses three IRS letter rulings involving the investment tax credit eligibility of reflective roofs that bolster the electricity produced by a related solar project.  Further, in light of the IRS letter rulings, the article makes suggestions for the regulations the IRS announced in Notice 2015-70 that it is working on to update the definition of investment tax credit eligible property.

Here’s the link to the article: Solar Reflective Roof Article 7-18-16 152tn0405-Burton

New Tax Regulations Curtail Pass-Through Lease Structure Benefit

The US Internal Revenue Service (IRS) recently released new proposed and temporary regulations addressing certain investment tax credit issues in a so-called “pass-through lease” structure. A pass-through lease is a structure in which the lessor of an investment tax credit-eligible asset makes an election to pass through the investment tax credit to the lessee of the asset, which lessee is frequently a partnership. The term “inverted lease” is sometimes used to refer to a pass-through lease structure in which each of the lessor and the lessee is a partnership, and the lessor and lessee partnerships are related to each other. The new regulations apply an “aggregate” treatment to partnerships (and S corporations) to ensure that any investment tax credit is appropriately taxable to the taxpayer that used the credit.

As discussed in more detail below, if a partner in a partnership that claimed an investment tax credit transfers its partnership interest during the deemed income period, these new regulations require the remaining income inclusion to be accelerated and to be recognized by the transferor. Further, under these regulations, the deemed income inclusion occurs at the partner level such that it does not result in an increase to the partners’ outside basis.

Although these temporary regulations are primarily directed at the structuring of historic tax credit transactions, the temporary regulations do have a limited effect with respect to solar transactions where the credit is passed through to a partnership (particularly the outside basis adjustment in the case of partnership lessees, as discussed below). Continue Reading New Tax Regulations Curtail Pass-Through Lease Structure Benefit

We are pleased to make available the materials from our June 29 tax equity seminar.

Here’s is the link to a PDF of the slides: Seminar Slides PDF.

The webinar audience submitted questions that we did not have time to answer.  The questions were:

1.  Why do balance sheet players have an advantage in obtaining power purchase agreements?

2.  What size of transaction supports the cost of the work needed for pass through and inverted leases?

3. Is there clarity as to a “reasonable” level of developer, project management, legal fees and finance costs as a percentage of the cost of the project?

4. For SolarCity stated tax equity returns in 2015 referenced in the presentation, in your experience, what have you generally seen the range of allocations for returns to be?

Our answers are available here: Q&A Link

Finally, I want to thank Gintaras Sadauskas of Alfa Business Advisors for presenting with me.

First published by Law 360 on June 27, 2016

On April 21, 2016, Rep. Jared Polis, D-Colo.,[1] introduced in the U.S. House of Representatives the Solar Expansion of Distributed Generation Exponentially Act (the Solar EDGE Act) to provide a two-year increase in the credit available under Section 25D and Section 48 of the Internal Revenue Code for certain solar energy property that has a nameplate capacity of less than 20 kilowatts.[2]

Section 25D of the code provides a tax credit (residential solar tax credit) to individuals for expenditures for property which uses solar energy to generate electricity for use in a dwelling unit located in the United States and used as a residence[3] by the taxpayer (qualified solar electric property expenditures). Continue Reading Bill to Increase Solar Tax Credits Highlights Inconsistent Standard for Residential Credit

Hannah Hawkins, Attorney-Advisor in the office of Tax Legislative Counsel of the United States Treasury was a panelist at the Renewable Energy Finance Forum in New York on June 21 and commented on investment tax credit (“ITC”) related guidance that Treasury is working on.

With respect to the solar version of the “start of construction” guidance for determining tax credit eligibility that parallels what was issued for wind in Notice 2016-31, Ms. Hawkins stated that “it is the next thing on our plate.  We hope to have guidance in the fall [or] winter.” Continue Reading Treasury Attorney Discusses Pending ITC Guidance at REFF

On June 10, the IRS issued Notice 2016-36, available at https://www.irs.gov/pub/irs-drop/n-16-36.pdf (the “Notice”), which updates and expands the existing safe harbor[1] pursuant to which the transfer of an intertie (or reimbursement for the cost thereof) to a regulated public utility will be treated as a contribution to the capital of a corporation, and not a contribution in aid of construction (“CIAC”) and, accordingly, will not result in taxable income to the utility.[2]  Utilities often require developers of new projects to transfer interties as a condition to allowing the developers to transmit the  power from their projects over the utility’s lines.

The full post is available at Notice 2016-36 Intertie Blog Post 6-15-16,

 

 

[1] The existing safe harbor is provided under a series of notices issued by the IRS between 1988 and 2001.  See Notice 2001-82, 2001-2 C.B. 619; Notice 90-60, 1990-2 C.B. 345; and Notice 88-129, 1988-2 C.B. 541.

[2] See I.R.C. §§ 118(a) and (b) (contributions to the capital of a corporation are excluded from taxable income; the term “contribution to capital” does not include any CIAC).

On June 29, please join David Burton of Mayer Brown and Gintaras Sadauskas of Alfa Business Advisors for a seminar presented at Mayer Brown’s Chicago office and as a webinar.

 

Topics addressed in the program will include:

  • The IRS’s updated “start of construction” guidance for tax credit qualification
  • Trends in the tax equity market
  • Flip partnership structuring
  • Financial modeling best practices, including a discussion of hypothetical liquidation at book value (HLBV) accounting

Location
Mayer Brown
71 South Wacker Drive
Chicago, IL 60606

Date & Time (Central)
Wednesday, June 29, 2016
3:30 p.m. – 4:00 p.m. Registration
4:00 p.m. – 5:30 p.m. Program
5:30 p.m. – 6:30 p.m. Reception

If you are unable to join in person, the program will also be available via webinar.

For those attending in person, the seminar will be followed by a cocktail reception.

For additional information or to register, please contact Carly Brandess at +1 312 701 8495 or cbrandess@mayerbrown.com.

Below is a link to my presentation addressing state tax credits to Tax Executives International’s New Orleans chapter.  The presentation (i) discusses the federal tax treatment of state tax credits, (ii) outlines several transaction structures involving both state tax credits and the federal investment tax credit and (iii) provides an overview of renewable energy state tax credit opportunities in various states.

Here’s a link to the presentation: State-Tax-Credits-TEI-NOLA-Presentation-5-17-16.pdf