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

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