IRS: Value of Facility-Specific Power Purchase Agreement Capitalized into Basis of Wind Facility


On April 6, 2012 the Internal Revenue Service (IRS) issued Private Letter Ruling 201214007, which concluded that where a taxpayer purchased wind energy facilities accompanied by facility-specific Power Purchase Agreements (PPAs), no portion of the purchase price need be allocated to the PPAs as a separate asset. Any consideration not allocated to real property could be capitalized into the tax basis of the facilities themselves. The result is very favorable for acquirers of renewable energy facilities seeking to take advantage of accelerated depreciation deductions (MACRS) and the investment tax credit (ITC).

In the ruling, the taxpayer was an electrical utility acquiring (at arm’s-length from unrelated parties) a number of existing and under-construction wind energy facilities. Each facility consisted of tangible property including land, wind turbines, towers, pads, on-site power collection systems, monitoring and meteorological equipment, and site improvements. Each facility also came with a facility-specific PPA, i.e., a contract to sell a specified amount of output from that specific wind facility. Neither the facility’s owner, nor any transferee who could theoretically acquire the PPA separately, could fulfill the contract by selling output from any other generation source other than the specified wind facility.

Please see full alert below for more information.

LOADING PDF: If there are any problems, click here to download the file.

Written by:

Published In:


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Mintz Levin | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »

All the intelligence you need, in one easy email:

Great! Your first step to building an email digest of JD Supra authors and topics. Log in with LinkedIn so we can start sending your digest...

Sign up for your custom alerts now, using LinkedIn ›

* With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name.