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.
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