Sen. Sessions Pens Letter to Treasury Critical of SolarCity and 1603 Practices

by Akin Gump Strauss Hauer & Feld LLP

In a letter dated November 18, Senator Jeff Sessions (R-AL) wrote Secretary of the Treasury Jacob Lew a critical letter with questions regarding the Cash Grant program, SolarCity’s purported practices and the investment tax credit.  The letter is available here.

It is unfortunate that Senator Sessions does not appreciate how cautious and deliberate Treasury has been in administering the Cash Grant program.  In fact, the SolarCity litigation that the letter references is essentially a response to Treasury’s exceedingly high level of caution and deliberation in the administration of the Cash Grant program.  There are projects with Cash Grants that have been delayed over a year.

The letter was apparently triggered by an August 31 article in Barron’s titled Dark Clouds Over SolarCity; the article is referenced in a footnote to the letter.  It is not clear why the senator’s office opted to produce this letter two and half months after the article.

The letter makes a number of requests of Treasury.  The first request is “Please explain the logic behind allowing companies that take advantage of Section 1603 of ARRA to establish the fair market value of their solar product instead of establishing a set value.”  My personal response to that is Congress provided that Section 1603 should “mimic” the investment tax credit, and the investment tax credit is based on tax basis (rather than “a set value”). 

The letter goes on to provide: “If Treasury provides guidance to firms to calculate fair market value, please provide that information.”  I would like to see that myself.  Treasury’s memorandum of June 30, 2011 provided such guidance with respect to California solar projects; however, Treasury has now moved away from that guidance and declines to publish updated numbers. 

The letter is somewhat confused in that it asks “How many companies have received a tax credit under Section 1603?”  Section 1603 provides for a Cash Grant (not a tax credit); nonetheless, the question is easily answered for Section 1603 Cash Grants as Treasury regularly publishes these statistics.

The letter asks “Are there any other companies simultaneously in ligation against the government regarding the calculation of solar installation tax credits and receiving Section 1603 tax credits?”  A cheeky answer to this question would be “zero” because neither “solar installation tax credits” nor “Section 1603 tax credits” exist. 

The letter asks “How long are these tax credits allowed to stay on the books, shielding tax liability?”  It is not clear which “tax credits” the letter is asking about.  Presumably, it is the Section 48 investment tax credit.  Those tax credits, if unused, can be carried forward twenty years as “general business credits”.

The letter asks “Please provide a list of solar companies that have received federal loans in addition to tax credits.”  I think the answer to that is zero as I believe that the Department of Energy loan program was generally used by solar projects that claimed the Cash Grant.  If the senator is asking about the combination of the Department of Energy loan program and Cash Grants, then there will be a handful of solar projects that used both.

We may not have to wait long to see the Treasury’s response as the senator’s letter asks for a “hard copy and in an electronic, searchable format no later than December 18, 2013”.


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.

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