section 1603 cash grants energy...

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Section 1603 Cash Grants Section 1603 Cash Grants for Renewable Energy ProjectsLeveraging the Soon‐to‐Expire Option for Financing RE Projects

T d ’ f l f

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

TUESDAY, OCTOBER 11, 2011

Today’s faculty features:

Andrew W. Ratts, Partner, Winston & Strawn, Chicago

Katherine Breaks, Director, KPMG, Washington, D.C.

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Section 1603 Cash Grants for Renewable Energy ProjectsRenewable Energy Projects

October 11, 2011

Katherine Breaks, KPMG LLP,

Disclaimer

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING MARKETING OR RECOMMENDING TO ANOTHER PARTYTAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transactionpersons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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Agenda

Preserving cash grant eligibility

Financing structures utilizing cash grant

Treasury grant guidance


7

Federal Renewable Energy Grant Program: Preserving g g

Eligibility

Grant Awards by Dollar Amount: Over $8.6 billion in grants awarded (as of September 7, 2011)

Open Loop Biomass

Combined Heat & PowerBiomass – 2% Geothermal Electricity – 2%

Solar Electricity – 16%

Fuel Cell

Geothermal Electricity

Solar Thermal – 2%

Geothermal Heat Pump

Hydropower (incremental)

Large Wind – 82%

( )Landfill Gas

Marine

Mi biMicroturbine

Small Wind

Solar Electricity


9

Solar Electricity

Number of Grant Awards By Project Type: 3713 Grants Awarded (as of September 7, 2011)

Open Loop Biomass

Combined Heat & Power

Fuel Cell

Geothermal Electricity

Solar Thermal – 5%Wind – 5% Biomass – 1%

Small Wind – 5%

Geothermal Heat Pump

Hydropower (incremental)

Landfill Gas

Marine

Microturbine

Small Wind

SolarElectricity

Solar Electric – 82%

Solar Electricity

Solar Thermal

Trash Facility

Wind


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General Requirements

To qualify for the grant, a renewable energy project must meet the following requirements:

Construction must commence prior to January 1 2012• Construction must commence prior to January 1, 2012

• The property must be placed in service after 2008 but before 2014 (before 2013 for wind farms and before 2017 for energy credit property)

• The property must be tangible personal property or other property that is an integral part of a qualified facility (as defined by the ITC rules)


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General Requirements

C t ti tConstruction commencement:

• Construction begins when physical work of a significant nature begins.

• Work performed by the applicant and by other persons under a written bindingWork performed by the applicant and by other persons under a written binding contract is taken into account in determining whether construction has begun.

• For applicants relying on the physical work rule, they must engage in a continuous program of construction beginning in 2011 and through completion of construction.p g g g g p

• An applicant may elect a safe harbor to determine when construction begins

• An applicant may treat physical work of a significant nature as beginning when more than 5 percent of the total cost of the specified energy property has been paid orthan 5 percent of the total cost of the specified energy property has been paid or incurred

• Under the safe harbor, the cost of property produced under contract is treated as paid or incurred (i) when the property is provided to the applicant, and (ii) for periods before the ( ) y ( )property is provided to the applicant, costs are treated as paid or incurred by the applicant when the manufacturer pays or incurs such costs on the applicant’s components.


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Beginning Construction

• 3 ½ month rule

• Beginning construction of specified energy property off-site

• 5% safe harbor

• Beginning construction of specified energy property at the site


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Three and one-half month rule

• Regardless of any other rule, specified energy property is deemed provided upon payment IF it is reasonable to believe at the time of payment that the property will be provided within 3 ½ months of payment.

• Property is provided to the taxpayer when the property is delivered or accepted, or when title to the property passes.

• The method used by the taxpayer to determine when property is provided isThe method used by the taxpayer to determine when property is provided is a method of accounting that must comply with the regulations under section 446. Thus, the method of determined when property is provided must be used consistently from year to year, and cannot be changed without the

t f th C i iconsent of the Commissioner


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Source: Treasury Department, Frequently Asked Question number 17; Treas. Reg. sec. 1.461-4(d)(6).

Three and one-half month rule

ExamplesExamples• Tax owner pays for solar panels on December 31, 2011, and reasonably expects to

physically receive the property by April 15, 2012. Under the tax owner’s method of accounting, property is provided when it is delivered.• Property is deemed received by 12/31/2011 and can be included in determining whether construction has

commenced

• It doesn’t matter whether solar panels were in inventory at the time that the purchase is made or the contract was entered into

Tax owner pays for solar panels on November 30 2011 and the tax owner reasonably• Tax owner pays for solar panels on November 30, 2011 and the tax owner reasonably believes the property will be delivered on April 15, 2012. Under the tax owner’s method of accounting, property is provided when it is delivered.• Property is NOT deemed received by 12/31/2011 because deliver is in excess of 3 ½ months of the date of

paymentp y

• Tax owner must satisfy one of the other tests in order to be deemed to begin construction

• Tax owner receives an invoice for solar panels on November 30, 2011, tax owner makes payment on December 31, 2010, and reasonably expects to receive the property by April 15, 2012. Under the tax owner’s method of accounting, property is provided whenApril 15, 2012. Under the tax owner s method of accounting, property is provided when it is delivered.• Property is deemed received by 12/31/2011 and can be included in determining whether construction has been

commenced

• “Payment” is the key date.


15

y y

• Tax owner should retain records on when property is actually received.

Off-site Construction

Both on-site and off-site work may be taken into account for purposes of demonstrating that physical work of a significant nature has begun.

If the facility’s wind turbines and tower units are to be assembled on site from• If the facility s wind turbines and tower units are to be assembled on site from components manufactured off site and delivered to the site, physical work of a significant nature begins when the manufacture of the components begins at the off-site location. If a manufacturer produces components for multiple facilities, reasonable methods must be used to associate individual components with particular facilities.

• Physical work of a significant nature does not include preliminary activities such as planning or designing, securing financing, exploring, researching, clearing a site, test drilling of a geothermal deposit, test drilling to determine soil condition, or excavation to change the contour of the land (as distinguished from excavation for footings and foundations)excavation for footings and foundations).


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• For property that is manufactured, constructed, or produced for the applicant by another person under a written binding contract (as described below) that is entered into prior to the manufacture, construction, or production of the property for use by the applicant in the applicant’s trade or business (or for the applicant’s production of income) the work performed under the contract is taken into account in determining when physical work of a significant nature begins.

• A contract is binding only if it is enforceable under State law against the applicant or a predecessor, and does not limit damages to a specified amount (for example, by use of a liquidated damages provision).

• For this purpose, a contractual provision that limits damages to an amount equal to at least 5 percent of the total contract price will not be treated as limiting damages to a specified amount.

Any conditions in the contract cannot be subject to the control of either property• Any conditions in the contract cannot be subject to the control of either property


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Examples

• Tax owner enters into BWC with Contractor on December 30, 2011. On December 31 2011 Contractor assigns three solar panels to the tax owner that itDecember 31, 2011 Contractor assigns three solar panels to the tax owner that it had in inventory and delivery or title passage is not expected to occur until May 1, 2012. Contractor provides identifying information on the panels such as serial numbers.

• Tax owner has not satisfied the begin construction requirement because the Contractor has assigned the tax owner panels that were in inventory.


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Examples

• Tax owner enters into BWC with Contractor on June 30, 2011. On July 31, 2011, Contractor purchases and takes delivery of components that will be used to p y pconstruct the tax owner’s panels. Contractor provides identifying information on the components to the tax owner such as serial numbers. Those components are ultimately used to construct the tax owner’s panels that are delivered to tax owner in 2012owner in 2012.

• Tax owner has satisfied the “begin construction” requirement as long as the tax owner also satisfies the continuous program of construction requirement.

• There is limited guidance on the “continuous program” requirement. Based on informal guidance from Treasury, it suggests activity that is consistent with a “normal” construction schedule for the relevant type of property. The absence of activity for more than three months is likely to present a problem unless there are extenuating y p p gcircumstances.

• Based on informal guidance provided by Treasury, it does not appear to be relevant that the supplier of the components is a related party of the Contractor.


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Examples

• Tax owner enters into BWC with Contractor on June 30, 2011. On July 31, 2011, the Contractor’s supplier constructs the components that will ultimately bethe Contractor s supplier constructs the components that will ultimately be incorporated in the panels constructed by Contractor. No other activity occurs by the end of the year. Contractor provides identifying information on the components to the tax owner such as serial numbers.

• Although not entirely clear, it appears that the tax owner has not satisfied the begin construction requirement. Tax owner can only look through to the activities of the Contractor, not its suppliers, and the Contractor has not purchased the components.


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5% safe harbor

• The term “paid or incurred” generally means paid or incurred within the meaning of Treas. Regs. §1.461-1(a)(1) and (2). That is, costs are taken into account when cash-method taxpayers “pay” them and when accrual-method taxpayers “incur” them. A cost is generally “incurred” for tax purposes when 1) the fact of the liability is fixed, 2) the amount of the liability is determinable with reasonable accuracy, and 3) the economic performance test (see Treas. Regs. §1 461-4) has been met with respect to such cost§1.461-4) has been met with respect to such cost.

• The 5% safe harbor contained in the Program Guidance includes a single exception to the general principles that are used to determine when amounts are “incurred ” Under general rules for property manufactured constructed orare incurred. Under general rules for property manufactured, constructed, or produced for the applicant by another person under a binding written contract that is entered into prior to the manufacture, construction, or production of the property, the cost of such property is treated as “incurred” when the property is provided to the applicant. The exception is that for periods before the property is provided to the applicant, costs incurred with respect to the property by such other person are treated as costs of the property that are incurred by the applicant when the costs are incurred by such other person.


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applicant when the costs are incurred by such other person.

5% safe harbor

• The supplier may use any reasonable, consistent method to allocate the costs incurred by the supplier among the units of property to be manufactured, constructed, or produced by the supplier. Only costs incurred by the supplier after the binding written contract is entered may be reasonably allocated to the property manufacturedcontract is entered may be reasonably allocated to the property manufactured, constructed, or produced under that contract. The economic performance rules apply to determine when costs have been incurred by the supplier. Thus, if components are manufactured for the supplier by a subcontractor, the cost of those components is incurred only when the components are provided to the supplier and not as theincurred only when the components are provided to the supplier and not as the subcontractor pays or incurs the costs of manufacturing the components.


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5% safe harbor

Examples

• Tax owner enters into BWC with Contractor on June 30, 2011. On July 31, 2011 tax owner makes a payment that would cover the cost of 10% of the solar panels that will be needed for the project, and the payment represents 8% of the total cost of specified energy property. On August 31, 2011, Contractor purchases and takes delivery of components that will be used to construct the tax owner’s panels and the cost of these components equals (or exceeds) the paymentpanels, and the cost of these components equals (or exceeds) the payment made by the tax owner. Contractor provides identifying information on the components to the tax owner such as serial numbers. The components are used to construct panels that are delivered to tax owner in 2013.

• The tax owner has satisfied the “begin construction” requirement. The continuous program of construction requirement does not apply.

• Same facts except tax owner does not yet know what site it will choose for the p yfacility.

• The tax owner has satisfied the “begin construction” requirement. It is not necessary that the site be identified as of 2011.


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5% safe harbor

ExamplesExamples

• Tax owner enters into BWC with Contractor on June 30, 2011. On July 31, 2011 tax owner makes a payment that would cover the cost of 10% of the solar panels that will be needed for the project and the payment represents 8% of the total cost ofbe needed for the project, and the payment represents 8% of the total cost of specified energy property. On August 31, 2011, the Contractor’s supplier constructs the components that will ultimately be incorporated in the panels constructed by Contractor. No other activity occurs by the end of the year, and the components are delivered to the Contractor May 1 2012 Contractor provides identifying informationdelivered to the Contractor May 1, 2012. Contractor provides identifying information on the components to the tax owner such as serial numbers.

• The tax owner has not satisfied the begin construction requirement. Tax owner can only look through to the activities of the Contractor, not its suppliers, and the Contractor haslook through to the activities of the Contractor, not its suppliers, and the Contractor has not purchased the components or directly engaged in any activity that constitutes the beginning of construction.

• Suppose the taxpayer believes that it satisfied the 5% safe harbor as of 12/31/2011, but the project goes over-budget and the amount paid as of 12/31/2011 is actually less than 5%?

• The tax owner has not satisfied the “begin construction” requirement under the 5% safe h b (H if th lti l it f t l i ti l t )


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harbor. (However, if there are multiple-units of property, can claim partial grant.)

5% safe harbor

Examples• Tax owner enters into BWC with Contractor on June 30, 2011. On July 31, 2011 tax

owner makes a payment that would cover the cost of 10% of the solar panels that will be needed for the project and the pa ment represents 8% of the total cost ofbe needed for the project, and the payment represents 8% of the total cost of specified energy property. On December 31, 2011, Contractor pays for components that it reasonably expects to receive from its supplier by April 15, 2012. The cost of these components equals (or exceeds) the payment made by the tax owner. Contractor provides identifying information on the components to the tax owner such p y g pas serial numbers. Those components are used to construct panels that are delivered to tax owner in 2016. Assume that, under the Contractor’s method of accounting components are provided when they are delivered.• Tax owner has satisfied the 5% safe harbor because Contractor can rely on the 3 ½

month rule.

• Same facts except that, prior to the delivery of the panels in 2016, tax owner assigns its rights in the contract to an “affiliated special purpose vehicle,” that will own the project.• Tax owner has satisfied the 5% safe harbor. The assignment of contract rights to an

affiliate is permitted. (Special rules provide that master contracts can be used, and then new contracts can be entered into with SPV’s at a later time.)


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On-site construction

• In general, any physical work on the specified energy property will be treated as the beginning of construction even if such work relates to only a small part of the facility.

• For example, in the case of a facility for the production of electricity from a wind turbine, on-For example, in the case of a facility for the production of electricity from a wind turbine, onsite physical work of a significant nature begins with the beginning of the excavation for the foundation, the setting of anchor bolts into the ground, or the pouring of the concrete pads of the foundation.

• Physical work of a significant nature does not include preliminary activities such as planning or designing, securing financing, exploring, researching, clearing a site, test drilling of a geothermal deposit, test drilling to determine soil condition, or excavation to change the contour of the land (as distinguished from excavation for footings and foundations).

• Constructing fencing and access roads is not sufficient. Constructing “maintenance roads,” may be sufficient.

• The continuous program of construction requirement applies.


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On-site construction

Examples

• In the case of utility-scale solar, tax owner constructs maintenance roads by 12/31/2011 under a BWC For this purpose and pursuant to a BWC with an EPC12/31/2011 under a BWC. For this purpose, and, pursuant to a BWC with an EPC contractor, the land is cleared and graded, gravel is laid, and paving has occurred.

• Tax owner has satisfied the construction commencement requirement assuming that the owner pursues a continuous plan of construction.

• In the case of utility-scale solar, tax owner constructs an access road by 12/31/2011 under a BWC. For this purpose, and, pursuant to a BWC with an EPC contractor, the land is cleared and graded, gravel is laid, and paving has occurred.

• Tax owner has not satisfied the construction commencement requirement.

• In the case of utility-scale solar, tax owner constructs mounting systems (i.e., support poles, pedestals, etc) by 12/31/2011 under a BWC. For this purpose, and, pursuant p p ) y p p pto a BWC with an EPC contractor, concrete is poured and several systems are installed.

• Tax owner has satisfied the construction commencement requirement assuming that the ti l f t ti


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owner pursues a continuous plan of construction.

Financing Structures using the Cash GrantGrant

Andrew W. Ratts

© 2011 Winston & Strawn LLP

Financing Structures using the Cash Grant --Impact of Rule Changes

How will financing structures evolve given this new set of rules?

Two and one half years later, we have some good answers.

Questions linger.

© 2011 Winston & Strawn LLP 29

Financing Structures using the Cash Grant -- Some Answers

Continued reliance on cash grant.Program Sunset by 12/31/2011, but very liberal guidance as g y , y g

to commencement of construction.

Evolutions in partnership flip model.Emergence of leasing as a financing structure for wind

projects.Other tax credit structures.


Financing Structures using the Cash Grant -- More Questions

Will the leasing model continue to grow? The Sunset of the cash grant and the need to claim the ITC

The impending change in accounting rules

Will the DOE continue to be useful or even available as a guarantor of debt for traditional wind and solar PV projects?

Will use of the tax-exempt bond market as a financing tool for renewable energy emerge?


Financing Structures using the Cash Grant -- Cash Grant Only

Elect the cash grant and simply use depreciation to shelter development profits and return from p pproject ownership and operation.


Financing Structures using the Cash Grant – Partnership Flip

Deep Pocket TaxpayerDeveloper Deep Pocket Taxpayer

Allocated 1% of tax losses/income plus a

Allocated 99% of tax losses/income plus a

Developer

Project Company

varying percentage of pre-tax economics until target return achieved for taxpayer,

varying percentage of pre-tax economics until target return achieved, then 4.95%

Sale ofthen 95.05% Sale of Power

ElectricityElectricity Market


Financing Structures using the Cash Grant -- Partnership Flip

The traditional partnership flip structure for wind transactions has been adapted for the cash grant/ITC."Equity intensity" of tax investors has declined.

"Flip" dates have moved up.

A call option is available to the developer at a fixed price that is a reasonable estimate of fair market value.

A put option or ability to withdraw may be available to the tax investor.


Financing Structures using the Cash Grant -- Partnership Flip Accounting

HLBV accounting.1

H th ti l Li id ti t B k V l tiHypothetical Liquidation at Book Value accounting:Assumes the company is liquidated at book value.

Asks how much each investor is entitled to based on the operation of the agreement among the parties.

R d th h i h t ( l di t ib ti lRecords the change in such amount (plus distributions, less contributions) as the income from the investment since the date previously measured.

1 Winston & Strawn LLP is not an accountant and does not provide accounting advice. This discussion is simply intended to relay that accounting is an important issue for consideration as developers seek financing.


Financing Structures using the Cash Grant -- Partnership Flip Accounting: HLBV Problem

HLBV accounting has the unfortunate consequence of producing after-tax losses for tax equity investors in periods where no tax credit is available and where depreciation is availabletax credit is available and where depreciation is available.

In the traditional wind partnership flip structure, built around a 10-year stream of PTCs designed to end contemporaneously10 year stream of PTCs designed to end contemporaneously with a flip down, this was not an issue, as the tax credit was there each year producing positive after-tax earnings for the investorinvestor.

For an ITC transaction it is an issue as only one year has the tax credit producing the positive return; the rest of the years p g p ; ycould well produce losses.


Financing Structures using the Cash Grant -- Partnership Flip Accounting: HLBV Solution

The book losses are alleviated simply by having the agreement provide that in the event of liquidation, extra allocations will be made to the tax investorbe made to the tax investor.

This extra allocation is designed to then step down over time in such a manner as to avoid book losses while phasing out by p g ythe anticipated flip date.

Consequently, if the transaction goes to term, the actual participation in liquidation is as originally contemplated beforeparticipation in liquidation is as originally contemplated before this feature was added to the agreement.

However, if there is an early liquidation, the sponsor suffers to , y q , pthe benefit of the tax investor by reason of the extra allocation of liquidation proceeds to the tax investor.


Financing Structures using the Cash Grant -- New Partnership Flip Structures

"Pre-tax" tax structure.Flip based upon pre-tax cash on reduced equity.p p p q y

Tax depreciation, timing benefit of early losses and later recapture not relevant to flip.

Accounting treatment as debt?


Financing Structures using the Cash Grant -- New Partnership Flip Structures

"Non-Safe Harbor" tax structures.Capital based upon multiple of Cash grantp p p g

Flip based upon depreciation period, not after-tax return on reduced equity.

Tax depreciation recapture not relevant to flip.


Financing Structures using the Cash Grant -- Sale-Leaseback

Sale-leasebacks that previously applied almost exclusively to solar facilities have now been used with respect to wind generation facilities to capture the value of the depreciationgeneration facilities to capture the value of the depreciation.

Developer Deep Pocket Taxpayer

100% 100%

Project C

Sale of ProjectElectricity

M k tSale of Power

Special Purpose

I t tCompany

Rent

Lease of ProjectMarket Investment

Entity


Financing Structures using the Cash Grant -- Leasing: Issues and Solutions

Leasing is facing impending challenges.

First upon the sunset of the cash grant the sheerFirst, upon the sunset of the cash grant, the sheer magnitude of ITCs on multiple hundred million dollar wind and solar projects may overwhelm market capacity.

Second, the accounting rules are expected to change such that the debt in leverage lease structures will be included gon lessors' balance sheets.1




Potential solution:

Tax InvestorTax Investor Tax Investor

Lessor

<50%<50% <50%

Loan (formerly Project Co. LLC)

Lease

Debt

Sponsor

Loan Agreement

Lessee Newly Created

LLC

p

100%


LLC


The tax investors can size their individual investment to take maximum advantage of the ITC (which they can use against their alternative minimum tax liability).

The tax investors will be required to use equity method accounting as minority investors.1

Th l ' t l i ill fl th h t thThe lessor's net lease income will flow through to them.

The debt will not be included on the balance sheet of any of them; only the investment in the lessor will show up.only the investment in the lessor will show up.




In any event, the ITC generally may be preferred to the PTC:Amount is certain, i.e., not dependent upon production., , p p p

Can be claimed against AMT currently and by carry forward instead of for only 4 years after the placed-in-service date.

So if an investor can predict its ability to use tax credits within the 10-year PTC period, it should elect the ITC because in any event it will get a more certain credit asbecause, in any event, it will get a more certain credit as soon as its tax position permits.


Treasury Grant Guidancey

Treasury Grant Guidance

• Qualified renewable energy facilities

• Placed-in-service deadlines

• Application procedures

• Required documentation


46


Types of facilitiesTypes of facilities

• Wind

• Solar

• Biomass

• Geothermal

• Landfill gas

• Trash combustion

H d• Hydropower

• Combined heat and power property

• MicroturbinesMicroturbines

• Fuel cells

• Geothermal heat pumps


47

• Marine and hydrokinetic


T f f iliti Pl d i i d dliTypes of facilities – Placed-in-service deadlines

• Wind (12/31/2012)

• Solar (12/31/2016)

• Biomass (12/31/2013)

• Geothermal (12/31/2013 – for 30% grant)

L dfill (12/31/2013)• Landfill gas (12/31/2013)

• Trash combustion (12/31/2013)

• Hydropower (12/31/2013)y p ( )

• Combined heat and power property (12/31/2016)

• Microturbines (12/31/2016)

• Fuel cells (12/31/2016)

• Geothermal heat pumps (12/31/2016)

• Marine and hydrokinetic (12/31/2013)


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Marine and hydrokinetic (12/31/2013)


Placed-in-service deadline

• Placed in service means that the property is ready and available for its specific useuse

• Facts and circumstances test

• In the context of powerplants:p p

• whether the necessary permits and licenses for operation have been obtained;

• whether critical preoperational testing has been completed;

• whether the taxpayer has control of the facility;

• whether the unit has been synchronized with the transmission grid; and

• whether daily or regular operation has begun.y g p g

Source: Rev Rul 76-256 1976-2 C B 46; Rev Rul 76-428 1976-2 C B 47


49

Source: Rev. Rul. 76 256, 1976 2 C.B. 46; Rev. Rul. 76 428, 1976 2 C.B. 47.


Required documentation

• File in the name of the legal owner, even if entity is a single-member LLC that is disregarded for federal income tax purposes

• If placed-in-service prior to January 1, 2012:• File final application pursuant to instructions

• If placed in service after December 31 2011:• If placed in service after December 31, 2011:

• File preliminary application no later than October 1, 2012 demonstrating that the applicant has “begun construction”

If l i 5% f h b d t t l t t l ti ill b th $1• If relying on 5% safe harbor and total costs at completion will be more than $1 million, obtain agreed-upon procedure report from independent accountant

• If relying on physical work of a significant nature and costs at completion will be more than $1 million, obtain report from independent engineer describing project’s g g jeligibility and work that has commenced

• File final application by later of: (i) October 1, 2012, or (ii) 90 days after the placed-in-service date (narrow window)


50


Required documentationRequired documentation• Obtain DUNS# for applicants

• Register in Central Contractor Registration system

G t / t t i t ti• Go to www.ccr.gov/startregistration.aspx.

• Provide banking instructions so that Treasury can wire funds

• Complete online application

• Go to: https://treas1603.nrel.gov/.

• Attach documentation (See checklist: http://www.treasury.gov/initiatives/recovery/Documents/Applicant_Checklist_Final%2008252011%20with%20examples.pdf)

• Design plans

• Commissioning report

• Detailed cost breakdown

• Accountant’s certification

• Permission to operate

• Description of ownership structure (if applicant is a flow-through)


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Description of ownership structure (if applicant is a flow through)


Required documentation

• Complete Terms and Conditions Statement

• For more information, go to section 1603 home page: http://www.treasury.gov/initiatives/recovery/Pages/1603.aspx

• File performance report annually for 5 years beginning 21 days after one-year anniversary date of placed-in-service date


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Thank you

Katherine BreaksKPMG [email protected]

© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG

t k f i d d t b fi ffili t d ithnetwork of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks co p e ty a e eg ste ed t ade a s o t ade a sof KPMG International.

Treasury Grant Guidance – Implications for Financing Projectsfor Financing Projects

Andrew W. Ratts


Treasury Grant Guidance – Implications for Financing Projects

Leasing -- How to transfer the assets?Sale of project company assuming it is an LLC taxed as a p j p y g

disregarded entity – a “sale –leaseback”.

Project contract assignment.

Lease commencement prior to receipt of cash grant.

Reserves vs. letters of credit.



Partnership Flip – When does the Cash Grant Income Accrue?PTC v. ITC only projects

Placed in Service?

Application Filing?

Receipt of Grant/Final Treasury Action?p y



Solar PV Guidance“Stated cost does not reflect …“true economic cost”

• Related parties not acting at arm’s length

• “Peculiar” circumstances” where parties have anPeculiar circumstances where parties have an incentive to inflate the purchase price above fair market value (sale-leaseback)

Benchmark Pricing

Submission of a “detailed and credible third-party appraisal”



Office of Chief Counsel IRS Memo AM 2011-004 9/30/2011

IRS will (independently) audit Cash Grant for “excess”

Accounting --

• “Excess Cash Grant” is taxable income

• Payment back of excess is deductible

• Timing problem createdTiming problem created

Basis consequences


Thank You.

Andrew W. Ratts(312) 558-5991(312) 558 5991

Winston & Strawn [email protected]

http://winston.com


Circular 230 Disclosure: These materials are intended for internalCircular 230 Disclosure: These materials are intended for internal discussion purposes only. To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication is not intended or written to be

sed and cannot be sed for the p rpose of (i) a oiding penaltiesused, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or any other state or local law, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.
