IRS Rules Favorably on Owner’s Eligibility for Federal Tax Credit for a Community-Shared Solar Project
IRS Ruling Has Implications for Community-Shared Solar Projects
September 1, 2015
The IRS has ruled that an owner of photovoltaic panels in an offsite, community-shared solar array is eligible to take advantage of one of the primary incentives offered to homeowners adopting solar—the 30 percent federal residential income tax credit available under Section 25D of the Internal Revenue Code, sometimes known in the industry as the “residential ITC.” Community-shared solar allows electric customers to buy an interest in an offsite solar array and to receive credit on their electricity bills for their ownership interest. While the IRS’s recent Private Letter Ruling is only legally applicable to the individual taxpayer in question—a solar panel owner in Boardman Hill Solar Farm, a member-managed 150 kW off-site solar array in Vermont—the ruling will be taken as a positive development by community-shared solar participants and project developers.
The issue of whether a residential owner of solar panels installed in an off-site, community-shared, solar array qualifies for the residential ITC has been an area of legal uncertainty, creating some confusion in the marketplace. Working with stakeholders in Massachusetts and Vermont, and with attorneys in the Boston office of law firm Foley Hoag, LLP, the Clean Energy States Alliance (CESA), a national nonprofit coalition of public agencies and organizations working on clean energy issues, arranged for the submission of a Private Letter Ruling request to the Internal Revenue Service to help clarify this issue.
“This new Private Letter Ruling represents the first instance in which the IRS has publicly weighed in on the applicability of the residential ITC to an owner of solar panels in a shared, offsite array,” said Warren Leon, the Executive Director of CESA. “The ruling suggests that the IRS may be receptive to claims for the residential ITC when a project mirrors the structure used in this case.”
"Community-shared solar has led to remarkable growth in residential solar because it allows those without roof space or solar access to participate in the solar market," observed Rhone Resch, President and CEO of the Solar Energy Industries Association (SEIA). "This ruling helps pave the way for even more growth under the widely-successful federal investment tax credit."
“Under the specific facts presented in this private letter ruling, the IRS has agreed with the individual taxpayer that his or her purchase of solar electric property that is part of a net-metered offsite solar installation with panels owned by multiple individuals qualifies for the section 25D tax credit,” said Nicola Lemay, Foley Hoag Partner and Chair of its Tax Department. “Although, by law, this letter ruling cannot be used or cited as precedent by other taxpayers, several cases acknowledge that a private letter ruling can be used as ‘persuasive authority’ or an ‘instructive tool, ’” Lemay further noted. “In general, letter rulings like this one may also be used by the IRS in its own interpretations, including by IRS employees who might consider it in issuing letter rulings to similarly situated taxpayers.”
“This letter ruling fills an important gap. It adds a previously unavailable written resource to the growing body of authority which can be used by courts, IRS personnel, and practitioners in structuring community shared solar projects,” said Adam Wade. “Pairing the 25D credit with the lower installed cost and economies of scale of mid-scale and larger-scale distributed solar holds tremendous potential in enabling direct ownership of community-shared systems by groups of individuals in utility territories with supportive net metering and bill-crediting programs.”
The Private Letter Ruling and other documents of interest are available on CESA's website.
For further discussion of the details and legal implications of this Private Letter Ruling, CESA will be hosting a free webinar on Tuesday, September 22nd from 1 pm - 2 pm EST. Foley Hoag attorneys Nicola Lemay and Adam Wade will present. Webinar details and registration information are available here.
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