Introduction to the Tax Equity Telegraph
The Tax Equity Telegraph blog is intended to address the intersection of tax policy and energy policy in the United States. This topic is of particular interest to renewable energy developers that need to raise tax equity and financial institutions and other corporations that provide tax equity. The posts are also intended to be of interest to companies that purchase energy projects outright and to utilities that contract with renewable energy projects.
A word about the name of the blog: Tax Equity Telegraph. In the parlance of investing and developing energy projects, “tax equity” refers to an investor that is prepared to accept much of its return in the form of tax benefits, typically tax credits and accelerated depreciation. It is distinguished from “sponsor equity” which is typically provided by parties that lack the appetite to efficiently use tax benefits and, accordingly, require their return in cash.
The term “tax equity” is most commonly used to refer to an investment in a partnership that owns a renewable energy project and is structured with profit allocations that change upon certain thresholds being satisfied. However, the term as used here is intended to encompass leasing and other similar structures.
Most but not all of the posts will address tax issues related to energy; however, some posts may address either a tax issue only or an energy issue only. Further, there will be occasional posts regarding related topics, such as equipment leasing, infrastructure investments or financial statement accounting. The posts will be written in short order and are intended to be more informal than an article or Client Alert.
In the past, there have been objections to the term "tax equity" as suggesting the purchase of tax benefits in a dubious transaction. However, in recent months “tax equity” has been used by the Internal Revenue Service in a favorable private letter ruling and the United States Treasury in its Frequently Asked Questions regarding the Cash Grant rules for satisfying the “start of construction” deadline. Further, Senators Reid or Grassley can explain in detail the challenges their constituents face due to an insufficient supply of "tax equity." Thus, the term “tax equity” has been embraced by the Federal government and is an appropriate title for a blog that addresses tax issues related to renewable energy.
The posts are not intended to constitute legal or tax advice. Readers should consult their own counsel prior to acting on any information in a post. Further, posts may not be used for purposes of avoiding any tax related penalties in the United States.