The Solar Energy Industry Association (SEIA) has published a white paper that addresses the income tax rules for determining fair market value. The white paper is available here.
Fair market value is critical in analyzing the tax benefits of solar projects because in many structures it determines the amount of investment tax credit and accelerated depreciation available to the owner of the project. The white paper highlights both best practices and common pitfalls. For those involved in the renewable energy industry, even if not as a tax professional, the fair market value and tax basis concepts in the white paper are worth being familiar with. Further, the tax principles described in the white paper are broadly applicable to tax planning generally, even outside of the renewables area.
The white paper was prepared by SEIA’s Tax Working Group (of which I am a member); however, the accounting firm CohnReznick deserves much of the credit for being the driving force in authoring it.
Currently, many solar developers and investors are in disputes with the U.S. Treasury regarding the fair market value of projects that have applied for the cash grant. Special purpose entities affiliated with SolarCity have elevated one set of these disputes to the Court of Federal Claims. This case is discussed in posts below and available here, here and here. Unless, the Department of Justice prevails in its motion to dismiss the case, which I think is unlikely, the case will give the industry an opportunity to see how the Court of Federal Claims applies the fair market value and tax basis principles discussed in SEIA’s white paper to actual solar projects.