A prior blog post discussed a private ruling by the service regarding the allocation of purchase price among the assets of a renewable energy developer. Attorney David R. Cook discussed the ruling in a webinar on PPA taxation and recommended the participants to read the ruling with a dose of skepticism. As it turns out, on reconsideration, the Service has revoked the prior ruling because it “is not in accord with the current views of the Service.”
In the prior ruling, the Service concluded that facility-specific PPAs should not be treated as assets separate from the wind energy facilities.
The ruling involved a taxpayer that purchased a renewable energy developer and requested guidance from the Service regarding how to allocate the purchase price among the developer’s assets. In particular, the taxpayer questioned whether any of the purchase price should be allocated to the facility-specific PPAs.
Based on the attributes of the PPAs, the Service concluded that any amount of the purchase price that would otherwise be attributed to the facility-specific PPAs should be taken into account as part of the basis of the wind energy facilities. The result was obviously beneficial for the taxpayer.
In December 2012, the Service issued a revocation of the prior ruling. It determined that “the portion of the purchase price paid by the taxpayer that is attributable to the PPAs is to be allocated to the PPAs and not to the wind energy facilities.” Accordingly, taxpayers looking to allocate costs among the assets of renewable energy developers should carefully consider the current view of the Service and the now-revoked reasoning of the prior ruling.