Federal investment tax credit information
Solyndra receives numerous requests for information from potential customers and channel
partners about the availability of the 30% federal investment tax credit for the cost of installing a
reflective roof in connection with rooftop installations of Solyndra photovoltaic panels.
In an effort to provide you with such information, Solyndra retained the international law firm of
Jones Day to answer a set of frequently asked questions for our potential customers about the
federal tax credit for solar generating equipment, recent guidance issued by the Internal Revenue
Service (IRS) relating to Solyndra’s novel photovoltaic panels, and the potential availability of
the 30% federal credit for the cost of reflective roof installed in connection with Solyndra
photovoltaic panels.
Please also note that, by providing this document, neither Solyndra nor Jones Day is providing,
nor intending to provide, you or any other reader of this document with legal advice nor to
establish an attorney-client relationship with you or any other reader of this document. To the
extent you have questions concerning any legal issues, you should consult a lawyer. Neither
Solyndra nor Jones Day shall be responsible for your use of this document or for any damages
resulting therefrom.
We hope this information is helpful to you in your consideration of an investment in Solyndra
photovoltaic panels. Again, if you have any questions about the contents of this letter, we urge
you to contact a competent tax professional, including if you wish the partners at Jones Day who
provided us with this general information and whose contact information is listed at the back of
this letter.
Special Note: Redistribution and copying of any portion of this document are prohibited without
prior written consent of Solyndra. Although the information in this document is intended to be
current as of [May] 2010, neither Solyndra nor Jones Day makes any warranty or guarantee of
any kind that it is correct, complete, or wholly up-to-date. Please note that this document is
intended to provide only general information. You should not rely upon or construe the
information in this document as legal advice, and you should not act or fail to act based upon the
information herein without first seeking professional advice from a competent tax specialist.
This document is not an authority that can be cited in response to an enforcement action or in
litigation. The IRS may or may not provide additional or different clarification on the subject
matter addressed herein. You are strongly encouraged to obtain specific advice from a tax
specialist, as the Internal Revenue Code is complex. Interpretations of tax law are frequently
established based on the merits of individual cases, which come before the IRS, as opposed to
pre-conceived rules.
Circular 230 Notice: Pursuant to federal regulations imposed on practitioners who render
tax advice (“Circular 230”), Jones Day is required to advise you (1) that any tax advice
contained herein is not intended or written to be used by any taxpayer for the purpose of
avoiding tax penalties that may be imposed upon such taxpayer; (2) the advice was written
to support the promotion or marketing of the transaction(s) or matter(s) addressed herein;
and (3) taxpayers should seek advice based on the taxpayer’s particular circumstances
from an independent tax advisor.
FREQUENTLY ASKED QUESTIONS
1. What is the section 48 investment tax credit for solar energy generation equipment?
The section 48 investment tax credit (the “ITC”) for solar energy generation equipment is
a federal tax credit available to business taxpayers equal to 30% of the cost to purchase and
install qualifying solar equipment. The ITC is available in the year the qualifying solar
equipment is placed in service. Unlike a tax deduction, the ITC is a dollar-for-dollar reduction in
the owner’s federal tax liability.
Claiming the ITC results in a reduction of the taxpayer’s “basis” in the qualifying
property (for tax depreciation and other purposes) equal to one-half of the amount of the tax
credit (generally 15% of the cost to purchase and install qualifying solar equipment). The ITC is
also subject to certain recapture rules (see Question 10 below).
2. What is the federal grant in lieu of the ITC program?
The U.S. Department of the Treasury makes grants (i.e., direct payments) in lieu of the
ITC to eligible persons who place in service specified energy property and apply for such grants.
Generally speaking, in order to qualify for a federal grant in lieu of the ITC, the specified energy
property must be placed in service in 2010 or, alternatively, construction must begin on the
energy property and such property must be placed in service before December 31, 2016. For
specified energy property placed in service in 2010, applications for the grants must be submitted
after the specified energy property has been placed in service and before October 1, 2011. For
specified energy property not placed in service in 2010, but for which construction begins in
2010, applications must be submitted after construction begins but before October 1, 2011. Only
the original user of the specified energy property can qualify for these grants. Foreign
individuals and business entities, unless a certain exception applies, do not qualify for the grants.
Likewise, federal, state or local governments, or any of their political subdivisions, as well as
section 501(c) organizations and entities exempt from tax under section 501(a), generally do not
qualify for the grants, even if investing indirectly through partnerships or other pass-though
entities.
The federal grant in lieu of the ITC is available for solar energy generation equipment
that qualifies for the ITC. Therefore, if property qualifies for the ITC as solar energy generation
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equipment, it should also qualify for the grant in lieu of the ITC, provided that the special
conditions discussed above (such as the placed in service dates specific to the grant) are also
satisfied.
3. Will an investment in Solyndra photovoltaic (“PV”) panels qualify for the ITC (or a
federal grant in lieu of the ITC)?
Yes. Solyndra PV panels generate electricity using sunlight, and therefore qualify for
either the 30% ITC provided the panels are placed in service by 2013 or a federal grant in lieu of
the ITC provided the panels are placed in service consistent with the requirements discussed in
Question 2 above.
4. Does a “cool roof” installed in connection with a rooftop installation of Solyndra PV
panels also qualify for the ITC (or a federal grant in lieu of the ITC)?
Yes, subject to certain restrictions, if a qualifying “cool roof” is installed in connection
with a rooftop installation of Solyndra PV panels, the cool roof should qualify for the ITC (or a
federal grant in lieu of the ITC). In a recently issued “private letter ruling” (P.L.R. 200947027),
the Internal Revenue Service (“IRS”) determined that the cost of a “highly reflective” roof
installed in connection with a rooftop installation of Solyndra PV panels qualified for the ITC.
In P.L.R. 200947027, the owner of a manufacturing facility was considering a Solyndra
PV panel installation and, at the same time, improving the existing roof by installation of a
“highly reflective” roof surface. The IRS ruled that the cost of the improvements to the existing
roof qualified for the ITC because the highly reflective roof surface meaningfully increased the
amount of electricity generated by the Solyndra PV panels and the cool roof was to be installed
in connection with the installation of Solyndra PV panels.
Please keep in mind that private letter rulings are solely addressed to the individual
taxpayer requesting the ruling. As a result, these rulings do not bind the IRS to extend the
conclusion reached to other taxpayers. Nonetheless, private letter rulings are generally accepted
as a statement of the IRS view of the law as applied to the facts in the ruling. (See
http://www.irs.gov/pub/irs-wd/0947027.pdf for a copy of a redacted version of the private letter
ruling.)
5. When generally would the cost of a cool roof installed in connection with a rooftop
installation of Solyndra PV panels also qualify for the ITC (or a federal grant in lieu of
the ITC)?
Each situation is different and you should consult your own tax advisor concerning the
federal tax implications of an investment in Solyndra PV panels in connection with a cool roof in
light of your own particular circumstances. In general, we believe that cool roofs installed in
connection with Solyndra PV panels should qualify for the ITC (or a federal grant in lieu of the
ITC), provided the following general conditions are also met:
(a) The Solyndra PV panels cover a significant portion of the cool roof;
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(b) The cool roof is installed in connection with the installation of Solyndra PV
panels and the Solyndra PV panels are actually installed within a reasonable
period of time after the installation of the cool roof;
(c) The cool roof is highly reflective as established through certifications by industry-
rating institutions, such as the Cool Roof Rating Council or ENERGY STAR
rating programs administered by the U.S. Environmental Protection Agency and
the U.S. Department of Energy and not merely more reflective than the existing
roofing surface.
Other circumstances may, however, be relevant to whether the ITC (or a federal grant in
lieu of the ITC) is available for the cost of the cool roof. Consult your tax advisor.
6. In addition to the reflective membrane, for what other materials and related installation
costs associated with the cool roof may I claim the ITC (or apply for a federal grant in
lieu of the ITC) when installed in connection with a rooftop installation of Solyndra PV
panels?
Although redacted from the publicly available private letter ruling, the ruling defined a
cool roof to include the reflective membrane, the fasteners and agents used to affix the
membrane, and the underlayer of insulating and supporting materials. Thus, each of the above
mentioned materials should qualify for the ITC (or a federal grant in lieu of the ITC) provided
the conditions discussed in Question 5 above are met. In addition, any costs related to the
installation of the above referenced materials should also qualify for the ITC (or a federal grant
in lieu of the ITC).
7. Is the ITC (or a federal grant in lieu of the ITC) only available for reflective roof
“membranes” installed in connection with a rooftop installation of Solyndra PV panels,
or may I also claim the ITC (or apply for a federal grant in lieu of the ITC) for other
reflective roofing materials installed in connection with a rooftop installation of Solyndra
PV panels?
We believe the cost of a highly reflective roof coating, as well as the cost of installing a
highly reflective impermeable vinyl roof membrane, should qualify for the ITC (or a federal
grant in lieu of the ITC) when installed along with Solyndra PV panels provided the installation
meets condition 5(c) above.
8. If I claim the ITC (or apply for a federal grant in lieu of the ITC) based upon the cost of
installing both the Solyndra PV panels and a cool roof, how would I then depreciate the
cost of the panels and the cool roof?
As stated above, taxpayers must decrease the depreciable “basis” for any property that
qualifies for the ITC by one-half of the amount of the ITC claimed or the federal grant in lieu of
the ITC received (generally, 15% of the cost to purchase and install qualifying solar equipment).
Once the qualifying property is placed in service, the owner may claim accelerated depreciation
deductions for such property based upon a recovery period of five years. If a cool roof qualified
for the ITC (or a federal grant in lieu of the ITC), the taxpayer would also reduce its basis in that
roof by one-half of the amount of the ITC claimed (or the federal grant in lieu of the ITC
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received) and should be entitled to accelerated depreciation deductions based upon a five-year
recovery period.
For example, a commercial property owner invests $800,000 on the installation of
Solyndra PV panels and, simultaneously and in connection with this installation, an additional
$200,000 in improvements to the existing roof in order to make the roof highly reflective. By
claiming the ITC for both investments, the owner would reduce its federal income tax liability by
$300,000 (30% of $1,000,000) in the year in which the panels are placed in service. Also in that
year, the owner would begin to take accelerated depreciation deductions for both the panels and
the roof improvements. These accelerated depreciation deductions would be based upon the
owner’s “basis” after reduction by one-half of the ITC (i.e., the $1,000,000 cost of the panels and
the roof, reduced by one-half of $300,000, or $850,000). Subject to certain elections, this
remaining basis would then be used to calculate depreciation deductions for the applicable five-
year recovery period. Assuming for the sake of illustration that the “half-year” convention with
respect to the year in which the panels and roof improvements were placed in service applied, the
$1,000,000 investment would give rise to the following deductions for depreciation:
Percentage Panels Roof Total
Recovered Improvements Depreciation
Deductions
Year 1 (half-year) 20% $136,000 $34,000 $170,000
Year 2 32% $217,600 $54,400 $272,000
Year 3 19.2% $130,560 $32,640 $163,200
Year 4 11.52% $78,336 $19,584 $97,920
Year 5 11.52% $78,336 $19,584 $97,920
Year 6 (half-year) 5.76% $39,168 $9,792 $48,960
Note that other depreciation conventions could be applicable, which may result in more or less
depreciation in the year in which the property is placed in service (as well as in the final year that
depreciation deductions are claimed).
9. What is the relation between the ITC (or a federal grant in lieu of the ITC) and other
federal tax incentives for investments in solar energy generation or energy efficiency?
The relationship between different federal tax incentives may present complicated legal
issues. We advise you to consult with your own tax advisor in order to determine which, if any,
additional tax incentives may be available as a result of your investment.
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10. What restrictions exist on the ability of a business to claim the ITC (or a federal grant in
lieu of the ITC) and then sell the qualifying equipment?
Both the ITC and federal grants in lieu of the ITC are subject to “recapture” (i.e., an
increase in tax liability in subsequent years) in the event that the equipment originally qualifying
for the ITC or federal grant in lieu of the ITC is disposed of or otherwise would cease to qualify
for the ITC during the first five years after it is placed in service. The amount of the ITC (or
federal grant in lieu of the ITC) subject to recapture decreases by 20% each year. For example,
if the qualifying equipment is sold to a third party in the first year after it was placed in service,
100% of the ITC would be recaptured. This recapture would apply equally to the ITC (or a
federal grant in lieu of the ITC) for a cool roof installed in connection with the Solyndra PV
panels if the panels were sold, even though the roof improvements were not sold, because
without the Solyndra PV panels, the reflective roof no longer is part of the equipment used to
generate electrical energy using sunlight. If the sale occurred in the second year after the
qualifying equipment was placed in service, 80% of the ITC (or federal grant in lieu of the ITC)
would be recaptured. If the sale occurred in the third year, 60% would be recaptured, and so on.
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About the Authors
The answers to the preceding questions were prepared by Scott Levine and Todd Wallace,
partners in the Washington D.C. and Dallas offices, respectively, of Jones Day.
Scott Levine advises clients on the federal tax aspects of corporate transactions,
including international and domestic mergers and acquisitions, leveraged buyouts, spin-offs and
other divestitures, restructurings, financings, and joint ventures including those involving
investments in alternative energy. He also has experience in the implementation of energy tax
credit provisions provided for in recent tax legislation as well as negotiating private letter rulings
with the IRS in the corporate, financial instruments, and energy credit tax areas.
smlevine@jonesday.com
(202) 879-3437
Todd Wallace provides federal tax and structuring advice for a wide variety of corporate
and partnership transactions, including corporate and partnership acquisitions and dispositions,
restructuring of debt and equity interests, venture capital transactions, and representation of
private companies and entrepreneurs. Todd has particular experience in the structuring of tax-
advantaged investments, including structures for the monetization of energy tax credits,
securitization of tax-exempt obligations, and a variety of structured finance transactions.
twallace@jonesday.com
(214) 969-3713
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