The IRS recently released a Chief Counsel Advice Memorandum (CCA 201524024) that confirms that Rev. Proc. 2007-65, which establishes a safe harbor for partnerships claiming wind energy production tax credits under Section 45 of the I.R.C., does not also provide a safe harbor for partnerships claiming energy investment tax credits under Section 48. This is no surprise. As the CCA points out, Rev. Proc. 2007-65 expressly states that it “applies only to partners or partnerships with § 45 production tax credits from renewable resources from wind. . . . [It] does not apply to any other tax credits.” More importantly, the CCA notes that the production tax credit and the investment tax credit are fundamentally different programs. Production tax credits are based on the amount of energy a facility produces over time. As a result, under Rev. Proc. 2007-65, if there is less wind than the parties anticipated, sponsor guarantees cannot be used to shield the investor from the negative financial consequences. By contrast, the investment tax credit is an upfront credit based on eligible project expenditures and is designed to help the owner recover a portion of its investment more quickly.
However, this does not mean that Rev. Proc. 2007-65 provides no useful information for investment tax credit transactions. In fact, the day before CCA 291524024 was released, an IRS attorney participating in a tax conference observed that Rev. Proc. 2007-65 may provide useful guidance by analogy to other types of renewable energy deals, including solar deals. Similarly, Rev. Proc. 2014-12, which was issued to address uncertainties in historic tax credit transactions following the 3rd Circuit’s Historic Boardwalk Hall decision, ostensibly applies only to historic tax credit transactions. Nevertheless, Rev. Proc. 2014-12 provides a good framework for analyzing whether an investor in an energy investment tax credit deal has sufficient downside risk and upside potential to be respected as a partner for federal income tax purposes. Neither of these revenue procedures provides a safe harbor for energy credit deals under Section 48, but both should provide useful guidance with respect to general tax principles governing partnerships.