Wind developers got more helpful rulings from the IRS | Norton Rose Fulbright
The IRS told one wind developer in a private ruling released in August that its wind farm would be considered “in service” for tax purposes, even though the wind farm was unable to move its full output on to the local utility grid until the utility made improvements to a substation.
The utility was expecting a delay in when it could make the substation improvements. In the meantime, the wind farm could send a percentage of its output to the grid through a temporary connection to an existing transformer at the substation. Once the new transformer was built, the wind farm would have to reroute its lines to connect through it. The IRS said the wind farm was in the service in the meantime, even though it was restricted in the amount of electricity it could deliver to market and might be disconnected from the grid intermittently in the future to allow for construction of the substation improvements — although for periods of only up to 48 hours at a time.
The ruling is important because wind farms need to be in service by this December to qualify for federal tax credits of 1.8¢ a kilowatt hour on output. It is Private Letter Ruling 200334031. Congress is expected eventually to extend the deadline, possibly to December 2006.
In another private ruling released in September, the IRS said a wind project did not have to suffer a “haircut” in its federal tax credits on account of a state tax credit. By law, the federal tax credit is reduced for any other tax credits “allowable with respect to any property that is part of the project.” The IRS has interpreted this phrase to require a haircut only for other tax credits whose amount is tied to the capital cost of the property. The tax credit in this case was tied to the amount of property taxes the project paid and the number of workers it employed. The ruling is Private Letter Ruling 200336023.