Renewable Energy Projects in Puerto Rico
Renewable energy projects in Puerto Rico qualify in some instances for investment credits — and, by extension, Treasury cash grants — the IRS ruled privately in May.
The ruling involved a utility-scale solar project.
Whether an investment tax credit can be claimed depends on the ownership structure for the project. The project was owned by a local company in Puerto Rico, but that company was owned 100% by a US limited liability company that had, in turn, two US corporations as owners.
Investment credits may not be claimed on property used predominantly outside the United States. US possessions like Puerto Rico are considered outside the United States for this purpose. However, the US tax code makes an exception for property used in possessions as long as it is owned by a US corporation or citizen.
The IRS said it was fine with the ownership structure for the solar project because the Puerto Rican project company was “disregarded” for US tax purposes — it was treated as if it did not exist — and the US limited liability company, even though treated for US tax purposes as a partnership, that owned it was owned entirely by US corporations. In other words, the IRS looked though both the project company and the partnership and found the project was owned by US corporations.
It is unclear whether the IRS would have reached the same conclusion if the project company had a Puerto Rican investor as a part owner or if the two US corporations had owned the project company through an offshore entity.
The ruling is private. The IRS is expected to release a redacted version and assign a number to it in August.