Tax-Exempt Status

Tax-Exempt Status

May 31, 2012

Tax-exempt status proved elusive for a solar company.

A US solar company tried to persuade the IRS to treat it as a tax-exempt entity on grounds that it installs rooftop solar systems and provides electricity to low-income people. If the company had succeeded in persuading the IRS, then it would not have had to pay income taxes and anyone making contributions to it would have been able to deduct them. The solar company planned to keep any revenue from selling excess electricity from the systems into the grid.

The solar company kept changing the description of what it planned to do during talks with the IRS. It started with a plan to deal solely with people earning less than $30,000 a year but then changed this to people earning up to 120% of the area median income. The IRS said it did not see how the solar company was engaged exclusively in relieving poverty or another charitable purpose. The ruling is Private Letter Ruling 201210044. The agency released it in March.

It is unusual to see a negative ruling; most taxpayers withdraw the ruling request when told that the IRS will rule against them. The IRS gave the solar company a chance to protest, but the company failed to take up the offer.

Keith Martin