![]() ![]() No more than 25 percent of the investor’s contributions can be contingent on future events. The safe harbor guidelines include requirements that the developer and investor each have a certain minimum interest in the partnership, and that the investor make and maintain a minimum unconditional investment in the partnership equal to at least 20 percent of its total expected investment. The revenue procedure guidelines are only a safe harbor that is, failure to meet all of the guidelines does not preclude tax treatment as a real partner/partnership. The guidance applies to flip partnerships between a project developer and one or more tax equity investors, with the partnership owning and operating the wind project. PTCs are a tax credit determined based on the amount of energy produced by a facility over a ten-year period. 2007-65 established the requirements under which the IRS will respect the partnership allocations of wind energy PTCs by flip partnerships in accordance with Section 704(b). ![]() Once the investor’s target return is met, or at a specified time, the partnership allocations “flip” so that the investor receives a lower percentage of the partnership items (at a minimum, 5 percent). The investor generally is initially allocated a large percentage of the tax credits and other partnership items. The typical flip partnership transaction involves an investor partner and a sponsor/developer who jointly own the energy facility through a project company. The IRS noted that the revenue procedure clearly provides that the safe harbor only applies to partners or partnerships with wind projects taking the PTC. Last week, the IRS released internal memorandum CCA 201524024, in which it said that the revenue procedure guidelines are inapplicable to partners or partnerships taking the ITC. 2007-65 issued safe harbor guidelines for determining whether a partnership’s tax allocations to an investor would be respected under the partnership tax rules. Taxpayers owning renewable energy projects through a joint venture structure must have a true partnership in order to take the ITC or the Section 45 production tax credit (PTC). Flip Partnership Structures in Renewable Projects ![]()
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