Photovoltaic curtain wall qualifies as energy property

Plain-English summary

The IRS ruled that the elements of a taxpayer's purchase price for a photovoltaic curtain wall constitute energy property under IRC § 48. The curtain wall was designed both to enclose a commercial building and to use solar energy to generate electricity. The ruling explains that a structural component can qualify when it is specifically engineered to function as machinery or equipment, and that the regulations allow some structural components to qualify as energy property. The IRS did not express an opinion on whether the taxpayer qualifies for the investment credit under § 46 or whether the property otherwise qualifies under § 48.

Ruling snapshot

• Question: Do the elements of the photovoltaic curtain wall's purchase price constitute energy property under § 48?
• Outcome: Approved
• Key authorities: IRC §§ 38, 46, 48, and 6110; Treas. Reg. §§ 1.48-1(e) and 1.48-9(a)(2), (b), and (d)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201043023 Third Party Communication: None
Release Date: 10/29/2010 Date of Communication: Not Applicable
Index Number: 48.00-00
Person To Contact:
-------------------------- ----------------------, ID No. -------------
------------------------------------------ Telephone Number:
--------------------------------------- --------------------
------------- Refer Reply To:
------------------------------------------ CC:PSI:B6
PLR-124183-09
Date:
October 23, 2009

LEGEND:

Taxpayer = ------------------------------------------------
--------------------------------
Developer = --------------------------------------------------------------
State a = ------------------
A = ------------------------------

B = ---------------------------

C = --------------------------

Dear ----------------

   This letter responds to your letters dated May 6 and June 26, 2009, submitted by

your authorized representatives, requesting rulings concerning the application of § 48 of
the Internal Revenue Code (the Code) to the facts described below.

Facts
The facts are represented by Taxpayer to be as follows.

   Taxpayer uses a calendar taxable year accounting period, and the accrual

method of accounting for maintaining its accounting books and records and filing its
federal income tax return. Taxpayer was established on September 25, 2001.
The three members and ownership percentages of Taxpayer are:

                                                      2

PLR-124183-09

Name Percentage

A
B ----------------- --------------
C --------------

   Taxpayer owns and rents a commercial building in State a. Taxpayer purchased

a photovoltaic (PV) curtain wall from Developer for -------------on March 9, 2009. The PV
curtain wall uses solar energy to generate electricity that will help power the commercial
building. The purchase price of the PV curtain wall is broken down as follows:

Description Amount

---------------------------------------------------------------------

------------------------------------------------------------------

-----------------------------------------------------------------

     With regard to the above, frameless PV panels are secured to aluminum framing

members with special sealants and gaskets that electrically isolate the panels. -----------

---------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------

     The PV curtain wall is the glass exterior that is attached to the floor slabs of a

building and encloses the structure. ------------- curtain wall systems are those which
can be preassembled and glazed off site and progressively installed on a building. ------
------------systems are most suitable for large projects, i.e. high-rise building or projects
in locations that have higher seismic design requirements. --------------------------------------

    ------------PV curtain wall is a new technology and is a highly specialized

application of curtain wall and PV technology. As the surface area of a high-rise
building wall greatly exceeds the surface area of its roof, incorporating solar technology
into the side of a building maximizes the energy production potential of a system
installed on the structure.

                                                     3

PLR-124183-09

    With PV curtain wall, some or all of the glass is substituted with PV panes, and

typically comes in one of two solar configurations (Silicon and Thin Film) and one of two
glass configurations (Vision and Spandrel). Both solar configurations and both glass
configurations may be utilized on the PV curtain wall. Current and developing PV
technology creates a “tinted” glass that one can see through while it is still generating
electricity. Developing PV technology enables virtually 100% of the surface area of the
side of a building to generate electricity without impairing the occupants’ view outside or
the basic configuration of the building for space planning purposes.

     ------------------------------------------------------------------------------------------------------------

----------------------------------------------- It provides for both vertical and horizontal wiring to
accommodate various building techniques and solar requirements.

     ------- PV curtain wall ----- is shipped to the jobsite for installation. --------------------

---------------------------------------------------------------------------------------------------------------------

Ruling Requested

   The elements of the purchase price of the PV curtain wall, as described above,

constitute energy property under § 48 of the Internal Revenue Code (the Code).

Law and Analysis

   Section 48(a) of the Code provides for an energy credit equal to 30 percent of the

cost basis of qualifying energy property placed in service before January 1, 2017.

  Section 48(a)(3)(A)(i) of the Code provides that energy property includes

equipment which uses solar energy to generate electricity, to heat or cool (or provide
hot water for use in) a structure, or to provide solar process heat, excepting property
used to generate energy for the purposes of heating a swimming pool.

   Treasury Reg. § 1.48-9(a)(2) provides that in order to qualify as “energy property”

under § 48 of the Code, property must be depreciable property with an estimated useful
life when placed in service of at least three years and constructed after certain dates.

     Treasury Reg. § 1.48-9(d)(1) provides as follows:


              (d) Solar energy property--(1) In general. Energy property includes solar
              energy property. The term “solar energy property” includes equipment and
              materials (and parts related to the functioning of such equipment) that use


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          solar energy directly to (i) generate electricity, (ii) heat or cool a building or
          structure, or (iii) provide hot water for use within a building or structure.
          Generally, those functions are accomplished through the use of equipment
          such as collectors (to absorb sunlight and create hot liquids or air),
          storage tanks (to store hot liquids), rockbeds (to store hot air), thermostats
          (to activate pumps or fans which circulate the hot liquids or air), and heat
          exchangers (to utilize hot liquids or air to create hot air or water). Property
          that uses, as an energy source, fuel or energy derived indirectly from solar
          energy, such as ocean thermal energy, fossil fuel, or wood, is not
          considered solar energy property.

   Treas. Reg. § 1.48-9(d)(3) provides, in part, that solar energy property includes

equipment that uses solar energy to generate electricity, and includes storage devices,
power conditioning equipment, transfer equipment, and parts related to the functioning
of those items. Such property, however, does not include any equipment that transmits
or uses the electricity generated.

    Treas. Reg. § 1.48-1(e) generally provides, in effect, that buildings and structural

components thereof do not qualify as “section 38 property” for purposes of the
investment tax credit. The term “structural components” include such parts of a building
as walls, partitions, floors and ceilings, as well as any permanent coverings therefore
such as paneling or tiling; windows and doors; all components (whether in, on, or
adjacent to the building) of a central air conditioning or heating system, including
motors, compressors, pipes and ducts; plumbing and plumbing fixtures, such as sinks
and bathtubs; electric wiring and lighting fixtures; chimneys; stairs, escalators, and
elevators, including all components thereof; sprinkler systems; fire escapes; and other
components relating to the operation or maintenance of a building. However, § 1.48-
9(b) provides that, in fact, structural components of a building may qualify for the energy
credit.

     In Rev. Rul. 79-183, 1979-1 C.B. 44, the Internal Revenue Service (the Service)

provided an exception of the structural component rule described above and concluded,
in effect, that a structural component of a building, which is so specifically engineered
that it is in essence part of the machinery or equipment with which it functions, will
qualify as “section 38 property” for purposes of the investment tax credit.

    In Rev. Rul. 70-236, 1970-1 C.B. 8, the Service concluded, in part, that

installation costs qualified as “section 38 property” for purposes of the investment tax
credit. Rev. Rul. 70-236 was modified by Rev. Rul. 83-146, 1983-2 C.B. 17 with regard
to a separate issue.

 The ---------- PV curtain wall is ----------------------------made up of various

component parts, substantially all of which are directly involved in the production of

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PLR-124183-09

electricity through the use of solar energy. -----------------------------------------------------------
--------------------------------------------------------------------------------------.

     ------- PV curtain wall ----- is sold as one complete product that uses solar energy

to generate electricity. --------------------------------------------------------------------------------------

------------------.

    Although structural components of buildings are generally excluded from the

definition of “section 38 property” for purposes of the investment tax credit, the PV
curtain wall has been specifically designed and engineered for the taxpayer’s
commercial building. ------- PV curtain wall ----- in and of itself is machinery or
equipment used to produce solar energy. It is only when these ------ are connected to
each other and to other structural components of the building that the character or
nature of the ----- is potentially transformed. Thus, ------ PV curtain wall -----, in
essence, serves a dual purpose: (1) to generate electricity through the use of solar
energy; and (2) to enclose the building or structure. Moreover, the regulations
specifically address the fact that structural components may qualify as energy property.

   Accordingly, we conclude that the elements of the purchase price of the PV

curtain wall, as described above, constitute energy property under § 48 of the Code.

    Except as expressly provided herein, no opinion is expressed or implied

concerning the tax consequences of any aspect of any transaction or item discussed or
referenced in this letter. Specifically, no opinion is expressed whether Taxpayer
qualifies for the investment credit under § 46 of the Code, or whether the energy
property otherwise qualifies under § 48 of the Code.

   This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3)

of the Code provides that it may not be used or cited as precedent.

    In accordance with the Power of Attorney on file in this office, a copy of this letter

will be sent to your authorized representatives.

                                             Sincerely yours,




                                             Peter C. Friedman
                                             Senior Technician Reviewer
                                             (Passthroughs & Special Industries)
                                             Office of the Associate Chief Counsel