PLR 1324005: IRS approves an exception for solar project property in a U.S. possession

Plain-English summary

The IRS ruled that depreciable property for a solar project in a U.S. possession could qualify for an exception to the alternative depreciation system. The taxpayer was a domestic limited liability company treated as a partnership, and its members were domestic corporations without elections under IRC § 936. The IRS concluded that the exception in IRC § 168(g)(4)(G) can apply to a domestic partnership whose partners meet those requirements. The ruling depended on the taxpayer's representations and did not address other tax consequences or future ownership changes.

Ruling snapshot

• Question: Would the project's depreciable property qualify for the IRC § 168(g)(4)(G) exception?
• Outcome: Approved, subject to the taxpayer remaining a qualifying domestic partnership and the other stated conditions.
• Key authorities: IRC §§ 168(g)(4)(G), 7701(a)(30), 936, 931, and 933.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201324005 Third Party Communication: None
Release Date: 6/14/2013 Date of Communication: Not Applicable
Index Number: 168.29-01
Person To Contact:
---------------------------------- ----------------------------, ID No. --------------
-------------------------------- -----------------
--------------------------------------- Telephone Number:
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------------------------------ Refer Reply To:
---------------------------------- CC:ITA:B07
PLR-141604-12
Date:
March 19, 2013

Re: Request for Private Ruling under Section 168(g)(4)(G)

Legend

Taxpayer = ------------------------------------------------------------------
State = --------------
Date = ---------------------------
City = --------------------
A = ------------------------------------------------------------------
B = -------------------------------------------------------------------
C = --
D = ----
Location = -----------------

Dear -------------:

  This letter responds to a letter dated September 25, 2012, and subsequent

correspondence, submitted on behalf of Taxpayer requesting a ruling under
§ 168(g)(4)(G) of the Internal Revenue Code.

     Taxpayer represents that the facts are as follows:

   Taxpayer is a State limited liability company. Taxpayer was formed on Date.

Taxpayer’s principal place of business is City. It uses the accrual method of accounting
and has a calendar year end. Taxpayer has two members: A, a State corporation,
holds a D percent interest in Taxpayer, and B, a State corporation, holds a C percent
PLR-141604-12 2

interest in Taxpayer and is the managing member of Taxpayer. Each of A and B are
domestic corporations, neither of which has an election in effect under § 936.

   Taxpayer has not elected to be treated as an association taxable as a

corporation pursuant to § 301.7701-3(a) of the Income Tax Regulations and, thus, is
treated as a partnership for federal income tax purposes.

    Taxpayer is engaged principally in the business of developing a solar project that

will be located in Location (the “Project”). The Project will include tangible property that
will be subject to a depreciation allowance pursuant to § 168 (the “Depreciable
Property”). The Depreciable Property will be used predominantly in Location.

   None of the Depreciable Property will be either “tax-exempt use property” or “tax-

exempt bond financed property” as such terms are defined in § 168(g). None of the
Depreciable Property will be imported property covered by an Executive order under §
168(g)(6). Taxpayer will not make an election pursuant to § 168(g)(7) to depreciate any
of the Depreciable Property under the alternative depreciation system of § 168(g).

RULING REQUESTED

   Taxpayer requests a ruling that during such time that (i) the Depreciable Property

is owned by the Taxpayer, (ii) Taxpayer is comprised solely of U.S. corporations
(excluding corporations which have an election in effect under § 936) or U.S. citizens
who are not entitled to the benefits of §§ 931 or 933, and (iii) the Depreciable Property
is used in Location, the Depreciable Property will qualify for the exception under
§ 168(g)(4)(G) and, accordingly, will not be treated as property that is used
predominately outside the United States.

LAW AND ANALYSIS

   Section 168(g)(1)(A) provides that any tangible property used predominantly

outside the United States during the taxable year must be determined under the
alternative depreciation system of § 168(g).

   Section 168(g)(4) lists exceptions to § 168(g)(1)(A) for certain property used

outside the United States. Section 168(g)(4)(G) provides that property will not be
treated as used predominantly outside the United States if the property is owned by a
domestic corporation (other than a corporation which has an election in effect under §
936) or by a United States citizen (other than a citizen entitled to the benefits of § 931 or
933) and which is used predominantly in a possession of the United States by such a
corporation or such a citizen, or by a corporation created or organized in, or under the
law of, a possession of the United States.
PLR-141604-12 3

   The background of § 168(g)(4) provides insight in determining whether §

168(g)(4)(G) applies to domestic partnerships where all of the partners are domestic
corporations (none of which has an election in effect under § 936) or United States
citizens (none of whom is entitled to the benefits of § 931 or 933). The rules in §
168(g)(4) are derived from former § 48(a)(2)(B). Prior to 1990, § 168(g)(4) provided, in
relevant part, that for purposes of § 168(g)(4), rules similar to the rules under § 48(a)(2)
(including the exceptions contained in § 48(a)(2)(B)) shall apply in determining whether
property is used predominantly outside the United States. When former § 48 was
repealed as a “deadwood” provision in 1990, § 168(g)(4) was amended to incorporate
the enumerated exceptions contained in former § 48(a)(2)(B). See § 11813 of the
Omnibus Budget Reconciliation Act of 1990, Pub. L. 101-508 (the “Act”). The language
of § 168(g)(4)(G) is the same as the language in former § 48(a)(2)(B)(vii) prior to its
repeal in 1990.

   The Senate Finance Committee stated the following comment, in relevant part,

on the reason for the enactment of former § 48(a)(2)(B)(vii):

   “Your committee’s amendment extends the application of the investment credit
   provision to property used in a possession by a U.S. person or by a corporation
   organized in a possession provided the property would otherwise have qualified
   for the investment credit. This rule is not extended if the property is owned or
   used in the possession by U.S. persons who are presently exempt from U.S. tax
   due to the application of the special provisions of the Code which exempt U.S.
   persons who derive substantially all of their income from a U.S. possession
   (sections 931, 932, 933, 934(b)).” S. Rep. No. 1707, 89th Cong., 2d Sess. 58
   (1966), 1966-2 C.B. 1100.

   Based on this Senate Report, it appears that Congress intended former §

48(a)(2)(B)(vii) to apply to United States persons even though the literal language of
former § 48(a)(2)(B)(vii) applied to United States citizens or domestic corporations.
When former § 48(a)(2)(B)(vii) was enacted in 1966, the term “United States person”
was defined under § 7701(a)(30) of the 1954 Code as meaning: (A) a citizen or resident
of the United States, (B) a domestic partnership, (C) a domestic corporation, and (D)
any estate or trust (other than a foreign estate or foreign trust within the meaning of §
7701(a)(31) of the 1954 Code).

  Similar to former § 48(a)(2)(B)(vii), the literal wording of § 168(g)(4)(G) applies to

domestic corporations or United States citizens, but not to domestic partnerships.
However, the repeal of the “deadwood” provisions and the amendment to § 168(g)(4) by
§ 11813 of the Act were not intended to be substantive changes in the tax law. H.R.
Rep. No. 101-894, 101st Cong., 2d Sess. (Oct. 17, 1990).

  Section 7701(a)(30) defines the term “United States person” as: (A) a citizen or

resident of the United States, (B) a domestic partnership, (c) a domestic corporation, (D)
any estate (other than a foreign estate, within the meaning of § 7701(a)(31)), and (E)
PLR-141604-12 4

any trust if a court within the United States is able to exercise primary supervision over
the administration of the trust, and one or more United States persons have the
authority to control all substantial decisions of the trust.

   In light of the legislative history of § 168(g)(4) and former § 48(a)(2)(B)(vii), we

believe that § 168(g)(4)(G) is intended to apply to a domestic partnership where all of its
partners are domestic corporations that do not have an election in effect under § 936 or
are United States citizens that are not entitled to the benefits of § 931 or 933.

CONCLUSION

    In this case, Taxpayer represents that the Project (which includes the

Depreciable Property) will be located in and used predominantly in Location, which is a
possession of the United States. Taxpayer also represents that: (1) Taxpayer is a State
limited liability company that is treated as a partnership for federal income tax
purposes; (2) Taxpayer has two members, A and B, each of which is a domestic
corporation; (3) neither A nor B has an election in effect under § 936; and (4) Taxpayer
is the sole owner of the Depreciable Property for federal income tax purposes.

    Based solely on Taxpayer’s representations and the relevant law and analysis

set forth above, we conclude that:

   Provided Taxpayer is a domestic partnership where all of its partners are

domestic corporations (other than a corporation which has an election in effect under
§ 936) or are United States citizens that are not entitled to the benefits of § 931 or 933,
the Depreciable Property is property described in § 168(g)(4)(G) and, thus, the
Depreciable Property will not be treated as property that is used predominantly outside
the United States within the meaning of § 168(g)(4).

   Except as specifically set forth above, no opinion is expressed or implied

concerning the tax consequences of the facts described above under any other
provisions of the Code (including subsections of § 168 other than § 168(g)(4)(G)).
Further, no opinion is expressed or implied concerning the tax consequences of future
ownership changes of Taxpayer under § 168(g)(4)(G).

  In accordance with the power of attorney, we are sending a copy of this letter to

Taxpayer’s authorized representatives. We are also sending a copy of this letter to the
appropriate operating division director.
PLR-141604-12 5

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

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

                                  Sincerely,

                                  Patrick Clinton

                                  Patrick Clinton
                                  Assistant to Branch Chief, Branch 7
                                  Office of Associate Chief Counsel
                                  (Income Tax & Accounting)

Enclosures (2):
copy of this letter
copy for section 6110 purposes