Only governmental building owners may allocate § 179D deductions to designers

Plain-English summary

The IRS field asked which building owners may allocate the energy-efficient commercial building deduction to the property's designer. Chief Counsel explained that § 179D(d)(4) permits an allocation only when qualifying property is installed in a building owned by the federal government, a state or local government, or one of their political subdivisions. A school, college, or university may allocate the deduction only if it is itself a governmental entity and owns the building. Tax-exempt and nonprofit owners, including charities, churches, and hospitals, cannot allocate the deduction merely because they are exempt from tax. A designer claiming an allocated deduction therefore must establish that the building owner is a governmental entity.

Ruling snapshot

• Question: Which building owners may allocate a § 179D deduction to the designer of qualifying energy-efficient property?
• Outcome: Advice given
• Key authorities: IRC §§ 179D(a) and 179D(d)(4); Notices 2006-52 and 2008-40

Full text (IRS public release)

       Office of Chief Counsel
       Internal Revenue Service
       memorandum
       Number: 201451028
       Release Date: 12/19/2014
       CC:PSI:B06:
       POSTS-138691-12

UILC: 179D.00-00

date: December 04, 2012

to: Glenn C. Deloriea
Program Manager
(SB/SE: (ATTI) Technical Issues)

from: Charles B. Ramsey
Chief, Branch 6
(Passthroughs & Special Industries)

subject: Allocation of the § 179D Deduction to Designers

       The Field has requested that our office provide clarification regarding the types of
       entities that can allocate the § 179D deduction to the person (the designer) primarily
       responsible for designing energy efficient commercial building property that meets the
       requirements under § 179D.

       Issue

       What entities can allocate the deduction under § 179D of the Internal Revenue Code to
       the designer of the energy efficient commercial building property that is installed on or in
       property owned by the entity?

       Conclusion

       Section 179D(d)(4) provides that a federal, state, or local government or a political
       subdivision thereof (governmental entity) can allocate the § 179D deduction to a
       designer of energy efficient commercial building property that is installed on or in
       property owned by the government entity. The deduction cannot be allocated by
       entities that are not a governmental entity.

       Law and Analysis
                                         2

POSTS-138691-12

Section 179D(a) allows a deduction to an owner of a commercial building for all or part
of the cost of energy efficient commercial building property that is placed in service in a
taxable year. The deduction is available based upon the ownership of the building.

Section 179D(d)(4) provides that in a very limited circumstance this deduction may be
allocated to the person (the designer) primarily responsible for designing the energy
efficient commercial building property. This circumstance is that the energy efficient
commercial building property is installed on or in property owned by a governmental
entity. Notice 2006-52, 2006-1 C. B. 1175, provided interim guidance, pending the
issuance of regulations, about the deduction for energy efficient commercial building
property under § 179D. Notice 2008-40, 2008-2 C.B. 725, amplified Notice 2006-52 by
explaining how, in the case of property owned by a governmental entity, the owner can
allocate the § 179D deduction to the designer.

The Service has received many inquiries asking whether schools, colleges, and
universities can allocate the § 179D deduction to a designer. Entities other than a
governmental entity that own property on or in which energy efficient commercial
building property is installed cannot allocate the § 179D deduction to the designer.
Therefore, only schools, colleges, and universities that are governmental entities can
allocate the § 179D deduction to the designer if they own a building on or in which
energy efficient commercial building property is installed. In addition, tax-exempt
entities and non-profit organizations (such as charities, churches, and hospitals) are not
eligible to allocate the § 179D deduction to the designer if they are not governmental
entities.

To determine whether a designer is entitled to claim a § 179D deduction for which it has
received an allocation, it is important to determine whether the owner of the building on
or in which the energy efficient commercial building property is installed is a
governmental entity.

If you have any questions on this matter, please call Jennifer Bernardini at
(202) 622-3110.