Lessor receives extension to pass energy credit to tenant

Plain-English summary

A partnership owned energy property and agreed to pass the related energy credit to a tenant, but it did not timely file the required election and instead reported and allocated the credit on its return. The IRS found that the discretionary-relief requirements were satisfied and granted 120 days to make the lessor election. The partnership also had to amend its return and attach the required summary statement. The ruling did not decide whether the property qualified for the credit or whether the parties and lease had the represented federal tax status.

Ruling snapshot

• Question: Could the lessor receive additional time to elect that its tenant be treated as acquiring the energy property for investment-credit purposes?
• Outcome: Approved
• Key authorities: IRC §§ 38, 46, 48, 50(d)(5); Treas. Reg. §§ 1.48-4, 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201550024 Third Party Communication: None
Release Date: 12/11/2015 Date of Communication: Not Applicable
Index Number: 48.00-00, 9100.00-00, 50.00-
00 Person To Contact:
----------------------, ID No. -----------
----------------------------------------- Telephone Number:
-------------------------------------------------- --------------------
----------------------------- Refer Reply To:
------------------------------------ CC:PSI:B06
----------------------------------------- PLR-110850-15
Date:
September 03, 2015

LEGEND

Taxpayer = ------------------------------------------
----------------------

State = ------------

Tenant = -------------------------------------------

Property = ----------------------------------------------------------------
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
---------------------------

Taxable Year = -----------------------------------------------

a = -------------

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

  This letter responds to the letter dated March 26, 2015, and related

correspondence, submitted on behalf of Taxpayer, requesting an extension of time
pursuant to § 301.9100-3 of the Procedure and Administration Regulations for Taxpayer
to make an election under § 1.48-4 of the Income Tax Regulations.
PLR-110850-15 2

   According to the information submitted and representations made, Taxpayer is a

limited liability company organized under the laws of State. Taxpayer is treated as a
partnership for federal tax purposes. Tenant, a member and partner of Taxpayer, is
also a limited liability company organized under the laws of State and treated as a
partnership for federal tax purposes. Taxpayer, the owner of Property, placed Property
in service in Taxable Year. Property is eligible for the energy credit under § 48 of the
Internal Revenue Code for Taxable Year in the amount of $a. Tenant leases Property
from Taxpayer.

    Taxpayer and Tenant entered into an agreement to pass through the energy

credit relating to Property to Tenant. The agreement required Taxpayer to make an
election under § 1.48-4(f). However, Taxpayer failed to timely file the election. Further,
Taxpayer erroneously reported the credit, in the amount of $a, on its return for Taxable
Year, but allocated the entire amount to Tenant. Tenant took into account the credit on
its return, in the amount of $a, consistent with the allocation.

LAW AND ANAYLYSIS

   Section 38(a) allows a credit against the tax for the taxable year in an amount

equal to the sum of: (1) the business credit carryforwards carried to the taxable year, (2)
the amount of the current year business credit, plus (3) the business credit carrybacks
carried to the taxable year.

  Under § 38(b)(1), the amount of the current year business credit includes the

investment credit under § 46. Under § 46(2), the energy credit is a component of the
investment credit.

   Section 48(a)(1) provides that, for purposes of § 46, except as provided in

paragraphs (1)(B), (2)(B), (3)(B), and § 48(c)(4)(B), the energy credit for any taxable
year is the energy percentage of the basis of each energy property placed in service
during such taxable year.

   Section 48(a)(2)(A) provides that the energy percentage is: (i) 30 percent in the

case of (I) qualified fuel cell property, (II) energy property described in § 48(a)(3)(A)(i)
but only with respect to periods ending before January 1, 2017, (III) energy property
described in § 48(a)(3)(A)(ii), and (IV) qualified small wind energy property, and (ii) 10
percent in the case of any energy property to which § 48(a)(2)(A)(i) does not apply.

    Section § 50(d)(5), makes applicable rules similar to the rules of former § 48(d)

(relating to certain leased properties). Under former § 48(d)(1), a person (other than a
person referred to in former § 46(e)(1) who is a lessor of property may (at such time, in
such manner, and subject to such conditions as are provided by regulations prescribed
by the Secretary) elect with respect to any new section 38 property (other than property
described in former § 48(d)(4)) to treat the lessee as having acquired such property.
PLR-110850-15 3

  Section 1.48-4(a)(1) provides that a lessor of property may elect to treat the

lessee of such property as having purchased such property for purposes of the credit
allowed by § 38, if the conditions contained in § 1.48-4(a)(1)(i) – (v) are satisfied.

  Section 1.48-4(a)(1)(iv) requires a statement of election to treat the lessee as a

purchaser to be filed in the manner and within the time provided in § 1.48-4(f) or (g).

   Section 1.48-4(f)(1) provides that the election of a lessor with respect to a

particular property (or properties) must be made by filing a statement with the lessee,
signed by the lessor and including the written consent of the lessee, containing the
information as described in § 1.48-4(f)(1)(i) –(vii).

    Section 1.48-4(f)(2) provides that the § 1.48-4(f)(1) election statement must be

filed with the lessee on or before the due date (including any extensions of time) of the
lessee’s return for the lessee’s taxable year during which possession of the property is
transferred to the lessee.

    Section 1.48-4(j) provides, in part, that the lessor and the lessee shall keep as a

part of their records the statement referred to in § 1.48-4(f)(1), and that the lessor shall
attach to his income tax return a summary statement of all property leased during his
taxable year with respect to which an election is made.

  Section 301.9100-1(a) provides that the regulations under this section and

§§ 301.9100-2 and 301.9100-3 establish the standards the Commissioner will use to
determine whether to grant an extension of time to make a regulatory election. An
extension of time is available for elections that a taxpayer is otherwise eligible to make.
However, the granting of an extension of time is not a determination that the taxpayer is
otherwise eligible to make the election.

   Section 301.9100-1(b) provides that the term “regulatory election” includes an

election whose due date is prescribed by a regulation published in the Federal Register.

   Section 301.9100-1(c) provides that the Commissioner may grant a reasonable

extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3 to make a
regulatory election, or a statutory election (but no more than six months except in the
case of taxpayer who is abroad), under all subtitles of the Code, except subtitles E, G,
H, and I.

   Section 301.9100-2 provides automatic extensions of time for making certain

elections. Section 301.9100-3 provides rules for requesting extensions of time for
regulatory elections that do not meet the requirements of § 301.9100-2.

   Section 301.9100-3 provides that requests for relief subject to this section will be

PLR-110850-15 4

granted when the taxpayer provides evidence to establish to the satisfaction of the
Commissioner that the taxpayer acted reasonably and in good faith, and that granting
relief will not prejudice the interests of the government.

CONCLUSIONS

    Based solely on the information submitted and representations made, we

conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied.
Accordingly, Taxpayer is granted an extension of time of 120 days from the date of this
letter to make an election in accordance with § 1.48-4(f). Further, Taxpayer must file an
amended return for Taxable Year with the appropriate service center, consistent with
this ruling, attaching a summary statement as required under § 1.48-4(j) and a copy of
this letter. A copy is enclosed for that purpose.

   Except as specifically set forth above, we express no opinion concerning the

federal tax consequences of the facts described above. In particular, we express no
opinion on whether all of the conditions in § 1.48-4(a)(1) are satisfied, whether
Taxpayer’s expenditures with respect to Property qualify for the energy credit under
§ 48, whether Taxpayer and Tenant are partnerships for federal tax purposes, whether
any member of Taxpayer or Tenant are partners for federal tax purposes, or whether
the lease at issue is a lease for federal tax purposes.

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

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

  In accordance with a power of attorney on file with this office, we are sending a

copy of this letter to your authorized representative.
PLR-110850-15 5

  The rulings contained in this letter are based upon information and

representations submitted by Taxpayer and accompanied by a penalty of perjury
statement executed by an appropriate party. While this office has not verified any of the
material submitted in support of the request for rulings, it is subject to verification on
examination.

                                     Sincerely,

                                     Associate Chief Counsel
                                     (Passthroughs and Special Industries)



                                     By: _____________________________
                                     Jian H. Grant
                                     Assistant to the Branch Chief, Branch 6
                                     Office of Associate Chief Counsel
                                     (Passthroughs and Special Industries)

Enclosures (2)

Copy of this letter
Copy for section 6110 purposes

cc: