In Private Letter Ruling 201214007 issued on April 6, 2012, the IRS ruled that where a taxpayer purchased wind energy facilities accompanied by facility-specific power purchase agreements (“PPAs”), no portion of the purchase price need be allocated to the PPAs as a separate asset. Instead, the consideration attributable to the PPAs could be capitalized into the tax basis of the facilities themselves. The result is favorable for acquirers of renewable energy facilities seeking to take advantage of accelerated MACRS depreciation deductions and the investment tax credit (“ITC”) because it increases the tax basis amount eligible for the ITC and accelerated depreciation.
The ruling also may be helpful for applicants who have been considering whether PPAs must be attributed separate basis under the Treasury Section 1603 cash grant program.
You can read the entire private ruling here: http://www.irs.gov/pub/irs-wd/1214007.pdf