In an effort to reduce their tax burden, several of our clients have invested in partnerships or LLCs that operate solar or other renewable energy power facilities. The details of these investments can take many forms but have several elements in common.
- The bank is not the general partner or managing member.
- The partnership or LLC manages the solar power construction and operations.
- The bank receives a tax credit equal to its pro-rata share of 30% of the qualifying investment.
- The bank must own the investment for at least five years subsequent to receiving the credit, otherwise the credit is subject to recapture.
In general, most of the value of the investment is tied to the tax credits, so most of the investment should be written off in the year the tax credit is used. This is generally in the first year of operation. In addition, the tax basis of the investment is reduced by 50% of the credit, so there is a deferred tax expense in the year the tax credit is utilized.
Also, some of our clients have had prolonged discussions with their state and/or federal regulator regarding the permissibility of this type of investment. We recommend contacting your regulators prior to entering into this type of investment. You should also document your due diligence over this investment including the experience and track record of the project management team and the bank's ability to hold the investment for the minimum five year period.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
