[RE-wrenches] Federal Tax Credits for Nonprofits

Matt Lafferty gilligan06 at gmail.com
Thu Jan 29 18:56:28 PST 2009


Brian and other PPA vs. ITC head-scratchers,
 
RE: Seems like an awfully large chunk of potential market to ignore over tax
credits.  
 
If you think so, then tell your all-too-smart Solar Lobby to repent for
their historical insistence on rebates & incentives that have no
accountability. This includes all forms of capacity-based incentives &/or
tax credits, etc. Once they've repented, then drag their butts down to
Capital Hill (not a mis-spelling) and have them remove the ITC from the
Corporate Welfare Act of 2008 (This is the one that is now in place for how
many more years? thereby preventing real advancement for distributed PV
until it is removed!!!!). Once all forms of this are eradicated, then we
need to insist on equitable compensation for clean energy generation via a
comprehensive feed-in tariff structure at the national level. Yes, this
means Certified Generation Meters and Data Acquisition Systems, Time:Load
based pricing, No More Net Metering for new projects, National
Interconnection Standard, and a National Right To Interconnect Clean Energy
Sources policy that acknowledges the intrinsic "National Security" benefits
of Distributed Renewable Generation. Since we're down there on Pennsyvania
Avenue kicking in doors, let's make sure that a Carbon Tax becomes mandatory
for all commercially produced sources, at the point of
manufacture/production, and that any form of "Cap & Trade" for pollution of
any kind is forever outlawed by the US Constitution. And, just one more...
Mandate that trade with foreign nations which subscribe to "Cap & Trade"
policies be phased out completely within 5 years unless & until they revert
to actually cleaning up their mess and similarly outlawing Cap & Trade.
 
Until then, HOAs (CIDs) and other "non-charitable non-profits" are gonna
have to figure it out as it applies in their own specific case. Part of our
job as Renewable Energy Professionals is to help them, where appropriate.
For this treat, I'll stick to HOAs. There are certain common things to look
for when talking with them that will help guide in shaping the best
strategy. Among these are the legal structure of the HOA entity, whether or
not the HOA "owns" assets, whether or not the HOA has a tax status, etc. 
 
The best ones are fairly common and look like this: An HOA (as a standalone
entity) that is structured similarly to an LLC operating as a partnership
for tax purposes. They may or may not call themselves an LLC or partnership.
We are looking for the tax relationship of the individual homeowner as it
relates to the "common property". Under this structure, the individual
homeowners (via their real property title) each own and have responsibility
for a proportional piece of the "common property and expenses". They are are
prohibited by contract from "taking common property with them" when they
sell, which equates to the common property being a "permanent fixture" from
a legal and accounting standpoint, as it relates to the individual
homeowners. Each property owner gets to take their proportionate share of
the ITC off their personal taxes. From a tax accountant's standpoint, it
works JUST LIKE A CONVENTIONAL PPA LLC STRUCTURE WORKS FOR THE INVESTORS
BEHIND THE CURTAIN except there isn't any special energy billing required.
There also isn't a 6:6:3:1 ratio... 6 Lawyers for every 6 Accountants for
every 3 Engineers for every 1 Wrench.
 
Basically, here's how it works: The HOA gets the proposal together for a
purchase of the PV System. (Not a PPA!) The individual homeowners vote to
use HOA funds for a Common Area Improvement. (Same thing they do when they
have to re-roof, only this time it's Cap-Ex instead of maintenance.) This
may or may not mean they have to shell out additional dues, either in lump
sum or amortized. Either way, the money comes out of the collective pool
that every property owner pays into. Essentially, this equates to an
improvement of their individual property as well... One of those intrinsic
things that draws people to condos and gates in the first place... When the
system is completed, each homeowner is provided with a copy of all the
necessary bills and a statement from the HOA secretary / accountant showing
their portion. This should be all they need to take the deduction and prove
the validity if challenged. Most HOAs do this end-of-year statement thing
anyway. Shows contributions, expenses, balance. Some show the aggregate for
the whole CID as well as the individual, others just the individual stats.
The key is that the Solar system cost and homeowner portion needs to be
indicated as a line-item on the statement. 
 
The logical question I think I hear a lot of you asking right now is: "How
do I figure out if an HOA is setup like this?" 
 
The simplest way I know is to ask them. Only not really directly and
sounding like a lawyer... Something more like this: "When the association
needs to make a big improvement, do the inidividual homeowners get to deduct
their portion from their taxes?" If you are talking with the right person,
this should be the key qualifying question. If they look at you all puzzled
or don't know, then ask them if you can see a copy of their end-of-year
statement for a clue.
 
(For the uninitiated: LLC = Limited Liability Company. This is NOT a
corporation. Some HOAs are structured as corporations where each property
represents a proportionate # of shares of ownership. Working with them is
"similar" but these setups generally mean there is at least 1 resident
lawyer and 1 resident CPA on the committee to deal with, which means... I
don't want to deal with them. There's just not enough $ in the project to
cover the PITA factor. Besides, lawyers who sit in this committee role are
the types who have dreams about finding black mold in their attics. Contact
me off list if you need a description of PITA.) 
 
Disclaimer: The foregoing is the opinion of a guy with a public high-school
education and a hammock. The described method and strategy has been
successfully implemented on numerous occassions in several regions of the
US. It's not rocket science and it is ethical. This strategy does not
require "sneaky" practices of any kind for successful implementation. It's a
tragedy that more folks haven't figured it out yet. Your experience and
situation may vary. So might those of your clients. You are hereby advised
to advise your intended clients to seek the advice of competent tax
professionals before deciding to pursue any investment path. By the time
they get done finding a competent tax professional and that person gets done
reviewing the proposal, the price of c-Si should be down to $2/watt-peak,
+/- manufacturing tolerances of course. This savings should almost pay for
the cost of a competent tax professional. Did I mention that the foregoing
is an opinion?
 
Pray for Sun!  During the daytime hours only, please.
 
Matt Lafferty
gilligan06 at gmail.com
 
 
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