The following is not meant to be legal advice.
The Internal Revenue Service (IRS) published Revenue Procedure 2007-65, 2007-45 IRB (Rev Proc 2007-65). The announcement establishes a safe harbor for structuring the allocations of tax benefits by partnerships using wind to generate electricity. Under the safe harbor, the IRS will not challenge a partnership's allocations of profit, loss, and applicable credits and deductions.
The safe harbor should be happy news for those working with wind projects. Wind projects are operated through partnerships most of the time, such as a state law partnership or a limited liability company, taxed as a partnership for income tax purposes.
A wind partnership involves a project developer, tax equity investors, and cash equity investors. Tax equity investors expect production tax credit and monetization of cost recovery deductions on the components of a wind project. Cash equity investors want cash on cash returns.
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