SEIA Asks IRS to Change Proposed Regulations to Permit Broader Investment by REITs in Solar Energy
The Solar Energy Industries Association ("SEIA") provided the IRS and the U.S. Treasury Department ("Treasury") with the detailed changes that they would like the IRS to make to Proposed Regulations Section 1.856-10 (REG-150760-13). The changes relate to the definition of "real property" for purposes of real estate investment trust ("REIT") qualification in order to enhance the use of REITs to invest in solar energy properties.
On August 12, 2014, SEIA filed initial comments to the Proposed Regulations. In supplemental comments that were filed on November 13, 2014, SEIA said that the regulations should not require equivalent interests in an item of solar property and the real estate with which it is associated, but should allow third parties and tax equity partnerships to own the solar property. In the current Proposed Regulations, which were published on May 14, 2014, a REIT is required to own both the solar energy asset and the land or building on which the solar energy asset resides. Instead, in SEIA's view, the test should be whether the asset serves a real-estate-related function.
SEIA also asked that the rules permit systems to "net meter" (which allows residential and commercial customers to feed the energy they do not use back into the grid) and derive other non-rental income from the solar property, such as through sales of renewable energy credits. Additionally, SEIA asked Treasury and the IRS either to modify the passive asset restriction (which limits REIT qualifying improvements to assets serving a passive function) or to confirm that the restriction applies to solar assets. Because neither solar PV panels nor DC/AC power inverters use moving parts in either the generation or the handling of electricity, SEIA argues that they are literally "passive absorbers of light and conductors of electricity very much like the passive wires that merely conduct the electricity," which the IRS has previously ruled are real estate in the case of transmission assets.
See: SEIA Letter; REG-150760-13.For more information, please contact Dan Mulcahy or Mark Howe.