Court Awards $206 Million to Alta Wind Projects in Section 1603 Grant Litigation

The US Court of Federal Claims awarded damages of more than $206 million to the Plaintiffs in a case with respect to the cash grant program under Section 1603 of the American Recovery and Reinvestment Act of 2009 (the Section 1603 Grant). In its opinion, which was unsealed on Monday, October 31, the Court held that the US Treasury Department (Treasury) had underpaid the Section 1603 Grants arising from projects in the Alta Wind Energy Center because it had incorrectly reduced the Plaintiffs’ eligible basis in the projects. The Court rejected Treasury’s argument that the Plaintiffs’ basis in the facilities was limited to development and construction costs, and accepted Plaintiffs’ position that the arm’s-length purchase price of the projects prior to their placed-in-service date was a reasonable starting place for the projects’ value. The Court determined that the facilities, having not yet been placed in service and having only one customer pursuant to a master power purchase agreement (PPA), could not have any value assigned to goodwill or going concern value which would reduce the amount of eligible costs for purposes of the Section 1603 Grant. The Court noted that the transactions surrounding the sales of the facilities were conducted at arm’s length by economically self-interested parties and that the purchase prices and side agreements were not marked by “peculiar circumstances” which influenced the parties to agree to a price highly in excess of fair market value. Importantly, the Court also held that PPAs were more like land leases which should not be viewed as separate intangible assets from the underlying facilities, and are thus eligible property for purposes of the Section 1603 Grant. Finally, the Court accepted the Plaintiffs’ pro rata allocation of costs between eligible and ineligible property.

This significant decision is welcomed by the renewable energy industry and is an affirmation of a long held view by many taxpayers as to an appropriate measure of cost basis in the context of the Section 1603 Grant. The decision may also serve as much-needed guidance for determining cost basis for purposes of the investment tax credit under Code Section 48.

McDermott will be issuing a full On the Subject review and analysis of the Court’s opinion in the coming days.

Martha Groves PughMartha Groves Pugh
  Martha (Marty) Groves Pugh advises clients on federal income tax issues with a particular emphasis on the nuclear and energy industries. Marty has helped clients seek and receive many private letter rulings and has extensive experience in drafting legislative language for tax proposals and interacting with the US Department of Treasury and the Internal Revenue Service on important industry issues. Her practice also includes tax planning for proposed transactions and advising clients on audits, appeals and litigation issues. Read Martha Groves Pugh's full bio.


Kevin SpencerKevin Spencer
Kevin Spencer focuses his practice on tax controversy issues. Kevin represents clients in complicated tax disputes in court and before the Internal Revenue Service (IRS) at the IRS Appeals and Examination divisions. In addition to his tax controversy practice, Kevin has broad experience advising clients on various tax issues, including tax accounting, employment and reasonable compensation, civil and criminal tax penalties, IRS procedures, reportable transactions and tax shelters, renewable energy, state and local tax, and private client matters. After earning his Master of Tax degree, Kevin had the privilege to clerk for the Honorable Robert P. Ruwe on the US Tax Court. Read Kevin Spencer's full bio.


Heather CooperHeather Cooper
  Heather Cooper works on federal income tax matters, with a focus on energy tax issues. She represents clients in restructurings, mergers and acquisitions, and other transactional energy related matters. Heather's national practice includes advising on all aspects of renewable energy transactions such as solar and wind projects. She provides advice on tax equity structures, refinancings, acquisitions and dispositions, restructurings and workouts. Read Heather Cooper's full bio.


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Philip TinglePhilip Tingle
  Philip (Phil) Tingle represents energy companies such as utilities, independent power producers and financial institutions on a wide range of energy tax-related matters. He is the global head of the Firm's Energy Advisory Practice Group. Phil provides advice regarding all aspects of renewable-energy projects, including tax equity structures, refinancings, acquisitions and dispositions, restructurings and workouts. He has extensive experience with the production tax credit and with the application of renewable credits to new technologies. Moreover, he works with the investment tax credit for numerous kinds of solar projects. Read Philip Tingle's full bio.

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