How Treasury's Proposed Liability Regulations Affect clean energy investments

摘要

In early 2014, Treasury issued complex proposed regulations dealing with the allocation of partnership recourse debt. These proposed regulations are a radical departure from the current rules. In fact, many commentators believe these regulations are not only over-reaching, but are a reaction to problems that don't actually exist under current rules. If adopted, these new rules could have a severe impact on a partner's allocation of losses and investment tax credits. As many clean energy investments (a solar partnership flip structure, for example) are structured as partnerships, or as limited liability companies that are taxed as partnerships, these regulations are of great concern to clean energy developers and investors. As of the print date, these proposed regulations do not have the current effect of law and, therefore, won't affect current debt arrangements. They can also be withdrawn or modified in whole or in part before being finalized - but, they are a cause for concern. Current law provides that, in general, an increase in a partner's share of liabilities is considered a contribution of cash by that partner to the partnership. The opposite is also true in that a decrease in a partner's share of liabilities is considered a distribution of cash to that partner. In addition, a partner is considered "at risk" for recourse liabilities. By increasing one's "at risk" tax basis, an individual partner can deduct losses against this "at risk" amount. Because a decrease in the allocation of a liability is considered a distribution of money to the partner, a partner could have taxable income if his "at risk" tax basis is decreased.