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Solar Generation Facility is Not “Public Utility Property” According to the IRS



In Private Letter Ruling 201544018, the IRS determined that a solar generation facility is not “public utility property” within the meaning of the operative statutory provisions and regulations thereof.


In PLR 201544018, the taxpayer, the owner and developer of a solar electricity generator, entered into a contract with a federal agency to supply energy from renewable sources for a multiyear period with an option for an extension. The taxpayer requested an IRS ruling on whether its facility should be classified as “public utility property.”

The normalization method must be used for public utility property to be eligible for the depreciation allowance available under §168. The normalization method is defined in terms of the method the taxpayer uses in computing its tax expense for purposes of establishing its cost of service for ratemaking purposes and reflecting operating results in its regulated books of account. It is clear the definition of public utility property is the same for purposes of the investment tax credit and depreciation. It follows that if property is public utility property for purposes of the investment tax credit it is also public utility property for purposes of depreciation.

The IRS reasoned that the key factors in determining whether property is “public utility property” are that:

  1. The property must be used predominately in the trade or business of the furnishing or sale of, inter alia, electrical energy;
  2. The rates for such furnishing or sale must be established or approved by a state or political subdivision thereof, any agency or instrumentality of the United States, or by a public service or public utility commission or similar body of any state or political subdivision thereof; and
  3. The rates so established or approved must be determined on a rate-of-return basis.

The IRS concluded that because the rates to be paid for the electricity under the taxpayer’s contract are determined by negotiations between the parties, government agency (buyer) and seller (taxpayer) rather than being established or approved by a governmental entity through a regulatory process on a rate of return basis, the rates are not “established or approved” within the meaning of former §46(f), §168(i)(10), and regulations promulgated thereunder.  Therefore, the taxpayer’s facility does not meet the definition of “public utility property” within the meaning of the relevant provisions.

The IRS also noted that it would not express an opinion on whether the contract to sell electricity constitutes a service contract or whether the taxpayer is the owner of the facility for federal income tax purposes.


For more information, please contact Richard Shevak, Director, at or 862-245-5029.

Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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