One of the consequences for me of being in the equipment leasing business is a fascination for all things leased. (Reference my earlier blog on how I really enjoy a new model Shwing whenever I get the chance.) I also like adding to my list of the odd things that are leased. I was pretty excited, therefore, when I saw a headline in my tax service talking about a ‘Wind Lease Agreement.’ Who wouldn’t want to know more about someone leasing wind?
Imagine my surprise, and dismay, when, after wading through the document, I discovered that the article actually wasn’t about a lessor leasing the wind to an end user. Instead, it was a Private Letter Ruling from the IRS regarding whether or not the turbines in a wind farm qualified for the production tax credit under Section 45 of the IRC.
There is a lot of background information about the wind-based generation project contained in the letter (Private Letter Ruling 200609001), primarily concerning the ownership structure of the project. This ownership consists of an A class and a B class. The B class expects to receive a positive, cash on cash return in the project. The really interesting feature about the structure is that the A class does not expect to receive a positive, cash on cash return on its investment. It is only when the tax credit is considered that the A class return is positive.
Normally, under RP01-28, the lack of a positive return, without considering the tax credits, would preclude the A class from claiming the tax credit. The IRS ruled, however, the overall entity was entitled to the tax credit, based on risk and meeting all the other relevant criteria. The A class investor, as a result, was entitled to its proportionate share of the tax credits – a good result for the wind farm and the investors. I, on the other hand, was disappointed that no one was leasing wind.
As a final note, it ended up being a good day after all. According to an article in the ELS’s Enews Daily, Goldenpalace.com, the online casino that advertises on the backs of celebrity boxers, has agreed to lease an Oscar. The reason for leasing is that the Academy generally prohibits the sale of Oscars. What they are going to use it for, I have no idea, but it is one more item to add to my Leases of the Weird list. Even better, the lease is for 999 years. Who can beat these items for being outside the pale?
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