The Senate Finance Committee and the House Ways and Means Committee sent letters to a number of solar companies seeking information about the companies' use of federal tax incentives. Senator Orrin Hatch (R-UT) and Representative Kevin Brady (R-TX) jointly signed the letters that were sent to SunEdison, Abengoa SA, NextEra Energy Inc. and NRG Energy Inc., all of which are developers of commercial solar systems. Letters also were sent to the residential solar companies SolarCity, SunRun and Sungevity.
The investigation, which began earlier this year, is focused on two separate issues: (1) the absence of IRS and Treasury systems used to keep track of solar grants and credits received, and the consequent opportunity for energy companies to "double dip" the benefits; and (2) the possibility that the amount of the tax benefits received may be excessive due to falsely inflating the tax basis of the solar power systems (thus inflating the benefit which is 30% of the tax basis).
The letters ask for the details concerning the cash grants received, the valuation of the systems, the third-party financing of the systems, and the tax loss insurance. The inquiries posed in the letters do not appear to be confined to a particular time period. The responses are due by October 12, 2016.
Commentary / James Mann
The congressional investigation is an attempt to follow up on the $25 billion of cash grants received under Section 1603 of the American Recovery and Reinvestment Act of 2009. Projects under 1603 have been completed and the grants have been awarded. The new inquiries address the investment tax credits claimed for solar projects under Section 48 of the Internal Revenue Code (the set of tax rules that now apply) including methods used to determine the tax basis for solar energy properties, use of third party financing, and use of tax loss insurance. Those questions are not limited to 1603 cash grants, so the companies presumably will have to disclose current tax basis valuation methods and financing arrangements.
One purpose of the investigation may be to spur the IRS to increase audit efforts for the cash grants that have been awarded under the program. Another possible purpose is to pressure the IRS into increased audit activity in this area in general - that is, to examine Section 48 tax credits received as well as cash grants received. Another possible purpose for this inquiry may be to further the political position that solar energy subsidies in the form of both cash grants and credits are wasteful and inefficient.
Responses to these requests, if made public, may shed light on the financing practices of these companies. One of the criticisms of SunEdison (one recipient of the letters) before its bankruptcy was that its financial disclosures were purposely opaque and did not provide investors with meaningful information to assess the company's capital raising efforts. Responses to these letters may be an important step toward transparency and accountability.
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