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Last Minute Treasury Guidance on Beginning of Construction for Section 1603 Grants

Article

Corporate Department Publications

December 20, 2011

Just last week, the U.S. Treasury Department provided additional guidance to its FAQs on how to meet the 2011 beginning of construction requirement for applicants for grants under Section 1603 of the American Recovery and Reinvestment Act of 2009 (“ARRA”).

Specifically, Treasury added new questions 23 and 24 to its set of FAQs on its website regarding how to meet the 2011 beginning of construction requirement using the 5% safe harbor test: http://www.treasury.gov/initiatives/recovery/Documents/K%20FAQs%20for%20Begun%20Construction.pdf

Q&A 23 addresses the question of the effect of a transfer of ownership of energy property to a related party (basically using a 20% related party ownership test) after the property is acquired in 2011 for use “in a project” and before the project is placed in service. Q&A 24 addresses the situation that occurs when an entity that has acquired property in 2011 that otherwise would qualify as meeting the 5% safe harbor then undergoes a change in ownership before the property is placed in service.

This new guidance is generally being viewed favorably in that it allows for a degree of flexibility in meeting the 5% safe harbor test with respect to frequently-encountered changes of ownership of solar property and solar project entities. Investors should be cautious however, because although Q&A 23 allows solar property to be transferred to a related party for use in a project, it does require that the property have been acquired by the transferor “for use in that project.” The Q&A does not provide any guidance on what evidence Treasury would accept to show that an applicant’s transferor had acquired the solar property “for use in that project.”

This alert was written by Peter J. Ulrich, Director, with the Gibbons Corporate Department in its Newark office. If you have any questions regarding the ARRA Section 1603 grant program, please contact Peter J. Ulrich.