IRS determines that dual purpose photovoltaic property qualifies as energy property.

• Author: Watkins, Tracy

Many taxpayers calculating the amount of the energy credit available under Sec. 48 face a hurdle in determining whether certain structural components that serve a dual purpose qualify as energy property. In Letter Ruling 201043023, the IRS addresses this issue in the context of a photovoltaic (PV) curtain wall and provides a valuable road map for taxpayers to analyze such issues.

As discussed in the ruling, a PV curtain wall is a glass exterior that is attached to the floor slabs of a building and encloses the structure. Some or all of the PV curtain wall's glass panes are replaced with PV panes. The PV curtain wall is made up of various component parts, substantially all of which are directly involved in the production of electricity through the use of solar energy. Although the IRS does not provide a breakdown of the elements of the PV curtain wall's purchase price, the IRS states that the PV curtain wall is sold as one complete product.

Sec. 48(a)(3)(A)(i) provides that energy property includes equipment that uses solar energy to generate electricity, to heat or cool (or provide hot water for use in) a structure, or to provide solar process heat, with an exception for property used to generate energy to heat a swimming pool. The PV curtain wall appears to qualify as energy property based on this definition, but the issue that many taxpayers face, and that the IRS addresses in the letter ruling, relates to the application of the Sec. 48 regulations.

Regs. Sec. 1.48-1(e) provides that buildings and structural components do not qualify as Sec. 38 property. (Sec. 38 property includes investment credits under Sec. 46, and Sec. 46 includes Sec. 48 energy credits.) Regs. Sec. 1.48-l(e) further provides that the term "structural components"...