May 13, 2014 / 9:25 PM / 5 years ago

U.S. solar experts say IRS tax proposal little help to big projects

WASHINGTON (Reuters) - An attempt by the Obama administration to use tax breaks to boost solar energy businesses falls short of expectations among industry officials who were hoping to lure more investors for their projects, analysts and tax lawyers said on Tuesday.

They said the proposal released on Friday by the Internal Revenue Service would do little to increase the number of the projects that could qualify for a tax-saving business structure known as a “real estate investment trust.”

For years, the clean energy industry has sought to have large-scale solar production facilities qualify for REIT status. Those hopes dimmed with the IRS’s latest guidance, industry experts said.

To qualify as a REIT, a business must have at least 75 percent of its holdings in real estate assets. REITs are not required to pay corporate tax but must distribute most of their income to investors.

David Burton, a tax lawyer with Akin Gump Strauss Hauer & Feld LLP, said the IRS proposal would open REIT status only to a small number of solar projects. “It’s going to be a drop in the bucket,” he said.

The IRS proposal coincided with a speech given by President Barack Obama on Friday promoting renewable energy investments as a way to address climate change.

“The renewable enthusiasts in the White House had their ambitions tempered by the conservative green eye-shade folks at IRS,” said Christine Tezak, managing director at ClearView Energy Partners, LLC, a consultancy.

REITs were created in 1960 to encourage real estate investment. Many retail investors hold publicly traded REITs in their investment portfolios.

Other lawyers said the IRS proposal was appreciated because solar businesses will have a better understanding of what might qualify for REIT status.

“It is going to stimulate more thinking about these issues and looking more seriously about the possibility of creating renewable energy REITs,” said Kelly Kogan, a lawyer with Chadbourne & Parke LLP.

The IRS proposal was needed to give renewable energy businesses more clarity about what qualifies for REIT status within the law, the Treasury Department said on Tuesday.

“Even though these rules are generally consistent with current IRS administrative practice, they will provide important clarity to industry and investors,” said Mark Mazur, the Treasury Department’s assistant secretary for tax policy, in a statement on the Treasury website.

The public can submit suggestions for changes to the proposal through August 12. A public hearing is scheduled for September.

Reporting by Patrick Temple-West; Editing by Howard Goller and Leslie Adler

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