As discussed previously in the blog, Section 48 generally allows for an investment tax credit for qualified energy property, which includes equipment that uses solar energy to generate electricity. Section 50(b)(3) provides that no investment credit, which includeS the Section 48 investment tax credit, "shall be determined . . . with respect to any property used by an organization . . . which is exempt from the tax imposed." In the past, this provision has deterred investment into significant solar projects that involved various tax-exempt and governmental bodies. It also deterred tax credit investors from purchasing partnership interests in tribal energy projects owned by Native American tribes as they were thought to be ineligible to pass-through the investment credits to investors. There are no constitutional or other statutory provisions that expressly exempt Native American tribes from federal income taxation. Revenue Ruling 67-284, however, holds that no income tax statutes apply to Native American Indian tribes and it was thus assumed that the tribal energy projects would not give rise to Section 48 credits.
On March 8, the IRS issued a relatively brief Private Letter Ruling 201310001 holding that an Indian tribal government is neither a governmental unit described in Section 50(b)(4) nor an organization exempt from tax imposed by Chapter 1 for purposes of Section 50 of the Code. The IRS reasoned in the PLR that since the income tax rules do not apply to Native American tribes, there was nothing from which they could be exempt and thus the Section 50 limitation did not apply. This ruling means that tribes may now "elect to pass investment credits associated with the Renewable Energy Assets" to unrelated third party lessees. The ability to pass these investment credits onto non-Indian partners can be leveraged to fund a large piece of a project's startup costs and should spark significant investment.
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