1. Memo in Support of Amendment to Tax Code
Incentives for Non-Profit Institutions
Solarsa Inc. / Strategic Energy Advisors, Inc.
IN SUPPORT OF AMENDMENT TO INCREASE RENEWABLE
ENERGY USE BY NON-PROFITS
June 12, 2009
The proposed amendment will provide non-profit organizations, such as hospitals,
museums, religious institutions and universities, a subsidized incentive to install clean,
renewable energy property. The incentive is similar to that available to for-profit enterprises.
Under current law, for-profit enterprises can claim a nonrefundable tax credit equal to 30% of
their costs of clean energy equipment, such as photovoltaic arrays.1 Non-profit entities,
however, cannot obtain the economic advantage of the tax incentive, absent complex financing
structures. Such structures almost always transfer the benefits of the incentives to the for-profit
third party, leaving the non-profit owner with little incentive to install renewable or energy
efficiency improvements. As a result, non-profit organizations likely will install clean,
renewable energy equipment at a substantially slower rate than for-profit companies. At the
same time, non-profit organizations, such as hospitals and universities, use a substantial portion
of all energy consumed in the United States.
While the Code contains numerous renewable energy incentives — a number of them
were added or amended by the American Recovery and Reinvestment Act of 2009 (“ARRA”) —
none of them provide an incentive that would assist non-profit institutions to install renewable
energy equipment to generate heat and electricity. Moreover, changes to the Code made by
ARRA strongly suggest there is no sound policy objection to allowing tax-exempt organizations
to benefit from such incentives as pass-through energy credits.
Congress Allowed Multiple Tax Benefits to Enhance Renewable Energy Projects.
Prior to amendment by ARRA, the energy property credit of IRC § 48 was reduced if the
owner financed the energy property with industrial development bonds or other subsidized
financings.2 Presumably, this evinced a policy that a taxpayer could not both claim a tax credit
and be the beneficiary of tax-exempt financing for the same property. Congress has reversed this
policy in the ARRA: a taxpayer may now claim the full energy property credit even if the
property were financed with IDBs or other subsidized financing.3
1
IRC § 48.
2
See, IRC § 48(a)(4) as in effect prior to January 1, 2009.
3
ARRA § 1103.

2. Memo in Support of Amendment to Tax Code
Incentives for Non-Profit Institutions
Solarsa Inc. / Strategic Energy Advisors, Inc.
Congress has decided that multiple incentives for renewable and energy efficiency should
be allowed in light of the multiple benefits accrued by rapid and widespread installation of
efficiency and renewable energy sources. Extending the benefit of the energy credit to tax-
exempt organizations is consistent with current congressional policy and the Code should be
modified accordingly. The simplest way to do this is to allow the pass-through of the energy
credit by an exempt-organization, as is done with tax incentives related to housing rehabilitation.
Historic Rehabilitation Tax Credit Financing Structure Provides a Model for Shifting
Energy Credits to Investors
Section 47 of the Code provides a tax credit of 20% of qualified rehabilitation
expenditures with respect to historic buildings (10% in the case of pre-1936 non-historic
buildings). Rather than using such credits themselves, owners normally want to “monetize” the
credits, and use the proceeds to rehabilitate the building. Transactions typically are structured in
one of two ways.4 In the more tax-efficient structure, the investor (or funding entity) organizes
and controls a “master tenant.” The owner then leases the property to the master tenant and the
owner and master tenant enter into a “tax credit pass-through” agreement. The owner (which
may be a non-profit entity) benefits because the master tenant/investor pays for a significant
portion of the rehabilitation and receives the benefit of the tax credit. For tax purposes, the tax
credit pass-through agreement treats the master tenant as the owner of the property and thereby
enables the master tenant to claim the tax credit.5. Most important, under current law, there
appears to be no reason why an exempt-organization, which is barred from using the tax credit if
it owns the building, cannot pass-through the credits to a taxable entity such as the investor or
funding entity.6 The Code does not disallow the tax credit merely because a non-profit
organization leases the building.7
While this type of transaction structure may seem complex, these structures are well
understood by tax attorneys and accountants who represent developers, investors (including
credit syndicators) and lenders involved in economic development projects. They are routinely
used and provide a model for allowing a non-profit organization to benefit from tax credits.
4
In the first method, the owner will form an LLC or partnership with an investor.
The investor owns 99% or more of the LLC or partnership. Under the tax laws, the investor is
allocated its proportional shares — i.e., 99% — of the credits. See, Treas. Reg. § 1.46-3(f)(1) and
(2)(i). Of course, numerous other provisions must be satisfied. For example, the parties will
have to satisfy the at-risk rules (IRC § 465) and demonstrate that the transaction has a reasonable
chance of making a profit (see, e.g., PLR 8931001).
5
While this may seem to be a “fiction,” nonetheless, Congress has specifically
sanctioned this fiction. IRC § 50(d)(5) (applies pre-1990 law pass-through tax-credits to
lessees); Treas. Reg. § 1.48–4 (adopted under pre-1990 law).
6
See, D. Miller and R. Borod, 477-2nd T.M., Rehabilitation Tax Credit and Low-
Income Housing Tax Credit, at A-24.
7
IRC § 50(b)(3). Generally, such leases cannot be “long-term leases.” See IRC §§
47(a)(2)(B)(v)(I) and 168(h).
2

3. Memo in Support of Amendment to Tax Code
Incentives for Non-Profit Institutions
Solarsa Inc. / Strategic Energy Advisors, Inc.
Tax-Exempt Section 501(c)(3) Financing Does Not Offer a Practical Solution to
Permit the Financing of Renewable Energy Property by Non-profit Organizations
Generally, exempt organizations are eligible to finance capital improvements with
proceeds of tax-exempt bonds.8 Use of such bonds, however, is subject to both legal and
practical considerations. First, the economic benefit of a tax-exempt interest rate after taking
into account all transaction costs and ongoing fees such as bond insurance premiums or letter of
credit fees, may not produce the savings that would be available for energy property under IRC §
48. More important, for most large hospitals and universities, the relatively small amounts
involved would not warrant a separate bond issue. Finally, while most, if not all, States may
issue bonds for the benefit of hospitals or universities, other types of non-profits, such as
religious institutions and museums, may not have a ready way of accessing the tax-exempt
market.
CREBs and New CREBs Are Not Available to Non-profit Energy Users
In 2005, Congress added to the Code Section 54, which authorized issuance of Clean
Renewable Energy Bonds.9 More recently, Congress authorized “New Clean Renewable Energy
Bonds.” 10 Both types of bonds are tax-credit bonds. Generally, the issuer of tax-credit bonds
does not pay interest and the bondholder, instead of receiving tax exempt interest, may claim a
credit against taxes.
These bonds, however, may only be issued by a governmental body, a cooperative
electric company or a body that is a cooperative which is owned by other cooperatives.11 In any
event, neither CREBs nor new CREBs can be issued by non-profits nor do such bonds provide
any direct benefits to non-profit organizations, unless they are lucky enough to have a contract
with a state or other public entity and the power provider actually passes along the benefit, if
any, of the tax-credit bond financing.
Non-profit Organizations are not Eligible for Grants in Lieu of Energy Property
Credits
ARRA § 1603, permits the Secretary of the Treasury to provide grants for installing
renewable energy property, generally the same property described in IRC § 48. These grants,
however, are not available to tax-exempt organizations.12
8
See, IRC § 145.
9
Energy Tax Incentive Act of 2005, Pub. L. 109-58, § 1303(a).
10
IRC § 54C, added by Energy Improvement and Extension Act of 2008, Pub. L.
110-343, Div. B, § 107(a).
11
IRC § 54(i); § 54C(c). For new CREBs, a qualified issuer also includes a “public
power provider,” which is defined as a State utility with a service obligation under the Federal
Power Act. See, 16 U.S.C. § 824g(c) (imposing a requirement to meet certain service
obligations).
12
ARRA § 1603(g)(2).
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4. Memo in Support of Amendment to Tax Code
Incentives for Non-Profit Institutions
Solarsa Inc. / Strategic Energy Advisors, Inc.
Conclusion
The national interest in economic recovery, reduction of dependence upon carbon-based
energy resources, and reduction of imported energy places a priority on rapid and widespread
deployment of renewable and energy efficiency technologies to all segments of our economy.
There are programs for energy research and development, commercialization programs, retrofit
programs for residential and commercial establishments and a plethora of other programs and
targets, with only one exception: the non-profit sector. All renewable incentives are targeted to
tax-paying entities. However, there are large targets of opportunity among the non-profit sectors,
especially universities, hospital complexes, museums and religious institutions which equally
need the incentive to convert to sustainable energy resources.
The attached amendment redresses this oversight in the tax code and in our energy
policy.
Technical Explanation of Amendment
The amendment modifies I.R.C. Section 50(b) to exempt non-profit organizations from
limitations on use of tax credits. The amendment inserts new language in Section 50(b) to
include non-profit investments in renewable energy and energy efficiency in the same language
that enables non-profits to use tax credits for historic rehabilitation. The energy investment must
be in connection with the non-profit’s tax-exempt purposes, and can not exceed $25 million per
project. The energy investment must be in energy property as defined in I.R.C. Section 48(a),
which creates the tax credit and describes renewable energy technologies. The provision clarifies
that an exempt organization may pass through the energy credit with respect to property it uses
under the rules of section 48(d) as in effect before its repeal by the Revenue Reconciliation Act
of 1990. The provision is effective for energy property placed in service after December 31,
2008.
For further information please call:
Scott Jorgensen, CEO Jeanine Hull
Solarsa, Inc. Strategic Energy Advisors, Inc.
4015 S. Dale Mabry Highway 3804 Albemarle Street
Tampa, FL 33611 Washington, DC 20016
(813) 495-5174 (202) 468-0155
Scott.Jorgensen@Solarsa.com JeanineHull@gmail.com
Gregory Hilty, Exec. VP Andrea Dravo
Solarsa, Inc. Strategic Energy Advisors, Inc.
2333 Martinique Ave (703) 862-4727
Henderson, NV 89044 Andrea.Dravo@gmail.com
Greg.Hilty@Solarsa.com
702.372.0706 - Direct Mobile
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5. Memo in Support of Amendment to Tax Code
Incentives for Non-Profit Institutions
Solarsa Inc. / Strategic Energy Advisors, Inc.
Proposed amendment to extend renewable and energy efficiency tax incentives
to not-for-profit institutions
[Proposed new language is in bold font.]
Sec. 50. OTHER SPECIAL RULES.
* * *
(b) Certain Property Not Eligible* * *
(3) Property used by certain tax-exempt organizations
No credit shall be determined under this subpart with respect to any property used by an
organization (other than a cooperative described in section 521) which is exempt from
the tax imposed by this chapter unless such property is used predominantly in an
unrelated trade or business the income of which is subject to tax under section 511. If the
property is debt-financed property (as defined in section 514 (b)), the amount taken into
account for purposes of determining the amount of the credit under this subpart with
respect to such property shall be that percentage of the amount (which but for this
paragraph would be so taken into account) which is the same percentage as is used under
section 514 (a), for the year the property is placed in service, in computing the amount of
gross income to be taken into account during such taxable year with respect to such
property. If any qualified rehabilitated building is used by the tax-exempt organization
pursuant to a lease, or if any energy property (as defined in section 48(a)(3)(A)) is
used by a tax-exempt organization primarily in connection with its exempt
purposes, this paragraph shall not apply for purposes of determining the amount of the
rehabilitation credit or energy credit with respect to such energy property.
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6. Memo in Support of Amendment to Tax Code
Incentives for Non-Profit Institutions
Solarsa Inc. / Strategic Energy Advisors, Inc.
* * *
(d) Certain rules made applicable.
For purposes of this subpart, rules similar to the rules of the following provisions (as in effect on
the day before the date of the enactment of the Revenue Reconciliation Act of 1990) shall apply:
(1) Section 46(e) (relating to limitations with respect to certain persons).
(2) Section 46(f) (relating to limitation in case of certain regulated companies).
(3) Section 46(h) (relating to special rules for cooperatives).
(4) Paragraphs (2) and (3) of section 48(b) (relating to special rule for sale-leasebacks).
(5) Section 48(d) (relating to certain leased property).
(6) Section 48(f) (relating to estates and trusts).
(7) Section 48(r) (relating to certain 501(d) organizations).
Paragraphs (1)(A) , (2)(A) , and (4) of section 46(e) referred to in paragraph (1) of this
subsection shall not apply to any taxable year beginning after December 31, 1995. Section
48(d) referred to in paragraph (5) of this subsection shall apply without regard to whether
the lessor is an organization exempt from the tax imposed by this chapter.
6