internal_revenue_service number release date index number -------------------- ----------------------------- ------------------ ---------------------------------------------- ------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------- id no ----------------- ----------------------------------------------------- telephone number --------------------- refer reply to cc corp b01 plr-147890-12 date april legend parent ----------------------------------------------------------------------------------- -------------------------------------------------------------------- ------------------- distributing ---------------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------- distributing 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--------------------------------------------------------------------------------------------- ----------------------------------------------------------------------- lp -------------------------------------------------------------------------------------- -------------------------------------------------------------------- --------------------------------------------- business a1 - ---------------------------------------------------------------------- ----------------------------------------------------------------------- business a2 ---------------------------------------------------------------------- ------------------------------------------------------------------------ plr-147890-12 business b state a state b date date date date dollar_figurea dollar_figureb dollar_figurec dollar_figured property interests dear -------------- --------------------------------------------- ------------------- ------------- ---------------------- ------------------- ------- ----------------------- ------------------------------------ ------------------------------------- ------------------------------------ -------------------------------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ----------------- this letter responds to your date request for rulings on certain federal_income_tax consequences of the proposed transaction described below the proposed transaction the information submitted in that request and in later correspondence is summarized below the rulings contained in this letter are based upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process moreover this office has not reviewed any information pertaining to and has made no determination regarding whether any of the distributions described below i satisfies the business_purpose requirement of sec_1_355-2 ii is used principally as a device for the distribution of the earnings_and_profits of any distributing_corporation or any controlled_corporation or both see sec_355 and sec_1_355-2 or iii is plr-147890-12 part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in any distributing_corporation or any controlled_corporation see sec_355 and sec_1_355-7 summary of facts parent is a state a corporation that has elected to be a real_estate_investment_trust reit under sec_856 since date parent’s stock is publicly traded and widely held parent owns all of the membership interests of llc a state b limited_liability_company llc treated as an entity disregarded from its owner a dre and thus as a branch or division of parent for u s federal_income_tax purposes llc owns all of the membership interests of llc llc and llc each a state b llc treated as a dre thus as a branch or division of parent llc owns all of the outstanding limited_partnership interests and llc owns the general_partnership interests in lp a state b limited_partnership treated as a dre thus as a branch or division of parent llc owns all of the stock of distributing a state b corporation that is a taxable_reit_subsidiary within the meaning of sec_856 parent directly or through llc has owned all of the stock in distributing since date distributing is the common parent of an affiliated_group_of_corporations the distributing group that file a consolidated_return for u s federal_income_tax purposes distributing owns all of the membership interests in distributing a state b llc and has owned all of such membership interests since the formation of distributing distributing is and has been treated as a corporation for federal_income_tax purposes since date and has been a member of the distributing group since that date distributing owns all of the outstanding interests in llc llc llc and llc each a state b llc treated as a dre thus as a branch or division of distributing llc owns all of the interests in llc llc and llc each a state b llc treated as a dre thus as a branch or division of distributing llc acquired such interests from lp on date in addition distributing owns directly or indirectly through dres all of the interests in other dres that are treated as its branches or divisions distributing and the members of its separate_affiliated_group within the meaning of sec_355 the distributing sag directly conduct business a2 primarily through distributing llc llc llc llc and llc distributing and the members of its separate_affiliated_group within the meaning of sec_355 the distributing sag directly conduct business a1 primarily through distributing llc llc llc llc and llc the distributing sag and distributing sag directly conduct business b primarily through llc controlled will as a result of the proposed transaction directly engage in business a1 through llc llc and llc which is a part of business a1 presently engaged in by the distributing sag plr-147890-12 at the time of the proposed transaction llc is expected to owe dollar_figurea to lp the intercompany indebtedness of the intercompany indebtedness dollar_figureb was incurred by llc in partial payment to lp for the purchase of all of the outstanding ownership interests in llc llc and llc the installment notes on date each installment note is evidenced by a promissory note agreement and is secured under a mortgage and security_agreement collectively the security agreements issued respectively by llc llc and llc pursuant to which certain real_estate and other assets the mortgaged property were pledged as security for the installment notes financial information has been submitted indicating that business a1 business a2 and business b each has had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years proposed transaction for what is represented to be valid business reasons parent proposes to undertake the following proposed transaction i to effect a collateral substitution lp will release the mortgaged property as security for the installment notes under the security agreements and llc will pledge other assets to serve as new collateral for the installment notes under the security agreements the collateral substitution ii distributing will contribute dollar_figured to a newly-formed corporation controlled iii distributing will borrow dollar_figurec from a third-party lender the borrowing iv llc will distribute all of the membership interests in llc llc and llc to distributing v llc and other dres owned by distributing will distribute the property interests to distributing vi distributing will contribute together with step ii above the first contribution all of the membership interests in llc llc and llc and the property interests and might contribute all of its membership interests in llc to controlled controlled will issue all of its common_stock and percent or more of its single class of non-voting preferred_stock the preferred_stock to distributing in exchange for the first contribution vii controlled will issue additional shares of its preferred_stock comprising in the aggregate percent or less of the total outstanding shares of its preferred plr-147890-12 stock to approximately new shareholders in exchange for cash the controlled preferred_stock issuance viii controlled will elect to be treated as a reit effective as of the first date it qualifies as a reit ix distributing will distribute all of the shares of controlled common_stock and all of its shares of the controlled preferred_stock to distributing the first distribution x distributing will contribute the proceeds of the borrowing to controlled the second contribution xi distributing will distribute all of the shares of controlled common_stock and all of its shares of the controlled preferred_stock to llc the second distribution xii by the close of its first taxable_year as a reit controlled will distribute to llc an amount of cash equal to what parent reasonably determines is necessary to purge controlled’s earnings_and_profits from non-reit years in order to comply with sec_857 the purging distribution representations the first contribution and the first distribution parent has made the following representations regarding the first contribution and the first distribution a any indebtedness owed by controlled or any entity controlled directly or indirectly by controlled to distributing or any entity controlled directly or indirectly by distributing after the first distribution will not constitute stock_or_securities b no part of the consideration distributed by distributing will be received by distributing as a creditor employee or in any capacity other than that of a shareholder of distributing c the five years of financial information submitted on behalf of business a1 as conducted by the distributing sag is representative of the present operations of such business and there have been no substantial operational changes in such business since the date of the last financial statements submitted d the five years of financial information submitted on behalf of business b as conducted by the distributing sag immediately before the proposed plr-147890-12 transaction is representative of the present operations of such business and there have been no substantial operational changes in such business since the date of the last financial statements submitted e neither business a1 to be conducted by controlled nor control of an entity conducting this business will have been acquired during the five-year period ending on the date of the first distribution in a transaction in which gain_or_loss was recognized in whole or in part throughout the five-year period preceding the first distribution the distributing sag and subsequent to date the distributing sag will have been the principal_owner of the goodwill if any and significant assets of business a1 following the first distribution controlled directly or through one or more dres will be the principal_owner of the goodwill if any and significant assets of business a1 f neither business b conducted by the distributing sag nor control of an entity conducting this business will have been acquired during the five-year period ending on the date of the first distribution in a transaction in which gain_or_loss was recognized in whole or in part throughout the five-year period preceding the first distribution the distributing sag and subsequent to date the distributing sag will have been the principal_owner of the goodwill if any and significant assets of business b following the first distribution the distributing sag will continue to be the principal_owner of the goodwill if any and significant assets of business b g following the first distribution the distributing sag will continue the active_conduct of business b independently and with its separate employees h following the first distribution controlled will continue the active_conduct of business a1 independently and with its separate employees and will continue to use employees of related entities consistent with past practice i j k the first distribution will be carried out to facilitate the second distribution the first distribution will not be used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both the total adjusted_basis and fair_market_value of the assets transferred to controlled in the first contribution will equal or exceed the sum of i the total liabilities assumed as determined under sec_357 by controlled and ii the total amount of any money and the fair_market_value of any other_property within the meaning of sec_361 received by distributing and transferred to its creditors in connection with the reorganization it is expected that controlled will assume liabilities related to business a1 in connection with the first contribution plr-147890-12 l any liabilities assumed as determined under sec_357 by controlled in the first contribution will have been incurred in the ordinary course of business and will be associated with the assets transferred m the total fair_market_value of the assets transferred to controlled in the first contribution will exceed the sum of i the amount of any liabilities assumed as determined under sec_357 by controlled in connection with the exchange ii the amount of any liabilities owed to controlled by distributing that are discharged or extinguished in connection with the exchange and iii the amount of any cash and the fair_market_value of any other_property other than stock and securities permitted to be received under sec_361 without the recognition of gain received by distributing in connection with the exchange the fair_market_value of the assets of controlled will exceed the amount of its liabilities immediately_after_the_exchange n distributing will neither accumulate its receivables nor make extraordinary payment of its payables in anticipation of the first distribution o no intercorporate debt will exist between distributing or any entity controlled directly or indirectly by distributing and controlled at the time of or after the first distribution other than intercompany loans or obligations that have arisen or will arise between the parties in the ordinary course of business or as a result of the proposed transaction p payments made in connection with all continuing transactions if any between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length q no two parties to the first distribution are investment companies as defined in sec_368 and iv r s for purposes of sec_355 immediately after the first distribution no person determined after applying sec_355 will hold membership interests possessing percent or more of the total combined voting power of all classes of distributing membership interests entitled to vote or percent or more of the total value of shares of all classes of distributing membership interests that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the first distribution for purposes of sec_355 immediately after the first distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of controlled stock entitled to vote or percent or more of the total value of shares of all classes of controlled stock that was either i acquired by plr-147890-12 t u purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the first distribution or ii attributable to distributions on distributing membership interests or securities that were acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the first distribution the first distribution is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly membership interests or stock representing a 50-percent_or_greater_interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor of any such corporation immediately after the transaction as defined in sec_355 either no person will hold a 50-percent_or_greater_interest within the meaning of sec_355 in distributing or controlled if any person holds a 50-percent_or_greater_interest within the meaning of sec_355 in any disqualified_investment_corporation within the meaning of sec_355 such person will have held such interest in such corporation immediately before the transaction or neither distributing nor controlled will be a disqualified_investment_corporation within the meaning of sec_355 v the controlled preferred_stock will not constitute nonqualified_preferred_stock within the meaning of sec_351 w the collateral substitution described in step i above will not constitute a significant modification within the meaning of sec_1_1001-3 of the installment notes the second contribution and the second distribution parent has made the following representations regarding the second contribution and the second distribution x any indebtedness owed by controlled or any entity controlled directly or indirectly by controlled to distributing or any entity controlled directly or indirectly by distributing after the second distribution will not constitute stock_or_securities y no part of the consideration to be distributed by distributing will be received by parent through llc as a creditor employee or in any capacity other than that of a shareholder of distributing plr-147890-12 z the five years of financial information submitted on behalf of business a1 as conducted by the distributing sag and as to be conducted by controlled is representative of the present operations of such business and there have been no substantial operational changes in such business since the date of the last financial statements submitted aa the five years of financial information submitted on behalf of business b conducted by the distributing sag is representative of the present operations of such business and there have been no substantial operational changes in such business since the date of the last financial statements submitted bb neither business a1 to be conducted by controlled nor control of an entity conducting this business will have been acquired during the five-year period ending on the date of the second distribution in a transaction in which gain_or_loss was recognized in whole or in part throughout the five-year period preceding the second distribution the distributing sag will have been the principal_owner of the goodwill if any and significant assets of business a1 following the second distribution controlled directly or through one or more dres will be the principal_owner of the goodwill if any and significant assets of business a1 cc neither business b conducted by the distributing sag nor control of an entity conducting this business will have been acquired during the five-year period ending on the date of the second distribution in a transaction in which gain_or_loss was recognized in whole or in part throughout the five-year period preceding the second distribution the distributing sag will have been the principal_owner of the goodwill if any and significant assets of business b following the second distribution the distributing sag will continue to be the principal_owner of the goodwill if any and significant assets of business b dd following the second distribution the distributing sag will continue the active_conduct of business b independently and with its separate employees ee following the second distribution controlled will continue the active_conduct of business a1 independently and with its separate employees and will continue to use employees of related entities consistent with past practice ff the second distribution will be carried out to i improve management fit and focus for business a1 business b and the other businesses conducted by the distributing sag and ii align the businesses within parent’s chosen structure thereby facilitating parent’s continuing reit status the second distribution is motivated in whole or substantial part by these corporate business purposes plr-147890-12 gg the second distribution will not be used principally as a device for the distribution of earnings_and_profits of distributing or controlled hh no liabilities will be assumed as determined under sec_357 by controlled in the second contribution ii the total amount of the cash transferred to controlled in the second contribution will exceed the sum of i the amount of any liabilities assumed as determined under sec_357 by controlled in connection with the exchange ii the amount of any liabilities owed to controlled by distributing that are discharged or extinguished in connection with the exchange and iii the amount of any cash and the fair_market_value of any other_property other than stock and securities permitted to be received under sec_361 without the recognition of gain received by distributing in connection with the exchange the fair_market_value of the assets of controlled will exceed the amount of its liabilities immediately_after_the_exchange jj distributing will neither accumulate its receivables nor make extraordinary payment of its payables in anticipation of the second distribution kk no intercorporate debt will exist between distributing or any entity controlled directly or indirectly by distributing and controlled or any entity controlled directly or indirectly by controlled at the time of or subsequent to the second distribution other than accounts_payable arising in the ordinary course of business ll payments made in connection with all continuing transactions if any between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length mm no two parties to the second distribution are investment companies as defined in sec_368 and iv nn for purposes of sec_355 immediately after the second distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the second distribution oo for purposes of sec_355 immediately after the second distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of controlled stock entitled to vote or percent or more of the total value of plr-147890-12 shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the second distribution or ii attributable to distributions on distributing stock_or_securities that were acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the second distribution pp the second distribution is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a percent or greater interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor of any such corporation qq immediately after the transaction as defined in sec_355 either no person will hold a 50-percent_or_greater_interest within the meaning of sec_355 in distributing or controlled if any person holds a 50-percent_or_greater_interest within the meaning of sec_355 in any disqualified_investment_corporation within the meaning of sec_355 such person will have held such interest in such corporation immediately before the transaction or neither distributing nor controlled will be a disqualified_investment_corporation within the meaning of sec_355 rr the amount of money controlled will distribute to parent in step xii of the proposed transaction will be based on the estimated amount of earnings_and_profits allocated to controlled in the first distribution and second distribution there is no plan or intention for controlled to distribute any amount in excess of what parent reasonably determines is necessary to purge its earnings_and_profits accumulated in any non-reit_year within the meaning of sec_857 parent will treat the entire distribution as out of controlled’s earnings_and_profits ss the controlled preferred_stock will not constitute nonqualified_preferred_stock within the meaning of sec_351 tt the collateral substitution described in step i above will not constitute a significant modification within the meaning of sec_1_1001-3 of the installment notes rulings the first contribution and the first distribution the first contribution and the first distribution taken together will qualify as a reorganization within the meaning of sec_368 distributing and plr-147890-12 controlled will each be a party to the reorganization within the meaning of sec_368 distributing will not recognize any gain_or_loss on its transfer of assets to controlled in exchange for controlled stock and controlled’s assumption of its liabilities in the first contribution sec_361 and sec_357 controlled will not recognize any gain_or_loss on its receipt of assets from distributing in exchange for controlled stock and controlled’s assumption_of_liabilities in the first contribution sec_1032 controlled’s basis in each asset received from distributing in the first contribution will equal the basis of that asset in the hands of distributing immediately before the first contribution sec_362 controlled’s holding_period in each asset received from distributing in the first contribution will include the period during which distributing held that asset sec_1223 distributing will not recognize any gain_or_loss upon its distribution of controlled stock to distributing in the first distribution sec_361 distributing will not recognize any gain_or_loss and will not include any amount in income on its receipt of shares of controlled stock from distributing in the first distribution sec_355 distributing 2’s basis in its distributing membership interests and shares of controlled stock immediately after the first distribution will be the same as its basis in its distributing membership interests immediately before the first distribution allocated between the membership interests of distributing and the controlled in proportion to the fair_market_value of each immediately following the first distribution in accordance with sec_1_358-2 sec_358 and c distributing 2’s holding_period in the controlled stock it will receive in the first distribution will include the holding_period of the distributing membership interests with respect to which the first distribution is made provided distributing held its distributing membership interests as a capital_asset on the date of the first distribution sec_1223 earnings_and_profits if any will be allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 and sec_1_1502-80 plr-147890-12 the first contribution will be a conversion_transaction within the meaning of sec_1_337_d_-7 and controlled will be subject_to tax on the net built-in_gain if any in the property transferred to it in the first contribution under the rules of sec_1374 and sec_1_337_d_-7 sec_1 d - b i the second contribution and the second distribution distributing will not recognize any gain_or_loss on its distribution of controlled stock to parent in the second distribution sec_361 parent will not recognize any gain_or_loss and will not include any amount in income on its receipt of shares of controlled stock from distributing in the second distribution sec_355 parent’s basis in its distributing stock and shares of controlled stock immediately after the second distribution will be the same as its basis in its distributing stock immediately before the second distribution allocated between the distributing stock and controlled stock in proportion to the fair_market_value of each immediately following the second distribution in accordance with sec_1_358-2 sec_358 and c parent’s holding_period in the controlled stock it will received in the second distribution will include the holding_period of the distributing stock with respect to which the second distribution is made provided parent held its distributing stock as a capital_asset on the date of the second distribution sec_1223 earnings_and_profits if any will be allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 and sec_1_1502-80 for u s federal_income_tax purposes the purging distribution will be treated as a distribution by controlled to parent to which sec_301 applies caveats no opinion is expressed about the federal_income_tax treatment of the proposed transaction under other provisions of the code or regulations or the federal_income_tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered by the above rulings in particular no opinion is expressed regarding i whether any distribution satisfies the business_purpose requirement of sec_1_355-2 plr-147890-12 ii whether any distribution is used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation or the controlled_corporation or both see sec_355 and sec_1 d iii whether any distribution and any acquisition or acquisitions are part of a plan or series of related transactions under sec_355 iv whether the collateral substitution described in step i above constitutes a significant modification of a debt_instrument under sec_1_1001-3 v the controlled preferred_stock issuance described in step vii above vi whether parent controlled or any entity that purports to be a reit qualifies as a reit under part ii of subchapter_m of chapter of the code vii whether distributing qualifies as a taxable_reit_subsidiary within the meaning of sec_856 viii whether the purging distribution qualifies as a distribution described in sec_856 and ix whether the purging distribution eliminates controlled’s earnings_and_profits from non-reit years as required by sec_856 procedural statements except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling plr-147890-12 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely maury passman senior technician reviewer branch office of the associate chief_counsel corporate cc


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi br6-plr-145489-02 date date ty legend taxpayer general_partner location a acreage b c d date date date date date f g plr-145489-02 h j k l m n p r dear this letter responds to a letter dated date submitted on behalf of taxpayer by general_partner requesting as to when each wind turbine generator wtg in its project is placed_in_service for purposes of the allowance for depreciation under sec_167 and sec_168 of the internal_revenue_code and the renewable energy_production_credit under sec_45 additional material was submitted on date facts taxpayer represents that the facts relating to its request are as follows taxpayer will develop a wind power generating facility the project that will be located primarily in location a taxpayer has executed long-term real_property leases with the respective landowners in the area of location a representing approximately acreage b for the project the main components of the project which will be owned by taxpayer include i the wind turbine generators and their attendant parts and ii the electrical gathering and transmission facilities including substations taxpayer has entered into a construction_contract for the design manufacture and construction of the project on a turn-key basis for an aggregate fixed purchase_price the construction_contract provides for the construction installation and testing of approximately c wind turbine generators with an average capacity of approximately d each and their respective steel towers and tower foundations wtg the construction_contract also provides for the construction installation and testing of the electrical gathering and transmission facilities including the electrical substation the construction_contract provides the project must achieve substantial completion by date plr-145489-02 including each wtg successfully passing an initial performance test by such date taxpayer anticipates each wtg to reach commercial operation as of such date meaning a wtg is ready for daily operation has been connected to the power grid and is capable of producing and delivering electrical energy to the power grid taxpayer has or will entered into agreements with two entities to maintain service and repair the wtgs and management operation maintenance and administration of the project each wtg is a self contained unit capable of operating independently of all other wtgs each wtg can be commissioned started up tested and synchronized to a power grid separately and independently of all other wtgs a step-up transformer will increase the voltage at which the wind turbine generates electricity to f kv upon mechanical completion of each wtg each will be tested and synchronized using n’s system each wtg will be connected to the project’s electrical gathering and transmission facilities once energized all of the components that make up each wtg will be tested to insure that each component has been installed properly and is working correctly and that the wtg as a whole is fully functional upon completion of the initial tests a performance test of each wtg which includes the generation of electrical power and the synchronization to the power grid at m substation will be performed successful completion of the performance tests will demonstrate that the wtg is capable of consistently performing its intended function on a routine basis the output of each wtg will be metered and transmitted from its step-up transformer along taxpayer-owned transmission lines to one of two taxpayer-owned substations these two substations will have multiple-tap transformers to step-up the output from the wtgs to either g kv or h kv depending on whether the m substation upgrade discussed below has been completed the two substations will be connected to each other and connected to m substation by taxpayer-owned transmission lines the m substation is owned by n a subsidiary of p a state authority as of date taxpayer expects to be capable of producing electricity at the full capacity of its wtg subject_to wind conditions because taxpayer’s wtgs are expected to be operational as of date taxpayer expects to be operating substantially_all of its wtgs within the project on a daily basis producing power as of date and transmitting it to j an energy trading company unrelated to taxpayer under a power purchase agreement j will purchase k percent of the electrical output of taxpayer’s project for l commencing on the earlier of the date the project achieves commercial operations or date the m substation serves as the point of interconnection between the project and the r transmission system the current operating voltage of the m substation is g kv under the interconnection agreement between taxpayer and n n will complete an upgrade to the m substation in order to accommodate the new interconnection and increase the operating voltage to h kv the interconnection agreement requires n to use reasonable efforts to construct the m substation upgrade by date accordingly taxpayer expects to be able to deliver its project output as required under the power purchase agreement as of date in the event of a delay in the m substation upgrade beyond date taxpayer can nevertheless deliver project output by making minor and temporary modifications to its plr-145489-02 electrical gathering and transmission facilities in the event of such delay taxpayer intends to utilize the g kv tap on the multiple-tap transformers at its two substations to deliver and sell output during any delay in the completion of the m substation upgrade once the m substation upgrade is completed the taxpayer-owned transmission lines will be disconnected from the g kv tap of the transformers and reconnected to the h kv tap of the transformers taxpayer expects that utilization of the g kv taps will allow for delivery and sale of mw of electricity or about of the projects maximum capacity in the event of a delay in the completion of the m substation upgrade the g kv tap of the transformers would be used to facilitate testing and synchronization of each wtg thereafter each of the c wtgs would be able to produce at its full rated capacity subject only to the limitations of the m substation prior to the completion of the m substation upgrade such capacity limitation estimated to be approximately mw during any such delay taxpayer expects to operate a fluctuating number of wtgs in a manner that maximizes operating efficiency given the part load characteristics of the wtgs and the then current site specific wind conditions in some instances fewer wtgs will be operated at or close to full capacity d per wtg in other instances a larger number of wtgs will be operated at less than full load taxpayer expects to rotate the operation of wtgs during the time prior to completion of the m substation upgrade so that a reasonably consistent number of operating hours is logged among all of the wtgs for warranty purposes once the m substation is upgraded the capacity of the m substation will be sufficient to transmit the maximum output capacity of all of taxpayer’s wtg at the desired voltage because n receives output from various wind farms in the local area of the project overloading of the n transmission infrastructure during periods of high winds can occur although n is upgrading its transmission system to relieve such congestion n could from time to time limit the output delivery known as curtailment of any or all wind farms linked to n’s system including the project until such time as the transmission system upgrades are complete thus during periods of high winds taxpayer may temporarily be prevented from delivering all of its output as a result of n’s transmission congestion this curtailment will be at the direction of r with respect to the project during the period between the completion of the m substation upgrade and the upgrade of n’s transmission system there will be days when there will be no curtailment of taxpayer’s output to n and thus of its output maybe delivered to n while on other days during such period taxpayer’s output may be limited due to curtailment to an estimated of its peak output in addition until the upgrade of n’s transmission system is completed r may intermittently interrupt for periods of expected to be less than hours at a time deliveries of project output to the m substation as a result of work related the upgrade of n’s transmission system notwithstanding the effect of r’s curtailment and the intermittent delivery interruptions due to the upgrade of n’s transmission system on delivery of taxpayer’s project output each wtg will remain capable of operations at its full capacity in revenue terms curtailment is expected to result in an estimated energy reduction of approximately in date and plr-145489-02 approximately in date for the project once the upgrade to n’s transmission system is completed it is estimated that by the second quarter of date n will be able to receive at all times the project’s full peak output rulings requested taxpayer requests a ruling that the following will not preclude taxpayer from treating each wtg in its project as placed_in_service for purposes of the allowance for depreciation_deductions under sec_167 and sec_168 and the renewable energy_production_credit under sec_45 any temporary limited capacity of n’s m substation due to delay by n in upgrading that substation the temporary operation of taxpayer’s substation and transmission system at g kv to accommodate any such limitations of the m substation until n completes such upgrade and curtailment by r until n has upgraded its transmission system and any temporarily limited capacity of n’s transmission system during such upgrade law and analysis sec_45 provides a renewable_electricity_production_credit for any taxable_year for each kilowatt hour of electricity which is i produced_by_the_taxpayer from qualified_energy_resources at a qualified_facility during the 10-year period beginning on the date the facility was originally placed_in_service and ii sold by the taxpayer to an unrelated_person during such year sec_45 provides that qualified_energy_resources include wind sec_45 provides that a qualified_facility is one that is placed_in_service after date and before date sec_167 provides a depreciation deduction for the exhaustion wear_and_tear of property used in a trade_or_business or held_for_the_production_of_income sec_168 provides the rules of the general depreciation system with respect to the depreciation deduction under sec_167 for tangible_property placed_in_service after the depreciation deduction is computed by using a prescribed depreciation method recovery_period and convention sec_168 provides that 5-year_property includes any property modifying the language of sec_48 which is equipment which uses solar or wind_energy to generate electricity sec_1_167_a_-11 provides in part that property is first placed_in_service when first placed in a condition or state of readiness and availability for a specifically designed function it further provides that the provisions of sec_1_46-3 and d generally apply for purposes of determining the date on which property is placed_in_service revrul_94_31 1994_1_cb_16 provides the service’s published position on what constitutes a qualified_facility for purposes of sec_45 while noting the array of plr-145489-02 equipment used to generate electricity from wind_energy and deliver the final product the revenue_ruling concludes in part that the term facility under sec_45 means the wind turbine which includes blades gear box generator and a control and a communication mechanism together with the tower on which the wind turbine is mounted and the pad on which the tower is situated the revenue_ruling further concludes that each wind turbine together with its tower and supporting pad is a separate facility this definition is quite narrow excluding from the term facility support and delivery assets such as transformers on-site power collection systems monitoring and meteorological equipment and site improvements such as roadways and fencing in general property is placed_in_service in the taxable_year the property is placed in a condition or state of readiness and availability for a specifically designed function see sec_1_46-3 and sec_1_167_a_-11 placed_in_service is construed as having the same meaning for purposes of the investment_tax_credit under sec_46 and depreciation under sec_167 sec_1_46-3 provides examples of when property is in a condition of readiness and availability one of those examples is equipment that is acquired for a specifically assigned function and is operational but undergoing tests to eliminate any defects see also revproc_79_40 1979_1_cb_13 where machinery and equipment were placed_in_service in the year critical tests with appropriate materials and operational tests were completed another example in sec_1_46-3 involved operational farm equipment acquired and placed_in_service in a taxable_year even though it was not practical to use such equipment for its specifically designed function in the taxpayer’s business of farming until the following year several tax_court cases have addressed placed_in_service questions in the context of electric power plants in olgethorpe power corp v commissioner tcmemo_1990_505 and 89_tc_710 facilities can be deemed placed_in_service upon sustained power generation near rated capacity however if the facility operates on a regular basis but does not produce the projected output it may still be considered placed_in_service 46_f3d_382 5th cir nonacq 1996_1_cb_6 in the action on decision for sealy power the service stated that at a minimum the property would have to have been in a state of readiness sufficient to produce electricity on a sustained and reliable basis in commercial quantities aod finally in revrul_84_85 1984_1_cb_10 a solid_waste facility that was experiencing operational problems such that it was unable to operate at its rated capacity was nonetheless considered to have been placed_in_service since it was being operated on a regular basis and saleable steam was being produced however if a facility is merely operating on a test basis it is not placed_in_service until it is available for service on a regular basis consumers power v commissioner t c pincite the above-referenced cases and rulings provide that the following are common factors plr-145489-02 to be considered in determining placed_in_service dates for power plants approval of required licenses and permits passage of control of the facility to taxpayer completion of critical tests commencement of daily or regular operations and synchronization into a power grid for generating electricity to produce income see generally revrul_76_256 1976_2_cb_46 and revrul_76_428 1976_2_cb_47 the focus in determining a placed_in_service_date is on ascertaining from the relevant facts and circumstances the date the unit begins supplying product in such a manner that it is routinely available and is consistent with the unit’s design it is necessary to examine relevant factors occurring both before and after the claimed placed_in_service_date so that the date can be verified however a facility does not have to achieve full design output to be placed_in_service as long as it is in the process of ramping up its production levels subject_to exceptions that are beyond the taxpayer’s control the service has generally required actual operational use as a prerequisite for an asset to be deemed placed_in_service to be a qualified_facility for wind credit purposes the facility each wtg must be placed_in_service before date in addition the wind_energy credit is available for a ten-year period which starts on the date the qualified_facility is originally placed_in_service similarly the period for tax depreciation of five-year_property such as the wtg begins when the depreciable wind equipment is placed_in_service the service position is that for purposes of the wind_energy credit a facility will be deemed to be placed_in_service when it would be deemed placed_in_service for depreciation purposes thus each wtg is deemed placed_in_service when it is placed in a condition or state of readiness and availability for a specifically assigned function ie to produce and deliver electricity generated from wind_energy based on the facts provided and applying those facts to the factors delineated in revrul_76_256 the taxpayer represents that as of date all necessary permits and licenses with respect to the wtgs will have been obtained the wtgs will have been synchronized to the power grid for its function of generating electricity for production_of_income the critical tests for the various components of the wtgs will have been completed the wtgs will have been placed in the control of taxpayer by the contractor and taxpayer expects to have sold electricity by that date taxpayer further represents that in the event of a delay in the completion of the m substation upgrade the taxpayer expects to operate a fluctuating number of wtgs in plr-145489-02 a manner that maximizes operating efficiency given the part load performance characteristics of the wtg and the then current site specific wind conditions taxpayer also expects to rotate the operation of wtgs during the time prior to the completion of the m substation upgrade so that a reasonably consistent number of operating hours is logged among all of the wtgs for warranty purposes this would result in an operating level of approximately of full rated project capacity daily operation at full rated capacity is not necessary to establish that the wtgs are placed_in_service and even without the temporary delivery limitations or curtailments the site specific wind conditions could dramatically reduce daily wtg or project output as long as the wtgs are ready and available for use and producing commercial output on a regular basis operating at full rated capacity is not necessary to establish that the wtgs are placed_in_service see sealy power supra the additional curtailment of project output by as much as due to temporary capacity limitations of n’s transmission system does not affect adversely the regular use of the availability for use and the production of commercial output by the wtgs conclusions accordingly based soley on the representations submitted by the taxpayer and the applicable law discussion above we rule that the taxpayer will not be precluded from treating each wtg in its project as placed_in_service for purposes of the allowance for depreciation_deductions under sec_167 and sec_168 and the renewable energy_production_credit under sec_45 by reason of any temporarily limited capacity of n’s m substation due to any delay by n in upgrading that substation the change in voltage taps from g kv to h kv at the transformers in taxpayer’s substations for energy transmission to m substation upon completion of the m substation upgrade or any temporary curtailment of project output by r until n has upgraded its transmission system the above ruling is expressly conditioned upon taxpayer otherwise meeting the placed_in_service factors of revrul_76_256 for each of the wtgs before date the operation of the wtgs is in accordance with taxpayer’s representations and that the upgrades of n’s m substation and transmission system is completed in a timely manner this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is plr-145489-02 being sent to your authorized representative we are also sending a copy of the letter_ruling to the appropriate industry director lmsb sincerely peter c friedman senior technician reviewer branch office of the associate chief_counsel passthroughts and special industries cc