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IRS Chief Counsel: Government Entities Can Allocate Sec. 179D Deduction to Designers.
(Parker Tax Publishing January 15, 2015)

The IRS's Office of Chief Counsel (IRS) has advised that government entities can allocate deductions under Code Sec. 179D to the designers of energy efficient buildings where the government entity is the owner of the building. Schools, colleges, and universities that are governmental entities are eligible to make the allocation. CCA 201451028.

Background

Code Sec. 179D provides a deduction for all or part of the cost of energy-efficient commercial building property placed in service in a taxable year.

For purposes of Code Sec. 179D, energy-efficient commercial building property is property that: (1) is installed on or in any building located in the United States that is within the scope of Standard 90.1-2001 of the American Society of Heating, Refrigerating, and Air Conditioning Engineers and the Illuminating Engineering Society of North America (ASHRAE/IESNA); and (2) is installed as part of (a) the interior lighting systems, (b) the heating, cooling, ventilation, and hot water systems, or (c) the building envelope (Code Sec. 179D(c)(1)). Further, it must be certified that the installed systems will reduce the total annual energy and power costs with respect to combined usage of the building's heating, cooling, ventilation, hot water, and interior lighting systems by 50 percent or more as compared to a Reference Building that meets the minimum requirements of Standard 90.1-2001 (Code Sec. 179D(c)(1)(D)).

The deduction is available based upon the ownership of the building. Where the energy efficient commercial building property is installed on or in property owned by a governmental entity, the deduction may be allocated to the person (the designer) primarily responsible for designing the energy efficient commercial building property (Code Sec. 179D(d)(4)).

A designer is a person that creates the technical specifications for installation of energy-efficient commercial building property and may include, for example, an architect, engineer, contractor, environmental consultant or energy services provider who creates the technical specifications for a new building or an addition to an existing building that incorporates energy-efficient commercial building property. A person that merely installs, repairs, or maintains the property is not a designer (Notice 2008-40).

Analysis

In CCA 201451028, the IRS provided clarity regarding the types of entities that can allocate the Code Sec. 179D deduction to the designer of an energy efficient commercial building property.

The IRS advised that, for purposes of the Code Sec. 179D deduction, governmental entities that own property on or in which energy efficient commercial building property is installed can allocate the deduction to the designer. The IRS emphasized that relevant inquiry is whether the owner is a governmental entity.

Accordingly, the IRS advised that schools, colleges, and universities that are governmental entities can allocate the Code Sec. 179D deduction to the designer. Tax-exempt entities and non-profit organizations (including schools, colleges, and universities) that are not governmental entities are not eligible to allocate the deduction to the designer.

For a discussion of the Code Sec. 179D energy-efficient commercial buildings deduction, see Parker Tax ¶96,555. (Staff Editor Parker Tax Publishing)

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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