Using Partnership Flips to Finance Renewable Energy Projects: Evaluating Tax Risks, Navigating IRS Safe Harbors

Description

Partnership flips are a financing tool wherein a developer forms a partnership with a tax equity investor, allocating 99 percent of taxable income and loss to the investor until the investor reaches a target return. After that, the investor's interest drops, usually to five percent, and the developer has an option to purchase the investor's interest. Cash is shared in a different ratio. There are many variations in flip structures, including yield-based flips, time-based flips, pay-go, contribution model and project-company sale structures.

The IRS has guidelines for flip transactions for renewables that taxpayers may rely on. It also issued a series of benchmarks for tax equity transactions in the historic tax credit market in the wake of the Third Circuit's decision in Historic Boardwalk. Most deals stay within the parameters set by the IRS guidelines, while some stray.

The market is facing an unusually large number of challenges this year due to tangled supply chains, labor shortages, general inflation, forced-labor issues and uncertainty around possible anti-circumvention duties, wage, apprentice and domestic content requirements, tax credit amounts, Pillar Two, a book minimum tax and direct-pay alternative to tax credits.

Listen as we provide a detailed look at flip transactions for both neophytes and experienced counsel. Webinar participants will come away with a good understanding of the basic flip structure and the main variations. They will also have a good feel for what issues are taking up the most time in deals.