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The Journal of Structured Finance

The Journal of Structured Finance

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Article

Tax Equity and Accounting Considerations in the Solar ABS Structure

Ronald S. Borod, Michael Hall, Dan Yonkin and Yuri Horwitz
The Journal of Structured Finance Fall 2014, 20 (3) 49-56; DOI: https://doi.org/10.3905/jsf.2014.20.3.049
Ronald S. Borod
is a partner at DLA Piper LLP (U.S.) in Boston, MA. ronald.borod@dlapiper.com
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Michael Hall
is a partner at KPMG’s Accounting Advisory Services in New York, NY. mhhall@kpmg.com
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Dan Yonkin
is a director of tax equity at Sol Systems, LLC, in Washington, DC. dan@solsystemscompany.com
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Yuri Horwitz
is chief executive officer at Sol Systems, LLC, in Washington, DC. yuri@solsystemscompany.com
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Abstract

In both residential and commercial/industrial solar finance structures, tax equity usually occupies a significant portion of the capital stack. By definition, tax equity is usually provided by large financial institutions or operating companies with sufficient tax exposure to utilize the investment tax credits, depreciation, and other tax benefits that compose their overall yield. In order to realize the tax benefits from solar projects, tax equity investors must have either a real or deemed ownership interest in the assets generating the investment tax credit and depreciation, and they usually acquire this in the form of participation in a partnership or limited liability company taxed as a partnership for federal income tax purposes. Tax equity investment structures generally take one of three forms: the partnership flip structure, the inverted lease or lease pass-through structure, or the sale-leaseback structure. As long as tax equity is a significant component of the capital structure of solar development financing, it will cause a significant headwind for efforts to provide liquidity to the solar sector through securitization. In addition to the potential tax consequences for the tax equity investors of securitization, consideration should also be given to the accounting treatment of the three predominant tax equity structures and to the impact on such structures of a securitization transaction. Because most of the significant providers of tax equity are public financial institutions or operating companies, accounting results can be not only relevant but also determinative with respect to their willingness to permit a securitization transaction to occur.

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The Journal of Structured Finance: 20 (3)
The Journal of Structured Finance
Vol. 20, Issue 3
Fall 2014
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Tax Equity and Accounting Considerations in the Solar ABS Structure
Ronald S. Borod, Michael Hall, Dan Yonkin, Yuri Horwitz
The Journal of Structured Finance Oct 2014, 20 (3) 49-56; DOI: 10.3905/jsf.2014.20.3.049

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Tax Equity and Accounting Considerations in the Solar ABS Structure
Ronald S. Borod, Michael Hall, Dan Yonkin, Yuri Horwitz
The Journal of Structured Finance Oct 2014, 20 (3) 49-56; DOI: 10.3905/jsf.2014.20.3.049
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  • Article
    • Abstract
    • TAX EQUITY STRUCTURES: A CLOSER LOOK
    • ACCOUNTING CONSEQUENCES
    • SAPC TANDEM TAX EQUITY-SECURITIZATION STRUCTURE
    • CONCLUSION
    • ENDNOTES
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