Section 50(d) regulations address income inclusion for certain investment tax credit claimants

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August 2016

Overview

The IRS on July 21 issued temporary regulations (T.D. 9776) governing the income inclusion rules under Section 50(d)(5). That provision allows an eligible owner of property giving rise to an investment tax credit to pass through the tax credit, via a lease, to a lessee under rules ‘similar to’ former Section 48(d), which required the lessee to include ratably in gross income over the shortest recovery period applicable to the investment tax credit property an amount equal to the investment tax credit (or 50 percent in the case of the energy credit) allowable to the lessee.
 
The temporary regulations provide guidance on the proper reporting of the income inclusion in a structure when the lessee is taxed as a partnership (or S corporation).  The new rules also coordinate the Section 50(a) recapture rules with the Section 50(d)(5) income inclusion rules.  Finally, the new rules provide guidance regarding the Section 50(d)(5) income inclusion upon a lease termination, lease disposition, or disposition of a partner’s (or S corporation shareholder’s) entire interest in the lessee partnership (or S corporation).

The new rules apply to property placed in service on or after September 19, 2016. The text of the temporary regulations also was issued as proposed regulations.

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Craig Gerson

Principal, M&A Tax, PwC US

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