Solyndra and the IRS

[Geee]

National Review:


In November of 2009, in the midst of Solyndra’s downward financial spiral, the Internal Revenue Service issued a ruling that granted special tax favors to the firm and its customers.

The “private letter” ruling involving Solyndra, though widely discussed among tax lawyers, commented upon within the solar-power community, and even flaunted by Solyndra itself, has received little attention in the mainstream media. A former IRS official told National Review that the ruling raises a red flag about political interference in the tax system. The source, who was not directly involved in the case, says that politicians have increased their lobbying for private-letter rulings on behalf of individual taxpayers ever since the Democrats took over Congress in 2007. Congressional investigators of the Solyndra scandal say they are aware of the tax angle, but have not had time to delve into it, as they are too busy unsnarling the specifics of the controversial $535 million loan to the company, as well as billions in similar loans to other companies.

In a reversal of longtime policy, the IRS let a Solyndra client incorporate the cost of a new roof into the cost of its solar installation — provided it was a “cool roof” of a type long boosted by Energy Secretary Steven Chu, one of the key administration figures at the center of the scandal. The rationale was that because solar panels can pick up the light reflected off this kind of roof, the roof was legitimately part of the solar installation.

The client thus became eligible for a tax credit worth 30 percent of the cost of the roof, in addition to the state-level credits that were available. Then the client was eligible to take the entire tax deduction for the depreciation of the roof over five years, half of it in the first year — normally, roof depreciation is deducted over the course of 29 years, during which time its value declines because of inflation. (Credits are subtracted from taxes owed; deductions reduce the income on which taxes are levied.)

The ruling brought Solyndra’s costs more in line with those of its competition, and it could prove a bonanza for whatever emerges from the bankruptcy, particularly if the firm’s intellectual property is bought by a low-cost foreign manufacturer. More alarming, this and related rulings suggest the administration is abusing laws concerning tax shelters to promote solar power, which is far less efficient than other forms of electricity.