Alta Wind I Owner Lessor C v. United States
128 Fed. Cl. 702
| Fed. Cl. | 2016Background
- Plaintiffs are purchaser-lessors of six Alta Wind Energy Center facilities (Alta I–VI) that applied for ARRA §1603 cash grants equal to 30% of their basis in grant-eligible property. Treasury paid grants based on Terra-Gen’s construction/development costs, not the purchasers’ acquisition prices.
- Terra-Gen developed and constructed the Alta projects (having earlier bought development rights from Allco) at substantial cost and risk, then sold Altas I–VI to sophisticated third‑party purchasers (some via sale‑leasebacks) in arm’s‑length transactions. Purchase prices included value beyond construction costs (i.e., turnkey value).
- Terra-Gen and purchasers used KPMG to certify eligible vs. ineligible costs; for transactions conveying both eligible and ineligible assets (Alta I and VI) plaintiffs applied a pro‑rata allocation (percentage of eligible construction costs × purchase price) to determine eligible basis.
- The Government argued basis should be construction/development cost (cost method) or, alternatively, that §1060 (residual method) applies because purchase prices include goodwill/going concern value that must be allocated to ineligible intangibles.
- The Court excluded the Government’s expert (Dr. Parsons) for failing to disclose publications, leaving the Government with no expert valuation rebuttal; after trial the Court held purchase price (less reasonable allocations for ineligible property and de minimis land deductions) is the correct basis and awarded $206,833,364 in damages.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Proper measure of basis for §1603 grants | Basis = buyer’s purchase price (cost to owner); where purchases included ineligible items, apply pro‑rata allocation based on eligible construction costs | Basis = developer’s construction/development costs (cost method); or if purchase price includes intangibles, §1060 requires residual allocation to goodwill/going concern | Purchase price is the correct measure of basis; where purchase conveys eligible+ineligible property (Alta I, VI), pro‑rata allocation to eligible property is reasonable |
| Applicability of §1060 (residual method) | §1060 does not apply because neither goodwill nor going concern value could attach at time of sale (projects were not yet operating; sole PPA not creating customer‑based goodwill) | §1060 applies because purchases exceeded construction costs and some excess should be allocated to ineligible intangibles (goodwill, going concern) | §1060 does not apply: no goodwill or going concern value existed at time of sale; excess reflected turnkey value attributable to tangible assets |
| Characterization of excess value (turn‑key vs. intangible) | Excess represents turnkey/aggregate tangible value (synergy/readiness) and is attributable to the assets, not separate intangibles | Excess should be treated as ineligible intangibles (customer‑based, going concern, or goodwill) | Excess is turn‑key value (part of tangible asset value), not goodwill/going concern; treated as part of fair market value of eligible assets |
| Whether transactions were tainted by "peculiar circumstances" inflating price | Sales were arm’s‑length between sophisticated parties; indemnities, leasebacks, side agreements were commercially ordinary and did not highly inflate purchase prices | Sale‑leasebacks, indemnities, side agreements (land, wake payments) and tax‑related structuring created peculiar circumstances warranting disregard of purchase price | No peculiar circumstances shown; evidence supports using purchase prices (capacity‑adjusted prices align across transactions and with other market sales) |
Key Cases Cited
- Solitron Devices, Inc. v. Comm’r, 80 T.C. 1 (Tax Ct. 1983) (cost basis generally equals amount paid)
- Coast Fed. Bank, FSB v. United States, 323 F.3d 1035 (Fed. Cir. 2003) (discussing residual goodwill characterization)
- Newark Morning Ledger Co. v. United States, 507 U.S. 546 (1993) (goodwill defined as expectancy of continued patronage)
- Miami Val. Broad. Corp. v. United States, 499 F.2d 677 (Ct. Cl. 1974) (recognizing turnkey value for ready‑to‑operate facilities)
- Lemmen v. Comm’r, 77 T.C. 1326 (Tax Ct. 1981) (purchase price may be disregarded where peculiar circumstances highly inflate price)
- Bixby v. Comm’r, 58 T.C. 757 (Tax Ct. 1972) (transaction price subject to scrutiny for peculiar circumstances)
- Frank Lyon Co. v. United States, 435 U.S. 561 (1978) (tax law commonly shapes commercial transactions)