Seemingly mundane questions concerning the proper allocation of consideration in determining the basis of purchased assets can have a surprisingly large impact. A recent decision of the Court of Federal Claims in Alta Wind I Owner-Lessor C v. United States, 118 AFTR 2d 2016-____ (Oct. 24, 2016), concluded that six newly constructed wind farm facilities were not “assets which constitute a trade or business” within the scope of Internal Revenue Code §1060; that no part of the purchase price had to be allocated to goodwill, going concern value, or other intangible assets, but, rather, almost all of the purchase price was includible in the basis of tangible property that qualified for federal government grants under §1603 of the American Recovery and Reinvestment Act of 2009 (ARRA); and that, therefore, the plaintiffs were entitled to roughly $200 million more in such grants than the government had initially paid to them by reason of the purchases.
The Facts
The plaintiffs were owners of six wind farm facilities that had been constructed in southern California to generate electricity. A utility had committed in 2006 to buy all the output of multiple not-yet-constructed wind facilities pursuant to a separate power purchase agreement (PPA) to be entered into with respect to each facility. After completion of certain development work, but before construction, the project was sold to Terra-Gen Power, which finished the pre-construction development work and built the facilities.
