Rev. Rul. 81-52

1981-1 C.B. 9, 1981-7 I.R.B. 9.

                       Internal Revenue Service
                                 Revenue Ruling

             RESIDENTIAL ENERGY CREDIT; SUBSIDIZED ENERGY FINANCING

                          Published: February 17, 1981

SECTION 44C.--RESIDENTIAL ENERGY CREDIT

  Residential energy credit; subsidized energy financing. An electric utility company that is a federal agency loans money at below market interest rates to individual customers to finance purchases of renewable energy source property. The utility obtains these loan funds from its revenues or from bonds sold to the U.S. Treasury at market rates.  The loans are not 'subsidized energy financing' under section 44C(c)(10) of the Code.

ISSUE

  Are loans made by a utility that is a federal agency 'subsidized energy financing' as defined in section 44C(c)(10) of the Internal Revenue Code under the circumstances described below?

FACTS

  Company A is an electric utility that is a federal agency. A purchases its electricity from another federal agency, transmits the electricity over its own distribution system, and sells the electricity to numerous local public utilities that in turn sell the electricity to their customers.  A wishes to start a program under which A will make loans at below market interest rates directly to individual customers of the local utilities.  The local public utility will act as the collection agent for repayment of the loans.  The loans will be repayable over a period of time not in excess of 15 years and the proceeds will be used by the consumers to purchase renewable energy source property from A.

  Under law, A must cover its full costs through its own revenues derived from the sale of power and other services.  While A may borrow by sale of bonds to the United States Treasury, A must borrow at rates comparable to the rates prevailing in the market for similar bonds.  Thus, the subsidized loans made under A's program will be financed by the profits from the sale of electricity to consumers and not by the federal government.

LAW AND ANALYSIS

  Section 44C(a)(2) of the Code allows a credit against federal income tax for qualified renewable energy source expenditures.

  Section 44C(c)(2)(A) of the Code provides that a renewable energy source expenditure means an expenditure made on or after April 20, 1977, by the taxpayer for renewable energy source property installed in connection with a dwelling unit.

  Section 44C(c)(10)(A) of the Code provides that for the purposes of determining the amount of renewable energy source expenditures made by the individual, with respect to any dwelling unit, there shall not be taken into account expenditures made from 'subsidized energy financing'.  For purposes of this subparagraph, the term 'subsidized energy financing' means financing provided under a federal, state, or local program, a principal purpose of which is to provide subsidized financing for projects designed to conserve or produce energy.

  The purpose of section 44C(c)(10) of the Code, in part, is to prevent persons from obtaining two tax supported subsidies for the same renewable energy source property.  Such double benefits do not occur here.  A's program, which is substantially the same as that carried out by private (investor-owned) utilities, is not a tax supported subsidy for renewable energy source property because the source of the funds for the loan program is solely A's revenue from the sale of electricity or A's unsubsidized borrowing from the United States Treasury at rates comparable to the rates prevailing in the market.

HOLDING

  Loans made by a utility under the circumstances described above are not 'subsidized energy financing' under section 44C(c)(10) of the Code, even though the utility is a federal agency.

Rev. Rul. 81-52, 1981-1 C.B. 9, 1981-7 I.R.B. 9.