New Tax Court Case: Taxpayer Failed to Meet Definition of “Designer” under §179D Energy Efficient Commercial Building Deduction Allocation Rule

New Tax Court Case: Taxpayer Failed to Meet Definition of “Designer” under §179D Energy Efficient Commercial Building Deduction Allocation Rule

A recent court case denied a taxpayer the Energy Efficient Commercial Building Deduction under IRC §179D since it could not substantiate that it was the “Designer” under the incentive’s allocation rule.

BACKGROUND

The §179D Deduction is a Federal tax incentive designed to promote taxpayers to construct energy efficient buildings as well as encourage building owners to make improvements to existing structures that reduce energy and power costs. The §179D Deduction provides a maximum deduction of up to $1.80 per square foot of the building’s floor area and applies to interior lighting systems, heating, cooling, ventilation, hot water systems or building envelope.

A special rule under §179D provides that architects, engineers, contractors, environmental consultants or energy services providers may also be eligible for the incentive on public projects. On a public project, only a “designer” is eligible to take the incentive, as defined below:

A designer is a person that creates the technical specifications for installation of energy efficient commercial building property (or partially qualifying commercial building property for which a deduction is allowed under §179D). A designer may include, for example, an architect, engineer, contractor, environmental consultant or energy services provider who creates the technical specifications for a new building or an addition to an existing building that incorporates energy efficient commercial building property (or partially qualifying commercial building property for which a deduction is allowed under § 179D). A person that merely installs, repairs, or maintains the property is not a designer.

The IRS recently released Chief Counsel Memorandum 2018-005, which provides further clarification. Click here to learn more about this Memorandum.

THE CASE

In this case, the taxpayer installed energy efficient lights for several public buildings. Here, the court found that the taxpayer failed to demonstrate that the taxpayer’s role was more than an installer and that it was involved in the design of the lighting system.

U.S. v. QUEBE, 123 AFTR 2d 2019-XXXX, (DC OH), 01/25/2019

Many professional service providers lack the expertise to properly analyze the complex tax rules and engineering requirements for the §179D Deduction. For a tax incentive requiring both a thorough knowledge of the tax code and engineering principles, it is essential to hire a fully qualified and experienced team that includes CPAs, attorneys, and professional engineers.

Author: Alexander Bagne, JD, CPA, MBA, CCSP

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ICS Tax, LLC (ICS) is a consulting firm providing innovative tax planning strategies. ICS collaborates with taxpayers and their tax professionals to identify credits and incentives that reduce tax liabilities and increase profitability. ICS provides nationwide service through its offices throughout the country.