Share with your friends

Federal Circuit: Basis of assets for calculating “Section 1603 grants”

Basis of assets for calculating “Section 1603 grants”

The U.S. Court of Appeals for the Federal Circuit today vacated and remanded a decision of the U.S. Court of Federal Claims concerning the taxpayers’ applications for grants under Section 1603 of the “American Recovery and Reinvestment Act of 2009” (ARRA)—“Section 1603 grants.”


Related content

The Federal Circuit found that the lower court erred in not applying the residual method under Code section 1060 (under which the overall purchase price is allocated on a “waterfall basis” among several categories of assets—some being Section 1603 grant-eligible and some not), and that this may result “in a lower basis in eligible property” for calculating the Section 1603 grants.

The case is: Alta Wind v. United States, No. 2017-1410 et seq. (Fed. Cir. July 27, 2018). Read the Federal Circuit’s decision [PDF 198 KB]


Section 1603 of the ARRA provided a cash grant for entities that placed in service certain renewable energy facilities, and the amount of the grant was determined using the basis of tangible personal property of the facility.

The taxpayers owned windfarms that were placed in service and applied for approximately $703 million in Section 1603 grants. The government only granted approximately $495 million, and the taxpayers filed suit in the U.S. Court of Federal Claims seeking about $206 million in additional grant payments. The government counterclaimed, asserting it had overpaid $59 million in grant funds. 

The U.S. Court of Federal Claims found for the taxpayers, and approved their method of basis calculation and rejected the government’s claim that basis must be calculated using the residual method of section 1060 (the method that applies in an acquisition of a trade or business). 

The Federal Circuit today vacated and remanded to the lower court, finding error in not applying the residual method and in excluding the testimony of a government expert witness as to the appropriate basis calculation. The Federal Circuit noted that goodwill and going concern value must be assessed in determining the taxpayers’ assets eligible for Section 1603 grants, and that this may result in a lower basis in property eligible for the grants than as claimed by the taxpayers.

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us


Want to do business with KPMG?


loading image Request for proposal