PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
FORM OF TRANSFER ELECTION STATEMENT UNDER SECTION 6418 OF THE INTERNAL REVENUE CODE
Solstice Portfolio — Investment Tax Credits Under Section 48
Prepared by:
Calderwood & Harkness LLP 600 Lexington Avenue, New York, NY 10022 1000 Louisiana Street, Suite 3800, Houston, TX 77002
Matter No.: 1015-00005
TEMPLATE — TO BE COMPLETED SEPARATELY FOR EACH PROJECT COMPANY AND ATTACHED TO THE APPLICABLE FEDERAL INCOME TAX RETURN
December 2023
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Section 1: Instructions and General Guidance
1.1 Purpose of This Form
This template has been prepared by Calderwood & Harkness LLP for use by each of the seven (7) project companies comprising the Solstice Portfolio (collectively, the "Project Companies" and each, a "Project Company") in connection with the effectuation of a transfer election under Section 6418 of the Internal Revenue Code of 1986, as amended (the "Code"). Section 6418 of the Code was enacted by Section 13801 of the Inflation Reduction Act of 2022 (Pub. L. No. 117-169, 136 Stat. 1818) (the "IRA") and provides a mechanism by which eligible taxpayers may transfer certain specified tax credits to unrelated transferee taxpayers in exchange for cash consideration.
The transfer election under Section 6418 permits an eligible taxpayer that is not subject to federal income tax liability — or that otherwise elects to transfer credits in lieu of claiming them — to transfer specified portions of eligible credits to an unrelated transferee taxpayer for cash consideration. Under the terms of the Tax Credit Purchase Agreement dated September 21, 2023 (the "TCPA"), entered into between Calloway-Briggs Renewables Inc. ("CBR") and Pinehurst Insurance Group, Inc. ("Pinehurst"), Pinehurst has agreed to purchase, and CBR has agreed to sell, a specified aggregate face amount of Investment Tax Credits (as defined below) generated by the Project Companies.
Each Project Company will complete and attach a separate Transfer Election Statement, substantially in the form set forth in Section 2 of this template, to the federal income tax return (or information return, as applicable) for the taxable year in which the relevant eligible credit is determined. For purposes of this portfolio, the taxable year in which the credits are determined corresponds to the taxable year in which the applicable solar energy property is placed in service within the meaning of Section 48 of the Code. All seven projects comprising the Solstice Portfolio were placed in service during the period from September 30, 2023 through November 18, 2023, and accordingly, the relevant taxable year for all Project Companies is the taxable year ending December 31, 2023.
This template is provided for the convenience of the parties and their advisors and is intended to reflect the requirements of Section 6418, the proposed Treasury Regulations thereunder, and applicable interim guidance issued by the Internal Revenue Service (the "IRS"). Nothing in this template constitutes tax advice to any party other than CBR and its affiliates, and all parties should consult with their own tax advisors regarding the applicability of Section 6418 and the requirements for making a valid transfer election.
1.2 Applicable Law and Regulatory References
The following statutory and regulatory authorities are relevant to the preparation and filing of the Transfer Election Statements contemplated by this template:
(a) Internal Revenue Code § 6418 — As added by Section 13801 of the Inflation Reduction Act of 2022, Pub. L. No. 117-169, 136 Stat. 1818. Section 6418 establishes the framework for the transfer of certain tax credits between eligible taxpayers and transferee taxpayers, including the requirement that the transfer be made for cash consideration, the irrevocability of the election, and the rules governing the treatment of transferred credits by both the eligible taxpayer and the transferee taxpayer.
(b) Proposed Treasury Regulations under § 6418 — REG-101610-23, published in the Federal Register on June 14, 2023 (88 Fed. Reg. 40496). The proposed regulations provide detailed guidance on the requirements for making a valid transfer election, including the pre-filing registration requirements, the information that must be included in the transfer election statement, the treatment of partnerships and S corporations, and the rules applicable to excessive credit transfers and recapture events. Although these regulations have not been finalized as of the date of this template, taxpayers may rely on the proposed regulations to the extent provided therein.
(c) IRS Notice 2023-44 — Published on June 14, 2023, this notice provides interim guidance on certain aspects of the transfer election process under Section 6418, including the timeline for the availability of the IRS pre-filing registration portal and the transitional rules applicable to transfers of credits determined with respect to property placed in service during 2023.
(d) Internal Revenue Code § 48 — The energy investment tax credit ("ITC") under Section 48(a) of the Code, as amended by Sections 13102 and 13701 of the IRA. Section 48 provides a tax credit with respect to the eligible basis of energy property, including solar energy property, placed in service during the taxable year. The applicable ITC rate is determined with reference to the satisfaction of prevailing wage and apprenticeship requirements (Sections 48(a)(10) and (11)) and additional bonus credit amounts, including the domestic content bonus (Section 48(a)(12)).
(e) IRS Pre-Filing Registration Portal — Pursuant to proposed Treasury Regulation § 1.6418-4, each eligible taxpayer and each transferee taxpayer must complete a pre-filing registration process through the IRS Energy Credit Registration Portal prior to making a transfer election. The pre-filing registration is intended to allow the IRS to verify the identity of the parties, the type of eligible credit, and other relevant information. A unique registration confirmation number will be issued upon successful completion of the pre-filing registration, and this number must be included on the Transfer Election Statement.
Practitioners should monitor for the issuance of final Treasury Regulations under Section 6418 and any additional IRS guidance that may affect the form or content of the Transfer Election Statement. If final regulations are issued prior to the filing of the Form 1065 for Solstice Holdings, LLC, this template should be reviewed and updated as necessary to conform to any revised requirements.
1.3 Filing Instructions
The following filing instructions apply to the Transfer Election Statements prepared using this template:
(a) Attachment to Federal Income Tax Return. Each Transfer Election Statement must be attached to the federal income tax return (or information return, as applicable) filed by the eligible taxpayer for the taxable year in which the eligible credit is determined. Because each Project Company is a limited liability company organized under the laws of the State of Delaware and is treated as a disregarded entity for federal income tax purposes, the Project Companies do not file separate federal income tax returns. Rather, the assets, liabilities, income, deductions, and credits of each Project Company are reported on the federal income tax return of its owner.
(b) Filing Entity — Solstice Holdings, LLC. Each of the seven Project Companies is wholly owned by Solstice Holdings, LLC, a Delaware limited liability company (EIN: 88-4071523). Solstice Holdings, LLC is classified as a partnership for federal income tax purposes and files Form 1065, U.S. Return of Partnership Income. Accordingly, each Transfer Election Statement must be attached to the Form 1065 filed by Solstice Holdings, LLC for its taxable year ending December 31, 2023. The Transfer Election Statements should be included as part of the return package and clearly identified as attachments to the Form 1065.
(c) Copy to Transferee Taxpayer. A copy of each executed Transfer Election Statement should be provided to the transferee taxpayer, Pinehurst Insurance Group, Inc. (EIN: 06-1938274), for its records. Pinehurst should attach a copy of each applicable Transfer Election Statement to, or reference each such statement on, its federal income tax return (Form 1120, U.S. Corporation Income Tax Return) for the taxable year in which the transferred credits are claimed. Under the TCPA, CBR is obligated to deliver copies of the executed Transfer Election Statements to Pinehurst (or its counsel, Thornberry Mack LLP) within ten (10) business days following the filing of the Form 1065 for Solstice Holdings, LLC.
(d) Pre-Filing Registration. Pre-filing registration with the IRS must be completed prior to making the transfer election. The pre-filing registration is required for both the eligible taxpayer and the transferee taxpayer. A separate registration is required for each eligible taxpayer (i.e., each Project Company) and for each type of eligible credit. Upon successful completion of the pre-filing registration, the IRS will issue a registration confirmation number, which must be inserted in the designated field on the Transfer Election Statement. As of the date of this template, the IRS Energy Credit Registration Portal has not yet been made available; however, the IRS has indicated that the portal will be operational in advance of the 2024 filing season. The confirmation numbers should be inserted into the Transfer Election Statements as soon as they are obtained.
(e) Timely Filing. The transfer election is made on a timely filed return (including extensions). If Solstice Holdings, LLC obtains an extension of time to file its Form 1065 for the taxable year ending December 31, 2023, the Transfer Election Statements may be attached to the return as filed on the extended due date. However, the election cannot be made on an amended return (except in certain limited circumstances described in the proposed regulations).
1.4 Definitions Used in This Form
The following defined terms are used throughout this template and in the Transfer Election Statement form set forth in Section 2. Unless otherwise defined herein or unless the context otherwise requires, capitalized terms used in this template have the meanings ascribed to them in the TCPA.
"Cash Consideration" means the amount paid by the Transferee Taxpayer to the Eligible Taxpayer (or its direct or indirect owner) in consideration for the transfer of the Eligible Credit pursuant to Section 6418 of the Code. Under Section 6418(b), the Cash Consideration is not includible in the gross income of the Eligible Taxpayer and is not deductible by the Transferee Taxpayer.
"Eligible Credit" means the Investment Tax Credit under Section 48 of the Code determined with respect to the solar energy property owned by the applicable Project Company and placed in service during the taxable year ending December 31, 2023.
"Eligible Taxpayer" means the Project Company making the transfer election — that is, the entity that determined the Eligible Credit and that would, absent the transfer election, be entitled to claim such credit (or, in the case of a disregarded entity, the entity whose owner would be entitled to claim such credit through the applicable partnership return). For purposes of this template, the term "Eligible Taxpayer" refers to each Project Company individually.
"Placed in Service Date" means the date on which the solar energy property is placed in service within the meaning of Section 48 of the Code. A solar energy property is generally considered placed in service on the date on which it is in a condition or state of readiness and availability for a specifically assigned function, which, for utility-scale solar generating facilities, typically corresponds to the date on which the facility achieves commercial operation and interconnection to the applicable transmission or distribution system.
"Transfer Election" means the irrevocable election under Section 6418(a) of the Code made by the Eligible Taxpayer to transfer all or a specified portion of an Eligible Credit to a Transferee Taxpayer for Cash Consideration. Once made, the Transfer Election cannot be revoked or modified, and the transferred credits are treated as credits determined with respect to the Transferee Taxpayer for purposes of computing the Transferee Taxpayer's federal income tax liability.
"Transferee Taxpayer" means Pinehurst Insurance Group, Inc. (EIN: 06-1938274), the entity purchasing and claiming the transferred credits pursuant to the TCPA. The Transferee Taxpayer must not be related (within the meaning of Section 267(b) or Section 707(b)) to the Eligible Taxpayer.
Section 2: Transfer Election Statement — Template Form
The following template form should be completed separately for each of the seven Project Companies in the Solstice Portfolio. The placeholders indicated by brackets ("[ ]") should be replaced with the project-specific information set forth in the Schedule of Project Companies in Section 3.1 below and such other information as is specified in the instructions accompanying each field.
2.1 Header Block
TRANSFER ELECTION STATEMENT UNDER SECTION 6418 OF THE INTERNAL REVENUE CODE
[Insert full legal name of Project Company] — Transfer of Section 48 Investment Tax Credits
Tax Year: Taxable Year Ending [Insert taxable year — e.g., December 31, 2023]
2.2 Part I — Eligible Taxpayer Information
The following information pertains to the eligible taxpayer making the transfer election under Section 6418 of the Code.
Instructions for Completion of Part I:
Name of Eligible Taxpayer. Insert the full legal name of the applicable Project Company from the table set forth in Section 3.1 of this template. For example, for Project No. 1, the name to be inserted is "Pecos Sun Solar, LLC."
Employer Identification Number (EIN). Insert the EIN of the applicable Project Company. Because each Project Company is a disregarded entity for federal income tax purposes, the Project Company may not have a separately assigned EIN. In such case, reference the EIN of Solstice Holdings, LLC (88-4071523) or such separate EIN as may be assigned to the Project Company for purposes of the pre-filing registration process under proposed Treasury Regulation § 1.6418-4. Counsel should confirm with Larchmont & Associates whether separate EINs have been obtained for each Project Company.
Address of Eligible Taxpayer. Unless a Project Company maintains a separate principal place of business, use the address of the managing member: c/o Calloway-Briggs Renewables Inc., 2700 Post Oak Boulevard, Suite 1450, Houston, TX 77056.
Type of Entity. For each Project Company, the entry should be: "Limited liability company (disregarded entity for federal income tax purposes)."
Jurisdiction of Organization. For each Project Company, the entry should be: "Delaware."
Owner/Partner Filing the Return. This field identifies the entity that files the federal income tax return to which the Transfer Election Statement is attached. Because each Project Company is a disregarded entity owned by Solstice Holdings, LLC, and Solstice Holdings, LLC is a partnership filing Form 1065, the entry should be: "Solstice Holdings, LLC, EIN 88-4071523 (filing entity for Form 1065)."
IRS Pre-Filing Registration Number. Insert the registration confirmation number obtained from the IRS Energy Credit Registration Portal. A separate registration number is required for each eligible taxpayer and each credit type. This number must be obtained prior to the filing of the Form 1065 to which the Transfer Election Statement is attached. As of the date of this template, the IRS Energy Credit Registration Portal has not yet been made available. Registration confirmation numbers should be inserted into the Transfer Election Statements as soon as they are obtained.
2.3 Part II — Transferee Taxpayer Information
The following information pertains to the transferee taxpayer to which the eligible credits are being transferred.
Instructions for Completion of Part II:
The information set forth above for the Transferee Taxpayer is the same for all seven Transfer Election Statements. The Transferee Pre-Filing Registration Number must be obtained by Pinehurst Insurance Group, Inc. through its own pre-filing registration process. CBR should coordinate with Pinehurst (or Pinehurst's counsel, Thornberry Mack LLP) to confirm that the transferee's registration has been completed and to obtain the registration confirmation number for insertion in this field.
2.4 Part III — Eligible Credit Information
The following information pertains to the eligible credit that is the subject of the transfer election.
Instructions for Completion of Part III:
Description of Eligible Credit Property. For each Project Company, provide a description of the solar energy property with sufficient specificity to identify the project. A suggested form of description is: "Utility-scale solar photovoltaic generating facility located at [project site address], [County], [State], with a nameplate capacity of [ ] MW(dc), including all solar panels, inverters, racking and mounting systems, electrical interconnection equipment, step-up transformers, switchgear, supervisory control and data acquisition (SCADA) systems, and related balance-of-system components."
Nameplate Capacity. Insert the nameplate capacity in megawatts (direct current) for the applicable project as set forth in the Schedule of Project Companies in Section 3.1.
Location of Credit Property. Insert the project site address, county, and state for the applicable project as set forth in the Schedule of Project Companies in Section 3.1.
Placed in Service Date. Insert the actual commercial operation date (COD) or placed-in-service date for the applicable project as set forth in the Schedule of Project Companies in Section 3.1. The placed-in-service date should be confirmed by reference to the certificate of commercial operation or similar documentation maintained in the project files.
Applicable ITC Rate. The applicable ITC rate for each project in the Solstice Portfolio is 40%, consisting of the following components:
(i) Base Rate — 30%. The base ITC rate under Section 48(a)(2) of the Code is 6% for property that does not satisfy the prevailing wage and apprenticeship requirements. Each project in the Solstice Portfolio satisfies the prevailing wage requirements under Section 48(a)(10) and the apprenticeship requirements under Section 48(a)(11), as applicable. Accordingly, the base rate is increased from 6% to 30% pursuant to Section 48(a)(9)(B).
(ii) Domestic Content Bonus — 10%. Each project in the Solstice Portfolio meets the domestic content requirements of Section 48(a)(12) of the Code. Accordingly, each project qualifies for the 10% domestic content bonus credit amount, resulting in a total applicable ITC rate of 40%.
Eligible Basis of Credit Property. Insert the eligible basis (cost) of the solar energy property placed in service by the applicable Project Company. The eligible basis is generally the cost of the energy property, which corresponds to the EPC cost allocable to the project. The project-specific EPC costs are set forth in the Schedule of Project Companies in Section 3.1. The eligible basis should be confirmed in consultation with Larchmont & Associates to ensure consistency with the amounts reported on Form 3468 (Investment Credit) to be filed with the Form 1065.
Total Credit Determined. Insert the total ITC determined with respect to the applicable project, calculated as the Eligible Basis multiplied by the Applicable ITC Rate (40%).
Portion of Credit Transferred. Insert the specified portion of the total ITC that is allocated to the Section 6418 transfer tranche for this project and is being transferred to the Transferee Taxpayer under this election. Note: Not all of the total ITC generated by each project is being transferred to the Transferee Taxpayer. A significant portion of the ITCs is allocated to the partnership-flip tax-equity structure and is distributed to Ridgeline Capital Partners, LLC, as the tax-equity member of Solstice Holdings, LLC. Only the portion allocated to the Section 6418 transfer tranche is the subject of this election. The per-project allocation should be determined in consultation with Larchmont & Associates and should be consistent with the methodology set forth in the TCPA and the Amended and Restated Limited Liability Company Agreement of Solstice Holdings, LLC.
Portion of Credit Retained by Eligible Taxpayer. If any portion of the ITC allocated to the Section 6418 transfer tranche is retained by the Eligible Taxpayer (or its direct or indirect owner, CBR) and is not transferred to the Transferee Taxpayer, insert the amount of such retained credit. As described in Section 3.2 below, approximately $4,800,000 in aggregate face value of ITCs are expected to be retained by CBR and not transferred to Pinehurst.
2.5 Part IV — Cash Consideration
The following information pertains to the cash consideration paid or to be paid by the Transferee Taxpayer in connection with the transfer of the eligible credits.
Instructions for Completion of Part IV:
Total Cash Consideration. Insert the aggregate cash consideration payable by the Transferee Taxpayer with respect to the credits transferred from this Project Company. The per-dollar transfer price under the TCPA is $0.92 per $1.00 of eligible credit. Multiply the Portion of Credit Transferred (as set forth in Part III above) by $0.92 to calculate the cash consideration for this project. For example, if the Portion of Credit Transferred for a particular project is $10,000,000, the cash consideration would be $10,000,000 × $0.92 = $9,200,000.
Transfer Price Per Dollar of Credit. The per-dollar transfer price is fixed at $0.92 per $1.00 of eligible credit for all projects in the Solstice Portfolio, as specified in Section 2.1 of the TCPA.
Statement Regarding Tax Treatment of Cash Consideration:
Pursuant to Section 6418(b) of the Internal Revenue Code, the cash consideration received by the eligible taxpayer for the transfer of eligible credits is not includible in the gross income of the eligible taxpayer. Pursuant to Section 6418(b), the cash consideration paid by the transferee taxpayer is not deductible by the transferee taxpayer.
2.6 Part V — Election Statement and Representations
Election Language. The undersigned eligible taxpayer hereby irrevocably elects, pursuant to Section 6418(a) of the Internal Revenue Code, to transfer to the transferee taxpayer identified in Part II above the portion of the eligible credit specified in Part III above with respect to the taxable year specified herein. This election is made in accordance with the requirements of Section 6418 and the regulations thereunder. The undersigned acknowledges that this election, once made, is irrevocable and that the transferred credits will be treated as credits determined with respect to the transferee taxpayer for all purposes of the Code.
Representations. The eligible taxpayer hereby makes the following representations in connection with this transfer election:
(a) Eligible Taxpayer Status. The eligible taxpayer represents and warrants that it is an eligible taxpayer within the meaning of Section 6418(f)(2) of the Code and that it has determined the eligible credit specified in Part III above in accordance with the provisions of Section 48 of the Code. The eligible taxpayer further represents that the credit property described in Part III is energy property within the meaning of Section 48(a)(3) and that such property was placed in service during the taxable year specified herein.
(b) Arm's Length Transaction. The eligible taxpayer represents and warrants that the transfer of the eligible credit to the transferee taxpayer identified in Part II is made in an arm's-length transaction between unrelated parties. The eligible taxpayer is not related to the transferee taxpayer within the meaning of Section 267(b) or Section 707(b) of the Code. The cash consideration described in Part IV represents the fair market value of the transferred credits as determined through arm's-length negotiation.
(c) No Excessive Enrichment. The eligible taxpayer represents and warrants that the amount of cash consideration received or to be received from the transferee taxpayer does not exceed the amount of the eligible credit transferred. The eligible taxpayer acknowledges that, pursuant to Section 6418(a)(2), if the amount of cash consideration exceeds the amount of the eligible credit transferred, the excess shall be treated as an underpayment of tax.
(d) Pre-Filing Registration. The eligible taxpayer represents and warrants that it has completed the pre-filing registration requirements under proposed Treasury Regulation § 1.6418-4 and has obtained the registration confirmation number set forth in Part I above. The eligible taxpayer further represents that the transferee taxpayer identified in Part II has completed its own pre-filing registration and has obtained the registration confirmation number set forth in Part II above.
(e) No Prior Transfer. The eligible taxpayer represents and warrants that the portion of the eligible credit specified in Part III hereof has not been previously transferred to any other person and that no other transfer election under Section 6418 has been made with respect to such portion. The eligible taxpayer further represents that the specified portion of the credit is not subject to any lien, encumbrance, or competing claim (other than as may arise under the TCPA or the Amended and Restated Limited Liability Company Agreement of Solstice Holdings, LLC).
(f) Prevailing Wage and Apprenticeship Compliance. The eligible taxpayer represents and warrants that the credit property described in Part III satisfies the prevailing wage requirements under Section 48(a)(10) of the Code and the apprenticeship requirements under Section 48(a)(11) of the Code, entitling the project to the increased base ITC rate of 30%.
(g) Domestic Content Compliance. The eligible taxpayer represents and warrants that the credit property described in Part III satisfies the domestic content requirements under Section 48(a)(12) of the Code, entitling the project to the 10% domestic content bonus credit amount.
2.7 Part VI — Signature block
ELIGIBLE TAXPAYER:
[Insert full legal name of Project Company]
By: CBR Solstice Manager, LLC, as Managing Member of Solstice Holdings, LLC, the sole owner of [Insert full legal name of Project Company]
By: ________
Name: [Insert name of authorized signatory]
Title: [Insert title]
Date: ________
Instructions for Signature block:
Because each Project Company is a disregarded entity, the Transfer Election Statement should be signed by an authorized officer of CBR Solstice Manager, LLC, in its capacity as managing member of Solstice Holdings, LLC, the sole owner of the Project Company. The expected signatory is Theo Vasquez, Chief Financial Officer of Calloway-Briggs Renewables Inc. and authorized officer of CBR Solstice Manager, LLC. Confirm signing authority with CBR prior to execution.
Notation:
This Transfer Election Statement is attached to the federal income tax return (Form 1065) of Solstice Holdings, LLC (EIN: 88-4071523) for the taxable year ending December 31, 2023.
Section 3: Project-Specific Schedules
3.1 Schedule of Project Companies and Key Data
The following table sets forth the project-specific information to be inserted into the placeholders in the Transfer Election Statement template set forth in Section 2 above. A separate Transfer Election Statement must be completed for each Project Company listed below. The data set forth in this schedule is based on information provided by CBR and its advisors as of the date of this template and is subject to final confirmation by Larchmont & Associates, PLLC in connection with the preparation of the Form 1065 for Solstice Holdings, LLC.
Portfolio-Level Summary:
Total Portfolio Capacity: 420 MW(dc)
Total EPC Cost (Aggregate Eligible Basis): $384,600,000
Total ITCs at 40% Rate: $153,840,000
Total ITCs Allocated to § 6418 Transfer Elections: $64,800,000
— Transferred to Pinehurst Insurance Group, Inc.: $60,000,000 (face value)
— Retained by Calloway-Briggs Renewables Inc.: $4,800,000 (face value)
Total ITCs Allocated to Partnership-Flip Tax-Equity Structure: $89,040,000 (allocated to Ridgeline Capital Partners, LLC)
Total Cash Consideration (for credits transferred to Pinehurst): $55,200,000 (calculated as $60,000,000 × $0.92)
3.2 Allocation Methodology Note
The total Investment Tax Credits of $153,840,000 generated by the seven Project Companies in the Solstice Portfolio are allocated between two tranches, as described below:
(a) Partnership-Flip Tax-Equity Tranche. A total of $89,040,000 in ITCs is allocated to the partnership-flip tax-equity structure and is distributed to Ridgeline Capital Partners, LLC ("Ridgeline"), as the Class A (tax-equity) member of Solstice Holdings, LLC, in accordance with the allocation and distribution provisions of the Amended and Restated Limited Liability Company Agreement of Solstice Holdings, LLC dated August 15, 2023. These credits are not the subject of a transfer election under Section 6418 and are instead allocated to Ridgeline through the partnership tax allocation mechanism in the ordinary course.
(b) Section 6418 Transfer Election Tranche. A total of $64,800,000 in ITCs is allocated to the Section 6418 transfer election tranche. Of this amount:
(i) $60,000,000 (face value) is being sold and transferred to Pinehurst Insurance Group, Inc. pursuant to the TCPA for aggregate cash consideration of $55,200,000 (reflecting a per-dollar transfer price of $0.92); and
(ii) $4,800,000 (face value) is being retained by Calloway-Briggs Renewables Inc. (through its ownership interest in Solstice Holdings, LLC as the Class B member) and is not the subject of a transfer election to Pinehurst or any other transferee. These retained credits may be utilized by CBR directly or may be the subject of a separate transfer election at a later date, subject to the requirements of Section 6418.
Per-Project Allocation. The allocation of ITCs between the partnership-flip tranche and the Section 6418 transfer tranche on a project-by-project basis should be determined in consultation with Larchmont & Associates, PLLC (contact: Susan Kaplan, Tax Partner), and should be consistent with the methodology set forth in the following agreements:
(i) Tax Credit Purchase Agreement dated September 21, 2023, between Calloway-Briggs Renewables Inc. and Pinehurst Insurance Group, Inc. (the "TCPA"), specifically the allocation methodology described in Section 2.3 and Schedule 2.3 thereof;
(ii) Amended and Restated Limited Liability Company Agreement of Solstice Holdings, LLC dated August 15, 2023, specifically the allocation provisions set forth in Article IV and the flip-point mechanics described in Article V thereof; and
(iii) The Tax Matters Agreement dated September 21, 2023, among CBR, Solstice Holdings, LLC, and Ridgeline Capital Partners, LLC, which addresses the coordination between the partnership-flip allocations and the Section 6418 transfer elections.
Placeholder: The per-project allocation schedule, as finalized by Larchmont & Associates, PLLC, should be inserted below when available:
[Insert project-by-project allocation schedule as finalized by Larchmont & Associates]
Section 4: Transferee Taxpayer Acknowledgment (Optional Counterpart)
4.1 Acknowledgment by Transferee Taxpayer
Although not required to be filed with the eligible taxpayer's federal income tax return, the following optional acknowledgment may be executed by the transferee taxpayer for record-keeping purposes and to confirm the transferee taxpayer's understanding of and agreement to the terms of the transfer election. Execution of this acknowledgment is recommended as a matter of best practices and for purposes of documenting the transferee taxpayer's intent to claim the transferred credits on its federal income tax return.
TRANSFEREE TAXPAYER ACKNOWLEDGMENT
Pinehurst Insurance Group, Inc. (EIN: 06-1938274), a Connecticut corporation with its principal offices at 175 Constitution Plaza, Hartford, CT 06103 (the "Transferee Taxpayer"), hereby acknowledges the following:
1. The Transferee Taxpayer is the designated transferee taxpayer in the Transfer Election Statement executed by [Insert full legal name of Project Company] (the "Eligible Taxpayer") with respect to [Insert credit amount] of Investment Tax Credits under Section 48 of the Internal Revenue Code of 1986, as amended, for the taxable year ending December 31, 2023.
2. The Transferee Taxpayer has received a copy of the Transfer Election Statement and has reviewed its contents.
3. The Transferee Taxpayer has completed the pre-filing registration requirements under proposed Treasury Regulation § 1.6418-4 and has obtained a registration confirmation number from the IRS Energy Credit Registration Portal.
4. The Transferee Taxpayer has paid, or will pay, to the Eligible Taxpayer (or its direct or indirect owner, as applicable) cash consideration in the amount of [Insert cash consideration amount] in connection with the transfer of the specified eligible credits.
5. The Transferee Taxpayer intends to claim such transferred credits on its federal income tax return (Form 1120, U.S. Corporation Income Tax Return) for its taxable year ending December 31, 2023, or such other applicable taxable year as determined in accordance with Section 6418 of the Code and the regulations thereunder.
6. The Transferee Taxpayer acknowledges that, pursuant to Section 6418(a) of the Code, the transferred credits will be treated as credits determined with respect to the Transferee Taxpayer and that the Transferee Taxpayer is subject to the same recapture and other rules applicable to such credits as if the Transferee Taxpayer were the original taxpayer determining such credits.
4.2 Transferee Signature block
TRANSFEREE TAXPAYER:
PINEHURST INSURANCE GROUP, INC.
By: ________
Name: Catherine Moreau
Title: Senior Vice President, Tax & Treasury
Date: ________
Section 5: Appendices
Appendix A: Reference Copy of Tax Credit Purchase Agreement Cover Page
Instruction: Attach a copy of the cover page and signature page of the Tax Credit Purchase Agreement dated September 21, 2023, between Calloway-Briggs Renewables Inc. and Pinehurst Insurance Group, Inc. This attachment is for reference purposes only and is not intended to be filed with the Internal Revenue Service. The TCPA sets forth the definitive terms and conditions governing the sale and transfer of the Investment Tax Credits, including the purchase price, closing mechanics, representations and warranties, indemnification provisions, and other commercial terms.
[Attach Tax Credit Purchase Agreement Cover Page and Signature Page]
Appendix B: IRS Pre-Filing Registration Confirmation
Instruction: Insert copies of the IRS pre-filing registration confirmations for each Project Company and for the Transferee Taxpayer once obtained from the IRS Energy Credit Registration Portal. A separate pre-filing registration is required for each eligible taxpayer (i.e., each Project Company) and for the transferee taxpayer (Pinehurst Insurance Group, Inc.). Registrations should be completed well in advance of the filing of the Form 1065 for Solstice Holdings, LLC.
As of the date of this template (December 2023), the IRS Energy Credit Registration Portal has not yet been made operational. The IRS has indicated that the portal will be available in advance of the 2024 filing season. Larchmont & Associates, PLLC should be engaged to monitor the availability of the portal and to coordinate the pre-filing registration process for all applicable entities.
The following registrations will be required:
[Insert copies of IRS pre-filing registration confirmations when obtained]
Appendix C: Prevailing Wage and Apprenticeship Compliance Certification
Instruction: Insert certifications from Vasquez Brothers Construction, Inc. (the general contractor for all seven projects in the Solstice Portfolio) confirming compliance with the prevailing wage requirements under Section 48(a)(10) of the Code and the apprenticeship requirements under Section 48(a)(11) of the Code for each project. These certifications support the application of the increased base ITC rate of 30% (as opposed to the default base rate of 6%).
The certifications should be provided in the form required under the TCPA, specifically the form of certification attached as Exhibit D to the TCPA. The certifications should address, at a minimum, the following:
(a) Confirmation that all laborers and mechanics employed by the contractor and subcontractors in the construction of the solar energy property were paid wages at rates not less than the prevailing rates for construction, alteration, or repair of a similar character in the locality in which the project is located, as determined by the Secretary of Labor in accordance with subchapter IV of chapter 31 of title 40, United States Code;
(b) Confirmation of compliance with the apprenticeship requirements, including the percentage of total labor hours performed by qualified apprentices, the registration of apprenticeship programs, and any applicable good-faith effort exceptions; and
(c) A description of the record-keeping and documentation maintained by Vasquez Brothers Construction, Inc. to substantiate compliance with such requirements.
[Insert prevailing wage and apprenticeship compliance certifications for each project]
Appendix D: Domestic Content Certification
Instruction: Insert certifications or supporting documentation confirming that each project in the Solstice Portfolio meets the domestic content requirements under Section 48(a)(12) of the Code, entitling each project to the 10% domestic content bonus credit adder. The domestic content requirements generally require that the steel, iron, and manufactured products that are components of the energy property are produced in the United States (as determined under applicable domestic content standards).
The domestic content certifications should address, at a minimum, the following:
(a) Identification of all steel and iron components incorporated into the energy property and confirmation that such components were produced in the United States (including that all manufacturing processes for such components, from initial melting through final fabrication, took place in the United States);
(b) Identification of all manufactured products that are components of the energy property and a calculation demonstrating that the adjusted percentage of the total cost of such manufactured products that were mined, produced, or manufactured in the United States meets or exceeds the applicable threshold under Section 48(a)(12);
(c) Documentation of the supply chain for key components, including solar panels, inverters, racking and mounting systems, and electrical equipment, including country-of-origin certifications from suppliers; and
(d) Any applicable safe harbor or elective pay certifications, if relevant.
[Insert domestic content certification and supporting documentation for each project]
Section 6: Preparer's Notes
INTERNAL — NOT FOR FILING
The following notes are for the internal use of Calderwood & Harkness LLP, Calloway-Briggs Renewables Inc., and their advisors. This section is not part of the Transfer Election Statement and should not be filed with the Internal Revenue Service or provided to any third party without the prior approval of Calderwood & Harkness LLP.
6.1 Coordination with Tax Return Filing
The Transfer Election Statements prepared using this template must be attached to the Form 1065, U.S. Return of Partnership Income, filed by Solstice Holdings, LLC (EIN: 88-4071523) for the taxable year ending December 31, 2023. The following coordination steps are required:
(a) Tax Return Preparer. Larchmont & Associates, PLLC (Martin Larchmont, Managing Partner / Susan Kaplan, Tax Partner) is responsible for preparing and filing the Form 1065 for Solstice Holdings, LLC. Larchmont & Associates is also responsible for preparing the Schedules K-1 for each partner of Solstice Holdings, LLC and for preparing Form 3468 (Investment Credit) as applicable.
(b) Delivery of Finalized Transfer Election Statements. Calderwood & Harkness LLP is responsible for preparing and delivering finalized Transfer Election Statements to Larchmont & Associates no later than thirty (30) days prior to the applicable filing deadline (including extensions) for the Form 1065. Calderwood & Harkness should coordinate with Larchmont & Associates to confirm the anticipated filing date and any extensions that may be requested.
(c) Delivery to Transferee's Counsel. A copy of each executed Transfer Election Statement is to be provided to Thornberry Mack LLP (Roland Thornberry, Partner / Gwen Schaefer, Associate) for transmittal to Pinehurst Insurance Group, Inc. This delivery obligation arises under Section 5.2 of the TCPA and should be completed within ten (10) business days following the filing of the Form 1065.
(d) Coordination of Pre-Filing Registration. Calderwood & Harkness and Larchmont & Associates should coordinate the pre-filing registration process with the IRS Energy Credit Registration Portal as soon as the portal becomes available. Separate registrations are required for each of the seven Project Companies and for Pinehurst Insurance Group, Inc. as the transferee taxpayer. Registration confirmation numbers must be inserted into the Transfer Election Statements prior to filing.
(e) Form 3468 Coordination. Larchmont & Associates should ensure that the amounts reported on Form 3468 (Investment Credit) are consistent with the amounts set forth in the Transfer Election Statements, including the total credit determined, the portion transferred, and the portion retained.
6.2 Key Tax Credit Purchase Agreement Cross-References
The following provisions of the Tax Credit Purchase Agreement dated September 21, 2023 (the "TCPA") are relevant to the preparation and filing of the Transfer Election Statements:
(a) TCPA Section 2.1 — Purchase and sale of credits; per-dollar transfer price of $0.92.
(b) TCPA Section 2.3 and Schedule 2.3 — Allocation methodology for determining the per-project allocation of ITCs between the partnership-flip tranche and the Section 6418 transfer tranche.
(c) TCPA Section 3.1 — Representations and warranties of the seller regarding ITC eligibility, placed-in-service status, prevailing wage and apprenticeship compliance, and domestic content qualification.
(d) TCPA Section 3.2 — Representations and warranties of the buyer regarding its status as an unrelated transferee taxpayer and its ability to utilize the transferred credits.
(e) TCPA Section 5.2 — Delivery obligations with respect to executed Transfer Election Statements.
(f) TCPA Section 7 — Indemnification provisions, including indemnification by the seller for any recapture, disallowance, or reduction of the transferred credits.
(g) Tax Indemnity Agreement — The Tax Indemnity Agreement dated September 21, 2023, entered into by Calloway-Briggs Renewables Inc. in favor of Pinehurst Insurance Group, Inc., provides recapture and disallowance indemnity coverage capped at $69,000,000 (representing 125% of the $55,200,000 aggregate purchase price). The indemnity covers, among other things, (i) recapture of ITCs under Section 50(a) of the Code arising from a disposition or cessation of use of the credit property during the 5-year recapture period, (ii) disallowance or reduction of ITCs due to a failure to satisfy the prevailing wage, apprenticeship, or domestic content requirements, and (iii) any penalties, interest, or additions to tax imposed on Pinehurst as a result of any deficiency in the transferred credits.
6.3 Record Retention
Copies of all executed Transfer Election Statements, pre-filing registration confirmations, and supporting documentation (including prevailing wage certifications, domestic content certifications, placed-in-service certificates, and the TCPA and related transaction documents) should be retained for a minimum period of seven (7) years from the date of filing, or such longer period as may be required by applicable statute of limitations provisions. In particular:
(a) The general federal tax statute of limitations under Section 6501(a) of the Code is three (3) years from the date of filing of the return. However, the statute of limitations is extended to six (6) years in cases involving a substantial omission of income or an excessive credit claim (Section 6501(e)).
(b) The ITC recapture period under Section 50(a) of the Code is five (5) years from the placed-in-service date. Because the last project in the Solstice Portfolio (Amistad Solar, LLC) was placed in service on November 18, 2023, the recapture period for that project will not expire until November 18, 2028 (at the earliest). The statute of limitations for assessment of any recapture tax would extend beyond that date.
(c) Accordingly, a seven-year retention period (i.e., through at least December 31, 2030) is recommended as a minimum, with extended retention advisable to the extent any audit, dispute, or investigation is pending or reasonably anticipated.
Copies of all documents should be included in the closing binder maintained by Calderwood & Harkness LLP under Matter No. 1015-00005. Electronic copies should also be maintained in the firm's document management system and in the client's virtual data room, if applicable.
6.4 Contact Information for Questions
The following individuals may be contacted with questions regarding the preparation, execution, or filing of the Transfer Election Statements:
Calderwood & Harkness LLP:
Leila Nazari, Lead Associate — (212) 558-XXXX / lnazari@calderwoodharkness.com
Leonard Cross, Responsible Partner — (212) 558-XXXX / lcross@calderwoodharkness.com
Sylvia Hartwell, Billing Partner — (713) 632-XXXX / shartwell@calderwoodharkness.com
Calloway-Briggs Renewables Inc.:
Priya Anand, Vice President, Project Finance — (713) 555-XXXX / panand@cbrenewables.com