On July 8, 2026, the United States Court of Federal Claims (the “Court”) issued a Trial Order in Alta Wind I Owner Lessor C v. United States1 (“Alta Wind”), adopting a cost approach to determining a wind project’s fair market value for purposes of calculating cash grants under Section 1603 of the American Recovery and Reinvestment Tax Act of 2009 (“ARRA”). The Court rejected the plaintiffs’ income approach based on a discounted cash flow (“DCF”) methodology that sought to incorporate the value of the grants. However, the Court permitted inclusion of capitalized construction interest and a reasonable developer fee under its cost approach.
The key takeaways from the decision include:
- The Court’s rulings are specific to the unusual facts. The Court emphasized that a factual determination as to the allocation of purchase price under section2 1060 was required, and the Court’s selection of a valuation methodology turned on the evidence each party provided. The Court’s unfavorable rulings to the plaintiffs, such as (1) no inclusion of the anticipated cash grant value under the DCF methodology and (2) exclusion of costs attributable to vague “development rights” from the basis of eligible property under the cost approach, were due to the plaintiffs’ lack of evidence.
- The Court distinguished the cash grants from tax credits and other tax benefits. The Court noted that a cash grant is a lump sum that operates as an intangible right granted by a government unit described under the intangible asset amortization rules. The Court contrasted tax credits and other tax benefits, which differ in form and function from cash grants because they can only be collected in the presence of revenue-triggering tax liability.
- The Court did not generally prohibit the use of DCF methodology for section 1060 valuations. The Court noted that the DCF methodology was not inherently defective for section 1060 valuations, leaving open the possibility of its usage in appropriate cases (with proper support).
- The Court allowed the inclusion of a developer profit margin under its cost approach. Based on the construction contract terms with respect to the six wind energy facilities in the Tehachapi region of California (“Alta I” through “Alta VI”, and collectively, the “Alta facilities”), which made their EPC contractors responsible for delivering the projects in turn-key condition, the Court found that the construction costs incurred under those contracts already incorporated turn-key value. On the other hand, the Court allowed a 15% developer profit for the Alta I facility and 20% for the Alta II–VI facilities, supported by appraisal reports submitted by the plaintiffs reflecting market-based developer profit ranges derived from seven comparable wind farm transactions.
- The Court rejected the government’s argument that a development fee paid to a related party should be excluded from eligible basis. The Court emphasized that the developer had its own purpose, assets and obligations, independent of its ownership structure, and any expenditures paid by the taxpayer to an entity in which it has an interest may reflect real-world costs needed to develop the facilities.
Background
ARRA Section 1603 provided cash grants to entities that placed in service certain renewable energy facilities, generally calculated as 30% of the basis of the tangible personal property for a wind facility.3 Terra-Gen Power LLC (“Terra-Gen”) developed the Alta facilities. Terra-Gen sold the Alta facilities to the plaintiffs between 2010 and 2012 through sale-leaseback and outright sale transactions because Terra-Gen had prohibited tax-exempt ownership.4 The plaintiffs placed in service the Alta facilities and applied for over $703 million (in the aggregate) in cash grants, but the Treasury Department awarded only approximately $495 million (in the aggregate) based on the facilities’ grant-eligible construction and development costs.
The plaintiffs filed suit seeking over $206 million in additional cash grants. The Treasury Department counterclaimed, seeking to reduce its original grant by approximately $59 million. After a 2016 trial, the Court awarded the plaintiffs the full shortfall amount.5 On appeal, the U.S. Court of Appeals for the Federal Circuit vacated the judgment and remanded, holding that the Alta transactions were “applicable asset acquisitions” under section 1060 and directed the Court to allocate the purchase prices using the residual method across seven asset classes, distinguishing between turn-key value (grant-eligible) and goodwill and other intangibles (grant-ineligible).6
The Court’s Analysis
The Court determined the approach used for determining the basis of the grant-eligible assets in the hands of the plaintiffs by weighing the evidence presented by the respective expert witnesses hired by the plaintiffs and the government. The Court evaluated two competing valuation approaches: the plaintiffs’ DCF (income) approach and the government’s cost approach. The Court found that the plaintiffs’ DCF model was deficient because it attributed more than 98% of the anticipated cash grant value to grant-eligible assets without sufficient evidence that the buyer would incorporate the anticipated cash grant value when valuing the eligible assets. Despite the plaintiffs’ expert witnesses’ claim that the price of the tax-favored asset would increase relative to the price of the tax-disfavored asset, the Court pointed to the decline in wind turbine prices from mid-2009 to late 2011 as evidence against the grants necessarily increasing asset prices.
The Court adopted a modified version of the government’s cost approach as the more appropriate methodology, with modifications. The cost approach started with KPMG’s cost segregation reports to determine reproduction costs. The Court then evaluated the government’s exclusion of three categories of indirect costs: vague development rights, construction interest, and a development fee paid to the prior developer. The Court only upheld the exclusion of development rights because it was not clear from the plaintiff’s evidence what these rights covered.
Finally, the Court addressed turn-key value and developer profit. Citing Utilicorp United, Inc. v. Commissioner7, the Court agreed that turn-key value and developer profit should increase the basis of eligible property. The Court found that the plaintiffs’ construction costs already reflected turn-key value but did not have sufficient evidence to support additional turn-key premium. With respect to developer profit, the Court rejected the use of a 9% developer profit proposed by the government’s expert witness under the “Capital Asset Pricing Model,” for which the Court did not find any market analysis to support its use in evaluating the grant-eligible assets. Instead, the Court agreed with the ranges provided by the DAI appraisal reports presented by the plaintiffs, which were accepted by a sophisticated tax equity investor in the projects. The Court adopted developer profits of 15% for Alta I facility and 20% for Alta II–VI facilities based on the developer profit range in the DAI appraisal reports.
Practical Implications
The Alta Wind decision provides important guidance for investors and developers valuing projects claiming investment tax credits (“ITCs”) under sections 48 and 48E. Most acquisitions of such property are structured as “applicable asset acquisition” that are subject to the same section 1060 residual method allocation as in Alta Wind. Taxpayers may wish to consider structuring formations of joint ventures as contributions and charging a reasonable developer fee to the joint venture for services rendered during the construction period.8 However, the Court’s distinction between the cash grant and tax credits and other tax benefits may allow Alta Wind to be distinguished from common development structures. For tax credits that may be eligible for either the “direct pay” under section 6417 or the transferability under section 6418, taxpayers may wish to transfer such tax credits considering the similarities between the direct pay and the cash grant.
The decision underscores that the selection of a valuation methodology is crucial to justifying a project’s tax basis, especially where the amount of basis is above the project’s “hard costs.” Taxpayers seeking to use a DCF methodology to value tangible assets under section 1060 should present robust factual support justifying such methodology. Additionally, the Court’s reliance on market-based appraisals for developer profit calculations suggests that parties should present, where possible, actual market transactions to establish appropriate developer profit margins under the cost approach.
1 Alta Wind I Owner Lessor C v. United States, Nos. 13-402, et al. (Fed. Cl. July 8, 2026).
2 Unless otherwise noted, all “section” references are to the applicable section of the Internal Revenue Code of 1986, as amended.
3 ARRA §§ 1603(a), (b)(1), (b)(2)(A).
4 As noted in the Alta Wind decision, “Terra-Gen itself was not qualified to receive a [S]ection 1603 payment, as [S]ection 1603(g)(4) barred a ‘pass-thru entity’ from receiving a grant if any ‘holder of an equity or profits interest’ in the entity was a nonprofit, and Terra-Gen had some nonprofit equity holders.”
5 Alta Wind I Owner-Lessor C v. United States, 128 Fed. Cl. 702, 713, 716 (Fed. Cl. 2016).
6 Alta Wind I Owner-Lessor C v. United States, 897 F.3d 1309, 1377 (Fed. Cir. 2018). The U.S. Court of Appeals for the Federal Circuit defined the turn-key value as “the incremental value ‘a buyer would pay . . . for such an assurance that the plant and equipment would all work together without need of costly and time consuming adjustments and coordination’” (citing Miami Valley Broad. Corp. v. United States, 499 F.2d 677, 680 (Ct. Cl. 1974)). The U.S. Court of Appeals for the Federal Circuit concluded that turn-key value is considered part of the tangible assets in a transaction rather than a separate intangible asset, so it is a Class V asset for purposes of the residual method. See id.
7 T.C. Memo 1997-47.
8 However, even this approach – if not rigorously applied – may invite scrutiny. See California Ridge Wind Energy v. U.S. (Fed. Cir. 2019) (disallowing Section 1603 grants with respect to a capitalized developer fee where there was circular cash and other lack of economic substance).
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