On July 8, 2026, the U.S. Court of Federal Claims closed out one of the longest-running valuation fights in American tax law. Alta Wind, a group of six California wind projects, had claimed more than $703 million in Section 1603 cash grants. Treasury paid about $495 million, and the two sides spent thirteen years litigating the difference. The remand ruling handed the government a near-total win. It rejected the taxpayers’ income-based valuation as circular and adopted a modified cost approach instead. New Mexico is in the middle of its own renewable buildout, with wind farms feeding the SunZia corridor, utility-scale solar with storage, and a steady market of projects changing hands. The federal credits driving those deals rise and fall with the same question Alta Wind litigated: how much of a project’s purchase price counts as the basis of energy property. The autopsy deserves a close read.
What was the Alta Wind dispute actually about?
Section 1603 of the 2009 Recovery Act let renewable developers take cash instead of the investment tax credit, 30 percent of eligible basis in qualifying tangible energy property, paid by Treasury directly. When the Alta projects were sold, the buyers allocated essentially the entire purchase price (less land) to grant-eligible property and applied for grants on that full number. Treasury balked and paid grants computed on construction and development costs instead. The gap, roughly $206 million in claimed underpayment against a $58.9 million government counterclaim for overpayment, turned on a single valuation question. When a project sells for more than it cost to build, does that premium belong to the eligible tangible assets, or to something else? Contracts, intangibles, and going-concern value never counted for the grant.
Why does the § 1060 residual method control the answer?
Because the Federal Circuit said so in 2018, in Alta Wind I Owner Lessor C v. United States, 897 F.3d 1365 (Fed. Cir. 2018). Sales of a business with intangibles, a premium over book value, and related agreements are “applicable asset acquisitions” under I.R.C. § 1060, which forces the purchase price through the seven asset classes of Treas. Reg. § 1.338-6(b) in strict sequence: cash first, then marketable securities, receivables, inventory, other tangible property (Class V), amortizable § 197 intangibles (Class VI), and finally goodwill and going-concern value (Class VII). For an energy project, the entire tax benefit lives in Class V. Every dollar a valuation pushes into Class V raises the credit or grant basis. Every dollar that lands in Classes VI or VII is tax-benefit dead weight. The methodology fight is really a fight about which class captures the premium.
Buying, selling, or structuring a renewable project in New Mexico? Get the allocation reviewed before it becomes an audit exhibit.
Why did the court call the taxpayers’ DCF approach circular?
The taxpayers’ discounted-cash-flow model valued the tangible assets by projecting the projects’ income, including the anticipated Section 1603 grant itself, and attributed nearly 98 percent of the grant’s value to the very assets whose basis determines the grant. Follow the loop. The grant is 30 percent of the assets’ value, but the assets’ value was computed to include the grant, which raises the basis, which raises the grant. The court held that using a tax benefit as an input to value the assets that generate that same benefit demands heightened scrutiny, along with affirmative, market-based evidence that the result is reliable. The plaintiffs never produced that evidence. Notably, the court did not condemn DCF as a method. The failure was evidentiary. No empirical support tied the income stream to the tangible assets, as opposed to the power purchase agreements and other rights that made the income possible.
What made the government’s cost approach win?
Credible, contemporaneous paper. The court built its valuation from the projects’ own cost segregation reports, documents prepared near the time of construction for regulatory and administrative purposes rather than for litigation. It then corrected the government’s exclusions by adding interest during construction and a development fee, and applied a developer-profit markup of 15 to 20 percent. That is the template. A cost buildup grounded in records that existed before the dispute, adjusted transparently, beats an elegant financial model unsupported by market evidence. Two other holdings matter for practice. “Turnkey value,” the premium a buyer pays for assurance that plant and equipment work together, belongs in Class V, but only with proof. And anticipated tax benefits are a reimbursement of costs, not a component of the tangible assets’ fair market value.
What does a 1603-era case mean for today’s New Mexico projects?
The Section 1603 program is history, but its valuation DNA lives on in every current-law credit. The investment tax credit under § 48 and its technology-neutral successor are computed on the basis of energy property. Purchases of existing projects still run through § 1060. The same premium-allocation fight now determines ITC size, depreciation, and, in the transferability market created by the 2022 energy legislation, what a credit buyer is actually buying. A New Mexico solar-plus-storage acquisition priced above build cost faces precisely Alta Wind’s question, and the ruling tells you how a court will resolve it: a demanding evidentiary burden on whoever wants the premium in Class V, deep skepticism of models that bootstrap tax benefits into basis, and heavy weight on cost segregation studies and closing-date appraisals done right.
| Taxpayers’ income approach | Court’s modified cost approach | |
|---|---|---|
| Method | DCF of projected revenues, including the anticipated grant | Cost buildup from cost segregation reports |
| Treatment of the tax benefit | ~98% of grant value allocated into eligible basis | Excluded as a reimbursement of costs, not asset value |
| Court’s verdict | Impermissibly circular; no empirical market support | Adopted, with corrections plus 15-20% developer profit |
| Lesson for project owners | Models that feed benefits into basis face heightened scrutiny | Contemporaneous cost documentation is the winning exhibit |
How should buyers and sellers of New Mexico projects paper the deal now?
Do the allocation work at closing, not at audit. That means a § 1060 allocation schedule both sides sign and report consistently on Form 8594. It means a cost segregation study or independent appraisal that separates energy property from PPAs, interconnection rights, land, and intangibles. It means an explicit, defensible treatment of any premium, with turnkey value claimed only on engineering support. And it means a file built on the assumption that the IRS, a credit buyer’s diligence team, or a court will one day read it. Alta Wind spent thirteen years and enormous fees litigating what a well-documented closing file could have substantially foreclosed. For projects claiming today’s transferable credits, where a buyer’s recapture risk rides on the seller’s basis positions, that file is not just tax hygiene. It is deal value.
Frequently Asked Questions
Does Alta Wind matter if my project claims the ITC instead of a Section 1603 grant?
Yes. The grant was computed on the same ‘basis of energy property’ concept the investment tax credit uses, and acquisitions still run through the § 1060 residual method. The ruling’s evidentiary standards for what lands in Class V tangible property apply with equal force to ITC basis today.
Is a discounted cash flow valuation now dead in tax cases?
No. The court expressly said DCF is not inherently defective under § 1060. What failed was the evidence: the model attributed income-stream value to tangible assets without market support and fed the tax benefit into its own base. A DCF with empirical, asset-class-specific support remains viable.
What is ‘turnkey value’ and can it increase my credit basis?
Turnkey value is the increment a buyer pays for assurance that plant and equipment work together without costly adjustments, and it counts as Class V tangible value. But Alta Wind shows courts will demand actual proof, typically engineering-based, that the premium reflects integration assurance rather than contracts or going-concern value.
How does this affect buying tax credits under the transferability rules?
Credit buyers inherit basis risk. If the seller’s eligible basis was inflated by an aggressive allocation, the purchased credit shrinks or faces recapture on audit. After Alta Wind, diligence teams should expect cost-approach scrutiny and demand the cost segregation and allocation file before pricing a credit.
Do these rules apply to small commercial solar in New Mexico, or just utility-scale projects?
The same basis and allocation principles apply at every scale. A $2 million rooftop portfolio acquisition faces the same § 1060 mechanics as a $2 billion wind farm. The documentation is just proportionally lighter: a defensible appraisal and a signed allocation schedule go a long way.
How North Star Law Firm Can Help
North Star Law Firm advises New Mexico project owners, buyers, and investors on the tax structuring of renewable energy transactions, including purchase price allocations under § 1060, credit basis support, cost segregation coordination, and audit defense when an allocation is challenged. Phillip Zagotti, JD/CPA, brings the valuation-and-accounting fluency these disputes turn on together with federal tax controversy experience before the IRS and U.S. Tax Court. The firm’s tax law and planning practice papers the deal so the file survives scrutiny, and its tax defense practice steps in when an examination is already underway. Contact North Star Law Firm to review your project’s allocation before someone else does.