Johnson v. Comm’r, 160 T.C. No. 2| January 25, 2023 |Nega, J. | Dkt. No. (Consolidated) 19973-18, 19975-18, 19978-18, 20001-18

Summary: In this 32-page, consolidated opinion, the Tax Court addresses deficiencies from disallowance of a 26 U.S.C. § 179D energy efficient building property deduction claimed by Edwards 4 Engineering, Inc. (Edwards), an S corporation, for the 2013 taxable year. Petitioners (6 total) are shareholders of Edwards and reported their proportionate shares of the claimed deduction on their individual tax returns.

Edwards contracted with a federal government entity, the VA, to supply and install components of a federal building’s HVAC system. The VA signed a letter that agreed, pursuant to I.R.C. § 179D(d)(4), to allocate to Edwards the full amount of the I.R.C. § 179D deduction to which the VA would otherwise be entitled for the installation of the property. Edwards maintained a full-time staff at the VA to perform the services. Edwards presented evidence of hours logged, invoices submitted, and payments received for the various projects involved in the overall service arrangement. Edwards also presented evidence of subcontractors engaged and paid. Edwards also engaged Alliantgroup, LP (Alliantgroup), to conduct an Energy Efficient Commercial Building Tax Deduction Study (study) for the 2013 taxable year with respect to a certain Building 200. An allocation letter was presented to Edwards, and a VA representative signed off on the letter. The allocation letter stated, in relevant part, that “the owner of the Building allocates the full federal income tax deduction available under Section 179D attributable to the HVAC . . . to Edwards . . . for their work on the Building.” Attached to the allocation letter was a table which stated the placed in service date and the cost of the property installed in Building 200 with respect to the projects at issue. Alliantgroup then proceeded with conducting the study. A certificate of compliance related to Building 200 was issued, stating, among other things, that the total annual energy and power costs of this building had been reduced by more than 50 percent due to the installation of the systems, among other qualifying and compliance conclusions regarding Edwards’ work and services performed on the building. The study was performed in accordance with section 179D(d)(6)(C) and Notice 2006-52, section 5.05, 2006-1 C.B. at 1179. See Key Points of Law below for further reference to Notice 2006-52. Alliantgroup informed the VA that Alliantgroup had completed the study for Building 200 and determined that Edwards had been allocated a section 179D deduction in the amount of $1,037,237. The letter provided the projected annual energy costs for Building 200 and a list of the energy efficient features installed in Building 200.
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