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Solyndra received favorable IRS ruling weeks before loan

Jonathan Ernst/ReutersSolyndra executives Brian Harrison (left) and William Stover appear before Congress on Sept. 23.

WASHINGTON, D.C. – Just weeks before Solyndra received approval for a $535 million taxpayer-funded loan, the Fremont, Calif.-based solar panel manufacturing company received a favorable ruling from the Internal Revenue Service, giving its customers a significant tax break.

The U.S. tax code has long allowed buyers of solar panels to deduct a portion of the installation cost from their taxes. Under the American Recovery and Reinvestment Act, that credit was boosted from 10 percent to 30 percent through 2016.

But in August 2009, the IRS also determined that companies buying Solyndra products would qualify for another 30 percent tax credit – as long as they were installed on roofs painted white to reflect the sun. At the time, only Solyndra was selling products that would work on so-called "cool roofs."

Energy Secretary Steven Chu, a Nobel Prize-winning physicist and former director of the Lawrence Berkeley National Laboratory, had been pushing the cool-roofs model as a low-cost way to adapt to global warming and reduce the so-called “urban heat island effect.”

Chu's idea has been lauded by most scientists, but there is a catch. Conventional solar panels don't work in conjunction with cool roofs – they get in the way and can't absorb the reflected energy. Solyndra's products would work because their 360-degree cylindrical design allows them to absorb reflected light, especially from cool roofs.

“If this flat roof was painted white, it would reflect energy onto the bottom of tubes. A typical solar panel can only receive energy from one side,” said Benjamin Higgins, director of government affairs for Mainstream Energy Corp., an installer and distributor of solar panels in San Luis Obispo.

In its ruling, the IRS effectively gave Solyndra's customers the opportunity to benefit twice from tax credits – once for installing a cool roof and again for installing the company's solar cylinders. "One of the most important considerations in the United States are federal tax incentives that apply to both solar systems and the roof," Solyndra touted on its website.

“It would have given assurance that if a taxpayer purchased Solyndra's product, it would have likely been eligible for the tax deduction,” said Blake Christian, a partner at Holthouse Carlin & Van Trigt LLP, a Long Beach accounting practice that advises its clients on IRS rulings.

The favorable tax ruling for Solyndra's customers came at a critical time for the company – just a few weeks before the $535 million loan approval from the Energy Department. At the time, the company was engaged in a $1.9 million lobbying campaign to secure the federal loan.

A so-called IRS "private letter ruling" like the one favoring Solyndra's customers can often can take months or a year to secure. And they aren't cheap, with costs ranging from $150,000 to $200,000 in legal fees to specialty tax law firms to write the brief, according to tax attorneys.

Robert Galbraith/Reuters

“If there was a quick turnaround by the IRS, that raises some questions,” said Mainstream Energy's Higgins. “Often, these PLRs are like Freedom of Information Act requests, and they take months, if not years.”

Michelle Eldridge, an IRS spokeswoman, declined comment, citing taxpayer confidentiality. A spokesman for the Energy Department did not return calls for comment.

Shortly after the IRS decision, Solyndra touted the ruling on its company website, hiring the influential tax firm Jones Day to advise buyers of Solyndra products that they could benefit from the tax break, even if they already had installed a cool roof. Jones Day attorneys Scott Levine and Todd Wallace, who were advertised by Solyndra as energy tax experts, did not return phone calls seeking comment.

While there is no evidence of influence by the White House on the IRS decision, House Republicans investigating the Solyndra loan likely will claim the Obama administration pushed the IRS into speeding the tax credit decision. Republicans have pointed to e-mails from White House officials showing pressure on Energy Department loan officers to approve the $535 million loan guarantee in time for Vice President Joe Biden to announce the loan to the company via satellite.

President Barack Obama visited the Fremont company in May 2010, saying, “The true engine of economic growth will always be companies like Solyndra.” The company filed for Chapter 11 bankruptcy protection Aug. 31, shutting its doors earlier this month and laying off more than 1,100 workers. The FBI raided the company's headquarters Sept. 8.

Solyndra President and CEO Brian Harrison, along with William Stover, the company's CFO, refused to answer questions at a House Energy and Commerce Committee hearing last week, citing their Fifth Amendment protection against self-incrimination.

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