Alta Wind becomes final: Key implications for renewable energy tax credit valuations, IRS examinations

On October 7, 2026, the US Court of Appeals for the Federal Circuit formally dismissed the government’s appeal in Alta Wind I Owner Lessor C v. United States (Alta Wind), ending a lengthy dispute concerning the valuation of renewable energy projects for federal tax incentive purposes. The dismissal leaves the US Court of Federal Claims’ July 2026 decision intact, which awarded the taxpayers approximately $49 million in renewable energy cash grants plus applicable interest following more than a decade of litigation.

While the dismissal does not create new precedent, it leaves in place one of the most detailed judicial analyses to date concerning the valuation of renewable energy projects. Although Alta Wind concerned the now-expired Section 1603 cash grant program, the Federal Circuit’s discussion of developer profits, turnkey premiums, development costs, and purchase price allocations has continuing relevance for taxpayers determining eligible basis for investment tax credits (ITCs) under Sections 48 and 48E. The decision is also likely to be of interest in Internal Revenue Service (IRS) examinations of renewable projects, where many of the same valuation and allocation issues continue to receive significant scrutiny.

Background and procedural history

Alta Wind involved six California wind farms acquired in transactions between 2010 and 2012. The purchasers sought cash grants under Section 1603, which generally provided grants equal to 30% of the eligible basis of qualifying renewable energy property. The dispute concerned the extent to which the facilities’ purchase prices were properly attributable to eligible tangible property, as opposed to intangible assets and other project-related value.

After holding trial in 2016, the Court of Federal Claims issued its opinion in which it largely accepted the taxpayers’ valuation approach. The government appealed, and in 2018 the Federal Circuit vacated the decision. The Federal Circuit held that the transactions constituted applicable asset acquisitions subject to the residual allocation method under Section 1060 because goodwill or going-concern value could attach to the acquired assets. The Federal Circuit further instructed the trial court to distinguish between the value attributable to eligible tangible property, including appropriate turnkey value, and the value attributable to goodwill and other intangible assets.

Following remand, the Court of Federal Claims conducted a new trial in 2025. On July 8, 2026, it issued its post-remand decision adopting a modified cost approach. The trial court subsequently entered judgment on July 27, 2026, awarding the taxpayers approximately $49 million in additional Section 1603 grants plus applicable interest. The government initially appealed this decision but ultimately agreed to dismiss the appeal, and the dismissal was formalized by an order issued by the Federal Circuit on October 7, 2026.

Importantly, the dismissal does not constitute an endorsement of the Court of Federal Claims’ valuation methodology. Rather, it leaves the trial court’s judgment undisturbed. Accordingly, the Federal Circuit’s 2018 decision regarding the application of Section 1060 remains precedential, while the 2026 Court of Federal Claims opinion provides additional fact-specific guidance regarding the valuation of the renewable energy project.

Key valuation principles from Alta Wind

The Court of Federal Claims ultimately adopted a modified cost approach that began with the projects’ cost-segregation reports; excluded nonqualifying development rights, including certain indirect development costs; applied grant eligibility ratios; and incorporated market-supported developer profits. The trial court declined to include an additional turnkey premium because it found that the relevant value was already reflected in the underlying construction agreements.

Valuation methodologies must distinguish eligible property from other project value

The taxpayers in Alta Wind relied on a discounted cash flow (DCF) methodology that incorporated substantially all of the anticipated Section 1603 cash grants into the projected value of the facilities. The government instead advocated a cost-based approach to determine the fair-market value of the grant-eligible property. The Court of Federal Claims ultimately adopted a modified version of the cost approach, finding that the taxpayers had not adequately established that the anticipated grant proceeds were properly attributable to the eligible tangible property. The trial court expressed concern that treating grant proceeds as part of the value of the property used to calculate those same grants produced a circular valuation. More broadly, the decision reflects the trial court’s concern that the value of a tax incentive should not itself become a component of the property value used to determine the amount of that incentive.

Despite the Court of Federal Claims’ adoption of a modified cost approach, it did not hold that DCF methodologies are categorically inappropriate. Instead, the trial court emphasized the need for reliable and fact-specific evidence supporting the attribution of value to eligible property and distinguishing that value from ineligible intangibles and expected government benefits. For taxpayers, the trial court’s analysis highlights the importance of selecting and substantiating an appropriate valuation methodology and maintaining support for the assumptions underlying that methodology, rather than relying solely on overall transaction pricing or projected project-level returns to establish eligible basis for ITCs.

Developer profits may be included when supported by market evidence

The court in Alta Wind recognized that a cost-based approach to valuing a completed renewable-energy facility may appropriately include compensation for the developer’s efforts and the risks associated with developing and constructing the project. In doing so, the Court of Federal Claims acknowledged that a cost-based valuation need not be limited to reimbursement of direct and indirect costs and may include an appropriate market-based return for development activities and risks borne by the developer. When the government proposed a developer profit of approximately 9% that it derived from a capital-asset pricing model, the trial court rejected that approach because it did not adequately establish the developer profit that market participants would require in comparable transactions. Instead, the trial court relied on appraisal evidence evaluating actual wind-farm transactions and approved developer profit rates of 15% for one facility and 20% for the other five facilities.

These percentages were specific to the facts and evidence presented in Alta Wind and should not be interpreted as generally applicable safe harbors. Nevertheless, the decision confirms that developer profit may be included in the valuation of eligible property when supported by credible market evidence.

Turnkey premiums must be separately substantiated and cannot duplicate existing costs

The Federal Circuit recognized that tangible property may possess additional “turnkey” value because its components have been assembled, integrated, tested, and made operational. The appellate court further recognized that such turnkey value may be distinguishable from ineligible goodwill and going-concern value. On remand, however, the Court of Federal Claims declined to apply an additional turnkey premium. The trial court found that the underlying construction agreements already incorporated significant integration, testing, and completion obligations, as well as warranties and other contractual provisions. As a result, it held that adding a separate turnkey premium would have risked duplicating value already reflected in the construction costs.

The distinction is particularly important for renewable energy projects involving engineering, procurement, and construction agreements where project completion, testing, integration, and performance obligations are often already reflected in contract pricing. Taxpayers seeking to include additional turnkey value should be prepared to identify the specific risks, services, and economic benefits supporting that value and demonstrate that such amounts are not already reflected in construction costs, developer fees, or other components of claimed basis. As a result, Alta Wind suggests that the key question is often not whether turnkey value exists in principle, but whether that value has already been captured elsewhere in the project’s valuation.

Certain development costs may be included in eligible basis

The Court of Federal Claims also addressed the treatment of development-related expenditures. The trial court permitted the inclusion of properly allocated interest during construction and a development fee paid in connection with the projects while excluding amounts attributable to development rights. This distinction demonstrates that the treatment of development-related expenditures depends on the nature of the underlying costs and their relationship to eligible property. Accordingly, the labels assigned to expenditures are not necessarily determinative.

Taxpayers should maintain documentation demonstrating why particular costs are properly capitalized to eligible property and how expenditures benefiting both eligible and ineligible property have been identified, analyzed, and allocated. As a result, taxpayers should be prepared to substantiate not only the amount of development-related costs included in basis, but also why those costs are properly attributable to eligible tangible property rather than nonqualifying development rights or other intangible assets.

Implications for IRS examinations

The relevance of Alta Wind is not limited to litigation involving the former Section 1603 program. Many of the underlying valuation and basis principles addressed in Alta Wind also arise in determining the amount of ITCs under Sections 48 and 48E. In recent examinations, the IRS has issued information document requests (IDRs) addressing valuation and allocation issues similar to those considered in Alta Wind. In addition to examining the underlying costs of renewable energy projects, the IRS may scrutinize the methodologies, assumptions, and supporting documentation used to substantiate the eligible basis of property for ITC purposes. Taxpayers should be prepared to address questions concerning:

• Purchase-price allocations. The methodology used to allocate transaction consideration among eligible tangible property, development rights, power purchase agreements, other contractual rights, and intangible assets.
• Valuation methodologies. The selection and application of cost, income, or market approaches, including supporting assumptions, discount rates, projected useful lives, anticipated tax benefits, depreciation assumptions, comparable transactions, and the reconciliation of different valuations.
• Developer fees and profits. The amounts included in eligible basis, the underlying services and risks for which those amounts compensate, and the market evidence supporting any developer profit or markup.
• Turnkey premiums. The basis for any additional turnkey value and whether construction agreements, warranties, testing obligations, or other contractual provisions already reflect that value.
• Cost segregation and indirect costs. The treatment and allocation of construction expenditures, interest during construction, development fees, and other indirect project costs.
• Tax incentives and other project attributes. Whether amounts attributed to eligible property improperly incorporate the value of anticipated tax benefits, financing arrangements, or other separately identifiable rights.

Although the scope of any particular IDR will depend on the transaction and the issues under examination, the Alta Wind decision illustrates the importance of maintaining contemporaneous support for the factual and economic assumptions underlying a taxpayer’s eligible basis determination.

Practice considerations for taxpayers

Taxpayers developing, acquiring, or investing in renewable energy projects should consider the following in light of the conclusion of the Alta Wind litigation:

• Review existing valuation support. Confirm that cost-segregation studies, appraisals, and other valuation analyses appropriately distinguish qualifying property from intangible assets and other ineligible amounts.
• Substantiate developer profits and premiums. Ensure that any developer profit or turnkey premium is supported by specific facts and relevant market evidence. The percentages accepted in Alta Wind should not be applied mechanically to other projects.
• Evaluate contractual risk allocations. Review construction, development, and acquisition agreements to determine which parties bore the relevant development, construction, integration, and operational risks, and whether claimed premiums may duplicate amounts reflected in the underlying contracts.
• Preserve supporting documentation and anticipate IDRs. Maintain financial records, construction and development agreements, valuation reports, supporting workpapers, and other materials necessary to substantiate claimed basis amounts. Taxpayers should consider potential IDRs before an examination begins and evaluate whether existing documentation adequately supports the valuation methodology and allocation of costs between eligible and ineligible property.
• Evaluate examination procedures and contractual protections. Establish a coordinated approach for responding to IRS inquiries, including procedures for reviewing and tracking IDRs and protecting privileged materials. In transactions involving transferred credits or tax insurance, taxpayers should also understand the applicable notification, cooperation, and examination management provisions of their tax-credit transfer agreements and insurance policies.

Conclusion

Although the Section 1603 cash grant program has expired, the valuation questions at the center of Alta Wind remain relevant to renewable energy transactions and the determination of eligible basis for ITC purposes. The government’s decision to dismiss its appeal leaves in place a detailed trial court analysis recognizing the inclusion of properly supported developer profits and certain development-related costs, while requiring taxpayers to substantiate their valuation methodologies and avoid attributing ineligible or duplicative value to qualifying property.

For taxpayers claiming ITCs under Sections 48 and 48E, the principal lesson is that a defensible eligible-basis determination depends not only on the valuation methodology selected, but also on the quality of the evidence supporting the amounts attributed to eligible property. As IRS examinations continue to scrutinize these issues, contemporaneous documentation and a carefully supported allocation methodology will remain important tools for managing examination and controversy risk.

If you have questions, please contact the authors or your regular McDermott Will & Schulte lawyer.