Minimum Gain Chargebacks and capital account modeling

Does the SAM financial Model incorporate minimum Gain chargebacks? Is there a capital accounts section planned in the future?

Hello,

SAM's financial models are basic pro-forma models designed for initial project screening analysis or scenario analysis. They are not detailed project financial models.

That said, you may be able to account for costs associated with the features you mention, but I am not familiar with them. Can you describe what a "minimum gain chargeback" is? The PPA models do have a working capital reserve account, but I'm not sure that's the same as the capital accounts you describe.

Best regards,
Paul.

Its a particularly complicated bit of tax law that i am trying to understand. Essentially if you have a $1,000,000 project financed with $500,000 of private equity and $500,000 of non recourse debt, it comes into play when you start depreciating your assets.

If year one your deduct $200,000 your minimum gain is -300,000 (500,000 intial equity - 200,000 losses)
Year 2 you deduct 320,000 than you have 20,000 dollars of minimum gain.
by year 6 assuming income and operating expenses are equal you have fully depreciated your system and you have 500,000 of minimum gain. (1,000,000 losses - 500,000 initial equity)
in year 7 you realize $100,000 of profit, you would than have to realize $100,000 of "minimum gain charge backs" essentially claiming $100,000 of income.
What i believe happens is you claim $100,000 of income and pay the minimum gain charge back in lieu of regular taxes, making your financial model execept in special scenarios.
What i am afraid of, is minimum gain chargebacks in addition to regular income taxes, effectively double taxing the revenue stream until the 500,000 of minimum gain is used up.
Let me know if you have any input or your tax lawyers can confirm.



Because i know your curious, the special scenarios that invalidate your model are as follows. Assume you have 100,000 equity and 900,000 of non-recourse debt. You let your bank foreclose on the property after depreciating the system completely, you have saved 350,000 of taxes over 6 years due to depreciation, and only lost $100,000 of cash due to foreclosure, therefore you have a cash gain of $250,000

This is what the minimum gain rules are trying to prevent, minimum gain states that you would have to realize the $900,000 as income effectively returning the taxes saved via depreciation and having a net loss of 100,000 (original equity) - 35,000 tax savings due to allowed depreciation or a net cash loss of 75,000

won't let me correct my spelling errors, see corrected text below.


Its a particularly complicated bit of tax law that i am trying to understand. Essentially if you have a $1,000,000 project financed with $500,000 of private equity and $500,000 of non recourse debt,then minimum gain takes effect when you start depreciating your assets.

If year one you deduct $200,000, your minimum gain is -300,000 (-500,000 intial equity + 200,000 losses)
Year 2 you deduct 320,000 than you have 20,000 dollars of minimum gain.(-300,000 remaining equity + 320,000 of losses)
by year 6, assuming that income and operating expenses are equal, you have fully depreciated your system and you have 500,000 of minimum gain. (1,000,000 losses - 500,000 initial equity)
Than in year 7 you realize $100,000 of profit, you would than have to realize $100,000 of "minimum gain charge backs" essentially claiming $100,000 of income on your taxes.

I believe this means you claim $100,000 of income and pay the minimum gain charge back in lieu of regular taxes, making your financial model correct except in special scenarios.

What i am afraid of is that you might actually realize minimum gain chargebacks in addition to regular income taxes, effectively double taxing the revenue stream until the 500,000 of minimum gain is used up.
Let me know if you have any input or your tax lawyers can confirm.

Because i know your curious, the special scenario that invalidates your model is as follows. Assume you have 100,000 equity and 900,000 of non-recourse debt. You let your bank foreclose on the property after depreciating the system completely, you have saved 350,000 of taxes over 6 years due to depreciation, and only lost $100,000 of cash due to foreclosure, therefore you have a cash gain of $250,000

This is what the minimum gain rules are trying to prevent, minimum gain states that you would have to realize the $900,000 as income effectively returning the taxes saved via depreciation and having a net loss of 100,000 (original equity) - 35,000 tax savings due to allowed depreciation or a net cash loss of 75,000

Thank you for the detailed explanation. This sort of detail is beyond the scope of what we've designed SAM to model. You might be able approximate parts of this scenario by using the schedule option for specifying O&M to model costs that occur in specific years.

Best regards,
Paul.