Investors Sue Irvine Firm : 6,000 Face a $70-Million Tax Bill for Solar Shelters
About 6,000 people who invested $42 million in solar equipment tax shelters sold by an Irvine firm collectively face about $70 million in back taxes and penalties, according to an attorney representing investors.
Investors in Southwest Solar Products Inc. have received bills from the Internal Revenue Service for taxes and penalties ranging from a few hundred dollars to $50,000 or more.
Nearly 2,000 of these investors formed a legal defense organization that filed a class-action lawsuit last month in Orange County Superior Court against Southwest, its principals and related companies involved in the tax shelter operation.
More than 300 members of the Santa Barbara-based National Solar Equipment Owners’ Assn. met in Fullerton Wednesday evening to discuss the status of the suit and the group’s strategy in dealing with the IRS. “Our members alone invested $16.2 million in cash and owe $21.3 million in promissory notes,” said David Weinfeld, an attorney representing the association. “The IRS is asking our members for $27 million.” So far, association members have contributed $270,000 and spent $134,000 in legal fees.
Southwest’s solar tax shelter program and others like it were extremely popular in the late ‘70s and early ‘80s, when oil and gas supplies were unstable and state and federal tax laws encouraged people to invest in solar energy. However, solar tax credits may be phased out soon and the recent energy glut has discouraged investment in alternative energy sources.
Last August, as part of a federal crackdown on abusive tax shelters, the IRS obtained a federal court order barring further sales by Southwest. The IRS said the shelters were “grossly overvalued.” Without admitting or denying guilt in connection with the sale of the shelters, Southwest paid a $395,000 penalty.
Southwest President Paul J. Mills declined Thursday to discuss the company’s status or comment on the legal actions pending against the company.
Southwest promoted and sold tax shelters that allowed investors to buy the solar equipment and lease it out to others for a fee. The company told investors they could operate franchises of an “energy leasing company.”
According to court records, in 1982 and 1983 Southwest charged about $7,000 for systems only worth about $2,000. The company then encouraged investors to claim tax credits and depreciation for the inflated amount.
Attorney Weinfeld said in an interview Thursday that investors are trying to locate and take possession of the solar equipment they bought. He said only about half of the 14,000 solar systems purchased by investors across the country were actually installed and much of the equipment is still missing.
Their lawsuit also seeks to cancel promissory notes held by a Texas company called Credit Plan Corp. and the Federal Savings and Loan Insurance Corp.
