Accounting
How American tax breaks brought a Chinese solar energy giant to Ohio
Nestled among the corn fields of Pataskala, Ohio, Illuminate USA’s sprawling new solar factory is buzzing. Hundreds of freshly hired local employees are hoisting pallets, soldering equipment and inspecting their work as sheets of glass are transformed into state-of-the-art photovoltaic panels. They’re collecting hourly wages that start at double the state minimum. The factory has also delivered contracts to area electricians and suppliers.
From the outside, these are the hallmarks of the 21st century clean energy manufacturing boom promised by the Biden administration, the result of sweeping incentives designed to restore national prowess in a market dominated by China.
In reality, what looks like a domestic triumph is also a win for America’s primary industrial and geopolitical rival. Invenergy, America’s biggest private renewable power developer, owns 51% of the plant. Longi Green Energy Technology Co., the Chinese solar giant, owns the other 49%, and it’s Longi’s panel-making expertise, technology and supply chain that are churning out tariff-free equipment for the U.S. market.
Inside the plant, signs in both English and Mandarin admonish workers to clean up trash. Machine displays also toggle between the two languages. More than 100 Chinese nationals are on site working alongside more than 1,000 American colleagues, and bridging the language barrier requires lots of hand gestures and smartphone-enabled translation. Illuminate says much of this is temporary, and most of the Chinese workers will leave once the Americans are up to speed.
But long after they return home, Longi will continue to profit. The joint venture benefits from millions in economic development incentives and federal tax credits for domestic clean energy manufacturing. For its part, Longi avoids anti-China tariffs and deepens its foothold in one of the
Companies based in or linked to China are replicating the strategy across the U.S. They are building or planning to build at least a dozen plants with 30 gigawatts of module-making capacity, according to a Bloomberg review of public statements, filings and other documentation. All told, the facilities would be able to supply roughly three-quarters of today’s U.S. panel needs. (BloombergNEF projects U.S. domestic demand for solar panels will be 45.5 gigawatts in 2024 and 50.4 gigawatts in 2025.)
American manufacturers are crying foul, saying these factories undermine their quest to build a domestic solar supply chain. Although other countries have taken advantage of the IRA’s subsidies, political objections have focused on Chinese investment. Bipartisan momentum is building in Congress to block China-backed firms from claiming tax credits for manufacturing anything central to the energy transition — a category that extends beyond solar panels to electric vehicles and batteries.
In Ohio, retired middle-school science teacher Eileen DeRolf has become an outspoken critic of Illuminate and the policies that brought it to Pataskala. She points to a 15-year tax abatement from the city and $4 million in incentives from a state economic development agency, to say nothing of the $350 million in potential annual tax subsidies from the Inflation Reduction Act.
“To me, this is betraying America, to allow an uneven playing field,” DeRolf said. “I happen to not particularly want our geopolitical No. 1 enemy to benefit off our economic system.”
Illuminate and its American and Chinese parent companies see it differently. They point to an influx of well-paying jobs and to a resurrection of manufacturing in a fast-growing sector of the economy.
“We’re a majority-owned American company,” said John Duer, Illuminate’s chief legal officer. “We have a minority partner based in China. We’re not a Chinese company trying to do business in the U.S.”
Executives at Invenergy and Longi had been talking about collaborating for years, but it took the Inflation Reduction Act — the 2022 law meant to jumpstart U.S. clean energy manufacturing — to spur them to action. Less than seven months after President Joe Biden signed the IRA, they
In addition to the tax credits Illuminate can claim for its U.S.-made panels, its parent companies reap significant benefits from the tie-up. Invenergy is the factory’s first and biggest customer, earning additional credits for using domestically produced components in its solar arrays. And Longi, like other Chinese panel-makers, brings advantages gained through decades of experience and generous support from Beijing.
In addition, the industry has been dogged by allegations that some suppliers
What no one disputes is that today Chinese companies dominate the market for solar panels and all of their component parts.
For environmental advocates, China’s cheap panels have been a boon, driving a more than 50-fold increase in emissions-free solar power generation globally since 2010. But to American rivals, something more nefarious was at work. They argued Chinese solar companies were selling their products below cost to unfairly corner the market, and trade authorities agreed, kicking off a cycle of tariffs meant to level the playing field.
Today, steep U.S. tariffs have effectively killed domestic demand for made-in-China solar panels. Companies, including Longi, first responded by shifting operations to other Asian nations, spurring another round of trade probes and enforcement. By producing panels in Ohio, Longi steps out of this game of
(The estimate is based on the average price in September for panels exported to the U.S. ($0.25 per watt), Longi’s share of Illuminate’s planned annual production capacity (5GW) and a potential combined antidumping and countervailing duty rate for Malaysian modules exported to the U.S. of 25%. Note: Any final
Combined with the incentives from the IRA, Longi and other panel-makers can “make huge profits,” said Yana Hryshko, chief solar analyst at consulting group Wood Mackenzie. After surviving two decades of industry turbulence, these “are not stupid companies,” she said. “They will not make a move without being confident.”
On a June Friday morning, job-seekers started to gather at the Perry County, Ohio, career center well before Illuminate’s recruitment event was scheduled to begin. Many of the plant’s workers come from outside Pataskala, including areas hit hard by the collapse of coal mining.
A job at the plant would mean a longer commute for Tricia Tilley, a 47-year-old janitor and church secretary. It would also nearly double her income and provide health insurance for her and her teenage son.
As for the company’s ties to China? “I know they’re from another country, but they’re here trying to put money into our country,” she said. “As long as it’s a good job and they’re paying everybody — keeping on the up-and-up — I don’t see any problem with it. Follow the rules like everybody else, we’re cool.”
Right now, Illuminate depends on the expertise of Chinese workers who’ve spent years handling specialized module-making machinery and brittle crystalline silicon cells. For many, it’s their first time outside of China, drawn by higher salaries and a sense of adventure.
“We’re here just to teach the American workers,” said Li, a production line technician who asked to be identified by her family name because she wasn’t authorized to speak to reporters. “When they can start a production line by themselves, there’ll be no need for us to be here anymore.”
Li’s days begin with a video chat around 5 a.m., a chance to talk with her children in China before a company shuttle takes her from suburban Columbus to the factory. Many of the Chinese workers at Illuminate work 12-hour shifts, six days a week, logging 60% more hours every month than the plant’s typical American employees.
Longi’s expats went through language training, though most rely on translators to communicate with their trainees. They also got a crash course in American culture, with advice to avoid commenting on race, skin color or body type. Li said her American colleagues have been kind.
“I hadn’t been out of China before. Now I get to come out and take a look,” she said. Li pegged her timeline at “two or three years. After that I’ll go back. Then I can say I’m a person who has been to the United States!”
Illuminate is leaning into its heartland identity. Its website touts its role “investing in Ohio” and “onshoring America’s supply chains.” It’s partnering with local high schools for a robotics challenge and also has sponsored the
DeRolf and other local skeptics deride these efforts as a charm offensive, albeit an effective one. It’s made it “ever so much more difficult to get this town and the people to pay attention to what we’ve got in that building,” DeRolf said.
Like DeRolf, activists in Mesquite, Texas, are taking aim at a $270 million plant that began producing panels late last year. Some 1,400 Texans now work at the factory owned by Canadian Solar Inc. — and while the company’s corporate headquarters are in Ontario, most of its directors and much of its manufacturing reside in China.
Foreign direct investment has always been critical to countries trying to build domestic industry. In the late 1990s, China, for its part, welcomed Western automakers, providing access to its growing market while learning from their decades of experience.
“Most of the companies that are building solar panels right now that have the know-how or skills are Chinese,” said Ilaria Mazzocco, a senior fellow at the Center for Strategic and International Studies. They also have well-established supply chains outside the U.S. At Illuminate, for example, panels are made with photovoltaic cells and glass from Malaysia and aluminum frames from Vietnam.
Many key materials aren’t yet produced domestically, and Illuminate says it’s actively working to expand its U.S. supply base.
The promise of the Inflation Reduction Act was that “you’re restoring the American industrial base,” said Nathan Picarsic, the founder of consulting group Horizon Advisory, which has investigated Chinese supply chain dominance and the use of forced labor. But as more Chinese-backed solar companies operate on U.S. soil, it betrays “the story that we’re telling ourselves about the manufacturing renaissance.”
The clash reverberates beyond solar to the fast-growing field of electric vehicles and battery manufacturing, also subsidized by the Inflation Reduction Act. In rural northwest Michigan, the town government is opposing an electric vehicle battery factory planned by a subsidiary of China’s
In Virginia, Governor Glenn Youngkin discouraged Ford Motor Co.’s interest in building an electric vehicle battery plant with China’s Contemporary Amperex Technology Co. Ltd. in the state, calling it a “
Licensing is one way the U.S. can tap Chinese manufacturing expertise and technical know-how while retaining more control over operations, said Mazzocco. Regardless, the issue is a flashpoint for politicians — and is fueling bipartisan efforts in Congress to bar companies with ties to China and other so-called “foreign entities of concern” from claiming the IRA’s manufacturing tax incentives. (It’s also a way lawmakers could try to offset spending in the next budget fight.) The Treasury Department could also move unilaterally to impose restrictions on what projects qualify for the credit.
Cory Ford, a school bus mechanic in the Pataskala area, doesn’t share his community’s embrace of the Illuminate plant. He doesn’t want U.S. taxpayer dollars to benefit Chinese industry; he’s also concerned that the firms could leave as quickly as they arrived. After all, Chinese companies have become expert at rapidly relocating in response to unfavorable tariffs or taxation.
“We’ve given so much in subsidies and government funding,” he said. “When that runs dry, how quickly is that building going to empty out?” And, he asks, what happens to the local American workers left behind?
Illuminate isn’t going anywhere, Duer said, even if Washington puts the manufacturing subsidies outside of reach: “We would adjust. Nothing is fatal. Nothing can’t be overcome. The fact of the matter is, we’re here to stay.”
The Financial Accounting Standards Board met this week to discuss its projects on accounting for transfers of cryptocurrency assets and enhancing the disclosures around certain digital assets, such as stablecoins.
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During Wednesday’s meeting, FASB’s board made certain tentative decisions, according to a
At a future meeting, the board plans to consider clarifying the derecognition guidance for crypto transfer arrangements to assess whether the control of a crypto asset has been transferred.
FASB also began deliberations on the
The board decided to provide illustrative examples in Topic 230, Statement of Cash Flows, to clarify whether certain digital assets such as stablecoins can meet the definition of cash equivalents. It also decided to include the following concepts in the illustrative examples:
- Interpretive explanations that link to the current cash equivalents definition;
- The amount and composition of reserve assets; and,
- The nature of qualifying on-demand, contractual cash redemption rights directly with the issuer.
FASB plans to clarify that an entity should consider compliance with relevant laws and regulations when it’s creating a policy concerning which assets that satisfy the Master Glossary definition of the term “cash equivalents“ will be treated as cash equivalents.
“I agree with the staff suggestion to look at examples,” said FASB vice chair Hillary Salo. “From my perspective, I think that is going to help level the playing field. People have been making reasonable judgments. I agree with that. And I think that this is really going to help show those goalposts or guardrails of what types of stablecoins would be in the scope of cash equivalents, and which ones would not be in the scope of cash equivalents. I certainly appreciate that approach, and I think it has the least potential impact of unintended consequences, because I do agree with my fellow board members that we shouldn’t be changing the definition of cash equivalents, and it’s a high bar to get into the cash equivalent definition.”
“I’m definitely supportive of not changing the definition of cash equivalents,” said FASB chair Richard Jones. “I believe that’s settled GAAP in a way, and we’re not really seeing a call to change it for broader issues. I am supportive of the example-based approach. The challenge with examples, though, is everybody’s going to want their exact pattern, but that’s not what we’re doing.”
The examples will explain the rationale for how digital assets such as stablecoins do or do not qualify as cash equivalents and give a roadmap for other types of digital assets with varying fact patterns to be able to apply.
“We really don’t want to be as a board facing a situation where something was a cash equivalent and then no longer is at a later date,” said Jones. “That’s not good for anyone, so keeping it as a high bar with certain rigid criteria, I think, is fine.”
Stablecoins are supposed to be pegged to fiat currencies such as U.S. dollars and thus provide more stability to investors. “In my view, while a stablecoin may meet the accounting definition established for cash equivalents, not every one of those stablecoins in the cash equivalent classification represents the same level of risk,” said FASB member Joyce Joseph.
She noted that the capital markets recognize the distinctions and have established a Stablecoin Stability Assessment Framework to evaluate a stablecoin’s ability to maintain its peg to a fiat currency. Such assessments look at the legal and regulatory framework associated with the stablecoin, and provide investors with information that could enable them to do forward-looking assessments about the stability of the stablecoin.
“However, for an investor to consider and utilize such information for a company analysis the financial statement disclosures would need to include information about the stablecoin itself,” Joseph added. “In outreach, the staff learned that investors supported classifying certain stablecoins as cash equivalents when transparent information is available about the entities at which the reserve assets are held. Therefore, in my view, taking all of this into consideration a relevant and informative company disclosure would include providing investors with the name of the stablecoin and the amount of the stablecoin that is classified as a cash equivalent, so investors can independently assess the liquidity risks more meaningfully and more comprehensively by utilizing broader information that is available in the capital markets and its emerging information.”
Such information could include the issuer, reserves, governance and management, she noted, so investors would get a more holistic look at the risks that holding the stablecoin would entail for a given company.
The board decided to require all entities to disclose the significant classes and related amounts of cash equivalents on an annual basis for each period that a statement of financial position is presented.
Entities should apply the amendments related to the classification of certain digital assets as cash equivalents on a modified prospective basis as of the beginning of the annual reporting period in the year of adoption.
FASB decided that entities should apply the amendments related to the disclosure of the significant classes and amounts of cash equivalents on a prospective basis as of the date of the most recent statement of financial position presented in the period of adoption.
The board will allow early adoption in both interim and annual reporting periods in which financial statements have not been issued or made available for issuance.
FASB also decided to permit entities to adopt the amendments to be illustrated in the examples related to the classification of certain digital assets as cash equivalents without the need to perform a preferability assessment as described in Topic 250, Accounting Changes and Error Corrections.
The board directed the staff to draft a proposed accounting standards update to be voted on by written ballot. The proposed update will have a 90-day comment period.
Senators introduced several pieces of tax-related legislation this week, including measures aimed at improving customer service at the Internal Revenue Service, cracking down on tax evasion and curbing the carried interest tax break, in addition to efforts in the House to repeal the Corporate Transparency Act.
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Senators Bill Cassidy, R-Louisiana, and Mark Warner, D-Virginia, teamed up on introducing a bipartisan bill, the
The bill would establish a dashboard to inform taxpayers of backlogs and wait times; expand electronic access to information and refunds; expand callback technology and online accounts; and inform individuals facing economic hardship about collection alternatives.
“Taxpayers deserve a simple, stress-free experience when dealing with the IRS,” Cassidy said in a statement Wednesday. “This bill makes the process quicker and easier for taxpayers to get the information they need.”
He also mentioned the bill during a
“I’m happy to meet with the team … and do all I can to make it as good as you want it to be,” said Bisignano.
“My bill would equip the IRS with the legislative mandate to create an online dashboard so that taxpayers can monitor average call wait time and budget time accordingly,” said Cassidy. He noted that the bill would allow a callback for taxpayers that might need to wait longer than five minutes to speak to a representative, and establish a program to identify and support taxpayers struggling to make ends meet by providing information about alternative payment methods, such as installments, partial payments and offers in compromise.
“I know people are kind of desperate and don’t know where to turn for cash, so I think this could really ease anxiety,” he added. “This legislation is bipartisan and is likely to pass this Congress.”
Cassidy and Warner
“Taxpayers shouldn’t have to jump through hoops to get basic answers from the IRS — and in the last year, those challenges have only gotten worse,” Warner said in a statement. “I am glad to reintroduce this bipartisan legislation on Tax Day to ease some of this frustration by increasing clear communication and making IRS resources more readily available.”
Stop CHEATERS Act
Also on Tax Day, a group of Senate Democrats and an independent who usually caucuses with Democrats teamed up to introduce the Stop Corporations and High Earners from Avoiding Taxes and Enforce the Rules Strictly (Stop CHEATERS) Act.
Senate Finance Committee ranking member Ron Wyden, D-Oregon, joined with Senators Angus King, I-Maine, Elizabeth Warren, D-Massachusetts, Tim Kaine, D-Virginia, and Sheldon Whitehouse, D-Rhode Island. The bill would provide additional funding for the IRS to strengthen and expand tax collection services and systems and crack down on tax cheating by the wealthy.
“Wealthy tax cheats and scofflaw corporations are stealing billions and billions from the American people by refusing to pay what they legally owe, and far too many of them are getting a free pass because Republicans gutted the enforcement capacity of the IRS,” Wyden said in a statement. “A rich tax cheat who shelters mountains of cash among a web of shell companies and passthroughs is likelier to be struck by lightning than face an IRS audit, and Republicans want to keep it that way. This bill is about making sure the IRS has the resources it needs to go after wealthy tax cheats while improving customer service for the vast majority of American taxpayers who follow the law every year.”
Earlier this week. Wyden also
The Stop CHEATERS Act would provide the IRS with additional funding for tax enforcement focused upon high-income tax evasion, technology operations support, systems modernization, and taxpayer services like free tax-payer assistance.
“As Congress seeks ways to fund much-needed policy priorities and address our growing national debt, there is one common sense solution that should have unanimous bipartisan support: let’s enforce the tax laws already on the books,” said King in a statement. “Our legislation will make sure the IRS has the resources it needs to confront the gap between taxes owed and taxes paid – while ensuring that our tax enforcement professionals are focused on the high-income earners who account for the most tax evasion. This is a serious problem with an easy solution; let’s pass this legislation and make sure every American pays what they owe in taxes.”
Carried interest
Wyden, King and Whitehouse also teamed up on another bill Thursday to close the carried interest tax break for hedge fund managers that
Carried interest is a form of compensation received by a fund manager in exchange for investment management services, according to a
Under the bill, the
“Our tax code is rigged to favor ultra-wealthy investors who know how to game the system to dodge paying a fair share, and there is no better example of how it works in practice than the carried interest loophole,” Wyden said in a statement. “For several decades now we’ve had a tax system that rewards the accumulation of wealth by the rich while punishing middle-class wage earners, and the effect of that system has been the strangulation of prosperity and opportunity for everybody but the ultra-wealthy. There are a lot of problems to fix to restore fairness and common sense to our tax code, and closing the carried interest loophole is a great place to start.”
Repealing Corporate Transparency Act
The House Financial Services Committee is also planning to markup a bill next Tuesday that would fully repeal the Corporate Transparency Act, which has already been significantly
If enacted, the repeal would eliminate beneficial ownership reporting requirements, removing a transparency measure designed to help law enforcement and national security officials identify who is behind U.S. companies.
“This repeal would turn the United States back into one of the easiest places in the world to set up anonymous shell companies, something Congress worked for years to fix,” said Erica Hanichak, deputy director of the FACT Coalition, in a statement. “These entities are routinely used to facilitate corruption, financial crime, and abuse. Rolling back the CTA doesn’t just weaken transparency, it signals to bad actors around the world that the U.S. is once again open for illicit business.”
The Internal Revenue Service rarely penalizes taxpayers who have high balances in foreign bank accounts and fail to file the proper forms, according to a new report.
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The
Taxpayers with specified foreign financial assets that meet a certain dollar threshold are also required to report the information to the IRS by filing Form 8938. Failure to file the form can result in penalties of up to $60,000. However, TIGTA’s previous reports have demonstrated that the IRS rarely enforces these penalties.
The IRS created an Offshore Private Banking Campaign initiative to address tax noncompliance related to taxpayers’ failure to file Form 8938 and information reporting associated with offshore banking accounts, but it’s had limited success.
Even though the initiative identified hundreds of individual taxpayers with significant foreign bank account deposits who failed to file Forms 8938, the campaign only resulted in relatively few taxpayer examinations and a small number of nonfiling penalties. The campaign identified 405 taxpayers with significant foreign account balances who appeared to be noncompliant with their FATCA reporting requirements.
The IRS used two ways to address the 405 noncompliant taxpayers: referral for examinations and the issuance of letters to them.
- 164 taxpayers (who had an average unreported foreign account balance of $1.3 billion) were referred for possible examination, but only 12 of the 164 were examined, with five having $39.7 million in additional tax and $80,000 in penalties assessed.
- 241 noncompliant taxpayers (who had an average unreported account balance of $377 million) received a combination of 225 educational letters (requiring no response from the taxpayers) and 16 soft letters (requiring taxpayers to respond). None of the 241 taxpayers were assessed the initial $10,000 FATCA nonfiling penalty.
“While taxpayers can hold offshore banking accounts for a number of legitimate reasons, some taxpayers have also used them to hide income and evade taxes,” said the report.
Significant assets and income are factors considered by the IRS when assessing whether taxpayers intentionally evaded their tax responsibilities, the report noted. Given the large size of the average unreported foreign account balances, these taxpayers probably have higher levels of sophistication and an awareness of their obligation to comply with the law.
TIGTA believes the IRS needs to establish specific performance measures to determine the effectiveness of the FATCA program. “If the IRS does not plan to enforce the FATCA provisions even where obvious noncompliance is identified, it should at least quantify the enforcement impact of its efforts,” said the report. “This will ensure that IRS decision makers have the information they need to determine if the FATCA program is worth the investment and improves taxpayer compliance.
TIGTA made three recommendations in the report, including revising Campaign 896 processes to include assessing FATCA failure to file penalties; assessing the viability of using Form 1099 data to identify Form 8938 nonfilers; and implementing additional performance measures to give decision makers comprehensive information about the effectiveness of the FATCA program. The IRS disagreed with two of TIGTA’s recommendations and partially agreed with the remaining recommendation. IRS officials didn’t agree to assess penalties in Campaign 896 or with implementing performance measures to assess the effectiveness of the FATCA program.
“From our perspective, TIGTA’s conclusions regarding IRS Campaign 896 are based, in part, on a misguided premise and overgeneralizations, including the treatment of ‘potential noncompliance’ as tantamount to ‘egregious noncompliance’ that warrants a monetary penalty without contemplating the variety of justifications that may exempt a taxpayer from having to file Form 8938,” wrote Mabeline Baldwin, acting commissioner of the IRS’s Large Business and International Division, in response to the report.
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