Who should benefit most from the tax break designed to promote sustainable building development done by public entities? The entities themselves, or the private companies that work with them on the jobs?

These questions are at the heart of an ongoing feud about how to interpret and apply Internal Revenue Code 179D, the New York Times reports. Over the last five years, the tax break was worth about $1.1B, according to the Joint Committee on Taxation.

On one side are taxpayer-funded schools, prisons, military bases and libraries nationwide; on the other, contractors, but also the consulting firms that handle certification and filing requirements.

The 179D incentive dates back to the Energy Policy Act of 2005, just as the idea of sustainable buildings was taking hold. Originally meant as a temporary measure, the incentive has been renewed a number of times since then.

The idea was to give tax deductions, worth $1.80/SF, to building owners who invest in energy-efficient building improvements. That is worth something to entities that pay taxes to the federal government. 

Public entities that do not pay taxes were given the option of transferring the deduction to a private entity involved in designing or building a development's sustainable features (a contractor that installs a greener HVAC system, for instance).

The law did not specifically say that the private entity had to pay for the deduction, either by reducing the fee it charged or through some kind of rebate. Public entities have supported that interpretation, while some private entities — such as the American Council of Engineering Companies — do not, contending that paying public entities for the deductions is ethically questionable.

In at least one case, the dispute has gone far beyond a disagreement about the interpretation of the tax law, and into court in a battle between well-funded and well-connected entities.

Last year, the University of Texas and the University of Houston systems filed a lawsuit against tax-credit consulting firm Alliantgroup, accusing it of misleading "thousands of government entities" into signing over tax deductions to Alliantgroup's clients, the Houston Press reported.

Alliantgroup denies the allegations, telling the Houston Press that the university systems "have been led into a frivolous lawsuit."