07/14/2009
Guidance Released on Grants in Lieu of the Investment Tax Credit or Production Tax Credit
U.S. Treasury Dept. webpage | U.S. Energy Dept. webpage
On July 9, 2009, the U.S. Treasury Department and Department of Energy released important guidance on how taxpayers can apply to receive cash grants in lieu of the investment tax credit or the production tax credit.
Background
Section 1603 of the American Recovery and Reinvestment Act of 2009 ("ARRA") gives qualifying taxpayers the option of receiving a cash grant (a "Section 1603 Grant") in lieu of the investment tax credit (aka the "energy credit") under Internal Revenue Code ("IRC") Section 48 or the production tax credit under IRC Section 45. The provision is intended to stimulate investment in renewable energy property that has been dampened by the scarcity of financing and decreased appetite for tax credits in the current economic downturn. The U.S. Department of Energy estimates that $3 billion in Section 1603 Grants will be issued for the development of renewable energy projects across the United States [complete press release].
A Section 1603 Grant is generally equal to 10% or 30% (depending on the type of property) of the tax basis of qualifying renewable energy property placed in service by the grant applicant. In general, the U.S. Treasury Department must issue a grant to a qualifying applicant within 60 days of the later of (i) the date of the complete grant application and (ii) the date the qualifying property is placed in service.
Applications for Section 1603 Grants must be received by the Treasury Department before October 1, 2011.
Applicants may receive Section 1603 Grants for investments in the following types of renewable energy property:
- solar electric, thermal, or lighting property
- wind energy property
- closed-loop and open-loop biomass property
- hydropower property
- marine and hydrokinetic renewable energy property
- geothermal property
- fuel cell property
- microturbine property
- combined heat and power system property
- landfill gas and trash combustion property
To qualify, property must generally be placed in service during 2009 or 2010. However, even if property is placed in service after 2010, it may still qualify if construction on the property began during 2009 or 2010, provided that the property is placed in service before 2013 (in the case of large wind property), 2017 (in the case of IRC Section 48 property), or 2014 (in the case of other qualifying property). In addition, the property must be eligible for depreciation or amortization.
Guidance released
On July 9, 2009, the Treasury Department issued the following guidance:
In addition, the Department of Energy issued a press release describing the joint program between the Department of Energy and the Treasury Department to issue Section 1603 Grants: "Treasury, Energy Announce More than $3 Billion in Recovery Act Funds for Renewable Energy Projects" [complete press release].
The Treasury Department guidance contains detailed information on numerous topics, including (i) procedures for applying for Section 1603 Grants, (ii) persons eligible to receive Section 1603 Grants, (iii) types of property qualifying for Section 1603 Grants, (iv) supporting documentation to be submitted with a Section 1603 Grant application, (v) recapture of Section 1603 Grants, (vi) assignments to third parties of the right to receive Section 1603 Grants, and (vii) reporting and recordkeeping requirements for recipients of Section 1603 Grants.
Submitting applications
As of July 9, 2009, the Treasury Department webpage stated that the department was not accepting applications for Section 1603 Grants. The webpage indicated that a notice would be posted when the Treasury Department is ready to begin accepting applications on-line. However, the Treasury Department issued this detailed guidance on Section 1603 Grants so that taxpayers could begin preparing their grant applications ahead of time.
Although the Treasury Department guidance resolves many of the issues related to Section 1603 Grants, numerous questions remain, and it is likely that additional guidance will be forthcoming. Accordingly, interested parties may wish to register to receive email updates. (See "Where to Register for Announcements and Updates.")
Circular 230 Disclosure
The following disclosure is provided in accordance with the Internal Revenue Service's Circular 230 (21 CFR Part 10). Any tax advice contained in this Alert is intended to be preliminary, for discussion purposes only, and not final. Any such advice is not intended to be used for marketing, promoting or recommending any transaction or for the use of any person in connection with the preparation of any tax return. Accordingly, this advice is not intended or written to be used, and it cannot be used, by any person for the purpose of avoiding tax penalties that may be imposed on such person.