Energy and Clean Technology Advisory: IRS Provides Guidance on Electing Investment Tax Credit in Lieu of Production Tax Credit
6/19/2009
The American Recovery and Reinvestment Act of 2009 (ARRA) expanded tax incentives for the renewable energy sector in several ways. One significant change allows taxpayers to elect the Code Section 48 investment tax credit (ITC) in lieu of the Code Section 45 production tax credit (PTC) with respect to qualifying renewable energy facilities. On June 5, the IRS issued Notice 2009-52 describing the procedures for making this election.
Background
Businesses that generate electricity from wind, geothermal energy, and “closed-loop” biomass (using dedicated energy crops) are eligible for the PTC under Code Section 45, which provides an income tax credit of 2.1 cents per kilowatt-hour (kWh) (adjusted annually for inflation) of electricity produced for the first ten years of a renewable energy facility’s operation. Other technologies, such as “open-loop” biomass (using farm and forest wastes rather than dedicated energy crops), incremental hydropower, small irrigation systems, landfill gas, and municipal solid waste, receive a lesser credit of 1.0 cent per kWh.
The ITC allows businesses and individuals a one-time, upfront tax credit equal to a certain percentage of the tax basis of certain types of renewable energy property placed in service during the year. Certain solar energy property, small wind energy property, and qualified fuel cell property are eligible for a 30% credit. Other energy property, such as qualified microturbine property, geothermal power production property, geothermal heat pump property, and combined heat and power system property, are eligible for a lesser 10% credit.
Election to Take ITC
Code Section 48(a)(5), added by the ARRA, allows taxpayers to irrevocably elect to take the ITC in lieu of the PTC for certain renewable energy facilities placed in service after December 31, 2008 and before December 31, 2013 (2012 for wind facilities). Some eligible taxpayers undoubtedly will find the upfront ITC to be an attractive alternative to the PTC. The election to claim the ITC in lieu of the PTC applies to the following types of renewable energy facilities:
- Wind
- Biomass (both closed- and open-loop)
- Geothermal
- Landfill gas
- Trash
- Qualified hydropower
- Marine and hydrokinetic power.
Make the Election on Form 3468
Notice 2009-52 provides that taxpayers must elect to claim the ITC on Form 3468 and file it with their income tax return for the year in which the property was placed in service. Taxpayers must make a separate election for each facility for which the election is being made.
Observation: Notice 2009-52 does not define the term “facility” for purposes of making the election. Thus, for example, it is unclear whether a wind farm constitutes a single facility, or if each turbine on the wind farm is a separate facility. Clients may choose to be conservative and assume the latter until further guidance is issued.
Taxpayers must provide the following additional information with each election:
- The name, address, taxpayer identification number, and telephone number of the taxpayer.
- A detailed technical description of the facility, including generating capacity.
- A detailed technical description of the energy property placed in service during the taxable year as an integral part of the facility, including a statement that the property is an integral part of such facility.
- The date that the energy property was placed in service.
- An accounting of the taxpayer’s basis in the energy property.
- A depreciation schedule reflecting the taxpayer’s remaining basis in the energy property after the energy credit is claimed.
- A statement that the taxpayer has not and will not claim a Treasury grant for property for which the taxpayer is claiming the ITC.
Taxpayers are required to retain adequate books and records, which include the information listed above, Form 3468, and all supporting documentation relevant to the election and claim of the ITC.
Further Tax Guidance Expected Affecting Renewable Energy
Our Energy and Clean Technology group is currently awaiting two additional important pieces of tax-related guidance arising from the ARRA. First, the ARRA established a “grant in lieu of ITC” program. Projects otherwise eligible for the ITC (including PTC projects which could elect the ITC) may apply for cash grants equal to the value of the ITC. This will allow clients without tax appetite to benefit from renewable energy credits, without the need for tax-equity financing and without having to wait to claim the credit on a tax return. Full details on the grant program are expected in the coming weeks.
Second, new Code Section 48C established a new “manufacturing credit” equal to 30% of the cost of personal property and fixtures to outfit a facility manufacturing renewable energy-related products. Clients must apply for a portion of the $2.3 billion in credits available. Guidance on the manufacturing credit, including the application process, is expected in August.
Of course, we are monitoring these issues closely and will update our clients and friends as developments arise.
If you have any questions about renewable energy tax credits, please contact Travis Blais at (617) 348-1684, your Mintz Levin service professional, or any of those listed below.
BOSTON
Thomas R. Burton III
Chair, Energy and Clean Technology
(617) 348-3097
TRBurton@mintz.com
Richard A. Kanoff
Energy Regulatory and Project Development
(617) 348-3070
RAKanoff@mintz.com
David L. O’Connor
Senior Vice President for Energy and Clean Technology, ML Strategies
(617) 348-4418
DOConnor@mlstrategies.com
Patrick J. Kealy
Corporate
(617) 348-1679
PJKealy@mintz.com
Sahir C. Surmeli
Corporate
(617) 348-3013
SSurmeli@mintz.com
Travis L. Blais
Tax Law
(617) 348-1684
TLLBlais@mintz.com
Evan M. Bienstock
Corporate
(617) 348-3090
EMBienstock@mintz.com
Ralph A. Child
Environmental
(617) 348-3021
RChild@mintz.com
Jonathan M. Cosco
Real Estate
(617) 348-4727
JMCosco@mintz.com
David F. Crosby
Intellectual Property
(617) 348-1830
DFCrosby@mintz.com
Kevin Fay
Corporate, Immigration
(617) 348-1625
KFay@mintz.com
Irwin M. Heller
Corporate
(617) 348-1654
IHeller@mintz.com
Katherine Comer Holliday
Corporate
(617) 348-1796
KHolliday@mintz.com
Jonathan L. Kravetz
Chair, Securities Practice Group
(617) 348-1674
JLKravetz@mintz.com
Cynthia J. Larose
Corporate
(617) 348-1732
CJLarose@mintz.com
Jeffrey R. Porter
Environmental
(617) 348-1711
JPorter@mintz.com
Paul Scapicchio
Senior Vice President of Government Relations, ML Strategies
(617) 348-3031
PJScapicchio@mlstrategies.com
Stanley A. Twarog
Corporate
(617) 348-1749
STwarog@mintz.com
Paula J. Valencia-Galbraith
Corporate
(617) 210-6854
PVGalbraith@mintz.com
WASHINGTON, D.C.
David P. Dutil
Corporate
(202) 434-7425
DDutil@mintz.com
David J. Leiter
Senior Executive Vice President of Government Relations, ML Strategies
(202) 434-7346
DJLeiter@mlstrategies.com
Chuck A. Samuels
Federal/Energy Efficiency
(202) 434-7311
CASamuels@mintz.com
Maureen J. Walsh
Director of Federal Government Relations, ML Strategies
(202) 434-7388
MJWalsh@mlstrategies.com
NEW YORK
Faith L. Charles
Corporate
(212) 692-6770
FLCharles@mintz.com
Daniel I. DeWolf
Co-Chair, Venture Capital and Emerging Companies
(212) 692-6223
DDeWolf@mintz.com
Jeffrey A. Moerdler
Real Estate, Communications, Environmental
(212) 692-6700
JAMoerdler@mintz.com
Peter B. Zlotnick
Litigation
(212) 692-6887
PBZlotnick@mintz.com
PALO ALTO
Brady Berg
Corporate
(650) 251-7758
BBerg@mintz.com
Gabriel Schnitzler
Real Estate
(650) 251-7720
GSchnitzler@mintz.com
SAN DIEGO
Jeremy D. Glaser
Corporate
(858) 314-1515
JDGlaser@mintz.com
Jeremy B. Hayden
Corporate
(858) 314-1524
JBHayden@mintz.com
Carl A. Kukkonen III
Intellectual Property
(858) 314-1535
CAKukkonen@mintz.com
Michael D. Van Loy, Ph.D.
Intellectual Property
(858) 314-1559
MDVanLoy@mintz.com
Scott C. White
Corporate
(858) 314-1511
SCWhite@mintz.com
LONDON
Julian Crump
Intellectual Property
+44 (0) 20 7776 7302
JCrump@mintz.com
Susan L. Foster, Ph.D.
Corporate
+44 (0) 20 7776 7330
SFoster@mintz.com
