Our firm today announced that Jon Wellinghoff, Chair of the Federal Regulatory Commission (FERC), will join Stoel Rives LLP upon completion of his service at FERC. As many of our readers will recall, Jon submitted his resignation to the President on May 28, 2013. No date has been announced for his departure from FERC.
For press inquiries, contact:
Gregory F. Jenner, Partner, (202) 398-1794
Alan R. Merkle, Chairman, (206) 386-7636
Judy L. Rooks, Marketing Communications Mgr., (503) 294-9831
As most of you are aware, Congress in the "American Taxpayer Relief Act of 2012" eliminated the "placed in service" deadline for purposes of the renewable energy tax credits. In its place, Congress required for purposes of the production tax credit (section 45) and the elective investment tax credit (section 48), that taxpayers "begin construction" on their projects on or before December 31, 2013. This requirement does not apply to solar projects.
In Notice 2013-29, the IRS provided taxpayers with guidance regarding what it means to "begin construction" for these purposes. Similar to the guidance issued for the section 1603 grant, the IRS provided two alternative tests by which taxpayers can establish that construction has begun: (1) physical work of a significant nature; or (2) a safe harbor for qualified costs paid or incurred on or before 12/31/13.
We have now been told by several sources that the IRS is considering issuing additional guidance regarding what it means to "begin construction." The two issues likely to be addressed in such additional guidance are: (1) what is required to establish continuous construction (in the case of the physical activity test) or continuous efforts (in the case of the safe harbor); and (2) the effect of transfers of projects on whether taxpayers are considered to have begun construction. These are practical questions that arise frequently when projects are being developed.
Although it is not certain when (or even whether) the additional guidance will be issued, we would expect to see it sometime in September. Stoel Rives will issue an alert if and when such guidance is issued.
In the meantime, please feel free to contact your favorite Stoel Rives attorney if you have any questions.
IRS Issues Clarification Regarding "Binding Written Contract" in its "Start of Construction" Guidance for PTC or ITC Energy Credits
As we originally noted, the IRS guidance issued April 15 regarding the "start of construction" requirement for energy projects to qualify for PTC or ITC contained a "big surprise" regarding its definition of a binding contract. Unlike previous incentive programs, the guidance provided that contracts that limit damages to a specified amount, such as by use of a liquidated damages provision, would not be treated as “binding”. Only binding written contracts for work performed on behalf of the taxpayer are taken into account for purposes of satisfying the test for significant physical work.
Following questions about the definition, the IRS has now issued an updated version (PDF) of its Notice 2013-29.
Section 4, Physical Work, paragraph 4.03(1), originally read: “(1) Binding written contract. A contract is binding only if it is enforceable under local law against the taxpayer or a predecessor and does not limit damages to a specified amount (for example, by use of a liquidated damages provision).”
The revised Notice incorporates by reference the same 5% liquidated damages threshold that was used in the previous bonus depreciation regulations by adding the following text: “… For this purpose, a contractual provision that limits damages to an amount equal to at least five percent of the total contract price will not be treated as limiting damages to a specified amount. For additional guidance regarding the definition of a binding contract, see § 1.168(k)-1(b)(4)(ii)(A)-(D).”
If you have questions regarding the guidance's revised binding contract definition or any other issue regarding the PTC, the ITC or related matters, please contact one of the Stoel Rives attorneys listed below.
Chris Heuer at (503) 294-9206 or firstname.lastname@example.org
Greg Jenner at (202) 398-1795 or email@example.com
Adam Kobos at (503) 294-9246 or firstname.lastname@example.org
Carl Lewis at (206) 386-7688 or email@example.com
Kevin Pearson at (503) 294-9622 or firstname.lastname@example.org
As you may have heard, the IRS and DOE have announced a second allocation of "Advanced Energy Project Tax Credits" - also known as 48C credits. The 48C credit was enacted as part of the stimulus bill (ARRA) in 2009 and the first allocation was made in 2010. Phase II is being held because a certain portion of the $2.3 billion in credits allocated in 2010 were not used in a timely fashion. The amount available in Phase II is $150 million.
The 48C credits are available for projects that re-equips, expands, or establishes a manufacturing facility for the production of certain types of renewable and advanced energy property. In other words, the credit is available for projects that manufacture or produce property not for the installation of the property itself.
Stoel Rives was proud to have represented the companies receiving the largest and the seventh largest allocations in Phase I (aggregating more than 10% of all credits allocated). Please contact any one of the following should you have any questions about Phase II.
Chris Heuer - 503-294-9206
Adam Kobos - 503-294-9246
Greg Jenner - 612-373-8857
Carl Lewis - 206-386-7688
Kevin Pearson - 503-294-9622.
News reports have already alerted people to the fact that Congress has extended the Production Tax Credit ("PTC") for wind as part of its agreement to avoid the fiscal cliff. The bill - named the American Tax Relief Act of 2012 - extended the sunset date for wind through December 31, 2013. This extension gives wind parity with all other renewable resources covered by the PTC.
What hasn't been as widely reported, however, is that Congress also made a significant modification to the PTC as part of the same provision.
Previously, whether a facility qualified for the PTC depended on when the facility was placed in service for federal income tax purposes. That provision has now been changed so that a facility will qualify for the PTC if construction with respect to the facility begins on or before January 1, 2014. This change applies to all renewables (biomass, marine and hydrokinetic, landfill gas, trash, hydropower) to which the PTC applies (not just wind), with the exception of refined coal and Indian coal. In other words, there is no longer a placed in service deadline for purposes of the PTC if construction begins before January 1, 2014.
For those of you acquainted with the 1603 grant, this "begun construction" requirement will seem very familiar. However, caution is required. First, the 1603 grant was administered by Treasury Department whereas the PTC will be administered by the IRS. The Treasury Department was generally viewed as favorably disposed to 1603 applicants. Second, we do not yet know how the IRS will interpret the term "begun construction." There is no requirement that the IRS interpret it consistently with section 1603. We do know, however, that the IRS included a 10% safe harbor as part of the bonus depreciation regulations (Treas. Reg. 1.168(k)-1(b)(4)(iii)(B)(2)), so it is possible that they may provide a safe harbor for the PTC as well.
It is also important to note that, along with extension and modification of the PTC, the legislation extended for one year the ability of taxpayers to elect the ITC in lieu of the PTC.
The modification of the PTC will likely make 2013 an interesting year, particularly as developers attempt to meet the "begun construction" requirements (however that term is eventually defined). If the IRS gives developers a safe harbor of some sort, it will be essential that they avoid the last minute, year-end rush we experienced in 2011 as we worked to qualify projects (mostly solar) for the “begun construction” requirements of the 1603 grant. A key gating item may well be the extent to which utilities seek to procure wind and other renewable energy is Qs1-2, 2013.
We will keep you apprised of further developments and insights.
Against the backdrop of election year politics and consideration of extension or elimination of the Production Tax Credits (PTCs), the Congressional Research Service (CRS) issued a report last week entitled, “U.S. Renewable Electricity: How Does the Production Tax Credit (PTC) Impact Wind Markets?” This report examines the possibility of an extension of the PTC, and the potential impacts such an extension (either long- or short-term) would have on the U.S. wind market. Not surprisingly, the conclusions are mixed and layered with uncertainty.
The report trumpets that 2012 will be a record year for the wind industry. Due in large part due to the pending expiration of the PTC, the U.S. wind sector deployed 10-12 GW of wind power this year—an unprecedented amount. However, all indications are that the expiration of the PTC will cause a severe market downturn in 2013 and beyond. No wonder the wind industry has been pushing Congress so hard for an extension. But does an extension make good economic sense?Continue Reading...
As I mentioned in my post yesterday, sometimes a chairman's mark will change just before the committee marks up legislation. Chairman Baucus's did. Here is a description of the now-included PTC/ITC proposal:
Description of Proposal
The proposal extends and modifies the expiration dates for the renewable electricity production credit and the 30-percent investment credit in lieu of such production credit. The proposal extends the wind credits (production and investment) for one year, through December 31, 2013. In addition, the expiration date for all renewable power facilities (including wind facilities) is modified such that qualified facilities or property will be eligible for the renewable electricity production credit, or the investment credit in lieu of such credit, if the construction of such facilities or property begins before January 1, 2014.
The proposal also modifies the definition of municipal solid waste to exclude commonly
recycled paper that has been segregated from such waste for purposes of this credit.
The proposal is effective on the date of enactment.
Earlier today, I reported that Senators Baucus and Hatch had agreed on a proposal to extend a package of expiring provisions. Details of that package have now been released here:
Unfortunately, it appears that extension of the PTC was not included. This does not preclude the Senate Finance Committee from adding it during its markup of the package tomorrow. In addition, chairmen have been known to make modifications to their "mark" just before the Committee meets.
Stay tuned for further developments.
Senators Max Baucus and Orrin Hatch, chairman and ranking member respectively, of the US Senate Finance Committee, have just announced that they have reached agreement on legislation to extend certain expiring tax provisions. The bill will be marked up by the Finance Committee on August 2.
The details of the proposal have not been announced. However, it is possible that the package could contain an extension of the Production Tax Credit ("PTC").
Even if the PTC is included in the Baucus-Hatch proposal, the legislation still must be passed by the Senate and House of Representatives. The House (including the Ways & Means Committee) has not yet acted on expiring provisions.
We will update this blog as details are released.
A surprise to no one involved in renewable energy, the DOE (via NREL) has just issued a report concluding 1603 created tens of thousands of new jobs.
See the report at http://www.nrel.gov/docs/fy12osti/52739.pdf