Greg Jenner
Greg Jenner is a partner in the Tax practice group. Greg has broad experience in virtually all Federal tax matters, with particular focus on planning and implementing complex tax-related transactions, partnerships and joint ventures, and mergers and acquisitions. He has worked extensively on energy-and insurance-related tax issues, and has successfully represented taxpayers in Federal and state tax controversies, in both audit and litigation. Greg has been active for many years in the Federal tax policy process, working closely with senior policy makers in Congress, the Treasury Department, and the Internal Revenue Service.
House Passes Senate tax bill
As many of you have heard, this morning the House of Representatives passed the Senate compromise tax bill by a vote of 277-148. The bill now goes to the President for his signature.
For the renewables industry, this is extremely good news. The bill extends the deadline for beginning construction for the section 1603 grant for one year, through December 31, 2011. The bill made no substantive changes to section 1603; it does not convert the grant into a refundable tax credit.
For renewable fuels, the bill extends the incentives for biodiesel, and alternative fuels and mixtures, retroactively for two years (through 2011), and extends the incentive for alcohol fuels (ethanol) for one year (through 2011).
In addition to these extensions (and many others), the bill also enacts "expensing" for certain assets (in general assets with a recovery period of 20 years or less). This means that instead of MACRS or bonus depreciation, the entire cost of an asset placed in service after September 8, 2010 and before January 1, 2012 may be deducted in the year it is placed in service. This is an extremely powerful incentive for those with the tax appetite to use the deduction.
One cautionary note: It is unclear how the new expensing provision will interact with section 1603. The Treasury Guidance for section 1603 states that costs that are deducted in the year in which they are paid or incurred are not includible in the basis on which the grant will be calculated. Treasury uses an example of costs deducted under section 179, which allows expensing for certain small businesses. Section 179 is not substantively different from the new expensing provision, which may mean that the section 1603 grant cannot be claimed by any taxpayer claiming expensing. Treasury is aware of this (I discussed it with them) and has indicated they will take it under advisement.
Stoel Rives will be putting out a more detailed alert on the tax bill.
Tax bill update
As some of you may have heard, the Senate today passed its version of the tax compromise by a vote of 81-19. The bill includes an extension of the deadline in section 1603 for beginning construction through 2011. The size of the majority is a strong signal to the House that the Senate may not be open for negotiation.
Although not a certainty, the expectation here (yes, I am in the Devil’s Den) is that the House may take up the bill as early as tonight but most likely tomorrow. Procedurally, the way the House is likely to operate is to take up the Senate-passed bill, with the Democratic amendment being the only one in order. If the Democratic amendment passes, chaos will reign because the bill will have to go to conference. If the Democratic amendment fails, the House then will vote on final passage (agreeing to the Senate bill). This likely will happen immediately thereafter.
At this point, no one knows for certain what the House Democratic amendment will contain. Rumors are that it will focus on beefing up the estate tax, particularly increasing rates and decreasing exemptions. We will have to see. Of course, the House could take an entirely different procedural route. It’s what makes DC so much “fun!”
Update on Tax Bill Negotiations
For those of you interested in the machinations in Congress over the tax cut extensions, especially concerning renewable energy, here is the latest:
Yesterday, the Senate released what it termed a "final compromise" bill. That bill should be voted on in the Senate very soon. It reflects negotiations within the Senate and between the Senate and the White House. It does not reflect a final deal with the House.
The very good news is that the Senate compromise includes a one-year extension of the "beginning construction" requirement for the 1603 grant to December 31, 2011. This is a straight extension; it is not the complete revision of the program to a refundable tax credit that we blogged about previously.
The fate of 1603 still remains uncertain, however. The House is the principal advocate of the complete revision and may insist on its version.
The Senate compromise also includes 100% expensing, as agreed to between the White House and Republican leaders. This means for property placed in service after September 8, 2010 and before January 1, 2012, the entire cost of the property may be deducted in the year it is placed in service. In addition, bonus depreciation (50% immediate deduction plus normal depreciation for the balance) would apply to property placed in service in 2012.
For renewable fuels, more good news. The Senate compromise extends through 2011 the existing per-gallon credits and outlay payments for ethanol, as well as the $.50 per gallon alternative fuels credit (other than for black liquor). In addition, the $1.00 per gallon production tax credit for biodiesel and renewable diesel is also extended through 2011.
Activities are accelerating in Washington as Congress stumbles toward adjournment. Stay tuned for further developments and intrigue.
Reid-Baucus Tax Bill
Today, Majority Leader Harry Reid and Senate Finance Committee Chair Max Baucus released their proposal for a middle class tax cut. Although far from the final product, the bill gives us some insight into thinking on the Senate side.
From a renewable energy standpoint, the most important proposal is a one-year extension of the ITC grant. Thus, the deadline for beginning construction would shift to December 31, 2011. The proposal is not a pure extension of section 1603, however. Instead, the proposal would convert section 1603 to a refundable tax credit. This proposal originated on the House side in HR 4599, introduced by Rep. Earl Blumenauer (D-OR). Here is a link to our previous blog on the Blumenauer proposal.
www.lawofrenewableenergy.com/2010/02/articles/tax-1/possible-restructuring-of-1603-grants/
The essential takeaway is that the program would shift to IRS from Treasury. Taxpayers would "apply" for their money by filing a tax return for the year in which the facility was placed in service, claiming that they had made a payment against taxes equal to 30% (10% in certain cases) of the qualified cost of the facility. They would then get a refund for that amount. This new deadline means that taxpayers will have to wait a minimum of 3 1/2 months (and perhaps as long as 15 months) to receive their refund.
There is some good news buried within the proposal. The outright ban on ownership by governmental entities and tax-exempts would be lifted. Instead, governments could receive the "credit" as could tax exempts (so long as they treated income from the facility as UBTI).
We will provide additional updates as the process moves forward.
Future of 1603
Updated at bottom
The following is a question I received, which I thought I would answer on the Blog:
Greg, as the expiration for the 1603 grant gets closer, two questions? 1) what are the chances of the grant being extended and 2) what are the modifications to the 1603 that you see coming January 1 2011.
Tony
Tony -
Thanks for your message. My best take is that the election has made it more difficult for 1603 to be extended. The Rs in Congress have not been very supportive of 1603. That doesn’t doom it, but it won’t be easy. Of course, if it’s not extended, there won’t be any modifications. The good news (if you can call it that) is that the pressure for modifications was coming from House Ds. Since they are on their way out of power, there is a lower chance of the modifications passing.
Take all of this with a grain of salt. In truth, no one knows for sure what will happen, including folks I talk with on the Hill. Stay tuned.
Greg
And Jane asks:
Is it possible that the 1603 grant would get retroactively extended next year, contingent on certain possible modifications to the current program structure?
Jane -
The answer is yes, it is possible. It is also possible that we will see a straight extension (no modifications). Or nothing. At this point, no one really knows (and anyone who tells you they do is making it up).
Greg
Understanding "Beginning Construction" Under Section 1603
The Treasury Department recently issued a series of FAQs in an effort to clarify when projects will be treated as having "begun construction" for purposes of the section 1603 grant. As you may be aware, a project that otherwise qualifies for the grant but is not placed in service before the end of 2010 may still be eligible for the grant if construction on the project is begun in 2009 or 2010 and the project is eventually placed in service before the applicable "credit termination date." The new FAQs address a number of the unanswered questions. However, the framework adopted by the Treasury Guidance and the new FAQs is complex, and there appears to be a considerable amount of confusion among developers about how the "beginning construction" requirement can be met. Therefore, we thought it important to issue this alert.
Continue Reading...Supplemental Treasury Requests May Create Delays in 1603 Grant Payments
The U.S. Department of the Treasury, as part of the process of reviewing applications for the ARRA Section 1603 grant, has been making supplemental requests that applicants submit copies of their power purchase agreements (PPAs). This is creating delays in the payment of the grant beyond the 60-day period beginning with the date the original application was submitted.
See the rest of our alert here ... http://www.stoel.com/showalert.aspx?Show=6645.
Proposed Legislation to Limit ITC Grants for Renewable Projects
Proposed legislation in the Senate would greatly limit the effectiveness of the grant in lieu of tax credits for renewable energy projects under section 1603 of the American Recovery and Reinvestment Act.
The section 1603 grant currently applies to renewable energy projects, such as wind, solar, geothermal and biomass, that are placed in service before 2011 or for which construction begins in 2009 or 2010 (and that are placed in service by certain dates). In its current form, if a project qualifies for the grant, the Treasury Department is required to pay the grant.
Expressing concern that a significant portion of the grants paid so far have gone to non-U.S. companies, Senator Charles Schumer (NY) and three other Democratic senators have sponsored a bill that would make payment of the grant subject to the discretion of the Treasury Department. It also would make the grant subject to the Buy American requirements of the stimulus bill, and would require that Treasury conduct an analysis of the "domestic job preservation and creation provided by" a project for which a grant application is submitted.
Various trade associations involved in renewable energy (such as AWEA, GEA and SEIA) are taking immediate action to register their opposition. Their focus will be on the incorrect assumptions underlying the proposal (for example, that it does not create U.S. jobs) and that, if enacted, it likely would destroy the effectiveness of the program.
We encourage our readers to register their strong opposition with their members of Congress and with the trade associations with which they are associated. The more opposition that is registered, and the longer the proposal drags out, the less likely it is to be enacted.
Read the March 4, 2010 Stoel Rives Law Alert on this proposed legislation.
POSSIBLE RESTRUCTURING OF 1603 GRANTS
Congress is considering a complete rewrite of the 1603 grant program. Some of the changes being considered are very helpful while others would be extremely troubling. Please continue reading to get the full story ...
Continue Reading...
Stoel Rives Clients Receive Huge Tax Credit Awards
Stoel Rives would like to congratulate REC Silicon and SolarWorld on their awards of tax credits by the IRS and DOE. These two companies, combined, received over 10 percent of all the tax credits awarded nationwide under section 48C of the tax code.
On Friday, January 8, the Department of Energy awarded to 183 companies $2.3 billion in tax credits for projects designed to expand, re-equip or establish manufacturing facilities for the production of equipment used to produce renewable and other green energy. The $2.3 billion was the full amount authorized by Congress in the stimulus bill as part of new section 48C of the tax code.
Applications for the credit far exceeded the dollar amount of credits available. Stoel Rives is proud to have been directly involved with these companies in preparing the complex applications for the credit. REC Silicon received the largest award of any company -- $154.8 million. SolarWorld received the seventh largest award -- $82.2 million. These credits will provide these companies with a dollar-for-dollar offset against their federal income tax liability.
There is considerable discussion in Congress regarding adding additional funds to the section 48C program, which will permit another round of awards. Please contact your favorite Stoel Rives attorney if you have any questions about these awards or extension of the section 48C credit.
