Treasury Creates Safe Harbor for Smart Grid Investment Grants
Yesterday, the Energy and Treasury Departments jointly issued guidance regarding the federal income tax treatment of Smart Grid Investment Grant payments received pursuant to the American Recovery and Reinvestment Act (ARRA).
The guidance, which was issued as Revenue Procedure 2010-20, generally provides that a corporation receiving a specified grant will not recognize taxable income upon receipt of the grant, but will be required to reduce the tax basis of its assets by the amount of the grant.
Stoel Rives issued a law alert today regarding this guidance, further exploring what the guidance addresses, and notably, does not address.
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.
