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.