Background  

The American Recovery and Reinvestment Act of 2009 passed in February amended the tax code to allow a tax credit for manufacturers of equipment used in the generation of clean energy. The amendment authorized a total of $2.3 billion in tax credits to be allocated.

The credit is equal to 30% of certain costs incurred in a qualifying project that constructs, expands or re-equips facilities for the purpose of manufacturing solar panels, wind turbines, fuel cells and certain other property used to generate clean energy. The February amendment requires the Treasury and Energy Departments to establish a program under which credits are awarded to projects that are certified on a competitive basis. Projects are to be evaluated on the basis of the following general considerations:

  • commercial viability
  • domestic job creation
  • extent to which project avoids or reduces air pollution/greenhouse gases
  • potential for technological innovation and commercial deployment
  • cost of generated or stored energy, or of reduction in energy consumption
  • time needed to complete project after certification.  

Credits are available for two years, or until the entire $2.3 billion of tax credits has been awarded, whichever comes first. The February amendment imposes two important conditions on tax credit recipients. Taxpayers have one year to provide the IRS with evidence that the requirements of certification have been met. In addition, taxpayers have three years from the certification date to place a project in service. If the taxpayer does not abide by these timelines, certification is revoked and awarded credits are forfeited.

Details of tax credit program announced

The IRS provided details of the program’s operation in a recent notice. The notice provides that for each project, taxpayers must follow a two-part application procedure to be eligible for certification. The taxpayer must submit a preliminary and final application for a recommendation from the Department of Energy. The taxpayer must also submit a separate application for certification by the IRS. The IRS will not consider a project for certification unless the Department of Energy has recommended and ranked a project on the basis of the considerations described above. The IRS will allocate credits to the highest ranked projects first.

The IRS will certify DOE recommended and ranked projects in an initial 2009-2010 allocation round, with an additional round to take place in 2010-2011 if necessary. For the initial allocation round, the following deadlines apply for the two applications:

  • Application for DOE recommendation. The preliminary application for DOE recommendation must be submitted by September 16, 2009. The final application for DOE recommendation must be submitted by October 16, 2009.
  • Application for IRS certification. The application period began on August 14, 2009 and ends on December 16, 2009.  

The DOE will evaluate the project and submit any recommendations to the IRS by December 16, 2009. The IRS will accept or reject applications for certification by January 15, 2010, and the taxpayer will be notified of the credit amount in the acceptance letter. Any significant change in project plans occurring after the taxpayer has submitted the DOE and IRS applications must be communicated to the IRS. Taxpayers who are awarded credits must enter into an agreement with the IRS that outlines the terms of the credit award.

Conclusion  

Given the fast approaching deadlines, manufacturers interested in seeking a tax credit under this program should begin preparing applications now