On Tuesday, Feb. 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (ARRA), a historic $787 billion economic stimulus package. Several tax items related to energy credits were included in the Act. Some of the more noteworthy items are discussed below.
Grant versus Investment Credit versus Production Credit
Taxpayers may elect to request a grant for ``specified energy property`` placed in service in 2009 or 2010 (or for property on which construction began in 2009 or 2010, and placed in service by 2013 or 2014, depending on the type of facility) in lieu of receiving either a production or investment tax credit.
ARRA similarly revised the energy investment credit rules by providing that, in the case of any energy property receiving a grant from the Treasury under the authority described above, no credit will be available for such property for the year of the grant and for any subsequent year. Moreover, if a credit was claimed in a prior year for property eligible for the grant, then the taxpayer is required to increase the tax in the year of the grant by the amount of the previously claimed credit, and the grant should then be determined without regard to any decrease in the basis of the property by reason of any such previously claimed credits. The grant is not includible in income; however, the basis of the property should be reduced in the same manner as if such grant were instead a credit. Accordingly, taxpayers eligible for either a production or investment tax credit should carefully consider the potential tax consequences of electing either treatment or, alternatively, requesting a grant.
In addition, as it is difficult for many renewable projects to find financing due to uncertain future tax positions of potential investors in these projects, the Act provides that facilities may elect to claim the energy investment tax credit in lieu of the production tax credit, which generates credits over a ten-year period.
Finally, the limitation on the credit for facilities purchased through subsidized energy financing or industrial development bonds has been repealed. Accordingly, taxpayers who have previously considered the use of such financing, or who have chosen to finance in this manner, should review this modification to determine if a benefit may now be available due to this change in the law.
Extension of Renewable Resources Credit
Prior to the enactment of the ARRA, several key energy production credits were set to expire at the end of 2009 or 2010, depending on the type of facility. The ARRA provides for a long-term extension of the renewable energy production credit. The Act extends the placed-in-service date for wind facilities to qualify for the credit for three years (through Dec. 31, 2012). The Act also extends the placed-in-service date to be eligible for the credit for three years (to Dec. 31, 2013) for certain other qualifying facilities: closed-loop biomass; open-loop biomass; geothermal; small irrigation; hydropower; landfill gas; waste-to-energy; and marine renewable facilities.
Permanent Sequestration Requirement to CO2 Capture Tax Credit
Last year, Congress provided a $10 credit per ton for the first 75 million metric tons of carbon dioxide captured and transported from an industrial source for use in enhanced oil recovery, and $20 credit per ton for carbon dioxide captured and transported from an industrial source for permanent storage in a geological formation. Facilities were required to capture at least 500,000 metric tons per year to qualify. The Act requires that any taxpayer claiming the $10 credit per ton for use in enhanced oil recovery must also ensure that such carbon dioxide is permanently stored in a geological formation.