The American Recovery and Reinvestment Act of 2009 (the "Recovery Act") included a number of significant new tax incentives for businesses engaged in the renewable energy market. One of these incentives is a new program that provides a tax credit to taxpayers who manufacture property to be used in producing specified types of renewable energy. The Recovery Act provided for $2.3 billion of credit availability under this program. Credits are to be awarded pursuant to a competitive application process based on criteria set forth in the statute.
On Aug. 13, 2009, the Treasury Department issued Notice 2009-72 (the "Notice"), which established the program and announced the procedures for applying for credits. The Notice sets forth the criteria that the Department of Energy will apply in making its recommendations and in ranking projects for the program. A copy of the Notice and the application for credits can be found at www.energy.gov/recovery/48C.htm.
Section 48C of the Internal Revenue Code of 1986, as amended (the "Code"), provides for a credit equal to 30 percent of the basis of eligible property placed in service during the taxable year that is part of a qualifying advanced energy project of the taxpayer. A qualifying advanced energy project is defined to include a project that re-equips, expands or establishes a manufacturing facility for the production of:
- Property designed for the production of energy from the sun, wind, geothermal deposits, or other renewable energy resources
- Fuel cells, microturbines, or an energy storage system for use with electric or hybrid-electric motor vehicles
- Electric grids to support the transmission of renewable energy, including property for the storage of such energy
- Property designed to capture and sequester carbon dioxide and sequester carbon dioxide emissions
- Property designed to refine or blend renewable fuels or to produce energy conservation technologies
- Plug-in electric vehicles or components that are designed specifically for such vehicles, or
- Other property designed to reduce greenhouse gas emissions as may be determined by the Internal Revenue Service (the "Service")
Eligible property is any property that:
- Is necessary for the production of specified advanced energy property
- Is either (1) tangible personal property, or (2) other tangible property (not including a building or its structural components) that is used as an integral part of the qualifying advanced energy project, and
- Is eligible for depreciation
The credits are to be awarded by the Treasury Department in consultation with the Department of Energy pursuant to a competitive application process based on criteria set forth in Code Section 48C. The statute limits to $2.3 billion the total amount of credits that may be allocated under the program.
The Notice sets forth the application procedure for the initial allocation round of Section 48C credits. It states that separate applications must be submitted for each project. Taxpayers are required to submit (1) preliminary and final applications for recommendation to the Department of Energy ("DOE"), and (2) an application for certification to the Service. Preliminary applications for recommendation must be submitted to DOE by Sept. 16, 2009, and final applications for recommendation are due at DOE by Oct. 16, 2009. Applications for certification must be submitted to the Service by Dec. 16, 2009.
Submission requirements for the DOE application are detailed in Appendix B of the Notice. The application is to include a project information memorandum, as well as a series of appendices. The project information memorandum may not exceed 30 pages, single-spaced. Required fonts and margins are set out in the Notice. The preliminary application is an abbreviated version of the final application and is designed to provide DOE with a preview of forthcoming final applications for purposes of resource allocation. The preliminary application is not part of the review process, but the Notice requests taxpayers to use numbers that are as accurate as possible.
Upon termination of the submission period, DOE will review, recommend and rank projects based on statutory eligibility and evaluation criteria, as well as on certain program policy factors set forth in the Notice (see discussion of DOE ranking criteria infra). The project that is ranked highest will be allocated the full amount of credit requested, with remaining credits allocated in descending order to lower-ranked projects until the $2.3 billion of credit availability is exhausted. If the full amount is not allocated in the initial allocation round, a second allocation round will be conducted in 2010-2011. The Service will announce credit allocations for the first allocation round by Jan. 15, 2010. There is no right to confer with DOE or the Service, or to appeal adverse decisions.
If a taxpayer's application is accepted, the taxpayer must execute an agreement setting forth various program requirements by March 15, 2010. Taxpayers will have one year from the date of acceptance to provide evidence that the requirements of certification have been met. This means taxpayers must receive all required permits, including environmental authorization or reviews necessary to commence construction, by that date. The project must be placed in service within three years of the date of issuance of the certification, or four years from the acceptance date (assuming the certification is issued on the one-year anniversary of the acceptance date).
DOE Ranking Criteria
The Notice states that DOE will review and recommend projects based on statutory eligibility and evaluation criteria, as well as on certain program policy factors. Under the eligibility criteria, the project must qualify as an advanced energy project and have a reasonable expectation of commercial viability. The evaluation criteria consists of the following, which the Notice states will be equally weighted:
- Domestic job creation (both direct and indirect) during the initial credit period (Feb. 17, 2009 through Feb. 17, 2013)
- Net impact in avoiding or reducing air pollutants or anthropogenic emissions or greenhouse gases
- Potential for technological innovation and commercial deployment, as indicated by (1) the production of new or significantly improved technologies, (2) improvements in levelized costs and performance, and (3) manufacturing significance and value, and
- Shortest project time from certification to completion
The Notice states that, in its evaluation, DOE will also consider the following four program policy factors: geographic diversity, technology diversity, project size diversity and regional economic development. These factors are not in the statute, and the Notice does not state how they will be weighted.
Applications must address in detail each of the eligibility and evaluation criteria. Also, the application must include an Applicant Data Input Spreadsheet containing specific quantitative data relating to these criteria. This will allow DOE to make a quantitative comparison across all eligible projects. Detailed instructions (including an extensive series of examples) are provided for both of these requirements.
To ensure compliance with Treasury Department regulations, we inform you that, unless otherwise indicated in writing, any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Code or applicable state and local provisions, or (2) promoting, marketing or recommending to another party any tax-related matters addressed herein.