Among the energy incentives included in the American Recovery and Reinvestment Act of 2009 (Recovery Act) was a new investment tax credit under Internal Revenue Code Section 48C. The credit encourages investment in manufacturing facilities that produce certain renewable and advanced energy property (rather than supporting the generation of the energy itself), and the aggregate credit is capped at $2.3 billion.
On August 13, 2009, the U.S. Treasury issued Notice 2009-72 (2009-36 I.R.B.), establishing the advanced energy project program under Section 48C(d) and announcing an initial allocation round of the credit. The Notice provides information regarding eligibility, application procedures and deadlines, and, significantly, allocation criteria for the credit.
The Notice provides important deadlines for the credit application process, which, as described below, requires taxpayers to first obtain a U.S. Department of Energy (DOE) recommendation followed by an Internal Revenue Service (IRS) certification. A preliminary application for DOE recommendation must be submitted by September 16, 2009, with a final application submitted to the DOE by October 16, 2009. The application period for IRS certification begins on August 14, 2009, and ends on December 16, 2009. The IRS will accept or reject the taxpayer’s application for certification by January 15, 2010.
The Qualifying Advanced Energy Project Credit
The qualifying advanced energy credit under Section 48C applies to “qualifying advanced energy projects” located in the United States, and equals 30 percent of the taxpayer’s qualified investment for the taxable year in any such project.
A “qualifying advanced energy project” that is eligible for the credit is defined as a project that re-equips, expands or establishes a manufacturing facility for the production of the following:
Property designed to be used to produce energy from sun, wind, geothermal deposits or other renewable 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 intermittent sources 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 (including energy-conserving lighting technologies and smart grid technologies)
New qualified plug-in electric drive motor vehicles, qualified plug-in electric vehicles or components that are designed specifically for use with such vehicles, including electric motors, generators and power control units
Other advanced energy property designed to reduce greenhouse gas emissions as the Secretary of the Treasury determines
Based on conversations with the IRS, a project that re-equips, expands or establishes a manufacturing facility for the production of nuclear energy property can also qualify for the credit.
The credits will be allocated and awarded to individual projects based on a ranking system and involve an application for a “recommendation” and “ranking” to the DOE and an application for “certification” to the IRS. The DOE recommends and ranks projects in descending order (that is, first, second, third, etc.) based on certain selection criteria. The IRS awards the credits based on the priority rankings assigned by the DOE. The project receiving the highest ranking (that is, first) will be allocated the full amount of credit requested before any credit is allocated to a lower-ranked project. The amount of credit allocated to a project reduces the amount of credit available to lower-ranked projects. The same process will apply to the second and lower-ranked projects until the amount available for allocation is exhausted. DOE will recommend and rank projects only to the extent necessary to exhaust the amount available for allocation. Rankings will be based on domestic job creation, reduction of air pollutants and greenhouse gas emission, technological innovation and cost reduction, and shortest time to completion. The following factors will also be considered in determining the project’s rank: geographic diversity, technology diversity, project size diversity and regional economic development.
This initial allocation round will be conducted in 2009-2010 and, if necessary, an additional allocation round will be conducted in 2010-2011.
The Notice provides procedures for the filing of the four primary components of the credit application:
The preliminary application for recommendation by the DOE for the credit
The final application for recommendation by the DOE
An application for certification by the IRS
The documentation required to be submitted to the IRS one year after the IRS’s acceptance of its certification application.
There is no user fee for these applications. Taxpayers do not have a right to a conference or appeal of the decisions made with respect to the applications submitted under the Notice (including the DOE recommendation decision).
In order for the project to be certified by the IRS, the taxpayer must submit evidence that the requirements of the certification have been met within one year of the IRS receiving the certification application. If certified, the taxpayer has three years from the date of issuance of the certification to place the project in service.