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Senate Passes Tax Extenders Deal That Includes Extension of Renewable Energy Incentives

The US Senate today passed a package of tax extenders as part of the year-end appropriations act that the US House of Representatives passed on December 17, 2019. President Trump is expected to sign the legislation before the end of the day tomorrow to avoid a government shutdown. The package includes a one-year extension of the production tax credit (PTC) under section 45 for wind and other technologies. It also includes limited extension of other energy tax incentives that were set to expire and a retroactive extension for some credits that had already expired in 2018. Most of the credits will now expire at the end of 2020, setting up the prospect of a broader tax extenders deal during lame duck session after the 2020 election.  The bill also included a one-year extension through 2020 of the new markets tax credit under Section 45D at $5 billion.

Extension of Energy Tax Credits

Many energy tax credits and incentives are scheduled to expire or begin to phase out at the end of 2019 or have already expired. The Further Consolidated Appropriations Act will extend the expiration date to the end of 2020 for many credits. The package did not include an extension or expansion of the Investment Tax Credit (ITC), disappointing the solar industry. The extenders package also did not include the proposed expansion of the ITC for energy storage technology or the extension of energy credits for offshore wind facilities.

Production Tax Credit

The PTC provides a credit for each kilowatt hour of energy production for qualified renewable energy facilities. The PTC expired for non-wind technologies at the end of 2017, while a reduced credit of 40% was available for wind facilities through the end of 2019, expiring for years 2020 and beyond. As we reported previously in House Passes PTC, NMTC Extension, under the tax extenders package, projects that begin construction in year 2019 are eligible for the 40% credit, and projects that begin construction in 2020 will be eligible for a 60% credit. This potentially leaves taxpayers in a frustrating position to the extent they already took steps to begin construction on a wind project in 2019 to take advantage of the 40% credit in anticipation of its expiration at the end of 2019. Taxpayers seeking the increased 60% PTC for wind projects will need careful planning to ensure any work done in 2019 does not attach to the 2020 project, thus dropping the credit to 40%.

Additionally, the full PTC would be retroactively revived and extended through 2020 for:

  • Closed loop biomass
  • Open loop biomass
  • Geothermal plants
  • Landfill gas (municipal solid waste)
  • Trash (municipal solid waste)
  • Qualified hydropower
  • Marine and hydrokinetic renewable energy facilities

Under current law, those technologies are generally only eligible for the PTC to the extent construction began before 2018 (other than certain closed-loop biomass and qualified hydropower technologies, which must be placed in service before 2018). Under the extenders package, those dates would all be extended out to the end [...]

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House Passes PTC, NMTC Extension Bill

On December 17, 2019, the US House of Representatives passed a year-end fiscal year 2020 spending bill for the federal government that includes a one-year extension of the production tax credit under Section 45 (PTC) for wind and other technologies. The bill would extend the wind PTC for facilities the construction of which begins during 2020 at a rate of 60%. Under current law, the PTC is available at a rate of 100% for wind projects construction of which began before 2017, and the PTC phases down to 80% for projects that began construction during 2017, to 60% for projects that began construction during 2018, and 40% for projects that began construction during 2019. Curiously, the extender bill would leave in place the 40% rate for projects that began construction during 2019 and increase the rate back to 60% for projects that begin construction in 2020. If enacted in this form, this could potentially leave taxpayers in a frustrating position to the extent they already took steps to begin construction on a wind project in 2019 in order to secure PTC-eligibility at the 40% rate in anticipation of the credit’s scheduled expiration next year. The bill would mirror this 60-40-60 pattern for wind projects that elect to take the investment tax credit under Section 48 (ITC) in lieu of the PTC. Under the bill, the wind PTC would expire where construction begins in 2021 or later.

The bill would also retroactively extend the PTC through 2020 for closed-loop biomass, open-loop biomass, geothermal, landfill gas, trash facilities, qualified hydropower, and marine and hydrokinetic renewable energy facilities. Under current law, those technologies are generally only eligible for the PTC to the extent construction began before 2018 (other than certain closed-loop biomass and qualified hydropower technologies, which must be placed in service before 2018).

The bill also includes a one-year extension through 2020 of the new markets tax credit under Section 45D at $5 billion.

As anticipated by the renewables industry, the bill did not include an extension of the ITC, which, in the case of solar, fiber-optic solar, qualified fuel cell, and qualified small wind energy technologies, is set to begin phasing down next year from 30%  to 26%.

The tax extenders were included in an amendment to the spending bill, entitled The Taxpayer Certainty and Disaster Tax Relief Act of 2019.

The bill needs to be approved by the Senate and signed into law by the president by Friday, December 20 to avoid a government shutdown. It is unclear if the bill will receive similar support in the Senate. We will be following developments as they unfold in the coming days.




Court Rules That Wind Farm Did Not Provide Proof of Development Fee to Receive 1603 Cash Grant

On June 20, 2019, the United States Court of Federal Claims published its long-awaited opinion in California Ridge Wind Energy, LLC v. United StatesNo. 14-250 C. The opinion addressed how taxpayers engaging in related party transactions may appropriately determine the cost basis with respect to a wind energy project under the Internal Revenue Code (IRC). Central to the case was whether the taxpayer was allowed to include a $50 million development fee paid by a project entity to a related developer in the cost basis of a wind project for purposes of calculating the cash grant under Section 1603 of the American Recovery and Reinvestment Tax Act of 2009 (Section 1603). Section 1603 allowed taxpayers to take a cash grant in lieu of the production tax credit of up to 30% of the eligible cost basis of a wind project. The eligible cost basis under Section 1603 is determined in the same manner as under Section 45 for purposes of the investment tax credit (ITC). The Justice Department disagreed with the taxpayer’s position that the development fee should be included in the cost basis for calculating the Section 1603 cash grant. The Justice Department argued that the development fee was a “sham.”

The court agreed, and held for the government. The court’s opinion focused on the taxpayer’s failure to provide evidence that the payment of the development fee had “economic substance.” Indeed, the court was troubled that none of the taxpayer’s witnesses could explain what was actually done to earn the $50 million development fee. Other than a three‑page development agreement and the taxpayer’s bank statements identifying the wire transfers for payment of the development fee, which started and ended with the same entity, the court found that the taxpayer provided no other factual evidence to support the payment of the fee. Indeed, the court pointed to the taxpayer’s trial testimony, which the court found lacked the specificity needed to support the development fee. Because the taxpayer failed to carry its burden of proof and persuasion, the court concluded that the taxpayer was not entitled to include the $50 million development fee in the cost basis of the wind project for purposes of computing the Section 1603 cash grant.

Importantly, the court did not, however, rule that a development fee paid to a related party is not permitted to be included in the cost basis of a facility for purposes of determining the Section 1603 cash grant. Instead, the court simply ruled that the taxpayer failed to provide it with sufficient proof that in substance the taxpayer performed development services for which a development fee is appropriately considered part of the cost basis of a facility for purposes of determining the Section 1603 cash grant.

Practice Point: In court, the plaintiff has the burden of proving its entitlement to the relief sought. Before filing a case, it’s best to make sure that you have all of the evidence you need to prove your case. Without substantial and [...]

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Alta Wind: Federal Circuit Reverses Trial Court and Kicks Case Back to Answer Primary Issue

On July 27, 2018, the US Court of Appeals for the Federal Circuit in Alta Wind v. United States, reversed and remanded what had been a resounding victory for renewable energy. The US Court of Federal Claims had ruled that the plaintiff was entitled to claim a Section 1603 cash grant on the total amount paid for wind energy assets, including the value of certain power purchase agreements (PPAs).

We have reported on the Alta Wind case several times in the past two years:

Government Appeal of Alta Wind Supports Decision to File Suit Now

Court Awards $206 Million to Alta Wind Projects in Section 1603 Grant Litigation; Smaller Award to Biomass Facility

Court Awards $206 Million to Alta Wind Projects in Section 1603 Grant Litigation; Smaller Award to Biomass Facility

Act Now To Preserve Your Section 1603 Grant

SOL and the 1603 Cash Grant – File Now or Forever Hold Your Peace

In reversing the trial court, the appellate court failed to answer the substantive question of whether a PPA that is part of the sale of a renewable energy facility is creditable for purposes of the Section 1603 cash grant.

Trial Court Decision

The Court of Federal Claims awarded the plaintiff damages of more than $206 million with respect to the cash grant under Section 1603 of the American Recovery and Reinvestment Act of 2009 (the Section 1603 Grant). The court held that the government had underpaid the plaintiff its Section 1603 Grants arising from the development and purchase of large wind facilities when it refused to include the value of certain PPAs in the plaintiffs’ eligible basis for the cash grants. The trial court rejected the government’s argument that the plaintiffs’ basis was limited solely to development and construction costs. Instead, the court agreed with the plaintiffs that the arm’s-length purchase price of the projects prior to their placed-in-service date informed the projects’ creditable value. The court also determined that the PPAs specific to the wind facilities should not be treated as ineligible intangible property for purposes of the Section 1603 Grant. This meant that any value associated with the PPAs would be creditable for purposes of the Section 1603 Grant.

Federal Circuit Reverses and Remands 

The government appealed its loss to the Federal Circuit. In its opinion, the Federal Circuit reversed the trial court’s decision, and remanded the case back to the trial court with instructions. The Federal Circuit held that the purchase of the wind facilities should be properly treated as “applicable asset acquisitions” for purposes of Internal Revenue Code (IRC) section 1060, and the purchase prices must be allocated using the so-called “residual method.” The residual method requires a taxpayer to allocate the purchase price among seven categories. The purpose of the allocation is to discern what amount of a purchase price should be ascribed to each category of assets, which may have significance for other parts of the IRC. For example, if the purchase price includes depreciable [...]

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SOL and the 1603 Cash Grant – File Now or Forever Hold Your Peace

Taxpayers are running out of time to file refund claims against the government. If the government reduced or denied your Section 1603 cash grant, you can file suit in the Court of Federal Claims against the government to reclaim your lost grant money. Don’t worry, you will not be alone. There are numerous taxpayers lining up actions against the government and seeking refunds from this mismanaged renewable energy incentive program. Indeed, the government lost in round one of Alta Wind I Owner-Lessor C. v. United States, 128 Fed. Cl. 702 (2016). In that case, the trial court awarded the plaintiffs more than $206 million in damages ruling that the government unreasonably reduced their Section 1603 cash grants.

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FERC Announces Tax Reform Actions and Eliminates Income Tax Allowance for Master Limited Partnerships

FERC announced actions in response to the 2017 tax reform legislation and a revised income tax policy, which eliminates the income tax allowance for Master Limited Partnerships. Regulated entities should ensure that they comply with FERC’s orders regarding the treatment of income taxes and consider whether to file comments on the proposed rulemaking and notice of inquiry.

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Trump Administration Imposes Tariffs on Foreign Solar

Yesterday, the US Trade Representative announced that President Trump approved recommendations to impose a safeguard tariff on imported solar cells and modules under Section 201 of the Trade Act of 1974. The tariff will be in effect for the next four years at the following rates:

This tariff is the result of petitions filed in May 2017 by two US solar cell manufacturers at the (ITC under Section 201 of the Trade Act of 1974. The petitions alleged that a global imbalance in supply and demand in solar cells and modules and a surge of cheap imports caused serious injury to the domestic solar manufacturing industry. In September, the ITC found injury to the US solar equipment manufacturing industry and, in October, released its recommendations to the White House to impose tariffs. The President’s final decision was in line with the ITC’s recommendations.The first 2.5 gigawatts (GW) of imported solar cells will be exempt from the safeguard tariff in each of those four years. According to the International Trade Commission (ITC), the United States imported approximately 12.8 GW of solar cells in 2016, which was expected to grow in 2017.

Supporters hope the tariff will encourage increased domestic solar manufacturing. Reports are circulating that a solar manufacturer is considering opening a new module factory in Florida. However, critics of the tariff like the Solar Energy Industries Association (SEIA) say that the tariff will result in a loss of 23,000 domestic jobs this year, including many in manufacturing, and will result in the delay or cancellation of billions of dollars in solar investments. The U.S. solar energy industry currently employs 260,000 Americans in jobs ranging from installation to manufacturing racking systems and inverters. The industry created 1 out of every 50 new US jobs in 2016. According to SEIA, only 2,000 people in the United States are employed manufacturing solar cells and panels.

The tariff is also expected to increase solar module costs, with early estimates predicting an increase of 10 to 12 cents per watt based on current US import prices of 35 to 40 cents per watt.

The US Trade Representative’s press release and fact sheet took clear aim at China, singling it out as a major cause of injury to the domestic solar manufacturing industry: “Today, China dominates the global supply chain and, by its own admission, is looking to increase its capacity to account for 70 percent of total planned global capacity expansions announced in the first half of 2017.” The US Trade Representative also stated that it will “engage in discussions among interested parties that could lead to positive resolution of the separate antidumping and countervailing duty measures currently imposed on Chinese solar products and U.S. polysilicon.” Despite the aggressive rhetoric, the tariff will not be limited to Chinese imports.

Additional details [...]

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The Senate’s New Base Erosion Tax: Highlights for Renewable Energy

On December 2, 2017, the Senate approved its version of the Tax Cuts and Jobs Act. The Senate Bill includes the base erosion and anti-abuse tax, a new tax intended to apply to companies that significantly reduce their US tax liability by making cross-border payments to affiliates. Given its potential to disrupt the financing of renewable energy projects, taxpayers in the renewable energy sector have been paying close attention to its developments.

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Initial Republican Tax Reform Proposal Includes Tax Cuts and Changes to Energy Credits

Changes to the energy credits proposed in the Tax Cuts and Jobs Act could impact the eligibility of renewable energy projects that had been relying on the guidance previously issued by the Internal Revenue Service.

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International Trade Commission Issues Recommendations for Tariffs on Imported Solar PV Equipment

On October 31, 2017, the US International Trade Commission (ITC) released its recommendations to impose a tariff on imported solar equipment. The proposals it issued, however, would result in duties substantially lower than those sought by the petitioners. The ITC’s four commissioners issued several remedy recommendations, including, at the high end, a 35 percent tariff on imported solar modules and a 30 percent tariff on solar cells. This would result in an estimated 10-13 cent per watt increase on imported solar panels, far below the tariff levels requested by the petitioners.

In May, Suniva, a US solar cell manufacturer, filed a petition at the ITC requesting relief from foreign imports. The petition alleged that a global imbalance in supply and demand in solar cells and modules and a surge of cheap imports caused serious injury to the domestic solar manufacturing industry. SolarWorld, another US manufacturer, joined the petition and the ITC instituted an investigation. Suniva and SolarWorld requested a 32 cent per watt tariff on crystalline silicon photovoltaic (CSPV) cells, and Suniva sought a price floor on solar panels of 74 cents per watt.

While US solar manufacturers argued in favor of imposing duties on foreign imports, others like the Solar Energy Industries Association (SEIA) have opposed the petition, arguing that it poses a major threat to the 260,000 US workers in the solar industry.  Specifically, SEIA argues, the higher cost of panels would lead to decreased demand and make solar energy less competitive in the United States, costing jobs in solar installation and other areas of the solar industry. Solar manufacturing accounts for approximately 38,000 jobs in the United States while solar installation accounts for over 137,000 jobs.

In September, the ITC found injury to the US solar equipment manufacturing industry. Since that finding, the ITC has been working on the remedy phase of the proceeding.

The commissioners issued three separate sets of recommendations. One recommendation proposes, among other things, imposing tariffs of up to 30 percent on imported CSPV cells and a 35 percent tariff on imported CSPV modules, each of which would be incrementally reduced over four years. A second proposal recommended imposing a 30 percent tariff rate on imports of cells exceeding 1 gigawatt, decreasing by five percentage points and increasing the in-quota amount increase by 0.2 gigawatts each year over a four year period, as well as a 30 percent tariff on modules that would be phased down by five percentage points each year. The third proposal recommended a quantitative restriction on cells and modules starting at 8.9 gigawatts in the first year, increasing by 1.4 gigawatts each subsequent year.

The ITC will forward its report, which contains its injury determination, remedy recommendations, additional findings, and the bases for each, to the President by November 13, 2017. The President must make a final decision on whether to impose a remedy and what that remedy should be by January 12, 2018.




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