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Cash Grants in Lieu of Tax Credits
A Financing Opportunity for Renewable Energy
July 22, 2009
Travis L.L. Blais
Sahir C. Surmeli
Speakers
Travis L.L. Blais, Esq.
Sahir C. Surmeli, Esq.
Copyright © 2009 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C .
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New Development
• The American Recovery and Reinvestment Act of 2009
created a cash grant program for qualified renewable energy
facilities
• Eligible applicants may receive cash grants of up to 30
percent of the tax basis of eligible property
• No statutory cap on amount of grants
• On July 9, 2009, Treasury issued guidance on electing these
cash grants in lieu of tax credits
• The Treasury guidance, a sample application, and related
materials are available at www.treasury.gov/recovery
Review of Renewable Energy Production
Credit (PTC)
• 2.1 cents (’08) per kWh of electricity produced by:
• Wind
• Closed-loop biomass
• Geothermal energy
• 1.0 cents (’08) per kWh of electricity produced by:
• Open-loop biomass
• Municipal solid waste (landfill gas and trash)
• Qualified hydropower (including small irrigation power)
• Credit to producer of energy sold over 10-year period
Review of Business Energy Credit (ITC)
• One-time, up-front income tax credit for “energy property”
placed in service
• Generally 10% or 30% of the basis of energy property
• 5-year recapture period
• 50% of credit reduces basis
Review of ITC, continued…
“Energy property” includes:
• Solar property
• Qualified fuel cell property
• Qualified microturbine property
• Qualified small wind energy property
• Combined heat and power system property
• Geothermal power production property
• Geothermal heat pump property
American Recovery and Reinvestment
Act of 2009
•
•
•
•
•
•
Extension of PTC and ITC
Election to ITC Instead of PTC
Grants in Lieu of PTC and ITC
New Energy Manufacturing Credit
New Allocations of Tax-Exempt Bonds
Non-Tax Economic Incentives
Who is Eligible for a Grant?
• Generally, any individual or entity who is the original user
of “specified energy property”
• Original user may be the first owner or lessee of the
property
– Both lessor and lessee must be eligible
– Lessor must waive rights to grant, PTC, and ITC
– Lessee must agree to include 50% of grant in gross income ratably
over 5-year recapture period
• Lessee in a sale-leaseback may be eligible
– Lessee must have originally placed property in service
– Property must be sold and leased back by lessee within 3 months after
originally placed in service
Ineligible Recipients
• Federal, state, or local governments
• Tax-exempt organizations (includes most pension funds)
• Clean renewable energy bond lenders, cooperative
electric companies, or governmental bodies
• Pass-through entities having an equity owner who is
described above
– Unless interest is owned through a corporate “blocker”
• Foreign persons or entities
– Unless more than 50% of the foreign person or entity’s gross income
derived from the property is subject to U.S. federal income tax
What Property is Eligible for a Grant?
• “Specified energy property” is property otherwise eligible
for ITC, including “PTC-type” property now able to elect
ITC
• Tangible property, integral to the facility, for which
depreciation is allowed
• Original use of the property must begin with applicant
– But used parts can account for 20% of total cost
• Property must be physically located within the U.S. for
more than 50% of the year
Project and Application Deadlines
• Construction must begin by end of 2010
• If construction began before 2009:
– Property must be placed in service by end of 2010
– Application must be submitted after placed-in-service date, but
before October 1, 2011
• If construction began in 2009 or 2010:
– Property must be placed in service by the end of
• 2012 for wind facility eligible for PTC
• 2013 for other property eligible for PTC
• 2016 for property eligible for ITC
– Application must be submitted after construction begins, but before
October 1, 2011
Project Deadlines, continued…
• “Construction begins” when “physical work of a
significant nature” begins, either directly or under
written contract
– Preliminary activities do not constitute physical work (e.g., planning,
designing, securing financing)
– Safe harbor: construction begins upon incurring or spending 5% of the
total cost of the property (excluding preliminary activities)
• Property is “placed in service” when it is ready and
available for its intended use, i.e., substantially complete
and ready to produce energy
“Original” ITC Property
Specified Energy Property
Placed-in-Service Deadline if
Construction Begins in 2009
or 2010
Amount of Credit as a
Percentage of Cost
Solar
Dec. 31, 2016
30%
Geothermal
Dec. 31, 2016
10%
Qualified Fuel Cell
Dec. 31, 2016
30%
Qualified Microturbine
Dec. 31, 2016
10%
Combined Heat & Power
System
Dec. 31, 2016
10%
Qualified Small Wind
Dec. 31, 2016
30%
Geothermal Heat Pump
Dec. 31, 2016
10%
“PTC-type” Property Eligible for ITC Election
Specified Energy Property
Placed-in-Service Deadline if
Construction Begins in 2009
or 2010
Amount of Credit as a
Percentage of Cost
Wind Facility
Dec. 31, 2012
30%
Closed-Loop Biomass
Dec. 31, 2013
30%
Open-Loop Biomass
Dec. 31, 2013
30%
Geothermal
Dec. 31, 2013
30%
Landfill Gas
Dec. 31, 2013
30%
Trash
Dec. 31, 2013
30%
Hydropower
Dec. 31, 2013
30%
Marine & Hydrokinetic
Dec. 31, 2013
30%
Application Process and Grant Funding
• Treasury accepting applications beginning on or about
August 1 at www.treasury.gov/recovery
• Applications must be received before October 1, 2011
• Applicants must also register with the Central Contractor
Registration at www.ccr.gov/startregistration.aspx
• Applicants must have a Dun and Bradstreet number
• Treasury will notify applicants of an incomplete
application, who will have 21 days to correct
• Treasury will make payments within 60 days following the
later of:
(1) the date of the completed application; or
(2) the date the eligible property is placed in service
Application Process, continued…
• Completed applications must include:
– Signed and completed application form
– Documentation supporting placed-in-service (or construction) date
(e.g., commissioning report, project engineer/equipment vendor
report)
– Documentation supporting satisfaction of PTC or ITC requirements
(e.g., design plans, final engineering documents, OEM spec sheets)
– Signed Terms and Conditions
– Detailed breakdown of all costs to support claimed cost basis
• Independent accountant’s report required for projects costing
more than $500,000
• Recipients must retain contracts and invoices to be made available
upon Treasury’s request
Inclusion and Recapture Rules
• Owner: Grant is not included in recipient’s gross income
• Lessee: 50% of grant amount must be included in gross
income ratably over 5-year recapture period
• Grant reduces property’s basis by 50% of the grant amount
• Grant must be repaid if property is transferred to an
ineligible person or otherwise ceases to qualify within 5 years
after being placed in service
– Repayment is in proportion to property’s length of service
– Transfer to eligible person does not trigger recapture if purchaser agrees
to be jointly liable for any recapture
– Compare with recapture rule for ITC
THANK YOU!
Travis L.L. Blais, Esq.
Mintz, Levin, Cohn, Ferris, Glovsky
and Popeo, P.C.
(617) 348-1684
[email protected]
Sahir Surmeli, Esq.
Mintz, Levin, Cohn, Ferris, Glovsky
and Popeo, P.C.
(617) 348-3013
[email protected]
Twitter.com/EnergyCleanTech