The IRS, in a recent private letter ruling (PLR 201035003) held that a sale of renewable energy certificates that creates value for the seller is income for tax purposes.
The private letter ruling was requested by a residential owner of renewable energy property that had sold renewable energy certificates to a local utility. Under the taxpayer’s deal with the utility, the taxpayer was required to sell all of the RECs associated with a new solar PV system to the utility in exchange for payments.
The IRS distinguished the utility’s payment for the RECs from indirect subsidies which are exempt from taxation under Section 136 of the Code. Reasoning that the sale of the RECs was like a sale of property, the IRS determined that the gain on the sale would be taxable as income to the taxpayer.
After the House and Senate passed bills including an extension of the alternative fuel mixture and biodiesel tax credit program, alternative fuel producers assumed that Congress would act quickly to put the legislation into a form that could be signed by the President.
It has been more than two weeks now, however, and still Congress has not reconciled the two bills.
House Ways and Means Committee Chairman Sander Levin (D-Mich.) is quoted by BNA Daily Tax Reports (March 23) to say that if lawmakers must hold a formal conference committee to settle differences on legislation extending expired and expiring tax cuts, it could be a long time before a compromise is reached.
Levin’s comments came the day after he told the House Rules Committee that it is “uncertain” when the House will consider the $31 billion extenders package (H.R. 4213), telling that panel the Senate-passed legislation has “many other provisions in it we need to consider within the committee and I’m thinking we’re going to have a conference committee and if we do I think the likely result is it will take considerable time to complete it.”
According to Levin, the House and the Senate used different offsets to pay for AFM and biodiesel tax cuts that expired December 31, 2009.
Until the bills are reconciled and signed by the President, the AFM and biodiesel tax credit remain in abeyance and the alternative fuel industry remains in limbo.
Two bills have recently been introduced in the Senate that would expand or extend tax credit programs for offshore wind projects.
Senate Bill 3062 sponsored by Sen. Tom Carper (D-Del) would extend existing tax credits for offshore wind projects until January 1, 2020.
The Deepwater Offshore Wind Incentive Act (S. 3064 sponsored by Senators Carper and and Susan Collins (R-Maine) would offer tax credits to “deepwater offshore” wind projects. Some project developers believe that deepwater projects may be able to circumvent some of the environmental and NIMBY resistance tocloser-in offshore wind projects.
S. 3064 would increase the Section 45 production tax credit for “deepwater offshore” wind projects to 3.04 cents per kWh, with an inflation adjustment for years after 2010. The bill would also extend the placed in service date for qualifying projects to 2030 for Section 48 investment tax credit purposes.
The bill defines “deepwater offshore” projects as any project that is located in water with a depth of 60 meters or more (regardless of whether the project is in the internal or territorial waters of the U.S.)
Both bills have been referred to the Senate Finance Committee.
Blue Fire Ethanol and a consortium of 31 other alternative fuel producers have sent a letter to Congress asking for a 30% investment tax credit for biofuels. While alternative fuel producers were encouraged by last week’s passage of extenders legislation to extend the alternative fuel mixture and biodiesel excise tax credit programs, those extentions are temporary.
While the national renewable fuels standard contemplates increasing amounts of biofuels by 2010, there are no commercial scale cellulosic ethanol plants schedule to come online before 2011, according to one industry letter sent to Congress.
The U.S. Senate yesterday voted by a margin of 82-36 to pass the American Workers, State and Business Relief Act, which included H.R. 4213. That bill includes a one year extension of the biodiesel excise tax credit and the alternative fuel mixture credit.
Producers reacted with a sign of relief and reportedly have re-commenced or ramped up production in response to the news.
For more background on the biodiesel and alternative fuel excise tax credits, please check out our recent podcast on Lexis-Nexis.
On Friday, March 5, 2010, Senate Majority Leader Harry Reid (D. NV) filed a motion for cloture on H.R. 4213, the House tax extenders bill, which includes an extension of the biodiesel tax credit and alternative fuel mixture tax credit programs through December 31, 2010.
The Senate is expected to vote on the full bill in the coming week.
The House of Representatives on December 9th passed a bill (H.R. 4213) that extends many of the tax credits and incentive programs that expire at the end of this year. The bill was referred to the Senate Finance Committee.
While the bill extends for one year the biodiesel tax credit and the biodiesel mixture credits under Section 40A of the Internal Revenue Code, the bill does not extend the alternative fuel mixture credit under IRC Section 6426(e). The alternative fuel mixture credit currently applies to alternative fuel producers who produce a liquid fuel from biomass that does not meet the requirements for biodiesel and that is mixed with diesel (or other taxable fuel) for use in a business.
Unless the Senate passes a version of the bill that extends the alternative fuel mixture credit and that measure is included in the bill when it emerges from the conference committee, the alternative fuel mixture credit will expire on December 31, 2009.
Taylor English Duma LLP attorney Greg Sanderson recently advised a Washington state-based manufacturer in successfully obtaining a Treasury §1603 cash grant in excess of $17 million for a 55 megawatt biomass power plant. Sanderson is part of the Renewable Energy Finance team at the firm.
The client manufactures bleached and unbleached kraft pulp and linerboard at its mill in the Tacoma, Washington area. The mill employs some of the most advanced paper recycling techniques available, and recycles some 500 tons of waste paper and boxes every day, turning it into high-quality packaging paper while improving the environment. The new power plant is fueled with biomass residues from mill operations and other regional sources. The plant co-generates green power that is sold into the public electrical power grid and steam that is used for paper manufacturing.
For the last two years, Sanderson has worked to obtain incentives for this biomass power project. The grant will cover 30 percent of the cost of the project. “Biomass” is any organic material obtained from terrestrial and aquatic crops, including wood and paper residue. The biomass material is a renewable fuel used by the power plant as an alternative to coal or petroleum products.
“The 2009 Recovery Act has made billions available to companies trying to build renewable energy facilities,” Sanderson says. “The policy is to promote domestic and renewable sources of energy.”
Sanderson is a member of the Taylor English Duma LLP renewable energy team. Taylor English lawyers represent renewable energy developers and investors to help them qualify for tax incentives and obtain project financing in debt and capital markets. Sanderson has been involved in more than 100 similar tax credit transactions supporting renewable energy. He has also served as a co-owner and financial officer of Power Management, Inc. and of W-T-E Development, LLC, private alternative energy firms that developed and financed over 30 energy projects in 14 states from 1995 to 2004.
“It is great to be able to complete a project like this and see it work,” Sanderson says. “It is rewarding because we are helping to produce electricity from renewable resources. Renewable biomass energy is produced locally, carbon neutral, and environmentally friendly. Our nation needs to develop more renewable sources to reduce our dependence on fossil fuels and imported oil.”
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