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 Senate voted yesterday to move forward with Senator Reid’s stripped-down version of the Hiring Incentives to Restore Employment Act. The bill could be voted upon by the Senate by the end of the week. Reid’s version of the bill, however, omits the extension of the alternative fuel mixture and biodiesel tax credits that were included in the earlier (Baucus/Grassley) version of the bill.
Senate Finance Committee Chairman Max Baucus, D-Mont., and Ranking Member Chuck Grassley, R-Iowa, last week released a draft of their Hiring Incentives to Restore Employment (HIRE) Act.
The bill contains a number of provisions intended to spark new hiring, including a social security tax holiday for workers hired during 2010.
Of interest to the renewable energy industry is the bill’s provision to extend the alternative fuel mixture credit for another year. The AFM credit, which expired December 31, 2009, was omitted from other tax extender bills submitted earlier, but under the HIRE Act would be extended through 2010.
The HIRE Act would also revise the definition of “liquid fuel derived from biomass” under 6426(d)(2)(G) to exclude black liquor. This Senate Finance draft version of this jobs bill differs from House legislation. The House Ways and Means extenders bill allowed the 6426(d)(2)(G) “liquid fuel derived from biomass” provision to expire as of 12/31/09. Both versions would also extend the cellulosic biofuel credit under Section 40 of the Internal Revenue Code and would likewise exclude black liquor from its definition.
The lapse of the alternative fuel mixture credit has created substantial problems for the biofuels industry and many plants were shuttered at the end of the year. New financings have come to a halt as project developers are waiting to see whether the tax credit program will be extended. Extending the excise tax credit program should re-start many of those plans.
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