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The IRS has taken the position that in the course of an audit of a taxpayer’s return, it has the authority to challenge the amount of a Section 1603 Treasury cash grant previously paid to the taxpayer in the year under audit. This comes as a surprise to many taxpayers who believed that once paid by Treasury, the IRS did not have audit jurisdiction over a cash grant payment. [Read more →]

Owners, and in some cases, lessees, of qualified renewable energy projects are eligible for either an investment tax credit (ITC) equal to 30% of the tax basis for the project, or until the end of this year, a cash grant paid directly by Treasury in the same amount. The ITC is claimed on the taxpayer’s tax return, and eligibility for the credit is subject to normal IRS audit procedures. The cash grant (so-called “Section 1603 program”), on the other hand, is payable within 60 days after the taxpayer has submitted a properly completed application. A more complete summary of the Section 1603 program can be found here. [Read more →]

Three months after Congress enacted 100% expensing (bonus depreciation) for qualified property, the IRS has released its position on certain issues raised by the statute, Revenue Procedure 2011-26. Manufacturers and large capital investors have hesitated to close deals in the absence of this IRS guidance. The key issue addressed by the guidance is fixing the acquisition date for property constructed by or for the taxpayer. In a nutshell, self-constructed property is considered acquired when construction begins. With a limited exception, the IRS will not allow 100% expensing of costs incurred on projects started before September 9, 2010. For our background memorandum on bonus depreciation, please go here.

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Businesses typically are allowed to deduct the costs of capital expenditures over time according to various depreciation schedules. In 2008, 2009 and 2010 businesses were allowed to deduct 50 percent of the cost of eligible property (generally, tangible personal property with recovery periods of 20 years or less) in the year of acquisition. The recently enacted Tax Relief Act of 2010 extends the first-year 50% write-off for eligible property placed in service during 2011 and 2012 (and in 2013 for aircraft and certain long-term-production-period property), and provides a new first-year 100% write off for certain property placed in service in 2011. [Read more →]

As published by the National Law Journal Online (http://www.nlj.com)

Two major stimulus packages spawned by the financial crisis have reshaped the federal policy landscape for renewable power. Most notably, qualifying solar, wind and other renewable energy-generation projects can choose either a 30% investment tax credit or a 30% cash grant in lieu of the ITC (the Treasury Grant Program). Wind and other nonsolar projects formerly eligible only for the production tax credit can for a limited time elect any of the PTC, the ITC or the Treasury cash grant. [Read more →]