The House and Senate Conference Committee reached agreement on the Tax Cuts and Jobs Act (TCJA) last Friday, December 15, 2017. The text of the bill (the Conference Agreement) is available here. Prior coverage of the House bill and a prior version of the Senate bill is available here and here, respectively.


The Conference Agreement, following the Senate bill, will not change the PTC or ITC from the current law phase-down.

Corporate Tax Rates

The Conference Agreement will lower the highest corporate tax rate to 21% beginning in 2018.

Base Erosion Anti-Abuse Tax

The Senate bill included a provision that could have eliminated the benefit of the PTC and ITC for certain taxpayers subject to the base erosion anti-abuse tax (commonly known as the “BEAT”). The BEAT is intended to prevent multinational companies from reducing U.S. income tax liability by, among other things, making deductible payments to foreign affiliates. The concern, identified in a joint letter from ACORE, AWEA, CRES, and SEIA, was that a significant number of tax equity investors would exit the market if the BEAT eliminated the benefit of the credits for multinational financial institutions. A last-minute addition to the Senate bill concerning the treatment of derivatives under the BEAT reportedly would reduce the extent to which multinational tax equity investors would be subject to the BEAT, but the implications for the tax equity market remained unclear.

The Conference Agreement partially mitigates the adverse impact of the BEAT on the PTC and ITC for a transition period. Under the Conference Agreement, the BEAT generally will be reduced by 80% of the ITC and PTC through 2025 ( i.e., taxpayers subject to the BEAT will lose the benefit of 20% of their ITCs and PTCs). After 2025, the ITC and PTC no longer will offset the BEAT to the extent it exceeds regular tax liability, meaning that taxpayers subject to the BEAT will lose the benefit of 100% of their ITCs and PTCs. Because the impact of the BEAT on a taxpayer crucially depends on the taxpayer’s own facts and circumstances, it is difficult to assess the impact on the tax equity market generally. However, there are two key takeaways:

  • First, for any taxpayer subject to the BEAT, the value of the ITC and PTC will be reduced by 20% through 2025 and eliminated thereafter. It is an open question as to whether this reduction will cause certain investors to leave the tax equity market.
  • Second, because PTCs are claimed over a 10-year period, and it could be difficult for certain taxpayers to forecast their BEAT liability that far in the future, some investors (potentially some not currently subject to the BEAT) may opt to claim the ITC in lieu of the PTC.

Corporate AMT

The Conference Agreement repeals the corporate alternative minimum tax (AMT) beginning in 2018, resolving a problem that could have affected the value of PTCs. A last-minute amendment to the Senate bill would have retained the corporate AMT, which provides that PTCs may offset the AMT only to the extent produced during the first four years after the applicable placed-in-service date. This raised the concern that, because the corporate AMT rate is 20% (i.e., roughly the same as the regular tax rate under new law), many tax equity investors would have found themselves subject to the corporate AMT and the resultant PTC limitations.

Bonus Depreciation/Expensing

The Conference Agreement provisions on 100% bonus depreciation (also known as “immediate expensing”) are a blend of the Senate and House provisions. For 100% bonus to apply, property must be acquired and placed in service after September 27, 2017. Property acquired pursuant to a binding written contract that was entered into on or before September 27, 2017 will be subject to pre-TCJA rules. 100% bonus is phased down after 2022 to 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and zero after that. Taxpayers may continue to elect out of bonus. In addition, under a special transition rule, a taxpayer may elect to claim 50% bonus in lieu of 100% bonus for property acquired during the taxpayer’s first taxable year ending after September 27, 2017. Bonus depreciation will no longer be available to certain regulated utilities and electric cooperatives. Finally, the Conference Agreement preserves the House provision that allows taxpayers to claim bonus depreciation on used property if the property is acquired from an unrelated person.

Over the past year, when a reduction in the highest corporate rate seemed possible but the timing was unknown, many partnership flips for wind projects (and some flips for solar projects) have been structured to take advantage of 50% bonus depreciation, with the goal of allowing the investor to claim additional depreciation deductions in taxable years with higher marginal corporate rates. Given that corporate rates will be reduced in 2018, and given the transition rules in the TCJA, it remains to be seen whether partnership flips will still claim 50% bonus in 2018.

Interest Deduction

The Conference Agreement generally follows the Senate bill on the interest deduction, which would disallow a deduction for net interest expense in excess of 30% of a business’s adjusted taxable income (subject to an exception for certain regulated utilities and electric cooperatives). Under the Conference Agreement, the 30% interest expense cap is applied to adjusted taxable income, which is increased by depreciation, amortization and depletion through 2021 (meaning that the cap will be higher). After 2021, adjusted taxable income will not be increased by depreciation, amortization, or depletion (meaning that the cap will be lower).

Partnership Technical Terminations

The Conference Agreement, following the House bill, will eliminate partnership “technical terminations,” which cause a restart of depreciation that defers depreciation deductions under current law.

Next Steps

After Senators Marco Rubio and Bob Corker pledged to support the bill last Friday, Republicans are confident they have the votes to pass the bill, and no further negotiations over the bill are expected. The House and Senate are expected to vote in time for the President to sign the bill by December 22.

The Conference Amendment is a mixed bag for the renewable energy industry. There is a lot good news: the PTC and ITC remain unchanged, 5-year MACRS deductions remain available for solar and wind projects (which is beneficial for partnership flips), 100% bonus depreciation is available for energy projects (which is beneficial for sale-leasebacks), the corporate AMT was repealed, and the worst consequences of the BEAT were avoided. The bad news is that the lower corporate rate will reduce the value of depreciation deductions in tax equity deals. In addition, the BEAT could still adversely impact certain tax equity investors, and the impact of the BEAT on the tax equity market as a whole is unclear at this time because of the taxpayer-specific nature of the BEAT. In addition, the extensions of the ITC sunset dates for fuel cells, small wind, and other “orphaned” energy projects that were proposed in the House bill did not make it into the Conference Amendment, though it’s conceivable these extensions could be considered later.