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Election of grants in lieu of the energy credit and electricity production credit under the American Recovery and Reinvestment Act of 2009 (MS Word)

Election of grants in lieu of the energy credit and electricity production credit under the American Recovery and Reinvestment Act of 2009 (.pdf)

Election of grants in lieu of the energy credit and electricity production credit under the American Recovery and Reinvestment Act of 2009

Dear Reader:

The American Recovery and Reinvestment Act of 2009 (commonly referred to as the 2009 Recovery Act), which was signed into law on Feb. 17, 2009, makes a beneficial tax change for taxpayers that are eligible to claim either the energy credit under Code Sec. 48 or the electricity production credit under Code Sec. 45 for certain property. When taxpayers place in service certain specified energy property or certain qualified facilities for producing electricity during 2009 or 2010, they can elect to receive a grant from the Treasury Secretary, by application for the grant, which must be received by the Treasury Secretary before Oct. 1, 2011, instead of taking the credit. A taxpayer can also place property in service after 2010, as long as construction of the property was begun during 2009 or 2010 and the property is placed in service before the “credit termination date.” The credit termination date (which is no earlier than Jan. 1, 2013) varies with the type of property placed in service.

The property that is placed in service must be business property that is eligible for the energy credit or the electricity production credit in order to be eligible for the grant. A taxpayer can receive either a credit or a grant, but not both. Certain nontaxpaying entities, such as governmental units or Code Sec. 501(c)(3) tax-exempt organizations, are not eligible for the grant.

The amount of the grant for any specified energy property is the “applicable percentage” (30% or 10%) of the basis of the property. The property must be depreciable or amortizable in order to be specified energy property. Certain types of property have dollar limitations on the grants.

The amount of the grant is not includible in a taxpayer's gross income, but the basis of the energy property is reduced by 50% of the amount of the grant.

Taxpayers need to evaluate whether a grant or a credit would be more beneficial to them in a given year. If an investor in a renewable energy project has suffered economic losses, and therefore cannot benefit from either of the credits, which are nonrefundable, it can be better to apply for a grant. However, other factors, such as the possibility of carrybacks and carryforwards of credits, should also be evaluated.

The grants are available only for a limited time as stated above. If you would like to discuss whether a grant or a credit would be advantageous in your situation, and the requirements you will need to meet, please give me a call.