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The American Taxpayer Relief Act Of 2012 – What Does It Mean For Renewable Energy?

In his economic overview of the new tax provisions that Congress agreed on before the clock struck 12:00, Patrick J. O’Keefe, CohnReznick’s Director of Economic Research, says that the “American Tax Relief Act of 2012 (ATRA) adds some level of certainty to the tax code. Many of ATRA’s policy changes permanently extend what had been temporary exemptions or fixes.  Some of these changes accompany tax increases while others provide systemic relief. There is a real benefit from the longer-term stability implicit in these ‘permanent’ fixes: By giving businesses and households added confidence, it should bolster their willingness to invest and spend.”

Taxpayers in the renewable energy space are likely wondering what the impact of the recently enacted ATRA provisions will mean for their bottom line. In fact, ATRA will have a significant impact on renewable energy not only for tax planning but also for strategy and timing purposes as well – and the window to act on these provisions may be limited. You may be interested in learning about the opportunities and challenges that lie ahead as a result of President Obama signing into law The American Taxpayer Relief Act of 2012 last week. Accordingly, the following discussion is aimed at helping you navigate these provisions in order to gain a better understanding of the impact they may have on you and your business.

Sec. 1603 Sequestration Delayed Two Months – Maybe Longer For Energy
The Budget Control Act of 2011 imposed sequestration (across-the-board spending cuts), effective after 2012. However, the newly enacted American Taxpayer Relief Act of 2012 (ATRA) temporarily postpones sequestration for two months.

However, we are working with members of Congress and their staff as we speak in an effort to reduce the probability that 1603 grant payments might be reduced to the extent that sequestration ultimately might be implemented and impact 1603 grants.  Despite original understandings and statements by OMB, there may be some question whether the Government is ultimately obligated to sequester 1603 funds, so we are working with others in the renewable energy industry to further clarify this.

Energy Credits For Individuals Extended
The residential Code Sec. 25C credit is again available to individuals who make energy efficiency improvements to their existing personal residence.

Energy Credits for Commercial Renewable Resources:  Extended and Modified
The American Taxpayer Relief Act extends through 2013, the Sec. 45 production tax credit (PTC) for facilities that produce energy from wind and certain other facilities.

In the case of wind, geothermal, landfill gas, trash, marine, and hydrokinetic facilities and certain closed-loop biomass, open-loop biomass, and qualified hydropower facilities, the PTC will now apply if construction begins before January 1, 2014 (rather than if the facilities are placed in service before January 1, 2014). This is a new tax rule.

CAUTION: The Act does not specify what it means to “begin construction” for this tax purpose.   Again, we are working with both Congress and the U.S. Treasury to obtain timely clarity on the rules for determining and complying with this new standard.

In other areas, the PTC for municipal solid waste facilities is modified to exclude from the definition of "municipal solid waste" certain paper that is commonly recycled and that has been segregated from other solid waste.

Also, of major importance, particularly to both the large and “small” wind sectors, was the Act’s extension of the election to claim the section 48 investment tax credit (ITC) rather than the PTC for eligible wind facilities.  Though not all PTC eligible facilities are allowed this option, for those that are, the election also applies for projects where construction begins prior to January 1, 2014.

Other Non-Wind Energy-Related Tax Breaks Extended
In addition to wind and residential renewable energy, various other energy credits are extended, including:

  • The alternative fuel vehicle refueling property credit which is retroactively extended for two years through 2013 so that taxpayers can claim a 30% credit for qualified alternative fuel vehicle refueling property placed in service through 2013, subject to the $30,000 and $1,000 thresholds.
  • The credit for 2- or 3-wheeled plug-in electric vehicles is modified and retroactively extended for two years through 2013.
  • The cellulosic biofuel producer credit is modified and extended one year through 2013. The cellulosic biofuel producer credit is redesignated “second generation biofuel producer credit” and is (i) expanded to apply to liquid fuel derived from cultivated algae, cyanobacteria, or lemna and (ii) extended to apply to qualified fuel production before January 1, 2014.
  • The credit for biodiesel and renewable diesel is retroactively extended for two years through 2013.
  • The production credit for Indian coal facilities placed in service before 2009 under Code Sec. 45 is extended one year. The credit applied to coal produced by the taxpayer at an Indian coal production facility during the 8-year period beginning on Jan. 1, 2006, and sold by the taxpayer to an unrelated person during such 8-year period and the tax year.

Other Rules
The additional depreciation deduction allowance for cellulosic bio-fuel plant property under Code Sec. 168(l)(2) is modified and extended one year.

The special rule for sales or dispositions to implement Federal Energy Regulatory Commission (FERC) or State electric restructuring policy for qualified electric utilities is retroactively extended for two years through 2013.

The alternative fuels excise tax credits under Code Sec. 6426(d)(5) and Code Sec. 6426(e)(3) for sales or use of alternative fuels or alternative fuel mixtures is retroactively extended for two years through 2013.

However, certain incentives have not been extended by the Act:

ATRA included no extension for:

  • Credits for refined coal facilities.
  • Percentage depletion for oil and gas from marginal wells.
  • 1603 Grants for certain energy property in lieu of tax credits.

Impact of the Act on Section 1603 Treasury Grants
The extension of the PTC resulting from a change from the old placed-in-service date requirement to the new beginning-of-construction date requirement does not extend the date by which qualified property must be placed in service for purposes of Section 1603 Treasury grants.  The new Act therefore leaves intact the original “credit termination date” in the Section 1603 legislation that requires qualified property to be placed in service by the date then applicable to that type of energy property prior to amendment by this Act.

Original Use. Congress also made a few purely technical corrections to both the ITC election rules and to the original 1603 Treasury grant legislation.  These corrections simply clarify that the taxpayer or applicant must be the original user of the property. This technical correction is consistent with current practice and understanding and should not impact those correctly following longstanding tax law.

General Business Tax Provisions Common To Renewable Energy Also Extended:

Bonus Depreciation

The American Taxpayer Relief Act extends 50 percent bonus depreciation through 2013.

The 2012 Taxpayer Relief Act extends 50% first-year bonus depreciation so that it applies to qualified property acquired and placed in service before Jan. 1, 2014 (before Jan. 1, 2015 for certain longer-lived and transportation property). (Code Sec. 168(k)(2), as amended by Act Sec. 331(a)) A conforming change is made to Code Sec. 460(c)(6)(B) (relating to 50% bonus depreciation not being taken into account as a cost in applying the percentage of completion method for certain long-term contracts). For a more in-depth analysis of the bonus depreciation ATRA extension, please click here.

New Markets Tax Credit
A number of other business tax extenders expired after 2011 and they are also extended through 2013 under the American Taxpayer Relief Act. They include, among others the federal New Markets Tax Credit. Several renewable energy projects have used this tax credit in addition to other credits. Though the New Markets Credit is not frequently available for renewable projects, for those meeting certain standards, this option may now be available. Click here to learn more. 

Solar Energy
There were two industry proposals that ultimately were not incorporated in the new law.  First, the solar industry was not able to obtain a comparable “begin construction” change for the 30 percent investment tax credit that otherwise expires end of 2016. Given the time the credit has, it was difficult given the political atmosphere of the “fiscal cliff.”   For similar political reasons, income from renewable energy projects was also not added to the definition of “qualified income” for master limited, or “public” partnerships.

On a positive note, in general, the newly extended bonus depreciation rules extended by this act will apply to solar for another year, in the same manner as 2012.

For the full text of the 2012 Taxpayer Relief Act click here.


For more information, please visit CohnReznick’s renewable energy webpage and contact:

Timothy Kemper at 404-847-7764; or
Anton Cohen at 301-280-1822; or
Lee Peterson at 404-847-7744

Circular 230 Notice: In compliance with U.S. Treasury Regulations, the information included herein (or in any attachment) is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of i) avoiding penalties the IRS and others may impose on the taxpayer or ii) promoting, marketing, or recommending to another party any tax related matters.


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