Payments for Specified Energy Property in Lieu of Tax Credits
AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009
U.S. Treasury Department
Office of the Fiscal Assistant Secretary
Under Section 1603 of the American Recovery and Reinvestment Tax Act of 2009 (Section 1603), the United States Department of the Treasury (Treasury) makes payments to eligible persons who place in service specified energy property and apply for such payments. The purpose of the payment is to reimburse eligible applicants for a portion of the expense of such property. Eligible property under this program includes only property used in a trade or business or held for the production of income. Non business energy property described in section 25C of the Internal Revenue Code (IRC) and residential energy efficient property described in section 25D of the IRC do not qualify for payments under this program but may qualify for tax credits under those provisions.
By receiving payments for property under section 1603, applicants are electing to forego tax credits under sections 48 and 45 of the IRC with respect to such property for the taxable year in which the payment is made or any subsequent taxable year. Applicants must agree to the terms and conditions applicable to the Section 1603 program.
This guidance establishes the procedures for applying for payments under the Section 1603 program and is intended to clarify the eligibility requirements under the program. Treasury welcomes questions about the program and the application process at 1603Questions@do.treas.gov.
On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act of 2009 (Public Law 111-5). The purpose of the Recovery Act is to preserve and create jobs and promote economic recovery in the near term and to invest in infrastructure that will provide long-term economic benefits.
Section 1603 of the Act’s tax title, the American Recovery and Reinvestment Tax Act, appropriates funds for payments to persons who place in service specified energy property during 2009 or 2010 or after 2010 if construction began on the property during 2009 or 2010 and the property is placed in service by a certain date known as the credit termination date (described more fully below in the Property and Payment Eligibility section). Treasury will make Section 1603 payments to qualified applicants in an amount generally equal to 10% or 30% of the basis of the property, depending on the type of property. Applications will be reviewed and payments made within 60 days from the later of the date of the complete application or the date the property is placed in service. Applicants who receive payments for property under Section 1603 are not eligible for the production or investment tax credit under sections 45 and 48 of the IRC with respect to the same property for the taxable year of the payment or subsequent years. In addition, any credit under section 48 previously allowed with respect to progress expenditures for the property will be recaptured. It is expected that the Section 1603 program will temporarily fill the gap created by the diminished investor demand for tax credits. In this way, the near term goal of creating and retaining jobs is achieved, as well as the long-term benefit of expanding the use of clean and renewable energy and decreasing our dependency on non-renewable energy sources.
II. Application Procedures
Applicants interested in receiving payments under Section 1603 may submit an application on-line by going to www.treasury.gov/recovery. Applications may only be submitted after the property to which the application relates is placed in service, or is under construction. A completed application will include the signed and complete application form; supporting documentation; signed Terms and Conditions; and complete payment information. All applications must be received before the statutory deadline of October 1, 2011.
For property placed in service in 2009 or 2010, applications must be submitted after the property has been placed in service and before October 1, 2011. Treasury will review the applications and make payment to qualified applicants within 60 days from the date the completed application is received by Treasury.
For property not placed in service in 2009 or 2010 but for which construction began in 2009 or 2010, applications must be submitted after construction commences but before October 1, 2011. If the property has been placed in service at the time of the application, Treasury will make payments to qualified applicants within 60 days from the date the completed application is received. For property not yet placed in service at the time of the application, Treasury will review such applications and notify the applicant if all eligibility requirements that can be determined prior to the property being placed in service have been met. If so notified, applicants must then submit, within 90 days after the date the property is placed in service, supplemental information sufficient for Treasury to make a final determination. Treasury will conduct a final review of the application at that time and make payment to qualified applicants within 60 days after the supplemental information is received by Treasury. Instructions provided on the application will indicate which portions of the application must be completed at the time the application is initially submitted and which portions must be completed at the time the application is supplemented.
If an applicant is applying for Section 1603 payments for multiple units of property that are treated as a single, larger unit of property (see Section IV. D. below), all such units may be included in a single application. The application form requests, among other identifying data elements, the applicant’s Data Universal Numbering System (DUNS) number from Dun and Bradstreet. If the applicant does not already have a DUNS number, it may request one at no cost by calling the dedicated toll-free DUNS Number request line at 1-866-705-5711.
Applicants must also register with the Central Contractor Registration (CCR). To register, go to www.ccr.gov/startregistration.aspx. The registration must be completed before a payment can be made.
When Treasury determines that an application is approved, it will send a notice to the applicant. The notice informs the applicant that the payment will be made and incorporates the information contained in the applicant’s completed application form and the Terms and Conditions. Treasury makes payment to the applicant no later than five days from the date of the notice. Payment will be made by Electronic Funds Transfer based upon the banking information in the CCR.
In cases where an applicant has not submitted sufficient information upon which a determination can be based, the applicant will be so notified and given 21 days from the date of the notice to submit additional information. If additional information is not received within the 21 day period, the application will be denied.
When Treasury determines that the application does not qualify for payment, the applicant will be so notified. Such notification will include the reasons for the determination and will be considered the final agency action on the application.
III. Applicant Eligibility
Certain persons are not eligible to receive Section 1603 payments. These include:
any Federal, state or local government, including any political subdivision, agency or instrumentality thereof
any organization that is described in section 501(c) of the IRC and is exempt from tax under section 501(a) of the IRC
any entity referred to in paragraph (4) of section 54(j) of the IRC or
any partnership or other pass-thru entity, any direct or indirect partner (or other holder of an equity or profits interest) of which is an organization or entity described above unless this person only owns an indirect interest in the applicant through a taxable C corporation.
As long as each direct and indirect partner in the partnership or shareholder or similar interest holder in any other pass-thru entity is eligible to receive Section 1603 payments, the partnership or pass-thru entity is eligible to receive Section 1603 payments. Having as a direct or indirect partner, shareholder, or similar interest holder a taxable C corporation any of whose shareholders are not eligible to receive Section 1603 payments does not affect the eligibility of the partnership or pass-thru entity. Neither a Real Estate Investment Trust, nor a cooperative organization described in section 1381(a) of the IRC is a pass-thru entity for this purpose. For an applicant to be eligible to receive a Section 1603 payment it must be the owner or lessee of the property and must have originally placed the property in service. Lessees are eligible to apply for Section 1603 payments only if the conditions described in Section VI of this Guidance are met.
A foreign person or entity may be eligible for a Section 1603 payment if the person or entity qualifies for the exception in section 168(h)(2)(B) of the IRC.
Applicant eligibility will be determined as of the time the application is received.
IV. Property and Payment Eligibility
A. Placed in Service
Qualified property must be originally placed in service between January 1, 2009, and December 31, 2010, (regardless of when construction begins) or placed in service after 2010 and before the credit termination date (see below) if construction of the property begins between January 1, 2009, and December 31, 2010. Qualified property includes expansions of an existing property that is qualified property under section 45 or 48 of the IRC.
Placed in service means that the property is ready and available for its specific use.
B. Credit Termination Date and Applicable Payment Percentage
The following chart lists the Credit Termination Date and the applicable percentage of eligible cost basis used in computing the payment for each specified energy property. Specified Energy Property
Credit Termination Date
Applicable Percentage of Eligible Cost Basis
Jan 1, 2013
Closed-Loop Biomass Facility
Jan 1, 2014
Open-loop Biomass Facility
Jan 1, 2014
Geothermal under IRC sec. 45
Jan 1, 2014
Landfill Gas Facility
Jan 1, 2014
Jan 1, 2014
Qualified Hydropower Facility
Jan 1, 2014
Marine & Hydrokinetic
Jan 1, 2014
Jan 1, 2017
Geothermal under IRC sec. 48
Jan 1, 2017
Jan 1, 2017
Jan 1, 2017
Combined Heat & Power
Jan 1, 2017
Jan 1, 2017
Geothermal Heat Pumps
Jan 1, 2017
Under the federal Modified Accelerated Cost-Recovery System (MACRS), businesses may recover investments in certain property through depreciation deductions. The MACRS establishes a set of class lives for various types of property, ranging from three to 50 years, over which the property may be depreciated. A number of renewable energy technologies are classified as five-year property (26 USC § 168(e)(3)(B)(vi)) under the MACRS, which refers to 26 USC § 48(a)(3)(A), often known as the energy investment tax credit or ITC to define eligible property. Such property currently includes:
. a variety of solar electric and solar thermal technologies
. fuel cells and microturbines
. geothermal electric
. direct-use geothermal and geothermal heat pumps
. small wind (100 kW or less)
. combined heat and power (CHP).
. The provision which defines ITC technologies as eligible also adds the general term "wind" as an eligible technology, extending the five-year schedule to large wind facilities as well.
In addition, for certain other biomass property, the MACRS property class life is seven years. Eligible biomass property generally includes assets used in the conversion of biomass to heat or to a solid, liquid or gaseous fuel, and to equipment and structures used to receive, handle, collect and process biomass in a waterwall, combustion system, or refuse-derived fuel system to create hot water, gas, steam and electricity.
The 5-year schedule for most types of solar, geothermal, and wind property has been in place since 1986. The federal Energy Policy Act of 2005 (EPAct 2005) classified fuel cells, microturbines and solar hybrid lighting technologies as five-year property as well by adding them to § 48(a)(3)(A). This section was further expanded in October 2008 by the addition of geothermal heat pumps, combined heat and power, and small wind under the The Energy Improvement and Extension Act of 2008.
The federal Economic Stimulus Act of 2008, enacted in February 2008, included a 50% bonus depreciation (26 USC § 168(k)) provision for eligible renewable-energy systems acquired and placed in service in 2008. This provision was extended (retroactively to the entire 2009 tax year) under the same terms by The American Recovery and Reinvestment Act of 2009 enacted in February 2009. To qualify for bonus depreciation, a project must satisfy these criteria:
the property must have a recovery period of 20 years or less under normal federal tax depreciation rules;
the original use of the property must commence with the taxpayer claiming the deduction;
the property generally must have been acquired during 2008 or 2009; and
the property must have been placed in service during 2008 or 2009 (or, in certain limited cases, in 2010).
If property meets these requirements, the owner is entitled to deduct 50% of the adjusted basis of the property in 2008 and 2009. The remaining 50% of the adjusted basis of the property is depreciated over the ordinary depreciation schedule. The bonus depreciation rules do not override the depreciation limit applicable to projects qualifying for the federal business energy tax credit. Before calculating depreciation for such a project, including any bonus depreciation, the adjusted basis of the project must be reduced by one-half of the amount of the energy credit for which the project qualifies.
For more information on the federal MACRS, see IRS Publication 946, IRS Form 4562: Depreciation and Amortization, and Instructions for Form 4562.