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Legal Update

New US Tax Act Extends Section 1603 Grant in Lieu of Tax Credits for Specified Renewable Energy Property

17 December 2010
Mayer Brown Legal Update

On Friday, December 17, 2010, President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (H.R. 4853) (the Act). In addition to the widely publicized provisions impacting individuals, the Act contains several provisions intended to encourage investment in renewable energy and to stimulate business hiring, including a one-year extension for grants in lieu of tax credits (Grants) and a full expensing of certain equipment placed in service between September 9, 2010 and the end of 2011.

Section 1603 of the American Recovery and Reinvestment Act of 2009 established the Grant program whereby an eligible person could apply to the US Treasury Department for a Grant to reimburse the applicant for a portion of the cost of certain renewable energy projects in lieu of claiming either the production tax credit under Internal Revenue Code Section 45 or the investment tax credit under Internal Revenue Code Section 48. The Act extends eligibility for Grants to projects where the placed in service date occurs during 2011 (as well as 2009 or 2010 under the law prior to the Act) or, if the project is not placed in service by the end of 2011, where construction commences on the project in 2011 (as well as 2009 or 2010 under the law prior to the Act). The placed-in-service deadline for Grant eligibility on projects remains the end of 2012 for wind facilities, the end of 2013 for certain other renewable energy facilities such as biomass and geothermal, and the end of 2016 for solar energy facilities.

The Act also allows for full expensing (i.e., first-year depreciation equal to 100 percent of the cost) of qualified property placed in service between September 9, 2010 and the end of 2011. For qualified property placed in service during 2012, the amount of additional depreciation is limited to 50 percent of the cost. Qualified property includes most machinery, equipment, other tangible personal property, and certain leasehold improvements. Qualified property does not include property that was the subject of a written binding contract that was in effect prior to 2008. The acceleration of deprecation allowed under the Act will provide a timing benefit to owners of renewable energy projects, provided such additional depreciation can be used to offset other income.

In addition to the Grant extension and full expensing, the following other provisions of the Act will impact the renewable and alternative energy industry:

  • A two-year extension of tax credits for biodiesel and renewable diesel;
  • A one-year extension of tax credits for alcohol fuels such as ethanol;
  • A two-year extension of the placed-in-service deadline for tax credit eligibility for new refined coal facilities other than refined coal facilities that produce steel industry fuel; and
  • A two-year extension of the alternative fuel credit, alternative fuel mixture credit, and related payment provisions (excluding fuels derived from the production of paper and pulp).

For general information on the Grant program guidance and the documentation requirement for the Grants program, see the following Mayer Brown Legal Updates:
US Treasury Department Issues Guidance on Energy Grants In Lieu of Tax Credits
US Treasury Revises Cash Grant Program Guidance

For more information on the recently revised Grant application, see our Legal Update “New Application for Section 1603 Grant in Lieu of Tax Credits for Specified Renewable Energy Property.”

For information regarding what constitutes the commencement of construction, see our Legal Update “US Treasury Issues Additional Guidance on Beginning of Construction for Section 1603 Cash Grant Program.”

If you have any questions about Grants, full expensing of equipment, or any other aspects of the Act, please contact at +1 202 263 3390 or your regular Mayer Brown contact.

Learn more about our Projects, Renewable Energy and Tax Transactions practices.

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