Production Tax Credit – Global Power Law & Policy

Senate’s Version of the “Tax Cuts and Jobs Act” Is Good News for Energy Renewables

Nov 15 2017

By: Charles H. Purcell, Mary Burke Baker, Elizabeth C. Crouse, Rachel D. Trickett

On November 2, 2017, we alerted taxpayers that the House Ways and Means Committee had unveiled its much anticipated tax reform bill titled the “Tax Cuts and Jobs Act” (the “House Plan”). The House Plan includes substantial modifications to existing renewable energy tax credits including the production tax credit (“PTC”) and the investment tax credit (“ITC”), and also eliminates other tax incentives entirely, effective beginning after 2017, including the Section 199 Domestic Production Activities Deduction (the “DPAD”), the New Markets Tax Credit (the “NMTC”), the Historic Rehabilitation Tax Credit (the “HRTC”), the Enhanced Oil Recovery Credit, and the Credit for Producing Oil and Gas from Marginal Wells.

On the evening of November 9, 2017, Senate Republicans released the Senate’s proposal (the “Senate Plan”). The Senate Plan differs from the House’s proposed legislation in several key ways. Significantly, the Senate Plan does not modify the PTC or the ITC, which is consistent with public statements made by several Senate Republicans since the House Plan was released. Similarly, the Enhanced Oil Recovery Credit, Credit for Producing Oil and Gas from Marginal Wells, and NMTC would all be left intact and the HRTC would remain available, albeit in reduced form. However, unlike the House Plan, the Senate’s proposed legislation did not address expired energy credits for qualified fuel cell and small wind energy property, qualified microturbine property, or production from advanced nuclear power facilities.

Similar to the House’s proposed legislation, the Senate Plan would repeal the DPAD effective for tax years beginning after 2017. As we discussed in our previous alert, repealing the DPAD would affect a variety of domestic manufacturers of a number of items, including solar panels, construction equipment, and software, as well as oil and gas producers.

The Senate Plan is moving very quickly and is expected to proceed on a schedule roughly one week behind that of the House Plan.

Treasury Guidance Clarifies and (Again) Expands Field of Renewable Energy Projects That May Qualify for the PTC or ITC

Dec 22 2016

By Elizabeth C. Crouse, Charles H. Purcell, Won-Han Cheng, and Alex Weber

Notice 2017-04, issued on December 15, 2016, clarifies and expands the beginning of construction and continuity safe harbors applicable to certain alternative energy projects, including wind installations. Like Notice 2016-31, released on May 5, 2016, Notice 2017-04 concerns only projects that qualify for the Production Tax Credit (“PTC”) under Code Section 45 and, by extension, many projects that qualify for the Investment Tax Credit (“ITC”) through Code Section 48(a)(5). You may read more about the provisions and consequences of Notice 2016-31 in our previous e-alert.

To read the full alert, click here.

New Treasury Guidance Significantly Expands Field of Renewable Energy Projects That May Qualify for the PTC or ITC

May 25 2016

On May 5, the U.S. Treasury Department released Notice 2016-31 to address certain changes made to the Production Tax Credit (“PTC”) and Investment Tax Credit (“ITC”) in the Protecting Americans from Tax Hikes (“PATH”) Act of 2015, Pub. L. No. 114-113, Div. Q. The Notice generally extends the application of the “beginning of construction” and “continuous construction” requirements set forth in Notices 2013-29, 2013-60, 2014-46, and 2015-25, and also favorably modifies several key factors of both requirements. In addition, on May 18, the U.S. Treasury Department released a revised version of Notice 2016-31, which states that the provisions of Notice 2016-31 apply to any project for which a taxpayer claims the PTC or, via Code Section 48(a)(5), the ITC, that is placed in service after January 2, 2013.

Treasury Department Issues New Guidance on PTC and ITC

May 05 2016

Earlier today, May 5, the U.S. Treasury Department released Notice 2016-31 to address certain changes made to the Production Tax Credit (“PTC”) and Investment Tax Credit (“ITC”) in the Protecting Americans from Tax Hikes (“PATH”) Act of 2015, Pub. L. No. 114-113, Div. Q. The Notice generally extends the application of the “beginning of construction” and “continuous construction” requirements set forth in Notices 2013-29, 2013-60, 2014-46, and 2015-25, but also creates a few new provisions that apply to renewable energy projects seeking the PTC or ITC after the PATH Act revisions to the Internal Revenue Code.

House Tax Extenders Package Would Renew the Wind PTC and Other Energy Provisions

Dec 03 2014

Congress is poised to enact a one-year retroactive tax extenders package that would renew a variety of tax incentives—including the production tax credit (PTC) for wind—through the end of 2014. On Wednesday, December 3, the House passed the Tax Increase Prevention Act of 2014 (H.R. 5771) by a vote of 378-46, sending the bill to the Senate for its consideration before the end of the Lame Duck session. Read More

Blumenauer Introduces Energy Tax Extenders Bill, Includes a Sought-After Amendment for Solar

Sep 24 2014

On Thursday, September 18, Rep. Earl Blumenauer (D-OR) led a group of 18 House Democrats in introducing the Bridge to a Clean Energy Future Act of 2014 (H.R. 5559). The bill would extend several energy tax incentives—many of which Congress allowed to expire at the end of 2013—through the end of 2015. The bill would also extend the production tax credit (PTC), as well as the election to receive an investment tax credit (ITC) in lieu of the PTC, for facilities producing energy from renewable resources through the end of 2016. Read More

IRS Attempts to Clear the Air with Additional Guidance on Renewable Energy Tax Credits

Aug 14 2014

On August 8, 2014, the IRS issued Notice 2014-46, which provides guidance on several issues relating to the implementation of recent changes to the renewable electricity production tax credit (PTC) under Section 45 of the Tax Code and the energy investment tax credit (ITC) in lieu of the PTC under Section 48. In particular, the Notice addresses the manner in which taxpayers can satisfy the “physical work” test and the effect of various types of transfers of ownership after the construction of a facility has begun. In addition, the Notice modifies the 5% safe harbor test included in previous notices. In light of the issuance of the Notice, the IRS says it will not issue private letter rulings on the topics addressed in the Notice.

Energy Tax Incentives Prominent in Senate Finance Committee’s Extenders Package

Apr 14 2014

The Senate Finance Committee approved its long-awaited tax extenders package on April 3, 2014. The Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act, which the Committee approved by voice vote, would extend dozens of temporary tax incentives that expired at the end of last year or are set to expire at the end of this year. Moreover, the package includes numerous energy tax incentives that lapsed at the end of last year.

The EXPIRE Act would extend the following energy tax provisions:

* Production tax credit and investment tax credit with respect to facilities producing electricity from certain renewable sources (e.g., wind) (Sections 45 and 48)
* Deduction for energy efficient commercial building property (Section 179D)
* Credit for residential energy efficient property (Section 25C)
Alternative fuel refueling property credit (Section 30C)
Credit for electric motorcycles and three-wheeled vehicles (Section 30D)
Second generation biofuel producer credit (Section 40)
Special depreciation allowance for second generation biofuel plant property (Section 168(l))
Tax credits for biodiesel and renewable diesel (Section 40A)
Credit for the production of Indian coal (Section 45(e)(10))
Credit for energy efficient new homes (Section 45L)
Alternative fuel and alternative fuel mixture credit (Sections 6426 and 6427(e))
Credit for new qualified fuel cell motor vehicles (Section 30B) (expires in 2014)

* Provision was not included in Senator Ron Wyden’s (D-OR) “Chairman’s mark” but was added to the package before the Committee’s mark-up.

That said, the EXPIRE Act is, for the most part, a “clean” extenders package, meaning that the proposal mostly changes termination dates and includes few changes to underlying policy. As a result, certain modifications sought by the renewable energy industry were not included. For example, the proposal would not expand Master Limited Partnerships (MLPs) along the lines of Senator Chris Coons’ Master Limited Partnerships Parity Act (S. 795). Additionally, the EXPIRE Act would not impose a “commence construction” requirement (as opposed to a “placed in service” requirement) with respect to solar projects under the investment tax credit under Section 48. Finally, it would not extend the credit for energy efficient appliances under Section 45M.

K&L Gates hosted Chairman Wyden for a breakfast meeting on April 8. Wyden stated that he is working with Senate leadership on a strategy that would bring the EXPIRE Act to the Senate floor. Some staff indicate that floor action could occur as early as the next congressional work period, during the weeks of April 28 or May 5. Meanwhile, the House Ways and Means Committee may also consider energy tax incentives soon as part of its planned series of hearings on tax extenders.

We will provide more updates as this debate unfolds over the coming months.

President’s Budget Sets Energy Tax Priorities

Mar 24 2014

On March 4, President Obama released his annual budget request to Congress. The President’s Fiscal Year (FY) 2015 request includes many proposals from previous years, but it also includes some new ideas—including on energy taxes. Below is a summary of the Administration’s energy tax proposals.

Modify and Permanently Extend the Renewable Electricity Production Tax Credit (PTC). As in its budget request last year, the Administration would make the Internal Revenue Code (IRC) Section 45 PTC permanent, refundable, and available to solar facilities. However, there are two significant changes from last year: (1) the Administration would make the credit available for electricity consumed directly by the taxpayer; and (2) solar facilities could choose to use either the PTC or the investment tax credit (ITC) under IRC Section 48 through the end of 2016. After 2016, the proposal would repeal the permanent 10 percent ITC for solar and geothermal property.
Modify and Permanently Extend the Deduction for Energy-Efficient Commercial Building Property. The Administration would raise the current maximum deduction for energy-efficient commercial building property to $3.00 per square foot, increase the maximum partial deduction for each separate building system to $1.00 per square foot, and provide a new deduction to reward energy savings achieved by retrofits to existing buildings, among other changes.
Provide a Tax Credit for the Production of Advanced Technology Vehicles. The Administration would replace the existing tax credit for plug-in electric drive motor vehicles with a credit for “advanced technology vehicles” that: (1) operate primarily on an alternative to petroleum fuels; (2) use technology employed by few other vehicles in the U.S.; and (3) exceed the “target” miles per gallon gasoline equivalent (MPGe) by at least 25 percent.
Provide a Tax Credit for Medium- and Heavy-Duty Alternative Fuel Commercial Vehicles. The Administration would create a new tax credit for alternative fuel vehicles weighing more than 14,000 pounds. The credit would equal $25,000 for vehicles weighing up to 26,000 pounds and $40,000 for vehicles weighing more than 26,000 pounds.
Extend the Tax Credit for Cellulosic Biofuels. The tax credit for the production of cellulosic biofuels under IRC Section 40 (recently re-titled the “second generation biofuel producer credit”) expired at the end of 2013. The Administration would retroactively extend the credit through 2020 at its current level of $1.01 per gallon.
Modify and Extend the Tax Credit for the Construction of Energy-Efficient New Homes. The Administration would extend the tax credit for new energy-efficient homes acquired before 2015. For homes acquired between 2015 and 2025, the proposal would provide a $1,000 credit for the construction of a qualified ENERGY STAR certified new home. The Administration would also provide a $4,000 tax credit for construction of DOE Challenge Homes.
Reduce Excise Taxes on Liquefied Natural Gas (LNG) to Bring Into Parity with Excise Taxes on Diesel. The Administration would lower the 24.3 cents per gallon excise tax on LNG to 14.1 cents per gallon after 2014.

The Administration has also proposed to repeal numerous tax preferences for conventional energy companies. In particular, the President proposed to repeal the following provisions:

Credit for Enhanced Oil Recovery (“EOR”) Projects
Credit for Oil and Natural Gas Produced from Marginal Wells
Expensing of Intangible Drilling Costs
Deduction for Tertiary Injectants
Exemption to Passive Loss Limitation for Working Interests in Oil and Gas Properties
Percentage Depletion for Oil and Natural Gas Wells
Domestic Manufacturing Deduction for Oil and Natural Gas Production
Expensing of Exploration and Development Costs
Percentage Depletion for Hard Mineral Fossil Fuels
Capital Gains Treatment for Royalties
Domestic Manufacturing Deduction for the Production of Coal and Other Hard Mineral Fossil Fuels

In addition to repealing these provisions, the Administration would increase the geological and geophysical amortization period for independent oil producers from two years to seven years.

Although it’s unclear whether Congress will enact any of these proposals into law, the Administration’s budget request is significant in that it establishes the President’s position on energy tax issues moving forward. This positioning is especially important as Congress debates tax extenders legislation and energy tax reform. It’s also important when considered in comparison to recent proposals from House Ways and Means Committee Chairman Dave Camp (R-MI), whose tax reform discussion draft would repeal incentives for alternative energy, and former Senate Finance Committee Chairman Max Baucus (D-MT), whose tax reform staff discussion draft would establish a regime of technology-neutral tax incentives to reward reductions in greenhouse gas emissions while eliminating other energy tax provisions.

Stay tuned for more information as this debate unfolds.

K&L Gates Policy Insight: Will Wyden Recharge the Batteries on the Finance Committee’s Energy Tax Reform Proposal?

Mar 04 2014

In late 2013, the Senate Finance Committee released a tax reform staff discussion draft on energy (the “energy draft”) as part of a series of tax reform proposals. According to Committee staff, the energy draft “proposes a dramatically simpler set of long-term energy tax incentives that are technology-neutral and promote cleaner energy that is made in the United States.” Although the departure of former Chairman Max Baucus (D-MT) from the U.S. Senate has thrown the fate of energy tax reform into doubt, there is ample reason to believe that his energy draft has hydrogen left in the fuel cell. This alert describes the energy draft and offers insights on the possible next steps for the proposal.To read the full alert, click here. Additional Resources: With so many different pieces to tax reform, it is easy to lose track of various proposals and materials. To access the most relevant tax reform information from the House Ways and Means Committee, Senate Finance Committee, the Administration, and others, please visit our Tax Reform Resources page.

February 25, 2014

Authors:

Mary Burke Baker

Government Affairs Advisor

mary.baker@klgates.com +1.202.778.9223

Cindy L. O’Malley

Government Affairs Counselor

cindy.omalley@klgates.com

+1.202.661.6228

Nicholas A. Leibham

Partner

nick.leibham@klgates.com