The IRS is under pressure to relax the rule that electricity from US wind farms and geothermal and biomass power plants must be sold to an “unrelated person” in order for the plant owners to claim production tax credits of 2.1¢ a kilowatt hour. (The credits are 1¢ a kWh in the case of biomass plants.) Six members of the House tax-writing committee wrote the Treasury Department a letter in late April asking the government to relax the rule. The letter writers want the credits to be allowed in a case where a utility owns a power plant in partnership with a developer and the utility buys all the electricity. Under current rules, the utility is considered related to the partnership if it provides more than half the capital for the project or is allocated more than half the income . . . . Some accounting firms have been encouraging companies that receive tax incentives in the form of property or income tax abatements or rate reductions, as an inducement to relocate and bring jobs, to claim tax deductions for state or local taxes paid as if the companies had paid the full taxes at statutory rates. The accounting firms claim that the incentives must be reported as income, but the income can then be excluded under a special rule in section 118 of the US tax code that lets corporations avoid reporting “nonshareholder contributions to capital” as income. The argument is that since the amounts were income — absent this exclusion — they can be deducted as taxes paid. The IRS put out a “coordinated issues paper” to its agents in the field in late May to flag the scheme. The IRS said the tax abatements are not income. The paper is LMSB-04- 0408-023.