January 01, 2009 | By Keith Martin in Washington, DC

CREBs can be issued to finance electric generating equipment at a landfill, even though the landfill benefited in the past from tax credits for producing landfill gas, the IRS said.

CREBs are bonds that a municipal utility, electric cooperative or Indian tribe can issue to borrow to pay for new generating equipment that uses renewable energy. No interest is paid on the loan. The lender can claim federal tax credits instead. The acronym stands for “clean renewable energy bonds.” Anyone wanting to use the bonds must get an allocation of bond authority from the US Treasury Department. Congress authorized another $800 million in CREBs in October.

Congress provided tax credits to landfill gas producers in the past as an inducement to produce the gas. It provides separate production tax credits currently to power companies as an incentive to use landfill gas and other forms of renewable energy to generate electricity. However, Congress considers it double dipping for the same project to benefit from both types of tax credits. Thus, production tax credits cannot be claimed by an electricity generator to the extent he uses landfill gas from wells whose output qualified in the past for the gas producer credits.

An electric cooperative plans to use such gas in generators it is installing at an existing landfill.

Congress created CREBs to give municipal utilities, coops and Indian tribes a tax subsidy on power plants that would have qualified for production tax credits had they been privately owned.

The IRS told the coop in a private ruling that the bonds can be used to finance the type of project that would have qualified for production tax credits if it had been privately owned.

It said there is no need to inquire further into details about whether the project would have qualified in fact for production tax credits in private hands. The ruling is PLR 200844008. The agency made it public in November.

Keith Martin