Treasury cash grants

Treasury cash grants

November 14, 2012

TREASURY CASH GRANTS for renewable energy projects are subject to audit by the Internal Revenue Service, but the IRS can share little information with the Treasury, the IRS said in an internal memorandum. 

The IRS has a “compliance initiative project” under which it will be examining a sampling of renewable energy companies that received grants (also called section 1603 payments). The IRS will be focusing, among other things, on whether a company used the right tax basis for calculating depreciation. The IRS can audit for up to three years after the due date for the tax return on which any excess grant would have had to be reported as income if the agency finds the grant was overpaid. Thus, if a grant was received in 2011, the IRS would normally have until some time in 2014 to audit.

The IRS does not have authority to ask for any grant overpayment back. However, it can insist that a company report any excess grant as income. 

The Treasury has six years from when an overpayment is discovered to ask for repayment. It would like the IRS to alert it to any overpayments that are uncovered on audit. The IRS said it is barred  by a Nixon-era statute called the Privacy Act from sharing taxpayer information with the Treasury. Its findings on audit are considered taxpayer information. The agency said in an internal legal  memorandum that it can only advise the Treasury if it finds a grant recipient also claimed tax credits or failed to reduce its depreciable basis by one half the grant, since these relate to grant eligibility and compliance with the grant terms and conditions. Other information can be shared only if grant recipients consent to disclosure.

The memo is Internal Legal Memorandum 201237018. The IRS made it public in September.