Treasury Cash Grants

Treasury Cash Grants

November 20, 2014 | By Keith Martin in Washington, DC

Treasury cash grants have moved into a litigation phase.

There are 20 pending lawsuits against the US Treasury by companies that feel the Treasury paid smaller cash grants on renewable energy projects than they were entitled to receive. Many renewable energy projects placed in service between 2009 and 2013 had the option of being paid 30% of the cost of the project in cash by the Treasury in lieu of taking federal tax credits. Some solar projects still retain that option if they are completed by December 2016. The payments are made under section 1603 of the American Recovery and Reinvestment Tax Act.

Twenty-two lawsuits in total have been filed against Treasury, but the taxpayers withdrew two after the Treasury filed counter-claims accusing the companies of fraud.

All the suits have been filed in the US Court of Federal Claims. The oldest pending suit was filed in July 2012. Companies have six years after a grant is paid to decide whether to litigate.

Some taxpayers have asked the court to decide their cases at “summary judgment,” meaning they feel there is no disagreement about the facts and the judge should decide the cases based on legal briefs filed by each side. The government has opposed some summary judgment motions on grounds that it needs to do more discovery to establish the facts, but filed its own motion for summary judgment in others.

Meanwhile, a US Claims Court judge ordered the Treasury in October in a case involving a solar rooftop company to disclose the benchmarks it used from the start of the program to pay grants on rooftop systems and to disclose limited information about how it dealt with the company's applications. However, the judge declined to compel disclosure of other information, including what the Treasury paid on comparable applications, or information about how it developed its general screening policies or the lower benchmarks it used to make payments than the amounts for which the company applied. Discovery in the case is now scheduled to run into early August 2015, making a decision in the case unlikely before 2016.

The earliest decision in any of the pending lawsuits could come in early 2015 in a case involving a biomass project that the Treasury says qualified for only a partial grant because it produced both steam and electricity and only the part of the project related to electricity generation qualified for a grant. (For earlier coverage of the biomass case, see the February 2013 NewsWire article.) The court is scheduled to hear arguments in the case starting on December 15.

In other developments, the Treasury said in October that grants approved for payment between October 1, 2014 and September 30, 2015 will be subject a haircut of 7.3% due to budget sequestration. The figure was 7.2% for grants approved for payment in fiscal year 2014. Sequestration will continue through fiscal year 2021 unless rescinded by Congress.

A technical corrections bill awaiting action in the “lame duck” session of Congress would clarify that Treasury cash grants do not have to be reported as income by companies paying taxes under the alternative minimum tax. The American Recovery and Reinvestment Tax Act made clear that the grants are not income for regular income tax purposes. However, Congress failed to say anything at the time about the alternative minimum tax. US corporations must compute their taxes under the regular corporate income tax and the minimum tax and pay essentially which-ever tax is greater. The technical correction has been waiting for Congressional action since 2010.

The IRS has given up waiting and feels it must enforce the law as written until the technical correction is enacted. The correction would be retroactive as if included in the original statute.

contributed by Keith Martin in Washington