Production Tax Credits

Production Tax Credits

April 24, 2015 | By Keith Martin in Washington, DC

PRODUCTION TAX CREDITS for wind and geothermal projects remain at 2.3¢ a kilowatt hour in 2015, but moved up slightly from 1.1 to 1.2¢ a KWh for biomass, landfill gas, incremental hydroelectric and ocean energy projects, the IRS said in April.

The credits are adjusted each year for inflation as measured by the GDP price deflator. They run for 10 years after a project is originally placed in service.

The credits phase out if contracted electricity prices from a particular resource reach a certain level. That level in 2015 is 12.2688¢ a KWh. The IRS said there will not be any phase out in 2015 because contracted wind electricity prices are 4.50¢ a KWh going into the year, down from $4.85 the year before. It said it lacks data on contracted prices for electricity from the other energy sources.

Production tax credits for producing refined coal are $6.71 a ton in 2015. Refined coal is coal that has been treated with chemicals to make it less polluting than regular coal. The IRS said there will not be any phase out of refined coal credits in 2015. The refined coal credit phases out as the reference price for raw coal moves above 1.7 times the 2002 price of raw coal. The 2015 reference price is $57.64 a ton. A phase out would have started at $83.17 a ton.

Meanwhile, the IRS said at the end of March that it will no longer issue rulings about refined coal projects. The agency had been issuing rulings confirming that the processes taxpayers are using to treat coal lead to production of “refined coal,” but had not been ruling on whether the transaction structures sponsors have been using with tax equity investors work to transfer tax credits. Jaime Park, chief of the IRS branch that handles the credit, said the decision to stop ruling was purely a resource issue. Congress has cut the IRS budget in each of the last five years. The agency is down 13,000 employees from 2010 and has a hiring freeze that prevents ruling branches from replacing any lawyers who leave. It is looking for ways to save on resources.

The announcement about the no-rulings policy is in Revenue Procedure 2015-29.

by Keith Martin in Washington