Section 48C Tax Credits

Section 48C Tax Credits

January 15, 2011

Section 48C tax credits may be lost if the project changes location.

The IRS awarded $2.3 billion in tax credits in early 2010 to solar panel, wind turbine blade and other manufacturers as an inducement to build new factories. The credits are for 30% of the project cost. They are claimed on the cost of new equipment used to equip a factory that makes products for the new green economy.

However, a company risks losing the credits if there is a significant change from what it told the IRS it planned when applying for the credits. The IRS national office said in an internal memo written in April 2010, but not released until December 30, that companies are asking lots of questions.

Responding to the two most frequent questions, it said the credits are not at risk if the rights to the credits are transferred to a “successor in interest” to the project, including in a sale leaseback of the factory equipment within three months after it is first put into service, but what happens if the project changes location is more difficult. It said the issue when a company decides to put the factory some place else is whether that would have caused the US Department of Energy, which helped review the applications for tax credits, not to have chosen the company’s project. It said the Department of Energy has promised to give a view on proposed changes on an “expedited basis.”

The IRS has suggested privately that a company should compare the unemployment rates in the counties where the original project was supposed to be located and where it has been moved. If the unemployment rates are comparable and the number of jobs created in the new location is the same or greater than in the old location, then the relocation should normally not be a problem.

Keith Martin