Tax Credits

Tax Credits

June 11, 2014

Tax credits for renewable energy remain in limbo in Congress.

Senator Harry Reid (D-Nevada), the Senate majority leader, suggested at a press conference in early June that the Senate is unlikely to take up a bill before late November at the earliest to extend the deadline to start construction of new wind, geothermal, biomass, landfill gas and ocean energy projects by another two years through December 2015 to qualify for federal tax credits. Such projects had to be under construction by December 2013 to qualify. The Senate tax-writing committee voted on April 3 to allow another two years through 2015 to start construction. However, Republicans blocked the bill from being taken up by the full Senate after Reid prevented Republicans from offering an amendment to repeal an excise tax on medical devices that is part of the funding for Obamacare.

The construction start language is part of a broader tax extenders bill that would extend more than 50 tax benefits that expired in 2013 or are scheduled to expire this year.

It is possible Congress will find a way to deal with the issues in a “lame duck” session after the November elections. It is also possible, if the November elections give the Republicans control over both houses of Congress, that Republicans will want to push unfinished business into the new Congress that starts in January 2015 when they will be in control.

Meanwhile, the Internal Revenue Service is expected to release additional guidance in July on how much work had to be done in 2013 for a project to be considered under construction under the “physical work test.” The guidance is being drafted by the US Treasury and is currently expected to take the form of questions and answers.

There were two ways to start construction of projects in 2013. One was by incurring at least 5% of the project cost. The other was by starting physical work of a significant nature.

The tax equity market has largely shut down for projects that relied on physical work while the market waits for the new guidance.

Meanwhile, the IRS has decided not to issue any private letter rulings on construction start issues after accepting a number of ruling requests and then deciding that they were all too factual.

by Keith Martin