As discussed previously on the blog, Section 1603 of the American Recovery and Reinvestment Tax Act of 2009 provides for Treasury payments to eligible persons who place in service certain energy property. These payments are equal to 10 percent or 30 percent of the basis of the energy property in lieu of the Energy Credit under Section 48. Guidance regarding the 1603 Grants has generally been in the form of frequently asked questions (“FAQs”) posted on the U.S. Department of Treasury website.
On April 13, 2011, the Treasury Department posted changes to a mix of topics associated with the Section 1603 grants that are generally very taxpayer friendly. For example, the new guidance clarifies that if a facility uses a gas or liquid derived from open-loop biomass, closed-loop biomass, or municipal solid waste to produce electricity, equipment used to produce and process such gas or liquid may be an integral part of the facility. Conversion equipment that is owned by the same person and located at the same site as the qualified facility will generally be treated as an integral part of the facility. Importantly, the Treasury eliminated a requirement that this equipment to be located on the same site as a qualified facility to be considered integral to the operations. This is a very common issue for municipal waste facilities where the conversion equipment is required by local zoning rules to be at a different location than the renewable energy facility. One open question is whether the equipment that is used to transport the materials from one site to another also qualifies for the grant.
The new FAQs also eliminate the rule that a qualified facility under Section 45 must be capable of operating as an independent unit. This requirement is satisfied if the property meets the placed in service dates applicable to the Section 1603 grants. In other words, an addition to a qualifying facility of equipment that is integral to the facility’s operations (i.e. a conversion unit) will qualify for the grant if it meets the placed in service dates (post 2008). Many biomass facilities that existed prior to 2009 have had material additions or modifications to their existing facilities for integral equipment to processing the renewable energy and this new rule should provide some relief.
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