The Treasury Department has issued more than $7 billion under the popular 1603 grant program since its inception. This is a lot of money, and it was inevitable that auditing would come into the picture. The IRS, unlike the Treasury, has an extensive and well known examination process to inspect and verify the information reported on taxpayer returns. Although the Office of Fiscal Policy administers and closely scrutinizes and reviews 1603 grant applications, which are in lieu of income tax credits, the Treasury does not have the manpower to audit all the grant recipients and the IRS has no jurisdiction over the grant recipients.
The Treasury Department’s Inspector General, however, has begun examining a handful of projects that received 1603 grants. These audits will try to determine through the sample of grants reviewed whether the Treasury Department established appropriate procedures for awarding grants. The Inspector General will ultimately make recommendations to the Office of Fiscal Policy which will decide whether or not to pursue any concerns that are identified.
One likely topic in the Inspector General Audits will be the cost basis reported in 1603 grant applications. On June 30, 2011, the Treasury posted a document on the 1603 website to provide applicants with guidance on how to evaluate eligible costs. (See “NEW: Evaluating Cost Basis for Solar Photovoltaic Property”.) In order to ensure that a Section 1603 applicant’s claimed cost basis reflects the eligible property’s fair market value, Treasury stated that it will more closely scrutinize cases involving related parties, related transactions, or other unusual circumstances. To do this, Treasury developed a number of benchmarks that it utilizes in comparing the cost of the equipment to the energy being produced. The document released on June 30th provides the public with those benchmarks and states that applications with a claimed basis that is materially higher than the benchmarks will receive closer scrutiny. 1603 recipients should be aware of these benchmarks and make sure they have the proper documentation in place to prove the eligibility of the costs claimed in the 1603 grant.
Todd B. Reinstein, Esq.
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