To avert the much talked about fiscal cliff legislation, the House approved the “American Taxpayer Relief Act of 2012” extending a number of tax provisions. Included in the package of extensions was Section 407, regarding Income Tax Code Section 45. Section 45 generally allows a credit (the Production Tax Credit, or PTC) based on the amount of electricity sold to an unrelated taxpayer that is produced at a qualified renewable energy facility (including a wind facility) over a 10-year period beginning on the date the facility is placed in service. Over the 10 years, the owners of the qualified facilities are able to offset federal taxes due with the credits generated from the sale of this electricity. To qualify for the PTC, Section 45 required that the facility must be placed in service before January 1, 2013.
Most wind energy facilitates have a lead time of a couple of years and the impending cut-off date dramatically reduced the amount of wind facility transactions in 2012. Section 407 not only changes the placed-in-service date to January 1, 2014, it importantly adds that the qualified facility needs to have begun construction before January 1, 2014. The IRS will have to issue guidance addressing what is considered “beginning construction” for purposes of satisfying this provision. The IRS will presumably borrow language from the 1603 Treasury grants that had also provided a beginning construction provision. Hopefully, this will provide new life into a number of wind deals that were delayed pending the outcome of legislation.
A copy of the legislation, H.R. 8, passed January 1, 2013, can be found here.