Grants in lieu of business energy credits.

• Author: Valentine, Tracy M.

The American Recovery and Reinvestment Act of 2009, P.L. 111-5 (ARRA), included the option to receive a cash grant in lieu of taking the business energy credit for taxpayers who place in service specified energy property (ARRA [section] 1603). Congress recognized that taxpayers with renewable energy projects were having financing difficulties in the tight credit market and that credits did not provide an incentive for those taxpayers with no taxable income during the down economy. The goal of the grants was to rectify both these situations by replacing the tax credit with a cash payment. Details on how to obtain one of these grants were limited until July 9, 2009, when Treasury issued guidance (available at www.treas.gov/ recovery/docs/guidance.pdf). Treasury began accepting applications on July 31, 2009, and cash payments were scheduled to begin in October 2009.

Eligible Property

Two categories of property are eligible to receive the energy grants: those that qualify for the business energy investment tax credit (ITC) under Sec. 48 and those that qualify for the renewable electricity production tax credit (PTC) under Sec. 45 but elect to qualify under the ITC instead. ITC property qualifying for a 30% grant includes solar, qualified fuel cell, and qualified small wind energy property. ITC property qualifying for a 10% grant includes geothermal, qualified microturbines, and combined heat and power system property. Fuel cells are limited to $1,500 per 0.5 kilowatt capacity and microturbines to $200 per kilowatt capacity. PTC property qualifying for a 30% grant includes landfill gas, wind, biomass, hydroelectric, geothermal, marine, and hydrokinetic facilities. Energy producers cannot claim the PTC when they elect to qualify under the ITC.

Eligible basis of the energy property is calculated in the same manner as under the tax credit rules and includes equipment cost, installation, delivery, etc. Documentation of eligibility, basis calculation, and placed-in-service date must be submitted with the grant application. This includes an independent accountant's certification for properties with a cost basis in excess of $500,000. Copies of invoices, contracts, check copies, etc. do not need to be submitted but must be retained by the applicant and may be requested by Treasury. No grant is allowed for the portion of the cost of the property for which the Sec. 179 deduction will be taken. As with the tax credits, the depreciable basis of the...