IRS foreshadows new energy credit regulations.

AuthorHecimovich, Gary

On Oct. 2, 2015, the IRS issued Notice 2015-70 requesting comments on future guidance related to the definition of qualifying energy property under Sec. 48. The notice states that Treasury and the IRS "anticipate" they will issue new regulations to define certain types of property qualifying for the investment tax credit (ITC). This item describes the evolution of the ITC, information about the timing and scope of potential future regulations, and potential issues that the IRS may attempt to address in the guidance.

Request for Comments and the Importance of Future Guidance to Energy Credits

Based on history, it would be unusual for the IRS to formally request public comments if new guidance were being considered in the form of another notice, revenue ruling, or revenue procedure, not regulations. Notice 2015-70 expressly notes the intention to update the current regulations under Sec. 48, which the IRS has not revised since 1987. The 2015-2016 Priority Guidance Plan the IRS released on July 31, 2015, included a new project fisted as "Guidance on the definition of qualifying energy property under [section] 48." The notice confirms the project will likely result in new regulations.

The IRS requested comments that address the following:

  1. Whether only property that actually produces electricity may be considered energy property or whether property such as storage devices and power conditioning equipment may also be considered energy property;

  2. Whether dual-use property should qualify for the credit and, if so, under what circumstances. If it should qualify, what portion of the basis of dual-use property should be taken into account in computing the energy percentage;

  3. Comprehensive definitions of the property described in Section 3 of the notice;

  4. Definitions of terms such as storage devices, power conditioning equipment, transfer equipment, and other property commonly used in conjunction with property described in Section 3 of the notice, as well as definitions of parts related to the functioning of these items; and

  5. The need for other energy-related definitions.

The deadline for submitting comments was Feb. 16, 2016. The IRS may first issue proposed regulations, which must be drafted, reviewed, and published--a process that often takes significant time. Proposed regulations often take up to a year or even many years to issue. Although not as likely, it is also possible that the IRS will issue temporary regulations that provide immediate guidance to taxpayers prior to publishing final regulations.

After the IRS issues proposed regulations, taxpayers have another chance to formally comment prior to the publication of the final regulations. Issuing final regulations may also take a significant amount of time.

Taxpayers may find it difficult to obtain private letter rulings on these issues while the regulation process is underway. It is possible that the IRS would issue proposed regulations as early as the spring of 2017, followed by a 60-day window for comments on the proposed regulations and a public hearing held approximately three weeks after the 60-day comment window. Based on this estimate, the IRS would promulgate final regulations no earlier than the fall of 2018.

Past Regulations Relating to Sec. 48 and Energy Credits

In 1981, the IRS issued final regulations under Sec. 48 that are still in effect (Regs. Sec. 1.48-9). In 1987, the IRS revised its regulations for...

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