Grants in Lieu of Tax Credits Under the Recovery Act — A Square Peg in a Round Hole
Before the American Recovery and Reinvestment Act of 2009 (P.L. 111-5, 2/17/09) (ARRA), various types of renewable energy property benefited for many years from tax subsidies in the form of two types of tax credits, production tax credits (PTCs) under Section 45 and investment tax credits (ITCs) under Section 48. The tax title of ARRA contained two unusual provisions:
- ARRA section 1102 added Section 48(a)(5) to the Code, allowing taxpayers to claim the Section 48 ITC with respect to investments in certain types of facilities that hitherto had been eligible only for the Section 45 PTC.
- ARRA section 1603 permitted persons placing certain qualified property in service to elect to receive cash grants from Treasury in lieu of claiming either the PTC or the ITC with respect to the property (“ARRA grants”).
In July 2009, Treasury issued guidance setting forth (1) grant application procedures, (2) several substantive positions regarding the interpretation and implementation of ARRA section 1603, and (3) safe harbors relating to certain of those positions. The guidance represents a monumental effort on the part of Treasury to fit the square peg of the tax credit (particularly, the very square peg of the PTC) into the round hole of the grant program. Nevertheless, the guidance clearly represents a work in process. Many important questions about the operation of the grant program were left unanswered, and Treasury has faced a barrage of e-mailed questions from applicants and their advisors. Treasury officials have stated that additional guidance is expected to be issued in the form of “frequently asked questions” and answers.
This article first appeared in the Journal of Taxation.