ALBANY AMSTERDAM ATLANTA AUSTIN BOSTON CHICAGO DALLAS DELAWARE DENVER FORT LAUDERDALE HOUSTON LAS VEGAS LONDON* LOS ANGELES MIAMI NEW JERSEY NEW YORK ORANGE COUNTY ORLANDO PALM BEACH COUNTY PHILADELPHIA PHOENIX SACRAMENTO SHANGHAI SILICON VALLEY TALLAHASSEE TAMPA TYSONS CORNER WASHINGTON, D.C. WHITE PLAINS ZURICH Strategic Alliances with Independent Law Firms** MILAN ROME TOKYO IRS Sets September 16, 2009 Application Deadline for Investment Tax Credit Awards in $2.3 Billion Program to Encourage Renewable Energy Equipment Makers to Expand Domestic Manufacturing Base The most recent stimulus bill, enacted in February as the American Recovery and Reinvestment Act of 2009, established a tax credit amounting to 30 percent of the cost of certain tangible property purchased for the manufacture of advanced energy property. Broadly speaking, advanced energy property is equipment used in clean or renewable energy production. This credit (herein called the Manufacturing Credit 1 ) is provided in new Section 48C of the Internal Revenue Code. Unlike most other tax credits, the amount allowable to taxpayers in the aggregate under Section 48C is capped at $2.3 billion. The Treasury was therefore directed to set up a program, in consultation with the Department of Energy (DOE), to allocate the $2.3 billion in available tax credits to selected taxpayers based on a competitive application process. The details of this program were recently announced in Notice 2009-72 (the Notice ), 2 released by the Treasury Department and the Internal Revenue Service (IRS) on August 13, 2009. Significantly, the Notice announced an initial allocation round for the Manufacturing Credit with a multi-step application process and fastapproaching deadlines. The eligibility requirements for the Manufacturing Credit, as well as the application procedures prescribed in the Notice, are summarized below. Of particular importance is the September 16, 2009, deadline established in the Notice for the submission of an initial application to the DOE. Taxpayers wishing to qualify for the Manufacturing Credit must act quickly in order to participate in the initial allocation round. Eligibility Requirements In order to qualify for an allocation under Section 48C, a taxpayer must invest in eligible property that is part of a project that re-equips, expands or establishes a manufacturing facility designed to produce one or more of the following types of advanced energy property (such a project is referred to as a Qualifying Project in this Alert): Property designed for use in the production of energy from the sun, wind, geothermal deposits, or other renewable resources; Fuel cells, microturbines, or an energy storage system for use with electric or hybrid-electric motor vehicles; Electric grids to support the transmission of intermittent sources of renewable energy, including property for the storage of such energy; Property designed to capture and sequester carbon dioxide and sequester carbon dioxide emissions; GREENBERG TRAURIG, LLP ATTORNEYS AT LAW WWW.GTLAW.COM - 1
Property designed to refine or blend renewable fuels (but not fossil fuels) or to produce energy conservation technologies (including energy-conserving lighting technologies and smart grid technologies); New qualified plug-in electric drive motor vehicles, qualified plug-in electric vehicles, or components that are designed specifically for use with such vehicles, including electric motors, generators, and power control units; or Other advanced energy property designed to reduce greenhouse gas emissions as may be determined by the IRS (this determination may be made pursuant to published guidance or in the letter notifying the taxpayer that the IRS has accepted the taxpayer s application for Section 48C certification with respect to the property). A taxpayer that receives an allocation of the $2.3 billion in available Manufacturing Credits may claim the amount allocated as a credit for the taxable year in which the eligible property is placed in service. Significantly, the Notice provides that the Manufacturing Credit may be available to taxpayers that produce goods that require additional manufacture before becoming advanced energy property. Only property (1) that is necessary for the production of advanced energy property, (2) that is tangible personal property, or other tangible property (not including a building or its structural components) that is used as an integral part of a Qualifying Project, and (3) with respect to which depreciation (or amortization) is allowable, is eligible property for which the Manufacturing Credit may be claimed. Applying and Receiving Certification for the Manufacturing Credit The Notice sets forth the procedure under which the DOE and the IRS will review and make determinations regarding the eligibility and merit of an applicant for the Manufacturing Credit, as well as the method for allocating the $2.3 billion in credits available under Section 48C. The application period for the initial allocation round began on August 14, 2009, and ends on December 16, 2009. The applicant generally must apply both to the DOE for recommendation of the project involved as a Qualifying Project, and to the IRS for an allocation of the $2.3 billion cap. A preliminary application for DOE s recommendation must be submitted to the DOE by September 16, 2009, and a final application for DOE s recommendation must be submitted to the DOE by October 16, 2009. The form for the preliminary application, and the content and format for the final application, are included in Sections I and G, respectively, of Appendix B to the Notice. Only general project information necessary for an initial eligibility screening is required in the preliminary application; whereas, the final application must contain detailed information that will be used by DOE to rank the applicants projects in accordance with the various selection criteria specified in the Notice. After reviewing the initial and final applications, the DOE will provide its recommendations to the IRS by December 16, 2009, which will include a ranking of projects in descending order. The initial round applicant must also submit an application for certification under Section 48C to the IRS by December 16, 2009; and the IRS will accept or reject the application and notify the taxpayer of its decision by January 15, 2010. All timely filed applications for certification will be deemed to be received on December 16, 2009 as a result, the $2.3 billion cap is not allocated on a rolling basis, and no priority is given to early filers. The IRS will use the ranking provided by the DOE to allocate the $2.3 billion, with the higher-ranking Qualifying Projects being allocated the full amount of the Manufacturing Credit requested before any credit is allocated to GREENBERG TRAURIG, LLP ATTORNEYS AT LAW WWW.GTLAW.COM - 2
a lower-ranked Qualifying Project. If the entire $2.3 billion is not allocated during the initial round, a similar allocation round will be conducted in 2010-2011. If a Manufacturing Credit is allocated to a taxpayer s Qualifying Project, the taxpayer will be required to execute an agreement in the form set forth in Appendix A to the Notice. Initial round applicants must return this agreement to the IRS by March 15, 2010, and the IRS will execute and return the agreement to the applicant by April 16, 2010. A successor in interest to the taxpayer must execute a new agreement with the IRS or risk forfeiture or recapture of the Manufacturing Credit. A successful applicant will be required to submit to the IRS, within one year of the date of acceptance of its application for certification under Section 48C, evidence that the requirements of the certification have been met. The IRS will then decide whether to certify the Qualifying Project and will notify the taxpayer of its decision. If the IRS certifies the Qualifying Project, the taxpayer is required to place the Qualifying Project in service within three years of obtaining notice of this certification. Eligibility and Selection Criteria Appendix B to the Notice sets forth the information that must be included by an applicant in its submissions to the DOE, and sets forth certain eligibility criteria, evaluation criteria, and program policy factors that the DOE will consider in reviewing, recommending, and ranking Qualifying Projects for an allocation under Section 48C. It is important that applicants consider and address these criteria/factors in their submissions. The eligibility criteria, which must be satisfied in order for a project to be eligible for an allocation under Section 48C, require that the project under consideration qualify as a Qualifying Project and have a reasonable expectation of commercial viability. The evaluation criteria represent specific goals that the DOE targets for Qualifying Projects under the Section 48C program. Pursuant to these criteria, which the DOE will weigh equally, Qualifying Projects will receive a higher rank to the extent they are determined to (1) provide the greatest domestic job creation; (2) provide the greatest net impact in avoiding or reducing air pollutants or anthropogenic emissions of greenhouse gases; (3) have the greatest potential for technological innovation and commercial deployment, as indicated by (a) the production of new or significantly improved technologies, (b) improvements in levelized costs and performance, and (c) manufacturing significance and value; and (4) have the shortest project time from certification to completion. The policy program factors represent overarching policy goals which the DOE hopes to advance under the Section 48C program. These factors include achieving geographic diversity, technology diversity, project size diversity, and regional economic development. Miscellaneous Considerations The taxpayer must inform the IRS if a significant change in the plans for the Qualifying Project set forth in the applications occurs; this will result in disqualification or forfeiture of the Manufacturing Credit. A significant change is defined as any change that a reasonable person would conclude might have influenced the DOE or the GREENBERG TRAURIG, LLP ATTORNEYS AT LAW WWW.GTLAW.COM - 3
IRS in recommending, ranking, or approving the Qualifying Project for the Manufacturing Credit in the plans set forth in the applications. An acceptance, allocation, or certification by the IRS is not a determination that a Qualifying Project is eligible for the Manufacturing Credit, and the IRS may subsequently determine that the Qualifying Project does not so qualify. A taxpayer does not have a right to a conference with, or to appeal any decision made pursuant to the Notice by, the DOE or the IRS. Upon making a certification of a Qualifying Project, the IRS will publicly disclose the identity of the applicant and the amount of the Manufacturing Credit certified with respect to such applicant. Other information, such as trade secrets and financial information, will generally remain confidential. All submissions to the IRS and the DOE pursuant to the Notice must be made by the applicant under penalties of perjury. This GT Alert was prepared by Justin Mead, Jessica Graf and Michael Einig. For more information on how to qualify or apply for the Manufacturing Credit, please contact: Justin Mead 305.579.0781 (meadj@gtlaw.com) Jessica Graf 617.310.6006 (grafj@gtlaw.com) Or your Greenberg Traurig attorney 1 The Manufacturing Credit entitles a taxpayer to a dollar-for-dollar reduction in the taxpayer s U.S. federal income tax liability. Tax credits are thus more beneficial than tax deductions, which generally entitle a taxpayer to a benefit of $0.35 for each $1 of deduction. 2 2009-36 IRB. GREENBERG TRAURIG, LLP ATTORNEYS AT LAW WWW.GTLAW.COM - 4
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