[RE-wrenches] IRS Guidance on Electing ITC

[Joel Davidson]

IRS Guidance on Electing ITC
(Copyright 2009 Stoel Rives LLP)

On Friday, June 5, 2009, the Internal Revenue Service issued Notice 2009-52, 
which provides guidance informing taxpayers how to elect to claim the 
Investment Tax Credit ("ITC") under IRC § 48 in lieu of the Production Tax 
Credit ("PTC") under IRC § 45 with respect to qualifying projects. This 
election was provided for as part of the American Recovery and Reinvestment 
Act of 2009 ("ARRA"). The election to claim the ITC in lieu of the PTC 
applies to the following types of renewable energy facilities:

1. Wind;
2. Biomass (both closed- and open-loop);
3. Geothermal;
4. Landfill gas;
5. Trash facilities;
6. Qualified hydropower; and
7. Marine and hydrokinetic.
Notice 2009-52 appears to provide the exclusive means by which taxpayers may 
make the election. To qualify, a taxpayer must claim the ITC with respect to 
qualified property that is an integral part of the facility on a completed 
Form 3468. Form 3468 must be filed with the taxpayer's income tax return for 
the year in which the property is placed in service.

A separate election must be made for each qualifying facility.

Observation: This requirement may be very important if the IRS defines 
"qualifying facility" very narrowly. For example, if the qualifying facility 
for a wind farm is each turbine, the election procedure will be extremely 
onerous. There is no indication in Notice 2009-52 of how the IRS will define 
a facility for this purpose.

The following information must be provided with each election:

1.  Name, address, taxpayer ID number, and telephone number of the taxpayer.

2.  For each qualified investment credit facility:
(i)  A detailed technical description of the facility, including generating 
capacity.
(ii)  A detailed technical description of the energy property placed in 
service during the taxable year as an integral part of the facility, 
including a statement that the property is an integral part of such 
facility.
(iii)  The date that the energy property was placed in service.
(iv)  An accounting of the taxpayer's basis in the energy property.
(v)  A depreciation schedule reflecting the taxpayer's remaining basis in 
the energy property after the energy credit is claimed.

3.  A statement that the taxpayer has not and will not claim a grant under 
Section 1603 of ARRA for property for which the taxpayer is claiming the 
energy credit.

4.  A declaration, applicable to the statement and any accompanying 
documents, signed by the taxpayer or by a person currently authorized to 
bind the taxpayer in such matters, in the following form:
"Under penalties of perjury, I declare that I have examined this 
statement,including accompanying documents, and to the best of my knowledge 
andbelief, the facts presented in support of this statement are true, 
correct,and complete."

Observation: Notice 2009-52 does not address what constitutes what property 
will be considered "integral" to a qualified facility. Presumably, this will 
be addressed in subsequent guidance.

Finally, Notice 2009-52 requires that the taxpayer making the election 
retain adequate books and records, including the information required to be 
provided by Notice 2009-52 and all supporting documentation.

Observation: Notice 2009-52 focuses on the procedural aspects of the PTC to 
ITC election. It provides virtually no guidance on grants in lieu of the ITC 
under Section 1603 of ARRA, and offers little in the way of substantive 
guidance. The Treasury is expected to issue such substantive guidance on 
these and other issues in the coming months.