Congress is moving towards passing The Taxpayer Certainty and Disaster Relief Act of 2019 (Extenders Bill). If enacted, the Extenders Bill would extend certain tax credits for the renewable energy and alternative fuels industries and make certain other changes to energy tax-related provisions.
Highlights of the Extenders Bill include:
- One-year extension of the section 45 production tax credit (PTC) (and section 45 investment tax credit (ITC) in lieu of PTC) for wind facilities if construction begins in 2020 at a 40% reduction of the full PTC or ITC,
- Three-year extension for certain PTC-eligible facilities,
- Extensions of the biodiesel and alternative fuel tax credits, and
- Extensions of additional energy tax provisions.
Notably, the Extenders Bill does not include any extension of the investment tax credit for solar facilities or any provision specifically providing a tax credit for offshore wind facilities or standalone batteries and other storage.
Congressional leaders unveiled the Extenders Bill on December 17, 2019. The Extenders Bill is expected to be attached to spending bills that are expected to be passed into law by December 20.
Production Tax Credit (PTC)
Under existing law, the amount of the otherwise available PTC (and ITC in lieu of PTC) for wind facilities ramps down for wind facilities the construction of which began after 2016 and is fully eliminated for facilities the construction of which begins after 2019.
Under the Extenders Bill, for wind facilities the construction of which begins in 2020 only, the amount of available PTC (and ITC in lieu of PTC) would be restored to the same level that was available for projects the construction of which began in 2018.
| If construction begins: |
Existing Law
The otherwise available PTC (or ITC) is reduced by:
|
Extenders Bill
The otherwise available PTC (or ITC) is reduced by:
|
| Prior to 2017 |
0% |
0% |
| In 2017 |
20% |
20% |
| In 2018 |
40% |
40% |
| In 2019 |
60% |
60% |
| In 2020 |
100% |
40% |
| In 2021 or later |
100% |
100% |
| Eversheds Sutherland Observation: Taxpayers that began construction on facilities in 2019 will need to consider opportunities to obtain the higher tax credit amount available for construction that begins in 2020. |
Under existing law, the PTC (and ITC in lieu of PTC) is no longer available for the following facilities on which construction began after December 31, 2017:
- closed-loop biomass facilities,
- open-loop biomass facilities,
- geothermal energy facilities,
- landfill gas facilities,
- trash facilities,
- qualified hydropower facilities, and
- marine and hydrokinetic renewable energy facilities.
Under the Extenders Bill, the 100% PTC (and ITC in lieu of PTC) would be available for these facilities if construction begins by December 31, 2020. The proposed change is retroactive to January 1, 2018, enabling credits to be claimed for 2018 and later years.
Investment Tax Credit (ITC)
Under the Extenders Bill, there would be no change made to the ITC other than with respect to PTC-eligible facilities noted above. Consequently, the relevant dates for solar projects would remain as follows:
If construction
begins: |
And the project is
placed in service by:
|
The applicable ITC
percentage is:
|
| Prior to 2020 |
The end of 2023 |
30% |
| In 2020 |
The end of 2023 |
26% |
| In 2021 |
The end of 2023 |
22% |
| Before 2022 |
After 2023 |
10% |
| After 2021 |
In any year |
10% |
The relevant dates for qualified fuel cell, fiber-optic solar and small wind facilities would not change. Consequently, the relevant dates for these projects would remain as follows:
If construction
begins: |
And the project is
placed in service by:
|
The applicable ITC
percentage is:
|
| Prior to 2020 |
The end of 2023 |
30% |
| In 2020 |
The end of 2023 |
26% |
| In 2021 |
The end of 2023 |
22% |
If construction on these facilities begins after 2021 or the project is not placed in service by the end of 2023, no ITC would be available.
Qualified microturbine, combined heat and power, and geothermal heat pump facilities are entitled to a 10% ITC if construction begins before 2022 and the facility is placed in service at any time.
| Eversheds Sutherland Observation: Although there have been numerous proposals for a standalone ITC for batteries and other storage not part of a renewable energy project, no such provisions were included in this Extenders Bill. Similarly, no provisions were included specifically related to offshore wind facilities. |
Biodiesel and Alternative Fuel Industries
The Extenders Bill would extend the Section 40A biodiesel and renewable diesel credits, as well as the Section 6426 and Section 6427 biodiesel mixture credits, retroactively to fuel sold or used in 2018 and 2019 and for fuel sold or used by December 31, 2022.
The Extenders Bill also would extend the Section 40 second generation biofuel producer credit to biofuel produced through December 31, 2020, applicable retroactively to production in 2018 and 2019.
The Extenders Bill would extend the Section 6426 and Section 6427 alternative fuels credits (other than the Section 6427 credit for alternative fuel mixtures) for fuel sold or used by December 31, 2020, applicable retroactively to fuel sold or used in 2018 and 2019. Notably, the Extenders Bill includes language that seeks to change the alternative fuel mixture tax credit retroactively. That retroactive change states that three types of alternative fuels (liquefied petroleum gas, compressed or liquefied natural gas, and compressed or liquefied gas derived from biomass) would not be treated as alternative fuels for purposes of the alternative fuel mixture credit for periods before enactment if (i) a claim was filed on or after January 8, 2018 and (ii) the claim has not been paid or allowed as of the date of enactment, and for all periods after the date of enactment.
Eversheds Sutherland Observation: Under the retroactive change in law, taxpayers that undertook all necessary activities for entitlement to the alternative fuel mixture credit are treated differently based on when they filed their claim and whether the IRS paid or allowed that claim:
- If a taxpayer filed a claim for the alternative fuel mixture credit on or before January 8, 2018, the Extenders Bill would not affect the taxpayer’s entitlement to the credit.
- If a taxpayer filed a claim for the tax credit on or after January 8, 2018 and the IRS has paid or allowed the tax credit, the Extenders Bill would not affect the taxpayer’s entitlement to the credit.
- However, if a taxpayer filed a claim for the tax credit on or after January 8, 2018 and the IRS has not paid or allowed the tax credit, the Extenders Bill provides that the taxpayer is not entitled to the credit if the alternative fuel used in the mixture is a liquefied petroleum gas, compressed or liquefied natural gas, or compressed or liquefied gas derived from biomass.
Although this retroactive change in law is labeled as a “clarification of rules”, it applies only in one of the three circumstances described above. The January 8, 2018, date appears to be tied to the official publication date of Rev. Rul. 2018-2, issued by the IRS in an attempt to provide support for its position that mixtures are not entitled to the alternative fuel mixture credit. |
Consistent with prior retroactive extensions of these credits, the Extenders Bill directs Treasury to issue guidance for making 2018 and first through third quarter 2019 claims, which, we expect, would be substantially similar to guidance provided for prior retroactive extensions.
Additional Energy Tax Extensions:
- Extension of the Section 4611 oil spill liability trust fund financing rate through 2020, effective on and after the first day of the first calendar month beginning after enactment.
- Extension of the Section 25C nonbusiness energy property credit to property placed in service by December 31, 2020, and amendment from 2.0 to 2.2 in the Uniform Energy Factor required for an electric heat pump water heater to be considered energy-efficient building property. The extension and amendment are retroactive to property placed in service in 2018 and 2019.
- Extension of the Section 30B credit for fuel cell motor vehicles to property purchased by December 31, 2020, applicable retroactively to property purchased in 2018 and 2019.
- Extension of the Section 30C alternative fuel refueling property credit to property placed in service by December 31, 2020, applicable retroactively to property placed in service in 2018 and 2019.
- Extension of the Section 30D credit for two-wheeled plug-in electric vehicles through 2020, applicable retroactively to vehicles acquired in 2018 and 2019.
- Extension of the Section 45(e)(10) credit for Indian coal production facilities for coal produced by December 31, 2020, retroactive to production in 2018 and 2019.
- Extension of the Section 45L credit for energy efficient new homes acquired by December 31, 2020, applicable retroactively to homes acquired in 2018 and 2019.
- Extension of the Section 168(l) special allowance for second-generation biofuel plant property through 2020, applicable retroactively to property placed in service in 2018 and 2019.
- Extension of the Section 179D energy efficient commercial buildings deduction through 2020, applicable retroactively to property placed in service in 2018 and 2019.
- Extension of the Section 451(i) special rule for sales or dispositions to implement FERC or state electric restructuring policy for qualified electric utilities through 2020, applicable retroactively to dispositions in 2018 and 2019.
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