In mid-August, the U.S. Department of Energy (DOE) and the Department of the Treasury unveiled the Advanced Energy Manufacturing Tax Credit, a new tax-credit offering targeted at the manufacture of renewable energy equipment (e.g., solar cells and modules).
Under this program, qualifying projects – which may include new manufacturing facilities, as well as expansions and modifications of existing facilities – are eligible to receive a 30% investment tax credit, subject to recapture rules, tax-exempt rules, project-expenditure rules and a series of similar regulations.
Solar equipment manufacturers interested in applying for a share of the $2.3 billion in available credits should note that the program is expected to be wildly popular – and the application window is already open, with the preliminary application due Sept. 16.
‘For many of us who were familiar with prior tax programs similar to this one, this is a very fast application process with tight deadlines,’ remarked Laura Ellen Jones, a tax partner at Hunton & Williams LLP, during a recent webinar sponsored by the Solar Energy Industries Association (SEIA).
{OPENADS=zone=72}To complete the preliminary application this month, applicants need only provide the name of the company applying, the total qualified investment amount for the proposed project, the number of tax credits requested and a description no longer than 300 words that details the project. These submitted forms will not be formally considered in the DOE's final decision-making process, Jones added.
Rather, the preliminary application is simply a resource-planning tool for the DOE. Jones said the department plans to use the preliminary submissions to gauge how large a staff will be needed to review final applications and the types of expertise the reviewers will need to accurately evaluate applicants.
The final application, due to both the DOE and the Internal Revenue Service (IRS) on Oct. 16, must be submitted in the form of a project information memorandum incorporating the DOE's standardized spreadsheets in order to promote fair comparisons of projects. Applicants must limit themselves to 30 pages, not including appendices.
‘If you're over the page limit, DOE will not consider the application,’ Jones warned. ‘This is a hard and fast rule.’
At the same time, the DOE may opt to immediately discard an application that would require additional information or clarification from the applicant. Because the process lacks any avenue for appeals, Jones urged applicants to provide clear, complete and concise applications.
‘The IRS will only consider projects that receive the DOE's recommendation and ranking,’ she added. ‘It is important, in order to get to the point where the IRS is actually allocating and awarding the credits, that you submit a complete and responsive application, and that you carefully comply with all of the requirements in Appendix B.’
Provided that a project meets certain initial eligibility requirements, including manufacture of equipment specific to renewable energy and a reasonable expectation of commercial viability, each application will be evaluated on the basis of four equally weighted criteria.
The DOE will favor projects with the greatest direct and indirect job creation during the credit period of six years; projects with the greatest net impact on avoiding or reducing greenhouse gas emissions; projects with the most potential for technological innovation and commercial deployment; and projects with the shortest time lines to completion.
Additionally, the DOE will take into account less precisely defined factors to sort through the applications, which are forecasted to number over 1,000. Values may be assigned for such attributes as project location or specific technology employed.
‘It is unclear how these [considerations] mesh with numerical rankings,’ noted Joe Pasetti, counsel for government affairs at Applied Materials Inc. and co-chair of SEIA's Tax Working Group. ‘Are they going to take a lower-ranked project over a higher-ranked project simply to meet a geographical or technological diversity goal?’
By Jan. 15, 2010, selected tax-credit recipients will be informed of their certification and the number of tax credits they are receiving. Although the quick promised turnaround has surprised many observers, the DOE may have particular motives for seeking to roll out the credits as soon as possible, according to Pasetti.
‘I think a lot of it has to do with how this program was a part of the stimulus, and maybe some of those provisions aren't moving out as fast as they would have liked,’ he noted.
Companies selected to receive tax credits will be subject to a series of closely monitored deadlines and other follow-up requirements. For instance, all federal, state and local permits – including applicable environmental reviews and authorizations – must be secured within a year after tax-credit certification.
Tax-credit recipients must also immediately inform the DOE and the IRS of any significant changes to their original plan, as submitted, or potential failures to meet promised stages of completion. Certain shortcomings can trigger immediate forfeiture of the tax credits.
‘Receiving an award and allocation of these credits does not prevent a subsequent examination,’ Jones warned. ‘This is what I view as the most significant audit risk for projects that do receive tax allocations.’
