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Recent news reports portray California as one of the nation’s centers of clean-tech activity. This is evidenced by the state’s wide range of business activity in alternative energy -- ranging from solar to biomass to battery research.

Clean-tech business can mean jobs, prestige and an improved environment. Of course, just being clean isn’t enough. The numbers need to work as well, and there are forms of government assistance that can be leveraged to make them work.

In February 2009, Congress passed the American Recovery and Reinvestment Act of 2009 (ARRA), which, among many other things, created a program for payments for specified energy property in lieu of tax credits administered by the U.S. Treasury Department. This program is intended to spur activity in clean energy by expanding the availability of government incentives beyond institutional investors who had a “tax appetite” for certain tax credits and taxable losses created by accelerated depreciation.

Any taxpayer that owns and places qualifying energy property into service (or potentially a lessee if the property is in a lease transaction) may be eligible. The owner can apply for and receive payments as reimbursement of a portion, up to 30 percent, of the costs of the qualifying property. The costs submitted must be associated with specific qualifying energy property, which is determined based on guidance in the Internal Revenue Code, and reimbursement is available only for property used in a trade or business or held for the production of income.

In a typical example, a solar developer that owns and operates a solar installation can submit the qualifying costs of the project and receive a payment from the U.S. Treasury for 30 percent of those costs. By receiving this payment, the developer would be electing to forgo receipt of certain tax credits.

Based on current law, the program guidance is clear that construction must have started by Dec. 31, 2010 (and then must be completed by specified dates), for the qualifying costs to be eligible. Thus, for companies that have any form of energy property in development or are pondering undertaking such development, time is winding down to make decisions and get skin in the game.

If you’re considering taking advantage of the ARRA incentive program, know your plans and understand the guidance and whether reimbursement may be available. As stated above, eligible property under the program includes only specified energy property that’s used in a trade or business or held for the production of income. It doesn’t include residential activity.

How do you demonstrate that your project has met the Dec. 31 deadline? The Treasury Department has provided some guidance. One way is to begin physical work of a significant nature, and the other is to meet a 5 percent safe-harbor test. For either path, it’s imperative to have the information available to show the qualifying threshold was met by the deadline.

For companies that see potential in this reimbursement program, the Treasury Department’s website, www.treas.gov/recovery/1603.shtml, has good information about the program. It’s also important to note that if your company can’t qualify for a grant under the Treasury program, it may still be able to qualify for tax credits.

The cash in lieu of credit program reduces the complexities surrounding a property owner’s ability to use energy credits and taxable losses (passive loss limitations, at-risk rules, Alternative Minimum Tax, etc.). To learn more, speak with your lawyer or accountant or with other companies that have already applied for reimbursements under the program.


Chris Paris is a senior manager at Moss Adams LLP. He may be reached at 707-535-4113 or chris.paris@mossadams.com.