Answers about tax credit are still blowin’ in the wind

The winds of providence blew favorably in the new year on renewable tax energy credits as Congress extended these and other tax benefits  that had been due to expire at the end of 2012.

For wind energy, Congress also expanded eligibility requirements to receive the tax break, saying that projects only need to be under construction by the end of the year. This is a big change from the prior rules, which required that a project be up and running.

“It will push the eligibility for these projects out a way — how much, no one knows,” said Phillip Tingle, a partner specializing in Energy Tax at McDermott, Will and Emery.

The answer is elusive, Tingle said during an online discussion the  firm hosted this week, because  the congressional record gives no indication of how the law defines the start of construction. He predicted that  arriving at a definition will require a lot of discussion between  industry and government officials.

The wind industry lobbied hard to have the eligibility for the credit changed so that it could benefit projects  started by the end of 2013 — the current eligibility window. Industry leaders argued that it can take as long as two years to build  a wind project.

But the new law leaves many questions about how wind developers can meet the requirement.

Will it be enough to build a turbine, or must it be in place or at least slated for specific site by the end of 2013 for the power it generates to receive the 2.2 cents per kilowatt hour tax credit?

Is there a time limit for getting a project in service after construction begins?

How does it affect the tax credit eligibility if a project under construction gets new financing or a different owner?

Tingle said  existing  IRS  rules on related renewable energy tax credits may  provide some guidance.

These rules, for example,  require some physical construction on-site, such as the laying of a foundation.

Other rules make developers eligible if they’ve spent  10 percent of the final project cost.

But even those guidelines leave uncertainty. For example, would a new road serving a site count as construction, or would tax officials characterize it as preliminary work, which doesn’t count toward eligibility?

“If these definitions linger on in uncertainty, it is bound to have a negative impact on development,” Tingle said. “The industry needs some kind of IRS publication at least preliminarily as to how this is to begin.”

The congressional Joint Committee on Taxation estimates that the credit will be worth $12 billion to the industry over 10 years.

Tingle pointed out that the recently extended production  tax credit does not apply to  solar energy, which has a different set of tax breaks that don’t expire until the end of 2017.  “It’s interesting that these leading sources of renewable energy are under two different regimes at this point,” he said.