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On August 13, 2009, the Internal Revenue Service ("IRS") released Notice 2009-72 that, among other things, sets forth the application process and deadlines for the new advanced energy project credit of Internal Revenue Code section 48C, enacted by section 1302 of the American Recovery and Reinvestment Tax Act of 2009 (Division B of P.L. 111-5, the Stimulus Act), for new, expanded or re-equipped manufacturing facilities for the production of specified advanced energy property. The Notice requires preliminary applications for Department of Energy ("DOE") recommendations to be filed by September 16, 2009, final applications for DOE recommendations to be filed by October 16, 2009, and applications for IRS certification of the credit to be filed by December 16, 2009. Although preliminary applications need contain only limited information, the final applications require extensive project information.

Background

• property to produce energy from sun, wind, geothermal deposits or other renewable sources,

• fuel cells, microturbines or energy storage systems for use with electric vehicles,

• electric grids supporting the transmission of intermittent renewable energy,

• CO2 capture and sequestration property,

• renewable fuel (not fossil fuels) refining or blending property or property producing energy conservation technologies (e.g., energy-conserving lighting and smart grids),

• new plug-in electric drive motor vehicles, plug-in electric vehicles and their components, and

• other advanced energy property designed to reduce greenhouse gas emissions.

The section 48C credit is not self-executing; taxpayers must apply for DOE recommendations in a competitive process and for IRS certification of the credit and must be awarded a specific credit amount. The total amount of credits that can be awarded under section 48C is limited to $2.3 billion, which translates into a peculiar maximum amount of qualified investment of $7-2/3 billion. Although Notice 2009-72 contemplates an additional allocation round in 2010-2011 if the $2.3 billion is not fully allocated in the 2009-2010 allocation round, it is certainly possible that the $2.3 billion will be fully allocated in the 2009-2010 round.

Credit Applications and Certifications

• provide the greatest domestic job creation (both direct and indirect) during the credit period,

• provide the greatest net impact in avoiding or reducing air pollutants or anthropogenic emissions of greenhouse gases,

• have the greatest potential for technological innovation and commercial deployment,

• have the lowest levelized cost of generated or stored energy, or of measured reduction in energy consumption or greenhouse gas emission (based on costs of the full supply chain), and

• have the shortest project time from certification to completion.

Final DOE applications are due October 16, 2009. Final DOE applications must contain extensive project information in prescribed formats. See Notice 2009-72, Appendix B, pp. 26, et seq. DOE will complete its merit review of final applications by December 16, 2009.

Credit applicants must also submit an application for certification to the IRS by December 16, 2009. These applications are to contain basic identifying and contact information and a CD containing the applicant's completed application for DOE recommendation. The IRS will notify applicants by January 15, 2010 whether their projects have been accepted or rejected and, if accepted, the amount of the credit allocated to the project. Successful applicants will be required to enter into an agreement with the IRS in the form of Exhibit A to Notice 2009-72 by March 15, 2010. As required by the statute, the IRS will publish the name and credit amounts of successful applicants.

Credit applicants should carefully review all of Notice 2009-72, including the detailed specifications for preliminary and final DOE applications set forth in Appendix B.

Available Material

• Notice 2009-72 [362K],

• American Recovery and Reinvestment Tax Act of 2009, Division B of P.L. 111-5, § 1302, adding I.R.C. § 48C [41K] and

• H.Rpt 111-16, pp. 644-646, the Conference Committee's esplanation of new section 48C [79K]

This material is not intended to constitute a complete analysis of all tax considerations. Internal Revenue Service regulations generally provide that, for the purpose of avoiding United States federal tax penalties, a taxpayer may rely only on formal written opinions meeting specific regulatory requirements. This material does not meet those requirements. Accordingly, this material was not intended or written to be used, and a taxpayer cannot use it, for the purpose of avoiding United States federal or other tax penalties or of promoting, marketing or recommending to another party any tax-related matters.

© Pillsbury Winthrop Shaw Pittman LLP