Skip to content

Energy Blog

IRS Issues Additional Guidance on ARRA Section 1603 Grants

The Internal Revenue Service recently issued additional guidance on Section 1603 of the American Recovery and Reinvestment Act, which provides a grant for certain renewable energy projects.

As part of the additional guidance, the IRS answered the following questions:

  • Q–1: What are the federal income tax consequences to a taxpayer who receives a Section 1603 payment? How does the receipt of a Section 1603 payment affect the basis of specified energy property?
  • Q–2: What are the federal income tax consequences to a taxpayer who receives a Section 1603 payment and a Department of Energy loan guarantee or an energy conservation subsidy from a public utility?
  • Q–3: If a partnership that is eligible to receive a Section 1603 payment has as a partner corporation that is a tax-exempt controlled entity (within the meaning of section 168(h)(6)(F)), does section 168(h)(6) apply for purposes of determining the partnership’s depreciation deductions?
  • Q–4: Under the Section 1603 program, the owner of multiple units of property that are located at the same site and that will be operated as a larger unit may elect to treat the units (and any property, such as a computer control system, that serves some or all such units) as a single unit of property for purposes of determining the beginning of construction and the date the property is placed in service. How will such a grouping election affect depreciation determinations for federal income tax purposes?
  • Q–5: If a project is sold and leased back more than three months after the seller/lessee originally placed the project in service, the seller/lessee is entitled to the Section 1603 payment. Must the seller/lessee report income equal to 50 percent of the amount of the Section 1603 payment ratably over the five-year recapture period?

Thus, if your project may be affected by the following issues, you should review the IRS’s recent notices.

  • Income tax treatment of Section 1603 grant funds and their effect on the basis of qualified property;
  • The effect of grant recipients also receiving a DOE loan guaranty or a subsidy from a public utility;
  • The impact of a partnership having a tax-exempt controlled entity on the partnership’s depreciation deductions;
  • The impact of electing to treat multiple units of property as a larger, single unit on depreciation determinations; and
  • Implications of leasing property back beyond the 3-month period in a sale/lease-back transaction.

Read more about Section 1603 Grants on previous posts by AHC’s Energy Development Practice Group, including the following issues:


Subscribe to Energy Law Blog via Email

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Recent Posts
No category found