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IRS establishes program that reallocates gasification project credits

Notice 2014-81, 2014-52 IRB

In a Notice, IRS has established a third phase of the qualifying gasification project program under Code Sec. 48B (“the Code Sec. 48B Phase III program”) to reallocate the qualifying gasification project credits that are available for allocation after the conclusion of the Code Sec. 48B Phase I program.

Background. One of the investment credits is the qualifying gasification project credit under Code Sec. 48B.

Code Sec. 48B(d)(1) provides that IRS, in consultation with the Department of Energy (DOE), must establish a qualifying gasification project program to consider and award certifications for qualified investment eligible for the gasification project credit under Code Sec. 48B.IRS and DOE established the Code Sec. 48B Phase I program in Notice 2006-25, 2006-1 CB 609, as modified and updated by Notice 2007-53, 2007-1 CB 474.

The term “qualified investment” is defined in Code Sec. 48B(b) as the basis of eligible property placed in service by the taxpayer during such tax year which is part of a qualifying gasification project (A) the construction, reconstruction, or erection of which is completed by the taxpayer, or which is acquired by the taxpayer if the original use of such property commences with the taxpayer, and (B) with respect to which depreciation or amortization is allowable.

The term “qualifying gasification project” is defined in Code Sec. 48B(c)(1) as any project that (A) employs gasification technology, (B) will be carried out by an eligible entity, and (C) includes a qualified investment of which an amount not to exceed $650 million is certified under the qualifying gasification program as eligible for credit under Code Sec. 48B.

IRS established the Code Sec. 48B PhaseIIprogram in Notice 2009-23, 2009-1 CB 802, which provided for allocations in 2009-2010. The entire Code Sec. 48B Phase II credit amount of $250 million was allocated in 2009-2010.

IRS establishes Phase III to reallocate Phase I credits. Notice 2014-81 establishes the Code Sec. 48B Phase III program, the third phase of the qualifying gasification project program.Its purpose is to reallocate qualifying gasification project credits that are available for allocation after the conclusion of the Code Sec. 48B Phase I program. Phase III only applies to Phase I credits that were forfeited.

IRS notes that the provision that provides for such reallocations, i.e., Code Sec. 48(d)(1) before it was amended by the Energy Improvement and Extension Act of 2008, no longer is in the Code.However, its removal was effective for credits allocated after Oct. 2008.Thus, IRS noted, it has the authority for this reallocation program.

From its review of the prior Code Sec. 48B Phase I allocations, IRS has determined that Code Sec. 48B Phase I credits in the total amount of $ 309,337,000 are available for reallocation under the Code Sec. 48B Phase III program.

Under Phase III, the qualifying gasification project credit for a tax year is 20% of the qualified investment for that tax year in qualifying gasification projects for which the credit is allocated under Code Sec. 48B(d)(1)(A).

Projects must be certified by the DOE.Notice 2014-81 sets out criteria to rank projects if the requested allocation of credit for projects that DOE has certified exceeds the amount available for allocation.

To be considered in the Phase III allocation round, applications must be submitted separately to DOE and to IRS on or before Mar. 2, 2015.A taxpayer must submit, for each Code Sec. 48B Phase III gasification project: (i) an application for certification by DOE that the project is technically and economically feasible and (ii) an application for certification by IRS.

Notice 2014-81 contains extensive detail on program specifications, application specifications, ranking criteria and required disclosures by IRS.

References: For the gasification project credit, see FTC 2d/FIN ¶  L-16471  ; United States Tax Reporter ¶  48B4  ; TG ¶  14816  ; TaxDesk ¶  381,414  ; TG ¶  14817  .