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IRS request comments on property qualifying for the Sec. 48 energy credit

Notice 2015-70, 2015-42 IRB

In a Notice, IRS has requested comments on issues that should be addressed in proposed regs on the definition of certain types of property under Code Sec. 48. Comments must be received by Feb. 16, 2016.

Background. For purposes of computing the investment credit under Code Sec. 46, Code Sec. 48(a)(1) provides, in part, that the energy credit for any tax year is the energy percentage of the basis of each energy property placed in service during the tax year. Code Sec. 48(a)(3)(A) sets out the types of property qualifying as energy property for the energy credit.Code Sec. 48(c) further defines some of these terms for purposes of the energy credit.

A taxpayer can claim the energy credit for the following property in the percentage indicated:

…30% for solar energy property, i.e., equipment that uses solar energy to generate electricity, to heat or cool (or provide hot water for) a structure, or to provide solar process heat (but not for heating a swimming pool). The 30% credit is available only for periods ending before 2017. After 2016, the credit will be 10%.
…30% for solar energy to illuminate the inside of a structure using fiber optic distributed sunlight, for periods ending before 2017.
…10% for equipment used to produce, distribute, or use energy derived from a geothermal deposit.
…30% for qualified fuel cell property, i.e., a fuel cell power plant with a nameplate capacity of at least 0.5 kilowatt (KW) of electricity using an electrochemical process, and an electricity only generation efficiency of greater than 30%. The credit can’t exceed an amount equal to $1,500 for each 0.5 KW of capacity. The credit isn’t available after 2016.
…10% for qualified microturbine property, i.e., a stationary microturbine powerplant with a nameplate capacity of less than 2,000 KWs, and has an electricity only generation efficiency of not less than 26% at International Standard Organization conditions. The credit can’t exceed $200 for each KW of the property’s capacity and isn’t available after 2016.
…10% for combined heat and power system property, i.e., property which uses the same energy source to simultaneously or sequentially produce electrical power, mechanical shaft power, or both (at least 20% of total useful energy), while generating steam or other forms of useful thermal energy, including heating or cooling applications (at least 20% of total useful energy); and has a greater than 60% energy efficiency percentage. The property must be placed in service before 2017.
…30% for qualified small wind energy property, i.e., property that uses a qualifying small wind turbine (with a nameplate capacity of not more than 100 KWs) to generate electricity. This doesn’t include any property after 2016.
…10% for geothermal heat pump systems equipment, i.e. equipment that uses the ground or ground water as a thermal energy source to heat a structure or as a thermal energy sink to cool a structure, but only for a period ending before 2017.

Reg. § 1.48-9 provides additional clarifications to the definitions of qualified energy property. These regs have not been updated since ’87, before the types of property listed above (they are also listed in Notice 2015-70, Sec. 3) were added to Code Sec. 48(a)(3)(A). IRS anticipates issuing regs to define these types of property for purposes of the Code Sec. 48 energy credit.

Comments requested. In anticipation of issuing regs under Code Sec. 48 to define certain types of property qualifying for the Code Sec. 48 energy credit, IRS requests comments in Notice 2015-70 on the definition of certain equipment using solar energy; certain equipment used to produce, distribute, or use energy derived from a geothermal deposit; qualified fuel cell property; qualified microturbine property; combined heat and power system property; qualified small wind energy property; and equipment using the ground or ground water as a thermal energy source.

Specifically, IRS request comments that address the following:

1. Should only property that actually produces electricity be considered energy property, or should property such as storage devices and power conditioning equipment also be considered energy property?
2. Should dual-use property qualify for the credit and, if so, under what circumstances? If it should qualify, what portion of the basis of dual use property should be taken into account in computing the energy percentage?
3. Comprehensive definitions of the property described in Notice 2015-70, Sec. 3.
4. Definitions of terms such as storage devices, power conditioning equipment, transfer equipment, and other property commonly used in conjunction with property described in Notice 2015-70, Sec. 3, as well as definitions of parts related to the functioning of these items.
5. The need for other energy-related definitions.

References: For the Code Sec. 48 business energy credit, see FTC 2d/FIN ¶  L-16501; United States Tax Reporter ¶  484; TaxDesk ¶  381,601; TG ¶  14901.

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