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IRS sets out qualifications for small wind energy property under the energy credit

Notice 2015-4, 2015-4 IRB

In a Notice, IRS has provided guidance on the performance and quality standards that small wind energy property must meet to qualify for the Code Sec. 48 energy credit. The guidance is effective for small wind energy property acquired or placed in service (in the case of property constructed, reconstructed, or erected by the taxpayer) after Jan. 26, 2015.

Background. A taxpayer can claim 30% energy credits for qualified small wind energy property. (Code Sec. 48(a)(3)(A)(vi)) This is property that uses a qualifying small wind turbine with a nameplate capacity of not more than 100 kilowatts (kWs) to generate electricity. Qualified small wind energy property doesn’t include any property for any period after Dec. 31, 2016. (Code Sec. 48(c)(4))

No credit is allowed for the property unless it’s depreciable or amortizable; its construction, reconstruction or erection is completed by the taxpayer or, if acquired by the taxpayer, its original use begins with the taxpayer; and it meets the official quality and performance standards in effect at the time of acquisition. (Code Sec. 48(a)(3))

New guidance. Notice 2015-4 provides that to qualify as small wind energy property, the property must use a wind turbine that has a nameplate capacity of not more than 100 kW and meet the performance and quality standards set out in either the: (1) American Wind Energy Association Small Wind Turbine Performance and Safety Standard 9.1-2009 (AWEA); or (2) International Electrotechnical Commission 61400-1, 61400-12, and 61400-11 (IEC). (Notice 2015-4, Sec. 3.01)

The small wind turbine must meet the standards that are in effect at the time of its acquisition. For a small wind turbine that is constructed, reconstructed, or erected by the taxpayer, the time of acquisition is the time that the small wind turbine is placed in service. (Notice 2015-4, Sec. 3.02)

Certification. The manufacturer of a small wind turbine may certify to a taxpayer that it meets the AWEA or IEC performance and quality standards by providing him with a certification that satisfies the requirements in Notice 2015-4. The certification may be made by the manufacturer including a written copy of the certification in printable form on its website, or in any other manner that will allow the taxpayer to retain the certification for tax recordkeeping purposes. (Notice 2015-4, Sec. 4.01) The certification must be issued by an eligible certifier and include the information listed in Notice 2015-4, Sec. 4.02. An eligible certifier is a third party that is accredited by the American Association for Laboratory Accreditation or other similar accreditation body.

Taxpayer reliance. Except as provided below, a taxpayer may rely on a manufacturer’s certification that a small wind turbine meets the performance and quality standards. While a taxpayer isn’t required to attach a certification or any other documentation to the return on which the credit is claimed, under Reg. § 1.6001-1(a), he must maintain such books and records as are needed to show entitlement to, and the amount of, any credit claimed. Accordingly, a taxpayer should retain the certification statement as part of his records.

IRS may, upon examination, determine that a small wind turbine that has been certified doesn’t meet the AWEA or IEC performance and quality standards. In that event, or if the manufacturer fails to retain in its records documentation that the turbine meets these requirements or fails to make such documentation (including any test reports) available to IRS upon request, the manufacturer’s right to provide a certification on which future purchasers of small wind turbines may rely will be withdrawn. Taxpayers purchasing turbines after the date on which IRS publishes an announcement of such a withdrawal may not rely on the manufacturer’s certification. However, they may continue to rely on the certification on or before the date on which the withdrawal announcement is published (even if the property isn’t installed or the credit isn’t claimed before the announcement of the withdrawal is published).

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

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