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Business Tax

IRS Releases 2021 Inflation Adjustments for Energy Production Credit

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

The IRS has published, in the Federal Register, the inflation adjustment factors and reference prices for calendar year 2021 that are used to determine the Code Sec. 45 energy production credit, which consists of the renewable electricity production credit, the refined coal production credit, and the Indian coal production credit.

Background.

Code Sec. 45(a) provides that the renewable electricity production credit for any tax year is an amount equal to the product of 1.5 cents multiplied by the kilowatt hours of specified electricity produced by the taxpayer and sold to an unrelated person during the tax year. This electricity must be produced from Code Sec. 45(c)(1) qualified energy resources.

Code Sec. 45(b)(1) provides that the amount of the credit determined under Code Sec. 45(a) is reduced by an amount which bears the same ratio to the amount of the credit as

  1. The amount by which the reference price for the calendar year in which the sale occurs exceeds 8 cents, bears to
  2. 3 cents.

Code Sec. 45(e)(8)(A) provides that the refined coal production credit is equal to the Code Sec. 45(a) credit amount increased by an amount equal to $4.375 per ton of qualified refined coal that meets two qualifications. One is that the qualified refined coal is produced by the taxpayer at a refined coal production facility during the 10-year period beginning on the date the facility was originally placed in service. The second is that the qualified refined coal is sold by the taxpayer to an unrelated person during that 10-year period and the tax year.

Code Sec. 45(e)(8)(B) provides that the amount of credit determined under Code Sec. 45(e)(8)(A) is reduced by an amount which bears the same ratio to the amount of the increase (discussed in the paragraph above)

  1. The amount by which the reference price of fuel used as feedstock (within the meaning of Code Sec. 45(c)(7)(A)) for the calendar year in which the sale occurs exceeds an amount equal to 1.7 multiplied by the reference price for such fuel in 2002, bears to
  2. $8.75.

Under Code Sec. 45(b)(2) , the 1.5 cent amount in Code Sec. 45(a), the 8 cent amount in Code Sec. 45(b)(1) , the $4.375 amount in Code Sec. 45(e)(8)(A) , and, in Code Sec. 45(e)(8)(B)(i) , the reference price of fuel used as feedstock (within the meaning of Code Sec. 45(c)(7)(A) ) in 2002, are each adjusted by multiplying such amount by the inflation adjustment factor for the calendar year in which the sale occurs.

Code Sec. 45(e)(10)(A) provides in the case of a producer of Indian coal, the credit determined under Code Sec. 45 for any taxable year is an amount determined by “the applicable dollar.” (Code Sec. 45(e)(10)(B)(ii) ) The applicable dollar amount is $2.00, adjusted for inflation. (Code Sec. 45(e)(10)(B)(ii))

2021 inflation adjustments.

The inflation adjustment factor for calendar year 2021 for qualified energy resources and refined coal is 1.6878.

The inflation adjustment factor for calendar year 2021 for Indian coal is 1.2998.

The reference price for calendar year 2021 for facilities producing electricity from wind is 3.59 cents per kilowatt hour.

The reference prices for fuel used as feedstock within the meaning of Code Sec. 45(c)(7)(A), relating to refined coal production are $31.90 per ton for calendar year 2002 and $45.64 per ton for calendar year 2021.

Phaseouts don’t apply . Because the 2021 reference price for electricity produced from wind (3.59 cents per kilowatt hour) does not exceed 8 cents multiplied by the inflation adjustment factor (1.6878), the phaseout of the credit provided in Code Sec. 45(b)(1) does not apply to such electricity sold during calendar year 2021.

Because the 2021 reference price of fuel used as feedstock for refined coal ($45.64) does not exceed $91.53 (which is the $31.90 reference price of such fuel in 2002 multiplied by the inflation adjustment factor (1.6878) and 1.7), the phaseout of the credit provided in Code Sec. 45(e)(8)(B) does not apply to refined coal sold during calendar year 2021.

To continue your research on the inflation adjustment for the credit rate and threshold price of electricity produced from renewable resources, see FTC 2d/FIN ¶L-17761.

 

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