IRS to explain tax credit guidance at oversight hearing today

The Internal Revenue Service used its implementation of a green energy grant program from the 2009 stimulus law as a template in setting guidelines for a widely used tax credit that was extended and modified at the beginning of this year, a top official will tell a House subcommittee today, according to prepared testimony released last night.

The hearing will examine the record of the wind production tax credit (PTC) since its extension in January as part of the broader “fiscal cliff” deal. The credit, which also applies to geothermal and a few other renewable energy sources, is available for developers that commence construction on their projects by the end of this year.

“With the federal government currently at a standstill over budget negotiations, it is imperative for Congress to continue to root out and address wasteful spending of taxpayer dollars,” the House Oversight and Government Reform Subcommittee on Energy Policy, Health Care and Entitlements said in a release on the upcoming hearing. “Last year’s one-year PTC extension, which was passed as part of the debt crisis negotiations and cost taxpayers $10 billion, is exemplary of the type of program which requires careful assessment and review before it is extended again.”

In determining how to apply the commence construction standard, the IRS looked back to the so-called 1603 grant program established by the American Recovery and Reinvestment Act because it carried the same eligibility trigger, according to the prepared testimony from Curt Wilson, associate chief counsel for pass-throughs and special industries at the IRS.

In a pair of guidance documents — one released in April and another last month — the IRS said developers would be eligible by beginning “significant” physical work or spending 5 percent of their total investment on a project before Dec. 31 and by completing the energy facility before 2016. The credit could still be claimed after 2016, if developers can demonstrate they were engaged in “continuous” effort to bring it online.

The fiscal cliff deal, formally called the American Taxpayer Relief Act of 2012, didn’t include an end date by which a project has to be complete. But Wilson says the similarity between the PTC provision as modified with that law and the earlier 1603 program justified the IRS’s move.

The “bright line” of a 2016 deadline “balances the extension and change to beginning of construction in ATRA with renewable energy project developers’ need for certainty to assure investors that their facilities will qualify for the PTC or ITC,” Wilson says in his prepared remarks.

Today’s hearing before the Subcommittee on Energy Policy also features testimony from Robert Michaels, a senior fellow at the Institute for Energy Research, a conservative think tank that opposes the PTC; Rob Gramlich, senior vice president for public policy at the American Wind Energy Association, which is lobbying for the credit to be extended or phased out in the context of comprehensive tax reform; and Dan Reicher, a former Department of Energy official during the Clinton administration who is now executive director at the Steyer-Taylor Center for Energy Policy & Finance at Stanford University.

While the PTC technically expires at the end of this year, the leeway provided by the IRS has eased some pressure on the industry’s need to secure an immediate extension.

The issue is currently tied up in broader comprehensive tax reform discussions that remain on the back burner amid the larger fiscal showdown that has shut down most of the federal government this week. But conservative opponents of the credit are beginning to ramp up their efforts to keep it from winning another extension (E&E Daily, Sept. 25).

Schedule: The hearing is Wednesday, Oct. 2, at 9 a.m. in 2154 Rayburn.

Witnesses: Curtis Wilson, associate chief counsel, pass-throughs and special industries, IRS; Robert Michaels, senior fellow, Institute for Energy Research, and professor of economics, California State University, Fullerton; Rob Gramlich, senior vice president for public policy, American Wind Energy Association; and Dan Reicher, executive director, Steyer-Taylor Center for Energy Policy & Finance, Stanford University.