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Wednesday, September 2, 2009

A New Approach for a Federal Energy Credit

In the American Recovery and Reinvestment Act of 2009 (P.L. 111-5; 2/17/09), Congress tried something that a few states had already done to gain a bit more control over tax credits. The credit is at IRC section 48C and is designed to encourage investment in manufacturing facilities to produce certain green equipment.

A fixed amount of dollars were allocated for the credit - $2.3 billion. Taxpayers wanting to use the credit must have their project approved by the Departments of Treasury and Energy. Thus, one benefit to the government of this pre-approval approach is that the "cost" to the government is capped.

The window for preliminary applications is short. Guidance on how to apply was issued late August (Notice 2009-66) and the applications are due 9/16/09.

I have a short article in the 8/27/09 AICPA Corporate Taxation Insider about this type of credit approach in general and this particular credit.

While this approach does require a lot of peoplepower upfront, some of that would have been spent in future audits anyway. The approach should greatly increase accountability for both the government and taxpayers. The government can be more accountable to the public that the dollars were used properly. Taxpayers are likely to be more careful to be sure their project qualifies, making them more accountable to the system.

What do you think?

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