President Obama Signs $858 Billion Tax Package: Certain Energy-Related Provisions Extended
Michael L. Platner, December 22, 2010, Van Ness Feldman
On December 17th, the President signed the $858 billion individual and business tax relief package negotiated between the White House and Congressional Republicans (PL 111-312). The legislation includes the extension of almost 50 business-related expiring tax provisions. The following table provides details on some of these business tax provisions that may be of specific interest to companies in the energy industry:
Tax Provision Current Law Explanation of Provision
Energy Tax Provisions
Extension of grants for specified energy property in lieu of tax credits
(sec. 707 of the bill)
The Secretary of the Treasury has the authority to provide grants in lieu of credits for otherwise eligible property which is placed in service in calendar years 2009 or 2010, or its construction must begin during that period and must be completed prior to 2013 (in the case of wind facility property), 2014 (in the case of other renewable power facility property eligible for credit under section 45), or 2017 (in the case of any specified energy property described in section 48 for the production of electricity).
The Secretary's authority to provide grants in lieu of credits is extended for one year (through 2011).
Incentives for biodiesel and renewable diesel
(sec. 701 of the bill and secs. 40A, 6426 and 6427 of the Code)
These tax incentives expired for fuel sold or used after December 31, 2009.
The tax incentives are retroactively extended for two years (through December 31, 2011). The Secretary of the Treasury is directed to issue guidance within 30 days of enactment for a one-time submission of claims covering fuel sold in 2010.
Excise tax credits and outlay payments for alternative fuel and alternative fuel mixtures
(sec. 704 of the bill and secs. 6426 and 6427(e) of the Code)
The 50 cent per gallon tax credits expired on December 31, 2009, except for liquefied hydrogen which expires on September 30, 2014.
The tax credits are retroactively extended for two years (through December 31, 2011). The Secretary of the Treasury is directed to issue guidance within 30 days of enactment for a one-time submission of claims covering fuel sold in 2010. Fuel derived from the production of paper or pulp is excluded from these credits.
Extension of provisions related to alcohol used as fuel
(sec. 708 of the bill and secs. 40, 6426, 6427(e) of the Code)
The income tax credit for alcohol fuels (45 cents per gallon for ethanol and 60 cents per gallon for other alcohols); the excise tax credit and outlay payments for alcohol fuel mixtures; and the import duties on ethanol and ethyl tertiary butyl ether are scheduled to expire on December 31, 2010. The income tax credit for cellulosic biofuel producers is scheduled to expire on December 31, 2012.
The present-law income tax credit for alcohol fuels (other than the cellulosic biofuel producer credit); the present-law excise tax credit and outlay payments for alcohol fuel mixtures; and the present-law duties on ethanol and ethyl tertiary butyl ether are extended for an additional year, through December 31, 2011.
Alternative fuel vehicle refueling property
(sec. 711 of the bill and sec. 30C of the Code)
Taxpayers may claim a 30-percent income tax credit for the cost of installing qualified clean-fuel vehicle refueling property to be used in a trade or business of the taxpayer up to $30,000 maximum credit per location. The credit is scheduled to expire on December 31, 2010, except for qualified hydrogen refueling property which expires on December 31, 2014. For property placed in service in 2009 and 2010, the maximum credit is $200,000 for qualified hydrogen refueling property and $50,000 for other qualified refueling property.
The 30-percent credit clean-fuel vehicle refueling property (other than hydrogen refueling property) is extended for an additional year through December 31, 2011, subject to the pre-2009 maximum credit amounts.
Special rule for sales or dispositions to implement FERC or State electric restructuring policy for qualified electric utilities
(sec. 705 of the bill and sec. 451(i) of the Code)
The special rule provided deferred gain recognition on the sale or other disposition of property used by a qualified electric utility to an independent transmission company prior to January 1, 2010.
The special rule is extended for two years and applies to sales or other dispositions occurring prior to January 1, 2012.
Credit for refined coal facilities
(sec. 702 of the bill and sec. 45 of the Code)
Qualified refined coal production facilities must have been placed in service by December 31, 2009.
The placed in service date is extended for two years (through December 31, 2011).
Suspension of limitation on percentage depletion for oil and gas from marginal wells
(sec. 706 of the bill and sec. 613A of the Code)
Taxpayers are permitted to recover their investments in oil and gas wells through depletion deductions. Two methods of depletion are currently allowable: (1) the cost depletion method, and (2) the percentage depletion method (15% of gross income). The percentage depletion deduction is generally limited to 100% of the net income from the property. The net-income limitation for marginal production has been suspended for taxable years beginning before January 1, 2010.
The suspension of the 100-percent net-income limitation for marginal production is extended for two years (to apply to tax years beginning before January 1, 2012).
General Business Provisions
Extension of Bonus Depreciation and Temporary 100 Percent Expensing for Certain Business Assets
(sec. 401 of the bill and sec. 168(k) of the Code)
An additional first-year depreciation deduction is allowed equal to 50 percent of the adjusted basis of qualified property placed in service during 2008, 2009, and 2010 (2009, 2010, and 2011 for certain longer-lived and transportation property). In general, property qualifying for the additional first-year depreciation deduction must be property to which the Modified Accelerated Cost Recovery System applies with an applicable recovery period of 20 years or less. The property must be placed in service after December 31, 2007, and before January 1, 2011. An extension of the placed in service date of one year (i.e., to January 1, 2012) is provided for certain property with a recovery period of 10 years or longer and certain transportation property. Transportation property is defined as tangible personal property used in the trade or business of transporting persons or property.
The provision extends and expands the additional first-year depreciation to equal 100 percent of the cost of qualified property placed in service after September 8, 2010 and before January 1, 2012 (before January 1, 2013 for certain longer-lived and transportation property), and provides for a 50 percent first-year additional depreciation deduction for qualified property placed in service after December 31, 2011 and before January 1, 2013 (after December 31, 2012 and before January 1, 2014 for certain longer-lived and transportation property).
(sec. 731 of the bill and sec. 41 of the Code)
A taxpayer may claim a research credit equal to 20 percent of the amount by which the taxpayer's qualified research expenses for a taxable year exceed its base amount for that year. Thus, the research credit is generally available with respect to incremental increases in qualified research. The research credit expires for amounts paid or incurred after December 31, 2009.
The research credit is extended for two years, through December 31, 2011.
Expensing of environmental remediation costs
(sec. 745 of the bill and sec. 198 of the Code)
Taxpayers may elect to treat certain environmental remediation expenditures paid or incurred before January 1, 2010, that would otherwise be chargeable to capital account as deductible in the year paid or incurred. The expenditure must be incurred in connection with the abatement or control of hazardous substances at a qualified contaminated site.
The present law expensing is extended for two years to include expenditures paid or incurred before January 1, 2012.
The legislation does not address the following energy-related tax provisions that expire on December 31, 2010.
- Alternative motor vehicle credit for advanced lean burn technology motor vehicles (sec. 30B(c); for qualified hybrid motor vehicles that are passenger automobiles or light trucks (sec. 30B(d)(2)(a)); and for qualified alternative fuel vehicles (sec. 30B(e)).
- Natural gas distribution lines treated as 15-year property (sec. 168(e)(3)(E)(viii)).
Comprehensive tax reform could lead to a major review of federal tax policy that will require beneficiaries of existing tax benefits to engage in the debate to ensure appropriate treatment under any new tax regime that might be enacted. At the same time, the tax reform debate could also provide an opportunity to make substantive changes to improve at least some of the existing tax benefits, particularly if a case can be made that the benefits generate jobs. The individual tax rates are now scheduled to expire on December 31, 2012, less than two months after the next Presidential election. As a result, there will be tremendous pressure on Congress to enact tax reform prior to that date.
The legislative process to achieve tax reform will allow us the opportunity to work together to analyze the impact of repealing or modifying provisions that currently are important to your business and to ensure that new federal taxation policy does not disadvantage your business.
Van Ness Feldman has substantial expertise and a record of success with respect to federal tax policy, as it relates to our core practice areas of energy, environment, natural resources, transportation and health care law and policy. We are able to identify early developments with respect to federal tax policy proposals, provide expert analysis of those proposals to determine their impact on our clients businesses, develop proposals beneficial to our clients, develop compelling cases for those proposals, and effectively advocate the interests of our clients in the federal tax policy development process. If you would like more information about tax policy, please contact Michael Platner at firstname.lastname@example.org or (202) 298-1988, or any member of the firm at (202) 298-1800 in Washington, D.C. or (206) 623-9372 in Seattle.