Cash Grant applicants are not the only participants in the clean energy industry subject to the sequester. Holders of New Clean Renewable Energy Bonds and Qualified Energy Conservation Bonds will feel the pain of sequester too.
The Internal Revenue Service has announced that any holder of an eligible bond that files Form 8038-CP (the form to elect to receive a cash payment, rather than a tax credit) after March 1, 2013 will have their refundable tax credit payments reduced by 8.7 percent. The percentage is subject to change either when Congress acts or after the close of the fiscal year on September 30, 2013.
The sequester percentage and the effective date are the same as for the Cash Grant program for renewable energy projects.
A bond holder who prefers to avoid the sequester could opt to not file Form 8038-CP and instead take its benefit as actual tax credits. Actual tax benefits, whether from tax credit bonds or in the form of the investment tax credit or the production tax credit are not subject to sequestration.
Other refundable tax credit bonds subject to the 8.7 percent sequester are Build America Bonds, Qualified School Construction Bonds and Qualified Zone Academy Bonds.
These are bonds that provide certain qualified borrowers with a below-market rate of interest. The bond holder is eligible for tax credits for the difference between what the borrower paid and a stipulated rate. The bond holder may elect to convert the tax credits into a “refund” (i.e., cash).