The Obama Administration’s budget proposal for fiscal year 2014 would make the production tax credit permanent and refundable. Refundability would mean that developers without sufficient tax liability to use the credits would receive a cash refund from the IRS. If enacted in the form proposed, projects that start construction after December 31, 2013 would be eligible. The question is whether such an expansion would pass the Republican-controlled House of Representatives.
If enacted the Administration’s budget would end the sequestration rules that since March 1st have applied to Treasury’s Cash Grant payments for renewable energy projects and certain other federal programs. It appears unlikely that any headway will be made on this issue until midsummer when, in the context of the debt ceiling, it is expected that the Congress and the President will negotiate a “grand compromise” with respect to tax reform, entitlements and other spending.
The Administration proposes to repeal 11 fossil fuel incentives and extend the amortization period for certain fossil fuel geological and geophysical expenses.
The proposal includes a number of technical changes in the interest of simplification. One change is to repeal the “technical termination” of partnerships. A technical termination occurs when 50 percent or more of the total interests in a partnership are transferred within a 12-month period. A typical tax equity partnership agreement requires a transferor to either deliver a tax opinion that its transfer will not cause a technical termination or provide an indemnity for the tax consequences incurred by the other partners as a result of such a termination. This proposal would eliminate the need for that complex drafting.
The budget proposal is silent on the expansion of the real estate investment trust or master limited partnership rules to renewable energy projects; however, future action by the Administration in those areas is expected. Please see blog post of April 9,2013 here.