FEDERAL STIMULUS FUNDS: '1603' GRANT PROGRAM
U.S. Treasury now accepting grant applications

The US Departments of the Treasury and Energy will provide an estimated $3 billion for the development of renewable energy projects around the country and are currently offering guidance businesses will need to submit a successful application. Established under Section 1603 of the American Recovery and Reinvestment Act (Recovery Act), commonly known as the federal economic stimulus law, this program gives owners of many types of renewable energy facilities the ability to offset project costs through a 30% grant (10% in the case of certain types of energy property) instead of the energy tax credit under Internal Revenue Code Sections 45 & 48.

The Recovery Act authorized Treasury to make direct payments to companies that create and place in service renewable energy facilities beginning January 1, 2009. Previously, these companies could file for a tax credit to cover a portion of the renewable energy project's cost; under the new program, applicants would agree to forgo tax credits down the line in favor of an immediate reimbursement of a portion of the property expense. This direct payment program will benefit companies that do not have federal tax liability and allows for an immediate stimulus in local economies.

The US Departments of Treasury and Energy expect a fast acceleration of businesses applying for the energy funds in lieu of the tax credit.

To learn more about this grant program, including the terms and conditions, a 20-page guidance document, and a sample application, or to submit your application, go to www.treas.gov/recovery/1603.shtml. If you have questions or need additional guidance, you can email 1603questions@do.treas.gov. This new website and web-based application for the 1603 program was launched on July 31, 2009, and the government is now accepting applications. The Dept. of Energy is also expected to offer a series of webinars in the coming weeks to better educate applicants about the grant program and how to apply.

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As we reported previously, the application is computerized and is completed and submitted online, at https://treas1603.nrel.gov/. The new '1603' website provides a sample application. Note: the electronic application “times out” in 60 minutes, therefore, it is recommended that you take advantage of the opportunity to print out the sample application and pencil in your answers before doing the online version.

The Treasury has a complex rule for setting up a password for your account. Your password must be at least eight characters; it must begin and end with a non-numeric character; and it must include at least one capital letter, one lower-case letter, one number, and one symbol. For example, AbCDEFG2 will not work (no symbols, and it ends in a number), but ABCD12EF;g will.

Applications with a credit eligible basis of $500,000 or more require “an independent accountant’s certification attesting to the accuracy of all costs claimed as part of the basis of the property.” The Treasury has provided two forms for certification. The first form (for “Mid-Sized Certification”) is for projects with a basis of $500,000 to $3,333,333 (i.e., claiming a grant of less than $1 million), and the second form (for “Large Certification”) is for projects with a higher basis (i.e., claiming a grant of $1 million or more). Remember that smaller projects (with a basis of under $500,000) do not need an accountant’s certification at all.

The Treasury has provided language for the accountant’s letters. Both refer to “Section V” of the guidance, which provides very limited rules about computing basis. While the Large Certification is based on attestation standards established by the American Institute of CPAs (AICPA), including “examining evidence supporting management’s assertion,” the Mid-Sized Certification is done in accordance with “agreed-upon procedures” (AUP), and specifically relies on management to report costs and determine the eligible basis for the property.

Attached to the Mid-Sized Certification language is a four-page “agreed-upon procedures and findings,” no doubt intended to assure that an accountant providing certification of a mid-sized project is aware of the general rules that apply to computing the basis of energy property. While most of the rules are unsurprising, one stands out:

“Other federal grants, state grants, or rebates reduce the cost basis.”

This is unexpected, because most advisors treat most grants and rebates, at least in a commercial context, as taxable income, with the resulting expenditures being included in basis. Yes, there are exceptions (e.g., Section 136 of the Code applies to certain energy conservation subsidies provided by utilities with respect to dwelling units), but the rules are certainly not as obvious and consistent as to always cause a reduction in cost basis. Furthermore, this rule does not appear elsewhere; for example, it does not appear in the aforementioned Section V of the guidance.

The Treasury has also provided rules for assigning the 1603 payment. Payments can be assigned if (i) they are $1,000 or more; (ii) the assignee is a bank, trust company, or other financing institution, including any federal lending agency; (iii) the assignment covers all amounts payable; (iv) the payment is not further assignable except where the recipient is the agent or trustee for multiple parties who are participating in the financing; and (v) a written notice of assignment is filed with the Treasury, using the provided form. The reference to “other financing institution” leaves unanswered questions—for example, can an individual be an assignee? Perhaps if he or she is in the business of lending money.

(Source: US Department of Treasury and Energy; NCSEA; Nixon Peabody; and other sources)