On March 4, 2013, U.S. Treasury released guidance on the impact of the across-the-board spending cuts known as "sequestration" to the Section 1603 cash grant program.
As stated in the message, payments under Section 1603 of the American Recovery and Reinvestment Tax Act of 2009 for specified energy property in lieu of tax credits are subject to sequestration.
This is what you need to know:
- Every "award" made to a Section 1603 applicant on or after March 1, 2013 through September 30, 2013 will be reduced by 8.7 percent, irrespective of when the application was received by Treasury
- An "award" is the final decision by Treasury to pay a claim as evidenced by the "Section 1603 Award Letter" and effective as of the date of the letter
- Awards made prior to March 1, 2013 will not be affected
- The 8.7 percent reduction rate will be applied until September 30, 2013 (which is the end of the federal government's fiscal year), at which time the sequestration rate is subject to change
- Treasury will continue to review applications and make determinations in accordance with current practice
- Applicants are reminded that the amount of their Section 1603 claims must be calculated in accordance with the Section 1603 Program Guidance and the laws applicable to calculating basis for federal tax purposes
- Applicants may not adjust claims to account for the impact of sequestration
Conclusion
The 1603 cash grant community knew that sequestration was going to affect cash grants. However, it is helpful that Treasury has released this guidance to understand how sequestration would be implemented. It is possible that the U.S. Congress will act to minimize the effects of sequestration. That said, any relief for the Section 1603 program would likely be part of an overall agreement on deficit reduction and grant applicants should not assume that Treasury would be authorized to make adjustments to Section 1603 payments that were made during the period in which the across-the-board spending cuts are in effect.
The 30 percent investment tax credit (or ITC) is not subject to reduction as a result of sequestration. This means that grant applicants should carefully consider whether the Section 1603 cash grant (as reduced by 8.7 percent as a result of sequestration) remains preferable to claiming the 30 percent ITC.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.