Brief Summary of Current Law

Because it is likely that many startup projects will not earn taxable income in their first years, and thus would not benefit from a tax credit, the Section 1603 program was established to allow eligible taxpayers to receive a cash grant in lieu of the tax credit from the ITC.  This is intended to provide working capital to the business.  The eligibility requirements for the property are the same as they are for the ITC.  The payment is not treated as income for the taxpayer; however, the basis of the property is reduced by 50% of the amount of the payment received.  The property must be placed in service during 2009 and 2010, and no later than December 31, 2010.  Some projects started during this period but not finished until 2011 may also qualify.

Taxpayers must apply by filing an application through the Treasury Department.  The help of an accountant to perform agreed upon procedures to test the accuracy of the asset valuation may be required depending on the dollar amount being requested in the application.  This must be done for properties with cost basis in excess of $500,000.  For applications in excess of $1 Million, additional work must be done for the accountant to issue an opinion attesting to the accuracy of the costs claimed.

Example:

To continue with the example from the ITC, a project with total installation cost of $250,000 would be eligible to receive a grant of $75,000 in lieu of the tax credit.

If instead the boiler costs $500,000 to construct for a total installation cost of $550,000, then an independent accountant will be needed to perform agreed upon procedures to test the accuracy of the costs.  This would provide a grant of $165,000 to the taxpayer.

Legislation Updates

Proposed legislation is constantly arising to update or extend the Section 1603 Program.  This section will be updated to reflect any major proposed legislation and any newly enacted legislation.