The IRS has issued renewable energy guidance on converting production tax credits into investment tax credits under an option created by the American Recovery and Reinvestment Act of 2009 (ARRA). Guidance on a second option, to take a cash grant instead of an investment tax credit, is expected by late June. 

ARRA introduced the options into the tax code to increase the attractiveness of renewable energy projects. As a result, certain IRC § 45 production tax credit (PTC) facilities can elect to claim the IRC § 48 investment tax credit (ITC) in lieu of the PTC. The ITC is either 30 percent or 10 percent of the basis of certain qualifying property and is claimed in the year the property is placed in service; PTCs are claimed over 10 years, based on a credit for each kWh of electricity produced and sold from the facility. 

Taxpayers may elect the 30 percent ITC in lieu of the PTC for facilities using these technologies: wind, open-loop biomass, closed-loop biomass, geothermal, landfill gas, municipal solid waste, hydropower, and marine and hydrokinetic. The election can be made for PTC wind facilities placed in service between 2009 and 2012 and other PTC-qualifying facilities placed in service between 2009 and 2013. 

A recent study by the National Renewable Energy Laboratory (NREL) comparing the value of the ITC and PTC for a number of technologies across a range of costs and capacity factors concluded that facilities using some technologies will nearly always be better off electing either the ITC or PTC (geothermal will typically benefit under the PTC; open-loop biomass, the ITC). The choice in the case of other technologies is highly dependent on capacity factors and installed-system costs, the report found. (Wind, landfill gas, and closed-loop biomass will benefit from the ITC if capacity factors are relatively low or installed costs relatively high.) 

Notice 2009-52 , released by the IRS on June 5, outlines the procedures required to make an election to claim the ITC in lieu of the PTC for qualifying PTC facilities. The taxpayer must claim the ITC on a completed IRS Form 3468, Investment Credit. The Form 3468 must be filed with the taxpayer’s timely filed tax return (including extensions) for the taxable year in which the facility is placed in service. A separate election must be made for each qualifying facility. The elections are irrevocable. The taxpayer must affirm that it will not obtain an ARRA § 1603 grant for the same property for which it is claiming the ITC.

The taxpayer must also attach a statement to the Form 3468 that contains routine paperwork requirements (as listed in IRS Notice 2009-52), as well as (a) a detailed technical description of the facility, including generating capacity; (b) a detailed technical description of the energy property placed in service during the taxable year as an integral part of the facility, including a statement that the property is an integral part of the facility; (c) an accounting of the taxpayer's basis in the energy property; and (d) a depreciation schedule reflecting the taxpayer's remaining basis in the energy property after the energy credit is claimed.

Notice 2009-52 addresses only the procedural mechanics of making an ITC election in lieu of PTCs. It does not provide guidance as to what property is considered to be "integral" to qualified facilities or as to grants in lieu of ITCs under ARRA § 1603. Guidance on such matters should be forthcoming from the IRS in the coming months.

For general information contact Howard H. Shafferman (; 202.661.2205).


Copyright © 2009 by Ballard Spahr LLP.
(No claim to original U.S. government material.)

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the author and publisher.

This newsletter is a periodic publication of Ballard Spahr LLP and is intended to alert the recipients to new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer concerning your situation and specific legal questions you have.

Related Practice