Section “1603” of the American Recovery and Reinvestment Act of 2009 expired at the end of 2011. Under the terms of 1603, renewable energy companies could qualify for grants in lieu of Investment Tax Credit (ITC) for projects where construction began in 2009, 2010, or 2011 and placed in service before the credit termination date (year-end 2011).
The Green Team at Rodman & Rodman, P.C. has worked closely with attorneys, developers and experts to make sure projects are safe harbor. Serving clients throughout the U.S. at their Braintree and Newton, MA offices, Rodman & Rodman are an independent accounting firm specializing in renewable energy projects.
Treasury Department guidelines provided two ways for the grant applicant to “begin construction.” One way was to begin significant physical work. The second way is a “Safe Harbor” provision for applicants that paid or incurred more than five percent of the total cost of the project in 2011.
According to Kathy Parker, CPA, MST, Partner, “As of December 31, 2011, the deadline for the 1603 Grant and the required five percent safe harbor came to an end. Many developers who are beginning projects are still questioning whether they are really safe harbor protected. While the Treasury had a list of frequently asked questions, many of the answers were vague and left room for considerable interpretation.”
Parker outlines 10 questions for developers that help in determining whether or not they are safe harbor protected.
1) Did you have a legal binding contract by December 31, 2011?
2) Did you pay or incur five percent of the total eligible cost of the project before December 31, 2011? (Remember not all costs are eligible for the 1603 grant. It is important you safe harbored the correct cost.)
3) Was part of the cost incurred for the safe harbor “soft cost”, if so, how much? The Treasury is reviewing “soft cost” very carefully. Did you have “hard cost” as well?
4) Are there related parties involved in the transaction? Was the transaction done at “arms-length”?
5) Accounting method: Are you an accrual or cash basis taxpayer for income tax purposes? Did you pay the cost as of December 31, 2011 or did you incur them? Did you follow the guideline based on your accounting method?
6) Title transfer: Did you receive title of equipment within three and a half months of payment date?
7) Was the entity that purchased the equipment created before December 31, 2011, or are you contributing the assets to an entity after December 31, 2011? Was your entity setup correctly? Treasury will look carefully at ownership structure.
8) How is the project funded? Debt? Grants? Other?
9) When will your project be placed in service?
10) If the cost basis is more than $500,000 you will need an independent accountant to certify the cost. If the requesting payment is greater than $1 million you will need an independent accountant’s examination opinion attesting to the accuracy of the cost claimed as part of the basis of the property. Do you have an accounting firm that specializes in 1603? Are they independent?
Parker continued, “1603 plays a significant role in current green projects. It is important to follow the Treasury guidelines as all 1603 applications will be carefully scrutinized by the Treasury. Applications that are well organized will ensure that the process goes smoothly.”
Those who are unsure of any of the answers to the 10 questions should check with their accountant and/or tax attorney or contact Kathy Parker at Rodman & Rodman (617) 965-5959.
About Rodman & Rodman P.C.
Founded in 1961 and listed in the Boston Business Journal’s “Top 50 Firms”, Rodman & Rodman, P.C. provides accounting, tax and business services to small and medium-sized companies. With a focus on strategic planning, Rodman & Rodman goes beyond traditional accounting services and takes a proactive approach when serving clients to increase, preserve and sustain clients’ financial net worth. The Rodman & Rodman Green Team is a specialized green energy and clean technology accounting and tax services practice within Rodman & Rodman, P.C. that serves “green” clients throughout the U.S. The company is Green Business Certified and in 2010 and 2011 was named one of the “Best Accounting Firms to Work For” in Accounting Today.
From business valuations, taxation, audits, fraud detection and prevention services and succession planning to a variety of accounting IT services including software selection, implementation and training, the team at Rodman & Rodman serves as comprehensive advisors to clients. For individual clients, the company offers personal advisory services such as planning for real estate transactions, obtaining financing, estate planning and retirement planning as well as planning for college education.
Rodman & Rodman, P.C. are located at 3 Newton Executive Park in Newton and 25 Braintree Hill Office Park in Braintree, MA. For more information, email firstname.lastname@example.org, visit their website at www.rodmancpa.com or contact (617) 965-5959.