Daily Tax Update - March 11, 2015: IRS Releases Guidance Extending Renewable Electricity Production and Energy Investment Tax Credits

IRS Releases Guidance Extending Renewable Electricity Production and Energy Investment Tax Credits:  Today, the IRS released Notice 2015-25 to reflect the statutory extension of the renewable electricity project tax credit under Section 45 and the energy investment tax credit under Section 48.  In the notice, the IRS extended the date by which construction of a qualified facility must begin from January 1, 2014 to January 1, 2015. Additionally, consistent with the one-year extension of the beginning of construction date, the notice extends the placed in service date from January 1, 2016 to January 1, 2017.    Notice 2015-25 updates guidance provided in Notice 2013-29, Notice 2013-60, and Notice 2014-46 consistent with the Tax Increase Prevention Act of 2014.  The prior notices provided that a taxpayer may establish the beginning of construction by either: (i) starting work of a significant nature (Physical Work Test); or (ii) paying or incurring five percent or more of the total cost of the facility (Safe Harbor).  Both methods require that a taxpayer make continuous progress towards completion once construction has begun (Continuous Construction Test and Continuous Efforts Test, respectively).  If a taxpayer begins construction on a qualified facility (as described in Section 45(d)) prior to January 1, 2015 and places the facility in service before January 1, 2017, the facility will be considered to satisfy the Continuous Construction Test or the Continuous Efforts Test, regardless of the amount of physical work performed or the amount of costs paid or incurred with respect to the facility after December 31, 2014 and before January 1, 2017. 

Court Holds That Taxpayer Cannot Include Future Nuclear Decommissioning Liabilities in Basis of Nuclear Power Plants:  Today, in AmerGen Energy Co., LLC v. United States, the U.S. Court of Appeals for the Federal Circuit held that the U.S. Court of Federal Claims correctly decided that Section 461(h) is applicable in determining when and whether an accrual method taxpayer, such as AmerGen Energy Co. LLC (AmerGen), incurs future nuclear decommissioning liabilities for purposes of calculating the basis of an acquired nuclear power plant and associated assets.  The court found that because AmerGen did not economically perform the decommissioning activities at issue in the relevant tax years, AmerGen could not include the liabilities in the cost basis of the nuclear power plant and associated assets.