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Published by PVTech.org and written by Ben Willis – 02 January 2013, 16:00
The future of a key federal solar grant has been temporarily safeguarded under the last-minute fiscal cliff deal reached in the two houses of the US Congress.
The 1603 cash grant, which had been a lifeline to solar developers in the US, is safe for at least two months under a temporary deal on spending cuts reached by Congress on New Year’s Eve.
Under the range of automatic austerity tax increases and spending cuts that would have been activated on January 1 if Congress had failed to broker the deal, the Treasury Section 1603 grant was facing an almost certain 7.6% reduction.
There had been fears that such a reduction could push the likely returns on investment in solar below investors’ minimum acceptable limit, jeopardising project finance.
As it is, the deal means a decision on the spending cuts needed to help the US reduce its debt levels will not be made until March 1.
A spokeswoman for the Solar Energy Industries Association confirmed that the organisation understood the 1603 grant to be safe for at least the next two months.
However, it is possible the grant could still face reductions depending on the outcome of the next round of congressional negotiations.
Matthew Haskins, a Washington-based tax expert at accountants PWC told PV-Tech: “As a practical matter, companies are addressing this issue by working as quickly as possible to file their completed grant applications once their projects are placed into service.”
The 1603 grant has played a key role in boosting the US solar industry, with awards to more than 44,000 domestic solar projects leveraging over $7.17 billion in private sector investment in projects as of September 2012, according to the SEIA.
By Peter J. Scalise, B.S., M.S.
During a lame duck session in December 2010, Congress passed the Tax Relief, Unemployment Insurance Re-authorization, and Job Creation Act of 2010. The act extended the Bush tax cuts for an additional two years and “patched” the exemptions to the Alternative Minimum Tax (hereinafter “AMT”) for tax year 2011. This act also authorized a one-year reduction in the Social Security (hereinafter “FICA”) employee payroll tax. This was extended for an additional year by the Middle Class Tax Relief and Job Creation Act of 2012, which also extended federal unemployment benefits and the freeze on Medicare physician payments.
On August 2, 2011, Congress passed the Budget Control Act of 2011 (hereinafter “BCA”) as part of an agreement to resolve the debt-ceiling crisis. The Act provided for a Joint Select Committee on Deficit Reduction (the “super committee”) to produce legislation by late November that would decrease the deficit by $1.2 trillion over ten years. When the super committee failed to act, another part of the BCA went into effect. This directed automatic across-the-board cuts (known as “sequestrations”) split evenly between defense and domestic spending, beginning on January 2, 2013. Also, the Affordable Care Act imposed new taxes on families making more than $250,000 a year ($200,000 for individuals) starting at the same time.
At the end of 2011, the patch to the AMT exemptions expired. Technically, the AMT thresholds immediately reverted to their 2000 tax year levels, a drop of 26% for single people and 40% for married couples. Anyone over these reduced thresholds at the end of 2012 would be subject to the AMT. Therefore, more taxpayers would pay more unless some legislation was passed (as was done in 2007) that affects the exemptions retroactively.
The fiscal cliff was finally eliminated at the very last minute during late night and early morning sessions of congress on New Year’s Eve and New Year’s Day. During a 2 a.m. vote on January 1, 2013, the Senate passed the American Taxpayer Relief Act of 2012 (hereinafter “The ATRA”) by a margin of 89–8. The House passed the bill without amendments by a margin of 257–167 at about 11 p.m. that same day. Eighty-five House Republicans and 172 Democrats voted in favor while 151 Republicans and 16 Democrats were opposed. President Barack Obama, while on vacation with his family in Hawaii, directed the bill be signed into law by autopen on January 2nd.
A myriad of tax laws led to the fiscal cliff, including these notable provisions:
Without new legislation, these provisions would automatically go into effect on January 1 or 2, 2013, except for the Alternative Minimum Tax growth, which can be changed retroactively until December 31, 2012. Some provisions would increase taxes (i.e., the expiration of the Bush and FICA payroll tax cuts and the new Affordable Care tax and AMT thresholds) while others would reduce spending (i.e., sequestration, expiration of unemployment benefits and implementation of the Medicare SGR).
The subsequent synopsis serves to highlight a few key provisions within the legislation:
The ATRA has laid the groundwork to avert the fiscal cliff and hopefully steer the U.S. economy away from another deep recession by putting more taxpayer dollars back in the hands of U.S. taxpayers to spend on consumer goods and services which is critical as two thirds of the U.S. economy is based upon consumer spending. Please be sure to obtain and analyze a complete copy of the ATRA to ensure you are properly addressing and resolving your client’s tax matters during tax season based upon this legislation and always remember to engage subject matter experts as applicable to ensure sustainable tax return filing positions per Circular 230.
Peter J. Scalise serves as the National Partner-in-Charge and the Federal Tax Practice Leader for Engineered Tax Services. Peter is also a highly distinguished and long standing member of both the Board of Directors and Board of Editors for The American Society of Tax Professionals and is the Founding President and Chairman of The Northeastern Region Tax Roundtable, an Operating Division of ASTP. Peter is a frequent keynote speaker for the AICPA, ABA, TEI & AIA on specialty tax incentives and legislative updates from the Hill.