Notice 2014-39 - Guidance concerning effects of sequestration on Section 1603 grant program awards 

June 10:  The IRS today released an advance copy of Notice 2014-39 concerning the effects of sequestration on Section 1603 grant program awards issued by the Treasury Department on or after March 1, 2013 (i.e., the beginning date of the sequestration).

Read the six-page Notice 2014-39 [PDF 20 KB]

Background

The grant program was established under Section 1603 of the American Recovery and Reinvestment Tax Act of 2009.


The Section 1603 grant program allows applicants to apply to receive a cash grant from the Treasury Department for specified energy property in lieu of the section 45 production tax credit or the section 48 investment tax credit.


The amount of the Section 1603 grant with respect to any specific energy property is the applicable percentage (30% or 10% depending on the type of property) of the basis of such property. Under section 48(d)(1) property which receives a grant is not permitted to also receive a credit under section 45 or section 48.


Under section 48(d)(3)(A), the grant is not includable in the gross income of the taxpayer, and under section 48(d)(3)(B), the basis of the property must be reduced by 50% of the amount of the grant received.

Sequester effects

The Section 1603 Award Letter provides the amount of the payment issued under Section 1603 for specified energy property in lieu of tax credits (the Section 1603 Payment), which generally is equal to the amount of the Section 1603 Award. The Section 1603 Award is effective on the date of the Section 1603 Award Letter. However, pursuant to the requirements of the Balanced Budget and Emergency Deficit Control Act of 1985, as amended, Section 1603 Awards are subject to sequestration, which may cause a Section 1603 Payment to differ from the corresponding Section 1603 Award:


  • A Section 1603 Award made to a Section 1603 applicant on or after March 1, 2013, and on or before September 30, 2013, is subject to a sequestration rate of 8.7%, regardless of when the application was received by Treasury.
  • A Section 1603 Award made to a Section 1603 applicant on or after October 1, 2013, and on or before September 30, 2014, is subject to a sequestration rate of 7.2%, regardless of when the application was received by Treasury.

Thereafter, the sequestration rate is subject to change.


Notice 2014-39 states that the Section 1603 Payment resulting from sequestration during the affected time period does not affect the amount of the Section 1603 Award or the basis of the specified energy property taken into account for purposes of determining the Section 1603 Award.


Notice 2014-39 provides that, consequently, a taxpayer may not partition the basis of property for which it receives a Section 1603 Award and claim a tax credit under section 45 or 48 with respect to any part of the basis of the same property. In other words, a taxpayer may not claim a tax credit on the sequestered amount of the Section 1603 Award.




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