Annette Nellen
Annette Nellen
Handing Out Credits

The release of guidance on the American Recovery and Reinvestment Act provision authorizing $2.3 billion of tax credits for qualified advanced energy manufacturing projects opens a short window for submitting applications.

August 27, 2009
by Annette Nellen, CPA/Esq.

Among the various energy related provisions in the American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5) is Act §1302 which added IRC §48C - Qualifying advanced energy project credit. This credit encourages the manufacturing of certain types of advanced energy equipment (Treasury, TG-262, August 13, 2009). The provision takes a different tax credit approach by only allowing the credit for property that has been certified under a special program established by the Departments of Treasury and Energy (DOE).

Guidance was released by the departments on August 13, 2009. The period for submitting applications to obtain the needed certification started August 14, 2009. Preliminary applications are due by September 16, 2009. Whether a second round of applications will occur depends on whether the $2.3 billion assigned to this program is allocated in the first round (2009-2010). This article covers the rationale for this type of credit approach, and the basics of §48C and the application process.

Rationale for §48C and a Certification Process

In addition to their key role of raising revenue for government operations, taxes can be a powerful tool for changing behavior and implementing government programs. A credit is an effective incentive in that it rewards taxpayers who take the required action with a reduced tax bill. An incentive, however, need not be distributed via the tax system. It can instead be distributed through some type of grant or rebate program. The §48C approach combines these approaches in that it is a tax credit, but requires the taxpayer to obtain certification on the project in order to claim the credit. This approach is used by some states for their tax incentives (see for example, New Mexico’s solar market development credit (PDF)).

Possible reasons for the §48C approach is that it allows for the following features.

  1. A limit on the amount of funds to be distributed. If the typical tax credit approach were used instead, the government might find that its original estimate of the “cost” of the credit was much higher (or lower) than expected.
  2. A system to ensure that proposed projects are actually implemented.
  3. A technique (“program”) that may bring greater attention to the credit and type of behavior to be rewarded.
  4. The ability for the government to obtain more detailed information than is typically provided on a tax return.
  5. Public disclosure of those claiming the credit and the amount

ARRA and IRC §48C

The §48C credit, also referred to as the Advanced Energy Manufacturing Tax Credit (MTC), equals 30 percent of the “qualified investment” with respect to a “qualifying advanced energy project.” The “qualified investment” is the basis of the “eligible property” and may not exceed the amount designated by Treasury as eligible for the credit. The credit is an investment credit under §46 and is thus subject to the general business credit usage and carryover rules of §38. The credit is claimed on Form 3468, Investment Credit (PDF). To prevent any double benefit, a taxpayer may not also claim a credit under §§48, 48A, or 48B (§48C(e)). In addition, the at-risk rules of §49 and recapture rules of §50 apply to the credit (Notice 2009-72 (PDF)).

Eligible property must be tangible personal property or other tangible property that is an integral part of the qualified facility but not a building or its structural component; the property must be depreciable (§48C(c)(2)). Per §48C(c)(1), a “qualifying advanced energy project” is one that “re-equips, expands, or establishes a manufacturing facility for the production of” specified types of energy equipment and is certified by Treasury under the “qualifying advanced energy project program.” The DOE describes the manufactured energy property as (August 13, 2009 release and

  • “Technologies that create energy from renewable resources (sun, wind, geothermal and other renewable resources);
  • Energy storage technologies (fuel cells, micro-turbines or other energy storage systems used in electric vehicles);
  • Advanced transmission technologies that support renewable generation (including storage);
  • Renewable fuel refining or blending technologies;
  • Energy conservation technologies (advanced lighting, smart grid);
  • Plug-in electric vehicles and vehicle components (motors, generators);
  • Property to capture and sequester carbon dioxide; and
  • Other property designed to reduce greenhouse gas emissions.”

Per the DOE, the MTC is intended to “grow the domestic manufacturing industry for clean energy.” Thus, it was included in the ARRA to help stimulate economic activity and reduce greenhouse gas emissions. Per DOE, “the MTC will help secure American leadership in the clean energy sector.” (August 13, 2009 DOE release)

A total of $2.3 billion of credits can be allocated under the program. At a 30 percent credit rate, this represents investment in qualifying property of almost $7.7 billion.

How to Apply for the MTC

Per §48C(d), Treasury and DOE are to establish a “qualifying advanced energy project program” within 180 days of the enactment of ARRA. This deadline was met with the issuance of certification procedures on August 13, 2009. The procedures are in Notice 2009-72 (PDF) which, in 73 pages, describes §48C, the application process, selection criteria and the required timeline. A brief summary follows.

Application process: For each project, taxpayers must submit both a preliminary and final application to obtain certification from the DOE. A certification application must also be submitted to the IRS. Incomplete applications will not be considered. The details of the format and content of the applications is included in Notice 2009-72 (PDF) including its appendices. The forms and template spreadsheet for the application can be found at the DOE Web site for the MTC.

Timeline: The first round of certifications is for 2009-2010. If the $2.3 billion is not fully allocated, another allocation round will cover 2010-2011. Key dates for the first round include:

  • September 16, 2009 — preliminary applications due to DOE;
  • October 16, 2009 — final applications due to DOE and IRS;
  • January 15m 2010 — IRS will certify or reject applications by this date and let applicants know the approved amount of their MTC;
  • March 15, 2010 — deadline for successful applicants to return the signed agreement (Appendix A of Notice 2009-72 (PDF)) to the IRS;
  • April 16, 2010 — the IRS will send the executed agreements back to applicants by this date; and
  • Additional deadlines exist for providing evidence of meeting certification requirements (within one year of the acceptance date), and placing the project in service (within three years of receiving certification). These and other deadlines are specified at §48C(d) and Notice 2009-72 (PDF).

Selection criteria: Selection criteria are provided at §48(d)(3) with details specified in Notice 2009-72 (PDF). The criteria include:

  • Expectation of commercial viability.
  • Domestic job creation.
  • Impact in avoiding or reducing greenhouse gas emissions.
  • “Potential for technological innovation and commercial deployment.”
  • Completion time.


Businesses interested in applying for the MTC must act quickly as it is unknown whether there will be a need for a second round in 2010 or if a sufficient number and size of projects will be proposed in 2009 to use up the $2.3 billion credit allocation amount. It is likely that policymakers will look closely at this credit process and consider its costs and benefits to determine if it should be used again. Also, continuing concerns over both a weak economy and climate change could lead Congress to consider additional incentives that address both concerns.

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Annette Nellen, CPA, Esq., is a tax professor and Director of the MST Program at San Josť State University. Nellen is an active member of the tax sections of the ABA and AICPA. She serves on the AICPA's Individual Income Taxation Technical Resource Panel. She has several reports on tax reform and a blog.