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IRS Releases 2012 Annual Inflation Factor and Reference Prices for Section 45 Production Tax Credits: Renewable Energy Alert

The IRS recently released the inflation adjustment factor and reference prices for the 2012 calendar year, which are necessary for calculating the Section 45 production tax credits. Based on the 2012 inflation factor of 1.4799, there are no changes from 2011 in the tax credit amounts for electricity generated from renewable sources; however, there is a small increase in the tax credit amounts for refined coal and Indian coal production. The 2012 tax credit amounts for renewable energy production, refined coal production, and Indian coal production are set forth below.

Renewable energy source or coal production activity

2011 credit amount (centers per kilowatt-hour; dollars per ton)

Deadline for facility being placed in service

Wind

2.2

12/31/12

Closed-loop biomass

2.2

12/31/13

Open-loop biomass

1.1

12/31/13

Geothermal energy

2.2

12/31/13

Solar energy (pre-2006 facilities only)

2.2

12/31/06

Small irrigation power

1.1

10/02/08

Municipal solid waste (includes landfill gas and trash combustion facilities)

1.1

12/21/13

Qualified hydropower

1.1

12/31/13

Marine & Hydrokinetic

1.1

12/31/13

Refined Coal

$6.475/ton

12/31/11

Indian coal production

$2.267/ton

12/31/08

2012 Reference Prices; No Tax Credit Phase-out

If the reference price for a particular energy source (as published by the IRS) exceeds a certain designated level, then the Section 45 production tax credit will be reduced or completely phased out. Based on the 2012 reference prices, there will be no phase-out for any of the renewable energy sources or coal production activities for the 2012 calendar year.

The 2012 reference price for wind is 5.31 cents/kilowatt hour. Since this reference price does not exceed 11.84 cents/kilowatt (i.e., 8 cents multiplied by the 1.4799 inflation factor for 2012), there will be no phase-out during 2012 of tax credits realized from the sale of electricity produced from wind energy. Similarly, the 2012 reference price for refined coal is $55.80/ton. Since this reference price does not exceed $80.25/ton (i.e., $31.90 multiplied by 1.4799 inflation factor and 1.7), there will be no phase-out during 2012 for tax credits realized from the sale of refined coal.

The IRS still has not determined reference prices for electricity produced from closed-loop biomass, open-loop biomass, geothermal, solar, small irrigation power, municipal solid waste, hydropower and marine & hydrokinetic energy. Accordingly, there will be no phase-out during 2012 for tax credits realized from these renewable sources.

© 2020 BARNES & THORNBURG LLPNational Law Review, Volume II, Number 116

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About this Author

William Ewing Energy Industry Tax Attorney
Partner

Bill Ewing advises and represents clients in a wide range of transactions with a particular focus on the energy industry. With over 25 years of experience, Bill understands the art of the deal and knows what it takes to close important transactions successfully in the most tax-advantageous manner — all while maximizing his client’s opportunity for success.

Co-chair of the firm’s Renewable Energy group, Bill represents clients in the energy industry in a variety of transactions, including partnership investments, sale/leaseback transactions, financings, acquisitions and sales of...

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Timothy J. Riffle, Barnes Thornburg Law Firm, Indianapolis, Corporate Law Attorney
Partner

Timothy J. Riffle is a partner in the Indianapolis office of Barnes & Thornburg LLP, serving as the chair of the Tax Section of the Corporate Department.

Mr. Riffle practices primarily in the area of federal taxation. He has had extensive experience in structuring business combinations, new business formations, passthrough entities (partnerships, S corporations, and LLCs) and tax exempt organizations. He represents individuals and families in the areas of charitable giving, foundations, gift and estate taxation and universities, hospitals, museums and other non-profit organizations in tax exemption and unrelated business income tax matters.

Mr. Riffle also represents fiduciaries and beneficiaries in probate, guardianship and trust administration matters.

He is a member of the Taxation Section of both the Indiana State and Indianapolis Bar Associations and served as president of the Indianapolis Bar Association's Taxation Section in 1997. Mr. Riffle is also a member of the American Bar Association and its Real Property, Probate and Trust Law and Taxation Sections. He is co-author of the Indiana Limited Liability Company Forms and Practice Manual (Data Trace Publishing, 1996), is listed in Best Lawyers in America and was named "Lawyer of the Year" by Best Lawyers in the 2015 and 2018 editions. 

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Randal Kaltenmark, Barnes Thornburg Law Firm, Indianapolis, Tax Law Attorney
Partner

Randal J. Kaltenmark is a partner in Barnes & Thornburg LLP's Indianapolis, Indiana office. He concentrates his practice in federal, state, and local tax controversies and audits, as well as tax planning for both public and private clients, including joint mergers, mergers, and acquisitions. Mr. Kaltenmark represents clients in audit and administrative proceedings before the Internal Revenue Service and state/local tax authorities. He also represents clients in appeals to both federal and state courts, including the United States and Indiana Tax Courts. Mr. Kaltenmark is experienced in...

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