The U.S. Treasury made the following announcement last week to implement the sequestration cuts required by the Balanced Budget and Emergency Deficit Control Act of 1985, as amended.
[P]ayments issued under Section 1603 of the American Recovery and Reinvestment Tax Act of 2009 for specified energy property in lieu of tax credits, are subject to sequestration. This means that every award* made to a Section 1603 applicant on or after March 1, 2013 through September 30, 2013 will be reduced by 8.7 percent, irrespective of when the application was received by Treasury.
In this context “award” means the final decision by Treasury to pay a claim as evidenced by the “Section 1603 Award Letter” and effective the date of the letter.
Awards made prior to March 1, 2013 will not be affected. The sequestration reduction rate will be applied until the end of the fiscal year (September 30, 2013), at which time the sequestration rate is subject to change.
Treasury will continue to review applications and make determinations in accordance with current practice. Applicants are reminded that the amount of their Section 1603 claim must be calculated in accordance with the Section 1603 Program Guidance and the laws applicable to calculating basis for federal tax purposes. Applicants may not adjust claims to account for the impact of sequestration.
Given the time and effort it takes to work through the 1603 process and provide the necessary documentation to Treasury in order to obtain a final awards letter, it seems likely that some Vermont renewable projects that were placed into service by December 31, 2013 and thus eligible for a 1603 grant may be subject to the 8.7% cut.
Entities that may be impacted by this change should consult with their tax counsel and advisers.