Federal Tax Credit IRC Section 48 Energy Project
Meet Your Speaker Lynn Mucenski-Keck has over 20 years of experience in the accounting profession and serves as the lead of federal tax policy at Withum. She specializes in federal tax policy, federal clean energy credits and mergers and acquisitions. Her interactions with Congress and various DC advocacy groups give her real-time insights into potential federal tax legislation, enabling her to help clients implement forward-looking tax planning, exit strategies and cash optimization.
Lynn provides clients and Withum team members with the latest information on new federal tax legislation and treasury guidance. She offers in-depth analysis on changing legislation, particularly regarding research and experimental expenditures and clean energy credits. Additionally, Lynn assists various clients in maximizing clean energy credits and provides strategies to optimize cash flow through the purchase or sale of clean energy credits.
Investment Tax Credit • Qualified Biogas Property • New category of energy property added under the Inflation Reduction Act. • A system that converts biomass into a gas that consists of not less than 52% methane by volume or is concentrated by such system in a gas that consists of not less than 52% methane. • Capture gas for the sale or productive use, and not for disposal via combustion. • Qualified biogas property does not include any property for which the construction begins after December 31, 2024 • Most recent regulations clarify that upgrading equipment necessary to concentrate the biogas into the appropriate mixture for injection into a pipeline is part of the energy property.
Investment Tax Credit • Applicable Credit Percentage • For property placed in service prior to December 31, 2024, applicable credit percentage is 30% if the project has a maximum net output of 1 MGW
• 5-Year Recapture Period • If the qualified investment property is disposed of or otherwise ceases to be investment credit property for the taxpayer, then the previously credited amount is recaptured. • Recapture amount decreases 20% for each year until five years have elapsed.
Safe Harbor Test for Beginning of Construction FIVE PERCENT SAFE HARBOR • Taxpayer pays or incurs five percent or more of the total cost of the energy property.
APPLICATION TO TOWN OF WEBSTER BIOGAS PROJECT • Cost Paid by Webster as of December 31, 2024, related to Biogas Project: $3,559,751
• All costs properly included in the depreciable basis of the facility are taken into account to determine whether the Safe Harbor has been met.
• Total Estimated Biogas Project Costs: $33,441,242
• The total cost of the facility does not include the cost of land or any property not integral to the facility.
• Allowed to incur up to $71,195,020 of costs related to the biogas project and still be eligible for the credit
.
• Costs Incurred by Webster as of December 31, 2024: 10.6%
Safe Harbor Test for Continuous Work • Once construction has begun by meeting the 5% safe harbor, the taxpayer must also be able to make continuous progress toward completion • To avoid a facts and circumstance test, a continuity safe harbor is provided: • If a taxpayer starts construction of an energy project by the end of a calendar year and in no more than four calendar years after construction of the energy property started the project is placed in service. • The contract date with Navitas was dated June 16, 2023 and it has been represented that the biogas project will be placed in service no later than December 31, 2027
Next Steps…. • Investment Tax Credit Basis Study and Documentation POTENTIAL INVESTMENT TAX CREDIT RANGE Total ITC Basis
$26,752,993
$33,441,242
Applicable Percentage
30%
30%
Initial ITC Credit
$8,025,897
$10,032,372
Reduction for Tax Exempt Financing (15%)
(1,203,884)
(1,504,855)
Adjusted ITC Credit
$6,822,013
$8,527,517
Thank you Lynn Mucenski-Keck 585-313-0146 lmucenskikeck@withum.com www.withum.com