Lawmaker Asks Treasury for Tax Law Clarification on QECBs

WASHINGTON — Rep. Doris Matsui, D-Calif., has asked the Treasury Department for clarification of a tax law provision pertaining to qualified energy conservation bonds that she fears may be unintentionally preventing a solar-panel factory project in her district from taking full advantage of all the tax incentives available.

She made the request in a letter dated June 9 that was sent to Kim Wallace, the Treasury’s assistant secretary of legislative affairs.

The company building the factory in Sacramento planned on using both recovery zone facility bonds and “a significant portion” of the qualified energy conservation bonds allocated to California to finance the factory. However, a provision buried in the tax code suggests that if the company wanted to use QECBs, it also would have to drastically limit the investment tax credits it could obtain for the project.

Specifically, the section of the tax code defining a “qualified conservation purpose,” for which QECBs must be used, includes a cross-reference to a provision in another section that would halve the amount of investment tax credit, or ITC, that can be taken by such a project.

In her letter, Matsui speculates that the intention of the provision was to prevent companies from “double-dipping” on both investment and production tax credits when building solar facilities, and noted that it was adopted before QECBs existed. As written, the provision “limits the usefulness of the QECB bonds” because “the ITC basis constraint is roughly a 50% reduction in the value of the critical ITC used to finance such a project,” Matsui told the Treasury.

She asked the department to clarify if double-dipping remains a risk when tax-favored bonds and investment tax credits are used together on a single project, or whether it was an unintended error of the tax code and they can be used in conjunction with each other.

Matsui made clear in her letter that she is not advocating a change in the prohibition against allowing companies to take both investment tax credits and production tax credits for the same project. She said she is simply seeking clarification as to whether that credit restriction can be disregarded when it comes to QECBs.

“Such a change would enable QECBs to be combined with ITCs for solar energy facilities and greatly increase the use of such instruments for this qualified purpose,” she wrote.

QECBs, which can be used to finance initiatives to reduce greenhouse gas emissions, were created by the Energy Improvement and Extension Act of 2008. The law authorized $800 million of bond authority for the program.

The QECB program was expanded under the American Recovery and Reinvestment Act of 2009, which authorized an additional $2.4 billion for it. The Hiring Incentives to Restore Employment Act enacted earlier this year made it possible for issuers of the bonds to opt to receive direct subsidy payments from the federal government like Build America Bonds.

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