Finance chairman questions administration, Section 1603 | KPMG | US
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Finance chairman questions administration, “Section 1603 program” energy-related grants

Finance chairman questions administration, Section 1603

Senate Finance Committee Chairman Orrin Hatch (R-UT), in a letter to the Treasury and IRS, posed questions about cash grants made under the “Section 1603 program” (now expired but authorized under 2009 legislation to provide governmental grants as an incentive for certain energy projects).


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In a March 15 letter  to Treasury Secretary Jack Lew and IRS Commissioner John Koskinen, Chairman Hatch posed a number of questions, among those concerning:

  • Practices followed by Treasury and the IRS for determining the integrity of the Section 1603 program
  • The communication and coordination between Treasury and the IRS in overseeing the program
  • The grant application review process prior to the grants being awarded


Section 1603 of the “American Recovery and Reinvestment Act of 2009” authorized the Treasury Department to make grant payments to taxpayers who developed renewable energy projects. Hence, these were referred to as “Section 1603 program” grants. 

Grant payments were available for: (1) projects placed in service in 2009, 2010, and 2011, and (2) projects placed into service after December 31, 2011—provided that construction began after 2008 and prior to January 1, 2012 and that the project was placed in service prior to 2014 (2013 for wind property and 2017 for energy credit property). In order to be eligible for a grant payment, taxpayers had to submit an online preliminary application to Treasury by the statutory deadline of midnight on Sunday, September 30, 2012. 

Under guidance issued by the Treasury Department, there were two ways in which an applicant / taxpayer could satisfy the “begin construction” requirement: 

  • Construction commenced if the applicant begins “physical work of a significant nature” by December 31, 2011; or
  • Construction was deemed to commence if the applicant had paid or incurred 5% of more of total grant eligible costs by December 31, 2011 (the 5% safe harbor).

For this purpose, a cost was “incurred” if it was incurred under the economic performance rules of section 461(h). Thus, for accrual method taxpayers, an analysis had to be performed as to whether costs that were paid prior to 2012 had also been “incurred” prior to that time.

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