The U.S. Court of Appeals for the Federal Circuit today found that the federal claims court had correctly determined the amount of the “Section 1603” cash grant awarded to the taxpayer by the U.S. Treasury Department, and affirmed the lower court’s decision.
Section 1603 of the American Recovery and Reinvestment Act of 2009 created a program that provides cash grants, in lieu of a tax credit, to investors for certain qualifying investments. The cash grant under Section 1603 is equal to 30% of the basis or cost of any qualified property that is used as an integral part of a facility that uses open-loop biomass to produce electricity.
The taxpayer filed a claim for a cash grant under Section 1603, as payment in connection with its open-loop biomass cogeneration facility. In the application, the taxpayer claimed that its qualifying property cost was in excess of $286 million and requested a payment of approximately $85.9 million—that is, 30% of the total claimed qualifying cost.
The National Renewable Energy Laboratory reviewed the taxpayer’s application and determined that the taxpayer’s facility produced both process steam and electricity; that the taxpayer used only 49.1% of the energy in the steam produced at the facility to produce electricity; and that fossil fuel still comprised about 0.22% of the total fuel used in the boiler.
Based on these findings, Treasury determined that the energy property used open-loop biomass to produce electricity at a value equivalent to 48.8% of the total steam and electricity produced from biomass and fossil fuel. Treasury reduced the cost basis by 51.2%, and after statutory sequestration of certain funds, awarded the taxpayer about $38.9 million—that is, 30% of the cost of what Treasury deemed to be qualifying property.
The taxpayer challenged this award in the federal claims court, which found that Section 1603 provides for reimbursement of only those costs associated with electricity production at the open-loop biomass facility. The claims court also found that its conclusion was consistent with applicable, but non-binding Treasury guidance that provided for allocation of the cost basis between qualifying and non-qualifying activities.
On appeal, the parties disagreed as to whether Treasury could determine the basis or cost of the qualified property based on the use of that property. The Federal Circuit held that Section 1603(b)(2)(A) “…unambiguously allows Treasury, in calculating the amount of the grant specified in the statute, to reduce the basis of qualified property in proportion to its use in a qualifying activity. The statute’s plain text, underlying purpose, and legislative history support this conclusion.”
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