close
Share with your friends

Federal Circuit: “Section 1603” cash award, open-loop biomass producing electricity

“Section 1603” cash award, open-loop biomass

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.

1000

Related content

The case is: WestRock Virginia Corp. v. United States, 2018-1877 (Fed. Cir. June 28, 2019). Read the Federal Circuit’s decision [PDF 109 KB]

The Federal Circuit in November 2019 reissued its decision in this case with certain modifications. Read the modified decision [PDF 110 KB]

Summary

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.”

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us

 

Want to do business with KPMG?

 

loading image Request for proposal