Release Examines "Excessive" Treasury Cash Grants for Renewable
The IRS recently
released legal advice addressing the tax treatment of Treasury cash
grants that are in excess of the amount that the grant applicant was
entitled to receive under Section 1603 of the American Recovery and
Reinvestment Act of 2009 ("Section 1603").
AM 2011-004 (Sept. 27, 2011). Not surprisingly, the IRS advice
concludes that excess Section 1603 grants are includible in income when
received and deductible when repaid (no income or deduction if received
and repaid in the same taxable year), and the excess grants do not affect
the applicant's tax basis in the project.
More importantly, the release reinforces that cash grants are subject to
review and examination by both Treasury, and the IRS itself. Although technically
Treasury's Inspector General has authority to audit Section 1603 grant
awards, the IRS advice confirms that the IRS is also reviewing awards
based on its authority to examine the grant's income tax treatment.
Grant applicants should therefore be prepared for the IRS to
examine the tax treatment of the grant in an audit of the affected income
tax returns, and potentially share its findings with Treasury's Inspector
General. Generally a three-year statute of limitations period
applies to IRS adjustments to a return but, as the Section 1603 grant
affects the tax basis of the grant-eligible project, the IRS could
potentially reexamine the grant three years (or more) after the project's
final year of depreciation. The limitations period applicable to
any resulting claim by Treasury's Inspector General for repayment of the
Section 1603 grant is uncertain, but likely to extend at least six years
from receipt of the grant.