Energy Tax Law Alert: Treasury Grants Paid on Renewable Energy Projects After January 2, 2013 May Be Reduced by 7.6% Under "Sequestration"

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Recently, the Office of Management and Budget ("OMB") submitted a report to Congress indicating that, absent Congressional intervention, the amount of the grant pursuant to Section 1603 of the American Recovery and Reinvestment Act of 2009 (the "Section 1603 Grant") paid after January 2, 2013 will be reduced by 7.6%.

By way of background, the Budget Control Act of 2011 requires Congress to enact by the end of 2012 a plan to reduce the federal budget deficit by $1.2 trillion. If that does not occur, the Budget Control Act calls for automatic federal spending cuts, known as "sequestration," beginning in fiscal year 2013. Congress has not yet enacted a plan to reduce the deficit as required, and it is unclear whether it will do so by the December 31, 2012 deadline. Anticipating this, Congress earlier this year passed the Sequestration Transparency Act of 2012, which requires the OMB to submit a report to Congress outlining the specific spending cuts that would occur under mandatory sequestration. The report submitted last week indicates that if sequestration occurs, based on the OMB's current estimates and assumptions, the Section 1603 Grant would be reduced by 7.6%, resulting in a total spending reduction of $279 million.

The OMB report leaves a number of questions unanswered. For example, it is not clear whether sequestration would result in 7.6% reduction in the Section 1603 Grant payable for each project after January 1, 2013 (effectively reducing the Section 1603 Grant per project from 30% to 27.72% of eligible costs), or whether the aggregate reduction would be allocated in a different manner. It is also unclear how the OMB's assumptions might change and how any such change could impact the total amount of the reduction.

If you have questions regarding the OMB report, the Section 1603 Grant in general, or related issues, please contact a key contributor.

IRS Circular 230 notice: The information contained herein was not intended or written to be used, and cannot be used, by you or any other person (i) in promoting, marketing or recommending any transaction, plan or arrangement or (ii) for the purpose of avoiding penalties that may be imposed under federal tax law.

Key Contributors

Kevin T. Pearson
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