Federally subsidized wind turbine and solar facility owners may be double-dipping federal subsidies, according to a report by a division of the Internal Revenue Service, and the taxing agency has no way of sorting out which companies may be doing so.
Owners of wind turbines that were subsidized under the American Recovery and Reinvestment Act (ARRA), also known as the federal Stimulus program, are ineligible for wind power tax credits for those turbines. The same goes for stimulus-funded solar facilities and the Investment Tax Credit. But the Internal Revenue Service currently has no way of determining which companies got stimulus subsidies, raising the possibility that wind and solar companies may be receiving tax credit payments for those ineligible turbines.
If that's the case, then those companies could be engaging in a form of "double-dipping," either by error or design, that brings them more federal subsidies than the projects warrant. And according to a report by the IRS Inspector General, more than half of the ARRA grant recipients examined merit closer audits as a result.
At issue are grants made under Section 1603 of ARRA, the so-called "1603 Program." The program, which expired at the end of 2011, offered cash grants in lieu of tax credits that could cover as much as 30 percent of capital costs for installing new generating capacity.
The intention was to make it easier for renewable energy companies to attract investors. Subsidizing renewables with tax credits forced companies to look for angels willing to invest in tax equity, and such investors were hard to find during the financial crash of 2008-2009. Cash up front made it easier to get projects built, and the 1603 program was at least partly responsible for the huge growth in wind and solar installations across the country in the last few years, even after it expired at the end of December 2011.
The 1603 program was intended to provide payments in lieu of tax credits, not in addition to them. But according to the report, published online in December by the Treasury Inspector General for Tax Administration, eight of 16 large firms examined may have filed for either the federal Production Tax Credit or Investment Tax Credit on projects that had received 1603 program funding. Smaller businesses, including some sole proprietorships, fared worse: 51 of 83 such ARRA grant recipients examined may have filed for tax credits on subsidized projects, about 61 percent of the total.
The Treasury Department forwards information on 1603 grant recipients to the IRS, but according to the report, the IRS has no way of flagging those taxpayer accounts so that claims of tax credits on subsidized properties are automatically challenged. The Inspector General's report didn't identify the companies examined, nor did it say whether any of the irregularities found suggested fraud on the part of the taxpayers. (Of course, given that this is America and the IRS we're talking about, such fraud is probably inevitable if it hasn't happened already.)
The Inspector General's report points out the ramifications of the problem somewhat plainly, for a Treasury document:
When the Recovery Act became law, one of the commitments by Congress to the American people was to ensure that the funds being distributed would be subject to unprecedented Government and public transparency and that these funds would be subject to the highest degree of protection to prevent or identify fraud, waste, abuse, and mismanagement. In light of this commitment, the noncompliance issues identified... may indicate the need for further oversight of the $18.5 billion distributed through this grant program.
Though the 1603 Program expired two years ago, and payments authorized under the program dwindled in the year afterward, the tax credits we're talking about here will be benefiting recipients for the next two decades. Even though the federal Wind Production Tax Credit expired at the beginning of January, turbine owners who made that deadline will get 2.2 cents in tax credits for every kilowatt-hour their qualifying turbines produce. A 1.5 megawatt turbine could earn $30 in tax credits per hour, or more than $250,000 a year if the wind keeps up.
And since some of those turbines might still be collecting those tax credits in 2024, the IRS has incentive to make sure it gets its records in order.