Resources:
Renewable Energy Tax Credit Lexicon
Novogradac & Company LLP’s Renewable Energy Tax Credit Lexicon offers definitions for terms used in the renewable energy tax credit (RETC) and clean renewable energy bond (CREB) industry.
Affiliate
Any legal entity that controls, is controlled by, or is under common control with the applicant CDE.
Alternative Minimum Tax (AMT)
Minimum tax that a taxpayer must pay if it is greater than the regular income tax imposed under IRC Section 55
At-Risk Rule
The rule that limits the ability to include in eligible basis property purchased with nonqualified nonrecourse financing. An exception exists for nonrecourse fi nancing that meets the definition of qualified commercial financing.
Bonus Depreciation
Extra or special depreciation allowed in addition to what is generally available to certain types of tangible, personal property including many types of property used to produce renewable energy.
Clean Renewable Bond Lender
A lender that is a cooperative that is owned by or has
outstanding loans to 100 or more cooperative electric companies and was in existence on February 1, 2002; or any affiliated entity controlled by such a lender.
Clean Renewable Energy Bond (CREB)
Any bond issued by a qualifi ed issuer pursuant to an allocation by the Secretary to the issuer of a portion of the national clean renewable energy bond limitation under section 54(f)(2); 95 percent or more of the proceeds of the issue are to be used for capital expenditures incurred by qualifi ed borrowers for one or more qualifi ed projects.
Closed-Loop Biomass
Any organic material from a plant that is planted exclusively for use at a qualified facility to produce electricity.
Energy Property
Qualified property that does not include public utility property, passive solar systems or pool heating equipment. The original use of the equipment must begin with the taxpayer or it must be constructed by the taxpayer. The equipment must also meet any performance and quality standards in effect at the time the equipment is acquired. The energy property must be operational in the year in which the credit is fi rst taken.
Feed-in Tariff (FIT)
A policy that mandates utilities to pay minimum prices to producers of certain types of renewable energy like biomass, geothermal, solar and wind.
Federally Subsidized
A project that is financed with a below-market federal loan or with a loan for which the interest income earned by the holder of the loan is exempt from tax under ITC Section 103.
Federal Energy Regulatory Commission (FERC)
A federal agency with jurisdiction over interstate energy rates and sales.
General Business Credit
The term given to a group of credits listed in IRC Section 38. The ITC and PTC for Renewable Energy are included in this group of credits.
Geothermal Energy
Energy derived from a geothermal deposit as defi ned by IRC Section 613(e)(2).
Geothermal Energy Property
Energy property that includes equipment used to produce,
distribute, or use energy derived from a geothermal deposit. It does not include geothermal heat pumps. For electricity produced by geothermal power, equipment qualifi es only up to, but not including, the electrical transmission stage.
Grant
A grant is funds received from a private foundation or charitable group, federal, state or local government that do not have to be repaid.
Hybrid Solar Lighting Systems
Systems that use solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight.
Hydropower Production
The incremental hydropower production for the tax year from any hydroelectric dam placed in service on or before August 8, 2005 and the hydropower production from any non-hydroelectric dam described in IRC Section 45(c)(8)(C).
Indian Coal
Coal that is produced from coal reserves that on June 14, 2005 was owned by an Indian tribe or held in trust by the United States for the benefi t of an Indian tribe or its members.
Inverted Lease
A term used to describe a form of ownership structure that is used to facilitate investments that qualify for the investment tax credit under section 46 (the ITC) and which involve using two limited partnerships; one which owns the property that earns the ITCs (the owner or lessor) and another (the tenant or lessee) that leases the property from the owner. Under this structure the owner is able to pass-through the ITCs to the tenant. The investor limited partner(s) usually own a limited partnership interest in the tenant, which in turns invests in the owner. This ownership structure is also known as the lease pass-through and/or the master-tenant.
Investment Tax Credit (ITC)
A credit allowed under IRC Section 48 equal to 30 percent of the cost of certain qualifi ed property.
ITC Recapture Period
The five-year period over which a project must continue to satisfy the various requirements of IRC Section 48 in order to avoid tax credit recapture on a qualified energy facility that has claimed the ITC. The recapture period begins with the first taxable year of the credit period.
Kilowatt Hour (kWh)
Product of power in kilowatts multiplied by time in hours.
Lease Pass-Through
A term used to describe a form of ownership structure that is used to facilitate investments that qualify for the investment tax credit under section 46 (the ITC) and which involve using two limited partnerships; one which owns the property that earns the ITCs (the owner or lessor) and another (the tenant or lessee) that leases the property from the owner. Under this structure the owner is able to pass-through the ITCs to the tenant. The investor limited partner(s) usually own a limited partnership interest in the tenant, which in turns invests in the owner. This ownership structure is also known as the inverted lease and/or the mastertenant.
Low-Income Housing Tax Credit (LIHTC)
A credit for providing affordable rental housing for low-income individuals.
Master-Tenant
A term used to describe a form of ownership structure that is used to facilitate investments that qualify for the investment tax credit under section 46 (the ITC) and which involve using two limited partnerships; one which owns the property that earns the ITCs (the owner or lessor) and another (the tenant or lessee) which leases the property from the owner. Under this structure the owner is able to pass-through the ITCs to the tenant. The investor limited partner(s) usually own a limited partnership interest in the tenant, which in turns invests in the owner. This ownership structure is also known as the inverted lease and/or the lease pass-through.
Municipal Solid Waste
Solid waste as defined under paragraph 27 of 42 U.S.C. 6903
Open-Loop Biomass
Solid, nonhazardous, cellulosic waste material; lignin material; or agricultural livestock waste nutrients as defi ned in IRC Section 45(c)(3).
Partnership Flip
A term used to describe an ownership structure often used to facilitate investments in renewable energy projects. In this structure a partner may be admitted to a partnership receiving a certain ownership interest, say 1 percent, with an agreement between the partners for its interest to flip up to as high as 95 percent once certain milestones have been achieved by the partnership. Conversely a partner may be admitted to a partnership receiving a certain ownership percentage, say 99 percent, with an agreement for its interest to fl ip down to as low as 5 percent once certain milestones have been achieved by the partnership.
Passive Activities
Passive activities are those activities in which the taxpayer is not involved on a regular, continuous and substantial basis. Limited partner investors in rehabilitation projects are presumed to be involved in a passive activity. In addition, rental activities, including the rental of rehabilitated buildings are considered passive activities. Non-passive activities income includes wages and portfolio income such as stock dividends, stock capital gains, and interest on bank accounts.
Passive Activity Rules
Prohibit the use of deductions and credits from passive activities, those in which the taxpayer is not involved on a regular and substantial basis, to offset income and taxes owed from non-passive activities.
Placed-In-Service Date
Generally, the date when all conditions have been met for property to be used for its intended purpose.
Poultry Waste
Poultry manure and litter, including wood shavings, straw, rice hulls and other bedding material for the disposition of manure.
Power Purchase Agreement (PPA)
A contractual agreement that provides for one entity (the Host) to purchase electricity from another entity that produces electricity (the Energy Provider).
Production Tax Credit (PTC)
A credit allowed under IRC Section 45 to owners or operators of electric generation facilities that produce electricity from “qualifi ed energy resources.” The PTC is based on the amount of electricity produced by the facility, and is currently (January 2010) 2.1 cents per kilowatt hour over a 10-year period.
Qualified Energy Resources (QERs)
Include wind, closed-loop biomass, open-loop biomass, geothermal energy, solar energy, small irrigation power, municipal solid waste and qualified hydropower production under IRC Section 45(c)(1)
Qualified Issuer
A clean renewable energy bond lender, a cooperative electric company or a governmental body.
Qualified Person
Any person who is actively and regularly engaged in the business of lending money and is not: related to the taxpayer, the seller of the property, or someone who receives a fee for the taxpayer’s investment in the property.
Qualified Property
Property that has an estimated depreciable life of three years or more and is tangible or is an integral part of manufacturing, production, extraction or is a integral part of furnishings transportation, communication electrical energy, gas, water or sewage services (Reg. Section 1.48-1(a))
Qualified Renewable Energy Facility
A facility that contains qualified energy property that meets the qualifications of IRC sections 45 and/or 48.
Refined Coal
A liquid, gaseous or solid fuel produced from coal or high carbon fl y ash meeting the requirements of IRC Section 45(c)(7).
Renewable Energy Certificates (REC)
Tradable environmental commodities that represent the environmental, social, and other positive attributes of power generated by renewable energy sources.
Renewable Energy Tax Credit (RETC)
Tax credits allowed under the classification of General Business Credits, including the ITC and PTC, which are designed to encourage investment in renewable energy technologies.
Renewable Portfolio Standards (RPS)
A policy that requires electricity providers to obtain a minimum percentage of their power from renewable energy resources by a certain date.
Resources
Wind, closed-loop biomass, poultry waste, open-loop biomass, geothermal energy, solar energy, small irrigation power, municipal solid waste, hydropower production, refined coal and Indian coal.
RETC Credit Period
The period over which the RETC is claimed. Generally begins on the date a property is placed in service.
Sale Leaseback
A term used to describe an ownership structure often used to facilitate investments in renewable energy projects. In this structure the project, usually within 90 days of being placed into service, is bought by an investor who then immediately leases the project back to either the seller or another entity pursuant to a long-term leasing contract.
Small Irrigation Power
Power generated without any dam or impoundment of water.
Solar Energy Property
Equipment that uses solar energy to generate electricity, to heat or cool (or provide hot water for use in) a structure, or to provide solar process heat.
Subsidized Energy Financing
Not defined specifically for the purposes of Section 45; it is defined under Section 48 as “financing provided under a federal, state, or local program a principal purpose of which is to provide subsidized financing for projects designed to conserve or produce energy.”
Tentative Minimum Tax (TMT)
A separately fi gured tax that eliminates many deductions and credits to arrive at the minimum tax that a taxpayer must pay. If the TMT is greater than the regular tax then the TMT is referred to as the AMT and must be paid in lieu of the regular tax .