More Clarification for 1603
The arcane rules for government cash grants are still that: arcane.
The lifeline to the renewable energy project developers, the so-called 1603 Treasury grant program, is still causing confusion. I've visited this topic a number of times and still need a tutorial.
Greg Jenner of the Stoel Rives law firm in Minneapolis recently gave me one. And he also posted a blog in response to the U.S. Treasury Department's latest attempt to help developers, a series of FAQs on its 1603 Web site.
"There are so many people confused by these requirements. People are just getting it wrong, right and left and we're always correcting them," Jenner said. "There are so many people merrily filing away that they think they know what the requirements are but come next year they're going to find that they technically didn't meet them."
The program has already surpassed $5 billion since grants were first dispersed a year ago the wind industry in particular says the program kept the industry from total collapse last year.
At 30 percent of a project's cost, it's not a trivial matter.
"The fundamental mistake they're making is they're confusing the two separate tests for beginning construction," Jenner said. The statue requires either physical activity by the end of this year on a site or a "5 percent safe harbor" of costs incurred -- not any costs but those that conform to the tax rules.
In short, developers think that spending money creates a safety net for both tests, when it is not.
"Physical activity is just that," Jenner said. "This is either through their own work or through a contract. Somehow or other they think the dollars matter and they don't."
The magic word in the physical activity test is "continuity." If a developer works until the end of December and stops, and then thinks the test is passed, he would be wrong.
"Treasury came to a conclusion, and I think wisely, that they couldn't set a minimum (dollar) threshold," he added.
So the safe harbor seems pretty easy, right?
"The 5 percent safe harbor test is very difficult to meet. People have focused on that because they think all you have to do is pay money," he said.
I asked Jenner, who worked on Capitol Hill for four years including a stint as the acting assistant secretary for tax policy in the U.S. Department of the Treasury, why so much published guidance seemed necessary.
"It is really difficult when you are drafting legislation, particularly when you are under the gun, to put yourself in a situation that anticipates all of the possible scenarios that could arise," he said.
The speed in which the stimulus law was written, additionally with the creation of a new program didn't help ease the transition.
"There was no room to make tweaks to get it right," he added.
All things considered, the statue is working pretty well, with checks getting cut within 60 days of filing. "The financial community has gotten very comfortable loaning against the grant," he said.
Now, with the program possibly expiring by the end of the year without a congressional extension, the development community is running out of time to get it just right.
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