Payments for Specified Energy Property in Lieu of Tax Credits

Under the American Recovery and Reinvestment Act of 2009

FREQUENTLY ASKED QUESTIONS AND ANSWERS

Application Procedures

1. Question: Must an applicant submit all of the required documentation at the 

same time the application is submitted?

Answer: An applicant should submit all of the required documentation at the 

same time the application is submitted. Not doing so will delay payment. An 

application will not be considered complete until all required documentation 

has been submitted.

2. Question: What documentation must be submitted with an application?

Answer: All applicants must submit documentation demonstrating that (1) the 

property is eligible; (2) the property has been placed in service; and (3) the 

amount requested is accurate.

To show eligibility, design plans stamped by a licensed professional engineer 

are required for all properties.

To establish that a property has been placed in service, a commissioning 

report is required. For properties interconnected with a utility, an 

interconnection agreement must be provided.

To establish that the amount requested is accurate, a detailed breakdown of 

all costs included in the cost basis is required. For properties with a cost 

basis of more than $500,000 an Independent accountant’s certification is 

required.

Applicants may also be asked to submit documentation beyond what is listed 

here to fully demonstrate eligibility. Examples include, but are not limited to, 

power purchase agreements, equipment lease agreements, and certain 

invoices. If such additional documentation is required applicants will be 

notified.

See also, Questions #3 and #4 below.

3. Question: What additional documentation must be submitted with an 

application for property that is placed in service after December 31, 2011?

Answer: If the property is placed in service after December 31, 2011, the 

documentation must show that construction began in 2009, 2010 or 2011. 

Paid invoices and/or other financial documents demonstrating that physical 

work of a significant nature had begun on the property during 2009, 2010, or

2011 are required.
4. Question: Is any other documentation required?

Answer: Additional documentation is required in certain cases as follows:

Property that has a minimum or maximum nameplate capacity requirement: 

(applies to open-loop biomass facility using livestock waste nutrients, marine 

and hydrokinetic renewable energy facility, fuel cell property, microturbine 

property, combined heat and power system property, and small wind energy 

property) documentation demonstrating nameplate capacity is required.

Other specific types of property: please refer to Page 9 of the Program 

Guidance for information on additional documentation requirements for fuel 

cell property; microturbine property; combined heat and power; closed-loop 

biomass facility modified to use closed-loop biomass to co-fire with coal, other 

biomass or both; incremental hydropower production projects; and 

hydropower facilities installed on a nonhydroelectric dam.

Lessees: applicants that are lessees of the property must submit a written 

agreement with the lessor that meets the requirements described on page 17 

of the program guidance.

Applicants who select “Other” in section 1A of the Application: must submit 

documentation explaining the business structure of the applicant

Applications and Terms and Conditions signed by a person who is not an 

officer or employee of the applicant: must include documentation evidencing 

the person’s authority to legally bind the applicant.

5. Question: Who can sign the Application and Terms and Conditions?

Answer: Applications and Terms and Conditions must be signed by an 

authorized representative of the applicant entity. If the person signing both 

documents is not an officer or employee of the applicant entity, the 

application must include evidence of the person’s authority to bind the 

applicant entity.

6. Question: Can a vendor of energy property, for example a company that sells 

solar energy systems, sign the application on behalf of its customer, the

entity applying for payment?

Answer: Only if the vendor submits written evidence of its authority to bind 

the applicant. If this authority does not exist, the application must be signed 

by an officer or employee of the applicant entity.

7. Question: When should an application be submitted if the property has not 

yet been placed in service but construction has begun?

Answer: The purpose of submitting an application for a property that is not 

yet placed in service and will not be placed in service in 2009, 2010 or 2011

is to demonstrate that construction has begun during the required time period 

of 2009, 2010 or 2011. If the eligible property will be placed in service before 

the end of 2011, submitting an application after construction has begun but 

before the property is placed in service will not accelerate payment and is not
recommended. If the property will not be placed in service by the end of

2011, the applicant should submit the application after construction has 

begun but no later than September 30, 2012. See Question #8 for property

placed in service on or after October 1, 2012.

8. Question: When does supplemental information need to be submitted for 

properties not yet placed in service?

Answer: For properties that are placed in service on or after October 1, 2012, 

applicants have 90 days after the property is placed in service to provide 

Treasury with supplemental information necessary to make a determination.

9. Question: Will an applicant receive a response if the application is submitted 

prior to the property being placed in service?

Answer: Yes, the applicant will be informed that it has or has not sufficiently 

demonstrated that construction began.

10. Question: Can applications for multiple properties be submitted on a single 

application? For example, may a company that leases solar panels to 

hundreds of different properties, consolidate these properties into a single 

application?

Answer: No. Because key information for each property, such as property 

location and placed in service date is likely to differ and design plans and

other documentation are likely to be unique for each property, applications for 

multiple properties cannot be consolidated. However, if documentation 

submitted to support one application applies to other applications submitted

by the same applicant, an applicant need not re-submit the documentation 

with each application. Instead, the applicant can cross-reference the 

application that includes the documentation.

11. Question: Are payments to successful applicants made by Fedwire®?

Answer: No. Payments to successful applicants are made through the 

Automated Clearing House (ACH). Applicants must ensure that the bank 

account into which they direct their payment is able to accept ACH payments.

12. Question: Can payments be assigned to entities other than financial 

institutions?

Answer: Assignments of payments must comply with the Federal Assignment 

of Claims Act which only permits assignments to banks, trust companies or 

other financing institutions. In general this means that assignments may 

only be made to entities that are in the business of providing financing.

13. Question: Are decisions on applications final? What options are available to 

an applicant whose application is denied?

Answer: While we will make every effort to work with an applicant during the 

review process to ensure that the applicant has the opportunity to address 

any deficiencies in its application, once a determination is made, that 

determination is final. No administrative appeal is available.

 13a.Question: What actions may Treasury or other governmental entities take

with respect to an application after a Section 1603 payment is issued? 
Answer: Consistent with the Terms and Conditions, each applicant has agreed 

that any information provided to Treasury may be shared with other federal 

entities, including the Internal Revenue Service, as needed by those entities to 

conduct official agency business including audits, examinations, and evaluations 

after issuance of a payment in order to confirm that Section 1603 funds were 

properly obtained. Treasury or other relevant federal entities may take 

appropriate action, including action to seek repayment, if it is determined that 

an overpayment was made. This is true even in those cases where the 

payment may have already been reduced at the payment stage relative to the 

claimed level. 

14. Question: May an application be withdrawn? If so, can an application that 

has been withdrawn be re-submitted?

Answer: Yes, an application may be withdrawn at any time prior to a final 

determination. If an application is withdrawn it can be re-submitted.

15. Question: If an applicant does not know its final costs at the time an 

application is submitted may a supplemental application be submitted once 

those costs are known?

Answer: Applicants should not submit an application until all costs are known 

and final.

16. Question: Is there a cap on funds available to a specific project or applicant?

Answer: No, funding for the program has no overall cap. The amount payable 

to any applicant for a qualifying project or projects is not limited. However, 

the maximum amount payable for any project is limited to 30% or 10% of the 

eligible costs depending on the type of project. The payment may not exceed 

a specified amount for each kilowatt of capacity for qualified fuel cell property 

and qualified microturbine property.

Applicant Eligibility

17. Question: Are schools, colleges or universities eligible applicants?

Answer: Schools, colleges or universities that are agencies or instrumentalities

of a Federal, State or Local government are not eligible for payment.

Additionally, schools, colleges or universities that are organizations described

in section 501(c) of the Internal Revenue Code and exempt from taxation

under section 501(a) of the Internal Revenue Code are not eligible

for payment.

18. Question: Are manufacturers of specified energy property eligible applicants?

Answer: Payments are only available to entities that place specified energy 

property into service. An entity that manufacturers specified energy property 

but does not own the property at the time it is placed in service is not eligible 

for payment. If a manufacturer continues to own the property once it is 

placed in service (for example, a manufacturer who leases rather than sells

its property), it may be eligible.

19. Question: Do builders or contractors who install solar systems on residential 

properties qualify for payment?

Answer: No, unless they continue to own the solar property.
20. Question: Is an applicant who has received a prior USDA or other federal or 

state-funded grant for the same property eligible?

Answer: Yes, receipt of other federal or state grants does not impact an

applicant’s eligibility. However, receipt of other federal grants, state grants,

or rebates may have an impact on the eligible cost basis of the property. If 

the rebate or grant is includable in taxable income of the applicant, the basis 

on which the payment is computed is not reduced. If the rebate or grant is 

not includable in the income of the applicant, a basis reduction may be 

required.

21. Question: Is an applicant who owns eligible energy property eligible to receive 

payment if the energy property is leased to a non-profit or otherwise ineligible 

entity?

Answer: Yes. If the owner of the energy property is the applicant and is 

otherwise eligible, the fact that the property is being leased to an ineligible 

entity does not impact the eligibility of the owner/applicant provided that 

the lease is a true lease and not a disguised sale.

22. Question: If the owner of the property is an LLC that is disregarded for 

federal tax purposes, is the proper applicant the disregarded LLC or its 

parent?

Answer: The proper applicant is the owner of the property which would be 

the disregarded LLC.

23. Question: If an applicant is not one of the entities listed in Section 1A of the 

application is the applicant ineligible?

Answer: Not necessarily. If the applicant is an entity that is not listed in 

Section 1A of the application it may still be eligible as long as it is not an 

entity that is expressly excluded from eligibility (see Program Guidance page

4). The applicant should select “Other” and provide an explanation and

supporting documentation sufficient to establish that it is not ineligible.

24. Question: Can a lessee of eligible property receive payment?

Answer: Yes, if the lessor/owner of the property waives its right to payment

and elects to pass it on to the lessee and the property would be eligible if 

owned by the lessee. See Question 4 for documentation that must be 

submitted if the applicant is the lessee of the property.

25. Question: Is a partnership that has a foreign entity as a partner eligible?

Answer: Having as a partner a foreign entity does not make an entity 

ineligible, unless the foreign entity is tax-exempt.

26. Question: Can a taxable corporation that is wholly-owned by an ineligible 

entity be eligible?

Answer: A taxable corporation can be an eligible applicant even if wholly 

owned by an ineligible entity.

Property Eligibility

27. Question: Is energy property that is used at a residence eligible?
Answer: Generally no, but energy property used at a residence may be 

eligible in some circumstances. Property used in a building that is used for 

residential purposes may be eligible if it is subject to depreciation or 

amortization in lieu of depreciation by its owner. This means that the 

property must be used in a trade or business or for the production of income. 

For example, if the applicant is a business that installed an otherwise eligible 

solar energy system on the roof of a residence that the business rents out for 

the production of income, the property would be eligible. If, however, the 

applicant is a homeowner who installed a solar energy system on the roof of 

his/her home and uses the solar energy property for personal purposes, the 

property would not be subject to depreciation and therefore would not be 

eligible.

28. Question: If a business receives a section 1603 payment for energy property 

used at a residential rental property, and subsequently sells the residential 

property to the tenant within five years, will the business be required to 

return all or part of the section 1603 payment?

Answer: Yes. The property ceases to be specified energy property when it is 

sold to a person who cannot depreciate the property because that person will 

use the property for personal purposes.

29. Question: What about energy property that is part of a building used for both 

business and residential purposes? For example, can a solar energy system 

installed on a building that is used both as a residence and a place of business 

be eligible?

Answer: A solar energy system installed on a building that is used as both a 

residence and a place of business may be eligible for a section 1603 payment 

based on the portion of the basis of the solar energy property used for 

business purposes. The portion that is used for business purposes must be 

demonstrated by either a separate meter, an allocation based on square 

footage or other reasonable means.

30. Question: Can a property that is located in Puerto Rico be eligible?

Answer: Generally, to be eligible, the property must be used predominantly in 

the United States. An exception to this general rule is property described in 

the Internal Revenue Code, section 168(g)(4) which includes property owned 

by a domestic corporation or U.S. citizen that is used predominantly in a U.S. 

possession. The corporation must not have an election in effect under section

936 of the Internal Revenue Code and the U.S. citizen must not be entitled to 

the benefits of section 931 or section 933 of the Internal Revenue Code.

31. Question: Can property that contains “used” or “refurbished” parts qualify for

the Section 1603 program?

Answer: For a property to be eligible, the original use of the property must 

begin with the applicant. If the cost of any used parts in a facility is less than

20% of the total cost of the facility, the property will not be considered “used”

for purposes of determining original use.
32. Question: Can dead and diseased trees resulting from pine beetle infestation 

qualify as open-loop biomass?

Answer: Yes, provided the trees have no commercial value other than use in 

producing energy from biomass. For this purpose, infested trees from which 

lumber or pulp could be recovered with appropriate processing may, 

nevertheless, have no commercial value if they are located in an area without 

milling or pulping facilities or if they are in excess of the area’s milling and 

pulping capacity.

33. Question: Can a facility that produces electricity from pyrolysis oil derived from 

open-loop biomass qualify as an open-loop biomass facility?

Answer: Yes. Open-loop biomass facilities include, in addition to facilities that 

burn open-loop biomass, facilities that burn gases or liquids derived from openloop biomass.

34. Question: In the case of a qualified facility that produces electricity by burning 

gases or liquids derived from a qualified energy resource such as open-loop 

biomass or municipal solid waste, can the equipment used to convert the

qualified energy resource into a gas or liquid qualify for a Section 1603 payment?

Answer: Yes, but only if the equipment used to produce the gas or liquid (the 

conversion equipment) is an integral part of the qualified facility. In general, 

conversion equipment that is owned by the same person and located at the same 

site as the qualified facility will be treated as an integral part of the facility. In 

addition, the conversion equipment may be treated as an integral part of the 

qualified facility, even if under different ownership or at a different site, if it is 

established that the conversion equipment is integrated into the facility. Factors 

that may be relevant in determining whether the conversion equipment is 

integrated into the facility include whether the conversion equipment and the 

facility are placed in service simultaneously, the extent to which the gas or liquid 

produced is dedicated to the facility (for example, under an exclusive long-term 

supply contract), and the dependence of the facility on the gas or liquid produced 

by the conversion equipment. Conversion equipment generally will not be

treated as an integral part of a qualified facility if less than 75 percent of the gas 

or liquid produced is dedicated to the facility. In addition, if conversion 

equipment is treated as an integral part of a qualified facility but not all the gas

or liquid produced is dedicated to that facility, the conversion equipment’s eligible 

cost basis is limited to the percentage of its otherwise eligible cost corresponding 

to the percentage of its production that is dedicated to the qualified facility.

35. Question: If components of a facility are owned by different persons, must each 

owner submit a separate application for a Section 1603 payment?

Answer: Yes, a separate application must be submitted for each part of the 

facility with a different ownership structure. For example, if an open-loop 

biomass facility consists of conversion equipment owned by corporation X and 

generation equipment owned by corporation Y, X and Y must submit separate 

applications to receive Section 1603 payments for their portions of the facility. 

All owners of the facility (including owners of portions of the facility that are not 

eligible for a Section 1603 payment) must join in each separate application for 

the Section 1603 payment and agree to the terms and conditions, including the
waiver of the right to claim a credit under section 45 with respect to the facility. 

In any such case, the application and the terms and conditions will be 

appropriately modified to reflect the participation of persons other than the 

claimant.

36. Question: Can conversion equipment that is an integral part of a qualified facility 

qualify for a Section 1603 payment if the combustion equipment included in the 

facility was placed in service before 2009?

Answer: Only if, for purposes of determining depreciation with respect to the 

conversion equipment, it is placed in service in 2009, 2010, or 2011 or (for 

equipment on which construction begins in 2009, 2010, or 2011) in 2012 or

2013. Conversion equipment placed in service at a later date than the original 

facility may, nevertheless, be an integral part of the facility if, for example, the

facility was not initially dependent on the conversion equipment because an

alternative source of biomass fuel was available when the combustion equipment 

was placed in service. In that case, the combustion equipment and the 

conversion equipment are not treated as a single unit of property for purposes of 

determining the beginning of construction or the date property is placed in 

service.

37. Question: Is the eligible cost basis of the conversion equipment reduced if the 

qualifying facility of which it is a part burns fuel other than fuel that the 

conversion facility produces from qualified energy resources?

Answer: No, not if all fuel produced by the conversion equipment is used by the 

qualifying facility in the production of electricity.

Use of Awarded Funds

38. Question: Do the “Buy American” provisions in the American Recovery and

Reinvestment Act of 2009 apply to the Section 1603 program?

Answer: No.

39. Question: Does the Davis-Bacon Act apply to the Section 1603 program?

Answer: Receipt of funds under Section 1603 does not trigger the 

requirements of the Davis-Bacon Act.

Eligible Basis

40. Question: What costs qualify for a Section 1603 payment?

Answer: The amount of the Section 1603 payment is a percentage of the 

eligible basis of the property. The basis of property generally is its cost (IRC 

section 1012), unreduced by any other adjustment to basis, such as that for 

depreciation, and includes all items properly included by the taxpayer in the 

depreciable basis of the property, such as installation costs and the cost for 

freight incurred in construction of the specified energy property.
41. Question: If an applicant has received another federal or state grant or a 

rebate for the same property, must the basis be reduced?

Answer: If the rebate or grant is includable in taxable income of the 

applicant, the basis on which the payment is computed is not reduced. If the 

rebate or grant is not includable in the income of the applicant, a basis 

reduction may be required.

 42. Question: In an earlier communication on its website concerning evaluations 

of the cost basis for solar photovoltaic properties, Treasury presented price 

benchmarks that it uses in evaluating applicants’ claimed basis. Has Treasury 

updated those benchmarks since the release of that communication?

Answer: No updated benchmarks have been published. While Treasury 

continues to compare applicants’ claimed basis with typical market pricing 

during the relevant time period, such comparisons have been used and 

continue to be used as only one of several factors in assessing whether 

Treasury requires additional information from the applicant to support the 

claimed basis prior to Treasury’s issuance of payment. Just as one property’s 

eligible basis may exceed a national benchmark, another property’s eligible 

basis may fall below that benchmark. As a result, we have determined that 

continuing to publish benchmarks is not useful. 

 43. Question: Is there a particular level of development fee or profit that Treasury 

may accept as part of determining the eligible basis?

Answer: As stated in the Program Guidance, cost basis for purposes of Section 

1603 is determined in accordance with the general rules for determining the 

basis of property for federal income tax purposes. In those circumstances in 

which inclusion of a development fee, profit, or other components of markups 

above a property’s direct costs (e.g., for allocated indirect costs) is appropriate, 

the appropriate level of development fee, profit, or markup is case-specific and 

depends on many factors. Therefore, applicants with a claimed basis that 

implicitly or explicitly reflects markups of any kind above the property’s direct 

cost should be able to support the appropriateness of the specific level of 

markup with reference to particular facts and circumstances relevant to their 

property. 

 44. Question: How does Treasury evaluate appraisals or other information 

submitted in support of a property’s fair market value?

Answer: In certain circumstances (such as those generally described in a 

document titled “Evaluating Cost Basis for Photovoltaic Property,” to be found at 

http://www.treasury.gov/initiatives/recovery/Documents/N%20Evaluating_Cost

_Basis_for_Solar_PV_Properties%20final.pdf) applicants must be able to 

demonstrate that their claimed basis is consistent with their property’s fair 

market value (FMV). Applicants typically submit an appraisal to make this 

demonstration. In evaluating appraisals, Treasury often considers the 

appraiser’s various judgments and analyses for consistency with market data

and with any property-specific information that may offer insight about the 

property’s value.

With respect to property-specific information, it is often the case that a 

developer enters into a transaction with an unrelated investor involving the 

project in which the Section 1603 eligible property is employed. Such a 

transaction is typically structured in a way that the unrelated investor receives 

(either directly or through a partnership distribution or otherwise) some or all of 

the project’s cash flows in exchange for a cash payment, capital investment or 
lease payments. In these cases, the terms negotiated between the unrelated 

investor and the developer (assuming such terms are negotiated at arm’s 

length and are not influenced by peculiar circumstances) can offer significant 

information regarding the value of the entire project. For example, the 

projected return on investment that a developer agrees to provide an unrelated 

investor offers information regarding the developer’s assessment of the value of

the project’s expected cash flows. Thus, it should be possible to reconcile an 

applicant’s claimed basis, and any appraised valuation supporting that claimed 

basis, with what the terms of any such transaction imply about the project’s 

value, taking into account that the value of the Section 1603 eligible property

may be less than the value of the overall project in which it is used if some of 

the project’s value reflects the value of other ineligible assets associated with 

the project. Also, to the extent that a project’s purchase price depends in part 

on the project’s developer making an investment in the project or making some 

other financial commitment associated with the project’s operation (e.g., 

agreeing to a lease agreement in a sale-leaseback), applicants should be able 

to demonstrate that the terms of the project developer’s involvement are 

consistent with terms to which a party not involved in the project’s 

development would reasonably agree. 

Helpful Links

Department of Energy: http://www.energy.gov/taxbreaks.htm;

http://www.energy.gov/recovery/48C.htm

Energy Star: http://www.energystar.gov/index.cfm?c=tax_credits.tx_index

DSIRE: http://www.dsireusa.org/

U.S. Department of Agriculture: http://www.rurdev.usda.gov/

IRS: http://www.irs.gov/newsroom/article/0,,id=204335,00.html?portlet=6

Department of Housing & Urban Development: www.hud.gov