EXPIRING ENERGY TAX PROVISIONS
Thirty-one temporary tax provisions expired at the end of 2010 and an additional fifty-nine temporary tax provisions will expire on December 31 of this year. Four of the 2010 provisions and thirteen of the 2011 provisions provide incentives for various types of energy production, use and/or efficiency.
The 2010 provisions include:
- Alternative motor vehicle credit for advanced lean burn technology motor vehicles and qualified hybrid motor vehicles that are passenger automobiles or light trucks;
- Alternative motor vehicle credit for qualified alternative fuel vehicles;
- Alternative fuel vehicle refueling property − increase in credit rate and credit cap; and
- Natural gas distribution lines treated as 15-year property.
The 2011 provisions include:
- Credit for certain non-business energy property;
- Credit for electric drive motorcycles, three-wheeled vehicles, and low-speed vehicles;
- Conversion credit for plug-in electric vehicles;
- Alternative fuel vehicle refueling property (non-hydrogen refueling property);
- Incentives for alcohol fuels (income tax credits, excise tax credits and outlay payments);
- Incentives for biodiesel and renewable diesel (income tax credits, excise tax credits and outlay payments);
- Placed-in-service date for facilities eligible to claim the refined coal production credit (other than refined coal facilities that produce steel industry fuel);
- Credit for construction of new energy efficient homes;
- Credit for energy efficient appliances;
- Grants for specified energy property in lieu of tax credits (1603 payments);
- Special rule for sales or dispositions to implement Federal Energy Regulatory Commission (FERC) or State electric restructuring policy;
- Suspension of 100 percent-of-net-income limitation on percentage depletion for oil and gas from marginal wells; and
- Incentives for alternative fuel and alternative fuel mixtures other than liquefied hydrogen (excise tax credits and outlay payments).
Many of these provisions to promote clean, renewable, domestic energy are very popular, but they don’t have enough individual political support to drive Congress to enact extension legislation. Two of the most politically popular temporary tax provisions also expire at the end of this year: the research and development tax credit and the alternative minimum tax relief for middle income taxpayers. These two provisions have generated the political support for Congress to enact tax extender bills in the past, although there have been several cases where these bills were enacted in the year following their expiration.
While there is a very slim chance that Congress may consider stand-alone legislation to extend the expiring tax provisions, such stand alone legislation will be difficult to enact given the bipartisan desire to reduce the budget deficit. There is a slightly better chance that legislation to extend some or all of the extending tax provisions could be rolled into the deficit reduction legislation to be developed by the Joint Select Committee. In this case, these provisions will be thoroughly scrutinized along with many other tax expenditures throughout the tax code to determine which provisions should be continued and which should be terminated as part of “tax reform” or “revenue enhancement.”
The Republican majority in the House of Representatives has highlighted regulatory relief as a legislative priority. Beginning in September, the House Republican leadership has pledged to hold votes to repeal a number of federal regulations. Among the regulations singled out for action are numerous initiatives at the Environmental Protection Agency (EPA) including rules on Greenhouse Gases, Utility Maximum Achievable Control Technology (MACT), Boiler MACT, Cement MACT, Coal Ash, and the Ozone Rule. For additional information on these federal regulations, please see our previous alerts here.