IRS explains how to claim credit for qualified fuel cell and qualified microturbine property

A new Notice carries interim guidance on the terms and conditions that must be met by taxpayers that want to claim the Code Sec. 48 credit for fuel cells and microturbines.

Background. A taxpayer may be eligible to claim (on Form 3468) a number of energy credits, including the following credits added by the Energy Policy Act of 2005 (P.L. 109-58). In each case, the percentage is applied to the basis of eligible energy property placed in service during the year:

• • 30% for qualified fuel cell property, (Code Sec. 48(a)(2)(A)(i)(I)) i.e., a fuel cell power plant with a nameplate capacity of at least 0.5 kilowatt of electricity using an electrochemical process, and an electricity only generation efficiency of greater than 30%. The credit can’t exceed an amount equal to $500 for each 0.5 kilowatt of capacity. The credit isn’t available after 2008. (Code Sec. 48(c))
  • 10% for qualified microturbine property, (Code Sec. 48(a)(2)(A)(ii), Code Sec. 48(a)(3)(A)(iv)) i.e., a stationary microturbine powerplant with a nameplate capacity of less than 2,000 kilowatts, and an electricity only generation efficiency of not less than 26% at International Standard Organization conditions. A credit for qualified microturbine property can’t exceed $200 for each kilowatt of the property’s capacity. The credit is not available after 2008. (Code Sec. 48(c)(2))

No credit is allowed for property unless it is depreciable or amortizable; its construction, reconstruction or erection is completed by the taxpayer or, if acquired by the taxpayer, its original use begins with the taxpayer; and it meets the official quality and performance standards in effect at the time of acquisition. (Code Sec. 48(a)(3))

No credit is allowed for public utility property (Code Sec. 48(a)(3)) (except for certain qualified microturbine property used predominantly in a telephone or telegraph service business (Code Sec. 48(c)(2)(D)), or for property that also qualifies for the rehabilitation credit. (Code Sec. 48(a)(2)) If property is financed in whole or in part by subsidized financing or tax-exempt private activity bonds, the amount taken into account as qualified investment is proportionately reduced. (Code Sec. 48(a)(4))

New guidance. Rev Proc 2008-68 carries detailed guidance on the fuel cell credit and microturbine credit, including the technical conditions that must be met for property to qualify for the credit, how to compute the credit, and the circumstances under which the credit for either type of property is available to a lessor.

Rev Proc 2008-68, Sec. 3.04 refers taxpayers to the following sections of the regs for guidance on the following key definitional terms and conditions:

• • whether the original use of property begins with the taxpayer is determined under the principles of Reg. § 1.48-2;
  • whether depreciation (or amortization instead of depreciation) is allowable to the taxpayer is determined under the principles of Reg. § 1.48-1(b);
  • the he year in which property is placed in service is determined under the principles of Reg. § 1.46-3(d); and
  • the basis of property is determined under the principles of Reg. § 1.463-3(a) and Reg. § 1.463-3(c).

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