June 13, 2017 Corporate Tax
IRS Tax Audit Campaign Targets Energy Credits
Since the Internal Revenue Service (IRS) Large Business and International (LB&I) division announced its "13 Campaigns" earlier this year, Bloomberg BNA has received an increasing number of industry-specific questions. The campaigns are essentially a new way of conducting IRS audits. Rather than auditing the returns of large corporate taxpayers to uncover issues, the IRS is moving toward issue-based audits. These 13 Campaigns span a broad range of topics including a common tax credit, Section 48C, used by energy companies.
The goal of Section 48C is to stimulate growth of domestic manufacturing of clean energy by offering a credit for machinery that is used to manufacture products that will reduce greenhouse gas emissions or air pollutants. Examples include manufacturers of wind turbines, solar panels, and low VOC chemicals. To qualify for this credit, manufacturers must go through a formal approval process with the Department of Energy based on criteria such as:
- Net impact on reduction of air pollutants or emissions of greenhouse gases
- Job creation
- Project time from certiﬁcation to completion
- Technological innovation and potential for commercial deployment
The IRS LB&I audit campaign will most likely target assertions on applications to confirm that companies currently enjoying this tax credit legitimately meet the statute review criteria including:
- Lowest “levelized” cost of energy
- Shortest project time from certification to completion
- Qualified facility
- Reductions in air pollutants
To determine the bottom-line tax impact, audit exposures and strategies, as well as how to maximize allowable credits, tax and financial executives in the energy sector should prepare by holistically taking into account tax depreciation, state tax, and potential tax reform impacts. This type of sophisticated analysis requires advanced software such as BNA Corporate Tax™ Analyzer, BNA Fixed Assets™, and BNA State Tax™ Analyzer from Bloomberg BNA. These solutions provide companies with the ability to conduct what-if analysis and compare tax strategies against past, current, and future guidance. This valuable information can then be used to ensure tax decisions, such as the use of an IRC 48C Energy Credit, are both beneficial to the bottom line, and in compliance with the latest IRS guidelines.