Direct Pay what is itProviding a cash monetization avenue for energy tax creditswwwsteptoecomDirect Pay eDirect Pay is a term of art that is associated with a proposal that originated from the House ID: 886336
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1 www.steptoe.com Direct Pay: what is it?
www.steptoe.com Direct Pay: what is it? Providing a cash monetization avenue for energy tax credits www.steptoe.com Direct Pay e Direct Pay is a term of art that is associated with a proposal that originated from the House Ways and Means Committee in 2010 in the Domestic Manufacturing and Energy Jobs Act of 2010, which was introduced by former Congressman Sander Levin
2 . e The Direct Pay proposal was create
. e The Direct Pay proposal was created in part as a reaction to the difficult politics that surrounded the Section 1603 Cash Grant program that was authorized in the American Recovery and Reinvestment Act (ARRA) in 2009. e The basic mechanism of Direct Pay is that it allows a taxpayer to treat tax credits that it has earned as an overpayment of taxes, allowing the ta
3 xpayer to utilize the tax refund mechan
xpayer to utilize the tax refund mechanism in the tax code to receive a direct payment of cash from the Treasury Department in lieu of monetizing the tax credit through another means. www.steptoe.com CRS Study in 2011 on Tax Incentive Grants e A 2011 Congressional Research Service study on the Section 1603 cash grant program concluded that: e Compared to tax incentives
4 , the Section 1603 grants, or grants gen
, the Section 1603 grants, or grants generally, may be a more efficient subsidy. From the perspective of the federal government, the efficiency of a subsidy can be evaluated based on funding flowing toward the subsidized activity relative to federal revenue losses. Since many recipients of renewable energy tax incentives turn to tax - equity markets to monetize such c
5 redits at a discount, it may be more eff
redits at a discount, it may be more efficient for the government to provide grants directly rather than use the tax code as a vehicle for subsidization. Further, this would eliminate the need for tax - equity markets broadly, potentially leveling the playing field for smaller projects with less access to tax equity . See: https://www.everycrsreport.com/reports/R41635
6 .html 3 www.steptoe.com Why is there a N
.html 3 www.steptoe.com Why is there a Need for Direct Pay? e Tax Equity Partnership Constraints e COVID 19 Economic Dislocations 4 www.steptoe.com Are there alternatives to Direct Pay that may be effective? e Enhanced Transferability e Blumenhauer /LaHood Bill on Renewable Tax Credit Transferability (May 2019) e Senator Michael Bennet bill S. 3032 “The Renewable Energy
7 Transferability Act” 5 www.steptoe.com
Transferability Act” 5 www.steptoe.com Direct Pay Proposals in Congress e The GREEN Act (House Ways and Means Democrats (November 2019) e Congressman Blumenauer Direct Pay Bill HR 5157 (November 2019) e Congressman Arrington/Chamber of Commerce Bill e Advanced Energy Economy Proposal 6 www.steptoe.com N. Hunter Johnston N. Hunter Johnston hjohnston@steptoe.com 202 - 429