Part III. — Internal Revenue Bulletin 2005-20

Renewable Electricity Production Credit and Refined Coal Production Credit, Publication of Inflation Adjustment Factor and Reference Prices for Calendar Year 2005

Notice 2005–37

This notice publishes the inflation adjustment factor and reference prices for calendar year 2005 for the renewable electricity production credit and the refined coal production credit under § 45 of the Internal Revenue Code. The 2005 inflation adjustment factor and reference prices are used in determining the availability of the credits. The 2005 inflation adjustment factor and reference prices apply to calendar year 2005 sales of kilowatt-hours of electricity produced in the United States or a possession thereof from qualified energy resources and to calendar year 2005 sales of refined coal produced in the United States or a possession thereof.

BACKGROUND

Section 45(a) provides that the renewable electricity production credit for any tax year is an amount equal to the product of 1.5 cents multiplied by the kilowatt hours of specified electricity produced by the taxpayer and sold to an unrelated person during the tax year. This electricity must be produced from qualified energy resources and at a qualified facility during the 10-year period beginning on the date the facility was originally placed in service.

Section 45(b)(1) provides that the amount of the credit determined under § 45(a) is reduced by an amount that bears the same ratio to the amount of the credit as (A) the amount by which the reference price for the calendar year in which the sale occurs exceeds 8 cents, bears to (B) 3 cents. Under § 45(b)(2), the 1.5 cents in § 45(a) and the 8 cents in § 45(b)(1) are each adjusted by multiplying the amount by the inflation adjustment factor for the calendar year in which the sale occurs.

Section 45(c)(1) defines qualified energy resources as wind, closed-loop

biomass, open-loop biomass, geothermal energy, solar energy, small irrigation power, and municipal solid waste.

Section 45(d)(1) defines a qualified facility using wind to produce electricity as any facility owned by the taxpayer that is originally placed in service after December 31, 1993, and before January 1, 2006. (See § 45(e)(7) for rules relating to the inapplicability of the credit to electricity sold to utilities under certain contracts.)

Section 45(d)(2)(A) defines a qualified facility using closed-loop biomass to produce electricity as (i) any facility owned by the taxpayer that is originally placed in service after December 31, 1992, and before January 1, 2006, or (ii) any facility owned by the taxpayer which before January 1, 2006, is originally placed in service and modified to use closed-loop biomass to co-fire with coal, with other biomass, or with both, but only if the modification is approved under the Biomass Power for Rural Development Programs or is part of a pilot project of the Commodity Credit Corporation as described in 65 Fed. Reg. 63052. Section 45(d)(2)(B) provides that in the case of a qualified facility described in § 45(d)(2)(A)(ii), (i) the 10-year period referred to in § 45(a) is treated as beginning no earlier than the date of enactment of § 45(d)(2)(B); (ii) the amount of the credit determined under § 45(a) with respect to the facility is an amount equal to an amount determined without regard to § 45(d)(2)(B) multiplied by the ratio of the thermal content of the closed-loop biomass used in such facility to the thermal content of all fuels used in such facility; and (iii) if the owner of such facility is not the producer of electricity, the person eligible for the credit allowable under § 45(a) will be the lessee or the operator of the facility.

Section 45(d)(3) defines a qualified facility using open-loop biomass to produce electricity as any facility owned by the taxpayer which (i) in the case of a facility using agricultural livestock waste nutrients, (I) is originally placed in service after the date of enactment of § 45(d)(3)(A)(i)(I) and before January 1, 2006, and (II) the nameplate capacity rating of which is not less than 150 kilowatts; and (ii) in the case of any other facility, is originally placed in service before January 1, 2006. In the case

of any facility described in §45(d)(3)(A), if the owner of the facility is not the producer of the electricity, § 45(d)(3)(B) provides that the person eligible for the credit allowable under § 45(a) will be the lessee or the operator of the facility.

Section 45(d)(4) defines a qualified facility using geothermal or solar energy to produce electricity as any facility owned by the taxpayer that is originally placed in service after the date of enactment of § 45(d)(4) and before January 1, 2006. A qualified facility using geothermal or solar energy must not include any property described in § 48(a)(3) the basis of which is taken into account by the taxpayer for purposes of determining the energy credit under § 48.

Section 45(d)(5) defines a qualified facility using small irrigation power to produce electricity as any facility owned by the taxpayer that is originally placed in service after the date of enactment of § 45(d)(5) and before January 1, 2006.

Section 45(d)(6) defines a qualified facility using gas derived from the biodegradation of municipal solid waste to produce electricity as any facility owned by the taxpayer that is originally placed in service after the date of enactment of § 45(d)(6) and before January 1, 2006.

Section 45(d)(7) defines a qualified facility that burns municipal solid waste to produce electricity as any facility owned by the taxpayer that is originally placed in service after the date of enactment of § 45(d)(7) and before January 1, 2006.

Section 45(e)(8)(A) provides that the refined coal production credit is an amount equal to $4.375 per ton of qualified refined coal (i) produced by the taxpayer at a refined coal production facility during the 10-year period beginning on the date the facility was originally placed in service, and (ii) sold by the taxpayer to an unrelated person during such 10-year period and such taxable year. Section 45(e)(8)(B) provides that the amount of credit determined under § 45(e)(8)(A) is reduced by an amount which bears the same ratio to the amount of credit determined under § 45(e)(8)(A) (determined without regard to § 45(e)(8)(B)) as (i) the amount by which the reference price of fuel used as feedstock (within the meaning

2005–20 I.R.B. 1049 May 16, 2005

electricity produced in open-loop biomass facilities, small irrigation power facilities, landfill gas facilities, and trash combustion facilities, § 45(b)(4)(A) requires the amount in effect under § 45(a)(1) (before rounding to the nearest 0.1¢) to be reduced by one-half. Under the calculation required by § 45(b)(2), the credit for renewable electricity production for calendar year 2005 under § 45(a) is 1.9¢ per kilowatt hour on the sale of electricity produced from the qualified energy resources of wind, closed-loop biomass, geothermal energy, and solar energy, and 0.9¢ per kilowatt hour on the sale of electricity produced in open-loop biomass facilities, small irrigation power facilities, landfill gas facilities, and trash combustion facilities. Under the calculation required by § 45(b)(2), the credit for refined coal production for calendar year 2005 under section 45(e)(8)(A) is $5.481 per ton on the sale of qualified refined coal.

DRAFTING AND CONTACT INFORMATION

The principal author of this notice is David A. Selig of the Office of Associate Chief Counsel (Passthroughs and Special Industries). For further information regarding this notice, contact Mr. Selig at (202) 622–3040 (not a toll-free call).

26 CFR 301.7508–1: Time for performing certain acts postponed by reason of service in a combat zone or a Presidentially declared disaster. (Also Part I, §§ 7508, 7508A; §§ 301.7508–1, 301.7508A–1.)

Rev. Proc. 2005–27