Information 1603 Grant Awardees Need to Know Now

By Luke Geiver | October 19, 2012

Recipients of U.S. Department of Treasury 1603 Program funding need to be alert. The law firm Sutherland, Asbill & Brennan LLP, released a legal alert this week detailing two significant developments surrounding the 1603 program that reimburses renewable energy-based property. First, according to Sutherland, a solar panel installer, SolarCity Corp., disclosed earlier this week that it and a number of other companies were being audited by the Internal Revenue Service. The information was verified through a release of a Securities and Exchange Commission statement.

The IRS determined that it has jurisdiction to decide if a 1603 grant was administered properly, and, if the amount awarded was a correct fair market value. According to Sutherland, “Should the IRS determine that the valuations used were incorrect, and consequently that the amount of a Section 1603 grant received was excessive, it could assess additional tax, interest and penalties.” Any audit may include site visits, interviews with staff and accountants or written requests for information. The audits will focus on three main areas: the proper cost basis of the property that the grant was based on; whether projects placed in service after Dec. 31, 2011 satisfied the beginning construction requirement; and, whether a recapture is necessary for post-grant award activity or inactivity.

The Sutherland firm says that recipients that were awarded large sums should be preparing for an audit now, and that any recipient of funding should be familiar with the procedural aspects and the timeframes for challenging any IRS determination that would reverse or reduce a previously awarded grant.

In addition to the information provided on the potential for 1603 audits, the legal alert also noted another extremely likely possibility for the program: a 7.6 percent reduction in funding because of sequestration, a process that will happen if Congress fails to enact a plan that would reduce the deficit by $1.2 trillion by the end of the year.

The 1603 program is currently expired, but in September Sen. Charles Shumer, D-N.Y., started a plan to bring back the program.