• Energy Tax Incentives in Jeopardy
  • March 7, 2013
  • Law Firm: Faegre Baker Daniels - Minneapolis Office
  • Congressional consideration of comprehensive tax reform is officially underway. The House Ways & Means Committee announced the formation of working groups to solicit feedback from industry and other stakeholders across a variety of categories, including energy. According to a 2012 Congressional Research Service report, "the value of federal tax support for the energy sector was estimated to be $19.1 billion in 2010,"[1] making the sector a likely target for changes in the tax code, as Congress and the Administration attempt to find cost-savings and more revenue.

    Over the past two years, Congress has demonstrated its interest in addressing tax incentives in the energy sector. There have been many hearings and the last Congress ended the ethanol tax incentives - which were once considered sacred. In both the House and Senate, Democrats are now urging an end for all fossil energy tax incentives, which is consistent with the President's call for the repeal of incentives for the oil and gas industry. Legislation has also been introduced to end all energy tax incentives across the board - fossil fuels and renewables. Meanwhile, other proposals exist to extend certain organizational structures currently available for the oil and gas industry to renewables, such as master limited partnerships.

    As Congress considers ending or changing various energy provisions within the tax code, it will be important for every stakeholder to voice an opinion on provisions they either support or oppose. It is a significant risk for any institution or organization to be silent during this process.

    The following is a brief look at some larger tax provisions that are expected to face congressional scrutiny (this is not an exhaustive list):

    Fossil Fuel Incentives:

    • Expensing of exploration and development costs for oil and gas industries
    • Percentage depletion for oil and gas
    • Election to expense 50 percent of qualified refinery costs
    • Amortization of geological and geophysical costs for oil and gas exploration
    • Credits for investment in clean coal facilities

    Renewable and Alternative Incentives:

    • Tax credits for alcohol fuels
    • Tax credits for biodiesel and renewable diesel
    • Production tax credit for renewable energy
    • Investment tax credit for renewables
    • Section 1603 grants in lieu of tax credits
    • Credits for investment in advanced energy property
    • Credits for alternative technology vehicles and plug-ins

    Energy Efficiency Incentives:

    • Energy efficiency improvements to existing houses

    The establishment of these bi-partisan working groups is a clear indication of how serious the committee is taking this issue. The committee's solicitation for feedback provides an excellent opportunity for direct communication to the legislators on the impacts of these tax policies on an individual's business or way of life. This is a perfect opportunity for interested parties to provide feedback on specific tax issues through letters and direct advocacy with the key members of these working groups. Why? The work of the 11 groups will be incorporated into a report prepared by the Joint Committee on Taxation. This report is scheduled to be completed by April 15, 2013. It will serve as a blue print for the largest tax reform package to be considered by Congress since the 1980s.

    [1] "Energy Tax Incentives: Measuring Value Across Different Types of Energy Resources," Congressional Research Service, Molly Sherlock, September 18, 2012.