General Business and Investment Provisions

Transcription

1 Summary of General Business and Investment, Alternative Energy Incentive, and Tax-Exempt/Tax Credit Bond Tax Provisions of the Recently-Enacted American Recovery and Reinvestment Tax Act of 2009 (Act) Set forth below is a summary of the general business and investment, alternative energy incentive, and tax-exempt/tax credit bond tax provisions of the Act. 1 The Act became effective on February 17, General Business and Investment Provisions Section Expensing Prior to the Act, Section 179 allowed taxpayers to deduct (rather than capitalize and thereafter depreciate) up to $125,000 (temporarily increased by Congress to $250,000 for 2008 only), indexed for inflation, of the cost of Section 179 property 3 placed in service for any taxable year beginning after 2006 and before This $125,000 limitation was reduced by each dollar of Section 179 property placed in service during the taxable year in excess of $500,000 (temporarily increased by Congress to $800,000 for 2008 only), indexed for inflation. The Act extends these temporary 2008 limits of $250,000 and $800,000 through Extension of 50% Bonus Depreciation The Act extends 50% bonus depreciation that is, the ability for businesses to claim an immediate deduction of 50% of the cost of eligible depreciable property (e.g., equipment, tractors, wind turbines, solar panels, and computers) to eligible depreciable property placed in service in Acceleration of Alternative Minimum Tax (AMT) and Research and Development (R&D) Credits The Act extends, through 2009, the ability of taxpayers to accelerate the recognition (and cashing out ) of a portion of their historic AMT or R&D credits in lieu of claiming bonus depreciation. 4 The amount of these credits that a taxpayer may accelerate is calculated based on the amount that the taxpayer invests in property that would otherwise qualify for bonus depreciation, but not in excess of the lesser of: (a) 6% of the historic AMT and R&D credits; or (b) $30 million. Also, under the Act, these limitations will be separately applied to 2008 and 2009 elections. March 2009

2 Extension of Net Operating Loss (NOL) Carryback Period from Two to Five Years for Certain Small Businesses In general, NOLs could be carried back up to two taxable years and carried forward up to twenty taxable years. Beginning in 2008, the Act allows taxpayers with gross receipts of not more than $15 million to carry back their NOLs up to five taxable years. Delayed Recognition of Cancellation of Debt (COD) Income A taxpayer is generally required to recognize COD income (which is ordinary income) upon forgiveness or cancellation of the taxpayer s debt, including any deemed forgiveness or cancellation resulting from either an acquisition of such debt by the taxpayer or a related person or a significant modification of such debt (e.g., deferral of one or more payments; reduction in stated interest rate). Under the Act, a business taxpayer who realizes COD income through the reacquisition 5 of an applicable debt instrument 6 will be allowed to defer the recognition of such income arising in 2009 or 2010 until 2014 and then recognize such income ratably over the succeeding five taxable years. Suspension of Interest Deduction Limitation on Applicable High Yield Discount Obligations (AHYDO) 7 In general, a corporate issuer of an AHYDO debt obligation may not deduct the disqualified portion of the original issue discount (OID) on such obligation, with the remainder of such OID only being deductible when paid. The Act generally suspends these AHYDO rules for any debt obligation issued between September 1, 2008 and December 31, Increased Exclusion to 75% of Gain on Sale of Qualified Small Business Stock Under pre-act Section 1202, a non-corporate taxpayer could exclude 50% of the gain (although not in excess of ten times the taxpayer s basis in the stock or, if greater, $10 million less the prior years gains taken into account for purposes of the Section 1202 exclusion) from the sale or exchange of qualified small business stock held for more than five years. 8 The Act increases the gain exclusion to 75% for qualified small business stock issued between February 17, 2009 and January 1, Temporary Estimated Tax Payment Relief for Qualified Individuals The Act reduces the required estimated tax payments for taxpayers who are qualified individuals 9 for 2009 to the lesser of: (a) 90% of the tax shown on the taxpayer s return for the current taxable year; or (b) 90% (rather than 100%, as was the case prior to the Act) of the tax shown on the taxpayer s return for the preceding taxable year. Temporary Reduction of S Corporation Built-In Gains Holding Period In general, following the conversion (by election) of a C corporation into an S corporation (or following an S corporation s acquisition, in a tax-free transaction, of the assets of a C corporation), the S corporation must hold the former C corporation s 2

3 assets for at least ten years in order to avoid a corporate-level tax on any of the pre-conversion/pre-acquisition built-in gain in such assets. Under the Act, with respect to any of its pre-conversion/pre-acquisition gain recognized in 2009 or 2010, an S corporation will not be subject to this corporate-level tax if its S election had been in effect for seven taxable years or such gain was recognized after the date that is seven years following the date on which such asset was acquired from the C corporation. Thus: (a) with respect to the sale of any former C corporation asset in 2009, the Act shortens the 10-year recognition period for any conversions that became effective for 2000 (to nine years), 2001 (to eight years) and 2002 (to seven years); (b) with respect to the sale of any former C corporation asset in 2010, the Act shortens the 10-year recognition period for any conversions that became effective for 2001 (to nine years), 2002 (to eight years) and 2003 (to seven years); and (c) with respect to any asset acquired from a C corporation in a tax-free transaction, the Act would shorten the 10-year recognition period with respect to such asset if such asset were sold in 2009 or 2010 and such asset had been acquired by the S corporation at least seven years prior to such sale. Application of Loss Trafficking Limitation Rules of Section 382 In 2008, the Internal Revenue Service issued Notice which generally exempted banks from the ownership change loss limitation rules of Section 382. Effective for ownership changes occurring after January 16, 2009, 10 the Act repealed Notice The Internal Revenue Service had also issued Notices and which generally exempted from Section 382 a loss corporation whose ownership change resulted from a government taking of an ownership stake as part of the Treasury Department bailout. The Act expanded this relief by exempting from the application of Section 382 any ownership change caused by a restructuring due to a loan agreement or line of credit with the Treasury Department through the bailout program. Incentives for New Jobs (Section 51) Under pre-act law, businesses were allowed to claim a work opportunity tax credit equal to 40% of the first $6,000 of wages paid to employees of one of nine targeted groups listed in Section 51(d). The Act adds two new targeted groups i.e., unemployed veterans 11 and disconnected youth 12 to this list. New Markets Tax Credit (Section 45D) Pre-Act law provided for $3.5 billion of Section 45D new markets tax credits for 2008 and 2009 for investments made in qualified community development entities. The Act increases the maximum amount of available credits for 2008 and 2009 to $5 billion. Grants to States in Lieu of Low-Income Housing Credit Allocations (Section 42) In general, the low-income housing credit under Section 42 is claimed over ten years. This credit is intended to serve as an incentive to attract private capital to invest in the construction, acquisition, and/or rehabilitation of qualified low-income housing buildings.

4 Given that, due to current economic conditions, this credit is not as effective in attracting private capital, the Act authorizes the Treasury Department to provide, in lieu of credit allocations, grants to states to allocate to qualified projects (and with any such grants not so allocated before January 1, 2011 having to be returned to the Secretary of the Treasury). Delay Application of Withholding Requirement on Certain Governmental Payments for Goods and Services In general, certain payments made after December 31, 2010 by an agency of the federal, or state or local, government (that has at least $100 million of annual expenditures for property or services) to any person providing property or services to such agency are subject to withholding at a 3% rate. The Act delays the application of the 3% withholding requirement for one year (to apply for payments made after December 31, 2011) in order to provide time for the Treasury Department to study the impact of this provision on government entities and taxpayers. Alternative Energy Incentive Provisions Energy Credits (Sections 45 and 48) The Act revises Section 45, which provides for renewable electricity production credits (Renewable Energy Credit), by extending the placed-in-service deadline to December 31, 2012 for qualified wind facilities and to December 31, 2013 for all other facilities (e.g., closed-loop biomass; open-loop biomass; geothermal; small irrigation; hydropower; landfill gas; waste-to-energy; and marine renewable facilities). The Act also revises Section 48, which provides for energy credits (Energy Credit), to eliminate the credit cap on small wind energy property and to remove the provision that reduces the basis of the property for purposes of claiming the credit if the property is financed by subsidized energy financing or private activity bonds. In addition, a taxpayer who places in service a facility that qualifies for the Renewable Energy Credit may elect, instead, to claim the Energy Credit. The Act also provides for grants of up to 30% (but only 10% for microturbines, combined heat and power systems, and geothermal heat pumps) of the basis for energy property placed in service in 2009 or 2010 that would qualify for the Renewable Energy Credit or Energy Credit. If a taxpayer elects to take the grant, then the basis of the energy property must be reduced by 50% of the grant amount, and the taxpayer would be ineligible for either the Renewable Energy Credit or Energy Credit. Qualifying Advanced Energy Product Credit (New) The Act adds a new 30% qualified advanced energy production credit for investment in qualified property used in qualified advanced energy manufacturing projects which re-equip, expand, or establish facilities that manufacture clean technology, including renewable energy systems, electric grids to support the transmission and storage of renewable energy, energy efficiency, renewable fuel blending, carbon capture and sequestration, and other projects designed to reduce greenhouse gases. The Act requires the Treasury Department to establish a certification program within 180 days of enactment and allows the Treasury Department to allocate up to $2.3 billion in alternative energy investment credits.

5 Increased Limitations on New Clean Renewable Energy Bonds (New CREBs) and Qualified Energy Conservation Bonds (QECBs); New Private Activity Bond Exception (Sections 54C and 54D) The Act increases the national limitations for New CREBs 13 to $1.6 billion (from $800 million) and for QECBs 14 to $3.2 billion (from $800 million). New CREBs and QECBs are both tax credit bonds. 15 The Act also adds, as a new exception to the definition of the private activity bond, any bond issued for the purpose of providing loans, grants, or other repayment mechanisms for capital expenditures to implement green community programs. Residential Energy-Efficient Credit (Section 25D) Under pre-act law, Section 25D provided for a credit equal to 30% of the qualified solar electric property expenditures, qualified solar water heating property expenditures, and qualified fuel cell property expenditures, subject to caps between $500 and $4,000. The Act eliminates these caps for solar, geothermal, and wind property and eliminates the reduction in credits for property using subsidized energy financing. Alternative Refueling Property Credit (Section 30C) Pre-Act law provided for a 30% credit for qualified alternative fuel vehicle refueling property, 16 capped at $30,000 for businesses and $1,000 for individuals. The Act increases the credit to 50% in 2009 and 2010 for property other than hydrogen refueling property and also increases the caps to $50,000 ($200,000 for hydrogen refueling property) for businesses and $2,000 for individuals. Carbon Dioxide Sequestration (Section 45Q) The Act provides tax credits for qualifying carbon dioxide sequestration facilities (those which capture at least 500,000 metric tons of carbon dioxide a year) in the amount of $20 per ton of carbon dioxide captured and transported from an industrial source to permanent geological storage and $10 per ton for carbon dioxide captured and transported from an industrial facility to another facility to be used in enhanced oil recovery. Plug-In Electric Drive Motor Vehicles (Section 30D) Pre-Act law provided that the first 250,000 plug-in electric vehicles sold in the United States qualified for a base $2,500 tax credit that increased with battery capacity, with the credit limits ranging from $7,500 to $15,000 (depending on vehicle weight). The Act expands the number of vehicles eligible for the credit to 200,000 vehicles per manufacturer (as well as allows partial credits for up to a year after this limit is reached) and limits the credit to $7,500 (regardless of vehicle weight). The Act also adds a new 10% credit (up to $2,500) for low-speed vehicles, motorcycles, and three-wheeled vehicles that would otherwise qualify for the pre-act credit and a new 10% credit (up to $4,000) for plug-in vehicle conversion. Finally, as a result of the Act, these credits are now allowed against the AMT.

6 Tax-Exempt/Tax Credit Bond Provisions Expansion/Modification of Manufacturing Facilities Definition Pre-Act law provided that certain manufacturing facilities were eligible for tax-exempt bond financing, with manufacturing facility being defined to include only a facility that was used in the manufacturing or production of tangible personal property. The Act amends Section 144(a)(12)(C) by expanding this definition to include any facility used in the manufacturing, creation, or production of tangible or intangible property (i.e., patent, copyright, formula, process, design, pattern, format, or other similar item). The Act also clarifies which physical components of a manufacturing facility qualify as ancillary and therefore subject to a 25% limitation in the amount of bond issuance used to build or reconstruct those components. Recovery Zone Bonds (New) The Act authorizes $10 billion in recovery zone economic development tax credit bonds and $15 billion in recovery zone facility tax credit bonds for issuance during 2009 and The Act further provides that each state shall receive a share of the national allocation based on that state s 2008 job losses (as a percentage of the 2008 national job losses) to then be further allocated to local municipalities for investment in infrastructure, job training, education, and economic development in those areas within the boundaries of the state, city, or county with significant poverty, unemployment, or home foreclosures. Modification of Small Issuer Exception to Tax-Exempt Interest Expense Allocation Rules for Financial Institutions In general, financial institutions are not allowed to take a deduction for the portion of their interest expense that was allocable to such institution s investments in tax-exempt municipal bonds. For this purpose, bonds issued by qualified small issuers are not taken into account as investments in tax-exempt municipal bonds. Pre-Act law defined a qualified small issuer as any issuer that reasonably anticipated that the amount of its tax-exempt obligations (other than certain private activity bonds) would not exceed $10 million. For tax-exempt obligations issued in 2009 and 2010, the Act increases the $10 million small issuer exception threshold to $30 million. Also, the small issuer exception would apply to an issue if all of the ultimate borrowers in such issue would separately qualify for the exception. 17 Finally, in determining the portion of interest expense that is allocable to investments in tax-exempt municipal bonds, the Act excludes investments in tax-exempt municipal bonds issued during 2009 and 2010 to the extent that these investments constitute less than 2% of the average adjusted bases of all the assets of the financial institution. Elimination of Essential Governmental Function Requirement for Tribal Economic Development Bonds Under pre-act law, tribal governments were limited in their ability to issue tax-exempt bonds to only those projects that satisfied an essential governmental function requirement (which requirement is not imposed on projects funded by bonds issued by state and local governments).

7 The Act temporarily allows tribal governments to issue $2 billion in tax-exempt bonds for projects without having to satisfy the essential governmental function requirement. The Act also requires the Secretary of the Treasury Department to study whether this temporary provision should be made permanent. Modify Speed Requirement for High-Speed Rail Exempt Facility Bonds Under pre-act law, states were allowed to issue private activity bonds for high-speed rail facilities that is, facilities for the transportation of passengers between metropolitan areas using vehicles that are reasonably expected to operate at speeds in excess of 150 miles per hour between scheduled stops. The Act allows these bonds to be used to develop rail facilities that are used by trains that will be capable of attaining a maximum speed in excess of 150 miles per hour. Exempting Interest on Tax-Exempt Private Activity Bonds from AMT Under pre-act law, interest on tax-exempt private activity bonds was generally subject to the AMT (which, as a result, limited their marketability and thereby forced state and local governments to issue these bonds at higher interest rates). In 2008, Congress excluded one category of private activity bonds (i.e., tax-exempt housing bonds) from the AMT. The Act excludes the remaining categories of private activity bonds from the AMT if the bonds are issued in 2009 or 2010 and also allows AMT relief for current refunding of private activity bonds issued after 2003 and refunded during 2009 and Qualified School Construction Bonds (QSCBs) (New) The Act provides for the issuance by states and local governments of up to $22 billion of QSCBs (with $11 billion to be allocated in each of 2009 and 2010 and with 40% of these amounts earmarked for the largest school districts) for the construction, rehabilitation, or repair of public school facilities or for the acquisition of land on which a public school facility will be constructed. QSCBs are tax credit bonds. The Act also establishes a $400 million limitation (with $200 million to be allocated in each of 2009 and 2010) on the amount of QSCBs that Indian tribal governments may issue. Extension and Increase in Authorization for Qualified Zone Academy Bonds (QZABs) (Section 54E) In general, QZABs are used to finance renovations, repairs, and improvements (such as investing in equipment and up-todate technology, developing curricula, and training teachers) of schools in low-income communities, but QZABs may not be used for new construction. QZABs are tax credit bonds. The Act authorizes the issuance of $1.4 billion of QZABs by state and local governments in 2009 and 2010 (the amount was previously $400 million for 2008 and 2009). Build America Bonds (New) The Act adds Section 54AA, which authorizes the issuance of Build America Bonds to fund infrastructure projects such as the building of roads, rail transit systems, bridges, and other transportation projects. In general, a Build America Bond is any obligation (other than a private activity bond) if (a) the interest on the obligation would be excludable from gross income 7

8 under Section 103; (b) the obligation is issued before January 1, 2011; and (c) the issuer makes an irreversible election to have Section 54AA apply. Build America Bonds are tax credit bonds. The Act also adds new Section 6431 which, in general, provides a refundable credit option for Build America Bonds that constitute qualified bonds whereby, in lieu of a holder of such bonds receiving a tax credit, the issuer of such bonds may elect to receive a credit from the Treasury Department equal to the 35% of the interest payable on an interest payment date. By making the election, the issuer would pay to the holder (and the holder would receive from the issuer) the full amount of interest that is, the higher interest amount that the issuer would have to pay where there is no tax credit benefit to the holder with the issuer then receiving from the federal government a payment equal to 35% of the interest that the issuer pays to the holder. Thus, the issuer s net interest cost would be 65% of the interest paid to the holder. Build America Bonds are subject to the same arbitrage and private-use rules that apply to tax-exempt bonds. If the issuers elect to receive the rebate, the proceeds of the bonds may be used only for issuance costs, capital expenditures, and to fund a reserve fund. Real Estate Investment Trusts (REIT) Permitted to Pass-Through Qualified Tax Credit Bonds Tax Credits to Shareholders/Beneficiaries. Under the Act, a REIT that holds qualified tax credit bonds i.e., New CREBs, QECBs, QSCBs, QZABs, and qualified forestry conservation bonds that meet the requirements of Sections 54A(d)(2) through (6)) is permitted to pass-through the resulting tax credits (with the amount of any credits included in gross income to be treated as having been distributed) to its shareholders/beneficiaries under procedures to be prescribed by the Secretary of the Treasury. However, unlike regulated investment companies, REITs are not permitted to pass-through to their shareholders/beneficiaries tax credits from Build America Bonds and other tax credit bond issuances. For more information on these provisions and how they may affect your organization, please contact the Seyfarth Shaw attorney with whom you work or any attorney on our website ( 1 The Act also provides for a number of tax incentives, credits, etc. for individual taxpayers, which are not addressed in this. 2 Unless otherwise noted, any reference herein to Section refers to a section of the Internal Revenue Code of 1986, as amended. 3 In general, section 179 property means property (other than air conditioning or heating units and certain other exceptions) (A) which is (i) tangible property (that is subject to accelerated depreciation), or (ii) off-the-shelf computer software (that is subject to the general depreciation rules) that is placed in service in a taxable year beginning after 2002 and before 2011; (B) which is section 1245 property (generally, depreciable tangible personal property); and (C) which is acquired by purchase for use in the active conduct of a trade or business. 4 The Housing and Economic Recovery Act of 2008, Pub. L. No , 122 Stat (July 30, 2008) amended Section 168(k) by adding Section 168(k)(4) which, in general, allowed corporations to elect not to claim the 50% additional first year depreciation for certain property acquired after March 31, 2008 and placed in service before January 1, 2009 and, instead, to increase their Section 38(c) business credit limitation or Section 53(c) AMT credit limitation. For further clarification, see Revenue Procedure The term reacquisition means, with respect to any applicable debt instrument, any acquisition of the debt instrument by: (i) the debtor which issued (or is otherwise the obligor under) the debt instrument; or (ii) a related person to such debtor. The term acquisition, with respect to any applicable debt instrument, also includes an acquisition of the debt instrument for cash, the exchange of the debt instrument for another debt instrument (including an exchange resulting from a modification of the debt instrument), the exchange of the debt instrument for corporate stock or a partnership interest, the contribution of the debt instrument to capital, as well as the forgiveness of the debt instrument by the holder thereof. 6 The term applicable debt instrument means any debt instrument which was issued by: (i) a C corporation; or (ii) any other person in connection with the conduct of a trade or business by such person. The term debt instrument means a bond, debenture, note, certificate, or any other instrument or contractual arrangement constituting indebtedness (within the meaning of Section 1275(a)(1)).

9 7 In general, an AHYDO is a debt instrument having: (a) a maturity date more than five years from the date of issuance; (b) a yield to maturity at least equal to the sum of the applicable federal rate plus 5%; and (c) significant original issue discount. 8 The non-excluded portion of Section 1202 gain is taxed at the lesser of: (a) the applicable ordinary income tax rate of the taxpayer; or (b) 28%. 9 A qualified individual means any individual if (I) the adjusted gross income shown on his or her return for the preceding taxable is less than $500,000; and (II) he or she certifies that more than 50% of the gross income shown on his or her return for the preceding taxable year was income from a small business. For this purpose, income from a small business means, with respect to any individual, income from a trade or business the average number of employees of which was less than 500 employees for the calendar year ending with or within the preceding taxable year of the individual. 10 However, Notice would also continue to apply to an ownership change occurring after January 16, 2009 if such ownership change was pursuant to a: (a) written binding contract entered into before January 17, 2009; or (b) written agreement entered into before January 17, 2009 if the agreement was described before that date in a public announcement or in a filing with the Securities and Exchange Commission required by reason of the ownership change. 11 An unemployed veteran is an individual who was discharged or released from active duty from the Armed Forces during the 5-year period prior to hiring and received unemployment compensation for more than 4 weeks during the year before being hired. 12 A disconnected youth is an individual who is between the ages of 16 and 25 and who has not been regularly employed or attended school in the past six months and lacks a sufficient number of basic skills. 13 The Energy Tax Incentives Act of 2005 enacted Section 54C, which permits state and local governments, cooperative electric companies, clean renewable bond lenders, and Indian tribal governments to issue CREBs to finance certain renewable energy and clean coal facilities. 14 The Energy Improvement and Extension Act of 2008 enacted Section 54D, which provided for $800 million in QECBs to state and local governments for the funding of initiatives designed to reduce greenhouse emissions. 15 Tax credit bonds differ from tax-exempt bonds principally because the holder of a tax credit bond is able to claim a tax credit on the interest paid on such bond, and which thereby allows issuers to issue such bonds at lower interest rates than would be the case for non-tax credit bonds. In the case of a tax credit bond that is a qualified tax credit bond that is, New CREBs, QECBs, QSCBs, QZABs, and qualified forestry conservation bonds that meet the requirements of Sections 54A(d)(2) through (6)) the amount of the credit with respect to any credit allowance date (i.e., March 15, June 15, September 15, December 15 and the last day on which the bond is outstanding) is 25% of the annual credit determined with respect to such bond with the annual credit being equal to the product of (A) the applicable credit rate, multiplied by (B) the outstanding face amount of the bond. The applicable credit rate is the rate which the Secretary of the Treasury estimates will permit the issuance of qualified tax credit bonds with a specified maturity or redemption date without discount and without interest cost to the qualified issuer (and determined as of the first day on which there is a binding, written contract for the sale or exchange of the bond). In the case of a Build America Bond, the amount of the credit with respect to any interest payment date (i.e., any date on which the holder of record of the bond is entitled to a payment of interest under such bond) is 35% of the amount of interest payable by the issuer with respect to such date. The interest paid on a tax credit bond, together with the applicable tax credit amount, would constitute taxable income to the holder, with the holder being able to apply the resulting tax credit amount against its regular tax and AMT liability. According to the Committee Reports for the Act, [u]nlike the tax credit for bonds issued under section 54A [i.e., qualified tax credit bonds ], the credit rate would not be calculated by the Secretary, but rather would be set by law at 35 percent. The actual credit that a taxpayer may claim is determined by multiplying the interest payment that the taxpayer receives from the issuer (i.e., the bond coupon payment) by 35 percent. Because the credit that the taxpayer claims is also included in income, the Committee anticipates that State and local issuers will issue bonds paying interest at rates approximately equal to 74.1 percent of comparable taxable bonds. The Committee anticipates that if an issuer issues a taxable governmental bond with coupons at 74.1 percent of a comparable taxable bond s coupon that the issuer s bond should sell at par. For example, if a taxable bond of comparable risk pays a $1,000 coupon and sells at par, then if a State or local issuer issues an equal-sized bond with coupon of $741.00, such a bond should also sell at par. The taxpayer who acquires the latter bond will receive an interest payment of $741 and may claim a credit of $259 (35 percent of $741). The credit and the interest payment are both included in the taxpayer s income. Thus, the taxpayer s taxable income from this instrument would be $1,000. This is the same taxable income that the taxpayer would recognize from holding the comparable taxable bond. Consequently the issuer s bond should sell at the same price as would the taxable bond. 16 In general, qualified alternative fuel vehicle refueling property means any property (other than a building or its structural components) used to store or dispense an alternative fuel into the fuel tank of a motor vehicle propelled by the fuel, but only if the storage or dispensing is at the point where the fuel is delivered into that tank. Alternative fuels are: (1) any fuel at least 85% of the volume of which consists of one or more of the following: ethanol, natural gas, compressed natural gas, liquefied natural gas, liquefied petroleum gas, or hydrogen; (2) any mixture which consists of two or more of the following: biodiesel (as defined in Section 40A(d)(1)), diesel fuel (as defined in Section 4083(a)(3)), or kerosene, and at least 20% of the volume of which consists of biodiesel determined without regard to any kerosene in such mixture; or (3) electricity (for property placed in service after October 3, 2008). In addition, the taxpayer must meet the following additional requirements: (1) the property must be placed in service during the taxable year; (2) the original use of the property must begin with the taxpayer; (3) the property cannot be used predominantly outside the United States; and (4) if the property is not business/investment use property, the property must be installed on property used as the taxpayer s main home. 17 For this purpose, the issuer of a qualified 501(c)(3) bond (generally, a bond issued to finance a facility owned and utilized by a Section 501(c)(3) organization which satisfies the requirements of Sections 145(a) through (d)) is deemed to be the ultimate borrower on whose behalf a bond is issued. 9

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