iTaxBlog

In January 2011, the IRS issued Revenue Procedure 2011-14 that provided an alternative accounting method for claiming the EPAct 179D tax deduction for sustainable design. Rather than amending tax returns, architectural firms that had not previously taken the deduction were allowed to claim the deduction on their current year’s return using a Form 3115 along with a certification report and an allocation letter.

However, this week, IRS author of 179D guidance, Jennifer Bernardini provided clarification with regard to Form 3115. While admitting that ambiguity exists in Rev Proc 2011-14, she stated the Office of Chief Counsel, the IRS division that reviews accounting methods, was unlikely to grant any accounting method change submitted by architects that have not previously claimed the 179D deduction. She also indicated the IRS is working on guidance that would clarify the ambiguity found in Rev Proc 2011-14 but gave no timetable.

While Ms. Bernardini’s comments represent her own opinion and not those of the IRS, her comments can be interpreted as the prevailing thought at the Service. As such, SourceCorp recommends filing amended returns to claim 179D deductions associated with projects completed in prior tax years. To ensure that all 2008 projects are reviewed while still under statute, firms should gather complete blueprints and specifications as well as applicable allocation letters as quickly as possible.

SourceCorp is keeping close tabs on this issue and will communicate further updates.

The U.S. Green Building Council – Central Ohio Chapter and the Construction Specifications Institute Columbus Chapter announce the first annual joint trade show and educational event to be held April 18, 2011 at COSI Columbus.

DesignColumbus2011 is an opportunity to learn about and engage in the transformation of the Central Ohio built environment to be more healthy, prosperous, and sustainable. With 16 educational seminars and a two-floor trade show, the event will highlight current and future development of technologies for all leaders in Central Ohio responsible for creating building and communities that promote economic growth and sustain the health and vitality of all life. SourceCorp’s Bob McPherson and Jeanne Briggs will lead an educational seminar on the EPAct 179D tax deduction.

This full day of continuing education and informational displays is organized to attract hundreds of professionals involved in the building industry. Attendees and participants are representatives of the entire project team, including architects, designers, engineers, owners, developers, government officials, municipal planners, facility managers, contractors, construction managers, construction specifiers, manufacturers, product representatives, and others.

For all attendees, the continuing education component includes opportunities for AIA and GBCI/ USGBC continuing education units (CEUs). These CEU opportunities are of tremendous value to AIA and LEED Accredited Professionals interested in maintaining their credentials in an ever more competitive marketplace.

WHERE: COSI, Center of Science and Industry 333 West Broad Street Columbus, OH 43215
WHEN: Monday, April 18, 2011 from 10:30 AM – 6:00 PM (ET)
INDUSTRY: Building Design and Construction

REGISTRATION:
Attendees: http://designcolumbus2011.eventbrite.com
Sponsors: http://designcolumbus2011sponsorship.eventbrite.com

Architectural firms in charge of the design of public schools, government and municipal buildings are eligible to claim the EPAct §179D tax deduction for sustainable design. This deduction was part of the Energy Policy Act of 2005 and was intended as an incentive for architects to incorporate energy-efficient building components in their designs. Until recently, firms were limited by a three-year rolling statute to claim the deduction on amended tax returns.

However, in January 2011, the IRS issued Revenue Procedure 2011-14 that provided an alternative accounting method. Rather than amending tax returns, architectural firms that have not previously taken the deduction may go back as far as 2006 and claim the deduction on their current year’s return using a Form 3115. A certification report and allocation letter must be filed with the Form 3115.

In most cases, claiming the §179D deduction on a Form 3115 is the preferred method. However, if a firm has already claimed the deduction on amended returns, their accounting method is established and should remain the same. For more information on the EPAct §179D tax deduction, please contact me at chris.henderson@sourcecorptax.com.

Architectural firms that design schools, government and municipal properties may qualify for the EPAct §179D tax deduction. This change came about in 2008 and is meant to incentivize a struggling construction industry to design and build sustainable properties.

Because government entities are tax exempt, they cannot use the §179D deduction. However, they can assign the deduction to an architectural firm by signing an allocation letter acknowledging the firm as the primary designer. On occasion, a firm will meet with a certain amount of resistance when requesting a signature.

To help alleviate this issue, it is important for the government entity to understand how the deduction works for the architectural firm. For example:

If a $100,000 deduction is confirmed, at a 35% tax rate it will equate to a $35,000 reduction in tax or refund of previous taxes paid. If you assume $12,000 in fees for third-party certification, the net benefit to the architectural firm is $23,000.

The §179D deduction is used to offset taxes owed or previously paid. There is no way to truly share this deduction with a government entity. On occasion, we see firms offer to make a charitable contribution to the government entity or reduce their fee on a future project, but this is not necessary.

It is important the government entity is not viewed as requesting a kick-back for an incentive that was intended for architects. It is not up to the government entity to grant permission for an architectural firm to use this deduction but only to acknowledge them as the primary designer.

For more information on the EPAct §179D tax deduction and how it applies to architectural firms, watch our YouTube video. You can also visit us at sourcecorptax.com. SourceCorp is a national tax specialty firm that provides independent certification for EPAct §179D qualified properties.

I’m passing this along from our friends at the National Electrical Manufacturers Association (NEMA).  We’ve seen this proposal before, but it would be  tremendously beneficial  for designers of government owned green buildings if this legislation becomes law.

Yesterday, Senators Bingaman (D-NM) and Snowe (R-ME) introduced S. 3935, the Advanced Energy Tax Incentives Act.   This contains a number of incentives that have been advocated during the past two years, including Section 102 which increases the deduction from $1.80 to $3.00 (partial deduction increased to $1.00 per square foot per system) and modifies Section 179(D) to facilitate the ability of REITs (real estate investment trusts) to claim the deduction.

A summary of its provisions is available online at http://bingaman.senate.gov/policy/aetia_summ.pdf.

Here are the statements made yesterday:  “We must continue to ensure that the Tax Code contains well-designed incentives that will help us transition to an energy efficient economy,” explained Senator Bingaman.  “Our bill will significantly expand domestic clean energy manufacturing; help American businesses and families reduce their energy use and dependence on fossil fuels; and create thousands of jobs.  This is a common-sense, bipartisan proposal that deserves priority consideration.”

“For far too long our country’s energy strategy has prioritized the technologies of the past while our policy debate has languished in partisanship.  The world is moving ahead with bold action on innovative technologies and it is past time that we set a new course for how we use and think about energy,” said Senator Snowe.   “Energy efficiency has emerged as one of the most effective and expeditious initiatives that can be taken to preserve valuable resources for producers and consumers and I believe we can build upon the success of past tax credits with these critical energy efficiency tax incentives, which will spark innovation in our building and industrial sector and afford our constituents and businesses financial incentives to simultaneously reduce their energy bills and invest in our economy.  I appreciate working with Senator Bingaman on this comprehensive energy tax package and look forward to enacting these provisions into law.”

The 111th Congress is now in recess until November 15 when they will return for a week prior to Thanksgiving, and then Congress will return for a week in early December.    Whether energy tax legislation will be taken up remains to be determined.

Many architects are not aware that their sustainable building designs for schools, government or municipal projects may qualify for the EPAct §179D tax deduction. §179D provides a tax deduction of up to $1.80 per square foot for designs that reduce the total energy and power costs by 50 percent or more when compared to an ASHRAE 90.1-2001 reference building. Partial deductions are also available.

A firm has the ability to go back three tax years to claim the EPAct §179D deduction for newly constructed or renovated properties substantially completed between 2007 and 2013.

For example, if a building was completed in 2007, you currently have the opportunity to amend that year’s tax return, potentially generating a refund from the IRS. However, the window for 2007 is closing. If you filed your 2007 return on March 15th, 2008, you have until March 15th, 2011 (three year statute) to amend that year’s return. Once the statute closes, that year’s tax return cannot be opened for purposes of taking this deduction.

Now is the time to begin evaluating your 2007 projects to understand if they qualify for the EPAct §179D tax deduction. Keep in mind that your firm will need time to select projects and have a third-party firm evaluate and certify them for the deduction. Also, your tax provider will need to prepare and file the tax return before the statute closes. Don’t leave money on the table — time is of the essence in claiming this deduction for 2007 properties!

When a government entity owns a building or project that incorporates sustainable design, it may assign the §179D tax deduction to the primary designer of the project. However, sometimes the government entity merely provides a portion of the funding for a project, which is often the case in large joint ventures such as airports, hospitals or athletic venues. However, if tax ownership resides with a private entity, the deduction belongs to the private entity. 

According to Les Schneider, attorney with Ivins, Phillips & Barker, “…it is possible that the party which holds legal title to the building is not considered the owner of the building for tax purposes…ownership of the building must be determined in the taxable year in which the expenditures are incurred that qualify for the §179D deduction.” This rule applies even if ownership shifts in a later year, as with some public/private ventures.

This is an all or nothing proposition. Even though funding sources may be mixed between public and private entities, the deduction cannot be split between those entities. Tax ownership dictates who may receive the benefit.

Matt Rader, Director of 179D and Cost Segregation for SourceCorp, will speak at the Green Data Center Conference in New York on October 20 and the Sustainable Buildings Conference in San Francisco on October 27. His focus at both conference will be on the 179D tax deduction. If you plan to attend either conference, or even if you don’t, submit questions or comments here. Responses will be posted on this blog as well as addressed during the conferences.

Both conferences are sponsored by the Global Strategic Management Institute. To register follow this link. http://events.gsmiweb.com/events.php#October.