Notice2024-21290
Accounting for Transferability of Income Tax Credits; Notice of Proposed Accounting Release
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
September 19, 2024
Issuing agencies
Energy DepartmentFederal Energy Regulatory Commission
Full Text
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<title>Federal Register, Volume 89 Issue 182 (Thursday, September 19, 2024)</title>
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[Federal Register Volume 89, Number 182 (Thursday, September 19, 2024)]
[Notices]
[Pages 76821-76822]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-21290]
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DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
[Docket No. AI24-1-000]
Accounting for Transferability of Income Tax Credits; Notice of
Proposed Accounting Release
Take notice that the Chief Accountant of the Federal Energy
Regulatory Commission proposes to issue an accounting release
(attached) to provide guidance on the accounting for the
transferability of income tax credits related to certain energy
projects as a result of the Inflation Reduction Act of 2022, which
allows entities to monetize such credits via transfers to independent
third parties for cash.\1\ The proposed accounting release would
require an entity to treat the transfer of income tax credits as a
nonoperating activity, including revenue (i.e., the entirety of the
cash received) and associated costs to facilitate the transfer. This
proposed accounting release would apply to jurisdictional public
utilities and licensees and natural gas companies.
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\1\ Inflation Reduction Act of 2022 (IRA), H.R. 5376--117th
Congress (2021-2022). The IRA transferability provision allows a
non-tax-exempt entity (seller) with an income tax credit to transfer
the income tax credit to another non-tax-exempt entity (purchaser)
and such credit cannot later be resold; as such, the seller would
effectively receive cash from the sale as if it was paid directly by
the IRS, as an incentive to encourage investment in energy projects,
and the buyer would be able to use the purchased income tax credit
for its own income tax return purposes.
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This proposed accounting release is not intended to prejudice the
rate treatment of the transfer of income tax credits in any proceeding
before the Commission.
The Commission has reviewed the proposed Accounting Release. At the
conclusion of the comment period specified at the end of this notice,
the Chief Accountant will consider the comments received, make any
necessary changes, and issue the final accounting release. The
effective date of the final accounting release will be the day that it
is issued.
Specifically, comments on the following accounting topics are
requested:
1. The proposed accounting release would require an entity to treat
the transfer of income tax credits as a nonoperating activity,
including the revenue received from the transfer of the income tax
credit (i.e., the entirety of the cash proceeds) and any costs to
facilitate the transfer of income tax credits. If you disagree with
this conclusion, please provide the basis for your disagreement.
2. The proposed accounting release would require an entity, upon
the transfer of its income tax credits to an independent third party,
to derecognize all associated balances previously recorded on its
books, including associated accumulated deferred income tax (ADIT)
balances. If you disagree with this conclusion, please provide the
basis for your disagreement.
3. The proposed accounting release would require an entity that
purchases a non-investment tax credit, such as a production tax credit,
from an independent third party, to record the tax credit on its books
using the same account (i.e., an ADIT asset) that it would have used
had it itself generated the tax credit for use on its own income tax
return, with any costs incurred to facilitate the purchase recorded as
nonoperating. If you disagree with this conclusion, please provide the
basis for your disagreement.
4. The proposed accounting release would require an entity that
purchases an investment tax credit from an independent third party to
use either the flow-through or deferred method of accounting for
investment tax credits, consistent with the Commission's existing
accounting regulations, as if it itself received the upfront tax credit
from the IRS, with any costs incurred to facilitate the purchase
recorded as nonoperating. If you disagree with this conclusion, please
provide the basis for your disagreement.
All interested parties are invited to submit comments on this
proposed accounting release using the ``eFiling'' link at <a href="http://www.ferc.gov">http://www.ferc.gov</a>. In lieu of electronic filing, you may submit a paper copy
which must reference the accounting docket number.
To file via U.S. Postal Service: Debbie-Anne A. Reese, Acting
Secretary, Federal Energy Regulatory Commission, 888 First Street NE,
Washington, DC 20426
To file via any other courier: Debbie-Anne A. Reese, Acting Secretary,
Federal Energy Regulatory Commission, 12225 Wilkins Avenue, Rockville,
Maryland 20852
Comment Date: 5:00 p.m. Eastern Time on October 25, 2024.
Dated: September 12, 2024.
Debbie-Anne A. Reese,
Acting Secretary.
Attachment
Federal Energy Regulatory Commission
Proposed Accounting Release: Docket No. AI24-1-000 Accounting for
Transferability of Income Tax Credits
To All Jurisdictional Public Utilities and Licensees and Natural Gas
Companies
Subject: Accounting for Transferability of Income Tax Credits
The Inflation Reduction Act of 2022 allows for transferability of
income tax credits related to certain energy projects and permits
entities to monetize such credits via transfers to independent third
parties for cash.\2\ The Commission has previously determined that
dispositions of assets are not part of normal recurring operating
activities,
[[Page 76822]]
and, therefore, generally should be accounted for using nonoperating
accounts.\3\ Consistent with this long-standing policy, the transfer of
income tax credits should be treated as a nonoperating activity.
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\2\ Inflation Reduction Act of 2022, H.R. 5376--117th Congress
(2021-2022) (which includes a provision that allows a non-tax-exempt
entity (seller) with an income tax credit to transfer the income tax
credit to another non-tax-exempt entity (purchaser) and such credit
cannot later be resold; as such, the seller would effectively
receive cash from the sale as if it was paid directly by the IRS, as
an incentive to encourage investment in energy projects, and the
buyer would be able to use the purchased income tax credit for its
own income tax return purposes).
\3\ See 18 CFR parts 101 and 201, Plant Instruction No. 5 (f),
Plant Purchased or Sold (where the Commission's regulations require
the use of nonoperating accounts to record gains and losses, and
sales costs, associated with the sale of plant); Cent. La. Elec.
Co., Opinion No. 394, 71 FERC ] 61,225 (1995) (where the Commission
determined that sales of receivables should be treated as
nonoperating activities, and the expenses associated with such sales
should likewise be recorded as nonoperating); and Sw. Pub. Serv.
Co., 188 FERC ] 61,102 (2024) (where the Commission determined
transaction costs associated with sales of production tax credits
are nonoperating in nature).
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Accordingly, this accounting guidance requires an entity to treat
the revenue received from the transfer of the income tax credit (i.e.,
the entirety of the cash proceeds) and any costs to facilitate the
transfer, as nonoperating income or expense consistent with the
underlying nature of the transfer as a nonoperating activity.
Additionally, upon a transfer of an income tax credit to an independent
third party, an entity must derecognize all associated balances
previously recorded on its books, including associated accumulated
deferred income tax (ADIT) balances, consistent with the accounting
treatment for a disposition of an asset that had associated ADIT prior
to a sale.\4\
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\4\ See, e.g., Ga. Power Co., Docket No. AC16-109-000 (Aug. 5,
2016) (unpublished letter order).
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An entity that purchases a non-investment tax credit, such as a
production tax credit, from an independent third party, is required to
record the tax credit on its books using the same account (i.e., an
ADIT asset) that it would have used had the entity itself generated the
tax credit for use on its own income tax return. An entity that
purchases an investment tax credit from an independent third party is
required to use either the flow-through or deferred method of
accounting for investment tax credits, consistent with the Commission's
existing accounting regulations, as if the entity itself received the
upfront tax credit from the IRS. In all cases, an entity is required to
record the costs incurred to facilitate a transfer of income tax
credits as nonoperating.
This guidance is for accounting purposes only and is not intended
to prejudice the rate treatment of the transfer of income tax credits
in any proceeding before the Commission.
Appendix A provides an example that describes the accounting for
transferability of an investment tax credit, and an example that
describes the accounting for transferability of a non-investment tax
credit such as a production tax credit.
Appendix A
Illustrative Examples of the Application of the Accounting Release
Example 1: Accounting for transferability of an Investment Tax
Credit (ITC).
The entire cash received from the transfer of ITCs is treated as
nonoperating income because the transferred ITC is intended to merely
take a new form (i.e., the ITC is monetized into cash) upon its sale to
a third party (i.e., the seller effectively receives the entirety of
the cash from the sale as if the IRS directly paid the seller for the
ITC). Any costs to facilitate the sale are likewise treated as
nonoperating expense. If an entity previously maintained accumulated
deferred income tax (ADIT) (e.g., in Account 190) associated with ITCs
(i.e., in Account 255), such an entity should derecognize, both the ITC
and its associated ADIT upon transfer.
Journal entry to record the entire cash proceeds from the sale of the
ITC:
Debit Account 131, Cash, Credit Account 421, Miscellaneous
Nonoperating Income
Journal entry to record costs to facilitate the sale of the ITC:
Debit Account 426.5, Other Deductions Credit Account 131, Cash
Journal entry to derecognize the ITC upon the sale:
Debit Account 255, Accumulated Deferred Investment Tax Credits,
Credit Account 411.4, ITC Adjustments, Utility Operations
Journal entry to derecognize the associated ADIT asset upon the sale of
the ITC:
Debit Account 410.1, Provision for Deferred Income Taxes, Operating
Income, Credit Account 190, Accumulated Deferred Income Taxes
Example 2: Accounting for transferability of a Production Tax
Credit (PTC).
The entire cash received from the transfer of PTCs is treated as
nonoperating income, and any costs to facilitate the sale are likewise
treated as nonoperating expense. If an entity previously maintained
ADIT assets (e.g., in Account 190) for unutilized PTCs (i.e., unused on
the entity's income tax return), such ADIT should be derecognized upon
the sale of the PTC.
Journal entry to record the entire cash proceeds from the sale of the
PTC:
Debit Account 131, Cash, Credit Account 421, Miscellaneous
Nonoperating Income
Journal entry to record costs to facilitate the sale of the PTC:
Debit Account 426.5, Other Deductions, Credit Account 131, Cash
Journal entry to derecognize the associated ADIT asset upon the sale of
the PTC:
Debit Account 410.1, Provision for Deferred Income Taxes, Operating
Income, Credit Account 190, Accumulated Deferred Income Taxes
[FR Doc. 2024-21290 Filed 9-18-24; 8:45 am]
BILLING CODE 6717-01-P
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</html>Indexed from Federal Register on September 19, 2024.
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