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Read this if you are a solar investor, developer, or installer.

With December well under way, thoughts turn to year-end and tax filing preparation. While we get many questions this time of year related to changes in the tax law and what taxpayers can do before the end of the year to minimize their tax burden, different this year is the impending phase-out of the Investment Tax Credit (ITC) and Residential Energy Credit (REC) from 30% to 26%. 

Last month, we gave some pointers on the safe harbor provision available for the Investment Tax Credit which would allow qualifying projects to still be eligible for the 30% credit after the end of the year. No such provision exists for the residential credit, however, and any project not complete by 12/31/19 (and completed in 2020) will receive the reduced 26% credit.

The phase-out was designed to coincide with the projected decline in solar costs, and would help smooth the transition to a market where solar competes directly with fossil fuels for energy production. Since then, we have seen component costs increase due to artificially inflated prices resulting from the tariffs imposed on imported goods. This results in a mismatch on the timing of the phase-out to the cost of the materials, a still immature market for solar, and a missed opportunity. Enter a new bill in the House of Representatives.

Growing Renewable Energy and Efficiency Now Act

On November 19, 2019 Chairman Thompson of the House Ways and Means Subcommittee released a discussion draft of a bill titled the Growing Renewable Energy and Efficiency Now (“GREEN”) Act. This draft bill is not ready for a vote yet, but does promote an extension and/or expansion of tax incentives for taxpayers investing in cleantech. With the GREEN Act, solar investors, installers, and other related businesses would benefit from:

  • Revival and extension of the Production Tax Credit (PTC) through 2024
  • Delay of the ITC and REC phaseout until 2024
  • Expansion of the ITC to include additional technologies, most notably energy storage
  • A provision allowing the taxpayer to receive the ITC or PTC as a refund in the year it is claimed for 15% reduction in the value of the credit

A delay in the phase-out would allow time for the costs of components to return to pre-tariff levels and help achieve the original intention of the phase-out. The expansion of the ITC to include energy storage would be a huge boon to that emerging market, and provide an additional incentive for consumers to install storage on an existing project―creating a more efficient energy grid. 

Currently, due to accelerated depreciation, many taxpayers are not able to take the ITC or PTC in the first year due to not having a tax to offset. Allowing for the option to treat the ITC or PTC as a tax payment (which can be refunded) instead of a credit (which can’t) would help investors realize their return much faster and free up capital to invest in other projects. 

Some of these provisions are fairly aggressive, and it is unlikely that they will all remain as they are now in any future passed legislation. However, it is promising to see the House of Representatives considering these types of extensions and expansions when it comes to clean energy incentives. As renewable energy is still a relatively new and rapidly changing marketplace, this is a prime time for renewable energy professionals to keep representatives informed of what they need to help the industry continue to grow. 

Stay tuned, and please contact Mark Vitello if you have any questions or need more information.
 

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The GREEN Act―a ray of hope for the solar carve out and the ITC?

Editor’s note: read this if you work for, or are affiliated with, a charitable organization that receives donations. Even the most mature nonprofit organizations may miss one of these filings once in a while. Some items (e.g., the donor acknowledgement letter) may feel commonplace, but a refresher—especially at a particularly busy time of the year as it pertains to giving—can fend off fines.

As the holiday season is now in full swing, the season of giving is also upon us. Perhaps not surprisingly, the month of December is by far the most charitable month of the year, accounting for almost one-third of all charitable gifts made annually. And with all that giving comes the requirement of charitable organizations to provide donor acknowledgements, a formal “thank you” of the gift being received. Different gifts require differing levels of acknowledgement, and in some cases an additional IRS form (or two) may need to be filed. Doing some work now may save you time (and a fine or two) later. 

While children are currently busy making lists for Santa Claus, in the spirit of giving we present to you our list of donor acknowledgement requirements―and best practices―to help you gain control of this issue for the holiday season and beyond.

Donor acknowledgement letters

Charitable (i.e., 501(c)(3)) organizations are required to provide a donor acknowledgement letter to each donor contributing $250 or more to the organization, whether it be cash or non-cash items (i.e., publicly traded securities, real estate, artwork, vehicles, etc.) received. The letter should include the following: 

  1. Name of the organization
  2. Amount of cash contribution
  3. Description of non-cash items (but not the value) 
  4. Statement that no goods and services were provided (assuming this is the case)
  5. Description and good faith estimate of the value of goods and services provided by the organization in return for the contribution, if any
  6. Statement that goods or services provided by the organization in return for the contribution consisted entirely of intangible religious benefit, if any

It is not necessary to include either the donor’s social security number or tax identification number on the written acknowledgment and as a best practice should not be included in the letter.

In addition to including the elements above, the written acknowledgement is also required to be contemporaneous, that is, sent out in a timely fashion. According to the IRS, a donor must receive the acknowledgment by the earlier of:

  • The date on which the donor actually files his or her individual federal income tax return for the year of the contribution
  • The due date (including extensions) of the return in order to be considered contemporaneous

Quid pro quo disclosure statements

When a donor makes a payment greater than $75 to a charitable organization partly as a contribution and partly as a payment for goods and services, a disclosure statement is required to notify the donor of the value of the goods and services received in order for the donor to determine the charitable contribution component of their payment.

An example of this would be if the organization sold tickets to its annual fundraising dinner event. Assume the ticket costs $100 and at the event the ticketholder receives a dinner valued at $40. In this example, the donor’s tax deduction may not exceed $60. Because the donor’s payment (quid pro quo contribution) exceeds $75, the charitable organization must furnish a disclosure statement to the donor, even though the deductible amount doesn’t exceed $75.

It’s important to note that there are some exclusions to these requirements if the value received is considered to be de minimis (known as the Token Exception), but the value received needs to be relatively small (ex: receiving a coffee mug with a picture of the organization’s logo on it). Please consult your tax advisor for more details.

If the organization does not issue disclosure statements, the IRS can issue penalties of $10 per contribution, not to exceed $5,000 per fundraising event or mailing. An organization may be able to avoid the penalty if reasonable cause can be demonstrated.

Receiving or selling donated noncash property? Forms 8283 & 8282 may be required.

If a charitable organization receives noncash donations, it may be asked to sign Form 8283. This form is required to be filed by the donor and included with their personal income tax return. If a donor contributes noncash property (excluding publicly traded securities) valued at over $5,000, the organization will need to sign Form 8283, Section B, Part IV acknowledging receipt of the noncash item(s) received.

By signing Form 8283, the donee organization is not only acknowledging receipt, but is also affirming that if the property being received is sold, exchanged, or otherwise disposed of within three years of the original donation date, the organization will be required to file Form 8282. A copy of this form is filed with the IRS and must also be provided to the original donor. Form 8282 is not required for sales of donated publicly traded securities. The penalty for failure to file Form 8282 when required is generally $50 per form.

Cars, boats, and yes, even airplanes? That would be Form 1098-C.

An airplane? Yes, even an airplane can be donated, and the donee organization must file a separate Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, with the IRS for each contribution of a qualified vehicle that has a claimed value of more than $500. Contemporaneous written acknowledgement requirements apply here too, and Form 1098-C can act as acknowledgement for this purpose. An acknowledgment is considered contemporaneous if it is furnished to the donor no later than 30 days after the date of the contribution if you plan to use the item for a mission-related purpose, or 30 days after the date of the sale of the item to an unrelated third party.

Penalties for failure to provide contemporaneous written acknowledgement for qualified vehicles can be pretty stiff, generally calculated as a percentage of the sale price if sold, or a percentage of the claimed value if not sold. Should you have any questions or receive a request regarding any of the forms noted above, please consult your tax advisor.

As you can see, the rules around donor acknowledgements can seem a lot like Grandma’s fruitcake―complex and perhaps a bit on the nutty side. When issuing donor acknowledgements this holiday season and beyond, be sure to review the list above and check it twice. Doing so may end up keeping you off of the IRS’s naughty list!

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Donor acknowledgements: We have to file what?

Read this if you are a State Medicaid Director, State Medicaid Chief Information Officer, State Medicaid Project Manager, or State Procurement Officer—or if you work on a State Medicaid Enterprise System (MES) certification effort.

On October 24, 2019, the Centers for Medicaid and Medicare Services (CMS) published the Outcomes-Based Certification (OBC) guidance for the Electronic Visit Verification (EVV) module. Now, CMS is looking to bring the OBC process to the rest of the Medicaid Enterprise. 

The shift from a technical-focused certification to a business outcome-focused approach presents a unique opportunity for states as they begin re-procuring—and certifying—their Medicaid Enterprise Systems (MES).

Once you have defined the scope of your MES project—and know you need to undertake CMS certification—you need to ask “what’s next?” OBC can be a more efficient certification process to secure Federal Financial Participation (FFP).

What does OBC certification entail?

Rethinking certification in terms of business outcomes will require agencies to engage business and operations units at the earliest possible point of the project development process to define the program goals and define what a successful implementation is. One way to achieve this is to consider MES projects in three steps. 

Three steps to OBC evaluation

Step 1: Define outcomes

The first step in OBC planning seems easy enough: define outcomes. But what is an outcome? To answer that, it’s important to understand what an outcome isn’t. An outcome isn’t an activity. Instead, an outcome is the result of the activity. For example, the activity could be procuring an EVV solution. In this instance, an outcome could be that the state has increased the ability to detect fraud, waste, and abuse through increased visibility into the EVV solution.

Step 2: Determine measurements

The second step in the OBC process is to determine what to measure and how exactly you will measure it. Deciding what metrics will accurately capture progress toward the new outcomes may be intuitive and therefore easy to define. For example, a measure might simply be that each visit is captured within the EVV solution.

Increasing the ability to detect fraud, waste, and abuse could simply be measured by the number of cases referred to a Medicaid fraud unit or dollars recovered. However, you may not be able to easily measure that in the short-term. Instead, you may need to determine its measurement in terms of an intermediate goal, like increasing the number of claims checked against new data as a result of the new EVV solution. By increasing the number of checked claims, states can ensure that claims are not being paid for unverified visits. 

Step 3: Frequency and reporting

Finally, the state will need to determine how often to report to measure success. States will need to consider the nuances of their own Medicaid programs and how those nuances fit into CMS’ expectations, including what data is available at what intervals.

OBC represents a fundamental change to the certification process, but it’s important to highlight that OBC isn’t completely unfamiliar territory. There is likely to be some carry-over from the certification process as described in the Medicaid Enterprise Certification Toolkit (MECT) version 2.3. The current Medicaid Enterprise Certification (MEC) checklists serve as the foundation for a more abbreviated set of criteria. New evaluation criteria will look and feel like the criteria of old but are likely to be a fraction of the 741 criteria present in the MECT version 2.3.

OBC offers several benefits to states as you navigate federal certification requirements:

  1. You will experience a reduction in the amount of time, effort, and resources necessary to undertake the certification process. 
  2. OBC refocuses procurement in terms of enhancements to the program, not in new functions. Consequently, states will also be able to demonstrate the benefits that each module brings to the program which can be integral to stakeholder support of each module. 
  3. Early adoption of the OBC process can allow you to play a more proactive role in certification efforts.

Continue to check back for a series of our project case studies. Additionally, if you are considering an OBC effort and have questions, please contact our team. You can read the OBC guidance on the CMS website here
 

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Three steps to outcomes-based certification

Editor's note: Read this if you are a CTO, CIO, or administrator at a college or university. This is the first blog in a series on business lessons and best practices from American literature. For this series, interviewees select from a list of American literary quotes through which to view, and discuss, their focus or industry. The goal? To generate some novel insight.

The interviewees: David Houle and Joseph Traino, consultants at BerryDunn
The focus: Higher education
The quote: “Our inventions are wont to be pretty toys . . . They are but improved means to an unimproved end.”  -- Henry David Thoreau, Walden; or, Life in the Woods

Thoreau wrote this shortly after the Industrial Revolution. How does its cynicism apply to higher education during the Digital Revolution?

David Houle (DH): It speaks to my basic philosophy about applying technology to the needs of higher education clients. I’m not a “technology for the sake of technology” cheerleader. 

Joseph Traino (JT): People often believe that applying new technology to a business problem is going to solve the business problem. That rarely happens. For example, most higher education clients have a student information system. These clients often feel that, in order to resolve certain issues, they should update the system software, whereas the issues are often resolved by updating business practices to be more efficient and effective. 

DH: Right. We are often brought in to identify needed technology changes but end up stressing practices, processes, and people. If staff can’t correctly use a new technology, then the technology will not provide a real, valuable service.

When implementing a new technology, what’s the #1 thing that a higher education institution can do to prevent or avoid “an unimproved end”?

JT: Fully understand the technology’s impact on stakeholders, such as students, faculty, and staff, and answer the “why?”

DH: Keep people in mind and gain their buy-in when making technology decisions.

What technology, or technology-related change, is going to have the biggest effect on higher education over the next five years?

DH: Clients love to ask us this question (laughs). And if I truly knew the answer, I’d be on some Caribbean island right now, filthy rich and sipping a piña colada. That said, I think the technology demands of the new workforce are going to have the biggest effect. To paraphrase the new workforce: “I don’t want to stare at a green screen. And what in the world is DOS?” Conversely, the personnel who used to support these homegrown, in-house “green screen” products want to retire and leave the workforce. 

JT: I agree that the demands of the new workforce will continue to affect higher education and steer institutions away from term-based courses and programs and toward more flexible, student-centric courses and programs. From a technology standpoint, I think AI and bots are going to replace many of the manual processes that we still see today in higher education. These new technologies will create greater efficiencies—but also possibly reduce jobs—at institutions.

DH: Higher education leaders with vision have already grasped this idea of cutting administrative costs wherever possible, because those costs are not what place students in seats—or in front of screens. On the flip side, advising is currently an underserved area in higher education. So there is an opportunity for leaders to reallocate administrative resources to fulfill advising roles and to help students—such as at-risk and first-generation students—not just in the classroom, but through their learning journey.

Circling back to the Thoreau quote, I’m sure many higher education staff fear technology will lead to “unimproved ends” for their careers. How do you navigate those fears when working with clients? 

JT: It’s certainly a challenge. We currently face some of those fears when working with IT departments—more services are being moved to the cloud, and there is less of a need for on-site database administrators and system administrators, as an example. Alluding to what Dave said about advising, I think many higher education jobs can be shifted to provide interactive high-tech, high-touch services to students.

DH: And to be blunt, some people don’t want to shift, don’t want to change. The people part is the most challenging part of technology adoption. 

In this discussion about technology, we keep returning to people—and the people side of change. Are higher education clients typically responsive to the concept of change management?

JT: There’s typically some reticence, and a lack of understanding about the value of change management. In most cases, change management requires an investment beyond the technology investment. But change management is key to success. 

DH: Reticence is a good word. Yet I do think that views about change management are changing rapidly. Higher education leaders who have been through a significant system or process change now seem to understand the value of change management and know that change management is a necessity, not a luxury. 

In the end, are you confident that new technology is going to benefit students and their educational goals? 

DH: I’m unsure if technology improves the quality of education. However, I am sure that technology increases the options for the delivery of education. And greater flexibility in education delivery is certainly beneficial, especially because the traditional student is now non-traditional. Ongoing and 24/7 access demands in education are here to stay.

JT: I agree with Dave wholeheartedly. I think technology will help improve the means to the end, but I’m not sure if technology is going to improve the end. Technology is just one part of the education equation. 
 

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Technology ≠ Education

Read this if you are a solar investor, developer, or installer.

The solar carve out of the Investment Tax Credit (ITC) has been a great incentive for taxpayers to invest in solar assets over the last several years. It established an increased 30% tax credit for solar assets placed in service, up from the normal 10%. 

Starting January 1, 2020, the solar carve out will begin to phase out and will return to 10% by January 1, 2024. 

With the first phase-out of the ITC set to drop the credit from 30% to 26% after December 31, 2019, many taxpayers are evaluating ways to make sure their project still qualifies for the 30% credit. The IRS has issued two safe harbor provisions (IRS Notice 2018-59) to allow for projects placed in service after December 31, 2019 and before January 1, 2024 to still qualify for the 30% credit, but timing is key and certain actions must be taken before midnight on December 31, 2019.

Safe harbor methods

The two safe harbor methods are the Physical Work Test and the Five Percent of Cost Test. If a project satisfies either of these tests it can still qualify for the 30% tax credit as long as it is completed and in service before January 1, 2024.

The Physical Work Test requires that the taxpayer performs, or has performed on their behalf, “work of a significant nature” on the project prior to December 31, 2019. This is a little open to interpretation, but generally involves physical construction of the asset, such as the installation of mounting equipment, rails, racking, inverters, or even the panels themselves. Purchasing of equipment generally held in inventory by either the taxpayer or the vendor does not qualify. However, if the equipment is customized or specially designed for the specific project, it might. Preliminary activities do not qualify, which include planning, designing, surveying, and permitting. 

In general, the purpose of this test is to prove that construction has already begun, and is in place to help projects that have been started but won’t be in service before year end still maintain the 30% tax credit. Projects that are substantially complete and waiting for an interconnection or a permission to operate in order to be considered as in service will most easily qualify for this safe harbor test.

The Five Percent of Cost Test is a little more straightforward, and is likely to be more commonly used to qualify projects for the safe harbor provision as the end of the year deadline approaches. This test requires at least five percent of the total project cost be paid or incurred before December 31, 2019. It is important to note that the denominator in this test is the final total cost of the project when it goes in service. The taxpayer may wish to pay more than the five percent to account for project overruns or unanticipated changes to the project in order to make sure they maintain the qualification for safe harbor. 

Another consideration is if the taxpayer files on the cash or accrual method as to whether the project cost needs to be paid or incurred in order to satisfy the chosen filing method.

In either case, the taxpayer should also evaluate the cost of prepaying for equipment that may decrease in cost in the future, compared to the benefit they will receive in maintaining the additional four percent of the tax credit that can safe harbor from the phase out. 

Additionally, an analysis of total project costs and eligible vs. ineligible ITC costs early on in project development can help identify how best to spend the cash before the end of the year, and ensure that the taxpayer receives the return they require once the project goes into service.

Have questions?

If you have questions on these safe harbors or need more information, please contact the green tax experts on our renewable energy team

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Safe harbor options for taxpayers as the solar ITC begins to sunset

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