President Signs Energy Legislation

On August 8, 2005, the President signed the Energy Policy Act of 2005 that had passed Congress on July 29, 2005. August 8, 2005, therefore, becomes the effective date for the legislation, although many of the provisions specify different effective dates for the particular provision. The legislation includes a tax package with $14.5 billion in tax breaks related to oil and gas production, distribution and refining; electricity reliability; renewable and clean energy incentives; clean coal; and energy conservation.

Most of the oil and gas incentives relate to more generous write-offs of equipment and exploration costs.

The electricity reliability provisions include enhanced depreciation write-offs, deductions for nuclear decommissioning fund contributions, deferred taxation of certain gains by utilities on sale of transmission assets, a production tax credit for new nuclear power facilities, and a carryback of net operating losses calculated based on the cost of electric transmission capital and pollution control expenditures.

The clean energy incentives include an extension and expansion of the renewable electricity production credit and additional authority to issue tax credit bonds.

The clean coal provisions create three tax credits for investments in clean coal facilities, more generous amortization of pollution control facilities, and include the tax credit for fuel produced from non-conventional sources as a general business credit.

The energy conservation incentives include provisions focused both at business and individuals. New tax credits are included for hybrid, fuel cell, advanced lean burn diesel and other alternative power vehicles, replacing the current deduction for clean fuel (including hybrid) vehicles. A new credit is created for investments in alternative fuel refueling stations. A credit is provided for the purchase of residential solar water heating, photovoltaic equipment, and fuel cell property. A tax credit is also created for energy efficient improvements to existing homes. A business tax credit is provided for construction of new energy efficient homes and for the purchase of fuel cell power plants and stationary microturbine power plants. A manufacturers credit is created for production of energy efficient appliances. A tax credit is also provided for energy research undertaken by qualified research consortia. Also expanded or extended are the small ethanol producer credit and the income and excise tax credits for biodiesel.

Approximately $3 billion in revenue raising offsets are included: reinstating the Oil Spill Liability Trust Fund tax, extending the Leaking Underground Storage Tax Trust tax, and modifying the recapture rules for amortizable Code Sec. 197 intangible assets.

AUTHOR

Wolters Kluwer Tax and Accounting

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