Proposed legislation would provide valuable nuclear energy tax incentives and
enhance currently available incentives.
On May 12, 2010, Senators John Kerry (D-MA) and Joe Lieberman (I-CT) released
their proposed comprehensive energy and climate change bill. For
more information about the proposed legislation, see McDermott's On the
and Lieberman Introduce Much-Anticipated Climate Change Bill." The American
Power Act (APA) includes significant incentives for the nuclear industry,
including several tax provisions intended to encourage the building of new
nuclear power plants. The APA would expand the federal loan
guarantee program for nuclear energy development, propose improvements to
capitalize on the efficiencies of the new reactor licensing process and support
spent fuel recycling research.
The following is a summary of significant tax provisions in the APA, which
would become effective upon the date of its enactment.
Five-Year Accelerated Depreciation Period for Tangible
Property Used at Advanced Nuclear Power Facilities
The APA would reduce the accelerated depreciation period for tangible
property (not including a building or its structural components) which is used
as an integral part of an advanced nuclear power facility from fifteen years to
five years. An "advanced nuclear power facility" is defined as one
whose reactor design was approved by the Nuclear Regulatory Commission after
1993. Because no existing power plants have reactor designs
approved after 1993, this provision of the APA would not apply to additions to
Investment Tax Credit for Nuclear Power
The APA adds new Internal Revenue Code (Code) section 48E to provide a 10
percent credit for certain expenditures for nuclear power facility
construction. The credit amount is 10 percent of the qualified
nuclear power facility expenditures (QNPFE) of a "qualified nuclear power
A qualified nuclear power facility is an advanced nuclear power facility that
is placed in service before January 1, 2025, and will use nuclear power to
produce electricity. A QNPFE is any amount that is paid, accrued
or properly capitalized with respect to a qualified nuclear power facility, for
which depreciation is allowable under section 168 of the Code once the facility
is placed in service, and which is incurred before the facility is placed in
Taxpayers may elect to take into account certain "progress expenditures" for
purposes of the credit. When a taxpayer may take into account
QNPFEs as "progress expenditures" depends on whether the qualified nuclear power
facility is self-constructed. For a self-constructed facility,
such QNPFEs are taken into account no earlier than the taxable year for which
such expenditures are properly capitalized with respect to the
facility. For a facility that is not self-constructed, the
expenditures are taken into account in the taxable year they are paid.
A facility is considered "self-constructed" if, at the close of the first
taxable year in which a taxpayer has elected to treat QNPFEs as progress
expenditures, it is reasonable to believe that more than 80 percent of the
QNPFEs will be made directly by the taxpayer.
If a facility ceases to be a qualified nuclear power facility with respect to
the taxpayer in a taxable year, the entire amount of the nuclear power facility
construction credit is recaptured by an increase in tax equal to the aggregate
amount of credit in that taxable year. No credit is allowed under
section 45J of the Code for facilities for which a credit is allowed under
section 48C and section 48E.
Inclusion of Nuclear Power Facilities in Qualifying Advanced
Energy Project Credit
The APA expands and clarifies the 30 percent advanced energy project credit
under section 48C of the Code to include investments in property designed to be
used to produce energy from advanced nuclear power facilities. To
learn about this credit and the projects to which it currently applies, see
McDermott's On the Subject "Applications
Now Accepted for Advanced Energy Project Tax Credits."
Modification of Credit for Production from Advanced Nuclear
The APA also modifies the production tax credit for power produced at an
advanced nuclear power facility in section 45J(b) of the Code.
Currently, no advanced nuclear power facilities have been able to be
constructed or operated in accordance with the statutory requirements of section
45J. Thus, no taxpayers have yet been able to take advantage of
this production tax credit.
The APA modification would allow the allocation of the credit to a non-public
entity that owns an advanced nuclear power facility through a public-private
partnership or jointly with a qualified public entity through a transfer from
the qualified public entity. For these purposes, a "qualified
public entity" means a federal, state or local government entity, or any
political subdivision, agency or instrumentality thereof; a mutual or
cooperative electric company; or a nonprofit electric utility that has received
a loan or loan guarantee under the Rural Electrification Act of
1936. Although the aggregate amount of the credit claimed by the
non-public entity of the facility is subject to certain limitations, this
modification expands the applicability of the credit to more nuclear
In addition, the modification increases the national megawatt capacity
limitation set forth in Code section 45J(b)(2) from 6,000 megawatts to 8,000
However, unless further modifications are made to section 45J and the
Treasury regulations thereunder, it may be difficult for taxpayers to take
advantage of the credit.
Treatment of Qualified Public Entities with Respect to
Private Activity Bonds
Pursuant to the APA, tax-exempt bonds would be permitted to be used for
public-private partnerships for advanced nuclear power facilities.
Grants for Qualified Nuclear Power Facility Expenditures in
Lieu of Tax Credits
The APA would also allow taxpayers (including public power providers and
cooperative electric companies) to apply for grants for QNPFEs in lieu of tax
credits. The statutory deadline for such applications would be
January 1, 2025. Grants would equal 10 percent of the
QNPFEs. Payment of the grant would be made during the 60-day
period following the later of the date of the grant application or the date the
qualified nuclear power facility is placed in service.
In addition to the above nuclear-related provisions, the APA would allocate
an additional $5 billion to the section 48C qualifying advanced energy project
credit. It would also require the U.S. Government Accountability
Office to report to Congress by 2011 on the use of energy-related tax
Since the APA was introduced, a number of parties have commented for and
against various portions of it. Senate Majority Leader Harry Reid
(D-NV) has stated that the bill will need "significant bipartisan cooperation"
and "broad support" in order to pass this year.
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