By Stephen K. Cooper

Law360 (April 30, 2020, 6:36 PM EDT) -- Renewable energy developers said Thursday that the harsh economic climate caused by the coronavirus pandemic will prevent them from meeting deadlines for completing work on tax credit projects unless Congress intervenes and changes the rules.

In a letter to congressional leaders from both parties, the Carbon Capture Coalition asked lawmakers for immediate support to keep carbon projects developed using the Internal Revenue Code Section 45Q tax credit from being delayed or canceled by the pandemic. The group released an updated list of priorities, requesting that congressional lawmakers provide financial certainty to investors and ensure access to existing incentives.

The group, which includes 75 energy companies, unions and related organizations, said its top priority is for Congress to allow carbon capture project developers to receive a direct cash payment that monetizes the federal Section 45Q tax credit. 

Congress should also provide a multiyear extension of the carbon tax credit program to prevent projects from being canceled during the pandemic, the coalition said.

"Current market turmoil associated with COVID-19 now magnifies the risk that project developers will fail to meet the Jan. 1, 2024, deadline to begin construction," the letter said.

The group's request came the same day that a senior Senate Democrat released a report from the Treasury Inspector General for Tax Administration showing that nearly $1 billion in Section 45Q credits have been improperly claimed by fossil fuel companies.

Sen. Bob Menendez, D-N.J., a member of the Senate Finance Committee, said the Internal Revenue Service should take enforcement actions against the companies. In a letter to IRS Commissioner Charles Rettig, Menendez said the IRS has failed to properly oversee the credit.

"Of the 10 companies claiming 99.9% of the 45Q credits, TIGTA found that only three had the required [monitoring, reporting and verification] plans in place with" the U.S. Environmental Protection Agency, the senator said. "Additionally, while TIGTA acknowledged that the IRS had conducted audits and denied 45Q credits for a portion of these claims, hundreds of millions of improperly claimed taxpayer dollars remain unchallenged by the IRS."

Menendez said he wants the IRS to audit fossil fuel companies that claimed more than $10,000 in Section 45Q credits, and retroactively deny any credits that were not in compliance with federal environmental regulations. He also requested the names of the fossil fuel companies that received credits since 2010 and the amount claimed.

He also asked that the IRS suspend the use of the Section 45Q credit entirely for enhanced oil recovery operations until the IRS completes a full investigation on the misuse of the credit. He asked that the IRS respond to him by May 13.

Brad Crabtree, director of the carbon group, said it supports Menendez's request for "robust transparency and accountability in monitoring, reporting and verification" for the Section 45Q tax credit program. He noted that the group asked the U.S. Department of the Treasury and the IRS to safeguard the credit program in upcoming proposed rules.

The IRS didn't immediately respond to a request for comment.

--Editing by Neil Cohen.

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