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The 2005 Energy Policy Act

Explore the 179D Tax Deduction for Energy Efficient Commercial Buildings, its requirements, benefits, and risk management strategies. Learn about its worth, transfer options, and case studies illustrating potential tax benefits and savings for government entities and designers.

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The 2005 Energy Policy Act

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  1. The 2005 Energy Policy Act Monetization of Energy Efficient Commercial Building Property Deduction (179D) for Government Entities William Volker Partner Efficiency Energy WVOLKER@WESAVEGREEN.COM 202-776-7709

  2. Energy Efficient Commercial Building Tax Deduction (CBTD) • One-time deduction during year placed in service • Applicable to both retrofit & new construction • Includes : • Interior Lighting System • HVAC & Hot Water System • Building Envelope • 100% of Project Cost UP TO $1.80/sq.ft. • $.60/sq.ft. Per Lighting, HVAC, Envelope System • Certified by Independent ‘Qualified Individual’ • 3rd Party Contractor/Engineer Licensed in locale of Project • DOE-Approved Software

  3. Special Rule for Government - Owned Buildings • Assignable by Governmental Entity to Designer of Qualified Project • Architect, Engineer, Contractor, Environmental Consultant or Energy Services Company (ESCO) • 3rd Party Validation & Valuation Required

  4. 179D Requirements • IRS NOTICES: 2006-52, 2008-40, 2012-17 • Projects Completed January 1, 2006 thru December 31, 2014 • Three year IRS retroactive opportunity • Combined 50% Savings vs. ASHRAE 90.1-2001 • 25% Lighting, 15% HVAC, 10% Envelope

  5. 179D Legislation • Retroactive opportunity for 2011-2014 projects • Most recent extension thru 2014 was included in HR 5771 signed by the President 12/19/14.  • Extension thru 2016 passed Senate Finance Committee 7/21/15 • Future improvements: • Expansion (Nonprofits, ‘Designer’ designation) • Increase ($3/sqft or credit conversion) • Update benchmark or same building savings

  6. What is it worth?

  7. 179D Transfer Monetization GOVT ENTITY Incentive Management Efficiency Energy EP Act Consultant Discount/Rebate on Designer Fees §179D Deduction Valuation/Negotiation/Documentation Designer EP ACT Certification 3rd Party Engineering Certification Refund Deferred Taxes File Return or Amended Return IRS

  8. Case Study: School District Lighting and HVAC upgrades 798,100 sqft affected in 9 Schools X $1.20/sqft = $957,720 Deduction X Designer Tax Rate 35% =$335,202 Tax Benefit Less: Certification Fee $54,400 Less: Legal/Accounting Fees: $17,000 Net Tax Benefit = $263,803 50/50 split = $131,901 savings on current project via invoice credit in lieu of cash

  9. Case Study: New School Construction 356,000 sqft replacement HS completed in 2012 X $1.80/sqft = $640,800 Deduction X Designer Tax Rate 35% =$224,280 Tax Benefit Less: Certification Fee $35,600 Less: Legal/Accounting Fees: $7,000 Net Tax Benefit = $181,680 75/25 split = $136,260 rebate

  10. Risk Management… Compliance, Disallowance Risks Multiple Designers Certification and Insurance Public Oversight Record-Keeping Quality Control Funding ‘Blind’ Potential Savings Forms: Cash/Rebate, Additional ECM Scope via No Cost Change Order, Donated Equipment, Invoice Credit etc

  11. Document Chain & Timelines • Draft Allocation Agreement and Estimated Term Sheet • 4-8 weeks • Certification Package • 6-8 weeks • Final Term Sheet • Allocation Form • IRS Response 3-12 Months

  12. 179D Contract Language • Account for value conferred, associated costs • Provide net savings to government owner at predetermined/negotiable % of net savings • Value becomes ascertainable post certification after assets placed in service • Savings provided upon Designer receipt • Form: rebate, additional scope, invoice credit

  13. Issues… Education, Certification, Valuation Tax Status: c-corp, s-corp, partnership Tax Rate: NOL vs. 0-49% tax payers Two Way Street Participation is not 100% either way Negotiation Relative Tax Benefit Value/Appetite of Designer Certification, Legal, Accounting, Admin Fees Omission or Undervaluation

  14. EFFICIENCY ENERGY LLCEnergy Policy Act Advisor Clients Miami-Dade County Miami-Dade County Public Schools Palm Beach County Public Schools City of Sarasota, FL Palm Beach County, FL Florida State University University of South Florida University of Central Florida Florida Atlantic UniversityUniversity of Florida Texas A&M University System University of T exas System Denver International Airport NC State University North Carolina Global Transpark District of Columbia School District City of Orlando Orange County, FL Los Angeles Unified School Districts Florida State College System

  15. Efficiency Energy: PioneeringEnergy Policy Act Consulting • Efficiency Energy LLC – www.wesavegreen.com • Developers of EP Act Benefit Monetization Model • EPACT Qualifying Project Management Experience • Former SEC Forensic Auditor • Public Finance / Investment Banking Backgrounds • Kutak Rock LP – www.kutakrock.com • Federal tax law and public finance law experts

  16. Bottom Line • Underutilized Tax Benefits to be Managed • Rebates & Reduced Upfront Cost on Energy Efficiency Lighting, HVAC and Envelope Projects

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