Instructions for Form 8835 (2018)

Renewable Electricity, Refined Coal, and Indian Coal Production Credit

Section references are to the Internal Revenue Code unless otherwise noted.

2018


Instructions for Form 8835 - Introductory Material

Future Developments

For the latest information about developments related to Form 8835 and its instructions, such as legislation enacted after they were published, go to IRS.gov/Form8835.

What’s New

 

  • The credit for solar facilities placed in service before 2006 has expired.

 

  • The Protecting Americans From Tax Hikes Act of 2015 provides for the phase out of the credit for wind facilities. The credit for wind facilities is reduced by 60% for facilities the construction of which begins during 2019. For more information, see Line 17e, later.

 

  • The credit period for Indian coal produced at a qualified Indian coal production facility has expired.

 

This is an Image: caution.gif

 

At the time these instructions went to print, Congress had not enacted legislation on expired provisions. To find out if legislation has been enacted, go to IRS.gov/Extenders.

Reminder

The credit for wind facilities is reduced by 40% for facilities the construction of which began in 2018.

General Instructions

Purpose of Form

Use Form 8835 to claim the renewable electricity, refined coal, and Indian coal production credit. The credit is allowed only for the sale of electricity, refined coal, or Indian coal produced in the United States or U.S. possessions from qualified energy resources at a qualified facility (see Definitions, later).

Partnerships and S corporations must file this form to claim the credit. All others are generally not required to complete or file this form if their only source for this credit is a partnership, S corporation, estate, trust, or cooperative. Instead, they can report this credit directly on Form 3800, General Business Credit. The following exceptions apply.

  • You are an estate or trust and the source credit can be allocated to beneficiaries. For more details, see the instructions for Form 1041, Schedule K-1, box 13, code J.

  • You are a cooperative and the source credit can or must be allocated to patrons. For more details, see the instructions for Form 1120-C, Schedule J, line 5c.

 

Election To Treat a Qualified Facility as Energy Property

Section 48(a)(5) provides an irrevocable election to treat qualified property (described in section 48(a)(5)(D)) that is part of a qualified investment credit facility (described in section 48(a)(5)(C)) as energy property eligible for the investment credit (reported on Form 3468, Investment Credit) instead of a production credit reportable on this form. This election applies to a facility that:

  • Is a qualified facility under section 45(d)(1), (2), (3), (4), (6), (7), (9), or (11) that is placed in service after 2008 and the construction of which begins before January 1, 2018 (before January 1, 2020, for a qualified facility under section 45(d)(1)). See Construction of a Qualified Facility, later;

  • No credit has been allowed under section 45 for that facility (see Note, below); and

  • An irrevocable election was made to treat the facility as energy property.

 

Note.

If a taxpayer retrofits an energy property that previously received a credit under section 45 by satisfying the 80/20 Rule provided in section 7.05 of Notice 2018-59 available at IRS.gov/irb/2018-28_IRB#NOT-2018-59, the taxpayer may claim an investment tax credit based on its investment. However, if the energy property is within the recapture period for the section 45 credit, the taxpayer may have to recapture all or part of such section 45 credit accordingly.

See Notice 2009-52 and Form 3468 for information on making the election. Notice 2009-52 is available at
IRS.gov/irb/2009-25_IRB/ar09.html.

Coordination With Department of Treasury Grants

If a grant is paid under the American Recovery and Reinvestment Act of 2009 (the Act), section 1603, for placing into service specified energy property (described in Act section 1603(d)), no production credit under section 45, or investment credit under section 48, is allowed for the property for the tax year in which the grant is made or any subsequent tax year. However, if a taxpayer retrofits an energy property that previously received a 1603 grant by satisfying the 80/20 Rule provided in section 7.05 of Notice 2018-59, the taxpayer may claim an investment tax credit based on its investment. See section 48(d) for more information.

If the energy property is within the recapture period for the 1603 grant, the taxpayer may have to recapture all or part of such grant accordingly.

You may not partition the basis of property for which a section 1603 award was received and claim a production credit under section 45 or investment credit under section 48 for any part of the basis of that property. However, you must reduce the basis of the specified energy property by 50% of the amount of the actual section 1603 payment.

You may have to refigure the investment credit and recapture all or a portion of it if a grant under section 1603 of the Act was made for section 48 property for which a credit was allowed for progress expenditures before the grant was made. Recapture is applicable to those amounts previously included in the qualified basis for an energy credit, including progress expenditures, that are also the basis for the 1603 grant.

How To Figure the Credit

Generally, the credit for electricity and refined coal produced from qualified energy resources at a qualified facility during the credit period (see Definitions, later) is:

  • 1.5 cents per kilowatt-hour (kWh) for the sale of electricity produced by you;

  • 1/2 of 1.5 cents for open-loop biomass, small irrigation, landfill gas, trash, hydropower, and marine and hydrokinetic renewable facilities; or

  • $4.375 per ton for the sale of refined coal produced.

 

The credit for electricity produced is proportionately phased out over a 3-cent range when the reference price exceeds the 8-cent threshold price. The refined coal credit is proportionately phased out over an $8.75 range when the reference price of fuel used as feedstock exceeds 1.7 times the 2002 reference price. The 1.5-cent credit rate, the 8-cent threshold price, the $4.375 refined coal rate, and the reference price of fuel used as a feedstock are adjusted for inflation. The reference price and the inflation adjustment factor (IAF) for each calendar year are published during the year in the Federal Register. If the reference price is less than the threshold price (adjusted by the IAF), there is no reduction. For electricity produced, if the reference price is more than 3 cents over the adjusted threshold price, there is no credit; if the reference price is more than the threshold price, but not more than 3 cents over the adjusted threshold price, there is a phaseout adjustment on line 4. For refined coal produced, if the reference price is more than $8.75 over the adjusted threshold price, there is no credit; if the reference price is more than the threshold price, but not more than $8.75 over the adjusted threshold price, there is a phaseout adjustment on line 7.

Credit rates.

For calendar year 2018, the effective credit rate for electricity and refined coal, produced and sold is 2.4 cents per kWh and $7.03 per ton, respectively; there is no phaseout adjustment.

Example.

If the reference price of electricity is 10.0¢ and the adjusted threshold price is 9.0¢, reduce the credit by 1/3 ((10.0¢ – 9.0¢) ÷ 3¢ = .3333). Enter the line 3 credit in the first entry space on line 4, .3333 in the second entry space, and multiply to figure the reduction.

Definitions

Construction of a Qualified Facility

Two methods can be used to establish that construction of a qualified facility has begun.

  1. Physical Work Method starts when physical work of a significant nature begins. See section 4 of Notice 2018-59.

  2. Safe Harbor Method meets the requirements provided in section 5 of Notice 2018-59.

Although both methods can be used, only one method is needed to establish that construction of a qualified facility has begun. For energy property the construction of which begins, as determined under the earlier of the Physical Work Test or the Five Percent Safe Harbor, after December 31, 2018, construction will be deemed to have begun on the date the taxpayer first satisfies one of the two methods.

 

Resources means wind, closed-loop biomass, open-loop biomass, geothermal energy, small irrigation power, municipal solid waste, qualified hydropower production, marine and hydrokinetic renewables, and refined coal.

Closed-loop biomass is any organic material from a plant that is planted exclusively for use at a qualified facility to produce electricity.

Open-loop biomass is solid, nonhazardous, cellulosic waste material; lignin material; or agricultural livestock waste nutrients, as defined in section 45(c)(3). See Notice 2008-60, 2008-30 I.R.B. 178 for rules related to open-loop biomass, including an expanded definition of a qualified facility and rules related to sales.

Geothermal energy is energy derived from a geothermal deposit, as defined by section 613(e)(2).

Small irrigation power is power generated without any dam or impoundment of water. See section 45(c)(5).

Municipal solid waste is solid waste as defined under paragraph 27 of 42 U.S.C. 6903. Municipal solid waste doesn't include paper which is commonly recycled and which has been segregated from other solid waste (as so defined).

Refined coal is a liquid, gaseous, or solid fuel produced from coal or high carbon fly ash meeting the requirements of section 45(c)(7). See Notice 2010-54 for additional information on refined coal facilities. Notice 2010-54 is available at
IRS.gov/irb/2010-40_IRB/ar07.html.

Hydropower production means the incremental hydropower production for the tax year from any hydroelectric dam placed in service on or before August 8, 2005, and the hydropower production from any nonhydroelectric dam described in section 45(c)(8)(C).

Marine and hydrokinetic renewable energy means energy derived from waves, tides, and currents in oceans, estuaries, and tidal areas; free flowing water in rivers, lakes, and streams; free flowing water in an irrigation system, canal, or other man-made channel, including projects that utilize nonmechanical structures to accelerate the flow of water for electric power production purposes; or differentials in ocean temperature (ocean thermal energy conversion). See section 45(c)(10)(B) for exceptions.

Qualified Facilities

A qualified facility is any of the following facilities owned by you and used to produce electricity or refined coal.

  • Wind facility placed in service after October 22, 2004, and the construction of which begins before January 1, 2020. This doesn't include any facility for which any qualified small wind energy property expenditure (as defined in section 25D(d)(4)) is used in determining the residential energy efficient property credit.

  • Closed-loop biomass facility placed in service after October 22, 2004, and the construction of which begins before January 1, 2018.

  • Closed-loop biomass facility modified to co-fire with coal or other biomass (or both), placed in service before January 1, 2018. The facility will be treated as modified before January 1, 2017, if the construction of the modification begins before January 1, 2018. See section 45(d)(2).

  • Closed-loop biomass facility that is a new unit placed in service after October 3, 2008, in connection with a facility described in section 45(d)(2)(A)(i), but only to the extent of the increased amount of electricity produced at the facility by reason of the new unit.

  • Open-loop biomass facility using cellulosic waste, and the construction of which begins before January 1, 2018.

  • Open-loop biomass facility using agricultural livestock waste placed in service after October 22, 2004, and the construction of which begins before January 1, 2018, and the nameplate capacity rating isn't less than 150 kilowatts.

  • Open-loop biomass facility that is a new unit placed in service after October 3, 2008, in connection with a facility described in section 45(d)(3)(A), but only to the extent of the increased amount of electricity produced at the facility by reason of the new unit.

  • Geothermal energy facility placed in service after October 22, 2004, and the construction of which begins before January 1, 2018. The facility doesn't include any property described in Code section 48(a)(3) the basis of which is taken into account by you for purposes of determining the energy credit under Code section 48.

  • Small irrigation power facility placed in service after October 22, 2004, and before October 3, 2008.

  • Landfill gas or trash facility using municipal solid waste placed in service after October 22, 2004, and the construction of which begins before January 1, 2018.

  • A refined coal production facility originally placed in service after October 22, 2004, and before January 1, 2012. See Notice 2010-54 for more information on refined coal facilities.

  • Hydropower facility producing incremental hydroelectric production attributable to efficiency improvements or additions to capacity described in section 45(c)(8)(B) placed in service after August 8, 2005, and will be treated as placed in service before January 1, 2018, if the construction of the improvement or addition begins before January 1, 2018, and any other facility producing qualified hydroelectric production described in section 45(c)(8) placed in service after August 8, 2005, and the construction of which begins before January 1, 2018.

  • Marine and hydrokinetic renewable energy facility placed in service after October 2, 2008, and the construction of which begins before January 1, 2018.

 

A qualified facility doesn't include a refined coal production facility or landfill gas facility using municipal solid waste to produce electricity if the production from that facility is allowed as a credit under section 45K.

Credit Period

Eligible electricity production activity: Credit period for facilities placed in service after August 8, 2005 (years from placed-in-service date):
Wind 10
Closed-loop biomass 10
Open-loop biomass (including agricultural livestock waste nutrient facilities) 10
Geothermal 10
Small irrigation power 10
Municipal solid waste (including landfill gas facilities and trash combustion facilities) 10
Qualified hydropower 10
Marine and hydrokinetic 10
Refined coal 10

United States and U.S. possessions include the seabed and subsoil of those submarine areas that are adjacent to the territorial waters over which the United States has exclusive rights according to international law.

Who Can Take the Credit

Generally, the owner of the facility is allowed the credit. In the case of closed-loop biomass facilities modified to co-fire with coal, other biomass, or both, open-loop biomass facilities, and refined coal facilities, if the owner isn't the producer of the electricity, the lessee or the operator of the facility is eligible for the credit.

Instructions for Form 8835 - Notices

Specific Instructions

Figure any renewable electricity and refined coal production credit from your trade or business on lines 1 through 16. Skip lines 1 through 16 if you are only claiming a credit that was allocated to you from an S corporation, partnership, cooperative, estate, or trust.

Fiscal year taxpayers.

If you have sales in 2018 and 2019 and the credit rate on line 1, 2, or 6 (or the phaseout adjustment on line 4 or 7) is different for 2019, make separate computations for each line. Use the respective sales, credit rate, and phaseout adjustment for each calendar year. Enter the total of the two computations on the credit rate line(s) (line 1, 2, or 6) or the phaseout adjustment line(s) (line 4 or 7). Attach the computations to Form 8835 and write "FY" in the margin.

Line 1

Enter the kilowatt-hours of electricity produced at the applicable qualified facilities and multiply by $0.024. Fiscal year filers with 2019 sales may have to refigure line 1 as explained under Fiscal year taxpayers above.

Line 2

Enter the kilowatt-hours of electricity produced and sold at the applicable qualified facilities and multiply by $0.012. Fiscal year filers with 2019 sales must figure line 2 as explained under Fiscal year taxpayers above.

Line 4

Calendar year filers enter zero on line 4. Fiscal year filers with sales in 2019 also enter zero if the published 2019 reference price is equal to or less than the 2019 adjusted threshold price. See How To Figure the Credit, earlier, to figure the adjustment.

Line 6

Enter the tons of refined coal produced and sold during 2018 from a qualified refined coal production facility and multiply by $7.03. Fiscal year filers with 2019 sales must figure line 6 as explained under Fiscal year taxpayers above.

Line 7

Calendar year filers enter zero on line 7. Fiscal year filers with sales in 2019 also enter zero if the published 2019 reference price is equal to or less than 1.7 times the 2002 reference price. See How To Figure the Credit, earlier, to figure the adjustment.

Line 9

This line is reserved for future use.

Line 10

This line is reserved for future use.

This is an Image: caution.gif

 

At the time these instructions went to print, the Indian coal production credit formerly claimed on line 10 had expired. You can’t claim this credit on line 10 for Indian coal produced and sold after 2017. Line 10 is now shown as "Reserved for future use" in case Congress extends the credit for 2018. To find out if legislation extended the credit so you can claim it on your 2018 return, go to IRS.gov/Form8835.

When any form, worksheet, or instruction refers to line 10, treat the amount on line 10 as zero (unless the law changes and you can claim a credit on line 10).

Line 12

Enter the sum, for this and all prior tax years, of:

  • Grants provided by the United States, a state, or political subdivision of a state for the project;

  • Proceeds of a tax-exempt issue of state or local government obligations used to provide financing for the project;

  • Total of subsidized energy financing provided directly or indirectly under a federal, state, or local program provided for the project; and

  • The amount of any federal tax credit allowable for any property that is part of the project.

 

Line 17a

Only enter on line 17a the amount included on line 16 applicable to wind facilities the construction of which began during 2017.

Line 17c

Only enter on line 17c the amount included on line 16 applicable to wind facilities the construction of which began during 2018.

Line 17e

Only enter on line 17e the amount included on line 16 applicable to wind facilities the construction of which began during 2019.

Line 19

Enter total renewable electricity, refined coal, and Indian coal production credits from:

  • Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc., box 15 (code P);

  • Schedule K-1 (Form 1120S), Shareholder’s Share of Income, Deductions, Credits, etc., box 13 (code P);

  • Schedule K-1 (Form 1041), Beneficiary’s Share of Income, Deductions, Credits, etc., box 13 (code J); and

  • Form 1099-PATR, Taxable Distributions Received From Cooperatives, box 10.

 

Partnerships and S corporations must always report on line 19 the above credits related to renewable electricity, refined coal, and Indian coal production. Also, estates and trusts that can allocate the source credit to beneficiaries and cooperatives that can allocate the credit to patrons must always report on line 19 the above credits related to renewable electricity, refined coal, and Indian coal production. All other filers figuring a separate credit on earlier lines must also report the above credits on line 19. All others not using earlier lines to figure a separate credit can report the above credits directly on the applicable line of Form 3800, Part III, line 1f or line 4e.

Line 20

Partnerships that own and produce electricity from qualified wind facilities should see Rev. Proc. 2007-65, 2007-45 I.R.B. 967, as modified by Announcement 2009-69, 2009-40 I.R.B. 475, for information on how to allocate the credit. Rev. Proc. 2007-65 is available at IRS.gov/irb/2007-45_IRB/ar18.html and Announcement 2009-69 is available at
IRS.gov/irb/2009-40_IRB/ar16.html.

Line 21

Cooperative election to allocate credit to patrons.

A cooperative described in section 1381(a) that is more than 50% owned by agricultural producers or by entities owned by agricultural producers can elect to allocate any part of the renewable electricity, refined coal, and Indian coal production credit among the patrons of the cooperative. The credit is allocated among the patrons eligible to share in patronage dividends on the basis of the quantity or value of business done with or for such patrons for the tax year.

If the cooperative is subject to the passive activity rules, include on line 19 any renewable electricity, refined coal, and Indian coal production credit from passive activities disallowed for prior years and carried forward to this year. Complete Form 8810, Corporate Passive Activity Loss and Credit Limitations, to determine the allowed credits that can be allocated to patrons. For details, see the Instructions for Form 8810.

The cooperative is deemed to have made the election by completing line 21, as applicable. However, the election isn't effective unless (a) made on a timely filed return (including extensions) and (b) the organization designates the apportionment in a written notice mailed to its patrons during the payment period described in section 1382(d) or on Form 1099-PATR.

If you timely file your return without making an election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Enter "Filed pursuant to section 301.9100-2" on the amended return.

Once made, the election can’t be revoked.

Estates and trusts.

Allocate the credit on line 20 between the estate or trust and the beneficiaries in the same proportion as income was allocated and enter the beneficiaries’ share on line 21.

If the estate or trust is subject to the passive activity rules, include on line 19 any renewable electricity, refined coal, and Indian coal production credit from passive activities disallowed for prior years and carried forward to this year. Complete Form 8582-CR, Passive Activity Credit Limitations, to determine the allowed credit that must be allocated between the estate or trust and the beneficiaries. For details, see the Instructions for Form 8582-CR.

Paperwork Reduction Act Notice.

We ask for the information on this form to carry out the Internal Revenue laws of the United States. You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to figure and collect the right amount of tax.

You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required by section 6103.

The time needed to complete and file this form will vary depending on individual circumstances. The estimated burden for individual and business taxpayers filing this form is approved under OMB control number 1545-0074 and 1545-0123 and is included in the estimates shown in the instructions for their individual and business income tax return. The estimated burden for all other taxpayers who file this form is shown below.

Recordkeeping 12 hr., 12 min.
Learning about the law or the form 2 hr., 52 min.
Preparing and sending the form to the IRS 3 hr., 12 min.

 

If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler, we would be happy to hear from you. See the instructions for the tax return with which this form is filed.