Qualified energy conservation bonds (QECBs) are one of several types of tax credit bonds authorized under IRC Section 54A, that allow a credit to investors that hold such bond on one or more of the quarterly credit allowance dates. QECBs must comply with the requirements of IRC Section 54D.
For what purpose can QECBs be issued?
QECBs may be issued for capital expenditures incurred for reducing energy consumption in publicly owned buildings by at least 20%; implementing green community programs (including the use of loans, grants or other repayment mechanisms to implement such programs); rural development involving the production of electricity from renewable energy resources; or any qualified facility including facilities that generate electricity from wind, closed-loop biomass; open-loop biomass; geothermal or solar; small irrigation, hydroelectric; gas from biodegradation of municipal solid waste; marine and hydrokinetic renewable; and trash combustion facilities without regard to any placed in service date. QECB purposes are very broad and also include expenditures for certain research facilities and grants, mass commuting facilities, demonstration projects and public education campaigns to promote energy efficiency.
Who can issue QECBs?
QECBs may be issued by a State or local government, including Indian tribal governments. The eligible costs for qualified conservation purposes financed with the proceeds of an issue of QECBs must relate to qualified conservation purposes that are located within or attributable to both the jurisdiction of the issuer of the QECBs and the jurisdiction of the entity authorized to allocate volume cap to an issue of QECBs. See Notice 2009-29 allocates the national limitation to States and territories. Under section 54D(e)(2)(A), States must further allocate a portion of their allocation to large local governments based on population.
Under section 54D(e)(2)(B), the amount of volume cap for QECBs allocated to a large local government may be reallocated by such local government to the State in which such local government is located. The IRS will defer to any reasonable process under applicable State law by which a large local government, acting through its governing body or a duly authorized official of a large local government, voluntarily reallocates its volume cap for QECBs back to the State in which such large local government is located. The IRS will defer to any reasonable manner in which the State, in good faith and in its discretion, may allocate such reallocated volume cap, subject to the requirement of section 54D(e)(3) that not less than 70 percent of the reallocation be used for bonds other than private activity bonds.
Can unused QECB volume cap be carried forward?
Unused QECB volume cap may be carried forward indefinitely.
Can QECBs be private activity bonds?
Yes, QECB volume cap must be allocated by State and large local governments so that no more than 30% of the allocation is used for private activity bonds. Bonds issued for providing loans, grants or other repayment mechanisms for capital expenditures to implement green community programs are exempted from this requirement. All proceeds for private activity QECBs must be spent on capital expenditures.