Tax Court: Credit for fuel from nonconventional source, landfill gas

Tax Court: Credit for fuel from nonconventional source

The U.S. Tax Court today issued an opinion concluding that untreated landfill gas is “qualified fuel” for the credit for producing fuel from a nonconventional source under section 45K (which expired in 2007).

Related content

The case is: Green Gas Delaware Statutory Trust v. Commissioner, 147 T.C. No. 1 (July 14, 2016). Read the Tax Court opinion [PDF 397 KB]

 

The following is based on a brief summary of the 129-page opinion provided by the Tax Court.

Summary

Tax matters partners claimed credits for producing fuel from a nonconventional source under section 45K with respect to landfill gas—gas that was asserted to have been produced from various landfills. The landfills had varying degrees of equipment, monitoring, and production (ranging from nonexistent to substantive). The Tax Court found that the levels of documentation of the gas rights, gas sales and operation and maintenance agreements were “variable” as was the documentation of actual landfill gas production and expenses for which the tax matters partners claimed deductions.

The Tax Court concluded that the tax matters partners were not entitled to the credits under section 45K or for certain business expense deductions because of inadequate substantiation for all but one of the landfills. 

The Tax Court further held:

  • Untreated landfill gas is “qualified fuel” under section 45K (which expired in 2007).
  • In the landfill gas industry, to qualify as a “facility for producing qualified fuels” under section 45K(f)(1), a system of wells, pipes, blowers, and equipment for pretreatment and measuring the production of gas—if necessary—must be connected either to a gas-to-energy system or to a system that allows for storage and treatment of landfill gas before it is routed to gas pipelines or otherwise prepared for delivery to a customer.
  • For a landfill gas production facility, the “placed in service” date under section 45K is the date when a gas-to-energy system becomes available for its specific function on a regular basis—not the date when the first well is drilled.

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