Primary Designers, it is urgent to evaluate open tax years as the §179D Tax Deductions will become unavailable once the open year closes. Primary designers MUST file an amended return to claim the deduction for open years and may not file Form 3115 “Change of Accounting” form to claim the deductions per new ruling by the IRS.
With the help of a tax advisor, the Primary Designer may look at going back to “open” tax years (three years from date of filing to amend a tax return), which may result in an IRS refund for overpayment of taxes with interest. A thorough analysis of each taxpayer’s scenario by an advisor experienced in §179D is advantageous to determining the best approach and claiming the maximum deduction allowed under the law.
Here is an example of a primary designer who benefitted from an analysis of their prior tax returns:
A large architectural firm on the West Coast had a dilemma. They had secured and performed on several government contracts (primarily school buildings); acting as a designer for the building construction and/or the energy retrofit, varying by project. The great news was that the Company implemented positive efficiency systems for each and every building and made strong profits. The bad news was that the Company was facing having to deal with significant tax liabilities over the multiple years of the projects.
The firm faced the following challenges:
•Continuing to support the community and school systems through energy initiatives.
•Eliminating tax burden while keeping cash flows strong.
•Utilizing tax opportunities through strategic planning.
•Continuing to grow the company to secure further projects and maintain cash from contract profits.
The architectural firm has an ongoing desire to make a significant community impact by helping government properties build and implement lighting, HVAC and envelope energy solutions. These solutions not only have an immediate impact on the quality of the light, air and performance of the buildings, they also have long-term positive effects, promoting efficiency and sustainability.
Capital Review Group was able to determine that based on the square footage of the multiple government buildings worked on as well as the sustainable and energy efficient design implemented by the firm, they were ultimately entitled to deductions nearing $7,000,000 over a 4 year span. Utilizing these deductions enabled the firm to continue to support the sustainability of the community while eliminating an enormous amount of tax liability.
§179D of the Energy Policy Act of 2005 provides energy tax deductions for investments in “energy efficient commercial buildings” that are designed to increase the efficiency of energy-consuming functions. For government owned buildings, the person(s) primarily responsible for designing the building or project may be able to claim these deductions. The Primary Designer may qualify for deductions of $.60 per square foot for energy efficient lighting design. $.60 per square foot for HVAC and $.60 per square foot for building envelope, creating a potential deduction of $1.80 per square foot that may be directly taken by the designer. This is described in IRS Notice 2006-52 and amplified by IRS Notice 2008-40. Further clarification is given in IRS Notice 2012-22.
Any of those who participated in the design may derive the benefit for the “pass-through” of the incentive/deduction. It was the intent of Congress that public entities design and retrofit to the standard of ASHRAE Standard 90.1-2001. Because this Standard mandates specific and particular attention to efficiencies, Congress elected to provide a tax-deduction “Allocation Pass-Through” to the primary designer(s).