Landfill gas tax credits disallowed

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Publication October 23, 2018

Landfill gas tax credits were denied.

A US appeals court denied tax credits in August that tax equity investors in two trusts claimed on gas produced at 19 landfills during the period 2005 through 2007.

The United States allowed tax credits to be claimed until recently by producers of “nonconventional” fuels. The credits could be claimed for producing gas from biomass, geopressured brine, Devonian shale, coal seams or tight formations, synthetic fuel from coal, or oil from shale or tar sands. The credits were originally in section 29 of the US tax code. They were moved in 2005 to section 45K.

Credits could be claimed for the first 10 years after the well or other equipment used to produce the fuel was first put into service. It had to be in service by June 1998.

Resource Technology Corporation sold the rights to tap into gas from decomposing garbage at 19 landfills to two trusts and then signed contracts to operate the landfill gas wells for the trusts and to buy the gas.

It ended up flaring the gas or releasing it into the atmosphere.

The IRS disallowed the credits on grounds that Congress intended that the gas would be put to use as fuel. The US appeals court agreed with the IRS in August. The US Tax Court had come to the same conclusion earlier.

The Tax Court had also found fault with the records the trusts produced to show how much gas they produced. It said there were errors rendering the records unreliable. It was also not convinced that the trusts owned the gas they claimed to have produced from four landfills where the rights to remove gas had either expired or were unproven.

The case is Green Gas Delaware Statutory Trust v. Commissioner.


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