LB&I’s Final Campaigns Webinar: Section 48C Energy Credits and Completed Contract Method for Land Developers

On June 20, 2017, the Internal Revenue Service (IRS) Large Business and International Division (LB&I) hosted its final webinar regarding LB&I Campaigns. Our previous coverage of LB&I Campaigns can be found here. The webinar focused on two campaigns:  (1) Section 48C Energy Credits and (2) Land Developers – Completed Contract Method.

Section 48C Energy Credit Campaign

Section 48C provides a tax credit equal to 30 percent of the “qualified investment” in a “qualifying advanced energy project.” This tax credit was created as part of American Recovery and Reinvestment Act of 2009 and was intended to encourage investment in domestic manufacturing and “new energy”-type projects. To claim the credit, taxpayers had to go through a rigorous application process. Much like a grant program, only certain projects were selected and awarded tax credits. The credit was subject to a nationwide limitation of $2.3 billion, which was allocated among eligible projects.

The campaign is intended to ensure that only taxpayers who applied for, and were approved for the credit, are claiming the credit. It also is intended to ensure that the taxpayers have met the requirements set forth in their applications for the credit. LB&I does not intend to examine every return that reported a Section 48C credit.

This campaign specifically addresses two of LB&I’s concerns. First, LB&I believes that there are taxpayers who have claimed the credit that were not approved for the credit. As it has done in the past, LB&I would likely send soft letters to such taxpayers requesting proof that they were approved for the credit. If not approved for the credit, LB&I would instruct the taxpayer to file an amended return to remove the credit, if necessary. If a soft letter does not resolve the issue, an examination may be needed.

Second, LB&I is also concerned with taxpayers who were approved for a credit, but may not be in full compliance. LB&I will be looking to verify whether (i) the subject property was constructed in accordance with the agreement, (ii) the property is actually located in the United States, (iii) there were any significant modifications from the approved application, (iv) the property was placed into service during the appropriate timeframe, (v) the amount of the credit was calculated correctly, and (vi) the taxpayer properly reduced the basis in the property.

The campaign is underway, but no examinations have yet commenced. The duration of the campaign will depend on the feedback received, compliance rates and whether LB&I detects a change in behavior. A Practice Unit is currently being developed and will be released to the public when finalized. We previously wrote about Practice Units here.

Land Developers – Completed Contract Method Campaign

Section 460(e)(6) of the Tax Code permits the use of the Completed Contract Method of accounting (CCM) for “home construction contracts.” Under CCM, taxpayers may report the gross contract price and allocate contract costs in the year of completion, rather than over the duration of the contract. LB&I has identified potential compliance risks based on differing views of the definition of a home construction contract.

LB&I did not provide a firm date on when soft letters will be issued or when examinations may be initiated.  Soft letters are intended to describe the tax law for the campaign and will also provide instructions on how to change a method of accounting if a taxpayer is on an incorrect method. LB&I will also conduct examinations without sending soft letters. The soft letters will be published on The soft letters will also be linked to a Practice Unit which will be posted on

LB&I is still developing the population of taxpayers that will be subject to the campaign. At a high level, the campaign will be focused on large land developers that construct in residential communities. LB&I’s position is that the land developer must be contractually obligated to construct a home or portion of the home for their long-term contract to meet the definition of a home construction contract. LB&I noted that subcontractors who build infrastructure within a residential development, generally do not qualify for CCM.

LB&I noted that some taxpayers may need to change their method of accounting. Whether a method change will be necessary depends on the taxpayer’s situation. For example, if on the first tax return, a taxpayer used an improper method but the taxpayer has not yet filed a second return, that taxpayer can file an amended return because they have not established a method of accounting. If the taxpayer has filed a second return, the taxpayer would need to file Form 3115, the application for a change in method of accounting.

Filing a Form 3115 does not necessarily guarantee audit protection (i.e., protection from the IRS raising the same issue in prior taxable years). LB&I stated that a taxpayer would generally get audit protection if the taxpayer was not yet under examination. Like many issues with the IRS, whether audit protection is given to a taxpayer will depend on all facts and circumstances.

Practice Tip: As with other LB&I campaign issues, LB&I is focusing its resources on Section 48C credits and the use of CCM. Taxpayers should understand that LB&I is being more focused and strategic with these campaigns than it has with examinations in the past. Taxpayers should consider in earnest whether they may have risk in these areas and plan accordingly.

Jeffrey M. Glassman
Jeffrey M. Glassman is experienced in defending businesses and individuals in all stages of federal tax controversies. He represents clients in US Internal Revenue Service (IRS) examinations, administrative appeals, voluntary disclosures, and litigation. Jeffrey has settled multiple tax disputes with IRS legal counsel avoiding litigation in court, when possible. He has significant experience advising clients on strategic and procedural considerations in US Tax Court and other federal courts. Read Jeffrey Glassman's full bio.

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