Word: synfuels
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Kenneth Kies, a Washington lawyer who represents the Council for Energy Independence, a synfuel coalition, said the group is "outraged" by the IRS review. On three previous occasions, Kies said, the IRS has reviewed the program and set rules for claiming the credit. "How many times do you get to do this?" Kies asks. "Good tax administration says that if the service has set up a series of rules and taxpayers adhere to them, they ought to be able to rely on that. And Congress, if they don't like what is happening, should come back and amend the statute...
...credit is so generous that some investors can't take full advantage of it each year because they don't pay enough taxes on their other income. Rather than let the credit go to waste, they sell a portion of their synfuel operations to another group of investors who are looking for ways to reduce their taxes--a sort of perpetual tax-avoidance machine that never stops giving...
That's what WPS Resources did in 2001. WPS bought a synfuel facility near Tuscaloosa, Ala., and moved it near a coal mine in Hopkins County, Ky. Naturally, the plant lost money. But it generated such bountiful tax breaks that before long, WPS could no longer take full advantage of the credit because it lacked sufficient income. In 2001 and 2002, for example, WPS claimed a total of $45 million in credits...
...Larry Weyers put it in remarks to shareholders: "What we've discovered is that the operation has tax-credit potential that exceeds our needs." In other words, the company had more credits it could use than taxes owed. So WPS did what other synfuel owners do in similar situations. It sold a portion of its operation to a third party for $40 million while benefitting from the leftover credit. The only losers were American taxpayers...
...review of the synfuel industry has for the time being halted the buying and selling of credits. Congress could resolve the issue by ending the credit, but it has shown little inclination to do so. In fact, the pending energy bill preserves it. Although the credit is due to expire at the end of 2007, until then it's worth $5 billion to $10 billion. And there's always the possibility that Congress will extend it. On four different occasions friendly lawmakers have intervened to rescue itlawmakers like Orrin Hatch, the Republican Senator from Utah, where Headwaters is based...