Internal Revenue Code section 45 provides a tax credit for various renewable energy resources, including wind power, geothermal power, solar power, hydroelectric, biomass, and ... the production of Indian coal.
Specifically, the owner of an "Indian coal production facility" receives a tax credit of $1.50 per ton of "Indian coal" produced from 2006 to 2009, and a credit of over $2 per ton of "Indian coal" produced from 2010 to 2013. The $1.50 and $2 amounts are further increased for inflation.
The Indian coal renewable energy credit originally expired at the end of 2012, but it was extended through 2013 as part of the urgently needed fiscal cliff legislation enacted on January 2, 2013.
"Indian coal" is defined as coal produced from reserves that were owned by an Indian tribe on the very specific date of June 14, 2005.
An "Indian coal production facility" is any facility that produced coal before 2009. The facility's owners, who are entitled to receive the tax credit, are not required to be ethnically Indian, either tribal or subcontinental. The Indian coal must be sold to a buyer unrelated to the facility owner.
Coal owned by Indian individuals are not considered renewable energy and do not qualify for this tax credit, nor does coal merely mined by Indians.
The tax credit for Indian coal was enacted by the Energy Tax Incentives Act of 2005 to originally apply for the seven years from 2006 to 2012. It was introduced as a separate stand-alone tax credit, but the Conference Committee made it part of the renewable energy tax credits. Congress did not explain how Indian coal was more renewable than other forms of coal.
For no apparent reason, the Indian coal renewable energy credit may reduce the alternative minimum tax (AMT) for the first four years, but not during the later years.
Section 45 Electricity produced from certain renewable resources, etc.
(c)(9) Indian coal.
(A) In general. The term “Indian coal” means coal which is produced from coal reserves which, on June 14, 2005—
(i) were owned by an Indian tribe, or
(ii) were held in trust by the United States for the benefit of an Indian tribe or its members.
(B) Indian tribe. For purposes of this paragraph, the term “Indian tribe” has the meaning given such term by section 7871(c)(3)(E)(ii). ***
(d)(10) Indian coal production facility. In the case of a facility that produces Indian coal, the term “Indian coal production facility” means a facility which is placed in service before January 1, 2009. ***
(e)(10) Indian coal production facilities.
(A) Determination of credit amount. In the case of a producer of Indian coal, the credit determined under this section (without regard to this paragraph) for any taxable year shall be increased by an amount equal to the applicable dollar amount per ton of Indian coal—
(i) produced by the taxpayer at an Indian coal production facility during the 8-year period beginning on January 1, 2006, and
(ii) sold by the taxpayer—
(I) to an unrelated person, and
(II) during such 8-year period and such taxable year.
(B) Applicable dollar amount. (i) In general. The term “applicable dollar amount” for any taxable year beginning in a calendar year means—
(I) $1.50 in the case of calendar years 2006 through 2009, and
(II) $2.00 in the case of calendar years beginning after 2009.
(ii) Inflation adjustment. In the case of any calendar year after 2006, each of the dollar amounts under clause (i) shall be equal to the product of such dollar amount and the inflation adjustment factor determined under paragraph (2)(B) for the calendar year, except that such paragraph shall be applied by substituting “2005” for “1992”.
(C) Application of rules. Rules similar to the rules of the subsection (b)(3) and paragraphs (1), (3), (4), and (5) of this subsection shall apply for purposes of determining the amount of any increase under this paragraph.
(D) Treatment as specified credit. The increase in the credit determined under subsection (a) by reason of this paragraph with respect to any facility shall be treated as a specified credit for purposes of section 38(c)(4)(A) during the 4-year period beginning on the later of January 1, 2006, or the date on which such facility is placed in service by the taxpayer.