Facts: On May 3, 2012, Charles Boustany, Jr., Chairman of the House Committee on Ways and Means Subcommittee on Oversight, raised question as to whether the General Services Administration (GSA) is abusing the 179D Tax Deduction. Recent documentation insinuates that the GSA may be improperly requiring contractors to provide kickbacks in order to allocate 179D deductions to architects and designers responsible for designing GSA buildings.  This goes against the intent of Congress which was to solely reward contractors that were responsible for designing more energy efficient government-owned buildings. Due to these circumstances, Boustany sent out letters to 15 Federal departments and 2 agencies to inquire about potential for similar abuse.

» Full letter provided by the Ways and Means Committee:

Who Benefits From 179D Deductions:
The 179D is a federal tax deduction that rewards architects and designers who design energy efficient government-owned buildings. This legislation offers a tax deduction of up to $1.80/sf to those designing energy efficient improvements placed in service after January 1, 2006 but requires that representatives of the government determine the appropriate designer for allocating these valuable tax breaks.   Improvements that are eligible for the tax deduction include energy efficient HVAC systems, interior lighting, and a building’s envelope.  As such, architects and engineers that are designing these systems will have often have opportunities for tax breaks here.

KBKG Observations:
This recent occurrence has provided negative publicity for the General Services Administration (GSA). Boustany criticized the potential kickbacks by stating, “The action by the GSA raises a number of serious questions about whether this particular tax deduction is being abused. Requiring a cash payment in exchange for a tax deduction is a kickback, pure and simple. We must ensure that this tax deduction is being used for its intended purpose and not being sold to line some government slush fund.”

KBKG has observed other government agencies asking for kickbacks in exchange for an allocation of the tax deductions and is not surprised to see the actions taken by the Subcommittee of Oversight. This recent Congressional inquiry serves as a warning to all government entities attempting to acquire kickbacks of their own through the allocation of 179D deductions.

Author: CJ Aberin, CCSP