Further IRS Clarification on Tax Credit Prerequisites for Renewable Energy

As discussed on early blog posts (April 15th and April 28th), the American Taxpayer Relief Act of 2012 modified the definition of a qualified facility under Section 45(d) of the Internal Revenue Code (IRC) for purposes of the production tax credit (PTC by) replacing the “placed in service” requirement for receiving the credit with a “begin construction” requirement.   A taxpayer will be eligible to receive the renewable electricity PTC, or the energy investment tax credit (ITC) under section 48 in lieu of the PTC, with respect to a facility if construction of such facility begins before January 1, 2014.  The IRS released Notice 2013-29 on April 15th providing two methods to determine when construction has begun on such a facility.  On September 20, the IRS issued notice 2013-60 IRB 2013-42 (Sept. 20, 2013), providing further clarification of Notice 2013-29 regarding (i) the determination of whether a taxpayer satisfies either of those methods with respect to a facility, (ii) the applicability of the “master contract” provision in that notice, and (iii) the effect of a transfer of a facility after construction has begun.

Specifically, Notice 2013-29 provided that PTC eligible taxpayers must maintain a continuous program of construction in order to qualify for the beginning construction requirement under the relevant facts and circumstances. It also provides a safe harbor that the begun construction requirement will be met if (1) a taxpayer pays or incurs five percent or more of the total cost of the facility before January 1, 2014, and thereafter, the taxpayer maintains continuous efforts to advance towards completion of the facility.  Notice 2013-60 provides a helpful certainty to developers by allowing facilities that are placed in service before January 1, 2016  to automatically satisfy the continuous construction test (for purposes of satisfying the physical work test) or the continuous efforts test (for purposes of satisfying the safe harbor).   If the facility is not completed by January 1, 2016, a taxpayer may still rely on the facts and circumstances test.  With regard to the transfer of a facility during the construction phase, Notice 2013-60 clarifies that the statutory language of the credit requires only that construction of a facility begin before January 1, 2014.  It does not require the construction to be begun by the taxpayer claiming the credit and thus ownership of the facility during the construction phase appears to be permitted under the Notice.  This is a different standard than the 1603 grants which requires the grant applicant still maintain at least 20% of the project to maintain the safe harbor.

Todd B. Reinstein, Esq., CPA

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