Late in the day on September 24, the IRS released a formal Notice addressing the Begun Construction requirements to qualify for the Production Tax Credit and Investment Tax Credit. Notice 2013-60 clarifies an earlier Notice regarding: 1) the determination of whether a taxpayer satisfies the continuous construction requirement of the Physical Work Test to begin construction before January 1, 2014, or the continuous efforts requirement of the 5% Safe Harbor to begin construction before January 1, 2014; 2) the applicability of the "master contract" provision of the prior Notice; and 3) the effect of a transfer of a facility after construction has begun.
The Notice establishes that there will be a deemed satisfaction of the continuous construction/continuous efforts tests for beginning construction if the facility is placed in service before January 1, 2016. No additional examination of the facts and circumstances will be made if placement in service occurs before that date. If the facility is not placed in service before that date, the facts and circumstances will be examined under the continuous construction/continuous efforts tests in Notice 2013-29 to determine whether the facility began construction before January 1, 2014.
The September 24 Notice establishes that a taxpayer who enters into a binding written contract for a specific number of components to be manufactured, constructed or produced for the taxpayer by another person (a "master contract") and who then assigns its rights to certain components under a new binding written contract to an affiliated special purpose entity that will own the facility, may take the work performed under the master contract into account not only in determining whether physical work of a significant nature begins but also in determining whether the Safe Harbor has been met.
Lastly, the Notice clarifies that a facility may be transferred and still qualify for the PTC and ITC. If the facility satisfies the Physical Work Test or the Safe Harbor, a taxpayer who owns the facility within the 10-year credit period of the PTC may claim the PTC even if the taxpayer did not own the facility at the time of construction. Similarly, a taxpayer who places in service a facility that satisfies the Physical Work Test or the Safe Harbor may claim the ITC in lieu of the PTC even if the taxpayer did not own the facility at the time of construction. The ITC will be limited to the taxpayer's basis in the qualified property.