Last week the IRS issued Notice 2019-43, which modifies the guidance provided in Notices 2013-29, 2013-60, 2014-46, 2015-25, 2016-31, 2017-04, and 2018-59 (the “Prior Notices”) to provide that the Continuity Safe Harbor (as defined below) may be tolled and extended in certain limited circumstances involving significant national security concerns.
The Prior Notices provide two methods by which a taxpayer can satisfy the beginning of construction requirement under Sections 45 and 48 of the Internal Revenue Code of 1986, as amended: (i) starting physical work of a significant nature (the “Physical Work Test”) or (ii) incurring 5% or more of the costs of the facility or energy property (the “5% Safe Harbor”). Both methods require that a taxpayer make continuous progress toward completion once construction has begun (the “Continuity Requirement”). The Prior Notices also provide a safe harbor (the “Continuity Safe Harbor”) pursuant to which the Continuity Requirement is deemed to be satisfied if a taxpayer places the facility or energy property in service by the end of a calendar year that is no more than four calendar years after the calendar year during which construction began.
Notice 2019-43 notes that a plan to develop or construct a facility or energy property (“Plan”) includes the construction of the electricity generating equipment but may also include the construction or installation of additional equipment that is not part of the facility itself but that is necessary to connect the facility or energy property to the energy grid or to customers (such as a distribution or transmission line or other interconnection equipment).
Notice 2019-43 provides that, if all the following requirements are met, the Continuity Safe Harbor will be tolled and extended for a period of time (the “Tolling Period”) to account for delays that result from pursuing a modification to a Plan to mitigate significant national security concerns raised by the Department of Defense (the “DOD”):
(1) Construction has begun under Section 45 or 48 with respect to the applicable facility or energy property;
(2) Current or future owners (the “Owners”) of property that is part of the Plan (including the facility or energy property or the additional equipment that is not part of the facility or energy property itself but that is necessary to connect the facility or energy property to the energy grid or to customers (including, but not limited to, a distribution or a transmission line or other interconnection equipment)) have received government permits or approvals necessary to implement the Plan;
(3) The DOD has provided written notice to an Owner that aspects of the Plan raise significant concerns related to national security and that modification of the Plan would be in the best interests of national security objectives;
(4) The Owners pursue a modification of the Plan acceptable to the DOD to mitigate these significant national security concerns and to further the national security objectives; and
(5) The modification of the Plan requires the Owners to obtain new or additional permits or licenses, which delays placing the facility or energy property in service.
The Tolling Period results in a day-for-day extension of the Continuity Safe Harbor, except that the Tolling Period cannot exceed four years. The first day of the Tolling Period is the date on which the DOD provides the written notice described above. The last day of the Tolling Period is the date on which the Owners:
(1) Obtain all new or additional permits or licenses described above (and any potential administrative appeals or potential judicial review by the applicable federal or state courts are finally resolved);
(2) Obtain written confirmation that the new or additional permits or licenses described above will not be issued; or
(3) Notify the relevant federal or state regulatory, permitting, and/or licensing authorities in writing that the modification of the Plan will no longer be pursued.