When Congress extended renewable energy tax credits several months ago, it significantly altered the tax credits’ eligibility criteria. Specifically, qualified facilities no longer have to be in service by January 2014—they are only required to begin construction before that date.

On April 15, 2013, the Internal Revenue Service (IRS) issued long-awaited guidance, which clarifies what activities constitute beginning construction for renewable project developers who want to use the 2.3 cent/kWh Renewable Electricity Production Tax Credit (PTC) or a 30 percent investment tax credit (ITC) in lieu of the PTC.

According to the new guidance, taxpayers can establish that a facility’s construction is underway in two ways:

  1. “Starting physical work of a significant nature,” and/or
  2. Showing a developer incurred “at least” five percent of total project costs, pursuant to the “safe harbor” provision of the guidance.