The IRS has released additional guidance (IRS Notice 2013-60) on satisfying the new “beginning of construction” requirement for the renewable energy production tax credit under Code Section 45 (PTC) and energy investment tax credit under Code Section 48 (ITC). These credits are available to qualifying projects if construction of the facility begins before January 1, 2014.
Notice 2013-60 clarifies several issues left unresolved by the earlier guidance (IRS Notice 2013-29, referenced in a previous post). That earlier guidance provides two methods for establishing that construction of a qualified facility has begun – by starting physical work of a significant nature (“Physical Work Test”) or satisfying a safe harbor (“Safe Harbor”).
- Bright-Line Rule Adopted for “Continuous Construction” and “Continuous Efforts” Tests. With respect to the Physical Work Test, Notice 2013-29 provides that the IRS will closely scrutinize and may determine that construction has not begun on a facility before January 1, 2014 if a taxpayer does not maintain a “continuous program of construction.” With respect to the Safe Harbor, Notice 2013-29 provides that construction will not be considered as having begun before January 1, 2014 unless the taxpayer maintains “continuous efforts” to complete the facility. Notice 2013-60 provides that if a facility is placed in service before January 1, 2016, the facility will be considered to 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 a facility is not placed in service by January 1, 2016, whether the facility satisfies the continuous construction or continuous efforts test will be determined by the relevant facts and circumstances.
- Master Contract Provision Extended to Safe Harbor. Notice 2013-29 provides that if a taxpayer 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 then assigns its rights to certain components to an affiliated special purpose vehicle that will own the facility for which such property is to be used, work performed with respect to the master contract may be taken into account in determining whether the Physical Work Test has been satisfied with respect to the facility. Notice 2013-60 provides that the master contract provision also applies for purposes of the Safe Harbor.
- Transfer of a Facility. Notice 2013-29 did not address the effect of a transfer of a facility after construction has begun. Notice 2013-60 provides that if a qualified facility satisfies either the Physical Work Test or the Safe Harbor, a taxpayer that owns the facility during the 10-year period beginning on the date the facility was originally placed in service may claim the PTC with respect to the facility even if the taxpayer did not own the facility when construction began. Similarly, a taxpayer that owns the facility on the date it is originally placed in service may elect to claim the ITC with respect to the facility even if the taxpayer did not own the facility at the time construction began.