On May 5, 2016, the IRS released new guidance regarding the renewable energy production tax credit (“PTC”) and energy investment tax credit (“ITC”) which most in the renewable energy industry will find favorable.
As enacted, the PTC and the ITC presently are subject to a sunset and will expire. Eligibility for either credit hinges on the date on which construction of the facility begins. As part of the Protecting Americans from Tax Hikes Act of 2015 (the “PATH Act”), Congress:
- Extended the PTC for two years, extending the date before which construction must begin for certain facilities to January 1, 2017;
- Extended the PTC for five years with respect to wind facilities by providing that construction must begin before January 1, 2020;
- Modified the PTC for wind facilities by providing that the credit will phase out over the next four years; and
- Extended the ITC for solar energy facilities—the construction of which begins before January 1, 2022.
To learn more about important details of the new guidance, read on!
In Notice 2016-31 (the “2016 Notice”), the IRS has updated its prior administrative guidance in order to implement the recent extensions of the PTC and the ITC. In response to a significant number of questions received after the extensions of these tax credits by the PATH Act, the 2016 Notice further extends and modifies the Continuity Safe Harbor, and provides additional guidance regarding the application thereof as well as the Physical Work Test (read Mintz’s Tax and Energy Technology Alert for further details of the 2016 Notice).
The major takeaway of the 2016 Notice is that it is good news for the renewable energy industry.
- The extension of the Continuity Safe Harbor from two to four years should benefit taxpayers developing larger projects, some of whom had commented that the two-year window was not feasible.
- Furthermore, the IRS’s addition of several new excusable disruptions that will not be taken into account in determining whether the Continuity Safe Harbor is satisfied will allow projects that experience certain delays (e.g., due to delays in obtaining permits or licenses, or due to severe weather conditions or natural disasters) to still qualify even if placed in service outside the four-year period.
- Renewable energy developers are encouraged to plan accordingly and begin construction on projects that are part of their four-year development pipeline if they intend to claim the tax credits.
- Taxpayers should continue to monitor additional guidance that may be issued by the IRS and the Treasury Department.