IRS updates “Beginning of Construction” guidance for the production tax credits.
The IRS has issued Notice 2015-25, updating its prior guidance in Notices 2013-29, 2013-60, and 2014-46. This is in regards to the “beginning of construction” requirement for the production tax credit (PTC) under Section 45 of the Internal Revenue Code (the Code) and the investment tax credit (ITC) under Section 48 of the Code.
The new notice clarifies certain issues in light of the legislative extension, which allows a taxpayer to claim the PTC or ITC with respect to an otherwise qualified renewable energy facility if construction of the facility began before January 1, 2015 (formerly January 1, 2014). The IRS’s prior guidance provides that a taxpayer may begin construction by either:
1. Starting physical work of a significant nature (the “physical work test”), or
2. Paying, or incurring, five percent or more of the total cost of facility (the “5% safe harbor”).
Once construction begins, a taxpayer must maintain a continuous program of construction or make continuous efforts toward construction until the facility is placed in service. This requirement is commonly referred to as the “continuous construction” test, in the case of the physical work test, or as the “continuous efforts” test, in the case of the 5% safe harbor.
In Notice 2013-60, the Service provided that the continuous construction test and the continuous efforts test will be considered satisfied if the facility is placed in service before January 1, 2016. Today’s IRS notice extends that date, clarifying that if construction began with respect to a facility before January 1, 2015, and the facility is placed in service before January 1, 2017, the facility will be considered to satisfy the continuous construction test or continuous efforts test, as the case may be. This will provide some comfort with respect to projects the construction of which began in 2014.
For a summary of the prior guidance, see the prior alerts from Stoel Rives for April 15, 2013, September 20, 2013, and August 8, 2014.
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