This article, from law firm Akin Gump, is authored by David K. Burton.
Author David K. Burton
General Electric stated on its quarterly earnings call late July 2014 that it expected that the clarification to the Internal Revenue Service’s (IRS) production tax credit (PTC) “start of construction” guidance would be released in the next week or two, by early August. The guidance will clarify the rules with respect to what is required for a project to be deemed to have started construction in 2013 in order to be eligible for the PTC that lapsed at the end of 2013. A discussion of the existing guidance is available here.
Here is the pertinent remark from Jeff Bornstein, CFO of GE:
[W]e had 400 or 500 wind units that moved out of the quarter, really just awaiting clarification from the Treasury department on what constitutes start of construction to be eligible for PTC. And these are projects that involve bank financing and tax equity investors. So very tough to move those projects along until they’re absolutely certain that they’re going to qualify for the PTC and we expect that clarification to come from the Treasury in the next week or two. And we’ve seen that clarification, and we think it’s helpful.1The guidance is in response to requests from the wind industry for further clarification as to two issues. First, what level of physical work was required for projects, which did not opt to satisfy the 5% safe harbor, to be deemed to have started construction in 2013 as is necessary for PTC eligibility? Second, what level of legal stake must a developer have had in a project in 2013 to have purchased equipment pursuant to a master supply agreement with a manufacturer that is subsequently transferred to the project in order to enable the project to satisfy the 5 percent safe harbor?
Release of the clarifying guidance in the next week or two would be good news for the wind industry. It is already late in 2014 for projects to have time to raise the financing necessary to complete construction to be in placed in service by the end of 2015 as the safe harbor for PTC eligibility requires.
One can only hope that the government lawyers who have principal responsibility for the clarifying guidance have lined up the required approvals from their colleagues at Treasury and the IRS. Otherwise, summer vacation schedules of one or more senior tax officials could delay the guidance beyond the next week or two. Due to vacation schedules, July and August are traditionally slow periods for the issuance of tax guidance.
Akin Gump
www.akingump.com
Filed Under: Financing, News, Policy
