The Treasury Department and the Internal Revenue Service (IRS) are considering whether to release a third round of guidance on the production tax credit (PTC) for renewable electricity under Section 45 of the Tax Code and the investment tax credit (ITC) in lieu of the PTC under Section 48. The intent of the guidance would be to further clarify the changes in the PTC/ITC enacted as part of the American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. No. 112-240).
By way of background, ATRA amended the PTC/ITC by, among other things, removing the requirement that facilities be “placed in service” by January 1, 2014. Instead, taxpayers need only to have “begun construction” on the facility before January 1, 2014 in order to qualify for the PTC/ITC. The practical effect of the change is to allow facilities placed in service after 2014 to qualify for the credits.
To clarify how taxpayers can demonstrate that they have “begun construction” on a facility, the IRS released Notice 2013-29 in April 2013. Per Notice 2013-29, taxpayers can establish that construction has begun in two ways: (1) showing that significant “physical work” on the facility has occurred; or (2) satisfying a safe harbor provision based on the amount of capital invested in the facility. The IRS released follow-up guidance, Notice 2013-60, in September 2013 on related issues, including the applicability of master contracts and the effect of transfers of ownership on eligibility for the credits.
Despite this guidance, potential investors in wind projects have reportedly told Administration officials that uncertainty remains. As a result, Treasury and IRS are said to be in the midst of internal discussions about a possible third round of guidance on the PTC/ITC. This guidance, according to a report from BNA, would “likely address two concerns being expressed by renewable energy investors: practical issues around the ‘physical work test,’ and the rules for transfers of facilities after the commencement of construction.”
No decision has been made yet whether to issue this guidance. However, the fact that the issue is under active consideration creates a tremendous opportunity to weigh in with Treasury and the IRS regarding questions or concerns you have with existing guidance. K&L Gates would be happy to assist in that process.