Earlier today, May 5, the U.S. Treasury Department released Notice 2016-31 to address certain changes made to the Production Tax Credit (“PTC”) and Investment Tax Credit (“ITC”) in the Protecting Americans from Tax Hikes (“PATH”) Act of 2015, Pub. L. No. 114-113, Div. Q. The Notice generally extends the application of the “beginning of construction” and “continuous construction” requirements set forth in Notices 2013-29, 2013-60, 2014-46, and 2015-25, but also creates a few new provisions that apply to renewable energy projects seeking the PTC or ITC after the PATH Act revisions to the Internal Revenue Code.
Two of the new provisions are of particular note. First, certain projects qualifying for the PTC or ITC must be placed in service no later than four years after the year in which construction of the project began. Second, the Notice expressly provides that the PTC and ITC are available with respect to refurbishments of certain renewable energy facilities to the extent that the “used” property does not exceed 20% of the adjusted basis of the refurbished property. This provision will afford significant new opportunities for refurbishing or expanding existing facilities and may, in some cases, permit the ITC to be claimed with respect to energy storage property installed at an existing, proven facility.
The remaining new provisions are minor, but helpful, including: new examples of how the “physical work” safe harbor may be met for both the PTC and ITC; useful – and pragmatic – additions to the types of “interruptions” that will not prevent a project from being treated as under continuous construction; additional examples of “preliminary” activities that do not qualify as physical work for purposes of the safe harbor; and an express “disaggregation” principle to be applied when determining when individual facilities incorporated into a project may be considered independently of one another for purposes of determining when construction of a facility began.
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