By: Elizabeth C. Crouse
This afternoon, the Department of Treasury issued eagerly anticipated guidance extending the continuous construction/efforts test safe harbor to five years for wind, solar, and other tax credit projects that began construction in 2016 and 2017.
The extension applies for purposes of the Code Section 48 investment tax credit and the Code Section 45 production tax credit, and to projects that began construction under either the significant physical work test or the 5% safe harbor. Projects that began construction in 2016 now have through December 31, 2021 to be placed in service without proving continuous construction or continuous efforts. Projects that began construction in 2017 now have through December 31, 2022 to be placed in service for the same purpose. This extension is a boon to the industry, particularly the many wind projects that have experienced disrupted schedules due to the COVID-19 crisis.
Treasury also granted a boon to the solar industry in the same guidance by providing a generally applicable safe harbor for purposes of the 3.5 month test frequently used to safe harbor supplies procured in the last quarter of a calendar year. Specifically, Notice 2020-41 provides that if a taxpayer paid for any services or property paid on or before September 16, 2019 and the services or property are “actually received” by the taxpayer by October 15, 2020, the “taxpayer will be deemed to have had a reasonable expectation” of timely delivery for purposes of the 3.5 month test. This guidance follows months of efforts by participants across the wind and solar industries to obtain assurance that project delays would not negatively impact tax credit availability. By extending these tests, Treasury has provided significant comfort to many investors and ensured the continued advancement of the power industry and the thousands of jobs it provides to Americans across the country.