The IRS has issued guidance (Notice 2021-41) again extending the safe harbor deadlines for establishing that construction has begun and is continuous for the Section 45 renewable electricity production tax credit (PTC) and the Section 48 energy investment tax credit (ITC).
The notice provides that the continuity safe harbor is satisfied for projects that began construction in 2016 through 2019 if the project is placed in service within six calendar years of the year in which construction began. Projects started in 2020 are allowed five calendar years. Previous guidance (Notice 2021-05) allows 10 years for projects offshore or on federal land.
The PTC and ITC were extended under the Consolidated Appropriations Act in December. Construction on qualified PTC projects must now generally begin before Jan. 1, 2022, and taxpayers can elect to claim the ITC in lieu of the PTC for project that began construction by this date. The credit for wind under the PTC and ITC is reduced by 40% for construction beginning in 2021. The full 30% credit for solar property under Section 48 is only available for construction that began by the end of 2019. The credit is reduced to 26% for construction beginning by the end of 2022 and 22% for construction beginning in 2023.
IRS guidance generally allows taxpayers to establish that construction has begun by either satisfying a test showing “physical work of a significant nature” has begun or by incurring 5% or more of the total cost of the facility under a safe harbor. Both require taxpayers to make continual progress toward completion once construction is considered to have begun. In addition to the relief from the continuity safe harbor, Notice 2021-41 provides information harmonizing the continuity requirement under the physical work test and the 5% safe harbor.
Taxpayers who don’t use the continuity safe harbor that was extended by Notice 2021-14 must generally use a facts-and-circumstances analysis to determine if construction is continual. The following disruptions are excusable:
- Severe weather conditions
- Natural disasters
- Certain licensing and permitting delays
- Delays at the written request of government for safety, security or similar concerns
- Transmission interconnection issues
- Labor stoppages
- Supply shortages
- Delays in manufacturing custom components
- Inability to obtain specialized equipment
- Financing delays
- The presence of endangered species
In addition, the following preliminary activities continue to be disqualified as physical work of a significant nature:
- Planning or designing
- Securing financing
- Conducting geologic mapping and modeling
- Obtaining permits and licenses
- Conducting geophysical, gravity, magnetic, seismic and resistivity surveys
- Conducing environmental and engineering studies
- Performing activities to develop a geothermal deposit prior to discovery
- Clearing a site
- Test drilling of a geothermal deposit
- Test drilling to determine soil condition
- Excavation to change the contour of the land (as distinguished from excavation for footings and foundations)
- Removing existing turbines, towers, panels or other components
The IRS has indicated it will not issue private letter rulings or determination letters regarding the application of Notice 2021-41, prior IRS notices or the PTC and ITC beginning of construction requirement.
Dustin Stamper is a managing director in Grant Thornton’s Washington National Tax Office and leads the tax legislative affairs practice for the firm.
Washington DC, Washington DC
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