The IRS has issued guidance (Notice 2021-05
) extending the safe harbor deadlines for establishing that construction has begun and is continuous on offshore or federal land projects qualifying for the Section 45 renewable electricity production tax credit (PTC) and the Section 48 energy investment tax credit (ITC).
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.
In past guidance, the IRS provided that taxpayers can 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. However, the IRS created a continuity safe harbor that deems that requirement met if a facility is placed in service within four calendar years of the calendar year in which construction began.
Notice 2021-05 provides that offshore or federal land projects, as defined in the guidance, that are qualified facility or energy projects under Sections 45 or 48 respectively satisfy the continuity safe harbor if placed into service within 10 years after the year in which construction began.
The IRS has indicated it will not issue private letter rulings or determination letters regarding the application of Notice 2021-05, prior IRS notices or the PTC and ITC beginning of construction requirement.
Washington National Tax Office
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