Have You "Begun Construction"? IRS Issues Guidance for Renewable Energy Tax Credits

On April 15, 2013, the Internal Revenue Service ( IRS) issued much - anticipated guidance that will help developers of wind, solar, biomass and certain other renewable energy facilities qualify for federal renewable energy tax credits. The guidance explains how to satisfy the new “begun construction” requirement for the renewable energy section 45 production tax credit (PTC) and the election to claim the section 48 investment tax credit (ITC) in lieu of the section 45 PTC. That guidance, provided in Notice 2013 - 29 (the Notice), 1 was needed due to changes to the PTC and ITC (in lieu of PTC) made by the “Fiscal Cliff” legislation, which replaced a “placed in service date” requirement with a “begun construction” date requirement for these credits.

As expected, the guidance in the Notice closely resembles the rules adopted by the Treasury Department for the American Recovery and Reinvestment Act of 2009 section 1603 Treasury grant program. In both instances, the rules provide two methods for establishing the beginning of construction:

- Starting physical work of a significant nature, and

- Paying or incurring 5% or more of the total project cost.

Notwithstanding the many similarities between the begun construction rules in the Treasury grant program and the Notice, as noted below, taxpayers must be attuned to the significant differences that exist.

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