IRS Guidance on “Beginning of Construction” for ATRA 2012 Tax Credit Extensions


The IRS has issued guidance (Notice 2013-29) on satisfying the new “beginning of construction” requirement for the renewable energy production tax credit under Code Section 45 (PTC) and energy investment tax credit under Code Section 48 (ITC). These credits are available to qualifying projects if construction of the facility begins before January 1, 2014.

Notice 2013-29 provides two methods for establishing that construction of a qualified facility has begun: (1) by starting physical work of a significant nature or (2) meeting a safe harbor.

Physical Work of a Significant Nature: This is a facts and circumstances test that takes into account both on-site and off-site work performed by the taxpayer and by other persons under a binding written contract (entered into before the construction or manufacturing of the property  for use in the taxpayer’s trade or business or production of income begins) on tangible personal property and other tangible property used as an integral part of the activity performed by the facility. The IRS will closely scrutinize any project that does not maintain a continuous program of construction. Preliminary activities (e.g., planning, securing financing, clearing a site) are not taken into account and neither is work on components that are or are normally held in a vendor’s inventory. A facility generally includes all components of property that are functionally interdependent, and for purposes of determining whether construction of a facility has begun, multiple facilities that are operated as part of a single project (a facts and circumstances determination) will be treated as a single facility.

Safe Harbor: Construction of a facility will be considered as having begun before January 1, 2014 if: (1) a taxpayer pays or incurs 5% or more of the total cost of the facility before January 1, 2014 and (2) thereafter, the taxpayer makes continuous efforts to advance towards completion of the facility (a facts and circumstances determination). All costs properly included in the depreciable basis of the facility are taken into account. Costs incurred with respect to the property by another person under a binding written contract are deemed incurred by the taxpayer when they are incurred by the other person. If the total cost of a facility that is a single project comprised of multiple facilities exceeds its anticipated cost, the safe harbor will be satisfied with respect to some, but not all, of the individual facilities comprising the single project as long as the total cost of those individual facilities is not more than 20-times greater than the amount the taxpayer paid or incurred before January 1, 2014.