IRS Likely to Supplement "Beginning Construction" Guidance

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As most of you are aware, Congress in the "American Taxpayer Relief Act of 2012" eliminated the "placed in service" deadline for purposes of the renewable energy tax credits.  In its place, Congress required for purposes of the production tax credit (section 45) and the elective investment tax credit (section 48), that taxpayers "begin construction" on their projects on or before December 31, 2013.  This requirement does not apply to solar projects. 

In Notice 2013-29, the IRS provided taxpayers with guidance regarding what it means to "begin construction" for these purposes.  Similar to the guidance issued for the section 1603 grant, the IRS provided two alternative tests by which taxpayers can establish that construction has begun: (1) physical work of a significant nature; or (2) a safe harbor for qualified costs paid or incurred on or before 12/31/13.

We have now been told by several sources that the IRS is considering issuing additional guidance regarding what it means to "begin construction."  The two issues likely to be addressed in such additional guidance are: (1) what is required to establish continuous construction (in the case of the physical activity test) or continuous efforts (in the case of the safe harbor); and (2) the effect of transfers of projects on whether taxpayers are considered to have begun construction.  These are practical questions that arise frequently when projects are being developed. 

Although it is not certain when (or even whether) the additional guidance will be issued, we would expect to see it sometime in September.  Stoel Rives will issue an alert if and when such guidance is issued.

 


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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