A letter from Treasury Assistant Secretary for Legislative Affairs Fitzpayne to Rep. Coffman (R-CO) dated June 17, 2013 addresses the IRS’ recent guidance with respect to the “beginning construction” requirement for PTC eligibility. The letter is available here. The guidance in question is Notice 2013-29. A client alert discussing the notice is available here and a subsequent alert discussing a clarification to the notice is available here.
A highlight of Treasury’s letter is the statement: “We believe this guidance provides the desired degree of certainty in the marketplace and allows renewable energy projects to move forward” (emphasis added).
Most renewable energy projects are first started by developers; it is while the project is owned by the developer that “construction starts” which is now the key event for PTC eligibility. After the project is nearly or completely constructed, the developer often enters into a transaction with a tax equity investor to provide tax and other economic benefits to the tax equity investors in exchange for an up-front cash payment that can be in one of several forms. Such transactions may result in a sale of the project or the transfer of the project to a new taxpayer.
Notice 2013-29 does not provide guidance as to whether such “tax equity” transactions after 2013 could cause a project to lose its 2013 start of construction status necessary for PTC eligibility. As Treasury is well aware that such transactions predominate in the marketplace, this letter appears to provide comfort that Treasury will not play “gotcha” and try to disqualify projects subject to tax equity transactions after 2013.
The letter also provides: “These tests are similar to those used for payments under Section 1603 of the American Recovery and Reinvestment Act.” This statement would appear to justify taxpayers looking to the 1603 guidance to interpret Notice 2013-29, except in instances when the 1603 guidance expressly varies from tax principles or the notice expressly diverges from the 1603 guidance.