IRS Clarifies "Begun Construction" Guidance

by Wilson Sonsini Goodrich & Rosati
Contact

On August 8, 2014, the Internal Revenue Service (IRS) issued Notice 2014-46, which clarifies and modifies Notice 2013-29 and Notice 2013-60.

For purposes of the renewable energy production tax credit (PTC) under Section 45 of the Internal Revenue Code and the energy investment tax credit (ITC) under Section 48 of the Internal Revenue Code, Notice 2013-29 provides two methods for determining when construction has begun on a qualified facility: (i) a "physical work" test and (ii) a 5 percent safe harbor. Notice 2013-60 provides clarification to Notice 2013-29 with respect to the continuous construction requirement, the master contract provisions, and the ability to transfer a facility.

Notice 2014-46 responds to practitioner and taxpayer questions regarding the physical work test, the ability to transfer the facility, and whether a facility (or portion thereof) may still qualify for the ITC or PTC if it fails the safe harbor. As a general matter, Notice 2014-46 provides that the "begun construction" threshold may be lower than originally indicated in Notice 2013-29 and Notice 2013-60.

Physical Work Test

Notice 2014-46 provides that physical work of a significant nature will have begun if any one of the following activities has begun:

  • In the case of a facility for the production of electricity from a wind turbine, excavation for the foundation, the setting of anchor bolts to the ground, or the pouring of concrete pads of the foundation;
  • Physical work on a custom-designed transformer that steps up the voltage of electricity produced at the facility to the voltage needed for transmission; or
  • Construction on roads that are integral to the facility (i.e., onsite roads that are used for moving materials to be processed (for example, biomass) and roads for equipment to operate and maintain the qualified facility).

Notice 2014-46 provides that the above items are merely examples and emphasizes that, assuming the work is of a significant nature, there is no fixed minimum amount of work or monetary or percentage threshold required to satisfy the physical work test.

Transfers with Respect to a Facility

Notice 2014-46 provides that a fully or partially developed facility may be transferred without losing its qualification under the physical work test or the safe harbor for purposes of the PTC or the ITC. Specifically, Notice 2014-46 contemplates that a taxpayer may acquire a facility from an unrelated developer that had begun construction of the facility prior to January 1, 2014. Transfers consisting of solely tangible personal property (including contractual rights to such property) will not be taken into account for purposes of the physical work test or safe harbor. The notice also provides that a taxpayer may relocate a facility to a different site after construction has begun.

Safe Harbor

Notice 2014-46 provides that if a taxpayer did not meet the safe harbor, but paid or incurred at least 3 percent of the total cost of a facility that is a single project comprised of multiple facilities before January 1, 2014, the safe harbor may be satisfied and the PTC or ITC may be claimed with respect to some of the individual facilities as long as the total aggregate cost of those individual facilities at the time the project is placed in service is not greater than 20 times the amount the taxpayer paid or incurred before January 1, 2014.

Thus, in the case of a wind farm, some of the turbines may qualify for the PTC even though the taxpayer did not pay or incur 5 percent or more of the total cost of the facility. If, however, a project is not comprised of multiple facilities (e.g., a single loop biomass plant) then no part of the project will satisfy the safe harbor unless the taxpayer paid or incurred 5 percent or more of the total cost of the project.

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.

© Wilson Sonsini Goodrich & Rosati | Attorney Advertising

Written by:

Wilson Sonsini Goodrich & Rosati
Contact
more
less

Wilson Sonsini Goodrich & Rosati on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.