On August 8, 2014, the Internal Revenue Service (IRS) released Notice 2014-46 (the “Notice”), which provides some important clarifications with respect to the requirement that construction of a project commence prior to January 1, 2014 for renewable energy facilities to be eligible to claim the production tax credit (PTC) and investment tax credit (ITC).
The IRS previously issued guidance (hereinafter, the “Prior Guidance”) providing two alternative methods by which a taxpayer can demonstrate that construction on a renewable energy facility had begun before January 1, 2014, which is a prerequisite to claim the ITC or PTC for certain renewable energy facilities including wind, geothermal, biomass, landfill gas, incremental hydroelectric and ocean energy projects. The first method requires a taxpayer to have begun physical work of a significant nature before January 1, 2014 (the “Physical Work Test”). The second method provides a safe harbor if at least 5% of the total cost of the facility was paid or incurred before January 1, 2014 (the “Safe Harbor”).
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