"IRS Guidance Clarifies Renewable Energy Tax Credit"

by Skadden, Arps, Slate, Meagher & Flom LLP

The Internal Revenue Service (IRS) has released welcome new guidance on renewable electricity production and energy investment tax credits. A notice issued on August 8, 2014, addresses when a facility or equipment maintains its qualification when transferred during the construction process, and how to determine whether construction has begun by a previously set January 1, 2014, deadline triggering eligibility for the production credit. Qualified facilities include wind, closed-loop biomass, open-loop biomass, geothermal, landfill gas, trash, hydropower, and marine and hydrokinetic. In general, a taxpayer can claim a production tax credit (PTC) under Section 45 of the Internal Revenue Code (the code) with respect to electricity produced at a qualified facility or, in lieu thereof, may elect to claim an investment tax credit (ITC) under Section 48 of the code with respect to that facility, but in either case only if it has “begun construction” of the facility before January 1, 2014.

Notice 2014-46 clarifies two earlier notices: 2013-29 and 2013-60. Notice 2013-29 provided two methods to establish the beginning of construction for purposes of the PTC or ITC — a “physical work” test and a 5 percent safe harbor — and Notice 2013-60 clarified the requirements for taxpayers to make continuous progress towards completion once construction has begun and the ability of taxpayers to transfer a facility after construction has begun.

Transfers With Respect to a Qualified Facility

Notice 2014-46 clarifies several points regarding transfers of facilities or property, namely:

1. If a taxpayer acquires a fully or partially developed facility (i.e., one that consists of more than just tangible personal property) from an unrelated party that had begun construction of the facility before January 1, 2014, the taxpayer may take into account, for purposes of the “begun construction” requirement, work performed or amounts paid or incurred by the unrelated party prior to January 1, 2014.

2. In contrast, if a taxpayer acquires from an unrelated party only tangible personal property (as opposed to a fully or partially developed facility), work performed or amounts paid or incurred by the unrelated party prior to January 1, 2014 will not count.

3. If a taxpayer begins construction of a facility prior to January 1, 2014, in one site and thereafter transfers the equipment and components to a different site, the work performed or amounts paid or incurred by the taxpayer prior to January 1, 2014, will still count.

The first two points are similar to rules in the Section 1603 Treasury Grant guidance and appear to be an attempt to prevent the trafficking of property that could otherwise form the basis for a qualifying facility, while permitting the transfer of projects in development (that is, projects that have permits or site access in place).

Safe Harbor

The notice also makes clear that if a taxpayer has not fully satisfied the 5 percent safe harbor by January 1, 2014, with respect to a project composed of multiple facilities (e.g., a five turbine wind farm), but has paid or incurred at least 3 percent of the total cost of the facility, the taxpayer may still claim the PTC or ITC on any number of individual facilities if 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, provided that the “continuous efforts” test described in Notice 2013-29 also is met. This change will be helpful to certain taxpayers who have unexpected cost overruns on their projects or subsequently decide to expand their multi-facility projects. 

The notice does not, however, go so far as to permit a taxpayer that has not satisfied the 5 percent safe harbor to claim credits with respect to any portion of a single facility that is not a single project composed of multiple individual facilities and that cannot be separated into individual facilities. One example of such a facility is an open-loop biomass facility, partly comprised of one boiler and one turbine generator that are functionally interdependent. If the developer of such a facility did not pay or incur 5 percent of the actual total cost of the facility, or begin physical work of a significant nature, before January 1, 2014, the developer would not be able to claim PTCs or the ITC with respect to the facility.

Overall, the notice resolves several open questions that remained after the IRS issued Notices 2013-29 and 2013-60. This welcome guidance should provide greater certainty to developers and other investors hoping to advance projects without concern about the projects’ eligibility for tax credits.

Download PDF

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.

© Skadden, Arps, Slate, Meagher & Flom LLP | Attorney Advertising

Written by:

Skadden, Arps, Slate, Meagher & Flom LLP

Skadden, Arps, Slate, Meagher & Flom LLP 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.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

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.


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.