IRS outlines ‘construction’ requirement for wind tax credit

In deciding if wind power developers qualify for the production tax credit (PTC), the Internal Revenue Service (IRS) will use a minimum of 5% investment and ‘continuous’ work as a guide to determine if construction has started.

The IRS and Treasury Department also prefer new wind projects claiming the PTC to be actually placed into service by Jan. 1, 2016.

Those are highlights from a recently-released IRS policy memo on current qualification for the PTC, according to Notice 2013-60. The IRS document clarifies an earlier one on the subject: Notice 2013-29.

The American Taxpayer Relief Act of 2012, Pub. L. No. 112-240, 126 Stat. 2313 (ATRA), modified the definition of a qualified facility under section 45(d) of the Internal Revenue Code by replacing the placed in service requirement with a “begin construction” requirement.

Congress kept the much-debated PTC alive earlier this year as part of a fiscal deal.

Under the arrangement, a taxpayer will be eligible to receive the renewable electricity PTC under section 45, or the energy investment tax credit (ITC) under section 48 in lieu of the PTC, with respect to a facility if construction of such facility begins before Jan. 1, 2014.

Applicants should make “continuous progress towards completion” once construction has begun, the IRS has said. The IRS has received many questions “regarding the application of the Continuous Construction and Continuous Efforts Tests in Notice 2013-29, the applicability of the master contract provision for purposes of the Safe Harbor, and the effect that a transfer of a facility after construction has begun will have on its ability to qualify for the PTC or ITC.”

In making its determination the IRS will take into account “certain disruptions in the taxpayer’s construction of a facility that are beyond the taxpayer’s control,” according to the memo.

Developers applying for the credit can meet the construction requirement by incurring “five percent or more of the total cost of the facility” – with certain exceptions – by Jan. 1, 2014. After incurring the 5% cost, the taxpayer must still make “continuous efforts to advance towards completion of the facility.”

“If a facility is placed in service before January 1, 2016, the facility will be considered to satisfy the Continuous Construction Test (for purposes of satisfying the Physical Work Test) or the Continuous Efforts Test (for purposes of satisfying the Safe Harbor). If a facility is not placed in service before January 1, 2016, whether the facility satisfies the Continuous Construction or Continuous Efforts Tests will be determined by the relevant facts and circumstances, as described in section 4.06 and section 5.02 in Notice 2013-29,” according to the IRS document.

The IRS can also look at whether the taxpayer seeking the tax credit has entered into a contract “for a specific number of components to be manufactured.”

This latest IRS document, issued around Sept. 20, also addresses the transfer of a wind facility after construction has begun.

“The statutory language requires only that construction of a facility begin before January 1, 2014. It does not require the construction to be begun by the taxpayer claiming the credit,” the IRS said in the notice.

The IRS notice “removes the ambiguity about what activities specifically qualify toward CC/CE [continuous construction/continuous efforts] and what documentation is expected to demonstrate it,” the American Wind Energy Association (AWEA) said on its website.

NextEra Energy (NYSE:NEE) CEO James Robo praised issuance of the IRS notice in a recent presentation at a financial conference in New York.

Wind development nationally has, so far, lagged behind its record-setting performance numbers in 2012.

The principal author of this notice is Brian J. Americus of the Office of Associate Chief Counsel, who can be reached at (202) 622-3110.


About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at