The Wall Street Journal reported late Aug. 8 that the Internal Revenue Service (IRS) has lowered a threshold for renewable energy projects to qualify for federal tax credits.
In the new guidance, the IRS and the Treasury Department said renewable energy projects could qualify for a pair of tax credits if they had incurred at least 3% of the total project cost before the beginning of 2014, down from the previous threshold of 5%.
The American Wind Energy Association (AWEA) promptly praised the IRS action.
“AWEA appreciates the IRS providing an additional round of guidance on the rules surrounding starting construction,” said AWEA Vice President of Federal Regulatory Affairs Tom Vinson. “With a record number of wind energy megawatts under construction, this guidance should provide more certainty to help get projects to the finish line,” Vinson said.
Developers of wind power projects were able to claim the Production Tax Credit (PTC) if they placed the wind energy facility into “construction” before the end of 2013.
The IRS has previously published documents trying to nail down what this means. The latest one came in September 2013 when the IRS said that at least 5% investment and ‘continuous’ work would be a guide.
The most recent “Clarification and Modification of Notice 2013-29 and Notice 2013-60” appears to say that only 3% investment by Jan. 1, 2014, will suffice to qualify for PTC, at least in some circumstances.
“If a taxpayer places a facility 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), regardless of the amount of physical work performed or the amount of costs paid or incurred with respect to the facility between December 31, 2013, and January 1, 2016,” the IRS said in the latest document.
The document also stipulates that construction of key roads leading into the facility would be considered “physical work.”
The latest IRS document also includes several examples of when the tax credit can and cannot be claimed.