IRS Issues New Guidance Regarding Beginning of Construction Requirement for Production Tax Credit (PTC) / Investment Tax Credit (ITC)
The IRS recently issued new guidance (IRS Notice 2014-46) with respect to the ability to claim the PTC/ITC for qualified projects which began construction before January 1, 2014. The current guidance builds on the previous two notices but does add some additional items which should make it easier to claim the PTC/ITC:
1. The notice states that there is no requirement that the taxpayer that places the facility in service also be the taxpayer that begins construction of the facility. The work performed by the unrelated transferor developer prior to January 1, 2014 may be taken into account for purposes of determining whether the facility meets the physical work test or the 5% safe harbor test.
2. However, in the case of a transfer consisting solely of personal property (including contract rights) to a transferee not related to the transferor, such personal property cannot be taken into account by the transferee for purposes of determining whether the transferee meets the physical work or safe harbor tests. In other words, in this situation, the personal property must be attached to a site.
3. A developer may begin construction at one site but then transfer the equipment and components of the facility to a different site and thereafter complete construction and place it in service. The work performed or amount paid prior to January 1, 2014 at the original site can be taken into account when determining whether the physical work test or 5% safe harbor is met.
4. If amounts incurred prior to January 1, 2014 for a single project containing numerous facilities (numerous wind turbines) is less than 5% of the total cost at the time the facility is placed in service the 5% Safe Harbor Test is not satisfied. However, the PTC/ ITC may still be claimed for any number of 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 incurred prior to January 1, 2014.
Please note that this is not a complete summary of all of the notices that have been released in this area. Leech Tishman would be pleased to provide a complete summary of all three notices to anyone who may be interested.
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