This week, the Internal Revenue Service (IRS) released guidance on when projects have “begun construction” for the purposes of qualifying for the Renewable Electricity Production Tax Credit and the Energy Investment Tax Credit. In addition, on April 3, 2013 the IRS announced that there would be an increase in the Renewable Energy Production Tax Credit for calendar year 2013 to 2.3 cents per kilowatt-hour on the sale of electricity produced from the qualified energy resources of wind, closed-loop biomass, geothermal energy and solar energy. This amount is an increase from the previous 2.2 cents per kilowatt-hour.

The Energy Investment Tax Credit was created under The American Taxpayer Relief Act and enacted on January 2, 2013. According to IRS Notice 2013-29, to qualify as a renewable energy facility, such as a wind farm, construction needs to have begun on the facility by January 1, 2014. 

There are two ways that the renewable energy facility can establish that construction has begun: (1) physical work of a significant nature begins and is continuously maintained pursuant to Section 4 of the notice; or (2) the taxpayer meets the safe harbor of having incurred five percent or more of the total cost of the facility and thereafter makes continuous efforts to advance towards completion of the facility. 

The notice also provides various examples of “physical work of a significant nature” (Section 4). In the case of a wind farm: excavation for the foundation; the setting of anchor bolts; pouring of foundation pads; and construction of roads integral to the activity performed by the facility. If the wind farm components are to be manufactured and assembled off-site, that can also qualify as “physical work of a significant nature” if the work is done pursuant to a binding written contract and the components are not held in the manufacturer’s inventory.

Section 5 of the notice provides examples of facts and circumstances indicating a continuous effort to advance the completion of the facility, such as paying or incurring additional amounts of money, entering into binding contracts, obtaining necessary permits and performing physical work of a significant nature.

IRS Notice 2013-29: Beginning of Construction for Purposes of the Renewable Electricity Production Tax Credit

http://content.govdelivery.com/bulletins/gd/USIRS-764f45?reqfrom=share

Federal Register Notice Increasing the Production Tax Credit Amount

 http://www.gpo.gov/fdsys/pkg/FR-2013-04-03/pdf/2013-07773.pdf

For more information, please contact Buchanan attorney Danielle Jouenne.