The IRS released Notice 2013-29 (Notice) on April
15th providing much anticipated guidance on methods for
establishing "Beginning Construction" for purposes of
qualifying renewable facilities for the renewable electricity
production tax credit (PTC) under Section 45 or the energy
investment tax credit (ITC) under Section 48. The PTC is
based on the amount of electricity sold to an unrelated taxpayer
that is produced at a qualified renewable energy facility
(including a wind facility) over a 10-year period beginning on the
date the facility is placed in service. Over the 10 years, the
owners of the qualified facilities are able to offset federal taxes
due with the credits generated from the sale of this
electricity. The ITC provides a tax credit equal to 30
percent of the qualified basis of the energy property. As
January 2nd in this blog, the "American Taxpayer Relief
Act of 2012" extended the provisions of the PTC and ITC for
qualified facilities by requiring the facility to be placed in
service or to have "begun construction" before January 1,
2014. The "beginning construction" language was new
to the PTC and guidance from the IRS was needed in short order for
developers to qualify this year.
The Notice provides two methods, similar to the language from
the 1603 Treasury grant program, that a taxpayer may use to
establish that construction has begun in order to
qualify. The first method requires that physical
construction of the property integral to the qualified facility has
begun under relevant facts and circumstances, including maintaining
a continuous program of construction (disruptions out of the
taxpayer's control may not cause the taxpayer to fail the
test). The Notice permits both on-site and off-site work
(performed either by the taxpayer or by another person under a
written binding contract) be taken into account. But, it does
not include preliminary activities such as planning, designing,
securing financing, licensing, and other preliminary
The second method under the Notice provides for a safe harbor if
the taxpayer pays or incurs 5 percent or more of the total cost of
the facility before January 1, 2014 and thereafter makes continuous
efforts to advance toward completion. The Notice provides
that a taxpayer may look through to another person who may be
incurring qualifying costs if under a written binding
contract. The Notice also defines continuous efforts to
advance completion of the facility under the relevant facts and
circumstances including some examples such entering into a written
binding contract for future work and obtaining necessary
permits. There is also a provision on how to handle cost
overruns if the amount incurred before January 1, 2014 turns out to
be less than 5 percent of the total costs.
Overall, the Notice should be welcome news to developers trying
to qualifying under the "begun construction" provision
this year. The lead time for some facilities, such as wind
farms, can be significant and one would imagine that many
developers would try and qualify for the second safe harbor method
which includes permitting as a factor of continuous work. The
Notice does leave open some questions such as how and if the safe
harbor can be transferred to related or unrelated parties.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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