United States: IRS Extends Safe Harbor For Completion Of PTC-Qualifying Facilities To Jan. 1, 2017

Yesterday, March 11, 2015, the Internal Revenue Service issued Notice 2015-25, which extends by one year certain tests taxpayers can use to establish that a qualifying renewable energy facility is eligible for the production tax credit (PTC) or, alternatively, the investment tax credit (ITC).

Notice 2015-15 updates prior IRS guidance in response to a change made by the Tax Increase Prevention Act of 2014, Pub. L. No. 113-295, 128 Stat. 4010 (2014 Extenders Bill). The date by which construction must have begun for a qualifying renewable energy facility to be eligible for the PTC or ITC was extended from "before January 1, 2014," to "before January 1, 2015." Under prior guidance, a taxpayer could establish the beginning of construction by either starting physical work of a significant nature (Physical Work Test) or paying or incurring 5 percent or more of the total cost of the facility (Safe Harbor). Under either method, the taxpayer was required to make continuous progress toward completion once construction began. Prior guidance further provided that if a facility was placed in service before January 1, 2016, the facility would 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).

Under Notice 2015-25, taxpayers now have until January 1, 2017, to complete construction of pre-2015 facilities. The IRS extension of the Continuous Construction and Continuous Efforts tests does not apply to Section 1603 Grants, which have independent requirements to complete construction by a certain date and, in many instances, dates that have already passed.

The PTC provides certain renewable-energy-electricity-producing projects (including those involving wind, geothermal sources, biomass and municipal solid waste, such as biomethane) with a tax credit of approximately $0.023/kWh for energy generated and sold to a third party. The tax credit can be claimed for the 10-year period following commercial operation of the project and often is used in tax equity transactions to offset some of the capital costs of constructing qualifying renewable energy facilities. Alternatively, taxpayers can elect to take the ITC in lieu of the PTC for certain qualifying facilities. The ITC provides a one-time tax credit equal to 30 percent of the tax basis of the qualifying facility.

One-Year Extension of the PTC Drives IRS Extension of the Safe Harbor

The notice provides a one-year extension of the current Continuous Construction Test and the Continuous Efforts Test provided in IRS Notice 2013-60. The PTC previously expired on January 1, 2014, but was extended late last year. Under the 2014 Extenders Bill, a taxpayer would be eligible to claim the PTC, or the ITC in lieu of the PTC, if construction began on the qualifying renewable energy facility before January 1, 2015. As now revised, the Continuous Construction and Continuous Efforts tests are consistent with this one-year extension.

Prior IRS Guidance for Satisfying "Begin Construction" Requirement

As noted above, a taxpayer can satisfy the "begin construction" requirement of Code Section 45(d) if it meets either the Physical Work Test or the Expenditure Safe Harbor before January 1, 2015. In both cases, the taxpayer must make continuous progress toward completion once construction has begun. In an effort to provide clarity and certainty to the Continuous Construction and Continuous Efforts tests, the IRS issued Notice 2013-60. The earlier, 2013 notice provided a useful safe harbor by deeming the continuous construction or efforts requirement to be satisfied if the facility was placed in service before January 1, 2016. Notice 2015-25 extends this date to January 1, 2017.

At the time the IRS provided the initial safe harbor for satisfying the continuous construction or efforts requirement, the PTC was set to expire on December 31, 2013. This gave taxpayers two years after the scheduled PTC expiration date to place facilities into service and still satisfy the Continuous Construction or Continuous Effort Test without having to show that they were making continuous progress toward completion once construction began. As explained below, the extended date of January 1, 2017, is important to current projects.

2014 PTC Extension Created Construction Pressure and Questions

The passage of the 2014 Extenders Bill placed construction pressure on 2014 projects since they could rely on the safe harbor for satisfying the continuous construction or efforts requirement only if their projects were actually completed before the end of 2015. Tax practitioners also began fielding questions from developers concerned that projects satisfying the begin-construction requirement in 2014 would likely spill into 2016, given construction schedules, financing considerations and other commercial matters. Many developers had valid concerns about how to meet the Continuous Construction or Continuous Efforts tests without a safe harbor, and how to satisfy the conservative nature of tax equity investors or project lenders.

Safe Harbor Extension Relieves Construction Pressure for 2014 PTC Projects

Fortunately, the IRS has now issued guidance allowing facilities that are completed before January 1, 2017, to satisfy the Continuous Construction and Continuous Efforts tests if construction of the facility began before January 1, 2015. This extension of the safe harbor comes at a valuable time, when 2014 projects still have sufficient opportunities to secure construction contracts, financing and tax equity investments. Additionally, the safe harbor extension creates IRS precedent to extend the safe harbor in lockstep with any future extensions of the PTC. Clearly, the IRS intends to allow a two-year window after the expiration of the PTC for taxpayers to complete construction of a renewable energy facility without having to show continuous progress toward completion once construction of a qualifying facility has begun.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions