As you know The American Taxpayer Relief Act of 2012, (ATRA) modified the definition of a qualified energy credit property by replacing the placed in service requirement with a begin construction requirement. The renewable electricity production tax credit (PTC) or the energy investment tax credit (ITC) in lieu of the PTC, is available if construction of the facility begins before January 1, 2014.
IRS guidance issued in April of this year (Notice 2013-29) described two methods to determine when construction has begun on renewable energy credit projects. The new IRS guidance (Notice 2013-60) clarifies how an owner can satisfy those two methods including situations where there is a “master contract" provision, or there is a transfer of the project after construction has begun.
Notice 2013-29 provides two methods to determine when construction of a qualified energy property has begun under the (Physical Work Test) in which the owner has started physical work of a significant nature, or by meeting the safe harbor (Safe Harbor). These methods require that the owner make continuous progress towards completion once construction has begun (Continuous Construction Test) and (Continuous Efforts Test). Notice 2013-29 allows an owner to enter into a master contract for purposes of the Physical Work Test but does not address the effect of a transfer of a facility after construction has begun.
New IRS guidance
The new guidance says that if an energy credit property is placed in service before Jan. 1, 2016, it will be deemed 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). If a facility isn't placed in service before Jan. 1, 2016, whether that facility satisfies the Continuous Construction or Continuous Efforts Tests will be determined by the relevant facts and circumstances, as described in Notice 2013-29. Notice 2013-60 also provides that the master contract provision described in Notice 2013-29 under the Physical Work Test, also applies for purposes of the Safe Harbor.
Finally, if a qualified facility satisfies either the Physical Work Test or the Safe Harbor, an owner of a facility during the 10-year credit period beginning on the date the facility was originally placed in service may claim the PTC even if it did not own the facility at the time construction began. Alternatively, the owner of a facility on the date it is originally placed in service may elect to claim the ITC in lieu of the PTC for that facility even it did not own the facility at the time construction began.
Does this “clarification” raise more issues than answers…stay tuned! NP energy credit attorneys will be offering further analysis of these new rules in the coming weeks.