“Begin construction” rules extended for tax credits

“Begin construction” rules extended for tax credits

The IRS today released an advance version of Notice 2015-25, announcing that taxpayers will be eligible for the renewable electricity production tax credit (PTC) under section 45 or the energy investment tax credit (ITC) under section 48, in lieu of the PTC, with respect to a facility—provided that construction of the facility began before January 1, 2015.

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Notice 2015-25 [PDF 15 KB] updates existing guidance to incorporate the enactment of “tax extenders” legislation—Tax Increase Prevention Act of 2014, Pub. L. No. 113-295—in December 2014. It provides a one-year extension of the date by which construction of a qualified facility must begin.

Continuous construction, continuous efforts tests

Prior IRS notices had provided that a taxpayer may establish the beginning of construction by:

  • Starting physical work of a significant nature—the physical work test, or
  • Paying or incurring 5% or more of the total ITC-eligible costs of the facility—the safe harbor

With today’s notice, the one-year extension of the beginning of the construction date also applies to the “placed in service” date, which is extended to January 1, 2017.

Accordingly, if a taxpayer begins construction on a facility prior to January 1, 2015, and places the facility in service before January 1, 2017, the facility will 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) regardless of the amount of physical work performed or the amount of costs paid or incurred with respect to the facility after December 31, 2014, and before January 1, 2017.

Today’s notice states that the IRS will not issue private letter rulings to taxpayers regarding the application of this notice or the application of the beginning of construction requirement under sections 45(d) and 48(a)(5).

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