Production tax credit, beginning construction extension | KPMG | GLOBAL

Notice 2016-31: Production tax credit, “beginning construction” extension

Production tax credit, beginning construction extension

The IRS today released an advance version of Notice 2016-31 that extends and modifies the safe harbor rules for satisfying requirements for “beginning construction” of a qualified facility eligible for the renewable electricity production tax credit (PTC), or the election to claim the investment tax credit (ITC) in lieu of the PTC under sections 45 and 48.


Related content

The IRS issued Notice 2016-31 [PDF 79 KB] to implement changes made to section 45 by the Protecting Americans from Tax Hike Act of 2015 or PATH Act (enacted in December 2015). Today’s notice reflects the extension of the PTC for two years for facilities the construction of which begins before January 1, 2017, and the extension of the PTC for wind facilities the construction of which begins before January 1, 2020.

The IRS also stated that it would not issue private letter rulings regarding the application of today’s notice on the “beginning construction” requirement.


Revised guidance: The IRS on May 18, 2016, issued an updated version of Notice 2016-31 to make three changes including to modify the deadline for the Continuity Safe Harbor, to correct a math error, and to insert new language concerning an effective date. Read TaxNewsFlash-United States.

Separate guidance for solar energy facilities

The PATH Act also extended the investment tax credit for solar energy facilities (the construction of which begins before January 1, 2022). However, as noted in today’s release, the IRS and Treasury anticipate issuing separate guidance concerning solar energy facilities.


The PATH Act provides for long-term extensions to wind and solar tax credits along with a phase-out schedule for each. 

With respect to wind facilities, the “begin construction” deadline for the PTC is extended five years from what had been a deadline of December 31, 2014, to December 31, 2019. In addition, the “begin construction” deadline with respect to the election to claim the ITC in lieu of the PTC also is extended to December 31, 2019.

The amount of the wind credit is determined by the year in which construction begins.


Period in which construction begins Reduction to credit
Before January 1, 2017 No reduction
After December 31, 2016, and before January 1, 2018 20% reduction
After December 31, 2017, and before January 1, 2019 40% reduction
After December 31, 2018, and before January 1, 2020 60% reduction

Notice 2016-31

The IRS today issued Notice 2016-31 to address questions arising after the extension of the PTC and the ITC by the PATH Act. Notice 2016-31:

  • Extends and modifies the “continuity safe harbor” 
  • Provides additional guidance regarding the application of the “continuity safe harbor” and the “physical work test”
  • Clarifies the application of the “five percent safe harbor” to retrofitted renewable energy facilities
  • States that, unless otherwise specified, guidance provided in prior IRS notices continues to apply
  • Provides examples illustrating application of the rules including descriptions of excusable disruptions to the continuous construction or continuous efforts test
  • Provides a list of examples illustrating the “physical work test”
  • Provides an example of application of the “five percent safe harbor” to retrofitted facilities 

© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us


Request for proposal