IRS Comments on its PTC Start of Construction Guidance


On August 20, the American Wind Energy Association (AWEA) held a web seminar to go over Irs (IRS) Notice 2014-46, which clarified the guidelines for wind projects to become grandfathered for production tax credit (PTC) eligibility purposes as getting began construction in 2013. A previous publish discussing Notice 2014-46 can be obtained here.

The highlight from the panel was it incorporated representatives from the IRS who commented on Notice 2014-46 and clarified questions in the other panelists. The IRS’s primary representative was Christopher Kelley, who lately rejoined the government following a stint at Treasury. Mr. Kelley was became a member of by his IRS colleagues Jamie Park, Philip Tiegerman and Jennifer Bernardini.

Here are popular features of Mr. Kelley’s remarks. Many remarks provide useful clarifications from the rules or understanding of the insurance policy rationales for that rules. This publish was prepared without the advantage of a transcript or perhaps a recording. Don’t hesitate to contact the writer to request corrections. Also, you should observe that these remarks were informal and aren’t binding around the IRS.

As background, Notice 2014-46 mainly clarified three points:

1. For projects that didn’t satisfy the safe harbor of spending five percent of the cost in 2013 and rather began “significant physical work” in 2013, there’s no minimum threshold of labor needed as lengthy because the work performed in 2013 was crucial as deliver to within the IRS notices.

2. Transfers of grandfathered projects are allowable, as lengthy as either (a) the transfer includes contracts or land legal rights or (b) the transferee and transferor tend to be more than 20 % related.

3. If your project fell lacking the five percent safe harbor, but a minimum of 3 % was put in 2013, then the amount of turbines incorporated within the project which are tax-credit-qualified might be prorated accordingly.

Significant Physical Work

Mr. Kelley confirmed the wind industry’s studying from the physical work requirement in Notice 2014-46 was accurate: “The significant physical work standard is really a qualitative standard, instead of quantitative. There’s no minimum work load that has to happen to be completed in 2013. There’s no vibrant line. The exam is sort of nebulous. Many of the test originates from the 1603 oncoming of construction FAQs, bonus depreciation rules and investment tax credit rules returning to the 1960s.”

Mr. Kelley was requested if the amount of “physical work” needed elevated proportionately with how big the work. He responded, “The size the work is not important. The job should be significant and completed in 2013.”

Mr. Kelley was requested if excavating just one turbine site was sufficient. He responded, “I shouldn’t speculate about specific fact patterns. You receive some comfort in the language within the two notices.”

Mr. Kelley was requested whether it was essential to excavate, pour concrete and install bolts for a number of turbine sites in 2013 to attain significant physical operate in 2013. He stated, “It is fair studying that simply beginning excavation is sufficient without flowing concrete or installing bolts. The word what states ‘or,’ instead of ‘and.’1 Anyone activity is enough.Inches

Mr. Kelley was requested if “excavation has started,Inches if, in the finish of 2013, a task owner began excavating a turbine site but didn’t “finish off” the excavation because of the pending winter being prone to damage the finishing work. His response was “sounds like excavation has started and it is significant.”

Mr. Kelley was requested why examples weren’t incorporated in Notice 2104-46. He stated, “Additional examples might possibly cause more confusion compared to what they help.”

No Binding Written Contract Requirement of On-Site Work

Mr. Kelley was requested if your “binding written contract” was needed for physical work which was conducted around the project site. After an evident sidebar together with his IRS colleagues, he responded, “I don’t think therefore if the job is performed on-site and it is significant.” This interpretation is useful because section 4.02 of Notice 2013-29 provides, “Both on-site and off-site work (performed either through the citizen or by someone else within binding written contract) may be taken into consideration for purpose of demonstrating that physical work of the significant nature has started.Inches According to Mr. Kelley’s comment, the parenthetical clause is supposed to only modify “off-site work.”

Alterations in the position of the Project by which Safe Harbored Equipment Is Going To Be Used

Mr. Kelley was requested whether, if your developer includes a master turbine hire a producer which was joined into 2013 and also the five percent cost was incurred under that contract in 2013, the 5 percent safe harbor was met whether or not the developer didn’t know at what project site the turbines could be deployed. He responded, “You don’t have to be aware of address from the project in 2013. That’s the purpose of the moving provision from the notice.”2

He added that it’s allowable to possess purchased equipment for that five percent safe harbor coupled with “multiple projects in mind” for the similar equipment. Further, he was requested when the reference in section 4.03 of Notice 2014-46 to some “taxpayer may also begin construction of the facility in 2013 using the intent to build up the ability in a certain site” needs a developer so that you can show, in 2013, it’d an intent to build up a specific site. His response could be that the reference didn’t require that.


Mr. Kelley managed to get obvious that it’s feasible for one citizen to transfer only safe harbored equipment to some transferee that’s greater than 20 % associated with the transferor. The transferee may then undertake additional development work, for example acquiring land legal rights, permits, interconnection contracts or perhaps a power purchase agreement after which transfer the safe-harbored equipment plus individuals legal rights or contracts for an unrelated party. That unrelated party could then claim tax credits according to its possession from the safe-harbored equipment.

Mr. Kelley was requested for detail with regards to the requirement in section 4.03 of Notice 2014-46 that the transfer for an unrelated party include greater than just “tangible personal property” (i.e., equipment). He responded, “The proper way to check out it’s to incorporate land, a land lease, an electrical purchase agreement or perhaps an interconnection agreement. This rule is following a 1603 oncoming of construction FAQs.”

The “master contract” rules in section 4.03(2) of Notice 2013-29 make reference to transferring safe-harbored equipment to “an affiliated special-purpose vehicle.” Mr. Kelley was requested exactly what the relationship is between “an affiliated special-purpose vehicle” and also the 20-percent-related party standard regarding transferees in section 4.03 of Notice 2014-46. He responded, “The affiliated special-purpose vehicle language is lent in the 1603 oncoming of construction FAQs. I do not possess a comment regarding how to tie it towards the related party rules.”

3 % Standard for Prorating Tax Credits

Mr. Kelley was requested for that policy rationale for including section 5.01 of Notice 2014-46 that gives rules regarding projects which are not able to satisfy either (a) the five percent spend in 2013 safe harbor or (b) the functional physical work requirement however for which a minimum of 3 % was put in 2013. He noted that some project proprietors had described towards the IRS that they are building very large projects that the five percent spend wasn’t achievable however, for reasons he didn’t specify, the projects were not able to satisfy the functional physical work standard. He described the government was convinced it had become unreasonably harsh for such projects to become qualified for zero tax credits while a task that “excavation of merely one turbine site” happened in 2013 could be qualified for full tax credits underneath the significant physical work standard. Thus, the government designed a “policy call to supply some respite but include a 3 % floor.”

A tangential ramification of the statement is the fact that Mr. Kelley seems to possess unconditionally endorsed excavating just one turbine site to be sufficient for the beginning of significant physical work, although he sidestepped that question the very first time it had been requested.

1 See Notice 2014-46, § 3; Notice 2013-29, § 4.02.

2 See Notice 2014-46, § 4.02.




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