Latest from IRS on "start construction"
News from today's AWEA Wind Energy Finance & Investment Seminar in New York will be important to many AWEA members, and we wanted to share it with you as soon as possible.
First, Christopher Kelley of the U.S. Treasury Department provided fresh details on how the IRS will implement the "start construction" language that Congress incorporated into the extension of the production tax credit (PTC) and investment tax credit (ITC) in January. You can hear audio of Kelley's remarks at this link (AWEA members only; log-in required).
As background: Rather than eligibility for the tax credits being determined based on when a wind energy or other project is placed in service, the law was changed this year to qualify projects that start construction by the end of 2013. This is one reason the industry is seeing a significant uptick in activity as we’ve gotten further into 2013, which we expect to continue at least through 2014.
In May, the Internal Revenue Service issued guidance (Notice 2013-29) on how start of construction is defined. While the guidance was helpful and generally consistent with recommendations made by AWEA and others, AWEA requested additional clarifications to increase certainty about whether projects qualify or not.
At today's event, Kelley said the IRS is contemplating follow-on guidance that could be issued in the next several weeks to bring that much-needed certainty to decisions being made today and increase the confidence needed to move forward with additional projects and orders, admitting that "continuing uncertainty may be holding back the pace of development somewhat."
Among the key clarifications he provided meanwhile at the AWEA event today:
- The additional guidance would address at least two key questions: What does “continuous efforts” mean under the 5% safe harbor option; and, does project eligibility follow the project in the event of a transfer in ownership?
- With respect to the transfer point, the speaker signaled the underlying statute and government intent is that eligibility continues after a transfer in ownership, which has been the wind industry’s request.
- Pursuit of a PPA qualifies, in his opinion, toward the continuous efforts requirement and manufacturing capacity constraints, and permitting delays are allowable disruptions to continuous efforts.
- There is not a requirement that turbines purchased under a supply agreement must be assigned to a specific project by a date certain.
- Documentation was not specified, but records similar to those called for in the Treasury guidance on the former Section 1603 program would be helpful to demonstrate continuous efforts.
- Treasury and IRS are considering offering a placed-in-service safe harbor, whereby if your project is placed-in-service by a certain date (to be determined), you will be deemed to have met the "continuous efforts" test.
The full audio of the discussion with Treasury, which contains additional insights, is available on the members-only section of the AWEA website here (you must login to the AWEA website to access the file).
Also at today's event, the Office of the Comptroller of the Currency released a new fact sheet detailing how wind energy investments can qualify for Public Welfare Investment authority status. This is the first step we're taking with the OCC to clarify and educate how wind energy fits in this program, which has the potential to help the industry expand the number of tax equity investors, and make it easier for current investors to participate.
The fact sheet has now been posted to OCC.gov, at http://occ.gov/topics/community-affairs/publications/fact-sheets/fact-sheet-pwi-awea.pdf