Skip to content

It looks like we may have content for your preferred language. Would you like to view this page in English?

IRS Clarifies Guidance

A qualified facility is eligible to receive a renewable electricity production tax credit (PTC) or an energy investment tax credit (ITC) in lieu of the PTC if construction of the facility begins before January 1, 2014. Qualified facilities include wind facilities, closed-loop biomass facilities, open-loop biomass facilities, geothermal facilities, landfill gas facilities, trash facilities, hydropower facilities, and marine and hydrokinetic facilities.

Continuous Work Requirement. There are two methods for taxpayers to establish that construction of a qualified facility has begun: either by starting physical work of a significant nature (Physical Work Test) or by paying or incurring 5 percent or more of the total cost of the facility before January 1, 2014 (Safe Harbor). The Physical Work Test requires that the taxpayer maintain a continuous program of construction, and the Safe Harbor requires that the taxpayer make continuous efforts to advance toward completion of the facility (collectively, the Continuation Requirement). (See our April 17, 2013, Alert, IRS Releases Guidance on Beginning Construction for Production Tax Credit and Investment Tax Credit.)

New Notice 2013-60 clarifies that the Continuation Requirement will be deemed satisfied if a facility is placed in service before January 1, 2016. Otherwise, a facts-and-circumstances test will apply.

Master Contract Provision. If a taxpayer enters into a binding written contract for a specific number of components to be manufactured, constructed, or produced for the taxpayer by another person under a binding written contract (a master contract), and then through a new binding written contract the taxpayer assigns its rights to certain components to an affiliated special purpose vehicle that will own the facility for which this property is to be used, work performed with respect to the master contract may be taken into account in determining when physical work of a significant nature begins with respect to the facility. Notice 2013-60 clarifies that this master contract provision applies for purposes of the Safe Harbor as well as the Physical Work Test.

Effect of a Transfer. Notice 2013-60 explains that a transfer, before it is place in service, of a qualified facility for which construction began before January 1, 2014, does not affect the tax credit. If a qualified facility satisfies either the Physical Work Test or the Safe Harbor, a taxpayer that owns the facility during the 10-year period beginning on the date the facility was placed in service may claim the PTC with respect to the facility even if the taxpayer did not own the facility at the time construction began. Alternatively, a taxpayer that owns the facility on the date it is originally placed in service may elect to claim the ITC in lieu of the PTC with respect to that facility even if the taxpayer did not own the facility at the time construction began.

If you have any questions, please contact Alan J. Tarr at or 212.407.4900.
This client alert is a publication of Loeb & Loeb LLP and is intended to provide information on recent legal developments. This client alert does not create or continue an attorney client relationship nor should it be construed as legal advice or an opinion on specific situations.

Circular 230 Disclosure: To assure compliance with Treasury Department rules governing tax practice, we inform you that any advice (including in any attachment) (1) was not written and is not intended to be used, and cannot be used, for the purpose of avoiding any federal tax penalty that may be imposed on the taxpayer, and (2) may not be used in connection with promoting, marketing or recommending to another person any transaction or matter addressed herein.