IRS Publishes Notice of Proposed Rulemaking on Inflation Reduction Act Prevailing Wage and Apprenticeship Compliance Requirements

IRS Proposes New Rule on Prevailing Wage and Apprenticeship Requirements

The Internal Revenue Service (IRS) has recently published a notice of proposed rulemaking (NPRM) on complying with prevailing wage and apprenticeship requirements under the Inflation Reduction Act (IRA). The proposed rule provides guidance to employers seeking enhanced tax credits under the IRA and includes key provisions on wage determinations, penalties for non-compliance, and exceptions for incorporating Project Labor Agreements (PLAs). Understanding these requirements is crucial for businesses looking to claim the enhanced credits, as failure to comply can result in monetary penalties and loss of eligibility.

The NPRM, titled “Increased Credit or Deduction Amounts for Satisfying Certain Prevailing Wage and Registered Apprenticeship Requirements,” was published in the Federal Register on August 30, 2023. Prior to this, the IRS had announced the NPRM and issued FAQs on the IRA’s prevailing wage and apprenticeship compliance requirements. The Treasury Department explained that the guidance in the NPRM marks the end of the first phase of implementation of the IRA’s clean energy provisions.

The IRA incorporates prevailing wage requirements from the Davis-Bacon Act (DBA) and extends those requirements to private businesses seeking enhanced tax credits. The proposed rule aims to clarify the implementation of these requirements in several areas, such as applicable wage determinations, enforcement and penalty provisions, and waivers of penalties through the use of PLAs. While businesses can claim enhanced tax credits for projects dating back to January 1, 2023, key aspects of implementation remained unclear until the publication of the NPRM. The proposed rule will help employers understand the IRS’s approach to compliance, enabling them to successfully claim the valuable tax credits.

One important provision clarified in the proposed rule is the determination of applicable wage rates for qualifying projects. The rule states that the wage determination in effect for the specified type of construction in the geographic area at the start of the project remains valid for the duration of the work. However, this may conflict with the U.S. Department of Labor’s recent final rule, which requires government contractors to incorporate updated wage determinations more frequently.

The proposed rule also establishes penalties for non-compliance with prevailing wage and apprenticeship requirements. Businesses can cure non-compliance and claim the enhanced tax credits by paying the affected workers the difference in wages, plus interest, and a penalty to the IRS. Penalties are more severe for intentional disregard of PWA obligations. However, penalties may be waived if the error is corrected within 30 days of becoming aware of non-compliance or when claiming the tax credit, under certain conditions.

An exception to penalties for non-compliance is available if a qualifying PLA is in place for the project. PLAs must meet specific conditions, including binding all contractors and subcontractors, guaranteeing against job disruptions, and paying prevailing wages. Having a PLA does not exempt a business from PWA requirements but may allow them to avoid penalties if they correct wage payment failures promptly.

The NPRM is open for public comment until October 30, 2023. After the comment period, the IRS will review and analyze the comments before publishing the final rule. It is important for employers to be aware of the proposed rule and consider submitting comments or requests for clarification before the deadline. Employers should also seek legal counsel when entering into collective bargaining with labor organizations.

Overall, the proposed rule provides important guidance for businesses seeking to claim enhanced tax credits under the IRA. Understanding and complying with prevailing wage and apprenticeship requirements is crucial to avoid penalties and ensure eligibility for the valuable tax credits.

Original Story at www.jdsupra.com – 2023-09-01 17:11:32