TL/DR –
The US Department of the Treasury and the Internal Revenue Service have released final regulations on how taxpayers can obtain increased tax benefits by complying with prevailing wage and apprenticeship requirements on qualifying clean energy projects. These regulations include increased credits for certain federal income tax incentives, including the energy investment tax credit and production tax credit. These rules apply to work performed from January 29, 2023, onwards, with apprenticeship requirements not applicable after a project is in service.
Increased Tax Benefits for Clean Energy Projects under Recently Released Guidelines
The U.S. Department of the Treasury and the Internal Revenue Service have published official guidelines on how increased tax benefits can be accessed by adhering to prevailing wage and apprenticeship (PWA) obligations on eligible clean energy projects.
These guidelines pertain to boosted credit amounts for specific federal income tax credits and incentives, notably the energy investment tax credit (ITC) and production tax credit (PTC).
To qualify for enhanced credit amounts, taxpayers must satisfy one of the following:
- PWA requirements;
- The onset of construction exception; or
- The one megawatt exception.
The PWA Transition Rule states that work done before January 29, 2023, is exempt from PWA requirements, irrespective of any applicable construction start exception. Consequently, taxpayers only need to adhere to PWA requirements for any construction, alteration, or repair work completed on or after this date.
The PWA Transition Rule applies to taxpayers who initiated construction before January 29, 2023, but failed to meet the construction start exception. These taxpayers are required to meet PWA requirements for work performed on or after this date.
The final guidelines further illustrate that apprenticeship obligations cease to apply once the project has been put into service. These requirements are applicable to alterations and repairs during construction but not once a facility is operational.
The Orrick energy tax team is currently examining the final regulations and will offer further insights soon.
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