Beginning Construction Continuity Safe Harbor Extended for National Security Concerns
Recognizing that, in some situations, a plan to develop or construct a facility or energy property may raise significant national security concerns, the IRS released Notice 2019-43 (which may be found here) on July 12, 2019, which provides that the Continuity Safe Harbor may be tolled and extended under limited circumstances.
Section 38 of the Code allows certain business credits against the tax imposed by Chapter 1 of the Code. Among the credits allowed by § 38 are the investment credit determined under § 46, including the energy credit under § 48 and the renewable electricity production credit under § 45(a). The credits under §§ 45(a) and 48 are referred to as the production tax credit (PTC) and the investment tax credit (ITC), respectively. Certain requirements must be satisfied for both the PTC and the ITC, including beginning construction by beginning physical work of a significant nature or satisfying the 5% test, as well as maintaining continuous progress towards completion of the facility once construction has begun. Notice 2013-60, as modified by Notices 2016-31 and 2017-04, and Notice 2018-59 provide a Continuity Safe Harbor for the continuous progress requirement, stating that if a taxpayer places energy property in service by the end of a calendar year that is no more than four calendar years after the calendar year during which construction of the energy property began, the energy property will be considered to satisfy the Continuity Safe Harbor.
Here, Notice 2019-43 provides that if all the requirements set forth within the Notice are satisfied, the Continuity Safe Harbor will be tolled and extended to account for delays resulting from a modification to mitigate national security concerns. Such tolling and extension is crucial, since, in order to claim the ITC and the PTC, the taxpayer must demonstrate a continuous program of construction or, alternatively, satisfy the Continuity Safe Harbor.
The tolling period will begin on the date the written notice from the Department of Defense is received and will end once all new or additional permits or licenses are obtained, written confirmation is obtained stating that such permits or licenses will not be issues, or the relevant federal or state authorities are notified, in writing, that such modification will no longer be pursued. The Continuity Safe Harbor resumes the date after such tolling period ends. The tolling period cannot exceed four years.