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“Help Me Get My Feet Back on the Ground”: IRS and Treasury Issue Initial Guidance on Prevailing Wage and Apprenticeship Requirements Under IRA

On November 29, 2022, the Internal Revenue Service (IRS) and the Treasury issued a Notice of Initial Guidance (the Notice), which provides the first round of guidance with respect to the prevailing wage requirements and apprenticeship requirements introduced in the Inflation Reduction Act (the IRA).

The Notice indicates that Treasury anticipates issuing proposed regulations and other guidance with respect to the prevailing wage and apprenticeship requirements.

Specifically, the Notice (1) provides guidance on the prevailing wage and apprenticeship requirements that apply to certain sections of the Internal Revenue Code (the Code); (2) serves as the published guidance establishing the 60-day period described in certain sections of the Code with respect to the applicability of the prevailing wage and apprenticeship requirements; and (3) provides guidance for determining the beginning of construction and the beginning of installation under certain sections of the Code. The guidance issued in the Notice with respect to the prevailing wage requirements and the apprenticeship requirements is summarized below.

Prevailing Wage Rate Requirements

As provided by the IRA, increased credit amounts are available under various tax credits introduced under the IRA (including sections 30C, 45, 45L, 45Q, 45U, 45V, 45Y, 45Z, 48, 48C, and 48E), and an increased deduction is available under section 179D, for a taxpayer that ensures that laborers and mechanics employed by the taxpayer (or any contractor or subcontractor) in the construction, alteration, or repair of a facility, are paid wages at rates not less than the prevailing rates for construction, alteration, or repair of a similar character in the locality in which such facility is located as most recently determined by the US Secretary of Labor (the Prevailing Wage Rate Requirements).

The Notice provides guidance with respect to the Prevailing Wage Rate Requirements under section 45(b)(7)(A) and the substantially similar provisions set forth in sections 30C, 45L, 45Q, 45U, 45V, 45Y, 45Z, 48, 48C, 48E, and 179D. Specifically, the Notice provides that if the Secretary of Labor has published on www.sam.gov a prevailing wage determination for the geographic area and type or types of construction applicable to the facility, including all labor classifications for the construction, alteration, or repair work that will be done on the facility by laborers or mechanics, that wage determination contains the prevailing rates for the laborers or mechanics who perform work on the facility.

If the Secretary of Labor has not published a prevailing wage determination for the geographic area and type of construction for the facility on www.sam.gov, or if the Secretary of Labor has issued a prevailing wage determination for the geographic area and type of construction, but one or more labor classifications for the construction, alteration, or repair work that will be done on the facility by laborers or mechanics is not listed, then the taxpayer must contact the US Department of Labor, Wage and Hour Division via email at [email protected] and provide the type of facility, facility location, proposed labor classifications, proposed prevailing wage rates, job descriptions and duties, and any rationale for the proposed classifications. After review, the Department of Labor, Wage and Hour Division will notify the taxpayer as to the labor classifications and wage rates to be used for the type of work in question in the area in which the facility is located. We note that the prevailing rate for qualified apprentices hired through a registered apprenticeship program may be less than the corresponding prevailing rate for journeyworkers of the same classification.

Lastly, the Notice also provides a definition of “wages,” “laborer or mechanic,” “construction, alteration, or repair,” “prevailing wage,” and “prevailing wage determination.”

Apprenticeship Requirements

As provided by the IRA, increased credit amounts are available under sections 30C, 45, 45Q, 45V, 45Y, 45Z, 48, 48C, and 48E, and an increased deduction is available under section 179D, for a taxpayer who ensures that, with respect to the construction of a facility, not less than the applicable percentage of the total labor hours of the construction, alteration, or repair work (including work performed by the taxpayer, contractor, or subcontractor) is performed by qualified apprentices (the Apprenticeship Labor Hour Requirements). The applicable percentage of total labor hours is 10% for facilities the construction of which begins in 2022, 12.5% for facilities the construction of which begins in 2023, and 15% for facilities the construction of which begins in 2024 or thereafter. The Notice also reiterates that a taxpayer is subject to any applicable requirements for apprentice-to-journeyworker ratios of the Department of Labor or the applicable State Apprenticeship Agency (the Apprenticeship Ratio Requirements), and that a taxpayer (and a contractor or subcontractor) who employs four or more individuals to perform construction, alteration, or repair work with respect to the construction of a facility must employ one or more qualified apprentices to perform such work (the Apprenticeship Participation Requirements).

Unlike the discussion of the Prevailing Wage Rate Requirements, the Notice does not provide much additional guidance with respect to the Apprenticeship Labor Hour Requirements, the Apprenticeship Ratio Requirements, or the Apprenticeship Participation Requirements. However, the Notice provides a definition of “employ,” “journeyworker,” “apprentice-to-journeyworker ratio,” “construction, alteration, or repair,” and “State Apprenticeship Agency.”

© 2023 ArentFox Schiff LLPNational Law Review, Volume XII, Number 335
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About this Author

Jeffrey B. Tate Partner ArentFox Schiff LLP
Partner and Tax Practice CO-Leader

Jeff specializes in transactional tax matters and is the Co-Leader of ArentFox Schiff’s Tax Practice.

Jeff advises corporate, financial institution, investment fund, and sovereign clients on the tax aspects of domestic and cross-border transactions (including mergers and acquisitions), capital markets transactions, private equity and hedge fund investments and structuring, real estate investments (including REITs), joint ventures, securitizations, financial products, and FATCA compliance.

202-857-6185
Samantha Overly D.C. Tax Attorney ArentFox Schiff
Associate

Samantha Overly is an Associate at ArentFox Schiff's D.C. office. Samantha has a broad federal tax practice with an emphasis on providing tax planning and transactional advice to U.S. and non-U.S. based businesses and their investors. She advises clients with respect to tax issues in the areas of corporate reorganizations, joint ventures, investment funds, real estate investment trusts, and tax-exempt organizations.

Before joining ArentFox Schiff, Samantha was an associate at one of the largest professional services networks in the world, where...

202-857-6016
Rachel Scott Tax Attorney CPA ArentFox Schiff

Rachel assists clients with transactional structuring and diligence with respect to federal, state, and local tax in various industries, including manufacturers, airlines, telecommunications, corn and ethanol producers, health care providers, and individuals. As a Certified Public Accountant, Rachel uses both accounting and tax knowledge to create the best possible tax solutions.

Rachel works with clients on covered property tax, sales and use tax, transfer tax, and franchise and income tax. She has handled civil tax controversy matters and...

312-528-5519
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