July 5, 2020

Volume X, Number 187

July 03, 2020

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IRS Extends Deadline for ITC and PTC Projects

The IRS yesterday released anticipated guidance extending the placed-in-service deadline for the Investment Tax Credit (ITC) and Production Tax Credit (PTC). Under Notice 2020-41, the “Continuity Safe Harbor” was extended to five years for any project that otherwise began construction in 2016 or 2017.

As background, the applicable credit rate for the ITC and PTC turns on when a project begins construction. The IRS has issued a series of Notices providing guidance on when a project begins construction for these purposes. Under the guidance, taxpayers can either satisfy the “Five Percent Safe Harbor” or “Physical Work Test”. In addition to requiring certain activities in the year construction begins, both methods include a second prong, requiring certain continuous work until the project is placed in service. The IRS has previously provided the Continuity Safe Harbor, under which a project will be treated as having met the second prong so long as it is placed in service by the end of the fourth year after which construction begins on the project. If the project cannot meet the Continuity Safe Harbor, the taxpayer must satisfy the continuity requirement through facts and circumstances.

In the case of the Five Percent Safe Harbor (which requires continuous efforts), demonstrating facts and circumstances is time-intensive and challenging, and is inherently uncertain. In the case of the Physical Work Test (which requires continuous physical work), demonstrating facts and circumstances is likely impossible across four years, leaving many of these projects economically unviable in the absence of IRS relief.

The new Notice extends the Continuity Safe Harbor by one year – from four years to five years – for any projects that began construction in 2016 or 2017. This is welcomed relief for projects that have experienced delays related to COVID-19. The relief is particularly helpful in that it is a blanket extension for any projects that otherwise began construction in 2016 or 2017, without requiring taxpayers prove that delays were specifically related to COVID-19. If the extension were only available for COVID-19 delays, the relief would have had limited value, as taxpayers would have simply gone from trying to demonstrate facts and circumstances relating to continuous work, to having to demonstrate facts and circumstances relating to the nature of the delays. This blanket relief was particularly important, given the cascading impact of COVID-19 through the economy and the renewables industry – which experienced delays relating to supply chains, and also relating to financing and regulatory issues, among others. The extension of the safe harbor provides needed economic certainty for all of these projects.

Notice 2020-41 also provides relief for projects that intended to satisfy the Five Percent Safe Harbor in late 2019 but where equipment has been delayed. Under the existing guidance, costs are taken into account in 2019 under the Five Percent Safe Harbor if they are paid before December 31, 2019 and the property or services are delivered within 105 days of payment (the “105 Day Rule”).  Under the new guidance, if a taxpayer made payment on or after September 16, 2019 and the property or services are provided by October 15, 2020, the taxpayer will be deemed to satisfy the 105 Day Rule. Accordingly, the payments made in 2019 can be taken into account for purposes of the Five Percent Safe Harbor. Like the Continuity Safe Harbor extension, the relief applies without regard to the reason for the delay.

Notice 2020-41 provides much needed economic certainty for the renewables industry, as stakeholders have scrambled in recent months to understand the broad impacts of COVID-19 on projects. The relief should not be seen as controversial, given that it is effectively putting taxpayers and the IRS in the economic positions they expected to be in had COVID-19 never happened.

The Notice is available here.

© 2020 McDermott Will & EmeryNational Law Review, Volume X, Number 149


About this Author

Heather Cooper, Energy Attorney, McDermott Will & Emery Law Firm

Heather Cooper is counsel in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Miami office.  She works on federal income tax matters, with a focus on energy tax issues. She represents clients in restructurings, mergers and acquisitions, and other transactional energy related matters. Her national practice includes advising on renewable energy transactions, such as solar and wind projects.

Philip Tingle Tax Attorney McDermott Will & Emery

Philip (Phil) Tingle represents energy companies such as utilities, independent power producers and financial institutions on a wide range of energy tax-related matters. He is the global head of the Firm's Energy Advisory Practice Group.

Phil provides advice regarding all aspects of renewable-energy projects, including tax equity structures, refinancings, acquisitions and dispositions, restructurings and workouts. He has extensive experience with the production tax credit and with the application of renewable credits to new technologies. Moreover, he works with the investment tax credit for numerous kinds of solar projects. Phil has filed and received a number of private letter rulings on behalf of clients regarding the production tax credit.

Recently, Phil has worked on the many aspects of the American Recover and Reinvestment Act of 2009, including the tax implications of Section 1603 Grants, the State Energy Program Grants, and Energy Efficiency and Conservation Block Grants, the production tax credit conversion to an investment tax credit, the advanced energy credit and the sequestration credit. In addition, Phil works extensively with the Global Renewable Energy Group in the United States and internationally.

Phil also advises on the use of the New Markets Tax Credit and the Section 1603 Grant with respect to several renewable projects. He works with many buyers and sellers of electric generation and gas facilities on all aspects of mergers and acquisitions, and energy contract restructurings.

Phil regularly works on contribution in aid of construction, normalization, grants and other energy related topics. In addition, he is experienced in partnership taxation and works extensively on corporate and consolidated tax issues.

Philip Tingle is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm's Miami office.  Phil’s national tax practice includes representing clients in restructuring, mergers and acquisitions, and other transactional energy related matters.