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IRS Issues Notice 2015-25 Extending Safe Harbor for Continuous Construction

Yesterday, the IRS issued Notice 2015-25, which updates the guidance in Notices 2013-29,  2013-60, and 2014-46. These Notices provide that a taxpayer can show that it has “begun construction” of its qualified renewable energy facility by December 31, 2014 for purposes of taking advantage of the section 45 renewable electricity production tax credit (PTC) or the section 48 investment tax credit (ITC) in lieu of the PTC by either: (1) beginning physical construction of a significant nature and maintaining a continuous program of construction (the Physical Work and Continuous Construction Tests), or (2) incurring at least 5% of the total cost of the eligible facility and maintaining continuous efforts to advance towards the completion of the project (the 5% Safe Harbor and Continuous Efforts Test). Notice 2015-25 extends a safe harbor provided in Notice 2013-60 in which a taxpayer that places its renewable energy facility in service before January 1, 2016 will be deemed to satisfy the Continuous Construction and Continuous Efforts Tests under the Physical Work Test and the 5% Safe Harbor. The new notice extends this date. The extension is in response to the recent 1-year extension of the beginning of construction deadline to December 31, 2014. 

Takeaway: The new notice addresses uncertainty regarding how (or whether) the IRS would interpret the change to the beginning of construction deadline described above. By extending the safe harbor, taxpayers have an opportunity to avoid a subjective determination as to whether the taxpayer maintained continuous construction activities, provided that the project is placed in service by December 31, 2016. With these recent changes, so long as a taxpayer (1) “begins construction” on its renewable energy facility prior to January 1, 2015, and (2) the taxpayer (or eligible transferee) places that facility in service prior to January 1, 2017, the facility will be deemed to satisfy the Continuous Construction Test (for purposes of the Physical Work Test) or the Continuous Efforts Test (for purposes of the 5% Safe Harbor), regardless of the actual amount of physical work performed or costs paid or incurred within the January 1, 2015 through December 31, 2016 timeframe. However, to the extent the taxpayer does not place the facility in service by January 1, 2017, the taxpayer will still be required to show that based on the facts and circumstances it made continuous progress toward completion of the facility once construction began (or at least 5% of the total costs have been paid or incurred). 

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About this Author

John A. Eliason, Foley Lardner, Tax Lawyer, Energy Industry Attorney

John A. Eliason is a partner and business lawyer at Foley & Lardner LLP. He provides tax, legal, and business advice to financial institutions, equity investors, manufacturers, and project developers in the energy sector and is co-chair of the firm’s Energy Industry Team.

Mr. Eliason regularly represents clients participating in wind, solar, and other renewable energy transactions that rely on tax and other federal and state incentives such as investment tax credits, production tax credits, bonus depreciation, and other government incentive...

Kurt R. Rempe, Foley Lardner, Energy, Tax Lawyer, Pipeline Industry

Kurt Rempe is an associate and business lawyer with Foley & Larder LLP where he focuses on energy and tax law. His experience includes representing clients in tax equity investments in renewable energy projects; and regulatory matters related to the electric, natural gas and oil pipeline industry. Mr. Rempe has electric experience in transmission service and interconnection agreements, power purchase agreements, open access requirements, market-based rates, qualifying facility certification, reliability rules, sales and acquisitions of electric generation assets, enforcement matters related to energy trading and capacity market manipulation, and hydroelectric licensing. His electric experience extends to investor-owned utilities, municipalities, independent power producers, and renewable power developers. Mr. Rempe’s oil and natural gas experience includes NGA section 4 and 5 filings, transportation rate design, and regulatory litigation. His oil and gas experience extends to oil, natural gas and liquids pipeline corporations and MLPs, local distribution companies, producers, and shippers.