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Renewables Update: Treasury Expresses Intent to Modify Continuity Requirements for PTC and ITC

On May 7, 2020, in response to a letter from a consortium of U.S. Senators dated April 23, 2020 (the Senate Letter), the Treasury Department stated that it intends to modify rules related to the Continuity Safe Harbor (as defined below) applicable to the production tax credit (PTC) and the investment tax credit (ITC) in light of the COVID-19 pandemic (the Treasury Letter).

As described in greater detail here, for a taxpayer seeking to claim PTCs or ITCs, the calendar year when such taxpayer begins construction of the relevant facility or property establishes the amount of available PTCs or ITCs.  The amount of available PTCs and ITCs generally declines over time, and therefore the determination of the year when construction begins is critical to taxpayers seeking to claim these credits.  A taxpayer may establish that construction has begun on a facility or property in a particular calendar year by demonstrating that physical work of a significant nature has begun (the Physical Work Test) or, under a safe harbor, by demonstrating that five percent or more of the total cost of such facility or property has been incurred (the Five Percent Safe Harbor), in each case, during such year.  In addition, to satisfy the Physical Work Test, once physical work of a significant nature has begun, construction must be continuous until such facility or property is completed; similarly, to satisfy the Five Percent Safe Harbor, continuous efforts, rather than continuous construction, are required (the Continuity Requirement).  A taxpayer is considered to satisfy the Continuity Requirement for either the Physical Work Test or the Five Percent Safe Harbor if the relevant facility or property is placed in service by the end of a calendar year that is no more than four calendar years after the calendar year when construction began (the Continuity Safe Harbor).  If the taxpayer fails to satisfy the Continuity Safe Harbor, whether the taxpayer satisfies the Continuity Requirement will be based on the relevant facts and circumstances.

The Senate Letter expressed concern that, in light of unforeseen disruption resulting from the  COVID-19 pandemic, including disruption to supply chains, construction operations, and project timelines, projects including qualified facilities and qualified energy property previously expected to be completed by the end of 2020 or 2021 may be delayed to a later year, which could prevent such projects from satisfying the Continuity Safe Harbor.  The Senate Letter therefore proposed that, for projects beginning in 2016 or 2017, the Continuity Safe Harbor be temporarily extended from four years to five years, thereby allowing taxpayers additional time to satisfy the Continuity Safe Harbor.  Accordingly, taxpayers that began construction on projects in 2016 or 2017 would be able to satisfy the Continuity Safe Harbor if such projects are completed by the end of 2020 or 2021, respectively. Although the Treasury Letter did not provide specific terms for the extension of the Continuity Safe Harbor, the Treasury Department acknowledged the concerns raised in the Senate Letter and expressed its intent to modify the relevant rules in the near future. 

© 2020 Bracewell LLPNational Law Review, Volume X, Number 134


About this Author

Elizabeth McGinley, Energy, Tax, Attorney, Bracewell law firm

Elizabeth McGinley is the head of the firm's tax practice. She represents a variety of clients in the oil and gas and electric power industries, including private equity firms investing in oil and gas exploration, production and infrastructure. Her experience includes complex debt and equity financing, joint ventures and project finance, as well as experience with volumetric production payment (VPP) transactions. 

In addition, Elizabeth has experience in partnership and corporate transactions including mergers and acquisitions and spin-off...

Steven Lorch, Tax Attorney Bracewell Law Firm

Steven Lorch advises publicly-held businesses and private clients, including private equity sponsors and investors, on the U.S. tax aspects of mergers, acquisitions, divestitures and joint venture transactions, with a particular focus on  energy and infrastructure transactions.  His clients have included parties to midstream and upstream oil and gas joint ventures, sponsors and investors in development and financing of infrastructure and power projects, and private equity investors in a broad range of transactions, both within and without the energy and infrastructure sectors.  Steven has significant experience in a broad range of complex capital markets and lending transactions,  and has represented creditors and distressed borrowers in restructuring transactions and workouts.  Steven also advises foreign and domestic clients with respect to various U.S. tax issues inherent in cross-border transactions, including those related to capital structure, income tax treaties, and controlled foreign corporation and passive foreign investment company status.

In addition, Steven maintains an active pro bono tax practice with a particular focus on advising nonprofit organizations on matters related to their federal tax-exempt status.


Catherine (PRON. “Catrina”) Engell advises clients in tax matters related to corporate transactions, including mergers and acquisitions.  Previously she represented clients in federal, state, and local tax disputes before the Internal Revenue Service (IRS), the Tax Division of the US Department of Justice and state and local taxing authorities.