Six Takeaways From The IRS’ Start Of Construction Guidance: What You Need To Know


Six Takeaways From The IRS' Start Of Construction Guidance: What You Need To Know On Aug. 20, the American Wind Energy Association (AWEA) held a webinar to discuss IRS Notice 2014-46 that clarified the rules for wind projects to be grandfathered for production tax credit (PTC) eligibility purposes as having started construction in 2013.

There are two ways for projects to have obtained grandfathering status: spend 5% of their cost in 2013, or undertake significant physical work either on or off the project site in 2013. The highlight of the webinar came during a question-and-answer session, when the IRS' Christopher Kelley, Jamie Park, Philip Tiegerman and Jennifer Bernardini weighed in on several aspects of start of construction and its impact on PTC eligibility.

In case you missed the webinar, here are six key takeaways:

Size does not matter. The same level of physical work of a significant nature could qualify a 2 MW project or a 200 MW project.

The excavation process can be cut short due to winter. Kelley was asked has whether ‘excavation has begun’ for purposes of meeting the significant physical work requirement, if at the end of 2013, a project owner started excavating a turbine site but did not ‘finish off’ the excavation due to the pending winter being likely to damage the finishing work? His response was, ‘Sounds like excavation has begun and is significant.’

No binding written contract requirement for on-site work. Kelley was asked if work done on the project site constituting ‘significant physical work’ must have been performed pursuant to a binding contract that was signed before the work started. After an apparent sidebar with his IRS colleagues, he responded, ‘I don't think so, if the work is done on-site and is significant.’

One level of look-through for the 5% safe harbor: It is possible for a project owner to have contracted with a manufacturer or a balance-of-plant contractor and that contractor to have incurred the 5% in 2013. However, the contractor cannot enter into a sub-contract and have that sub-contractor incur the 5% in 2013.

The final project did not have to be in the developer's sights in 2013. It was confirmed that a developer does not have to be able to prove that it purchased equipment or did significant physical off-site work for a particular project that it was intending to develop as of the end of 2013. Further, the developer may have had one project in mind at the end of 2013 and then used the purchased equipment or the work performed off-site for a different project.

Don't traffic in safe-harbor turbines. Transfers of either grandfathered projects or safe-harbored equipment are required to be either to a party that is at least 20% related or to include a power purchase agreement, an inter-connection agreement, land rights or permits.

Kelley was asked why the IRS added these additional requirements to the transfer rules. He responded that the IRS was concerned about "trafficking in turbines," referring to when speculators purchase turbines to meet the 5% safe harbor and then turn around and sell the turbines to a bona fide developer that needs them to qualify for tax credits. It is important to note that the remarks from the IRS were qualified as informal and non-binding.

Author's note: David Burton is partner at law firm Akin Gump Strauss Hauer & Feld. He can be reached at To read more about the webinar, check out Burton's Tax Equity Telegraph blog.

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