The 60-Day Clock Is Running!
Notice 2022-61: Prevailing Wage and Apprenticeship Initial Guidance
The Inflation Reduction Act (IRA) extended and expanded many of the existing clean energy credits and added several new credits to the Internal Revenue Code. However, in some cases the IRA reduced existing clean energy credits to lower “base” credit amounts. For many of the credits established or impacted by the IRS, certain “bonus” credit provisions were put in place that increase the credit amount. In the case of existing credits where the base credit amount was reduced, meeting the bonus credit requirements will generally allow the credit amount back to the prior base credit amount. The most common bonus credit—normally a bonus of multiplying the base credit times five (“times five bonus”)—can be claimed if both a prevailing wage and an apprenticeship requirement are met. However, these two conditions generally are not required to be met in order to claim the times five bonus if the construction of the facility or installation of certain energy property began on or before 60 days after the date of guidance publication. In essence, there is a 60-day grace period for receiving the times five bonus without having to meet the prevailing wage and apprenticeship requirements, and this “60-day clock” began on November 30, 2022 with the publication of Notice 2022-61 and ends on January 29, 2023. This FORsights™ article explains some of the new guidance made available in this Notice.
Overall, the Notice can be used as guidance for the tax credits and deductions included in the following code sections: 30C, 45, 45Q, 45V, 45Y, 48, 48E, and 179D. The notice can also be used for 45L and 45U with reference to the prevailing wage requirements only. The basic definition and requirements of the prevailing wage and apprenticeship requirements did not change with the Notice. The prevailing wage requirement states that the taxpayer, contractor, and subcontractors must pay at least the prevailing wage rates to laborers during the construction period and within the 10-year period beginning on the date that the qualified facility (or property) is originally placed in service. The apprenticeship requirement states that at least a certain amount of labor hours should be performed by qualified apprentices and that there should be a ratio of apprentice to journey workers throughout the qualified project. This requirement is subject to some exceptions including the “Good Faith Effort Exception,” on which the notice provides clarity. Some key insights with this Notice are as follows:1
- Establishing “Beginning of Construction”: “The IRS Notices describe two methods that a taxpayer may use to establish that construction of a facility begins: (i) by starting physical work of a significant nature (Physical Work Test), and (ii) by paying or incurring five percent or more of the total cost of the facility (Five Percent Safe Harbor).” Both tests include the activities of contractors and both on-site and off-site work.
- Continuity Requirement and Safe Harbor: In defining when construction begins, continuous construction or efforts must take place. There is also a safe harbor test based on the placed in service date as well.
- Prevailing Wage Determinations: www.sam.gov should be used to find a “prevailing wage determination for the geographic area and type of construction applicable to the facility, including all labor classifications for the construction, alteration, or repair.” Submission of a request is required if there is not a determination already published.
- Examples of Record-Keeping Requirements: Listing of records needed would include “identifying the applicable wage determination, the laborers and mechanics who performed construction work on the facility, the classifications of work they performed, their hours worked in each classification, and the wage rates paid for the work.”
Even with this additional notice, FORVIS foresees further clarifying guidance to come. Perhaps the biggest result of this notice is the start of the 60-day clock. If you are considering involvement in clean energy, reach out to your FORVIS advisor or submit the Contact Us form below.