'Beginning of construction' for the renewable electricity production and energy investment tax credits.

• Author: Bernier, Mike

In Notice 2013-60, the IRS clarified Notice 2013-29 defining the beginning of construction for purposes of the Sec. 45 renewable electricity production tax credit (PTC) and the Sec. 48 energy investment tax credit (ITC).

The American Taxpayer Relief Act of 2012, P.L. 112-240, extended the Sec. 45 PTC and the Sec. 48 ITC in lieu of the PTC to facilities on which construction began before Jan. 1, 2014. Notice 201329 permitted taxpayers to establish that construction had begun by either (1) starting "physical work of a significant nature" (the physical work test) or (2) meeting a safe harbor by paying or incurring 5% or more of the total cost of the facility (the safe harbor).

Notice 2013-60

Continuous construction/continuous efforts tests: Notice 2013-29 provides that the IRS may determine that the physical work test is not satisfied if the taxpayer does not maintain a continuous program of construction (the continuous construction test). Similarly, the safe harbor under Notice 2013-29 applies only if the taxpayer maintains continuous efforts to advance toward completion of the facility (the continuous efforts test). Notice 201360 states that a facility placed in service before Jan. l, 2016, will be considered to satisfy either test. Whether a facility that is not placed in service before Jan. 1, 2016, satisfies the continuous construction and continuous efforts tests will continue to be determined by the relevant facts and circumstances as described in Notice 2013-29.

Master contract: Notice 2013-29 states that, if a taxpayer enters into a "master contract" (a binding written contract for a specific number of components to be manufactured, constructed, or produced for the taxpayer) and then enters into a new binding, written project contract assigning its rights to certain components under the master contract to an unaffiliated special-purpose vehicle that will own the facility for which the components will be used, work performed under the master contract may be taken into account in determining whether the physical work test is satisfied. Notice 2013-60 extends that treatment to the safe harbor. Thus, costs paid or incurred under the master contract may be taken into account in determining whether the safe harbor is satisfied.

Transfer of a facility: Notice 2013-29 did not address the effect of a transfer of a facility after construction has begun, leading to concerns that the rule for pretrans-fer expenditures that applied to the 5% safe...