Practical advice on current issues.

Date01 April 2023
AuthorBell-Jacobs, Mo

In This Department


Inflation Reduction Act of 2022: Prevailing wage and apprenticeship requirements; p. 7.


The new participant-linked emergency savings accounts under SECURE 2.0; p. 9.


Estate planning and income tax: 10 questions to consider; p. 11.


Determining compensation deductions in M&A transactions; p. 15.


A primer on cancellation-of-debt income and exclusions; p. 17.


Navigating partnership continuations; p. 19.


Is a substitute for return a return? Understanding the statute of limitation for credits and refunds; p. 21.


PTE deduction: Timing issues for accrual-method taxpayers; p. 23.


Assessing the need for a valuation allowance; p. 24.

Improve a business's fixed-asset management with technology; p. 26.

Credits Against Tax

Inflation Reduction Act of 2022: Prevailing wage and apprenticeship requirements

On Aug. 16, 2022, President Joe Biden signed into law the Inflation Reduction Act of 2022, P.L. 117-169. One of the act's key changes relates to project developers meeting certain labor requirements for the project to qualify for increased tax incentives. Specifically, under the act, taxpayers can receive increased clean energy tax credit rates by meeting the prevailing wage and apprenticeship requirements (the labor requirements).The prevailing wage and apprenticeship requirements, by statute, apply to qualifying facilities where construction begins 60 days or more after Treasury and the IRS publish guidance on those specific requirements.

On Nov. 30,2022, the IRS and Treasury released Notice 2022-61, providing guidance on the prevailing wage and apprenticeship requirements and how to satisfy them. Pursuant to the notice, the prevailing wage and apprenticeship requirements went into effect Jan. 29, 2023, 60 days after the notice was published.

This item addresses and summarizes the prevailing wage and apprenticeship requirements of the Inflation Reduction Act, to which credits the labor requirements apply, and taxpayer considerations related to the labor requirements.


The Inflation Reduction Act is the United States'largest investment in clean energy to date. The act modified existing rules to create a regime of energy-related federal tax incentives with base and bonus credit rates. Bonus credit rates are contingent upon satisfying the labor requirements. As Biden and others have stated, the policy of the labor requirements is to create an increased number of higher-paying jobs in the renewable energy project construction sector. In his Aug. 16, 2022, signing ceremony, the president said the act would "create tens of thousands of good-paying jobs and clean energy manufacturing jobs" and domestic facilities that will produce renewable energy "all across America, every part of America."

The act's prevailing wage and apprenticeship requirements apply to the following credits and one deduction:

* Alternative fuel vehicle refueling property credit (Sec. 30C);

* Electricity produced from certain renewable resources (Sec. 45);

* New energy-efficient home credit (Sec. 45L) (prevailing wage requirements only);

* Credit for carbon oxide sequestration (Sec. 45Q);

* Zero-emission nuclear power production credit (Sec. 45U) (prevailing wage requirements only);

* Credit for production of clean hydrogen (Sec. 45V);

* Clean electricity production credit (Sec.45Y);

* Clean fuel production credit (Sec. 45Z);

* Energy credit (Sec. 48);

* Qualifying advanced energy project credit (Sec. 48C);

* Clean electricity investment credit (Sec. 48E); and

* Energy-efficient commercial buildings deduction (Sec. 179D).

The prevailing wage requirement

The act's prevailing wage provisions refer to the wage rates that must be paid to laborers and mechanics on the construction of renewable energy projects. A prevailing wage is a wage that the federal government requires to be paid by contractors to workers under the Davis-Bacon Act of 1931, P.L. 71-798, as amended. The prevailing wage is an hourly wage plus overtime and benefits and is set by the U.S. Department of Labor based on the locality where the construction, alteration, or repair is being performed. The prevailing wage published by the Labor Department's Wage and Hour Division can be found in the Wage Determinations section of the website of the federal System for Award Management.

If the prevailing wage rates for a particular locality have not been published, the taxpayer is encouraged to request a wage determination by emailing the Wage and Hour Division, providing the following information: (1) the type of facility; (2) facility location; (3) proposed labor classifications; (4) proposed prevailing wage rates; (5) job descriptions and duties; and (6) any rationale for the proposed classifications. If applicable, prevailing wages must be paid to laborers and mechanics working on the construction, alteration, or repair of a facility or project regardless of whether the laborer or mechanic is employed by the taxpayer or its contractor or subcontractor.

The apprenticeship requirement

A qualified apprentice is an individual employed by the taxpayer, contractor, or subcontractor who is participating in an apprenticeship program registered under the National Apprenticeship Act of 1937, as amended (see Sec. 3131(e)(3)(B)). Registered apprenticeship programs are approved and validated by the Labor Department or a state apprenticeship agency, signaling the program meets national standards for quality and rigor. Upon graduating, apprentices are distinguished with a national credential as they seek new employment.

Generally, the apprenticeship requirements of the Inflation Reduction Act comprise the following: (1) the apprenticeship labor hour requirements, subject to any applicable apprenticeship ratio requirements; (2) apprenticeship participation requirements', and (3) general recordkeeping requirements to establish that the apprenticeship labor hour and the apprenticeship participation requirements have been satisfied (see [section]2.01(3) of Notice 2022-61 and Sec. 45(b)(8)(A)(i)).

To satisfy the apprenticeship labor hour requirements, apprentices employed by the taxpayer must work a certain percentage of the total labor hours depending on when construction of a qualified facility began. For this purpose, total labor hours exclude any hours worked by foremen, superintendents, owners, or persons employed in a bona fide executive, administrative, or professional capacity. The relevant percentages of total labor hours are:

* Construction began before Jan. 1, 2023: 10%;

* Construction began or begins after Dec. 31, 2022, and before Jan. 1, 2024: 12.5%; and

* Construction begins after Dec. 31, 2023: 15%.

Notably, the labor hour requirements are subject to any applicable requirements for apprentice-to-journey worker ratios established by the Labor Department or an applicable state apprenticeship agency.

To satisfy the apprenticeship participation requirement, taxpayers, contractors, or subcontractors with four or more workers employed to perform construction, alteration, or repair work of a facility or project must employ one or more qualified apprentices to perform such work (see Sec. 45(b)(8)(C)).

Good-faith effort exception

In the event a taxpayer makes a goodfaith effort to meet the apprenticeship requirements but ultimately does not meet them, the taxpayer could still be deemed to have met the apprenticeship requirements by satisfying the "goodfaith effort" exception. A taxpayer will be considered to have made a good-faith effort in requesting qualified apprentices if it requests them from a registered apprenticeship program. The taxpayer must maintain records establishing that it requested qualified apprentices from a registered apprenticeship program, along with the program's denial or nonresponse to that request.

Recordkeeping requirements for prevailing wage and apprenticeship compliance

With respect to the prevailing wage requirement, the notice requires a taxpayer to maintain records sufficient to establish that laborers and mechanics employed by the taxpayer and the taxpayer's contractor(s) and subcontractor(s) were paid wages no less than the prevailing wage rate of the locality where the work was performed. Sufficient records may include, but are not limited to, 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.

With respect to the apprenticeship requirement, the notice also requires taxpayers to maintain records evidencing that the apprenticeship labor hour and the apprenticeship participation requirements have been met. As further explained in the notice, taxpayers would need to keep records demonstrating that the apprentice-to-journey worker ratio of the registered apprenticeship program was met on each day that an apprentice was working; that the apprentice labor hours for construction, alteration, or repair were met; and that the apprentice participation requirements were met.

Notably, as previously mentioned, taxpayers intending to rely on the goodfaith effort exception with respect to the apprenticeship requirements need to keep records reflecting those good-faith efforts, such as documents showing the requests for apprentices and the response, if any, from the registered apprenticeship program.

More clarity with regulations likely to follow

Taxpayers wishing to take advantage of the new bonus clean energy tax credit rates must ensure that both the prevailing wage and apprenticeship requirements are satisfied as needed. Imperatively, as explained in the notice, taxpayers must keep records sufficient to establish that these labor requirements have been met.

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