B. 5% Safe Harbor The “5% Safe Harbor” stipulates that construction can be considered to have begun if the taxpayer has paid or incurred at least 5% of the total cost of the property. To qualify under the 5% Safe Harbor, taxpayers must fulfill the requirements of Section 461, which involve the three-part “All Events Test.” Under the “All Events Test,” an accrual basis taxpayer “pays or incurs” the cost when (i) all events establishing the liability have occurred, (ii) the amount of the liability can be determined with reasonable accuracy, and (iii) economic performance has occurred with respect to the liability, subject to exceptions. RECENT ACT IMPACTS 1. Extensions & Adjustments Before the Act, owners of qualifying energy projects could claim a tax credit up to 30% of their project’s capital costs, subject to a phase-down. The Act introduced key extensions and adjustments, including: Extension of ITC availability for solar facilities that commence construction before Jan. 1, 2025; Expanded eligibility for standalone energy storage technology; and Allowing taxpayers to opt for the ITC instead of the Production Tax Credit for some qualified facilities. The Act also extended the advanced energy project credit for investments in projects that re-equip, expand, or establish certain energy manufacturing facilities.9 2. Credit Amounts The ITC base rate under the IRC stands at 6% for specific energy properties (including solar, fuel cells, waste energy recovery, combined heat and power, and small wind), and 2% for microturbine property. These rates can increase to 30% for specific energy properties and 10% for microturbine property, if the project meets criteria such as: Payment of prevailing wages during the construction phase and the first five years of operation along with adherence to registered apprenticeship requirements (detailed below in Section 3); Generation of a maximum net output of less than one MW of electrical or thermal energy; or Construction beginning within 60 days after the IRS publishes guidance on the wage and apprenticeship requirements. A bonus credit of 2% is available for projects that (a) meet domestic content requirements, or (b) are located in an energy community.10 This bonus credit increases to 10% for projects meeting the prevailing wage and workforce requirements described below in Section 3. To earn the domestic content bonus credit amount, the taxpayer must certify to the U.S. Secretary that any steel, iron, or manufactured product that is a component of such facility was produced in the United States.11 A project is located in an energy community if it is located in a brownfield site, a statistical area that depends on fossil fuels and has high unemployment, or a census tract, or adjoining census tract, where a coal mine or coal-fired electric generating unit has closed or been retired after certain dates. 3. Prevailing Wage & Apprenticeship Requirements In accordance with IRS Notice 2022-61, to qualify for the 30% ITC and be eligible for the 10% bonus credit amount, the energy project must satisfy the prevailing wage and apprenticeship requirements.12 These requirements are highly detailed; this Section 3 provides a high-level summary of such requirements. 13 www.nescpa.org
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