All laborers and mechanics involved in the project—whether they are employees of the taxpayer, contractor, or subcontractor—must be compensated at least the prevailing wage rates as determined by the U.S. Department of Labor under the Davis-Bacon Act for similar work within the project’s locality. The “prevailing wage” is listed for a particular classification of laborer or mechanic on the applicable wage determination for the type of construction and geographic area as determined by the U.S. Secretary of Labor. Such rates apply to hourly wages and contributions made pursuant to a fringe benefit plan, with such fringe benefits to include medical or hospital care, pensions, unemployment benefits, life insurance, vacation pay, etc.13 This not only applies during construction but also extends five years post-construction. Apprentices, recognized within a registered apprenticeship program, must carry out a defined percentage of total labor hours. This begins at 12.5% for projects initiating construction in 2023, increasing to 15% for projects starting from 2024 on. Taxpayers must adhere to the U.S. Department of Labor’s prescribed apprentice-tojourneyworker ratios. Taxpayers must also fulfill specific recordkeeping requirements concerning wage and apprenticeship data. It should be noted that IRS Notice 2022-61 does not modify the “good faith” exception, which permits taxpayers to benefit from the ITC if they can demonstrate they made an honest attempt to comply with these requirements, or the Act’s remedial provisions, which offer solutions for non-compliance. 4. Credit Transferability & Direct Pay IRC Section 6418 permits transferring the ITC, among other certain energy credits. On June 14, 2023, the U.S. Treasury Department and IRS released proposed regulations expanding on energy credit transferability under IRC Section 6418. This Section 4 provides a high-level summary of these proposed regulations. A taxpayer can elect to transfer all or a portion of an eligible credit to an unrelated transferee taxpayer. However, the following requirements, attributes, and impacts apply: The transfer must be a one-time event; The transfer must be a cash purchase; The income from the transfer is not included in the seller’s income; The cost of the transfer is not deductible by the transferee; and The transferee cannot further transfer any part of the credit. The taxpayer can transfer all or part of the credit to multiple taxpayers, as long as the total tax credits transferred do not exceed the project’s eligible total. Tax-exempt entities and other entities defined for direct-pay purposes are prohibited from electing to transfer credits, with an additional 20% penalty applying to “excessive credit transfers.” Taxpayers electing to transfer must complete a prefiling registration process through an online portal and obtain unique registration numbers for each eligible property. Similarly, direct pay (sometimes referred to as elective pay) allows eligible entities, such as nonprofits, governmental agencies, and the like, to apply to the IRS to claim a refund of the tax credit amount, which is then paid directly to such applicant. A credit that is transferred to the eligible entity is then ineligible for direct pay. Note that the foregoing Section 4 reflects proposed regulations and guidance, which are subject to comment and further change by the U.S. Department of Treasury and the IRS. CONCLUSION The ITC serves as a key financial incentive to boost investment in renewable energy projects. Eligibility for the ITC rests upon various requirements, including property ownership, operational status, and commencement of construction within specified timelines. As the recent Act has broadened the scope of eligible properties and deadlines, acquiring a thorough understanding of these evolving regulations is crucial for determining whether one is eligible for the ITC and to what extent. As every energy project is unique, the specific legal and tax implications can vary. As such, this article should be used as a guide and not as a definitive source of advice. We recommend consulting with a Baird Holm LLP attorney and a qualified accountant for advice regarding the specific tax implications of a project. Hannah Fischer Frey is a partner and Tristin S. Taylor is an associate at Baird Holm LLP. Fischer Frey focuses her law practice in the areas of federal and state income tax law and business succession planning. Taylor’s practice focuses on corporate transactions and general corporate matters, including entity formation, corporate governance, strategic transactions, and regulatory compliance. For more information, contact Fischer Frey or Taylor at hfrey@bairdholm.com or ttaylor@bairdholm.com, respectively. Endnotes 1 See Pub. L. No. 117-169. 2 IRC § 48. 3 IRC § 48(a)(3). 4 IRC § 48E. 5 IRC § 48(a)(5)(D); See also IRS Notice 2013-29; Treas. Reg. § 1.46-3(d)(4). 6 IRS Notice 2013-29; IRC § 48(a)(5). 7 IRS Notice 2018-59. 8 IRS Notice 2018-59. 9 See IRC § 48C. 10 IRC 48(a)(12), (14). 11 IRC 45(b)(9)(B). 12 IRS Notice 2022-61. 13 These requirements are further detailed in IRS Notice 2022-61 and the Davis-Bacon Act. 14 Nebraska CPA
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