On May 5, 2016, the Internal Revenue Service (IRS) issued Notice 2016-31 (Notice) to provide additional guidance regarding the “begun construction” requirement for renewable energy facilities seeking to qualify for the production tax credit (PTC) under Section 45 of the Internal Revenue Code (Code) or the investment tax credit (ITC) in lieu of the PTC under Code Section 48. The PTC and ITC were extended in December 2015 under the Consolidated Appropriations Act, 2016 (Budget Act). The Notice does not address the ITC extension for solar facilities, which the IRS intends to address in separate guidance.
Key highlights of the Notice include:
- Extension of the “continuity safe harbor” from two years to four years
- A prohibition on the use of different methods for satisfying the begun construction requirement in alternating years to extend the period for satisfying the continuity safe harbor
- A disaggregation rule to determine whether the continuity safe harbor has been satisfied by a renewable energy facility that is operated as part of a larger project
- Revisions to the non-exclusive list of construction disruptions that will not cause a renewable energy facility to fail the “continuous construction” or “continuous efforts” requirements
- Guidance on the application of the “5% safe harbor” to retrofitted renewable energy facilities