SECTION 5. FIVE PERCENT SAFE

HARBOR

.01 In general . Construction of energy property will be considered as having begun if:

(1) a taxpayer pays or incurs (within the meaning of Treas. Reg. § 1.461– 1(a)(1) and (2)) five percent or more of the total cost of the energy property, and

(2) thereafter, the taxpayer makes continuous efforts to advance towards completion of the energy property (as determined under section 6.02 of this notice).

.02 Total Cost of Energy Property . All costs properly included in the depreciable basis of the energy property are taken into account to determine whether the Five Percent Safe Harbor has been met. The total cost of the energy property does not include the cost of land or any property not integral to the energy property, as described in section 7.02 of this notice.

.03 Cost Overruns . (1) Single Project . If the total cost of an energy property that is a single project comprised of multiple energy properties (as described in section 7.01(2) of this notice) exceeds its anticipated total cost, so that the amount a taxpayer actually paid or incurred with respect to the single project turns out to be less than five percent of the total cost of the single project at the time it is placed in service, the Five Percent Safe Harbor is not fully satisfied. However, the Five Percent Safe Harbor will be satisfied and the § 48 credit may be claimed with respect to some, but not all, of the energy properties (as described in section 7.01(1) of this notice) comprising the single project, as long as the total aggregate cost of those energy properties is not more than twenty times greater than the amount the taxpayer paid or incurred.

(a) Example . In 2018, taxpayer incurs $25,000 in costs to construct Project A, comprised of five energy properties that will be operated as a single project. Taxpayer anticipates that each energy property will cost $100,000 for a total cost for Project A of $500,000. Thereafter, the taxpayer makes continuous efforts to advance towards completion of Project A. The taxpayer timely places Project A in service in a later year. At that time, the actual total cost of Project A amounts to $600,000, with each energy property costing $120,000. Although the taxpayer did not pay or incur five percent of the actual total cost of Project A in 2018, the taxpayer will be treated as satisfying the Five Percent Safe Harbor in 2018 with respect to four of the energy properties, as their actual total cost of $480,000 is not more than twenty times greater than the $25,000 in costs incurred by the taxpayer. Thus, the taxpayer may claim the § 48 credit based on $480,000, the cost of four of the energy properties.

(2) Single Energy Property . If the total cost of a single energy property, which is not part of a single project comprised of multiple energy properties (as described in section 7.01(2) of this notice) and cannot be separated into multiple energy properties, exceeds its anticipated total cost so that the amount a taxpayer actually paid or incurred with respect to the single energy property as of an earlier year is less than five percent of the total cost of the single energy property at the time it is placed in service, then the taxpayer will not satisfy the Five Percent Safe Harbor with respect to any portion of the single energy property in such earlier year.

(a) Example . In 2018, a taxpayer incurs $25,000 in costs to construct Project B, an energy property. The taxpayer anticipates that the total cost of Project B will be $500,000. Thereafter, the taxpayer makes

continuous efforts to advance towards completion of Project B. The taxpayer places Project B in service in a later year. At that time, its actual total cost amounts to $600,000. Because Project B is a single energy property that is not a single project comprised of multiple energy properties, the taxpayer will not satisfy the Five Percent Safe Harbor as of 2018. However, if the construction of Project B satisfies the requirements of the Physical Work Test, the taxpayer may be able to demonstrate that construction began in 2018 and claim the § 48 credit with respect to Project B.