SECTION 8. TRANSFER OF

ENERGY PROPERTY

.01 In general . Section 48(a)(3)(B) provides that energy property is any prop

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of an energy property with the intent to develop the energy property at a certain site, and thereafter transfer components of property of the energy property to a different site, complete its development, and place it in service. The work performed or the amounts paid or incurred prior to the site transfer by such a taxpayer may be taken into account for purposes of determining when the energy property satisfies the Physical Work Test or the Five Percent Safe Harbor.

.03 Transfers of Equipment Between Unrelated Parties . (1) In general . In the case of a transfer consisting solely of tangible personal property (including contractual rights to such property under a binding written contract) to a transferee not related (within the meaning of § 197(f)(9)(C) and Treas. Reg. § 1.197– 2(h)(6)) to the transferor, any work performed or amounts paid or incurred by the transferor with respect to such transferred property will not be taken into account with respect to the transferee for purposes of the Physical Work Test or the Five Percent Safe Harbor.

(2) Example . A developer, X, intends to develop and operate Project I at a location to be determined. In 2018, X pays or incurs $60,000 to have tangible personal property integral to Project I manufactured off-site pursuant to a binding written contract. Thereafter X incurs no further development costs and engages in no further development activity with respect to Project I. In January 2019, X sells the tangible personal property to another developer, Y, a party unrelated to X. Y is developing and intends to operate Project J, an energy property located on a parcel of land owned by Y. Y incorporates the tangible personal property acquired from X into Project J. In October 2019, Y places Project J in service on the parcel of land. The total cost of Project J is $1,000,000.

Amounts paid or incurred by X in 2018 for the tangible personal property cannot be taken into account by Y for purposes of satisfying the Five Percent Safe Harbor with respect to Project J because X and Y are not related persons as described in section 8.03(1) of this notice. However, if without regard to these components of property, Y has otherwise satisfied the Physical Work Test or the Five Percent Safe Harbor with respect to Project J in 2018, Y will be considered to have begun construction in 2018.