SECTION 2. BACKGROUND

Section 38 of the Internal Revenue Code (the Code) allows certain business credits against the tax imposed by Chapter 1 of the Code. Among the credits allowed by § 38 are the investment credit determined under § 46 and the renewable electricity production credit under § 45(a). The investment credit includes the energy credit under § 48. The credits under §§ 45(a) and 48 generally are referred to as the production tax credit (PTC) and the investment tax credit (ITC), respectively.

To qualify for the PTC, electricity must, among other things, be produced by the taxpayer at a qualified facility as defined in § 45(d). The PTC for any taxable year is calculated by multiplying an inflation-adjusted credit rate by kilowatt hours of electricity produced and sold by the taxpayer to an unrelated person. The ITC is calculated as a percentage of the basis of energy property, as defined in § 48(a) (3), placed in service during the taxable year. A taxpayer may elect under § 48(a) (5) to treat a certain qualified facilities under § 45(d) as energy property and claim the ITC rather than the PTC with respect to the facility.

Bulletin No. 2019–31 487 July 29, 2019

On December 18, 2015, the Consolidated Appropriations Act, 2016, Pub. L. No. 114-113, Div. P and Q, 129 Stat. 2242, (CAA) enacted amendments to the PTC and the ITC for certain renewable energy facilities and energy properties. The CAA extended the PTC for two years with respect to certain facilities the construction of which began before January 1, 2017, and further extended the PTC for wind facilities the construction of which begins before January 1, 2020. The CAA also modified the PTC for wind facilities by providing that the credit will phase out over four years and extended the election to claim the ITC in lieu of the PTC with respect to certain renewable energy facilities if construction of such facility began before January 1, 2017 (or January 1, 2020, in the case of wind facilities). On February 9, 2018, the Bipartisan Budget Act of 2018, Pub. L. 115-123, Div. D, 132 Stat. 64, (BBA) modified the ITC under § 48 by replacing the requirement to place energy property in service by a certain date with a requirement to begin construction by a certain later date. As modified, construction of energy property must begin before January 1, 2022. This modification has the effect of retroactively extending by five years the ITC for fiber-optic solar energy property, qualified fuel cell property, qualified microturbine property, combined heat and power system property, qualified small wind energy property, and geothermal heat pump property the construction of which begins before January 1, 2022. The BBA amendments also phase out the ITC for fiber-optic solar energy property, qualified fuel cell property, and qualified small wind energy property over five years. For these energy properties, regardless of when construction begins, the projects must be placed in service before January 1, 2024.

Notice 2013-29 provides two methods to establish beginning of construction under § 45: starting physical work of a significant nature or incurring five percent or more of the total cost of the facility. Both methods require a taxpayer to make continuous progress towards completion once construction has begun (under either the Continuous Construction Test of section 4.06 or the Continu

ous Efforts Test of section 5.02 of Notice 2013-29). Notice 2013-60 provides a safe harbor (Continuity Safe Harbor) that allows a taxpayer to be deemed to satisfy the Continuous Construction Test or the Continuous Efforts Test based on the date the facility is placed in service. If a facility is not placed in service before the required date, whether the facility satisfies the Continuous Construction or Continuous Efforts Tests is determined by the relevant facts and circumstances.

Section 3 of Notice 2016-31 modifies and extends the Continuity Safe Harbor by providing that if a taxpayer places a facility in service by the later of (1) a calendar year that is no more than four calendar years after the calendar year during which construction of the facility began or (2) December 31, 2016, the facility will be considered to satisfy the Continuity Safe Harbor.

Section 3 of Notice 2017-04 further modifies and extends the Continuity Safe Harbor by providing that if a taxpayer places a facility in service by the later of (1) a calendar year that is no more than four calendar years after the calendar year during which construction of the facility began or (2) December 31, 2018, the facility will be considered to satisfy the Continuity Safe Harbor.

For purposes of the beginning of construction requirement under § 48, section 6.05 of Notice 2018-59 also provides a Continuity Safe Harbor. If a taxpayer places energy property in service by the end of a calendar year that is no more than four calendar years after the calendar year during which construction of the energy property began, the energy property will be considered to satisfy the Continuity Safe Harbor.

A plan to develop or construct a facility or energy property (Plan) includes the construction of the electricity generating equipment, but may also include the construction or installation of additional equipment that is not part of the facility or energy property itself but which is necessary to connect the facility or energy property to the energy grid or to customers (including, but not limited to, a distribution or transmission line or other interconnection equipment).

The Treasury Department and the Internal Revenue Service recognize that, in

some situations, a Plan may raise significant national security concerns for the Department of Defense (DOD). Any efforts to mitigate these significant national security concerns by pursuing a modification to the Plan may delay the development and construction of the facility or energy property. This notice therefore provides that, with respect to any Plan that satisfies the requirements provided in section 3.01, the Continuity Safe Harbor may be tolled and extended in certain limited circumstances involving significant national security concerns. Except as otherwise specified in this notice, the guidance provided in the prior IRS notices continues to apply.