SECTION 4. SAFE HARBOR FOR 3½

MONTH RULE

The Five Percent Safe Harbor treats construction as beginning with respect to any qualified facility or energy property when the taxpayer (or another person in the case of the look-through provision) pays or incurs five percent of total projects costs. Under the principles of § 461(h), the all events test for determining whether a liability has been incurred generally is not satisfied any earlier than when economic performance occurs with respect to the liability. Under § 1.461-4(d)(2)(i) of the Income Tax Regulations, if the liability of the taxpayer arises out of the provision of services or property, economic performance for the liability ordinarily occurs as such services or property is provided to the taxpayer. However, under the special rule set forth in § 1.461‑4(d)(6)(ii) (3½ Month Rule), a taxpayer may treat services or property as provided to the taxpayer as the taxpayer makes payment to the person providing the services or property if the taxpayer can reasonably expect the person to provide the services or property within 3½ months after the date of payment. If the taxpayer’s reasonable expectation at the time they made the payment was that the person would provide the ordered services or property within 3½ months, regardless of any subsequent events that prevent that reasonable expectation from actually occurring, the 3½ Month Rule is satisfied and the cost is treated as incurred when paid.

As noted, the taxpayer’s reasonable expectation at time of payment is relevant for purposes of the 3½ Month Rule. However, to provide certainty and assurance, this notice further provides that for services or property paid for by the taxpayer on or after September 16, 2019, the taxpayer will be deemed to have had a reasonable expectation that the services or property would be received within 3½ months after the date of payment in the case of any services or property actually received by a taxpayer by October 15, 2020 (3½ Month Safe Harbor). Although this 3½ Month Safe Harbor will not apply to any services or property received by a taxpayer after October 15, 2020, the 3½ Month Rule may still be satisfied, as described above, based on reasonable expectations at the time of

payment. The 3½ Month Safe Harbor applies only for purposes of the beginning of construction requirement for the PTC and the ITC.