SECTION 2. BACKGROUND

Section 38 of the Code allows certain business credits. Among the credits allowed by § 38 are the renewable electricity production tax credit under § 45 and the investment tax credit determined ­under § 46 of the Code (which includes the energy credit under § 48). The credits under

§§ 45 and 48 generally are referred to as the production tax credit (PTC) and the investment tax credit for energy property (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. Additionally, under § 48(a)(5), a taxpayer may elect to treat certain renewable energy facilities that otherwise qualify under § 45(d) as energy property to claim the ITC in lieu of the PTC with respect to the facility. Both the PTC and the ITC have a beginning of construction requirement.

On December 27, 2020, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTRA), enacted as Division EE of the Consolidated Appropriations Act, 2021, Pub. L. 116-260, Title I, 134 Stat. 1182, 3052-53, 3057-58, amended §§ 45 and 48 with regard to the PTC and the ITC. Section 131(a) of the TCDTRA extended the deadline to begin construction for certain qualified facilities for one year to December 31, 2021. Section 131(b) of the TCDTRA extended the beginning of construction deadline applicable to the election to claim the ITC in lieu of the PTC by one year with respect to certain qualified facilities to December 31, 2021. Section 132(a) of the TCDTRA extended the deadlines for the beginning of construction requirements for certain ITC-eligible energy property to December 31, 2023. In addition, sections 131(c) and 132(b) of the TCDTRA extended the beginning of construction deadlines for the phaseout provisions applicable to the PTC and the ITC. Finally, section 204 of the TCDTRA amended § 48(a)(5) to provide special rules for “qualified offshore wind facilities.”

The Department of the Treasury (Treasury Department) and the IRS have published several notices regarding the beginning of construction requirement. Notice 2013-29 provides two methods to establish that the beginning of construction requirement under §§ 45 and 48(a)(5) has been satisfied with respect to a facility: the Physical Work Test and the Five Percent Safe Harbor. Both methods require a taxpayer to make continuous progress towards completion of the facility once construction has begun (Continuity Requirement).

Section 4 of Notice 2013-29 provides the Physical Work Test. Section 4.01 of Notice 2013-29 provides:

Construction of a qualified facility begins when physical work of a significant nature begins. . . . Whether a taxpayer has begun construction of a facility before [the statutory deadline] will depend on the relevant facts and circumstances. The Internal Revenue Service will closely scrutinize a facility, and may determine that construction has not begun on a facility before [the statutory deadline] if a taxpayer does not maintain a continuous program of construction as determined under section 4.06. Section 4.06(1) of Notice 2013-29 provides that a continuous program of construction involves continuing physical work of a significant nature (Continuous Construction Test). Further, section 4.06(1) of Notice 2013-29 provides that whether the taxpayer has maintained a continuous program of construction will be determined by the relevant facts and circumstances.

Section 5.01 of Notice 2013-29 provides the Five Percent Safe Harbor:

Construction of a facility will be considered as having begun before [the statutory deadline] 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 facility, except as provided in

1 Notice 2013-29, 2013-20 I.R.B. 1085; Notice 2013-60, 2013-44 I.R.B. 431; Notice 2014-46, 2014-36 I.R.B. 520; Notice 2015-25, 2015-13 I.R.B. 814; Notice 2016-31, 2016-23 I.R.B. 1025; Notice 2017-04, 2017-4 I.R.B. 541; Notice 2018-59, 2018-28 I.R.B. 196; Notice 2019-43, 2019-31 I.R.B. 487; Notice 2020-41, 2020-25 I.R.B. 954; and Notice 2021-5, 2021-3 I.R.B. 479 (collectively, the prior IRS notices).

Bulletin No. 2021–29 17 July 19, 2021

section 5.01(2), before [the statutory deadline] and (2) thereafter, the taxpayer makes continuous efforts to advance towards completion of the facility (as determined under section 5.02). Section 5.02(1) of Notice 2013-29 provides that whether a taxpayer makes continuous efforts to advance towards completion of the facility will be determined by the relevant facts and circumstances (Continuous Efforts Test). This section also provides that facts and circumstances indicating continuous efforts to advance towards completion of the facility may include, but are not limited to:

(a) paying or incurring additional amounts included in the total cost of the facility; (b) entering into binding written contracts for components or future work on construction of the facility; (c) obtaining necessary permits; and (d) performing physical work of a significant nature. Notice 2013-60 clarifies certain concepts provided in Notice 2013-29. Notice 2013-60 provides a Continuity Safe Harbor that allows a facility to be deemed to have satisfied the Continuity Requirement. Section 3.02 of Notice 2013-60 provides that if a facility is placed in service before January 1, 2016, the facility will be considered to satisfy the Continuous Construction Test (for purposes of satisfying the Physical Work Test) or the Continuous Efforts Test (for purposes of satisfying the Five Percent Safe Harbor). Section 3.02 of Notice 2013-60 also provides that if a facility is not placed in service before January 1, 2016, whether the facility satisfies the Continuous Construction or Continuous Efforts Tests will be determined by the relevant facts and circumstances, as described in section 4.06 and section 5.02 of Notice 2013-29.

The Treasury Department and the IRS have published several notices further extending and modifying the Continuity Safe Harbor. Notice 2015-25 extended the Continuity Safe Harbor for one year by replacing “January 1, 2016” provided in Notice 2013-60 with “January 1, 2017.” Notice 2016-31 modified the Continuity Safe Harbor originally provided in section 3.02 of Notice 2013-60 and extended by Notice 2015-25. Section 3 of Notice 2016-31 provides that if a taxpayer plac

es 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. Notice 2017-04 further extended and modified 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.