SECTION 2. BACKGROUND

.01 Overview . Taxpayers may qualify for increased credit amounts under §§ 30C, 45, 45Q, 45V, 45Y, 45Z, 48, 48C, and 48E, or an increased deduction amount under § 179D, if certain prevailing wage and apprenticeship requirements are satisfied. ¹ In addition, taxpayers may claim an increased credit amount under §§ 45L and 45U for satisfying prevailing wage requirements. ² Further, taxpayers may qualify for bonus credit amounts under §§ 45, 48, 45Y, and 48E if certain domestic content requirements are satisfied. ³ Finally, taxpayers may qualify for increased credit amounts under §§ 45, 48, 45Y, and 48E for investment in energy communities. ⁴

.02 Prevailing Wage Requirement . Sections 45(b)(7), 30C(g)(2), 45L(g), 45Q(h)(3), 45U(d)(2), 45V(e)(3), 45Y(g) (9), 45Z(f)(6), 48(a)(10), 48C(e)(5), and 48E(d)(3) include prevailing wage requirements that taxpayers must satisfy to qualify for increased credit amounts under those sections of the Code. Section 179D(b)(4) includes prevailing wage requirements that taxpayers must satisfy to qualify for an increased deduction amount under that section. The prevailing wage requirements under these various provisions are described below.

Section 45(b)(7)(A) provides, in general, that a taxpayer satisfies the prevailing

wage requirements with respect to a qualified facility if the taxpayer ensures that any laborers and mechanics employed by the taxpayer or any contractor or subcontractor in the construction of such facility, and with respect to any taxable year for any portion of such taxable year that is within the period described in § 45(a) (2)(A)(ii), the alteration or repair of such facility, are paid wages at rates not less than the prevailing rates for construction, alteration, or repair of a similar character in the locality in which such facility is located as most recently determined by the Secretary of Labor, in accordance with subchapter IV of chapter 31 of title 40, United States Code. To determine an increased credit amount for a taxable year, the requirement under § 45(b)(7)(A)(ii) is applied to the taxable year in which the alteration or repair of the qualified facility occurs.

Section 45(b)(7)(B)(i) generally provides a correction and penalty mechanism for a taxpayer that claims the increased credit amount but fails to satisfy the prevailing wage requirement under § 45(b) (7)(A). Section 45(b)(7)(B)(ii) provides that the deficiency procedures under subchapter B of chapter 63 of the Code do not apply with respect to the assessment or collection of any penalty imposed by § 45(b) (7). Section 45(b)(7)(B)(iii) increases the penalty if the Secretary of the Treasury or her delegate (Secretary) determines that any failure to satisfy the prevailing wage requirement under § 45(b)(7)(A) is due to intentional disregard of the requirements under § 45(b)(7)(A).

Section 48(a)(10) provides, in general, that a taxpayer satisfies the prevailing wage requirements with respect to an energy project if the taxpayer ensures that any laborers and mechanics employed by the taxpayer or any contractor or subcontractor in the construction of such energy project, and for the 5-year period

beginning on the date such project is originally placed in service the alteration or repair of such project, are paid wages at rates not less than the prevailing rates for construction, alteration, or repair of a similar character in the locality in which such project is located as most recently determined by the Secretary of Labor, in accordance with subchapter IV of chapter 31 of title 40 of the United States Code. Subject to § 48(a)(10)(C), for purposes of any determination under § 48(a)(9)(A)(i) for the taxable year in which the energy project is placed in service, the taxpayer will be deemed to satisfy the requirement under § 48(a)(10)(A)(ii) at the time such project is placed in service. Section 48(a) (10)(B) provides that rules similar to the rules of § 45(b)(7)(B) (that is, the correction and penalty mechanism for failure to satisfy the prevailing wage requirement) apply. Section 48(a)(10)(C) provides that the Secretary is to, by regulations or other guidance, provide for recapturing the benefit of any increase in the credit allowed under § 48(a) by reason of § 48(a)(10) with respect to any project that does not satisfy the requirements under § 48(a) (10)(A) (after application of § 48(a)(10) (B)) for the period described in § 48(a) (10)(A)(ii) (but which does not cease to be investment credit property within the meaning of § 50(a)). The period and percentage of such recapture are determined under rules similar to the rules of § 50(a).

The prevailing wage requirements under §§ 30C(g)(2), 45L(g), ⁵ 45Q(h)(3), ⁶ 45U(d)(2),45V(e)(3),45Y(g)(9), 45Z(f) (6)(A), 48C(e)(5), 48E(d)(3), and 179D(b) (4) are similar to the requirements under § 45(b)(7) and § 48(a)(10).

.03 Apprenticeship Requirements . Sections 45(b)(8), 30C(g)(3), 45Q(h) (4), 45V(e)(4), 45Y(g)(10), 45Z(f) (7), 48(a)(11), 48C(e)(6), and 48E(d) (4) include apprenticeship requirements that taxpayers must satisfy to qualify for

1 See § 13404(d) of the IRA for the prevailing wage and apprenticeship requirements under § 30C(g); § 13101(f) of the IRA for the prevailing wage and apprenticeship requirements under § 45(b)(7); § 13104(d) of the IRA for the prevailing wage and apprenticeship requirements under § 45Q(h)(3) and (h)(4); § 13204(a)(1) of the IRA for the prevailing wage and apprenticeship requirements under § 45V(e)(3) and (e)(4); § 13701(a) of the IRA for the prevailing wage and apprenticeship requirements under § 45Y(g)(10); § 13704(a) of the IRA for the prevailing wage and apprenticeship requirements under § 45Z(f)(7); § 13102(k) of the IRA for the prevailing wage and apprenticeship requirements under § 48(a)(10) and (a)(11); § 13501(a) of the IRA for the prevailing wage and apprenticeship requirements under § 48C(e)(5) and (e)(6); § 13702(a) of the IRA for the prevailing wage and apprenticeship requirements under § 48E(c)(3) and (c) (4); and § 13303(a)(1) of the IRA for the prevailing wage and apprenticeship requirements under § 179D(b)(4) and (b)(5).

2 See § 13304(d) of the IRA for the prevailing wage requirement under § 45L(g) and § 13105(a) for the prevailing wage requirements under § 45U(d)(2).

3 See § 13101(g) of the IRA for the domestic content requirements under § 45(b)(9), § 13102(l) of the IRA for the domestic content requirements under § 48(a)(12), § 13701(a) of the IRA for the domestic content requirements under § 45Y(g)(11), and § 13702(a) of the IRA for the domestic content requirements under § 48E(a)(3)(B).

4 See § 13101(g) of the IRA for the energy community provisions under § 45(b)(11), § 13102(o) of the IRA for the energy community provisions under § 48(a)(14), § 13701(a) of the IRA for the energy community provisions under § 45Y(g)(7), and § 13702(a) of the IRA for the energy community provisions under § 48E(a)(3)(A).

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increased credit amounts under those sections of the Code. Section 179D(b)(5) includes apprenticeship requirements that taxpayers must satisfy to qualify for an increased deduction amount. The apprenticeship requirements under these various provisions are described below.

Section 45(b)(8)(A)(i) provides that a taxpayer satisfies the apprenticeship requirements with respect to the construction of any qualified facility if the taxpayer ensures that not less than the applicable percentage of the total labor hours of the construction, alteration, or repair work (including such work performed by any contractor or subcontractor) with respect to such facility is, subject to § 45(b)(8) (B), performed by qualified apprentices. Section 45(b)(8)(E)(ii) defines “qualified apprentice” as “an individual who is employed by the taxpayer or by any contractor or subcontractor and who is participating in a registered apprenticeship program, as defined in section 3131(e)(3) (B).” Section 3131(e)(3)(B) of the Code defines a “registered apprenticeship program” as an “apprenticeship registered under the Act of August 16, 1937 (commonly known as the “National Apprenticeship Act”; 50 Stat. 664, chapter 663; 29 U.S.C. 50 et seq.) that meets the standards of subpart A of part 29 and part 30 of title 29, Code of Federal Regulations.” Under § 45(b)(8)(A)(ii), the applicable percentage of total labor hours to be performed by a qualified apprentice is (1) in the case of a qualified facility the construction of which begins before January 1, 2023, 10 percent, (2) in the case of a qualified facility the construction of which begins after December 31, 2022, and before January 1, 2024, 12.5 percent, and (3) in the case of a qualified facility the construction of which begins after December 31, 2023, 15 percent.

Section 45(b)(8)(B) provides that the requirement under § 45(b)(A)(i) is subject to any applicable requirements for apprentice-to-journeyworker ratios of the Department of Labor or the applicable State apprenticeship agency.

Section 45(b)(8)(C) provides that each taxpayer, contractor, or subcontractor who

employs four or more individuals to perform construction, alteration, or repair work with respect to the construction of a qualified facility must employ one or more qualified apprentices to perform such work.

Section 45(b)(8)(D)(i) provides that a taxpayer will not be treated as failing to satisfy the apprenticeship requirements if the taxpayer (1) satisfies the good faith effort requirements described in § 45(b) (8)(D)(ii), or (2) subject to § 45(b)(8)(D) (iii), in the case of any failure by the taxpayer to satisfy the requirements under § 45(b)(8)(A) and (C) with respect to the construction, alteration, or repair work on any qualified facility to which § 45(b)(8) (D)(i)(I) does not apply, makes payment to the Secretary of a penalty in an amount equal to the product of $50, multiplied by the total labor hours for which the requirement was not satisfied with respect to the construction, alteration, or repair work on such qualified facility.

Section 45(b)(8)(D)(ii) provides that a taxpayer will be deemed to have satisfied the requirements under § 45(b)(8)(A) with respect to a qualified facility if such taxpayer has requested qualified apprentices from a registered apprenticeship program and (1) such request has been denied, provided that such denial is not the result of a refusal by the taxpayer or any contractors or subcontractors engaged in the performance of construction, alteration, or repair work with respect to such qualified facility to comply with the established standards and requirements of the registered apprenticeship program, or (2) the registered apprenticeship program fails to respond to such request within 5 business days after the date on which such registered apprenticeship program received such request.

Section 45(b)(8)(D)(iii) provides that if the Secretary determines that any failure described in § 45(b)(8)(D)(i)(II) is due to intentional disregard of the apprenticeship requirements, § 45(b)(8)(D)(i)(II) must be applied by substituting $500 for $50 for purposes of computing the penalty.

Section 45(b)(8)(E)(i) defines the term “labor hours.”

Sections 30C(g)(3), 45Q(h)(4), 45V(e) (4), 45Y(g)(10), 45Z(f)(7), 48(a)(11), 48C(e)(6) (effective for taxable years beginning after January 1, 2023), 48E(d) (4), and 179D(b)(5) apply rules similar to those under § 45(b)(8).

.04 Domestic Content Requirement . Sections 45(b)(9), 48(a)(12), 45Y(g) (11) and 48E(a)(3)(B) provide domestic content requirements that taxpayers must satisfy to qualify for bonus credit amounts under those sections of the Code. Sections 45(b)(9)(A) and 45Y(g)(11)(A) provide for a 10 percent domestic content bonus credit amount if the domestic content requirements are satisfied. Under §§ 48(a) (12)(C) and 48E(a)(3)(B), the domestic content bonus credit amount is reduced from 10 percent to 2 percent if certain other requirements are not satisfied.

Section 45(b)(9)(B)(i) provides that with respect to any qualified facility, the domestic content requirement is satisfied if the taxpayer certifies to the Secretary (at such time, and in such form and manner, as the Secretary may prescribe) that any steel, iron, or manufactured product that is a component of such facility (upon completion of construction) was produced in the United States (as determined under 49 C.F.R. § 661). Section 45(b)(9)(B)(ii) provides that in the case of steel or iron, § 45(b)(9)(B) (i) is applied in a manner consistent with 49 C.F.R. § 661.5. For purposes of § 45(b) (9)(B)(i), § 45(b)(9)(B)(iii) provides that the manufactured products that are components of a qualified facility upon completion of construction are deemed to have been produced in the United States if not less than the adjusted percentage (as determined under § 45(b)(9)(C)) of the total costs of all such manufactured products of such facility are attributable to manufactured products (including components) that are mined, produced, or manufactured in the United States.

Section 45(b)(9)(C)(i) provides that the adjusted percentage is 40 percent. Section 45(b)(9)(C)(ii) provides an exception for a qualified facility that is an offshore wind facility, for which the adjusted percentage is 20 percent. ⁷

5 Section 45L (New energy efficient home credit) includes a modified prevailing wage requirement under § 45L(g). Section 45L(g)(3) provides that the Secretary is to issue such regulations or other guidance necessary to carry out the purposes of § 45L(g).

6 Section 45Q(h)(3)(A) applies with respect to any qualified facility and any carbon capture equipment.

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Section 45(b)(10) provides for the phaseout of elective payments. Section 45(b)(10)(A) provides that in the case of a taxpayer making an election under § 6417 with respect to a credit under § 45, the amount of such credit will be replaced with the value of such credit (determined without regard to § 45(b)(10)), multiplied by the applicable percentage. Section 45(b)(10)(B) provides that in the case of any qualified facility (1) that satisfies the requirements under § 45(b)(9)(B), or (2) with a maximum net output of less than 1 megawatt (as measured in alternating current), the applicable percentage is 100 percent. Section 45(b)(10)(C) provides for a phased domestic content requirement, and states that subject to the exceptions in § 45(b)(10)(D), for any qualified facility that is not described in § 45(b)(10)(B), the applicable percentage is (1) 100 percent if construction of such facility begins before January 1, 2024, and (2) 90 percent if construction of such facility begins in calendar year 2024. ⁸

Section 45(b)(10)(D)(i) provides that the Secretary is to provide exceptions to the requirements under § 45(b)(10)(D) if (1) the inclusion of steel, iron, or manufactured products that are produced in the United States increases the overall costs of construction of qualified facilities by more than 25 percent, or (2) relevant steel, iron, or manufactured products are not produced in the United States in sufficient and reasonably available quantities or of a satisfactory quality. Section 45(b)(10)(D) (ii) provides that in any case in which the Secretary provides an exception pursuant to § 45(b)(10)(D)(i), the applicable percentage is 100 percent.

Sections 48(a)(12), 45Y(g)(11), and 48E(a)(3)(B) apply similar rules to those under § 45(b)(9). Sections 48(a)(13), 45Y(g)(12), and 48E(d)(5) apply similar elective payments rules to those under § 45(b)(10).

.05 Energy Community Requirement . Sections 45(b)(11), 48(a)(14), 45Y(g)(7), and 48E(a)(3)(A) provide energy community requirements that taxpayers must satisfy to qualify for increased credit amounts under those provisions of the

Code. Section 45(b)(11)(A) provides that in the case of a qualified facility located in an energy community, the credit determined under § 45(a) (determined after the application of § 45(b)(1) through (10), without the application of § 45(b) (9)) is increased by an amount equal to 10 percent of the amount so determined. Section 45Y(g)(7) provides a similar rule. Under §§ 48(a)(14) and 48E(a)(3) (A), the increase in the credit amount for satisfying the energy community requirements is reduced from 10 percent to 2 percent if certain other requirements are not satisfied.

Section 45(b)(11)(B) provides that for purposes of § 45(b)(11), the term energy community means: (1) A brownfield site (as defined in 42 U.S.C. 9601(39)(A), (B), and (D)(ii)(III)), (2) A metropolitan statistical area or non-metropolitan statistical area that has (or had, at any time after December 31, 2009) 0.17 percent or greater direct employment or 25 percent or greater local tax revenues related to the extraction, processing, transport, or storage of coal, oil, or natural gas (as determined by the Secretary), and has an unemployment rate at or above the national average unemployment rate for the previous year (as determined by the Secretary), or (3) A census tract (i) in which a coal mine has closed after December 31, 1999; or (ii) in which a coal-fired electric generating unit has been retired after December 31, 2009; or (iii) that is directly adjoining to any census tract described in § 45(b) (11)(B)(iii)(I).

The definition of an energy community in § 45(b)(11)(B) is adopted by §§ 45Y(g) (7), 48(a)(14) (subject to certain modifications), and 48E(a)(3)(A).