SECTION 5. OTHER RULES — Internal Revenue Bulletin 2025-36

.01 Construction by contract . For property that is manufactured, constructed, or produced for the taxpayer by another person under a binding written contract (as described in section 5.01(1) of this notice), the work performed under the contract is taken into account in determining when physical work of a significant nature begins, provided the contract is entered into prior to the work taking place.

(1) Binding written contract . A contract is binding only if it is enforceable under local law against the taxpayer or a predecessor and does not limit damages to a specified amount (for example, by use of a liquidated damages provision). For this purpose, a contractual provision that limits damages to an amount equal to at least five percent of the total contract price will not be treated as limiting damages to a specified amount. For additional guidance regarding the definition of a binding contract, see § 1.168(k)-1(b) (4)(ii)(A)-(D).

(2) Master contract . If a taxpayer enters into a binding written contract for a specific number of components to be manufactured, constructed, or produced for the taxpayer by another person (a “master contract”), and then through a new binding written contract (a “project contract”) the taxpayer assigns its rights to certain components to an affiliated special purpose vehicle that will own the applicable wind or solar facility for which such property is to be used, work performed with respect to the master contract may be taken into account in determining when physical work of a significant nature

begins with respect to the applicable wind or solar facility.

.02 Qualified facility - (1) In general . Physical work of a significant nature with respect to an applicable wind or solar facility must be performed with respect to property included in a qualified facility, as defined in § 1.45Y-2(b) or § 1.48E-2(d), as applicable.

(2) Single project . Solely for purposes of determining whether construction of an applicable wind or solar facility has begun for purposes of this notice, multiple facilities that are operated as part of a single project (along with any property, such as a computer control system, that serves some or all such facilities) will be treated as a single applicable wind or solar facility. Whether multiple facilities are operated as part of a single project will depend on the relevant facts and circumstances. Factors indicating that multiple facilities are operated as part of a single project include, but are not limited to:

(a) The facilities are owned by a single legal entity;

(b) The facilities are constructed on contiguous pieces of land;

(d) The facilities have a common intertie;

(e) The facilities share a common substation;

(f) The facilities are described in one or more common environmental or other regulatory permits;

(g) The facilities were constructed pursuant to a single master construction contract; and

(h) The construction of the facilities was financed pursuant to the same loan agreement.

(3) Timing of single project determi- nation . The determination of whether multiple facilities are operated as part of a single project and are therefore treated as a single applicable wind or solar facility for purposes of this notice must be made in the calendar year during which the last of the multiple facilities is placed in service.

.03 Property integral to the applica- ble wind or solar facility . Only physical work of a significant nature on tangible

personal property and other tangible property used as an integral part of the activity performed by the applicable wind or solar facility will be considered for purposes of determining whether a taxpayer has begun construction of an applicable wind or solar facility. This includes property integral to the production of electricity, but does not include property used for electrical transmission. See §§ 1.45Y-2(b)(3) and 1.48E-2(d)(3) for additional descriptions of property integral to a qualified facility.

.04 Application of 80/20 rule to retro- fitted applicable wind or solar facilities

(1) In general . A retrofitted applicable wind or solar facility may qualify as originally placed in service even though it contains some used components of property, provided the fair market value of the used components of property is not more than 20 percent of the applicable wind or solar facility’s total value (the cost of the new components of property plus the value of the used components of property) (80/20 Rule). See §§ 1.45Y-4(d) and 1.48E-4(c). In the case of a single project comprised of multiple facilities (as described in section 5.02(2) of this notice), the 80/20 Rule is applied to each facility comprising the single project. For purposes of the 80/20 Rule, the cost of a new applicable wind or solar facility includes all properly capitalized costs of the new applicable wind or solar facility.

(2) Beginning of construction . In situations where the 80/20 Rule applies, the Physical Work Test applies only with respect to the work performed on, or amounts paid or incurred for, new components of property used to retrofit an existing applicable wind or solar facility. The total cost of the applicable wind or solar facility does not include the cost of land (including lease payments) or any property that is not part of the applicable wind or solar facility, as described in section 5.03 of this notice. .05 Transfer of an applicable wind or solar facility - (1) In general . A taxpayer may claim either the § 45Y credit with respect to electricity produced by such taxpayer at an applicable wind or solar facility or the § 48E credit with respect to the taxpayer’s qualified investment with respect to an applicable wind or solar

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facility. Neither § 45Y nor § 48E requires the taxpayer to own the applicable wind or solar facility at the time construction began on the applicable wind or solar facility. Accordingly, except as provided in section 5.05(3) of this notice, a fully or partially developed applicable wind or solar facility may be transferred without losing its qualification under the Physical Work Test for purposes of the § 45Y credit or the § 48E credit.

(2) Relocation of equipment by a tax- payer . A taxpayer may begin construction of an applicable wind or solar facility with the intent to develop the applicable wind or solar facility at a certain site, and thereafter transfer components of property of the applicable wind or solar facility 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 applicable wind or solar facility satisfies the Physical Work Test.

(3) Transfers of equipment between unrelated parties . 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 1.1972(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.

For example, a developer, X, intends to develop and operate Facility A at a location to be determined. In 2025, X pays or incurs $60,000 to have tangible personal property integral to Facility A 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 Facility A. In January 2026, X sells the tangible personal property to another developer, Y, a party unrelated to X. Y is developing and intends to operate Facility B, located on a parcel of land owned by Y. Y incorporates the tangible personal property acquired from X into Facility B. In October 2026, Y places

Facility B in service on the parcel of land. The total cost of Facility B is $1,000,000. Work performed for X in 2025 on the tangible personal property cannot be taken into account by Y for purposes of satisfying the Physical Work Test with respect to Facility B, because X and Y are not related persons (within the meaning of §§ 197(f)(9)(C) and 1.197-2(h)(6)) as described in section 5.05(3) of this notice. However, if without regard to the tangible personal property acquired from X, Y has otherwise satisfied the Physical Work Test with respect to Facility B in 2025, Y will be considered to have begun construction in 2025.