|
Final Regs Issued on Prevailing Wage and Apprenticeship Requirements for Increased Credit Amounts
(Parker Tax Publishing June 2024)
The IRS issued final regulations regarding the increased credit amounts or the increased deduction amount available for taxpayers satisfying prevailing wage and registered apprenticeship (collectively, PWA) requirements established by the Inflation Reduction Act of 2022. The final regulations adopt the proposed regulations issued in REG-100908-23 with modifications in response to practitioners' comments. T.D. 9998.
Background
Under the Inflation Reduction Act of 2022 (IRA) (Pub, L. 117-169), increased clean energy credit amounts are available under Code Secs. 30C, 45, 45Q, 45V, 45Y, 45Z, 48, 48C, and Code Sec. 48E, and an increased deduction is available under Code Sec. 179D, for taxpayers satisfying certain prevailing wage and registered apprenticeship (PWA) requirements. The principal PWA requirements are set forth in Code Sec. 45(b)(6), (7), and (8). In general, Code Sec. 45(b)(6) provides the increased credit amount for taxpayers satisfying the PWA requirements or meeting one of the exceptions, Code Sec. 45(b)(7) provides the prevailing wage requirements (Prevailing Wage Requirements), and Code Sec. 45(b)(8) provides the apprenticeship requirements (Apprenticeship Requirements).
Increased amounts of credits or an increased deduction are generally available under Code Secs. 30C, 45, 45Q, 45V, 45Y, 48, 48E and Code Sec. 179D with respect to certain facilities, properties, projects, technologies, or equipment if beginning of construction (or beginning of installation for Code Sec. 179D) of the facility, property, project, technology, or equipment, as applicable, occurs before January 29, 2023 (BOC Exception). Additionally, the increased credit amounts generally are available under Code Secs. 45, 45Y, 48, and Code Sec. 48E with respect to certain facilities, projects, and technologies, as applicable, with a maximum net output (or capacity for energy storage technology under Code Sec. 48E) of less than one megawatt (One Megawatt Exception). Generally, if a taxpayer satisfies the PWA requirements, meets the BOC Exception, or meets the One Megawatt Exception, the amount of credit or deduction determined is equal to the otherwise determined amount of the underlying credit or deduction multiplied by five.
Prior Guidance
In November 2022, the IRS published Notice 2022-61, providing guidance with respect to the PWA requirements in Code Sec. 45(b)(7)(A) and (8), including initial guidance for determining the beginning of construction for Code Sec. 45 and other credits and the beginning of installation under Code Sec. 179D. Notice 2022-61 also started the 60-day period applicable for determining if taxpayers qualify for the increased credit or deduction amounts by satisfying the BOC Exception. Therefore, if a taxpayer began construction or installation of a facility before January 29, 2023, then the taxpayer is eligible for the increased credit amount without satisfying the PWA requirements, provided the taxpayer is otherwise eligible for the credit.
In August 2023, the IRS published proposed regulations in REG-100908-23 providing guidance on the PWA requirements under Code Secs. 30C, 45, 45L, 45Q, 45U, 45V, 45Y, 45Z, 48, 48C, 48E, and Code Sec. 179D (Proposed Regulations). In November 2023, the IRS published proposed regulations in REG-132569-17 providing guidance under Code Sec. 48 (Section 48 Proposed Regulations). Among other matters, the Section 48 Proposed Regulations withdrew and reproposed the regulations in Prop. Reg. Sec. 1.48-13 regarding the PWA requirements under Code Sec. 48, the One Megawatt Exception under Code Sec. 48(a)(9)(B)(i), and the recapture rules under Code Sec. 48(a)(10)(C) related to the Prevailing Wage Requirements.
The Proposed Regulations provided that taxpayers may rely on Prop. Reg. Sec. 1.48E-3 with respect to construction of a qualified facility on or after January 29, 2023, and on or before the date Prop. Reg. Sec. 1.48E-3 publishes as a final regulation in the Federal Register, provided, that beginning after the date that is 60 days after August 29, 2023, taxpayers follow the proposed regulations in their entirety and in a consistent manner. The Section 48 Proposed Regulations similarly provided that taxpayers may rely on Prop. Reg. Sec. 1.48-13 with respect to construction of a property or project beginning on or after January 29, 2023, and on or before the date Prop. Reg. Sec. 1.48-13 publishes as a final regulation in the Federal Register, provided, that beginning after the date that is 60 days after August 29, 2023, taxpayers follow Prop. Reg. Sec. 1.48-13 in its entirety and in a consistent manner.
In June 2024, the IRS published proposed regulations in REG-119283-23 proposing guidance under Code Secs. 45Y and 48E (Section 45Y/48E Proposed Regulations). In the Section 45Y/48E Proposed Regulations, the IRS requested comments on the proposed definition of a qualified facility with a maximum net output of less than one megawatt (as measured in alternating current) for purposes of the One Megawatt Exception under Code Sec. 45Y(a)(2)(B)(i).
T.D. 9998
On June 18, the IRS issued final regulations in T.D. 9998 that adopt the Proposed Regulations with modifications in response to practitioners' comments. The final regulations are scheduled to be published on June 25, 2024.
Observation: The IRS also released Publication 5983, IRA Prevailing Wage and Apprenticeship Requirements Fact Sheet, and updated Publication 5855, IRA Prevailing Wage & Registered Apprenticeship Overview and the Prevailing Wage and Apprenticeship Frequently Asked Questions on the IRS website.
The final regulations do not include final regulations under Code Sec. 48. Additionally, because Prop. Reg. Sec. 1.48E-3 would have incorporated the rules of Prop. Reg. Sec. 1.48-13 by cross reference, the final regulations do not include final regulations under Code Sec. 48E. The IRS intends to issue final regulations with respect to the PWA Requirements in Prop. Reg. Sec. 1.48-13 and Prop. Reg. Sec. 1.48E-3 in future Treasury decisions. In addition, all comments received pertaining to the One Megawatt Exception under Code Sec. 45Y(a)(2)(B)(i), whether in response to the Proposed Regulations or the Section 45Y/48E Proposed Regulations, will be addressed in future guidance under Code Sec. 45Y finalizing those rules.
Transition Rule
Given the complexity of the PWA requirements, the uncertainty regarding the potential retroactive effects of the PWA requirements, and the benefits to tax administration gained with consistency across the various Code sections containing PWA requirements, the IRS determined that a transition rule for the PWA requirements is appropriate.
Thus, under the final regulations, any work performed before January 29, 2023 (the date that is 60 days after the publication of Notice 2022-61) is not subject to the PWA requirements, regardless of whether there is an applicable BOC Exception. Thus, with respect to Code Secs. 45L, 45Z, and 48C, although there is no applicable BOC Exception and regardless of when construction began, taxpayers must only comply with the PWA requirements for the construction, alteration, or repair work (as applicable) occurring on or after January 29, 2023. Code Sec. 45U is not subject to the transition rule because the Prevailing Wage Requirements of Code Sec. 45U only apply to alterations or repairs of a qualified nuclear power facility that occur after December 31, 2023.
The transition rule also applies for taxpayers that may initially satisfy the BOC Exception, but later fail to meet the BOC Exception (for example, failing to meet the Continuity Requirement described in Notice 2022-61). These taxpayers must satisfy the PWA requirements for construction, alteration, or repair (as applicable) that occurs on or after January 29, 2023, but do not need to meet the PWA requirements for work that occurred prior to that date.
Applicability Date
The final regulations apply to qualified facilities placed in service in tax years ending after the date the final regulations are published in the Federal Register (date of publication) and the construction of which begins after the date of publication. Taxpayers may choose to apply the final regulations to qualified facilities placed in service in tax years ending on or before the date of publication, and qualified facilities placed in service in tax years ending after the date of publication, the construction of which begins before the date of publication, provided that taxpayers follow the final regulations in their entirety and in a consistent manner. Taxpayers may also continue to rely on the Proposed Regulations with respect to construction of a qualified facility beginning on or after January 29, 2023, and on or before the date of publication, provided, that beginning after the date that is 60 days after August 29, 2023, taxpayers follow the Proposed Regulations in their entirety and in a consistent manner.
Sections 3 and 4 of Notice 2022-61 are obsoleted for facilities, property, projects, or equipment the construction, or installation, of which begins after 60 days after the publication date.
For a discussion of the prevailing wage and apprenticeship requirements, see Parker Tax ¶104,150.
Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.
Parker Tax Pro Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com
We hope you find our professional tax research articles comprehensive and informative. Parker Tax Pro Library gives you unlimited online access all of our past Biweekly Tax Bulletins, 22 volumes of expert analysis, 250 Client Letters, Bob Jennings Practice Aids, time saving election statements and our comprehensive, fully updated primary source library.
Try Our Easy, Powerful Search Engine
A Professional Tax Research Solution that gives you instant access to 22 volumes of expert analysis and 185,000 authoritative source documents. But having access won’t help if you can’t quickly and easily find the materials that answer your questions. That’s where Parker’s search engine – and it’s uncanny knack for finding the right documents – comes into play
Things that take half a dozen steps in other products take two steps in ours. Search results come up instantly and browsing them is a cinch. So is linking from Parker’s analysis to practice aids and cited primary source documents. Parker’s powerful, user-friendly search engine ensures that you quickly find what you need every time you visit Our Tax Research Library.
Dear Tax Professional,
My name is James Levey, and a few years back I founded a company named Kleinrock Publishing. I started Kleinrock out of frustration with the prohibitively high prices and difficult search engines of BNA, CCH, and RIA tax research products ... kind of reminiscent of the situation practitioners face today.
Now that Kleinrock has disappeared into CCH, prices are soaring again and ease-of-use has fallen by the wayside. The needs of smaller firms and sole practitioners are simply not being met.
To address the problem, I’ve partnered with a group of highly talented tax writers to create Parker Tax Publishing ... a company dedicated to the idea that comprehensive, authoritative tax information service can be both easy-to-use and highly affordable.
Our product, the Parker Tax Pro Library, is breathtaking in its scope. Check out the contents listing to the left to get a sense of all the valuable material you'll have access to when you subscribe.
Or better yet, take a minute to sign yourself up for a free trial, so you can experience first-hand just how easy it is to get results with the Pro Library!
Sincerely,
James Levey
Parker Tax Pro Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com
|
