IRS Issues Notice 2017-04, Further Clarifying and Extending the "Begun Construction" Requirements for ITCs and PTCs

Via JD Supra Business Advisor.

On December 15, 2016, the IRS issued Notice 2017-04, which clarifies and extends certain "begun construction" requirements for facilities qualifying for the Section 45 production tax credit (PTC) for which construction must begin before a date certain—January 1, 2017, for certain facilities (e.g., solar, geothermal, and closed- or open-loop biomass) and January 1, 2020, for wind facilities. Notice 2017-04 clarifies guidance provided in Notice 2013-29, Notice 2013-60, Notice 2014-46, Notice 2015-25, and Notice 2016-31 (collectively, the "Begun Construction Guidance").1 A taxpayer who qualifies for PTCs may make an election to instead claim the Section 48 investment tax credit (ITC) with respect to the facility.

Under the Begun Construction Guidance, two alternative methods are provided to determine when construction has begun: (1) the physical work test (i.e., physical work of a significant nature has begun and the taxpayer maintains a continuous program of construction); and (2) the five percent safe harbor (i.e., at least five percent of the total cost of the eligible property has been paid or incurred and the taxpayer maintains continuous efforts to advance towards completion of the facility).

The IRS issued Notice 2017-04 to provide additional guidance with respect to the continuity safe harbor, the prohibition against combining methods, and the application of the five percent safe harbor to retrofitted facilities.