May 8, 2020

Treasury Department to Extend Renewable Tax Credit Safe Harbor Deadlines

Holland & Knight Energy and Natural Resources Blog
Stephen J. Humes
wind turbine and solar panel

The U.S. Department of the Treasury notified the U.S. Senate Committee on Finance this week that it will extend the continuity safe harbor requirements for renewable energy projects that must be placed in service by certain deadlines in order to be eligible for the production tax credit (PTC) and the energy investment tax credit (ITC).

The Treasury Department announcement came in a letter on May 7 from the U.S. Department of Justice Office of Legislative Affairs in response to an April 23 letter from Finance Committee Chair Chuck Grassley and his majority and ranking members that raised concern about the ongoing COVID-19 crisis on tens of thousands of jobs and billions of dollars in investments in the renewable energy industry.

The Internal Revenue Code (Code), as modified by the Consolidated Appropriations Act on Dec. 18, 2015, and current IRS guidance, requires that renewable energy projects seeking to qualify for the PTC under Section 45 of the Code, such as wind farms, must have begun construction by Jan. 1, 2020. On Feb. 9, 2018, the Bipartisan Budget Act of 2018 modified the ITC under § 48 by replacing the requirement to place energy property in service by a certain date with a requirement to begin construction by a certain later date. As modified, construction of energy property for which the ITC is sought must begin before Jan. 1, 2022, for solar photovoltaics, combined heat and power, and geothermal projects, or before Jan. 1, 2024, for fiber optic solar, fuel cells and small wind projects. IRS guidance1 provides two methods to establish the beginning of construction: 1) starting physical work of a significant nature or 2) incurring five percent or more of the total cost of the facility. Both methods require a taxpayer to make continuous progress towards completion once construction has begun,2 known collectively as the Continuity Safe Harbor test. Generally, the Continuity Safe Harbor test is satisfied if a taxpayer places a facility in service by no more than four calendar years after the calendar year during which construction of the facility began.3

Grassley's April 23 letter urged the Treasury Department to extend the Continuity Safe Harbor from four years to five years for projects that started construction in 2016 or 2017, and that this "modest adjustment to the PTC and ITC guidance would help preserve tens of thousands of jobs and billions of dollars in investments and provide some certainty in these challenging times."  Grassley's letter explained that the COVID-19 crisis was disrupting supply chains, construction operations and permitting timelines, and otherwise delaying projects on tract to be in operation by the end of 2020.

The Treasury Department responded briefly in a letter dated May 7 that "Treasury appreciates your concern and plans to modify the relevant rules in the near future."

DISCLAIMER: Please note that the situation surrounding COVID-19 is evolving and that the subject matter discussed in these publications may change on a daily basis. Please contact your responsible Holland & Knight lawyer or the author of this blog for timely advice.


1IRS Notice 2013-29; 2018-59.

2IRS Notice 2013-29 explains the Continuous Construction Test in section 4.06 and the Continuous Efforts Test in section 5.02.

3IRS Notice 2016-31; 2018-59.

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