IRS Grants Relief for Offshore Wind Projects and Projects on Federal Land

Notice 2021-05: IRS Grants Relief for Offshore Wind Projects and Projects on Federal Land

December 31, 2020 | By Keith Martin in Washington, DC

The Internal Revenue Service said tonight that federal tax credits can be claimed on offshore wind projects and renewable energy projects on federal land that are completed within 10 years after the year construction starts.

The new policy is in Notice 2021-05.

Until now, most renewable energy projects have had to be completed within four years after the year construction starts for tax purposes.  In May, the IRS extended the four years to five years for projects on which construction started in 2016 or 2017 to accommodate delays caused by COVID-19.

Any developer needing more time must prove either “continuous efforts” or actual “continuous construction,” depending on how construction started.

The IRS said more time is needed for offshore wind projects and projects on federal land because these types of projects “are subject to significantly greater delays” than other projects on land.  Such projects can take “up to twice as long” as other projects on land to build.

“Federal land” for this purpose means land “owned or controlled by the United States.”

If a project straddles federal land and other property, it will qualify for the 10 years if more than 50% of the project is on federal land “as determined by relative value or relative area.”

The tax equity market has been reluctant to date to commit to finance projects that take longer than the allowed period, even though the developer can prove continuous work during the period. The IRS suggested in the new notice that it may not have been really necessary to extend the period for offshore wind projects and federal land projects because the types of delays that developers of such projects have been encountering are “excusable disruptions” that can be used to explain gaps in construction and buy more time, but it said the notice would provide additional certainty.