Notice 2020-41: IRS extends deadlines for renewable energy projects
The Internal Revenue Service gave developers who started construction of wind farms in 2016 or 2017 more time on May 27 to finish the projects and qualify for federal tax credits.
They will now have five years – rather than four years – to finish construction without having to prove they worked continuously on the projects after construction started. This will relieve a traffic jam that had been expected as wind developers rush to finish some 15,000 megawatts of projects facing an end-of-2020 deadline.
The same relief applies to geothermal, biomass, landfill gas, waste-to-energy, incremental hydroelectric and hydrokinetic projects that started construction in 2016 or 2017.
The IRS also gave relief to solar and fuel cell companies that paid for equipment in late 2019 expecting to take delivery within 3 ½ months after payment, but who have been having supply-chain problems.
The relief is in Notice 2020-41 and is in response to delays caused by COVID-19.
Renewable energy developers face deadlines to start construction of projects to qualify for federal tax credits.
Wind projects had to be under construction by the end of 2016 to qualify for tax credits at the full rate. Projects that started construction in 2017 qualify for tax credits at 80% of the full rate.
Solar and fuel cell developers had to have projects under construction by the end of 2019 to qualify for a full 30% investment tax credit.
There are two ways to start construction.
Projects must be completed within four years after the year construction started to qualify for tax credits. A developer whose project takes longer than four years must prove the developer worked continuously on the project to be allowed more time. The tax equity market has not yet committed to finance projects that take longer than four years (or, after today, five years for some projects).
One way to start construction is to “incur” at least 5% of the project cost before the deadline.
Developers can count costs as incurred either by taking delivery or title to equipment for the project before the deadline or by paying at year end and taking delivery or title within 3 ½ months after payment. Many tax equity investors prefer delivery. IRS regulations require that delivery within 3 ½ months only be “reasonably expected” when the payment is made to count the payment.
Solar companies asked the Treasury to allow more time for equipment ordered in late 2019.
The notice lets anyone who paid in 2019 for equipment count the payment as a 2019-incurred cost for purposes of starting construction under the 5% test as long as the equipment is delivered or title passes by October 15, 2020. The 2019 payment would have had to have been made on or after September 19, 2019. While this part of the notice is of most benefit to solar projects, the same relief will apply to all equipment orders in late 2019.
The notice does not provide any special relief for offshore wind projects. The federal government has had a hold in place since August 8, 2019 on construction permits for most such projects off the US Atlantic coast.
A group of five Republican members of the House western caucus had also asked for more time to complete projects on federal land. No special relief was provided for such projects.
Finally, the notice does not allow projects on which construction started based on physical work to be allowed more time to finish construction by proving “continuous efforts” were made on the project. They will have to prove actual continuous physical construction to be given more time.