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IRSs Begin Construction Test for Certain Renewable Technologies Requires Careful Planning

The American Taxpayer Relief Act of 2012 (ATRA) made a significant change in the tax credit rules for projects that generate electricity from certain technologies, including wind, biomass, landfill gas, municipal solid waste, hydroelectric, marine and hydrokinetic energy and some geothermal. Formerly, these projects had to be placed in service by the end of 2013 (end of 2012 for wind) to qualify for a 2.3 cents (1.1 cents for some technologies) per kilowatt-hour production tax credit or a 30 percent investment tax credit. Under ATRA, these facilities can qualify for the credit if they “begin construction” by Dec. 31, 2013, regardless of when they are placed in service. This article explores these tests and their implications for renewable project development.

 

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By Forrest Milder

The American Taxpayer Relief Act of 2012 (ATRA) made a significant change in the tax credit rules for projects that generate electricity from certain technologies, including wind, biomass, landfill gas, municipal solid waste, hydroelectric, marine and hydrokinetic energy and some geothermal. Formerly, these projects had to be placed in service by the end of 2013 (end of 2012 for wind) to qualify for a 2.3 cents (1.1 cents for some technologies) per kilowatt-hour production tax credit or a 30 percent investment tax credit. Under ATRA, these facilities can qualify for the credit if they “begin construction” by Dec. 31, 2013, regardless of when they are placed in service. The Internal Revenue Service has published guidance on this new requirement, providing that at least one of two tests must be passed before the end of 2013 to qualify. In addition, a continuous work or efforts test will apply until the project is placed in service, although continuity is not required for projects placed in service by the end of 2015. This article explores these tests and their implications for renewable project development.


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