IRS offers safe harbor for renewable energy tax credits

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The Internal Revenue Service and the Treasury Department are giving renewable energy companies more time to develop projects using sources such as wind and geothermal energy, and for taxpayers to qualify for tax credits for installing solar panels, fuel cells and other green technologies because of the novel coronavirus.

The IRS is providing a safe harbor in Notice 2020-41 to offer tax relief to affected taxpayers as a result of the pandemic, in recognition of the fact that COVID-19 has caused industry-wide delays in the supply chain for components needed to finish renewable energy projects that are otherwise eligible for tax credits such as the investment tax credit and the production tax credit.

The IRS said Wednesday the safe harbor is available for taxpayers developing renewable energy projects and producing electricity from sources such as wind, biomass, geothermal, landfill gas, trash and hydropower and for taxpayers using technologies such as solar panels, fuel cells, microturbines, and combined heat and power systems.

For certain projects that started construction in 2016 or 2017, Notice 2020-41 adds an extra year to the four-year “Continuity Safe Harbor” provided in the IRS’s existing guidance. If those projects are placed in service in five years, the tax authorities will consider the construction to be continuous.

Notice 2020-41 also offers help to taxpayers who began construction by incurring 5 percent of the project costs, and made payments for services or property and reasonably expected to receive those services or property within three and a half months. Those taxpayers are considered to be incurred under economic performance rules. The guidance also says that if the services or property are received by Oct. 15, 2020, the taxpayer’s expectations at the time of the 2019 payment are deemed reasonable.

The IRS believes that extending the safe harbor will give taxpayers more time to satisfy the beginning of construction requirements and limit the impact of COVID-19-related delays on their ability to claim the production tax credit for renewable energy facilities and the investment tax credit for energy property.

Sen. Ron Wyden, D-Ore., the top Democrat on the Senate Finance Committee, said the move came in response to one of his requests.

“The Treasury Department made the right call in granting my request to extend the deadline to complete new wind and solar projects delayed by the pandemic,” he said in a statement Thursday. “This commonsense move will help protect these projects and the jobs created by them. While this is a good first step, further action will be necessary to ensure our progress toward a clean energy future.”

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