n-14-46.pdf

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Part III - Administrative, Procedural, and Miscellaneous

Clarification and Modification of Notice 2013-29 and Notice 2013-60

Notice 2014-46

SECTION 1. PURPOSE
On January 2, 2013, the American Taxpayer Relief Act of 2012, Pub. L. No.
112-240, 126 Stat. 2313 (ATRA), modified the definition of certain qualified facilities
under section 45(d) of the Internal Revenue Code (the Code) by replacing the placed in
service requirement with a beginning of construction requirement. Accordingly, a
taxpayer will be eligible to receive the renewable electricity production tax credit (PTC)
under section 45, or the energy investment tax credit (ITC) under section 48 in lieu of
the PTC, with respect to such a facility if construction of such facility began before
January 1, 2014.
Notice 2013-29, 2013-1 C.B. 1085, provides two methods to determine when
construction has begun on a qualified facility: (i) a “physical work” test and (ii) a
five percent safe harbor. Notice 2013-60, 2013-2 C.B. 431, clarifies Notice 2013-29

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regarding (i) the determination of whether a taxpayer satisfies either the continuous
construction requirement or the continuous efforts requirement of those methods with
respect to a facility, (ii) the applicability of the “master contract” provision, and (iii) the
ability to transfer a facility after construction has begun. This notice further clarifies
Notices 2013-29 and 2013-60 regarding (i) how to satisfy the physical work test and (ii)
the effect of various types of transfers with respect to a facility after construction has
begun. In addition, this notice modifies the application of the five percent safe harbor.
The guidance provided in this notice applies the rules of sections 45 and 48 as in
effect on January 1, 2014. The Internal Revenue Service (Service) will not issue private
letter rulings to taxpayers regarding the application of this notice or the application of the
beginning of construction requirement under sections 45(d) and 48(a)(5) as provided in
Notice 2013-29 and Notice 2013-60.
SECTION 2. BACKGROUND
A taxpayer may establish the beginning of construction by beginning physical work
of a significant nature as described in section 4 of Notice 2013-29 (Physical Work Test).
Alternatively, a taxpayer may establish the beginning of construction by meeting the
safe harbor provided in section 5 of Notice 2013-29 (Safe Harbor). A taxpayer can
satisfy the Safe Harbor with respect to a facility by demonstrating, after the facility is
placed in service, that five percent or more of the total cost of the facility was paid or
incurred before January 1, 2014. Both methods require that a taxpayer make
continuous progress towards completion once construction has begun (as set forth in
section 4.06 (Continuous Construction Test) and section 5.02 (Continuous Efforts Test)

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of Notice 2013-29, respectively).
In response to a significant number of questions received after the publication of
Notice 2013-29, the Treasury Department and the Service issued Notice 2013-60,
which in part clarifies that the transfer of a facility after construction has begun will not
necessarily prevent a facility from qualifying for the PTC or the ITC. Additionally,
section 3.02 of Notice 2013-60 provides a method for taxpayers to satisfy either the
Continuous Construction Test or the Continuous Efforts Test. If a taxpayer places a
facility in service before January 1, 2016, the facility will be considered to satisfy the
Continuous Construction Test (for purposes of satisfying the Physical Work Test) or the
Continuous Efforts Test (for purposes of satisfying the Safe Harbor), regardless of the
amount of physical work performed or the amount of costs paid or incurred with respect
to the facility between December 31, 2013, and January 1, 2016.
After the publication of Notice 2013-60, the Treasury Department and the Service
received requests for further clarification regarding how to satisfy the Physical Work
Test as well as questions regarding the effect of various types of transfers with respect
to a facility after construction has begun. This notice clarifies the application of the
Physical Work Test and the effect that certain transfers with respect to a facility after
construction has begun will have on a taxpayer’s ability to qualify for the PTC or the
ITC. In addition, this notice modifies the application of the Safe Harbor for certain
facilities with respect to which a taxpayer paid or incurred less than five percent, but at
least three percent, of the total cost of the facility before January 1, 2014.

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SECTION 3. PHYSICAL WORK TEST
The Physical Work Test requires that a taxpayer begin physical work of a significant
nature (as defined in section 4.02 of Notice 2013-29) prior to January 1, 2014. This test
focuses on the nature of the work performed, not the amount or cost. Notice 2013-29
describes several activities that constitute physical work of a significant nature. These
activities are merely examples and not an exclusive list of the activities that will satisfy
the Physical Work Test. For example, section 4.02 of Notice 2013-29 provides:
[I]n the case of a facility for the production of electricity from a wind turbine, on-site
physical work of a significant nature begins with the beginning of the excavation for
the foundation, the setting of anchor bolts into the ground, or the pouring of the
concrete pads of the foundation.
Section 4.05(1) of Notice 2013-29 provides:
[P]hysical work on a custom-designed transformer that steps up the voltage of
electricity produced at the facility to the voltage needed for transmission is physical
work of a significant nature with respect to the facility because power conditioning
equipment is an integral part of the activity performed by the facility.
Section 4.05(2) of Notice 2013-29 provides:
Roads that are integral to the facility are integral to the activity performed by the
facility; these include onsite roads that are used for moving materials to be
processed (for example, biomass) and roads for equipment to operate and maintain

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the qualified facility. Starting construction on these roads constitutes physical work
of a significant nature with respect to the facility.
Beginning work on any one of the activities described above will constitute physical
work of a significant nature.
Section 4.04(3) of Notice 2013-29 provides an example in which X, a developer of a
50 turbine wind farm, is found to satisfy the beginning of construction requirement in
part based on the stated fact that, in 2013, for 10 of the 50 turbines, X excavates the
site for the foundations of the wind turbines and pours concrete for the supporting pads.
This example illustrates the “single project” concept set forth in section 4.04(2) of Notice
2013-29 and is not intended to indicate that there is a 20% threshold or minimum
amount of work required to satisfy the Physical Work Test. Assuming the work
performed is of a significant nature, there is no fixed minimum amount of work or
monetary or percentage threshold required to satisfy the Physical Work Test.
As provided in section 4.01 of Notice 2013-29 the Service will closely scrutinize a
facility, and may determine that construction has not begun on a facility before January
1, 2014, if a taxpayer does not maintain a continuous program of construction as
determined under section 4.06 of Notice 2013-29 and section 3.02 of Notice 2013-60.
SECTION 4. TRANSFERS WITH RESPECT TO A FACILITY
.01 In general. Certain of the definitions of a qualified facility provided in section
45(d) require that the construction of the facility begin before January 1, 2014. There is
no statutory requirement that the taxpayer that places the facility in service also be the
taxpayer that begins construction of the facility. See Notice 2013-60, section 5.01.

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Moreover, section 48(a)(5)(D) defines “qualified property” (which may be eligible for the
ITC in lieu of the PTC) as certain property that is “constructed, reconstructed, erected,
or acquired by the taxpayer.” (Emphasis added.) Thus, except as provided in section
4.03 of this notice, a fully or partially developed facility may be transferred without losing
its qualification under the Physical Work Test or the Safe Harbor for purposes of the
PTC or the ITC. For example, a taxpayer may acquire a facility (that consists of more
than just tangible personal property) from an unrelated developer that had begun
construction of the facility prior to January 1, 2014, and thereafter the taxpayer may
complete the development of that facility and place it in service. The work performed or
amount paid or incurred prior to January 1, 2014, by the unrelated transferor developer
may be taken into account for purposes of determining whether the facility satisfies the
Physical Work Test or Safe Harbor.
.02 Relocation of equipment by a taxpayer. A taxpayer also may begin construction
of a facility in 2013 with the intent to develop the facility at a certain site, but thereafter
transfer equipment and other components of the facility to a different site, complete its
development, and place it in service. The work performed or amount paid or incurred
prior to January 1, 2014, by such a taxpayer may be taken into account for purposes of
determining whether the facility satisfies the Physical Work Test or the Safe Harbor.
.03 Transfers of equipment between unrelated parties. In the case of a transfer
consisting solely of tangible personal property (including contractual rights to such
property under a binding written contract) to a transferee not related (defined for these
purposes by reference to section 197(f)(9)(C)) to the transferor, any work performed or

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amount paid or incurred by the transferor with respect to such property so transferred
will not be taken into account with respect to the transferee for purposes of the Physical
Work Test or the Safe Harbor.
Example. Developer D intends to develop and operate Facility K at a location to be
determined. Prior to January 1, 2014, Developer D pays or incurs $60,000 to have
tangible personal property integral to Facility K manufactured off-site pursuant to a
binding written contract. Thereafter Developer D incurs no further development costs
and engages in no further development activity with respect to Facility K. In January
2014, Developer D sells the tangible personal property to Developer E, a party
unrelated to Developer D. Developer E is developing and intends to operate Facility L,
a facility located on a parcel of land owned by Developer E. Developer E incorporates
the tangible personal property acquired from Developer D into Facility L. In October
2015, Developer E places Facility L in service on the parcel of land. The total cost of
Facility L is $1,000,000.
Amounts paid or incurred by Developer D prior to January 1, 2014, for the tangible
personal property will not be taken into account for purposes of satisfying the Safe
Harbor with respect to Facility L. However, if without regard to these components,
Developer E has otherwise satisfied the Physical Work Test or the Safe Harbor with
respect to Facility L, Developer E will be eligible to claim the PTC with respect to
electricity generated by Facility L and sold to an unrelated party. In such a case,
Developer E may alternatively elect to claim the ITC in lieu of the PTC.
SECTION 5. SAFE HARBOR

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.01 Single project. If the amount a taxpayer paid or incurred before January 1, 2014,
with respect to the total cost of a facility that is a single project comprised of multiple
facilities (as described in section 4.04(2) of Notice 2013-29) is less than five percent of
the total cost of the facility at the time the facility is placed in service, the Safe Harbor is
not fully satisfied. However, if a taxpayer paid or incurred at least three percent of the
total cost of such a facility before January 1, 2014, the Safe Harbor may be satisfied
and the PTC or ITC may be claimed with respect to some, but not all, of the individual
facilities (as described in section 4.04(1) of Notice 2013-29) comprising the project. In
this situation, a taxpayer may claim the PTC or ITC on any number of individual facilities
as long as the total aggregate cost of those individual facilities at the time the project is
placed in service is not greater than twenty times the amount the taxpayer paid or
incurred before January 1, 2014. The Continuous Efforts Test of section 5.02 of Notice
2013-29 must also be met to qualify for the Safe Harbor.
.02 Single facility. If the amount a taxpayer actually paid or incurred before
January 1, 2014, with respect to the total cost of a single facility that is not a single
project comprised of multiple individual facilities (as described in section 4.04(2) of
Notice 2013-29), and that cannot be separated into individual facilities, is less than five
percent of the total cost of the facility at the time the facility is placed in service, then the
taxpayer will not satisfy the Safe Harbor with respect to any portion of the facility.
.03 Examples – (a) Example 1. Developer incurs $30,000 in costs prior to January
1, 2014, to construct Project M, a five-turbine wind farm, that will be operated as a
single project (as described in section 4.04(2) of Notice 2013-29). In October 2015,

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Developer places Project M in service. The total cost of Project M is $800,000, with
each turbine costing $160,000. Although Developer did not pay or incur five percent of
the total cost of Project M before January 1, 2014, Developer did pay or incur at least
three percent of the total cost of Project M before January 1, 2014. In addition, because
Developer placed Project M in service before January 1, 2016, Developer is deemed to
satisfy the Continuous Efforts Test pursuant to section 3.02 of Notice 2013-60.
Accordingly, Developer will be treated as satisfying the Safe Harbor with respect to
three of the turbines of Project M, as their total aggregate cost of $480,000 is not
greater than twenty times the $30,000 in costs incurred by Developer prior to January 1,
2014. Thus, Developer may claim the PTC on electricity produced from three of the
turbines of Project M or the ITC based on $480,000, the cost of three of the turbines of
Project M.
(b) Example 2. Developer incurs $25,000 in costs prior to January 1, 2014, to
construct Facility N, an open-loop biomass facility, partly comprised of one boiler and
one turbine generator that are functionally interdependent. In October 2015, Developer
places Facility N in service. The total cost of Facility N is $600,000. Because
Developer did not pay or incur five percent of the actual total cost of Facility N before
January 1, 2014, and because the boiler and turbine generator are integral parts of a
single facility that is not a single project comprised of multiple facilities (as described in
section 4.04(2) of Notice 2013-29), Developer will not satisfy the Safe Harbor.
However, if physical work of a significant nature began (within the meaning of section
4.01 of Notice 2013-29, as clarified by section 3 of this notice) before January 1, 2014,

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Developer may be able to claim the PTC or the ITC with respect to Facility N.
SECTION 6. EFFECT ON OTHER DOCUMENTS
Notice 2013-29, 2013-1 C.B. 1085, and Notice 2013-60, 2013-2 C.B. 431, are
clarified and modified.
SECTION 7. DRAFTING INFORMATION
The principal author of this notice is Jennifer C. Bernardini of the Office of Associate
Chief Counsel (Passthroughs & Special Industries). For further information regarding
this notice contact Ms. Bernardini on (202) 317-6853 (not a toll-free call).