Tax alert

Treasury issues guidance triggering clean energy labor requirements

Rules on prevailing wage and apprenticeship requirements for IRA incentives

Dec 07, 2022
Federal tax Excise tax consulting
Business tax Energy Tax policy Credits & incentives

This alert has been updated to reflect a correction published by the Internal Revenue Service. The date that is 60 days after the Secretary of the Treasury publishes guidance with respect to the prevailing wage and apprenticeship requirements is Jan. 29, 2023. An earlier version of this alert reported that date as Jan. 30, 2023.

Executive summary: Guidance on prevailing wage and apprenticeship requirement

The first piece of guidance from the Treasury Department implementing the clean energy provisions in the Inflation Reduction Act of 2022 (Act) has been issued. On Nov. 30, 2022, rules triggering the new prevailing wage and apprenticeship requirements were published. The guidance offers clarification on the requirements, defines various terms and effectuates the 60-day grace period for the exception out of satisfaction of the prevailing wage and apprenticeship requirements. Projects that begin construction on or after Jan. 29th, 2023 must generally meet these rules in order to qualify for increased clean energy tax credit rates.

Notice 2022-61: Guidance on prevailing wage and apprenticeship requirements

The Inflation Reduction Act of 2022 (Act) created a regime of energy-related federal tax incentives with base and bonus rates tied to certain labor requirements. Notice 2022-61 is the first piece of guidance implementing these provisions in the Act. The increased rates for these energy-related incentives are generally available if new prevailing wage and apprenticeship requirements are satisfied. These two requirements are new concepts for federal tax purposes. 

Under the Act, the prevailing wage and apprenticeship requirements will be triggered 60 days after Treasury publishes guidance implementing these provisions. Notice 2022-61 provides this guidance, and it has been anticipated since the Act was signed into law on Aug. 16, 2022. The notice indicates Treasury anticipates issuing proposed regulations or other additional guidance with respect to these new requirements. 

The apprenticeship and prevailing wage requirements apply to the following tax credits/incentives:

  • Advanced energy project credit
  • Alternative fuel refueling property credit
  • Credit for carbon oxide sequestration
  • Clean fuel production credit
  • Credit for the production of clean hydrogen
  • Energy efficient commercial buildings deduction
  • Renewable energy production tax credit
  • Renewable energy property investment tax credit

The prevailing wage requirements also apply to the following tax credits:

  • New energy efficient home credit
  • Zero-emission nuclear power production credit

The 60-day grace period

Taxpayers constructing clean energy projects must generally meet the prevailing wage and apprenticeship requirements under the Act in order to claim the increased credit rates. One exception available to claim the increased rate for various energy-related incentives without satisfaction of the prevailing wage and apprenticeship requirements hinges on a project’s construction commencement date. A project is deemed to have satisfied the requirements if the construction of such project begins before the date that is 60 days after the Treasury Secretary issues guidance on these new requirements. Under Notice 2022-61, the publication of guidance on Nov. 30, 2022, means that in order to receive increased incentives, taxpayers must meet the prevailing wage and apprenticeship requirements for facilities where construction begins on or after Jan. 29, 2023.

The notice confirms that taxpayers may rely on existing renewable energy guidance for purposes of determining a construction commencement date. The existing body of guidance includes the Physical Work Test and Five Percent Safe Harbor (along with the Continuity Requirement and Continuity Safe Harbor) for purposes of demonstrating that construction has begun. These concepts may be familiar to taxpayers with experience developing or investing in renewable energy projects over the last decade. With respect to the installation of energy efficient property in connection with a section 179D deduction, the IRS will allow taxpayers to rely on principles similar to those in existing guidance provided for the construction of certain facilities. 

New developments: Prevailing wage and apprenticeship requirements

The notice provides clarity on the application of some aspects of the new requirements. Examples include:

  • Procedures for determining a prevailing wage determination for a geographic area and type of construction
  • Measurement of labor hours performed by qualified apprentices for purposes of satisfying the labor hour requirement, one of three components of the apprenticeship requirements 
  • Considerations for the use of independent contractors as laborers or mechanics
  • Determination of the construction commencement date
  • Definitions of terms used in the prevailing wage and apprenticeship requirements


The notice makes multiple references to recordkeeping requirements. The general recordkeeping requirements imposed by section 6001 of the Internal Revenue Code and the Treasury Regulations thereunder apply to satisfaction of the prevailing wage and apprenticeship requirements. Essentially, these rules require taxpayers to keep records (e.g., books of accounts, statements, etc.) that can substantiate any item of gross income, deduction, credit or other matter required to be shown on a tax return. These records must be kept as long as the contents of such records may be material in the administration of any internal revenue law.

Prevailing wage and apprenticeship requirements apply to laborers or mechanics employed by the taxpayer or their contractors or subcontractors. Therefore, taxpayers claiming an increased rate on certain energy-related incentives may be responsible for maintaining books and records containing information that may pertain to laborers, mechanics or qualified apprentices they do not directly employ. Such records include but are not limited to, identifying the applicable wage determination, the laborers and mechanics who performed construction work on the facility, the classifications of work they performed, their hours worked in each classification, and the wage rates paid for the work.

Washington National Tax takeaways

The effectuation of the 60-day grace period for construction commencement is significant. Taxpayers with project construction commencement dates on or after Jan. 29, 2023 will have to evaluate their ability to satisfy the prevailing wage and apprenticeship requirements if they intend to claim increased rates on certain energy incentives. 

The detailed requirements for documentation may present challenges for taxpayers. Based on the guidance, it appears the government may not accept a representation in a contract to the taxpayer that prevailing wage and apprenticeship requirements were met; actual documentation must be maintained by the taxpayer. Requiring that a taxpayer maintain records of the names and wage rates paid from contractors and subcontractors among other details may be burdensome for taxpayers and may catch some off guard. Contracts should be updated to take these requirements into account and developers will have to update practices to ensure they are able to provide appropriate documentation to their customers.

This notice provides some clarification on these new requirements, but questions remain. For example, the government has not addressed the penalty provisions, information reporting requirements, timelines for Department of Labor approval of proposed prevailing wage rates (in instances where certain information is unavailable on or good faith exceptions in detail. Treasury’s stated anticipation of issuing additional guidance or proposed regulations is a positive sign that additional clarity will come. 

The Department of Labor has also issued resources in implementing these provisions, including frequently asked questions and details on the prevailing wage and apprenticeship requirements.  

The notice does not overtly require new forms or schedules to be attached to income tax returns claiming increased credit or deduction rates. That could change. Additionally, the IRS’s increased funding under the Inflation Reduction Act, a portion of which is intended for increased enforcement, is particularly relevant to the need to maintain accurate and complete records. Taxpayers should be sure to properly document credit and deduction claims to avoid steep penalties for failure to satisfy the necessary requirements.

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