United States

IRS updates begun construction guidance for electricity facilities

Guidance issued for renewable electricity production tax credit


The IRS recently released Notice 2016-31 that extends the deadline for beginning construction of qualified facilities for purposes of the renewable electricity production tax credit (PTC). This guidance is necessary to modify the dates provided by prior guidance (Notices 2015-25, 2013-29, 2013-60 and 2014-46) so that they conform to the provisions extended by the Protecting Americans from Tax Hikes Act (PATH Act) of 2015. The PATH Act extended the PTC for two years with respect to certain facilities in which construction begins before Jan. 1, 2017, and extended the PTC for wind facilities in which construction begins before Jan. 1, 2020.

Continuity safe harbor

In light of the above legislation, this notice extends the Continuity Safe Harbor, provided in Notice 2013-60 section 3.02. Therefore, if a taxpayer places a qualified facility in service by the later of either a calendar year that is within four years after the calendar year that the construction of the facility began or Dec. 31, 2016, then the facility will be considered as satisfying the safe harbor.

Continuity rules

The notice delineates several rules specific to the continuity requirement:

  • In determining whether a taxpayer satisfies the beginning of construction requirement or the continuity requirement, a taxpayer may not combine methods (physical work test and the 5 percent safe harbor) in alternating calendar years.
  • Disruptions to continuous construction or continuous effort tests will be assessed using all relevant facts and circumstances to determine whether a taxpayer satisfies the continuity requirement.
  • Several additional excusable construction disruptions are added to the non-exclusive list provided in Notice 2013-29, sections 4.06(2) and 5.02(2).

Physical work test

The physical work test requires that a taxpayer begin physical work of a significant nature. Notice 2014-46, section 3, provides that this test is based on the nature of the work performed, not on the amount or cost. Thus, so long as the nature of the work performed is significant, there is no fixed minimum amount of work, or monetary or percentage threshold, required to satisfy the physical work test. This notice provides examples of what might be considered physical work of a significant nature for wind facilities, hydropower facilities, biomass and trash facilities, and geothermal facilities. Preliminary activities are not considered physical work of a significant nature. This notice provides several examples of preliminary activities including exploring, researching, obtaining permits and clearing of a site.

5 percent safe harbor

A qualified facility may be considered as originally placed in service even though it contains some used property. For the facility to qualify, the fair market value of the used property cannot be more than 20 percent of the facility’s total cost. With respect to retrofitted facilities, the 5 percent safe harbor is applied to the cost of the new property that is being used to retrofit the facility.


The modifications and updates to the begun construction rules and the safe harbor provisions thereunder are aimed to provide clarity to taxpayers who wish to construct facilities that qualify for the renewable electricity production tax credit. This notice, along with the notices that precede it, should be taken into account when determining the credit. Taxpayers should consult their tax advisors to ensure compliance with the myriad rules for claiming the credit.


How can we help you?

Contact us by phone 800.274.3978 or
submit your questions, comments, or proposal requests.



2019: Tax opportunities and challenges for manufacturers

  • January 23, 2019


Legislative changes and other tips for your tax planning

  • January 17, 2019