Colleagues in our tax practice have prepared a LawFlash discussing the recently released Internal Revenue Service (IRS) guidance for meeting the prevailing wage and apprenticeship (W&A) standards applicable to the investment tax credit (ITC), production tax credit (PTC), and carbon capture credit (Section 45Q), as enacted or amended by the Inflation Reduction Act (IRA).
As a reminder, many of these tax credits are subject to adjustments—including for satisfaction of the W&A standards and incentives to utilize “domestic content” and to locate a facility in an “energy community”—that could significantly impact the amount of the applicable tax credit. The W&A standards are critically important because the failure to satisfy these standards effectively results in an 80% haircut in the credit, as compared to the expected baseline credit rate (e.g., a 30% ITC becomes a 6% ITC).
The IRA generally provides that the W&A standards apply to subject facilities that “begin construction” 60 or more days after governmental guidance is published for the standards. The LawFlash explains how the IRS guidance defines “begin construction” for this purpose and what is required for projects to meet the W&A standards.
For developers and other market participants seeking to avoid being subject to the W&A standards, the guidance provides a January 29, 2023, deadline to “begin construction” on an applicable facility.