Last week, a group of U.S. Senators submitted a letter requesting swift clarification by the Department of the Treasury (“Treasury”) and the Internal Revenue Service (“IRS”) of language regarding the wind production tax credit (“PTC”) under Internal Revenue Code Section 45 (“Section 45”). The letter addressed the recent change in the Section 45 language that was added when the PTC was extended for a year by the American Taxpayer Relief Act of 2012 (“Taxpayer Relief Act”). 

Under the Taxpayer Relief Act, the 2.2 cents per kilowatt hour tax credit now applies to any new wind project that “commences construction” prior to January 1, 2014.  The original PTC language mandated a project be “placed-in-service” by a certain date in order to be eligible. The Senators, led by Michael Bennet (D-CO) and Jerry Moran (R-KS), asked the IRS to issue guidance as soon as possible regarding the “construction threshold and criteria necessary” to take advantage of the PTC.  The Senators and many in the industry fear the uncertainty surrounding eligibility of projects may chill investment and development in the field.

Both the Senators and industry group AWEA have stated they hope the Treasury and IRS will issue guidance as soon as possible, in line with their past interpretation of the definition of “construction commencement.”  Specifically, Treasury guidance on the Section 1603 cash grant program of the American Recovery and Reinvestment Act of 2009 discussed what constitutes construction.  The Treasury’s guidance stated that construction commences:

  • when either on-site or off-site physical work of a significant nature begins (e.g., excavation of a turbine foundation or the manufacture of turbine equipment and components);
  • work performed by a third person under a written binding contract has begun; or
  • more than 5% of the total cost of qualifying property has been paid or incurred.

North American Wind Power had previously reported that the IRS had imposed an internal deadline of March 31 for the clarification of the language.