Tax Strategy: New clean energy prevailing wage and apprenticeship requirements

December 29, 2022 9:00 AM

The Inflation Reduction Act introduced new prevailing wage and apprenticeship program requirements to receive larger credit amounts for many of the extended and new clean energy credit and deduction provisions.

The following credits and deduction include the new prevailing wage and apprenticeship program requirements:

Code Sec. 30C, Alternative Fuel Vehicle Refueling Property Credit;
Code Sec., 45 Renewable Energy Production Credit;
Code Sec. 45L, New Energy Efficient Home Credit (prevailing wage requirements only);
Code Sec. 45Q, Carbon Oxide Sequestration Credit;
Code Sec. 45U, Zero Emission Nuclear Power Production Credit (prevailing wage requirements only);
Code Sec. 45V, Clean Hydrogen Production Credit;
Code Sec. 45Y, Clean Electricity Production Credit;
Code Sec. 45Z, Clean Fuel Production Credit;
Code Sec. 48, Renewable Energy Investment Credit;
Code Sec. 48C, Qualifying Advanced Energy Project Credit;
Code Sec. 48E, Clean Electricity Investment Credit; and,
Code Sec. 179D, Energy Efficient Commercial Buildings Deduction.

Notice 2022-61 has been issued by the Internal Revenue Service to provide initial guidance on these requirements. Proposed regulations are also anticipated.
(For an even deeper dive, see "Inside the IRS's prevailing wage and apprenticeship guidance.")

Inflation Reduction Act

President Biden signs the Inflation Reduction Act of 2022.

Sarah Silbiger/Bloomberg

Notice 2022-61 summarizes the provisions in the Inflation Reduction Act with respect to the increased benefit amount of the credit or deduction (generally five times the benefit) of satisfying the prevailing wage requirements; the apprenticeship requirements, including a good faith effort exception and intentional disregard penalty, and defining the terms "labor hours" and "qualified apprentice"; and the beginning of construction, including the physical work test, the 5% safe harbor, the continuity requirement, and recordkeeping.

Prevailing wage requirements

Michael Nagle/Bloomberg

Taxpayers are required to satisfy the prevailing wage rate requirements and to maintain sufficient documentation to establish that those requirements were met. The requirements apply to any laborer or mechanic employed in the construction, alteration, or repair of a facility, property, project, or equipment by the taxpayer or any contractor or subcontractor of the taxpayer.

If the Secretary of Labor has published a prevailing wage determination at www.sam.gov for the geographic area and types of construction applicable, the taxpayer is required to match those requirements. If the Secretary of Labor has not published a prevailing wage determination for the geographic area or if the determination does not cover an applicable labor classification, the taxpayer is to contact the Department of Labor at IRApreailingwage@dol.gov to request a wage determination or wage rate for the unlisted classifications.

The notice provides definitions of "employ," "wages," "laborer or mechanic," "construction, alteration, or repair," "prevailing wage," and "prevailing wage determination." Three examples are also provided in the notice.

Apprenticeship requirements

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In order to satisfy the apprenticeship requirements, the taxpayer must satisfy the apprenticeship labor hour requirements, subject to any applicable apprenticeship ratio requirements; the apprenticeship participation requirements; and maintain sufficient records to establish compliance with these requirements.

Definitions are provided of "employ," "journeyworker," "apprentice-to-journeyworker ratio," "construction, alteration, or repair," and "state apprenticeship agency." The good faith effort exception is considered to be satisfied if the taxpayer made a good faith effort in requesting qualified apprentices by requesting them from a registered apprenticeship program in accordance with usual and customary business practices for registered apprenticeship programs in the particular industry. The notice also provides an example.

When construction or installation begins

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Notice 2022-61 provides references to other notices, including Notice 2013-29 and Notice 2016-31, for determining when construction begins under certain of the Tax Code sections and when the continuity requirements are met. With respect to Code Sec. 179D, the notice states that installation will be considered to have begun if the taxpayer generally satisfies principles similar to the physical work test and 5% safe harbor.

Effective date

Notice 2022-61 states that the notice applies to facilities the construction of which began or certain property the installation of which began on or after 60 days after publication of the notice in the Federal Register. The notice was published in the Federal Register on Nov. 30, 2022. The 60-day period would expire on Jan. 29, 2023. Construction or installation that meets the requirements of the physical work test or the 5% safe harbor would need to take place on or before Jan. 29, 2023, to avoid the requirements of the prevailing wage and apprenticeship requirements.