IRS announces safe harbor for renewable energy tax credits

By June 1, 2020 July 21st, 2020 COVID-19 Insights, Tax
Renewable Energy Tax Credits | IRS announces safe harbor for renewable energy tax credits

Renewable energy companies now have more time to develop projects using sources such as wind and geothermal energy, and for taxpayers to qualify for tax credits for installing green technologies.

On Wednesday, May 27, 2020, the Treasury Department and Internal Revenue Service (IRS) announced tax relief for taxpayers that develop renewable energy projects that produce electricity from sources such as wind, biomass, geothermal, landfill gas, trash, and hydropower, and use green technologies such as solar panels, fuel cells, microturbines, and combined heat and power systems.

In Notice 2020-41 the IRS provides a safe harbor to offer tax relief to affected taxpayers as a result of the coronavirus pandemic. Specifically, the IRS recognizes the industry-wide delays in the supply chain for components needed to finish renewable energy projects that are otherwise eligible for tax credits like the investment tax credit and the production tax credit.

For certain projects that began construction in 2016 or 2017, Notice 2020-41 adds an extra year to the four year “Continuity Safe Harbor” provided in existing guidance. If taxpayers place those projects in service in five years, the tax authorities will consider the construction to be continuous.

The latest guidance also provides a three and a half (3 ½) month safe harbor for services or property paid for by the taxpayer on or after September 16, 2019 and received by October 15, 2020. More specifically, Notice 2020-41 offers help to taxpayers who began construction by incurring 5% of the project costs, and made payments for services or property and reasonably expected to receive those services or property within three and a half months. Those costs are considered to be incurred under economic performance rules. If the taxpayer receives the services or property by October 15, 2020, the IRS deems the taxpayer’s expectations at the time of 2019 payment as reasonable.

By extending the Continuity Safe Harbor and providing a 3 ½ month safe harbor, the guidance will provide much-needed flexibility to satisfy the beginning of construction requirements and limit the impact of COVID-19-related delays on the ability to claim the production tax credit for renewable energy facilities and the investment tax credit for energy property.

How can Squar Milner help?

Squar Milner’s tax professionals are ready to help you optimize your tax strategies in response to the latest safe harbor guidance for renewable energy credits. Whether you are developing renewable energy projects or implementing green technologies into your business, our team of skilled professionals can help you take advantage of the available tax credits.

On top of that, we furnish a robust Construction & Engineering Industry practice that deals extensively with those in the construction and engineering industries and intimately understands the issues and concerns specific to those businesses. To find out more about the new IRS safe harbor and how it may help your business, reach out to your Squar Milner advisor.

Disclaimer: This material has been prepared for informational purposes only, and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional tax planner or financial planner. All information is provided “as is,” with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information.

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