Notice 2014-46 - Clarifies prior guidance regarding application of physical work test for certain facilities 

August 8:  The IRS today released an advance copy of Notice 2014-46, clarifying prior guidance regarding the application of the “physical work test" and the ability to transfer a facility after construction has begun.


A taxpayer is eligible to receive the renewable electricity production tax credit (PTC) under section 45, or the energy investment tax credit (ITC) under section 48 in lieu of the PTC, with respect to a facility if construction of such facility begins before January 1, 2014.

Notice 2013-29, issued in April 2013, provides two methods to determine when construction has begun on a facility.

  • A taxpayer may establish the beginning of construction by starting physical work of a significant nature.
  • Alternatively, a taxpayer may establish the beginning of construction by paying or incurring 5% of eligible depreciable costs (the “5% Safe Harbor”).

Notice 2014-46 [PDF 26 KB] also modifies Notice 2013-29 and Notice 2013-60 in two regards:

  • First, Notice 2014-46 further explains the effect of the transfers with respect to a facility. Specifically, it clarifies that a taxpayer may relocate safe harbored equipment from one project site to another without generally jeopardizing the costs incurred status associated with that equipment. However, the notice states that transfers consisting of solely tangible personal property to an unrelated transferee will not carry with them the “grandfathered” status as if they had been transferred between related parties.
  • Second, the notice clarifies the begin construction safe harbor with respect to projects comprised of multiple facilities in which a taxpayer paid or incurred less than 5%, but at least 3%, of the total cost of the facility before January 1, 2014. In that instance, a taxpayer may still meet the safe harbor so long as the cost of the included individual facilities does not exceed 20 times the amount that the taxpayer had included prior to January 1, 2014. Failure to satisfy this 3% test does not preclude the taxpayer from pursuing the physical work method of beginning construction.

Read TaxNewsFlash-United States (September 20, 2013).

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