On June 18, 2024, the IRS released final regulations and related guidance concerning enhanced clean energy credits and deductions for taxpayers who meet prevailing wage and apprenticeship (PWA) requirements. These new regulations, which take effect on August 26, 2024, provide clarity on how businesses and individuals can qualify for significant tax incentives tied to clean energy projects, provided they comply with specific wage and apprenticeship standards.
In addition, the IRS released Publication 5983, titled IRA Prevailing Wage and Apprenticeship Requirements Fact Sheet, and revised Publication 5855, titled IRA Prevailing Wage & Registered Apprenticeship Overview, along with the prevailing wage and apprenticeship "frequently asked questions" (FAQs) to offer further guidance on these requirements.
These guidelines directly impact "green energy" tax provisions, many of which were either modified or introduced by the Inflation Reduction Act of 2022 (IRA, P.L. 117-169). They apply to the construction, alteration, or repair of qualifying clean energy facilities and energy properties. Meeting the prevailing wage and apprenticeship standards is crucial for businesses aiming to secure the maximum available tax credits and deductions for their clean energy initiatives.
Key Green Energy Tax Provisions Affected:
The PWA requirements apply to most renewable energy tax incentives under the Internal Revenue Code (IRC), including among others:
- IRC Code Sec. 30C - Alternative Fuel Refueling Property Credit: This credit is available for the installation of alternative fuel refueling property, such as electric vehicle charging stations.
- IRC Sec. 45 - Electricity Production Tax Credit (PTC): This credit supports the production of electricity from renewable resources like wind, solar, and geothermal energy.
- IRC Sec. 45L - New Energy Efficient Home Credit: This credit incentivizes the construction of new energy-efficient homes, providing a boost to builders who incorporate significant energy-saving measures.
- IRC Sec. 179D – Energy Efficient Commercial Building Deduction: This deduction incentivizes new construction and renovation of existing buildings to be energy efficient. The deduction applies to energy-efficient commercial buildings and multifamily buildings that are at least four stories tall.
Implications of the Final Regulations:
The final regulations outline the requirements for taxpayers to qualify for increased green energy credits and deductions. Satisfying the requirements allows taxpayers to generally increase the amount of the credit or deduction by five times. The requirements include:
Prevailing Wage Requirements:
Taxpayers must ensure that laborers and mechanics are paid wages at rates not less than those prevailing for similar work in the locality as determined by the Secretary of Labor.
Apprenticeship Requirements:
Taxpayers must comply with certain apprenticeship standards, including the employment of a specified number of apprentices and ensuring proper training and education programs are in place.
Recordkeeping and Reporting Requirements:
Taxpayers must maintain detailed records to demonstrate compliance.
The prevailing wage, but not apprenticeship requirements applies to IRC Sec. 45L credit for new energy-efficient homes.
By satisfying these PWA requirements, taxpayers can benefit from enhanced credits and deductions, promoting further investment in green energy projects and workforce development.
Next Steps for Taxpayers:
The final regulations and updated guidance outline detailed requirements for both taxpayers claiming the enhanced credits and the contractors or subcontractors hired by these taxpayers who must also comply with the prevailing wage and apprenticeship guidelines. Accordingly, taxpayers engaging in green energy projects should:
- Carefully review the regulations to maximize their potential tax benefits under the new guidelines.
- Develop record-keeping procedures and maintain detailed records to demonstrate compliance.
- Coordinate with contractors and subcontractors to ensure PWA requirements are satisfied.
The implementation of these rules will encourage the use of prevailing wage rates and registered apprenticeship programs in projects aimed at expanding renewable energy infrastructure, ensuring fair labor practices while fostering growth in the green energy sector. For more information on the IRS's final regulations and guidance on prevailing wage and apprenticeship requirements impacting green energy tax provisions, contact us.
