Increased Amounts of Credit or Deduction for Satisfying Certain Prevailing Wage and Registered Apprenticeship Requirements

<RULE> DEPARTMENT OF THE TREASURY <SUBAGY>Internal Revenue Service</SUBAGY> <CFR>26 CFR Part 1</CFR> <DEPDOC>[TD 9998]</DEPDOC> <RIN>RIN 1545-BQ62</RIN> <SUBJECT>Increased Amounts of Credit or Deduction for Satisfying Certain Prevailing Wage and Registered Apprenticeship Requirements</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Internal Revenue Service (IRS), Treasury. <HD SOURCE="HED">ACTION:</HD> Final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> This document sets forth final regulations regarding the increased credit amounts or the increased deduction amount available for taxpayers satisfying prevailing wage and registered apprenticeship (collectively, PWA) requirements established by the Inflation Reduction Act of 2022. These final regulations affect taxpayers intending to satisfy the PWA requirements to be eligible for increased amounts of Federal income tax credits or an increased deduction, including those intending to make elective payment elections for available credit amounts, and those intending to transfer increased credit amounts. These final regulations also affect taxpayers intending to satisfy the prevailing wage requirements to be eligible for increased amounts of those Federal income tax credits that do not have associated apprenticeship requirements. Additionally, these final regulations affect taxpayers who initially fail to satisfy the PWA requirements (or prevailing wage requirements, as applicable) and subsequently comply with the correction and penalty procedures in order to be deemed to satisfy the PWA requirements (or prevailing wage requirements, as applicable). Finally, these final regulations address specific PWA and prevailing wage recordkeeping and reporting requirements. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> <E T="03">Effective date:</E> These regulations are effective August 26, 2024. <E T="03">Applicability date:</E> For date of applicability, <E T="03">see</E> §§ 1.30C-3(c), 1.45-6(d), 1.45-7(e), 1.45-8(h), 1.45-12(f), 1.45L-3(c), 1.45Q-6(c), 1.45U-3(c), 1.45V-3(c), 1.45Y-3(c), 1.45Z-3(c), 1.48C-3(b), 1.179D-3(c). </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> The Office of Associate Chief Counsel (Passthroughs & Special Industries) at (202) 317-6853 (not a toll-free number). </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Background</HD> <HD SOURCE="HD2">I. Overview</HD> This document contains final regulations that amend the Income Tax Regulations (26 CFR part 1) under sections 30C, 45, 45L, 45Q, 45U, 45V, 45Y, 45Z, 48C, and 179D of the Internal Revenue Code (Code), as enacted or amended by the Inflation Reduction Act of 2022 (IRA), Public Law 117-169, 136 Stat. 1818 (August 16, 2022). The IRA amended sections 30C, 45, 45L, 45Q, 48, 48C, and 179D to provide increased amounts of credits or an increased deduction, as applicable, for taxpayers who satisfy certain requirements and added sections 45U, 45V, 45Y, 45Z, and 48E to the Code to provide new credits, which also contain provisions for increased credit amounts for taxpayers who satisfy certain requirements. Increased credit amounts are available under sections 30C, 45, 45Q, 45V, 45Y, 45Z, 48, 48C, and 48E, and an increased deduction is available under section 179D for taxpayers satisfying certain PWA requirements. Increased credit amounts are available under sections 45L and 45U for taxpayers satisfying certain prevailing wage requirements. <SU>1</SU> <FTREF/> The IRA includes correction and penalty provisions available in certain situations for taxpayers that have initially failed to satisfy the PWA requirements and are not otherwise eligible for the increased amount of credit or deduction because they do not qualify for an exception. <FTNT> <SU>1</SU>  The provisions in sections 45L and 45U relating to increased credit amounts do not contain apprenticeship requirements. For simplicity, where possible, the preamble to these final regulations uses the acronym PWA to refer to the prevailing wage and apprenticeship requirements generally, including the prevailing wage requirements in sections 45L and 45U. </FTNT> Increased amounts of credits or an increased deduction are generally available under sections 30C, 45, 45Q, 45V, 45Y, 48, 48E and 179D with respect to certain facilities, properties, projects, technologies, or equipment if beginning of construction (or beginning of installation for section 179D) of the facility, property, project, technology, or equipment, as applicable, occurs before January 29, 2023 (BOC Exception). Additionally, the increased credit amounts generally are available under sections 45, 45Y, 48, and 48E with respect to certain facilities, projects, and technologies, as applicable, with a maximum net output (or capacity for energy storage technology under section 48E) of less than one megawatt (One Megawatt Exception). Generally, if a taxpayer satisfies the PWA requirements, meets the BOC Exception, or meets the One Megawatt Exception, the amount of credit or deduction determined is equal to the otherwise determined amount of the underlying credit or deduction multiplied by five. <HD SOURCE="HD2">II. PWA Provisions</HD> <HD SOURCE="HD3">A. In General</HD> The principal PWA requirements are set forth in section 45(b)(6), (7), and (8). In general, section 45(b)(6) provides the increased credit amount for taxpayers satisfying the PWA requirements or meeting one of the exceptions, section 45(b)(7) provides the prevailing wage requirements (Prevailing Wage Requirements), <SU>2</SU> <FTREF/> and section 45(b)(8) provides the apprenticeship requirements (Apprenticeship Requirements). <SU>3</SU> <FTREF/> <FTNT> <SU>2</SU>  The Prevailing Wage Requirements in sections 30C(g), 45L(g), 45Q(h), 45U(d), 45V(e), 48(a)(10), 48C(e), and 179D(b) are similar to the requirements provided under section 45(b)(7). Sections 30C, 45L, 48C, and 179D, however, do not require the payment of wages at rates not less than the prevailing rates after construction, re-equipping, expansion, establishment, or installation, as applicable, ends. Sections 45Y(g)(9) and 45Z(f)(6)(A) adopt by cross-reference the Prevailing Wage Requirements under section 45(b)(7). Section 48E(d)(3) adopts by cross-reference the Prevailing Wage Requirements under section 48(a)(10). Section 48(a)(10)(C) provides for a special 5-year recapture rule that applies for purposes of the Prevailing Wage Requirements with respect to sections 48 and 48E. </FTNT> <FTNT> <SU>3</SU>  Sections 30C(g)(3), 45Q(h)(4), 45V(e)(4), 45Y(g)(10), 45Z(f)(7), 48(a)(11), 48C(e)(6), 48E(d)(4), and 179D(b)(5) cross-reference the Apprenticeship Requirements in section 45(b)(8). Sections 45L and 45U do not have Apprenticeship Requirements. </FTNT> In general, section 45 provides a credit for taxpayers producing electricity from qualified energy resources at a qualified facility during the 10-year period beginning on the date the facility was originally placed in service, and selling that electricity to unrelated persons during the taxable year. Under section 45(a), the credit is equal to 0.3 cents multiplied by the kilowatt hours of electricity: (i) produced by the taxpayer from qualified energy resources and at a qualified facility during the 10-year period beginning on the date the facility was originally placed in service, and (ii) sold by the taxpayer to an unrelated person during the taxable year. Under section 45(b)(6), with respect to a qualified facility, if a taxpayer satisfies the PWA requirements, meets the BOC Exception, or meets the One Megawatt Exception, then the amount of the credit determined under section 45(a) is multiplied by five. <HD SOURCE="HD3">B. Prevailing Wage Requirements</HD> Section 45(b)(7)(A) provides that with respect to any qualified facility, “the taxpayer shall ensure that any laborers and mechanics employed by the taxpayer or any contractor or subcontractor in—(i) the construction of such facility, and (ii) with respect to any taxable year, for any portion of such taxable year which is within the [10-year period beginning on the date the qualified facility was originally placed in service], the alteration or repair of such facility, shall be paid wages at rates not less than the prevailing rates for construction, alteration, or repair of a similar character in the locality in which such facility is located as most recently determined by the Secretary of Labor, in accordance with subchapter IV of chapter 31 of title 40, United States Code [Davis-Bacon Act or DBA].” The Davis-Bacon Act, enacted in 1931, requires the payment of minimum prevailing wages determined by the Department of Labor (DOL) for laborers and mechanics working on contracts entered into by Federal agencies and the District of Columbia, if such contracts are in excess of $2,000 and are for the construction, alteration, or repair of public buildings and public works. Section 3142 of the DBA requires that Federal agencies entering into contracts covered by the DBA include the requirements of the DBA in the contract, including the requirement to incorporate the applicable wage determinations that set forth the prevailing wages to be paid to laborers and mechanics. The Copeland Act, 40 U.S.C. 3145, sets forth a requirement that the contractor submit certified weekly payroll records to the contracting Federal agency. Congress has included DBA requirements in other laws, often referred to as the Davis-Bacon Related Acts, under which Federal agencies provide assistance for construction projects through grants, loans, insurance, and other methods. The DOL Wage and Hour Division (WHD) administers the DBA prevailing wage provisions. <HD SOURCE="HD3">C. Correction and Penalty Related to Failure To Satisfy Prevailing Wage Requirements</HD> Under section 45(b)(7)(B) of the Code, a taxpayer who is not eligible ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 680k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━