Proposed Rule2023-18514
Increased Credit or Deduction Amounts for Satisfying Certain Prevailing Wage and Registered Apprenticeship Requirements
Primary source
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Published
August 30, 2023
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document contains proposed regulations regarding increased credit or deduction amounts available for taxpayers satisfying prevailing wage and registered apprenticeship (collectively, PWA) requirements established by the Inflation Reduction Act of 2022 (IRA). These proposed regulations would affect taxpayers intending to satisfy the PWA requirements for increased Federal income tax credits or deductions. These proposed regulations would also affect taxpayers intending to satisfy the prevailing wage requirements for increased Federal income tax credit amounts that do not have associated apprenticeship requirements. Additionally, these proposed regulations would affect taxpayers who initially fail to satisfy the PWA or prevailing wage requirements and subsequently comply with the correction and penalty procedures in order to be deemed to satisfy the PWA or prevailing wage requirements. Finally, the proposed regulations address specific PWA or prevailing wage recordkeeping and reporting requirements. The proposed regulations would affect taxpayers intending to claim increased credit or deduction amounts pursuant to the IRA, including those intending to make elective payment elections for available credit amounts, and those intending to transfer increased credit amounts. This document also provides notice of a public hearing on the proposed regulations.
Full Text
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<title>Federal Register, Volume 88 Issue 167 (Wednesday, August 30, 2023)</title>
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[Federal Register Volume 88, Number 167 (Wednesday, August 30, 2023)]
[Proposed Rules]
[Pages 60018-60054]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-18514]
[[Page 60017]]
Vol. 88
Wednesday,
No. 167
August 30, 2023
Part II
Department of the Treasury
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Internal Revenue Service
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26 CFR Part 1
Increased Credit or Deduction Amounts for Satisfying Certain Prevailing
Wage and Registered Apprenticeship Requirements; Notice
Federal Register / Vol. 88, No. 167 / Wednesday, August 30, 2023 /
Proposed Rules
[[Page 60018]]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-100908-23]
RIN 1545-BQ54
Increased Credit or Deduction Amounts for Satisfying Certain
Prevailing Wage and Registered Apprenticeship Requirements
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and public hearing.
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SUMMARY: This document contains proposed regulations regarding
increased credit or deduction amounts available for taxpayers
satisfying prevailing wage and registered apprenticeship (collectively,
PWA) requirements established by the Inflation Reduction Act of 2022
(IRA). These proposed regulations would affect taxpayers intending to
satisfy the PWA requirements for increased Federal income tax credits
or deductions. These proposed regulations would also affect taxpayers
intending to satisfy the prevailing wage requirements for increased
Federal income tax credit amounts that do not have associated
apprenticeship requirements. Additionally, these proposed regulations
would affect taxpayers who initially fail to satisfy the PWA or
prevailing wage requirements and subsequently comply with the
correction and penalty procedures in order to be deemed to satisfy the
PWA or prevailing wage requirements. Finally, the proposed regulations
address specific PWA or prevailing wage recordkeeping and reporting
requirements. The proposed regulations would affect taxpayers intending
to claim increased credit or deduction amounts pursuant to the IRA,
including those intending to make elective payment elections for
available credit amounts, and those intending to transfer increased
credit amounts. This document also provides notice of a public hearing
on the proposed regulations.
DATES: Written or electronic comments and requests for a public hearing
must be received by October 30, 2023. A public hearing on these
proposed regulations is scheduled to be held on November 21, 2023, at
10 a.m. ET. Requests to speak and outlines of topics to be discussed at
the public hearing must be received by October 30, 2023. If no outlines
are received by October 30, 2023, the public hearing will be cancelled.
Requests to attend the public hearing must be received by 5 p.m. ET on
November 17, 2023. The public hearing will be made accessible to people
with disabilities. Requests for special assistance during the hearing
must be received by November 16, 2023.
ADDRESSES: Commenters are strongly encouraged to submit public comments
electronically via the Federal eRulemaking Portal at <a href="https://www.regulations">https://www.regulations</a> (indicate IRS and REG-100908-23) by following the
online instructions for submitting comments. Requests for a public
hearing must be submitted as prescribed in the ``Comments and Requests
for a Public Hearing'' section. Once submitted to the Federal
eRulemaking Portal, comments cannot be edited or withdrawn. The
Department of the Treasury (Treasury Department) and the IRS will
publish for public availability any comments submitted to the IRS's
public docket. Send paper submissions to: CC:PA:LPD:PR (REG-100908-23),
Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin
Station, Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
the Office of Associate Chief Counsel (Passthroughs & Special
Industries) at (202) 317-6853 (not a toll-free number); concerning
submissions of comments or the public hearing, Vivian Hayes at (202)
317-6901 (not a toll-free number) or by email to <a href="/cdn-cgi/l/email-protection#d9a9acbbb5b0bab1bcb8abb0b7beaa99b0abaaf7beb6af"><span class="__cf_email__" data-cfemail="dcaca9beb0b5bfb4b9bdaeb5b2bbaf9cb5aeaff2bbb3aa">[email protected]</span></a>
(preferred).
SUPPLEMENTARY INFORMATION:
Background
I. Overview
This document contains proposed regulations to amend the Income Tax
Regulations (26 CFR part 1) under sections 30C, 45, 45L, 45U, 45V, 45Y,
45Z, 48C, 48E, and 179D of the Internal Revenue Code (Code) and
proposed amendments to the Income Tax Regulations (26 CFR part 1) under
sections 45Q and 48 (proposed regulations). The Inflation Reduction Act
of 2022 (IRA), Public Law 117-169, 136 Stat. 1818 (August 16, 2022),
amended sections 30C, 45, 45L, 45Q, 48, 48C, and 179D to provide
increased credit or deduction amounts 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
prevailing wage and registered apprenticeship (PWA) requirements.
Increased credit amounts are available under sections 45L and 45U for
taxpayers satisfying certain prevailing wage requirements.\1\ The IRA
includes correction and penalty provisions available in certain
situations if taxpayers have failed to satisfy the PWA requirements,
and they are not otherwise eligible for the increased credit or
deduction because they do not qualify for an exception.
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\1\ The increased credit provisions in sections 45L and 45U do
not contain apprenticeship requirements. For simplicity, where
possible, the preamble to the proposed 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.
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The increased credit amounts are also generally available under
sections 45, 45Y, 48, and 48E with respect to certain facilities with a
maximum net output (or capacity for energy storage technology under
section 48E) of less than one megawatt (One Megawatt Exception).
Additionally, increased credit and deduction amounts are available
under sections 30C, 45, 45Q, 45V, 45Y, 48, 48E and 179D if beginning of
installation or beginning of construction (BOC) occurs before January
29, 2023 (BOC Exception).
II. Prior Guidance
On October 24, 2022, the Treasury Department and the IRS issued
Notice 2022-51, 2022-43 I.R.B. 331, requesting comments on aspects of
the increased credits and deduction amounts enacted by the IRA,
including the PWA provisions. Section 3.01 of Notice 2022-51 requested
comments regarding the applicability of subchapter IV of chapter 31 of
title 40 of the United States Code, which is commonly known as the
Davis-Bacon Act; the special correction and penalty procedures
generally provided for under section 45(b)(7)(B); any documentation or
substantiation that should be required to show compliance with the
prevailing wage requirements; and any other topics relating to the
prevailing wage requirements that may require guidance. Section 3.02 of
Notice 2022-51 requested comments addressing factors to be considered
in regard to the appropriate duration of employment of individuals for
construction, alteration, or repair work for purposes of the
Participation Requirement; clarification regarding the Good Faith
Effort Exception; factors to be considered in administering and
promoting compliance with the Good
[[Page 60019]]
Faith Effort Exception; whether methods exist to facilitate reporting
requirements for the Good Faith Effort Exception; documentation or
substantiation taxpayers maintain or could create to demonstrate
compliance with the apprenticeship requirements or the Good Faith
Effort Exception; and any other topics relating to the apprenticeship
requirements that may require guidance. Comments received in response
to Notice 2022-51 were considered in the drafting of these proposed
regulations.
On November 30, 2022, the Treasury Department and the IRS published
Notice 2022-61. 87 FR 73580, corrected in 87 FR 75141 (Dec. 7, 2022).
Notice 2022-61 provided guidance on the PWA requirements that generally
apply under sections 30C, 45, 45L, 45Q, 45U, 45V, 45Y, 45Z, 48, 48C,
and 48E, and 179D. Additionally, Notice 2022-61 established the 60-day
period described in sections 30C(g)(1)(C)(i), 45(b)(6)(B)(ii),
45Q(h)(2), 45V(e)(2)(A)(i), 45Y(a)(2)(B)(ii), 48(a)(9)(B)(ii),
48E(a)(2)(A)(ii)(II) and (a)(2)(B)(ii)(II), and 179D(b)(3)(B)(i).
Specifically, Notice 2022-61 started the 60-day period applicable for
determining if taxpayers qualify for the increased credit or deduction
amounts by satisfying the BOC Exception. To be eligible for the BOC
Exception, as indicated in Notice 2022-61, taxpayers must have begun
construction or installation of a facility (as defined in Notice 2022-
61) before January 29, 2023. Finally, Notice 2022-61 provided guidance
for determining the beginning of construction under sections 30C, 45,
45Q, 45V, 45Y, 48, and 48E, and the beginning of installation under
section 179D.
III. Inflation Reduction Act
A. In General
Prior to enactment of the IRA, the Code provided for certain
temporary credits and deductions with respect to energy related
facilities, projects, equipment, and investments under sections 30C,
45, 45L, 45Q, 48, 48C, and 179D. Congress had extended these provisions
multiple times and for varying types of qualified facilities, energy
projects, equipment, and investments. The IRA further amended these
sections, generally adjusting the credit or deduction amounts,
expiration dates, and qualifying activities. Under the IRA, Congress
also enacted new credits under sections 45U, 45V, 45Y, 45Z, (production
tax credits) and 48E (investment tax credit).
The IRA provides increased credit or deduction amounts that
generally apply for taxpayers who satisfy (i) certain PWA requirements
regarding the construction, installation, alteration, or repair of a
qualified facility, qualified property, qualified project, or qualified
equipment, or with respect to certain facilities, (ii) the One Megawatt
Exception, or (iii) the BOC Exception. Generally, if a taxpayer
satisfies the PWA requirements or meets the One Megawatt Exception or
the BOC Exception, the amount of credit or deduction determined is
equal to the otherwise determined amount of the underlying credit or
deduction multiplied by five.
B. PWA Provisions
1. In General
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), and section 45(b)(8)
provides the apprenticeship requirements (Apprenticeship
Requirements).\2\
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\2\ 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
substantially similar to the requirements provided under section
45(b)(7). 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) provides for
a special 5-year recapture rule that applies for purposes of the
prevailing wage requirements with respect to sections 48 and 48E.
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Section 45 provides a credit for taxpayers producing and selling
electricity from renewable resources to unrelated persons during the
taxable year (section 45 credit). The section 45 credit is generally
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. If a taxpayer
satisfies the PWA requirements, the One Megawatt Exception, or the BOC
Exception, then the credit determined under section 45(a) for
electricity produced at a qualified facility is multiplied by five.
2. Prevailing Wage Requirements
Under section 45(b)(6), in the case of a qualified facility that
satisfies the PWA requirements of section 45(b)(7) and (b)(8), the One
Megawatt Exception, or the BOC Exception, the credit under section
45(a) ``shall be equal to such amount multiplied by five.'' 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 that is within the 10-year period
beginning on the date the qualified facility is 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.
3. Correction and Penalty Related to Failure To Satisfy Prevailing Wage
Requirements
Under section 45(b)(7)(B), a taxpayer who is not eligible for the
One Megawatt Exception or the BOC Exception and fails to satisfy the
Prevailing Wage Requirements under section 45(b)(7)(A) is ``deemed'' to
have satisfied those requirements if, for ``any laborer or mechanic who
was paid wages at a rate below the [required prevailing rate] for any
period'' during any year of the construction, alteration, or repair of
the facility, the taxpayer makes a correction payment to the laborer or
mechanic and pays a penalty to the Secretary of the Treasury or her
delegate (Secretary). Under section 45(b)(7)(B)(i)(I), the amount of
the correction payment is the sum of (i) the difference between the
amount of wages paid to the laborer or mechanic during the period and
the amount of wages required to be paid to the laborer or mechanic
during that period in order to meet the Prevailing Wage Requirements;
and (ii) interest on the amount under (i) at the underpayment rate
established under section 6621 (determined by substituting ``6
percentage points'' for ``3 percentage points'' in section 6621(a)(2))
for the applicable period.
Under section 45(b)(7)(B)(i)(II), the amount of the penalty is
``$5,000 multiplied by the total number of laborers and mechanics who
were paid wages at a rate below the [prevailing wage] rate described in
[section 45(b)(7)(A)] for any period'' during the year. Deficiency
procedures do not apply ``with respect to the assessment or
collection'' of this penalty pursuant to section 45(b)(7)(B)(ii).
[[Page 60020]]
Under section 45(b)(7)(B)(iii), if the Secretary determines that
the failure to satisfy the Prevailing Wage Requirements is due to
``intentional disregard'' of those requirements, then the correction
payment to the laborer or mechanic is three times the amount that would
otherwise be determined under section 45(b)(7)(B)(i)(I), and $10,000 is
substituted for $5,000 in calculating the penalty under section
45(b)(7)(B)(i)(II).
Section 45(b)(7)(B)(iv) provides that, ``pursuant to rules issued
by the Secretary, in the case of a final determination by the Secretary
with respect to any failure . . . to satisfy [the Prevailing Wage
Requirements],'' the correction and penalty provisions do not apply,
``unless the payments . . . are made by the taxpayer on or before the
date which is 180 days after the date of such determination.''
4. Apprenticeship Requirements
Under section 45(b)(8), in order to satisfy the Apprenticeship
Requirements, certain requirements with respect to labor hours,
apprentice-to-journeyworker ratios, and participation by apprentices
must be satisfied.\3\
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\3\ 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.
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a. Labor Hours Requirement
Section 45(b)(8)(A)(i) provides that ``[t]axpayers shall ensure
that, with respect to construction of any qualified facility, not less
than the applicable percentage of the total labor hours of the
construction, alteration, or repair work (including such work performed
by any contractor or subcontractor) with respect to such facility
shall, subject to [section 45(b)(8)(B)] be performed by qualified
apprentices'' (Labor Hours Requirement).
For purposes of the Labor Hours Requirement, section
45(b)(8)(A)(ii) provides that the applicable percentage is: (i) in the
case of a qualified facility the construction of which begins before
January 1, 2023, 10 percent, (ii) in the case of a qualified facility
the construction of which begins after December 31, 2022, and before
January 1, 2024, 12.5 percent, and (iii) in the case of a qualified
facility the construction of which begins after December 31, 2023, 15
percent.
Section 45(b)(8)(E)(i) defines ``labor hours'' as the ``total
number of hours devoted to the performance of construction, alteration,
or repair work by any individual employed by the taxpayer or by any
contractor or subcontractor, and exclud[ing] any hours worked by
foremen, superintendents, owners, or persons employed in a bona fide
executive, administrative, or professional capacity (within the meaning
of those terms in part 541 of title 29, Code of Federal Regulations).''
Section 45(b)(8)(E)(ii) defines ``qualified apprentice'' as ``an
individual who is employed by the taxpayer or by any contractor or
subcontractor and who is participating in a registered apprenticeship
program, as defined in section 3131(e)(3)(B).'' Section 3131(e)(3)(B)
defines a registered apprenticeship program as an apprenticeship
program registered under the Act of August 16, 1937 (commonly known as
the National Apprenticeship Act, 50 Stat. 664, chapter 663, 29 U.S.C.
50 et seq.) that meets the standards of subpart A of part 29 and part
30 of title 29 of the Code of Federal Regulations.\4\
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\4\ Effective November 25, 2022, 29 CFR part 29 is no longer
divided into subparts A and B because subpart B (Industry Recognized
Apprenticeship Programs) was rescinded in a final rule published on
September 26, 2022 (87 FR 58269).
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b. Ratio Requirement
Under section 45(b)(8)(B), the Labor Hours Requirement is subject
to any applicable requirements for apprentice-to-journeyworker ratios
of the U.S. Department of Labor (DOL) or the applicable State
apprenticeship agency (Ratio Requirement).
c. Participation Requirement
Under section 45(b)(8)(C), each taxpayer, contractor, or
subcontractor who employs four or more individuals to perform
construction, alteration, or repair work with respect to the
construction of a qualified facility must employ one or more qualified
apprentices to perform such work (Participation Requirement).
5. Exceptions to Apprenticeship Requirements
a. In General
Under section 45(b)(8)(D)(i), a taxpayer is not treated as failing
to satisfy the Apprenticeship Requirements in section 45(b)(8) if: (i)
the taxpayer satisfies the requirements described in section
45(b)(8)(D)(ii) (Good Faith Effort Exception), or (ii) in the case of
any failure by the taxpayer to satisfy the Labor Hours Requirement
under section 45(b)(8)(A) and the Participation Requirement under
section 45(b)(8)(C), the taxpayer makes a penalty payment to the
Secretary (Apprenticeship Cure Provision).
b. Good Faith Effort Exception
Under the Good Faith Effort Exception provided by section
45(b)(8)(D)(ii), a taxpayer is deemed to have satisfied the
Apprenticeship Requirements with respect to a qualified facility if the
taxpayer has requested qualified apprentices from a registered
apprenticeship program, as defined in section 3131(e)(3)(B), and: (i)
such request has been denied, provided that such denial is not the
result of a refusal by the taxpayer or any contractors or
subcontractors engaged in the performance of construction, alteration,
or repair work with respect to such qualified facility to comply with
the established standards and requirements of the registered
apprenticeship program, or (ii) the registered apprenticeship program
fails to respond to such request within five business days after the
date on which such registered apprenticeship program received such
request.
c. Apprenticeship Cure Provision
Under section 45(b)(8)(D)(i)(II), if the Good Faith Effort
Exception does not apply, then the taxpayer will not be treated as
failing to satisfy the Labor Hours Requirement or the Participation
Requirement if the taxpayer makes a penalty payment to the Secretary in
an amount equal to the product of $50 multiplied by the total labor
hours for which the Labor Hours Requirement or the Participation
Requirement was not satisfied with respect to the construction,
alteration, or repair work on the qualified facility. Under section
45(b)(8)(D)(iii), if the Secretary determines that the failure was due
to intentional disregard of the Labor Hours Requirement or
Participation Requirement, then the penalty amount increases to $500
multiplied by the total labor hours for which the requirement was not
satisfied.
C. One Megawatt Exception
Under the One Megawatt Exception in section 45(b)(6)(B)(i), a
qualified facility that has a maximum net output of less than one
megawatt (as measured in alternating current) is eligible for the
increased credit amount. A qualified facility's nameplate capacity
determines whether the facility meets the One Megawatt Exception.
Similar exceptions apply for a qualified facility under sections
45Y(a)(2)(B)(i) and 48E(a)(2)(A)(ii)(I) with a maximum net output of
less than one megawatt (as measured in alternating current); a
qualified project under section 48(a)(9)(B)(i) with a maximum net
output of less than one megawatt of
[[Page 60021]]
electrical (as measured in alternating current) or thermal energy; and
energy storage technology under section 48E(a)(2)(B)(ii)(I) with a
capacity of less than one megawatt.
D. Beginning of Construction Exception
Under the BOC Exception in section 45(b)(6)(B)(ii), a qualified
facility the construction of which began prior to the date that is 60
days after the Secretary publishes guidance with respect to the
requirements of section 45(b)(7)(A) and (8) is eligible for the
increased credit amount in section 45(b)(6). On November 30, 2022, the
IRS and the Treasury Department published Notice 2022-61, providing
guidance with respect to the PWA requirements in section 45(b)(7)(A)
and (8), including initial guidance for determining the beginning of
construction for section 45 and other credits and the beginning of
installation under section 179D. Therefore, if a taxpayer began
construction or installation of a facility \5\ before January 29, 2023,
then the taxpayer is eligible for the increased credit amount without
satisfying the PWA requirements, provided the taxpayer is otherwise
eligible for the credit. Similar exceptions apply under sections 30C,
45Q, 45V, 45Y, 48, 48E, and 179D.
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\5\ Notice 2022-61 defines ``facility'' as qualified facility,
property, project, or equipment.
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For purposes of determining when construction or installation
begins, Notice 2022-61 incorporates by reference the notices issued
under sections 45, 45Q, and 48 (collectively, IRS Notices).\6\ The IRS
Notices describe two methods of establishing that construction of a
facility has begun: (i) starting physical work of a significant nature
(Physical Work Test), and (ii) paying or incurring five percent or more
of the total cost of the facility (Five Percent Safe Harbor).
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\6\ Notice 2013-29, 2013-20 I.R.B. 1085 (section 45); Notice
2020-12, 2020-11 I.R.B. 495 (section 45Q); Notice 2018-59, 2018-28
I.R.B. 196 (section 48).
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The IRS Notices, as clarified and modified by Notice 2021-41, 2021-
29 I.R.B. 17, provide that for purposes of the Physical Work Test and
Five Percent Safe Harbor, taxpayers must demonstrate either continuous
construction or continuous efforts (Continuity Requirement) regardless
of whether the Physical Work Test or the Five Percent Safe Harbor was
used to establish the beginning of construction. Whether a taxpayer
meets the Continuity Requirement under either test is determined by the
relevant facts and circumstances.
The IRS Notices, as subsequently clarified and modified, also
provide for a ``Continuity Safe Harbor'' under which a taxpayer will be
deemed to satisfy the Continuity Requirement provided a qualified
facility is placed in service no more than four calendar years after
the calendar year during which construction of the qualified facility
began for purposes of sections 45 and 48, and no more than six calendar
years after the calendar year during which construction of the
qualified facility or carbon capture equipment began for purposes of
section 45Q. For purposes of the Continuity Safe Harbor, certain
offshore projects and projects built on Federal land under sections 45
and 48 satisfy the Continuity Requirement if such a project is placed
into service no more than 10 calendar years after the calendar year
during which construction of the project began.
Until the Treasury Department and the IRS issue further guidance on
determining when construction or installation begins, taxpayers may
continue to rely on the guidance provided in Notice 2022-61 and the IRS
Notices. Specifically, to determine when construction begins for
purposes of sections 30C, 45V, 45Y, and 48E, principles similar to
those under Notice 2013-29 regarding the Physical Work Test and Five
Percent Safe Harbor apply, and taxpayers satisfying either test will be
considered to have begun construction. In addition, principles similar
to those provided in the IRS Notices regarding the Continuity
Requirement for purposes of sections 30C, 45V, 45Y, and 48E apply.
Whether a taxpayer meets the Continuity Requirement under either test
is determined by the relevant facts and circumstances. Similar
principles to those under section 3 of Notice 2016-31 regarding the
Continuity Safe Harbor also apply for purposes of sections 30C, 45V,
45Y, and 48E. Taxpayers may rely on the Continuity Safe Harbor with
respect to those sections, provided the facility is placed in service
no more than four calendar years after the calendar year during which
construction began.
For purposes of section 179D, installation of energy efficient
commercial building property has begun if a taxpayer generally
satisfies principles similar to the two tests described in section 2.02
of Notice 2022-61 regarding the beginning of construction under Notice
2013-29 (Physical Work Test and Five Percent Safe Harbor). The relevant
facts and circumstances will ultimately determine whether a taxpayer
has begun installation.
For purposes of sections 45, 45Q, and 48, the IRS Notices will
continue to apply under each respective Code section, including
application of the Physical Work Test and Five Percent Safe Harbor, and
the rules regarding the Continuity Requirement and Continuity Safe
Harbors.
IV. Davis-Bacon Act
The Davis-Bacon Act (40 U.S.C. 3141 et seq.) (DBA), enacted in
1931, requires the payment of minimum prevailing wages determined by
the DOL to laborers and mechanics working on contracts entered into by
Federal agencies and the District of Columbia that are in excess of
$2,000 and are for the construction, alteration, or repair of public
buildings and public works. The Copeland Act, Public Law 73-324 (40
U.S.C. 3145), was enacted in 1934 to add a requirement that contractors
working on contracts covered by the DBA submit weekly certified payroll
records to the contracting agency for work performed on the contract.
Congress has included DBA requirements in other laws, often referred to
as the Davis-Bacon Related Acts (Related Acts), under which Federal
agencies provide assistance for construction projects through grants,
loans, insurance, and other methods.
The Wage and Hour Division of the DOL is responsible for
administering the DBA and has adopted regulations for the determination
of prevailing wages as well as compliance with and enforcement of DBA
labor standards requirements under 29 CFR parts 1, 3, and 5.
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 performing work, and the Copeland
Act, 40 U.S.C. 3145, sets forth the requirement to submit certified
weekly payroll records to the contracting Federal agency. Under
regulations implementing the DBA (29 CFR parts 1 and 5), the
contracting agency and the Wage and Hour Division have responsibility
to ensure compliance with prevailing wage requirements by engaging in
periodic audits or investigations of contracts, including examination
of payroll data.
The Wage and Hour Division determines the wage rates that are
``prevailing'' for purposes of section 3142(b) of the DBA for each
classification of covered laborers and mechanics on similar projects in
the
[[Page 60022]]
geographic area in which work is to be performed. A prevailing wage is
the combination of the basic hourly rate and any fringe benefit rate
listed on the wage determination. The Wage and Hour Division generally
makes its determinations of the prevailing rates based on survey
information provided by contractors and other interested parties. The
prevailing wage determinations made by the Wage and Hour Division are
published on the DOL-approved website for wage determinations
(currently <a href="https://www.sam.gov">https://www.sam.gov</a>).
Under the DBA, contracting agencies follow specified procedures for
incorporating wage determinations into covered contracts. The
applicable prevailing wage determination generally applies for the
duration of the contract.
In accordance with the DBA, certain apprentices may be paid wages
at a lower wage rate than journeyworker laborers and mechanics. Under
29 CFR 5.5(a)(4), an apprentice from a registered apprentice program
may be paid at not less than the rate specified in the registered
program for the apprentice's level of progress in the apprenticeship
program, expressed as a percentage of the journeyworker hourly rate
specified in the applicable wage determination. Apprentices may also be
paid bona fide fringe benefits in accordance with the provisions of the
registered apprenticeship program, but if the registered apprenticeship
program does not specify bona fide fringe benefits, apprentices must be
paid the full amount of bona fide fringe benefits listed on the wage
determination for the applicable classification.
Sections 3143 and 3144 of the DBA also provide for certain
enforcement authority and remedies to ensure compliance with payment of
prevailing wage rates. When a contracting agency or the Wage and Hour
Division finds there has been an underpayment of wages, the contracting
agency and the Wage and Hour Division can seek to recover the
underpayments from the contractor responsible, including but not
limited to the prime contractor. If the underpayment of wages to
laborers and mechanics is not promptly remedied, then the contracting
agency may withhold payments that are otherwise due under the contract
or under another contract with the same prime contractor in order to
compensate the laborers and mechanics for the underpayments.
Contractors who have been found to have disregarded their obligations
to employees and subcontractors, including by violating prevailing wage
requirements, may also be subject to debarment from future Federal
contracts under 40 U.S.C. 3144(b) and 29 CFR 5.12.
Explanation of Provisions
I. Overview
A. Incorporation of Certain DBA Guidance
Under section 45(b)(7)(A), the increased credit is available with
respect to a qualified facility if a taxpayer ensures that laborers and
mechanics are ``paid wages at rates not less than the prevailing rates
. . . in accordance with [the DBA].'' The phrase ``in accordance with''
means ``in agreement or harmony with; in conformity to; according to.''
\7\ In interpreting the ``in accordance with'' language, the Treasury
Department and the IRS propose to incorporate in these regulations
certain requirements of the DBA that are relevant for the purposes of
section 45(b)(7)(A) and the intent of the IRA, and that are necessary
for, and consistent with, sound tax administration.
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\7\ In accordance with, Oxford English Dictionary, <a href="https://www.oed.com/search/dictionary/?scope=Entries&q=in+accordance+with">https://www.oed.com/search/dictionary/?scope=Entries&q=in+accordance+with</a>
(last visited Aug. 8, 2023); see Accordance, Merriam-Webster's
Collegiate Dictionary (11th ed. 2006) (``agreement, conformity'').
---------------------------------------------------------------------------
Under the DBA, a contractor must agree to pay prevailing wages at
the commencement of the project as a condition of a Federal contract
award. Conversely, under section 45, the requirements related to
payment of prevailing wages are generally triggered at the beginning of
construction and continue during the entire course of a project, but
the requirement becomes binding only when a tax return claiming the
increased credit is filed. The Code does not require taxpayers who do
not seek an increased credit under section 45(b)(6) to pay prevailing
wages in the construction, alteration, or repair of a facility.
The proposed regulations seek to strike the appropriate balance in
determining when DBA requirements are relevant for purposes of the PWA
requirements and when they are not. The proposed regulations would
incorporate DBA statutory and regulatory guidance that is relevant for
purposes of claiming the increased tax credit and consistent with sound
tax administration. For example, the proposed regulations would largely
adopt DBA guidance relating to wage determinations and the meaning of
pertinent terms such as ``laborer'' and ``mechanic''; ``construction,
alteration, or repair''; ``wages''; and ``employed''. The proposed
regulations would not adopt DBA guidance if the result of doing so
would not be in furtherance of sound tax administration or the aims of
the IRA. For example, the proposed regulations would not incorporate
the rules under the DBA regarding provisions required to be included in
contracts, those provisions related to the reporting of certified
payroll records by contractors to contracting agencies, and the various
enforcement processes that are available to the DOL and the contracting
agencies to address noncompliance. Additionally, the DBA's $2,000
monetary coverage threshold has not been incorporated.\8\
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\8\ The Treasury Department and the IRS interpret the One
Megawatt Exception as addressing small business taxpayers who would
be excluded under the $2,000 minimum contract requirement under the
DBA.
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The statutory language of the IRA does not reflect any intent to
include exceptions from the PWA requirements, other than the One
Megawatt Exception and the BOC Exception. Consequently, the Treasury
Department and the IRS have not proposed a rule exempting Tribal
governments or the Tennessee Valley Authority (TVA) from the PWA
requirements in section 45. The Treasury Department and the IRS request
comments on the need for any exceptions, including for Tribal
governments or the TVA, from the PWA requirements in addition to those
expressly described in the statute. Such comments should detail the
specific circumstances requiring the proposed exception as well as how
its design would limit its application only to those circumstances.
In addition, the Treasury Department and the IRS will hold Tribal
consultation specifically to address the prevailing wage and
apprenticeship requirements in these proposed regulations, which will
inform the development of the final regulations. See part VI. of the
Special Analyses section.
B. Applicability of PWA Requirements to the Taxpayer
The proposed regulations would provide that in order to earn the
increased credit under section 45(b)(6) by satisfying the PWA
requirements, the taxpayer would be solely responsible for: (i)
ensuring that the relevant laborers and mechanics are paid wages not
less than the prevailing rate whether employed directly by the
taxpayer, or by a contractor, or a subcontractor, and (ii) ensuring
that the Apprenticeship Requirements are satisfied. The proposed
regulations would also provide that the taxpayer would be solely
responsible for the PWA recordkeeping requirements, the
[[Page 60023]]
correction and penalty provisions under the Prevailing Wage
Requirements, and the Good Faith Effort Exception and penalty
provisions under the Apprenticeship Requirements. However, nothing in
these proposed regulations is intended to supersede requirements that
might otherwise apply to a taxpayer, contractor, or subcontractor by
State or Federal law.
Generally, the proposed regulations would define the term
``taxpayer'' to mean any taxpayer as defined in section 7701(a)(14),
including applicable entities described in section 6417(d)(1)(A). This
will generally be the entity that claims the credit (as increased under
section 45(b)(6)), or makes an election under section 6417 with respect
to such credit amount on a Federal income tax return. The section 45
credit, including the increased credit amount available under section
45(b)(6), is an eligible credit subject to the newly enacted section
6418. Section 6418 allows ``eligible taxpayers'' to elect to transfer
certain credits to unrelated taxpayers rather than using the credits
against their Federal income tax liabilities. In the case of credits
transferred under section 6418, these proposed regulations would
provide that the term ``taxpayer'' also means the eligible taxpayer
that determines the eligible credit to be transferred and makes a
transfer election under section 6418 to transfer any specified credit
portion (including 100 percent) of an eligible credit determined with
respect to any eligible credit property of such eligible taxpayer for
any taxable year.
Section 6418(a) provides that, in the case of an eligible taxpayer
that elects to transfer all (or any specified portion) of an eligible
credit determined with respect to the taxpayer for any taxable year to
an unrelated transferee taxpayer, the transferee taxpayer specified in
such election (and not the eligible taxpayer) is treated as the
taxpayer with respect to such credit (or such portion thereof).
The Treasury Department and the IRS published proposed regulations
in the Federal Register (88 FR 40496 (June 21, 2023)) that would
implement the statutory provisions of section 6418 (6418 Proposed
Regulations). As explained in the 6418 Proposed Regulations, the
Treasury Department and the IRS view inclusion of the word
``determined'' as instructive. Only credits determined with respect to
an eligible taxpayer can be transferred by the eligible taxpayer. The
6418 Proposed Regulations would provide that Code sections relating to
the determination of an eligible credit, such as sections 49 and 50(b),
generally impact the amount of an eligible credit that an eligible
taxpayer can transfer. A transferee taxpayer is generally not subject
to those Code sections, but a transferee taxpayer is subject to Code
sections that would limit the amount of an eligible credit that is
allowed, such as sections 38(c) and 469. In making a transfer election,
the 6418 Proposed Regulations also would require an eligible taxpayer
to report the determined credit as part of the taxpayer's return,
including filing properly completed credit source forms, a properly
completed Form 3800, General Business Credit, and a schedule showing
the amount of eligible credit transferred for each eligible credit
property.
The 6418 Proposed Regulations also would apply with respect to the
entire credit determined under section 45, where the amount of credit
determined would include increased credit amounts available under
section 45(b)(6). As the rules for determining an eligible credit apply
to the eligible taxpayer and not the transferee taxpayer under section
6418, these proposed regulations would provide consistency with respect
to the rules relating to the determination of the section 45 credit.
Thus, while a transferee taxpayer would claim a transferred eligible
credit (or portion thereof) on a tax return, the requirements of
section 45 relevant to determining the credit, including the correction
and penalty provisions described in section 45(b)(7)(B) and
45(b)(8)(D), would remain with the eligible taxpayer who determined the
credit. The Treasury Department and the IRS request comments on the
application of the PWA penalty and cure provisions, including to
transferees and eligible taxpayers, in the context of transferred
credits.
II. Prevailing Wage Requirements Under Section 45(b)(7)(A)
A. In General
Section 45(b)(7)(A) requires that taxpayers who are seeking an
increased credit ensure that laborers and mechanics employed by the
taxpayer, or any contractor or subcontractor in the construction,
alteration, or repair of a facility are paid wages at rates that are
not less than the prevailing rates determined by the DOL in accordance
with the DBA.\9\ The proposed regulations would provide that a taxpayer
would satisfy the Prevailing Wage Requirements with respect to the
construction, alteration, or repair of a facility by ensuring that all
laborers and mechanics employed by the taxpayer, or any contractor or
subcontractor, in the construction, alteration, or repair of a facility
are paid wages at rates that are not less than the prevailing rates
determined by the DOL in accordance with the DBA.
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\9\ The requirement to pay prevailing wages with respect to
alteration or repair applies for any portion of a taxable year that
is within the 10-year period beginning on the date the qualified
facility is placed in service.
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The proposed regulations would largely incorporate the definitions
of contractor and subcontractor from the DBA and would provide that:
(i) a contractor would be any person that enters into a contract with
the taxpayer for the construction, alteration, or repair of a qualified
facility, and (ii) a subcontractor would be any contractor that agrees
to perform or be responsible for the performance of any part of a
contract entered into with the taxpayer (or contractor) with respect to
the construction, alteration, or repair of a facility.
Consistent with the DBA and 29 CFR 5.2, and solely for purposes of
the Prevailing Wage Requirements, the proposed regulations would
provide that a laborer or mechanic would be considered employed by the
taxpayer, contractor, or subcontractor if the individual performs the
duties of a laborer or mechanic for the taxpayer, contractor, or
subcontractor (as applicable), regardless of whether the individual
would be characterized as an employee or an independent contractor for
other Federal tax purposes. The definition of employed for purposes of
the Prevailing Wage Requirements would generally be different and
broader than the definition used elsewhere in the Code, for example
with respect to employment taxes, as well as the associated reporting
and withholding obligations. Laborers and mechanics who are independent
contractors for employment tax purposes may be considered employed for
purposes of the Prevailing Wage Requirements. Whether an individual is
considered employed for purposes of the Prevailing Wage Requirements
and these proposed regulations is not relevant when determining whether
an individual is an employee or an independent contractor for other
Federal tax purposes.
B. Determining the Prevailing Wage Rate
1. In General
Under the proposed regulations, prevailing wage rates would be
determined by the DOL in accordance with the DBA when they are issued
and published by the DOL as a general wage determination or when issued
to a taxpayer as part of a supplemental wage
[[Page 60024]]
determination or pursuant to a request for a wage rate for an
additional classification. The proposed regulations would require
taxpayers to use the general wage determination in effect when the
construction of the facility begins but would not require taxpayers to
update the applicable prevailing wage rates during construction of the
facility in the event a new general wage determination is published by
the DOL after construction of the facility begins. However, a new
general wage determination would be required to be used when a contract
is changed to include additional, substantial construction, alteration,
or repair work not within the scope of work of the original contract,
or to require work to be performed for an additional time period not
originally obligated, including where an option to extend the term of a
contract for the construction, alteration, or repair is exercised. This
is consistent with DOL guidance under the DBA, which generally requires
the contracting agency to incorporate the applicable wage
determinations as part of the contract that is awarded to the
contractor with the applicable rates valid through the duration of the
contract. The proposed regulations also would provide that taxpayers
would need to update the applicable wage rate(s), as necessary, with
respect to any alteration or repair of a facility that begins after the
facility has been placed in service. Taxpayers would do this by
ensuring that wages are paid for such alteration or repair based on the
general wage determination in effect when the alteration or repair
begins.
2. General Wage Determinations
The proposed regulations would provide that a general wage
determination would be one issued and published by the DOL that
includes a list of wage and bona fide fringe benefit rates determined
to be prevailing for laborers and mechanics for the various
classifications of work performed with respect to a specified type of
construction in a geographic area. Generally, the DOL determines the
prevailing rate based on wage rate data submitted by contractors,
contractors' associations, labor organizations, public officials, and
other interested parties. In general, the proposed regulations would
provide that taxpayers would need to use the general wage
determination(s) published by the DOL under the DBA on a DOL approved
website, to determine the applicable prevailing wage rates. The current
approved website for publishing general wage determinations is <a href="https://www.sam.gov">https://www.sam.gov</a>.
The proposed regulations would largely incorporate the definition
of wages from 29 CFR 5.2 for the Prevailing Wage Requirements. Under 29
CFR 5.2, wages are defined as the basic hourly rate of pay; any
contribution irrevocably made by a contractor or subcontractor to a
trustee or to a third person pursuant to a bona fide fringe benefit
fund, plan, or program; and the rate of costs to the contractor or
subcontractor that may be reasonably anticipated in providing bona fide
fringe benefits to laborers and mechanics pursuant to an enforceable
commitment to carry out a financially responsible plan or program,
which was communicated in writing to the laborers and mechanics
affected. Whether amounts are wages for purposes of the Prevailing Wage
Requirements is not relevant in determining whether amounts are wages
or compensation for other Federal tax purposes.
3. Supplemental Wage Determinations and Rates for Additional
Classifications
The proposed regulations would provide special procedures for the
limited circumstances in which a general wage determination does not
provide an applicable wage rate(s) for the work to be performed on the
facility. These circumstances include when no general wage
determination has been issued for the geographic area or for the
specified type of construction, or when the Secretary of Labor has
issued a general wage determination for the relevant geographic area
and type of construction, but one or more labor classifications
necessary for the construction, alteration, or repair work that will be
done on the facility by laborers or mechanics is not listed as part of
that determination. The proposed regulations would provide that under
these circumstances, a taxpayer, contractor, or subcontractor would
need to request a supplemental wage determination or request a
prevailing wage rate for an additional classification from the DOL. A
taxpayer satisfies section 45(b)(7)(A) by ensuring that laborers and
mechanics are paid wages at rates not less than the rates determined by
the DOL pursuant to a request for a supplemental wage determination or
pursuant to a request for a prevailing wage rate for an additional
classification.
The DOL has advised the Treasury Department and the IRS that most
taxpayers will likely not need to use the process for requesting a
supplemental wage determination or request a rate for an additional
classification because of the availability of general wage
determinations. The request for a prevailing wage rate for an
additional classification would only be appropriate when the work to be
performed by the classification is not performed by a classification in
the applicable general wage determination and the classification is
used in the area by the construction industry. In addition, a
prevailing wage rate for an additional classification would only be
approved when the proposed wage rate, including any bona fide fringe
benefits, bears a reasonable relationship to the wage rates contained
in the general wage determination. A request for a prevailing wage rate
for additional classification would not be permitted to be used to
split, subdivide, or otherwise avoid application of classifications
listed in a general wage determination. Under the proposed regulations,
the procedures for requesting a supplemental wage determination or a
prevailing wage rate for an additional classification from the DOL
would correspond to the provisions of 29 CFR 1.5(b) and 5.5(a)(1)(iii).
The Treasury Department and the IRS expect that the construction of
some facilities may span two or more adjacent geographic areas, and
more than one general wage determination could apply to the facility.
In such circumstances, a taxpayer would be able to satisfy the
Prevailing Wage Requirements by ensuring that laborers and mechanics
are paid wages at the highest rate for each classification provided
under the general wage determinations. A taxpayer would also be
permitted to request a supplemental wage determination with respect to
the facility and pay the rates determined by the DOL pursuant to the
request.
The proposed regulations would also provide a special rule for
qualified facilities located offshore so taxpayers would not need to
request a supplemental wage determination for offshore facilities. In
lieu of requesting a supplemental wage determination for a facility
located in an offshore area within the outer continental shelf of the
United States, a taxpayer, contractor, or subcontractor would be
permitted to rely on the general wage determination for the relevant
category of construction that is applicable in the geographic area
closest to the area in which the qualified facility will be located.
The process for requesting a supplemental wage determination or a
prevailing wage rate for an additional classification provided for in
the proposed regulations would be consistent with the process described
in Notice 2022-61 while addressing the different context of the PWA
regime wherein taxpayers, contractors, and
[[Page 60025]]
subcontractors, rather than a contracting agency, will seek additional
wage rates for purposes of complying with the Prevailing Wage
Requirements of section 45. Under the DBA, the request for a project
wage determination applicable under 29 CFR 1.5(b) or for a conformance
under 29 CFR 5.5(a)(1)(iii) is made by the contracting agency rather
than the contractor and will often occur after the contracting agency
and the contractor have conferred about the need for the project wage
determination or for the conformance of an additional classification.
Because there is no contracting agency in the tax credit regime, the
proposed regulations would set forth an analogous process for
taxpayers, contractors, and subcontractors to request a supplemental
wage determination, or a request for a prevailing wage rate for an
additional classification, by submitting the request and supporting
material directly to the Wage and Hour Division of the DOL.
The proposed regulations would provide that the request for a
supplemental wage determination or a request for a prevailing wage rate
for an additional classification would need to include information
consistent with the information that is required to be provided by a
contracting agency when requesting a project wage determination or a
conformance for purposes of the DBA. This information would include a
description of the type of work to be performed, the geographic area
where the facility is located, the start date for the construction,
alteration, or repair of the facility, the labor classification(s)
needed for performance of the work on the facility for which wage rates
are not available on an applicable general wage determination,
pertinent wage payment information that may be available with respect
to the classifications, and any information the taxpayer wants the DOL
to consider for determining the applicable classifications and
prevailing wage rates. After review, the Wage and Hour Division will
notify the taxpayer as to the labor classifications and wage rates to
be used for the type of work in question in the geographic area in
which the facility is located.
The proposed regulations would adopt, by cross reference, the
review and appeal procedures available to any interested party under
the DBA with respect to wage determinations generally. Any interested
party would be able to seek reconsideration and review of a
supplemental wage determination, or a prevailing wage rate for an
additional classification, by the DOL Administrator of the Wage and
Hour Division and appeal any decision of the Administrator of the Wage
and Hour Division to the DOL Administrative Review Board.
In general, the Treasury Department and the IRS expect that
supplemental wage determinations and requests for prevailing wage rates
for an additional classification will be requested no more than 90 days
prior to the beginning of the construction, alteration, or repair of
the facility, as applicable. However, the Treasury Department and the
IRS recognize that taxpayers may not reasonably determine until after
construction, alteration, or repair begins that a supplemental wage
determination or request for a prevailing wage rate for an additional
classification is necessary. In these instances, the Treasury
Department and the IRS would expect taxpayers, contractors, or
subcontractors to make a request as soon as practicable after
determining the need for a supplemental wage determination or
prevailing wage rate for additional classifications. The proposed
regulations would provide that when a supplemental wage determination
or a prevailing wage rate for an additional classification is issued by
the DOL after construction, alteration, or repair of the facility has
begun, the applicable prevailing rates would apply retroactively to the
date that the applicable construction, alteration, or repair work that
is the subject of the request began. The taxpayer would be required to
ensure that wages (including bona fide fringe benefits where
appropriate) are paid at appropriate prevailing wage rates to all
laborers and mechanics performing work on the project from the first
day on which work is performed in the classification. The Treasury
Department and the IRS request comments on the proposed procedures for
requesting supplemental wage determinations and prevailing wage rates
for additional classifications.
C. Paying Wages in Accordance With an Applicable Wage Determination
1. In General
Under the proposed regulations, the applicable wage determination
for a type of construction in a geographic area would provide the
prevailing wage rates that apply to laborers or mechanics for the
construction, alteration, or repair of a facility in that geographic
area. The proposed regulations would provide that for purposes of
satisfying the Prevailing Wage Requirements, all laborers and mechanics
would need to be paid in the time and manner consistent with the
regular payroll practices of the taxpayer, contractor, or
subcontractor, as applicable. For purposes of satisfying section
45(b)(7)(A), the proposed regulations would provide that a taxpayer
would need to ensure that the wages paid to laborers and mechanics
employed by the taxpayer, contractor, or subcontractor on the
construction, alteration, or repair of the facility must be ``not less
than the prevailing rates . . . in the locality in which such facility
is located.'' The proposed regulations would define the terms: (i)
laborer and mechanic, (ii) types of construction, (iii) construction,
alteration, or repair, and (iv) locality, generally consistent with the
DBA definitions.
The proposed regulations would define the terms ``laborer'' and
``mechanic'' as those individuals whose duties are manual or physical
in nature. Laborers and mechanics would include apprentices and
helpers. Working forepersons who devote more than 20 percent of their
time during a workweek to laborer or mechanic duties and who do not
meet the criteria for exemption under 29 CFR part 541 would also be
considered laborers and mechanics for the time spent conducting laborer
and mechanic duties. However, laborers and mechanics would not include
individuals whose duties are primarily administrative, executive, or
clerical, and persons employed in a bona fide executive,
administrative, or professional capacity as those terms are defined in
29 CFR part 541. The Treasury Department and the IRS request comments
on the treatment of working forepersons or owners performing the duties
of laborers and mechanics under certain circumstances, and other
executive or administrative personnel who also perform duties of a
manual or physical nature, in the construction, alteration, or repair
of a qualified facility.
The proposed regulations would provide that the type of
construction would be the general category of construction as
established by the DOL for the publication of general wage
determinations. Specific types of construction currently include
building, residential, heavy, and highway. The Treasury Department and
the IRS contemplate that the construction, alteration, or repair of
most facilities eligible for the increased credit under section
45(b)(6) would be either building or heavy construction.
The proposed regulations would provide that the term construction,
alteration, or repair would generally mean construction, prosecution,
completion, or repair as provided under 29 CFR 5.2. Under this
definition, construction, alteration, or repair would
[[Page 60026]]
mean all types of work performed at the location of the facility and
includes, but is not limited to: constructing, altering, remodeling,
installing of items fabricated offsite; painting and decorating; and
manufacturing or furnishing of materials, articles, and supplies or
equipment at the location of the facility. Additionally, the proposed
regulations would provide that construction, alteration, or repair
would not include maintenance work that occurs after the facility is
placed in service. Under the proposed regulations, maintenance would be
work that is ordinary and regular in nature and designed to maintain
existing functionality of a facility as opposed to an isolated or
infrequent repair of a facility to restore specific functionality or
adapt it for a different or improved use. Further, the proposed
regulations would provide that this definition of construction,
alteration, or repair would be solely for purposes of the PWA
requirements and has no bearing on any other provision under the Code,
including any determination of construction, alteration, repair, or
maintenance under section 162 or 263.
The proposed regulations would provide that a locality or
geographic area would be the county, independent city, or other civil
subdivision of the State in which the facility or secondary site is
located. Geographic area would also include offshore areas, including
areas located within the outer continental shelf of the United States,
and the U.S. territories. If construction, alteration, or repair is
performed in multiple counties, independent cities, or other civil
subdivisions, then the geographic area would also include all counties,
independent cities, or other civil subdivisions in which the work will
be performed.
Under section 45(b)(7)(A)(ii), the prevailing wage rates that are
required to be paid with respect to such construction, alteration, or
repair are determined by reference to ``the prevailing rates for
construction, alteration, or repair of a similar character in the
locality in which such facility is located.'' The proposed regulations
would also use the DBA's ``site of the work'' definition to clarify the
scope of the requirement under section 45(b)(7)(A) to pay prevailing
wage rates. Under the DBA, the requirement to pay prevailing wages is
limited by statute to laborers and mechanics ``employed directly on the
site of the work.'' 40 U.S.C. 3142. By comparison, section
45(b)(7)(A)(i) and (ii) requires the payment of prevailing wages
generally in the ``construction of [a qualified] facility'' and the
``alteration or repair of such facility.'' Over the years, the DOL has
updated its rules to address developments in the construction industry
that have enabled contractors to build large portions of a building or
project on one or more secondary sites away from the primary site of
the work. The DBA rules now provide that a secondary construction site
is considered part of the site of the work, if a significant portion of
a building or work is constructed at the secondary site for specific
use in the designated building or work and the site either was
established specifically for the performance of the covered contract or
project or dedicated exclusively, or nearly so, to the covered contract
or project. 29 CFR 5.2.
The Treasury Department and the IRS view the DBA's site of the work
requirement to be helpful for purposes of interpreting the language in
section 45(b)(7)(A) that the applicable prevailing wage rates for the
construction, alteration, or repair of the facility are rates not less
than those prevailing ``in the locality in which such facility is
located.'' As with certain construction subject to the DBA, the
Treasury Department and the IRS expect that taxpayers similarly may use
multiple construction sites in the construction, alteration, or repair
of a facility and in certain cases prefabricate large portions of the
facility offsite for later installation at the facility's location.
Some of these secondary sites will be dedicated solely to the
construction of a facility while others may service multiple clients
and facilities. While the language of section 45(b)(7)(A) could be
interpreted to support an expansive reading of construction such that
all construction of a facility, wherever located and however small, is
subject to the Prevailing Wage Requirements, such a reading would
result in significantly broader coverage than under the DBA and likely
would entail substantial compliance costs and discourage taxpayers from
seeking the increased credits or deduction available under the IRA.
Thus, the Treasury Department and the IRS understand the DBA approach
to ``site of the work'' to strike an appropriate balance between the
requirements of section 45(b)(7)(A) and existing construction practices
and thus propose to largely adopt the DBA approach for purposes of
defining the scope of the Prevailing Wage Requirements.
Therefore, under the proposed regulations, taxpayers would be
subject to the requirement to ensure that laborers and mechanics are
paid not less than prevailing wage rates with respect to the
construction, alteration, or repair at the locality in which the
facility is located, which would be defined to include any secondary
sites where a significant portion of the construction, alteration, or
repair of the facility occurs, provided that the secondary site either
was established specifically for, or dedicated exclusively for a
specific period of time to, the construction, alteration, or repair of
the facility.
Under 29 CFR 1.6(b)(1), the prevailing wage rate that applies to
laborers or mechanics engaged in the construction, alteration, or
repair work at a secondary site is determined by the geographic area of
the secondary site. The proposed regulations would similarly provide
that when a secondary site is established specifically for, or
dedicated exclusively for a specific period of time to, the
construction, alteration, or repair of the facility, the prevailing
wage rate applicable to laborers and mechanics engaged in the
construction, alteration, or repair of the facility at the secondary
site would be determined by the applicable wage rate for that laborer
or mechanic classification based on the geographic area of the
secondary site.
2. Wages for Apprentices
Section 45(b)(8)(E)(ii) provides generally that a qualified
apprentice is an individual who is employed by the taxpayer,
contractor, or subcontractor and who is participating in a registered
apprenticeship program, as defined in section 3131(e)(3)(B). For
purposes of the DBA, an apprentice may also include an individual in
the first 90 days of probationary employment as an apprentice in a
registered apprenticeship program, who is not individually registered
in the program, but who has been certified by the DOL's Office of
Apprenticeship or a State apprenticeship agency (where appropriate) to
be eligible for probationary employment as an apprentice.
A registered apprenticeship program is a program that has been
registered by the DOL's Office of Apprenticeship or a recognized State
apprenticeship agency, pursuant to the basic standards and requirements
in 29 CFR parts 29 and 30. Program registration is evidenced by a
Certificate of Registration or other written indicia of registration.
The proposed regulations would adopt 29 CFR 5.5(a)(4)(i) allowing
the payment of wages that differ from the applicable prevailing wage
rate to apprentices who are participating in a registered
apprenticeship program. The proposed regulations would also provide
that the calculation of the
[[Page 60027]]
apprentice wage rate would be in accordance with 29 CFR 5.5(a)(4)(i).
For purposes of determining whether apprentices may be paid the
apprentice wage rate rather than the full prevailing wage for other
laborers and mechanics of the same classification, the proposed
regulations would provide the apprentice must be participating in a
registered apprentice program as demonstrated by a written
apprenticeship agreement with the registered apprenticeship program
containing the terms and conditions of the employment and training of
the apprentice. The terms and conditions of the agreement would be
required to comply with 29 CFR 29.7. The registered apprenticeship
program would be required to be registered with the DOL or a recognized
State apprenticeship agency in accordance with 29 CFR parts 29 and 30.
If the apprentice is working in a classification that is not in an
occupation that is part of the registered apprenticeship program, to
satisfy the Prevailing Wage Requirements, the apprentice would need to
be paid the full prevailing wage for laborers or mechanics for that
classification in that location.
The proposed regulations would provide that taxpayers and
contractors or subcontractors who employ apprentices who are not in a
registered apprenticeship program or who employ apprentices in excess
of applicable ratios permitted by the registered apprenticeship program
would need to pay those apprentices the full prevailing wage rate
listed for the classification of the work performed in the applicable
wage determination.
D. Correction and Penalty Provisions
1. General Rule
Under section 45(b)(7)(B)(i) and the proposed regulations,
taxpayers would cure a failure to meet the Prevailing Wage Requirements
by making the correction and penalty payments described in Section
III.B.3. Section 45(b)(7)(B)(i) provides that ``[i]n the case of any
taxpayer which fails to satisfy the requirement under subparagraph (A)
. . . such taxpayer shall be deemed to have satisfied such requirement
under such subparagraph with respect to such facility for any year if,
with respect to any laborer or mechanic who was paid wages at a rate
below the [prevailing rate] for any period during such year,'' the
taxpayer makes the applicable correction payments and pays the penalty.
The phrase ``[i]n the case of any taxpayer which fails to satisfy the
requirement under subparagraph (A) . . . for any period'' suggests that
a failure to pay prevailing wages immediately triggers the
applicability of the correction and penalty provisions if the increased
credit is claimed on a return after a facility is placed in service.
The proposed regulations would require the payment of prevailing wages
at the time work is performed with respect to the construction,
alteration, or repair of a facility in order to claim the increased
credit. The proposed regulations would also provide that the
requirement becomes binding only when the increased credit is claimed
on a return. This is consistent with tax administration regarding the
underlying credit.
Thus, the correction and penalty payment requirements of section
45(b)(7)(B)(i) would become applicable to a taxpayer upon the
occurrence of the taxpayer's failure to satisfy the Prevailing Wage
Requirements of section 45(b)(7)(A), which occurs whenever wages are
paid to a laborer or mechanic below the prevailing wage rates. That
failures will occur, and the obligation to make correction and penalty
payments will have arisen, during the course of the construction,
alteration, or repair of a qualified facility must be viewed in the
context of taxpayers not needing to satisfy the Prevailing Wage
Requirements in the absence of an increased credit being claimed on a
return. Thus, the proposed regulations would provide that the
obligation to make correction payments and pay the penalty would not
become binding until a return is filed claiming the increased credit,
and the proposed regulations would not require payment of the
correction payment or the penalty until the time the increased credit
is claimed. The earliest time that a taxpayer can make a penalty
payment to the IRS is at the time of filing a tax return claiming the
increased credit. However, taxpayers would retain the option of making
correction payments to laborers and mechanics at any time after the
initial payments were made and in advance of the filing of a tax return
claiming the increased credit in order to limit the amount of
additional interest the taxpayer must pay at the elevated rates set
forth in section 45(b)(7)(B)(i)(I)(bb).
In general, taxpayers would be obligated to make any necessary
correction payments to any laborer and mechanic on or before the date a
return is filed claiming an increased credit amount. A taxpayer would
also be obligated to make any penalty payments owed with respect to a
failure to meet the Prevailing Wage Requirements at the time a return
is filed claiming the increased credit amount. Under the proposed
regulations, whether taxpayers make the necessary correction payments
and pay the penalty amounts promptly is one of the facts and
circumstances that would be considered for purposes of the increased
penalties for intentional disregard. The proposed regulations would
also provide a deadline for a taxpayer's ability to use the correction
and penalty provisions to rectify a failure to comply with the
Prevailing Wage Requirements when the IRS makes a final determination
that a taxpayer has failed to satisfy the Prevailing Wage Requirements.
Under section 45(b)(7)(B)(iv), once the IRS makes a final determination
that a taxpayer has failed to satisfy the Prevailing Wage Requirements,
the taxpayer must make the correction and penalty payments within 180
days after the final determination to be eligible to for the increased
credit. The proposed regulations would clarify that this final
determination would come in the form of a notice sent by the IRS.
As provided in section 45(b)(7)(B)(ii), under the proposed
regulations, deficiency procedures would not apply to any penalty
payment required to be made in connection with a failure to meet the
Prevailing Wage Requirements. The proposed regulations would clarify
that although deficiency procedures would not apply to the penalty
payment, deficiency procedures would apply to any determination by the
IRS disallowing a taxpayer's claim for the increased credit.
2. Special Circumstances Involving Correction and Penalty Payments
Section 45(b)(7)(B)(i) states that a taxpayer will be deemed to
satisfy the prevailing wage requirement ``if, with respect to any
laborer or mechanic who was paid wages at a rate below the rate
described in such subparagraph for any period during such year, such
taxpayer--makes payment to such laborer or mechanic . . .'' in the
amount of the correction payment and makes the required penalty payment
to the IRS. The Treasury Department and the IRS are aware that the
construction of a qualified facility may occur over the course of
several years and some taxpayers who fail to meet the Prevailing Wage
Requirements may be unable to locate all laborers and mechanics to
which the correction payment must be made. However, section
45(b)(7)(B)(i) does not excuse taxpayers from the requirement to make
the correction payment, even if the taxpayer is unable to locate the
laborer or mechanic. The proposed regulations would not provide for an
exception to the statutory requirement.
[[Page 60028]]
The Treasury Department and the IRS expect that taxpayers will be
able to establish correction payments even when a former laborer or
mechanic cannot be located. In general, States have developed specific
rules for the payment of wages to former laborers and mechanics who
cannot be located. These rules can include diligence requirements to
locate the laborer or mechanic, information reporting obligations to
relevant State agencies on the amount of unclaimed wages, and
requirements to remit any unclaimed wage amounts to State control as
unclaimed property after defined holding periods. Taxpayers may also be
able to establish correction payments were made by demonstrating
compliance with any withholding and information reporting requirements
with respect to the payments. The Treasury Department and the IRS
request public comments concerning appropriate rules for situations in
which laborers and mechanics who are owed wages cannot be located and
how taxpayers may establish that they have made the correction payment
described in section 45(b)(7)(B)(i)(I).
The Treasury Department and the IRS expect that some taxpayers will
have made requests to the DOL for a supplemental wage determination or
a prevailing wage rate for an additional classification. It is possible
that the DOL's response to these requests will not be issued until
after laborers and mechanics have started working on the facility. The
laborers and mechanics who are the subject of the requests will have
already been engaged in the construction, alteration, or repair, and
may have already been paid wages below the rates later determined to be
prevailing by the DOL. In this circumstance, the proposed regulations
would provide that the taxpayer would not be considered to have failed
to meet the Prevailing Wage Requirements with respect to any mechanics
or laborers whose wage rate was subject to the request and who were
paid below the prevailing wage rate before the determination by the DOL
if the taxpayer requests the supplemental wage determination or
prevailing wage rate for an additional classification before the
beginning of construction (or as soon as practicable after the start of
construction) and makes a correction payment within 30 days of the
determination to each laborer or mechanic equal to the difference
between the amount of wages paid to such laborer or mechanic before the
determination and the amount of wages required by the Prevailing Wage
Requirements to be paid to such laborer or mechanic during such period.
This exception is intended to mitigate a rule that would require
taxpayers to make correction and penalty payments for failures to pay a
prevailing wage rate that could not be timely determined by the
taxpayer.
As previously described, for purposes of transfers pursuant to
section 6418, the proposed regulations would clarify that the
requirement to make correction and penalty payments would continue to
apply to an eligible taxpayer who (i) transfers an increased credit
amount under section 45(b)(6) as part of a specified credit portion and
(ii) fails to meet the prevailing wage requirement of section
45(b)(7)(A) with respect to such increased credit amount. Additionally,
the proposed regulations would provide that the obligation to satisfy
the Prevailing Wage Requirements would not become binding on an
eligible taxpayer until the earlier of: (i) the filing of the eligible
taxpayer's return for the taxable year for which the specified credit
portion is determined with respect to the eligible taxpayer, or (ii)
the filing of the return of the transferee taxpayer for the year in
which the specified credit portion is taken into account.
The proposed regulations would also provide that a taxpayer who
determines the underlying credit amount would have no obligation to
comply with the correction and penalty provisions if the IRS later
determines that the taxpayer was not entitled to the increased credit
amount. Additionally, if the taxpayer does not correct and, therefore,
is not subsequently granted the increased credit amount, no penalty is
assessed under section 45(b)(7)(B).
3. Intentional Disregard
Section 45(b)(7)(B)(iii) provides that if the failure to ensure
that the laborers and mechanics are paid at the prevailing wage rate is
found to be due to intentional disregard, then the amount of the
correction payment is tripled and the amount of the penalty payment is
doubled. The proposed regulations would provide that failures to meet
the Prevailing Wage Requirements would be due to intentional disregard
if they are knowing or willful, which is a determination that must be
made by considering all relevant facts and circumstances. The proposed
regulations would provide a non-exhaustive list of facts that may be
relevant to this determination.
The proposed regulations would explain that the facts and
circumstances would include consideration of whether the failure was
part of a pattern of conduct and whether the taxpayer has been required
to pay the penalty in previous years. The Treasury Department and the
IRS believe that failures that occur despite a taxpayer exercising
reasonable diligence weigh against a finding of a knowing or willful
failure. Under the proposed regulations, taxpayers would demonstrate
reasonable diligence by taking appropriate steps to determine the
applicable classifications and wage rates and by seeking to promptly
correct any failures when discovered. Last, the proposed regulations
would seek to draw from behavior that is generally required of
contractors under the DBA and that the Treasury Department and the IRS
believe would be best practices of taxpayers seeking to comply with the
Prevailing Wage Requirements. These behaviors would include posting
prevailing wage rates in a prominent place for the duration of the
construction, alteration, or repair or otherwise notifying employees of
the applicable prevailing wage rates; incorporating provisions in any
contracts entered with contractors that require payment of prevailing
wage rates by the contractors and any subcontractors; and undertaking
quarterly, or more frequent, reviews of wages paid to laborers and
mechanics to ensure that prevailing wages are being paid. The Treasury
Department and the IRS request comments on additional criteria that
might be used as part of a facts and circumstances analysis of
intentional disregard in this context.
The proposed regulations would also provide that there would be a
rebuttable presumption against a finding of intentional disregard if
the taxpayer makes the correction and penalty payments before receiving
a notice of an examination with respect to a return that claimed the
underlying increased credit. The presumption of no intentional
disregard would be intended to encourage taxpayers who discover a
failure to meet the Prevailing Wage Requirements after filing a return
to use the correction and penalty provisions promptly.
The Treasury Department and the IRS request comments on intentional
disregard, including but not limited to additional criteria that might
be used as part of a facts and circumstances analysis of intentional
disregard and the applicability of a presumption against a finding of
intentional disregard in certain situations.
4. Penalty Waiver
In general, the IRS may exercise its discretion to waive or decline
to assert penalties in the interest of sound tax
[[Page 60029]]
administration. The proposed regulations would use that discretion to
provide limited penalty waivers for instances in which the failures to
pay prevailing wages to laborers and mechanics for the construction,
alteration, or repair of a facility were small in amount or occurred in
a limited number of pay periods. The Treasury Department and the IRS
would use the waiver authority in a manner that assists taxpayers
seeking to be eligible for the increased credit while remaining
consistent with the statutory requirement to ensure that laborers and
mechanics are paid at prevailing wage rates.
The Treasury Department and the IRS understand that taxpayers
intending to pay prevailing wage rates may make payroll errors. These
errors are likely to range in scope and frequency. It is also possible
that taxpayers may make classification errors with respect to work that
is performed by certain laborers or mechanics. The proposed regulations
would seek to account for these likelihoods while continuing to ensure
that laborers and mechanics are paid according to the applicable
prevailing wage rates.
The proposed regulations would provide that the penalty payment
requirement would be waived with respect to the construction,
alteration, or repair performed by a laborer or mechanic during a
calendar year if (i) the taxpayer makes the required correction payment
(back wages and interest) by the earlier of (a) 30 days after the
taxpayer became aware of the error or (b) the date on which the tax
return claiming the increased credit is filed; and (ii) either: (a) the
laborer or mechanic is paid below the prevailing wage rate for not more
than 10 percent of all pay periods of the calendar year (or part
thereof) during which the laborer or mechanic worked on the
construction, alteration, or repair of the facility; or (b) the
difference between the amount the laborer or mechanic was paid for the
calendar year (or part thereof) during which the laborer or mechanic
worked on the construction, alteration, or repair of the facility and
the amount required to be paid by the Prevailing Wage Requirements for
the calendar year is not greater than 2.5 percent of the amount
required under the Prevailing Wage Requirements. The proposed
regulations would use calendar years to measure any failures because
taxpayers, contractors, and subcontractors performing construction may
have different taxable years and laborers and mechanics are generally
paid on a calendar year basis. The Treasury Department and the IRS
request comments on the proposed use of calendar years in place of
taxable years for this purpose.
Pre-hire project labor agreements may be used to incentivize
stronger labor standards and worker protections in the types of
construction projects for which taxpayers may seek the increased
credit, and having a project labor agreement in place may also help
ensure compliance with PWA requirements. For these reasons, the
proposed regulations would also provide that the penalty payment
requirement would not apply with respect to a laborer or mechanic
employed under a project labor agreement that meets certain
requirements and any correction payment owed to the laborer or mechanic
is paid on or before a return is filed claiming an increased credit
amount. The Treasury Department and the IRS request comments on the
proposed treatment of project labor agreements, other ways taxpayers
might use project labor agreements to meet the PWA requirements, and
the definition of a qualifying project labor agreement.
The proposed regulations would use the IRS's general enforcement
discretion to allow taxpayers to correct limited failures to pay
prevailing wages if the taxpayers pay the mechanics and laborers back
wages and interest in a timely manner before the increased credit is
claimed. The proposed regulations would not provide for waiver of the
penalty after a return has been filed claiming the increased credit.
The proposed regulations would seek to create incentives for taxpayers
to self-correct and promptly pay prevailing wages.
III. Apprenticeship Requirements
A. In General
To satisfy the requirements of section 45(b)(8), taxpayers must
ensure that, with respect to the construction of any qualified
facility, the Labor Hours Requirement, Ratio Requirement, and
Participation Requirement are satisfied. The proposed regulations would
clarify the interaction among these requirements. The proposed
regulations would explain that the Labor Hours Requirement generally
would be subject to the Ratio Requirement. The proposed regulations
would further explain that the Participation Requirement would apply in
addition to the Labor Hour Requirement and the Ratio Requirement.
Therefore, in order to meet the requirements of section 45(b)(8), a
taxpayer generally would be subject to all three components of the
Apprenticeship Requirements. If a taxpayer satisfies the applicable
Labor Hours Requirement but fails the Participation Requirement, then
the taxpayer would not be eligible for the increased credit unless the
taxpayer complies with the penalty provisions of section 45(b)(8)(D)
with respect to the total hours that are not met with respect to the
Participation Requirement or meets the Good Faith Effort Exception.
1. Labor Hours Requirement
The proposed regulations would reiterate that under the Labor Hours
Requirement, the taxpayer must ensure that the ``applicable
percentage'' of the total labor hours are performed by qualified
apprentices.
The Treasury Department and the IRS understand that certain
jurisdictions and trades have developed pre-apprenticeship programs
that are designed to help individuals prepare for and succeed in
registered apprenticeship programs but that are not registered with the
DOL under the Act of August 16, 1937 (commonly known as the ``National
Apprenticeship Act''; 50 Stat. 664, chapter 663; 29 U.S.C. 50 et seq.).
Section 45(b)(8)(E)(ii) defines a qualified apprentice as an individual
who is employed by the taxpayer or by any contractor or subcontractor
and who is participating in a registered apprenticeship program, which
is defined in section 3131(e)(3)(B) as apprenticeship programs that are
registered under the National Apprenticeship Act. Thus, under the
proposed regulations, pre-apprenticeship programs would not qualify as
registered apprenticeship programs for purposes of section 45(b)(8) and
hours worked as part of a pre-apprenticeship program would not count
towards the Labor Hour Requirement.
2. Ratio Requirement
Under the Ratio Requirement, a taxpayer must ensure that any
applicable apprenticeship-to-journeyworker ratio is satisfied. Section
45(b)(8)(B) provides that the applicable apprenticeship-to-
journeyworker ratio is determined by reference to the ratios of the DOL
or the applicable State apprenticeship agency. Under 29 CFR part 29,
registered apprenticeship programs prescribe a numeric ratio of
apprentices to journeyworkers in their standards of apprenticeship.
This ratio is intended to ensure that there are enough journeyworkers
to oversee the work of apprentices. The Treasury Department and the IRS
understand that the DOL and State apprenticeship agencies review and
approve the prescribed ratio requirements.
[[Page 60030]]
As stated in Notice 2022-61, the applicable ratios set by
registered apprenticeship programs generally apply on a daily basis.
The proposed regulations reiterate this requirement and would provide
that the applicable ratio established by the apprenticeship program
would need to be satisfied each day during construction, alteration, or
repair of the qualified facility for which apprentice labor hours are
being claimed. This means that the number of apprentices would not be
permitted to exceed the number set forth in the ratio because the ratio
sets the minimum number of journeyworkers needed for each apprentice,
to ensure adequate safety and supervision. For example, for a 1:1
apprentice to journeyworker ratio, having two apprentices and three
journeyworkers on a given day would satisfy the ratio requirement
whereas having three apprentices and two journeyworkers on a given day
would not.
The proposed regulations would provide that if the Ratio
Requirement is not met on any day, then registered apprentices in
excess of the applicable ratio who perform work on a facility would be
required to be paid the full prevailing wage rate for the hours worked
for purposes of the Prevailing Wage Requirement. Additionally, the
hours worked by the apprentices on a day where the applicable ratio was
not satisfied would not be counted as apprentice hours for purposes of
calculating the applicable percentage under the Labor Hours
Requirement.
For purposes of the Ratio Requirement, the proposed regulations
would adopt the DOL definition of journeyworker in 29 CFR 29.2, which
defines a journeyworker as a laborer or mechanic who has attained a
level of skill, abilities and competencies recognized within an
industry as having mastered the skills and competencies required for
the occupation. A mentor, technician, specialist, or other skilled
individual who has documented sufficient skills and knowledge of an
occupation, either through formal apprenticeship or through practical
on-the-job experience and formal training may also be a journeyworker.
The Treasury Department and the IRS request comments on the application
of the Ratio Requirement for purposes of satisfying the Apprenticeship
Requirement.
3. Participation Requirement
The Treasury Department and the IRS propose to interpret the
Participation Requirement as designed to prevent taxpayers from
satisfying the Labor Hours Requirement by only hiring apprentices to
preform one type of work and instead encourages taxpayers to use
apprentices across the full range of work performed with respect to the
facility. The proposed regulations would clarify that the Participation
Requirement would be satisfied as long as the taxpayer, contractor, or
subcontractor employs one or more apprentices to perform work on the
facility and would not be a daily requirement. The proposed regulations
would also clarify that it would be the responsibility of the taxpayer
to ensure that any contractor or subcontractor performing work on the
facility with four or more employees who perform such work on the
facility has hired one or more apprentices in accordance with the
Participation Requirement of section 45(b)(8)(C). Taxpayers who fail to
meet the Participation Requirement would be subject to the penalty
provisions of section 45(b)(8)(D) even if the taxpayer otherwise
satisfies the applicable Labor Hours Requirement unless the Good Faith
Effort Exception applies.
B. Exceptions
1. In General
Section 45(b)(8)(D) and the proposed regulations would allow
taxpayers who fail to meet the Apprenticeship Requirements to
nonetheless qualify for the increased credit by curing their failures.
To cure a failure to meet the Apprenticeship Requirements, taxpayers
would be required to satisfy the Good Faith Effort Exception from the
Apprenticeship Requirements or pay a penalty if they do not qualify for
the Good Faith Effort Exception.
2. Good Faith Effort Exception
Section 45(b)(8)(D)(ii) provides that taxpayers are deemed to
satisfy the Apprenticeship Requirements if they have requested
qualified apprentices from a registered apprenticeship program and such
request has been denied for reasons other than the taxpayer,
contractor, or subcontractor's refusal to comply with the program's
standards and requirements or if the program fails to respond within
five business days of receiving a request. Notice 2022-61 provided that
taxpayers could satisfy the Good Faith Effort Exception if the taxpayer
requested qualified apprentices ``in accordance with usual and
customary business practices for registered apprenticeship programs in
a particular industry.''
The Treasury Department and the IRS believe that additional
guidance explaining the ``usual and customary'' standard would be
useful. The proposed regulations would require the taxpayer,
contractor, or subcontractor to make a written request to at least one
registered apprenticeship program that has a geographic area of
operation that includes the location of the facility, or that can
reasonably be expected to provide apprentices to the location of the
facility, trains apprentices in the occupation(s) needed by the
taxpayer, contractors, or subcontractors performing construction,
alteration, or repair with respect to the facility, and has a usual and
customary business practice of entering into agreements with employers
for the placement of apprentices in the occupation for which they are
training, pursuant to its standards and requirements.
The Treasury Department and the IRS anticipate that a taxpayer may
need to submit a request to more than one apprenticeship program in
order to meet the Good Faith Effort Exception based on the size of the
project, the number of contractors or subcontractors and the
anticipated number of labor hours for which apprentices are needed.
Although it may be possible for a taxpayer to meet all of its Labor
Hours Requirement from one apprenticeship program, it is likely that
given the multiple occupations involved in the construction,
alteration, or repair of a qualified facility, the taxpayer would need
to request apprentices from more than one apprenticeship program in
order to satisfy the Labor Hours Requirement and the Participation
Requirement with respect to that facility. This is in part because a
registered apprenticeship program typically trains apprentices in a
single occupation, whereas more than one occupation may be needed to
meet the Labor Hours Requirement and the Participation Requirement. A
taxpayer, contractor, or subcontractor would be expected to estimate
the number of apprentices needed and the occupations for which they are
needed and to submit its request for apprentices accordingly.
The proposed regulations would require the written request to
include information concerning the dates of employment, the occupation
or classification needed, the location and type of work to be
performed, the number of apprentices needed, the number of hours the
apprentices will work, and the name and contact information of the
person requesting the apprentices. The written request would also be
required to include a statement that the request for apprentices is
made with an intent to employ apprentices in the occupation for which
they are being trained and in accordance with the requirements and
standards of the registered apprenticeship program. The Good Faith
Effort Exception's
[[Page 60031]]
requirement to request qualified apprentices from a registered
apprenticeship program would necessitate that the taxpayer ascertain
its workforce needs to determine how many qualified apprentices it
needs to employ in order to meet the Apprenticeship Requirements,
identify registered apprenticeship programs in the occupations needed
by the taxpayer and its contractors and subcontractors, and demonstrate
capacity to employ apprentices in the occupations for which apprentices
are requested.
A denial of a request by a taxpayer, contractor, or subcontractor
for a qualified apprentice would not automatically qualify the taxpayer
for the Good Faith Effort Exception. The proposed regulations would
require the taxpayer, contractor, or subcontractor to submit an
additional request within 120 days of a previously denied request. The
proposed regulations would also clarify that a denial of a request
means that the registered apprenticeship program denied the request in
its entirety. A registered apprenticeship program's response that it
could partially fulfill the request in the occupation(s) for which it
trains apprentices would not constitute a denial of the request with
respect to the parts of the request that could be fulfilled.
Under the proposed regulations, the Good Faith Effort Exception
would be specific to the request for apprentices made by the taxpayer,
contractor, or subcontractor, including the number of apprentice hours
for which the request for apprentices has been made to a registered
apprenticeship program. Thus, the Good Faith Effort Exception would
apply to the specific portion of the request for apprentices that was
denied or not responded to and would be subject to the requirement to
submit an additional request after 120 days. The Treasury Department
and the IRS request comments on this proposed approach.
Consistent with section 45(b)(8)(D)(ii)(I), the proposed
regulations would require that the request cannot have been denied
because of a refusal of the taxpayer or any contractor or subcontractor
to comply with the requirements and standards of the apprenticeship
program. For example, if a registered apprenticeship program requires a
requesting employer to enter into an agreement with the registered
apprenticeship program, then a denial of the request because the
employer refused to enter into the agreement would not be a valid
denial for purposes of the Good Faith Effort Exception. Section
45(b)(8)(D)(ii) provides that taxpayers may also be deemed to satisfy
the Good Faith Effort Exception if a registered apprenticeship program
fails to respond to a request for a qualified apprentice. The proposed
regulations explain that an acknowledgement of receipt by a registered
apprenticeship program would constitute a response for purposes of
section 45(b)(8)(D)(ii)(II), and a taxpayer would be unable to rely
upon the Good Faith Effort Exception in such circumstances.
The Treasury Department and the IRS understand that apprenticeship
programs are not uniform across industries and localities, including
the manner and processes by which apprentices may be requested and
supplied for purposes of satisfying the Apprenticeship Requirements.
The Treasury Department and the IRS also understand that in many cases
employers are sponsors of registered apprenticeship programs and
directly employ apprentices. In those instances, a taxpayer,
contractor, or subcontractor would likely obtain apprentices to meet
the labor hours and participation requirements through their own
registered apprenticeship programs rather than requesting apprentices
from other registered apprenticeship programs.
In addition, the Treasury Department and the IRS are aware that the
DOL's Office of Apprenticeship, as well as State apprenticeship
agencies, routinely provide technical expertise on registered
apprenticeship program matters, including identifying registered
apprenticeship programs, and assisting employers seeking to register
their own programs.\10\ The Treasury Department and the IRS request
comments on whether and how the proposed Good Faith Effort Exception
might take into account a situation where a taxpayer contacts the DOL's
Office of Apprenticeship or the appropriate State apprenticeship agency
regarding their apprenticeship request, in addition to contacting a
specific registered apprenticeship program or programs. The Treasury
Department and the IRS also request comments on how the proposed Good
Faith Effort Exception will align with current practices with respect
to utilization of apprentices in the construction, alteration, or
repair of facilities. In particular, the Treasury Department and the
IRS request comments on the role of collective bargaining agreements,
project labor agreements, and other agreements to satisfy the request
for apprentices under the Good Faith Effort Exception.
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\10\ Information is available at <a href="https://www.apprenticeship.gov/about-us/apprenticeship-system">https://www.apprenticeship.gov/about-us/apprenticeship-system</a>.
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3. Opportunity To Cure
If a taxpayer does not qualify for the Good Faith Effort Exception
under section 45(b)(8)(D)(ii), section 45(b)(8)(D)(i)(II) provides that
the taxpayer is not treated as failing to satisfy the requirements of
section 45(b)(8)(A) and (C) if the taxpayer pays a penalty to the
Secretary. The proposed regulations explain that, with respect to
failures to satisfy the Labor Hours Requirement or the Participation
Requirement, the amount of the penalty would be equal to $50 multiplied
by the total labor hours for which the taxpayer failed to meet the
Labor Hours Requirement and the Participation Requirement. The proposed
regulations would provide that the total labor hours by which the
taxpayer failed to meet the Labor Hours Requirement would be calculated
by subtracting the total labor hours worked by all qualified
apprentices consistent with the Ratio Requirement from the total labor
hours that should have been worked by qualified apprentices under
section 45(b)(8)(A)(ii) to satisfy the applicable percentage.
Section 45(b)(8)(C) does not specify the number of hours that
apprentices must work to satisfy the Participation Requirement. The
proposed regulations would address this issue by providing that the
number of labor hours that an apprentice was required to work for
purposes of calculating the penalty for failing to satisfy the
Participation Requirement would be equal to the total number of labor
hours performed for the taxpayer, contractor, or subcontractor during
construction, alteration, or repair of the facility divided by the
total number of individuals employed by that taxpayer, contractor, or
subcontractor who performed construction, alteration, or repair work on
the facility. This calculation would be specific to the taxpayer,
contractor, or subcontractor who failed to meet the Participation
Requirement. For example, if the taxpayer failed to meet the
Participation Requirement, then the penalty would be calculated with
reference to the total number of labor hours performed only by those
individuals who worked directly for the taxpayer, and would not include
the labor hours worked by any individuals who worked directly for a
contractor or subcontractor that satisfied the Participation
Requirement.
If the taxpayer failed to meet both the Labor Hours Requirement and
the Participation Requirement, the penalty would equal the sum of the
penalty for the failure to meet the Labor Hours
[[Page 60032]]
Requirement plus the penalty for failure to meet the Participation
Requirement.
If the failure to meet the Labor Hours Requirement or the
Participation Requirement is determined to be the result of intentional
disregard, then the amount of the penalty payment is enhanced tenfold--
from $50 to $500 per labor hour. The proposed regulations would provide
that failures to meet the Apprenticeship Requirements would be due to
intentional disregard if they are knowing or willful, considering all
relevant facts and circumstances. The proposed regulations would
provide a non-exhaustive list of facts and circumstances that may be
relevant to determining whether the failure was knowing or willful.
The proposed regulations would also provide the penalty payment
requirement for failures to meet the Labor Hours Requirement or the
Participation Requirement would not apply if there is in place a
project labor agreement that meets certain requirements.
The proposed regulations also state that there would be a
rebuttable presumption against a finding of intentional disregard if
the taxpayer makes the penalty payments before receiving a notice of an
examination with respect to the claim for the increased credit. The
presumption of no intentional disregard is intended to incentivize
taxpayers who initially fail to meet the Apprenticeship Requirements to
make use of the cure provision promptly.
Consistent with the correction and penalty payments under the
Prevailing Wage Requirements, the hiring of qualified apprentices is a
factor in the taxpayer's eligibility for the increased credit and
therefore applicable to determining the credit. Additionally, although
the Apprenticeship Requirements must be satisfied contemporaneously
with the construction, alteration, or repair of the qualified facility
and before the filing of the taxpayer's tax return, the obligation to
meet the Apprenticeship Requirements is not binding on the eligible
taxpayer until the earlier of: (i) the filing of the eligible
taxpayer's return for the taxable year for which the specified credit
portion is determined with respect to the eligible taxpayer, or (ii)
the filing of the return of the transferee taxpayer for the year in
which the specified credit portion is taken into account. As a result,
the proposed regulations would provide that a penalty payment that is
required to retain the increased credit because of the failure of the
eligible taxpayer to satisfy the Apprenticeship Requirements would
remain the responsibility of the eligible taxpayer following a transfer
of a specified credit portion pursuant to section 6418.
IV. Other Code Sections Applying PWA Provisions for Increased Credit
and Deduction Amounts
A. Section 30C
Section 30C provides a credit for the cost of any qualified
alternative fuel vehicle refueling property placed in service during
the taxable year. For properties placed in service before January 1,
2023, the credit is equal to 30 percent. For properties placed in
service after December 31, 2022, the credit is equal to 30 percent (6
percent for property of a character subject to depreciation). If a
taxpayer satisfies the PWA requirements or the BOC Exception, then the
credit determined under section 30C(a) for any qualified alternative
fuel vehicle refueling property of a character subject to an allowance
for depreciation that is part of such project is multiplied by five.
To satisfy the Prevailing Wage Requirements under section
30C(g)(2)(A), a taxpayer must ensure that any laborers and mechanics
employed by the taxpayer or any contractor or subcontractor in the
construction of any qualified alternative fuel vehicle refueling
property that is part of such project are paid wages at rates not less
than the prevailing rates for construction, alteration, or repair of a
similar character in the locality in which the project is located.
Section 30C(g)(2)(B) provides that rules similar to section 45(b)(7)(B)
apply for purposes of the correction and penalty related to the failure
to satisfy the Prevailing Wage Requirements. Section 30C(g)(3) provides
that rules similar to section 45(b)(8) apply for purposes of the
Apprenticeship Requirements.
The proposed regulations would provide that if a taxpayer satisfies
the PWA requirements, then the credit determined under section 30C(a)
for any qualified alternative fuel vehicle refueling property of a
character subject to an allowance for depreciation that is part of such
project would be multiplied by five.
B. Section 45L
Section 45L provides a credit for a qualified new energy efficient
home (qualified home) that is constructed by an eligible contractor and
acquired by a person from that eligible contractor for use as a
residence during the taxable year. Under section 45L(b)(2), a qualified
home is a dwelling unit located in the United States, the construction
of which is substantially completed after August 8, 2005, and that
meets the energy saving requirements of section 45L(c). Under section
45L(b)(1), an eligible contractor is the person who constructed the
qualified home, or in the case of a qualified home that is a
manufactured home, the manufactured home producer of that home. For a
qualified home acquired after December 31, 2022, and before January 1,
2033, that is part of a building eligible to participate in the Energy
Star Multifamily New Construction Program and meets the energy saving
requirements under section 45L(c)(1)(A), the credit is $500 ($2,500 if
the taxpayer satisfies the Prevailing Wage Requirements). For a
qualified home acquired after December 31, 2022, and before January 1,
2033, that is part of a building eligible to participate in the Energy
Star Multifamily New Construction Program and meets the energy saving
requirements under section 45L(c)(1)(B), the credit is $1,000 ($5,000
if the taxpayer satisfies the Prevailing Wage Requirements).
To satisfy the Prevailing Wage Requirements under section
45L(g)(2)(A), a taxpayer must ensure that any laborers and mechanics
employed by the taxpayer or any contractor or subcontractor in the
construction of any qualified home described in section 45L(a)(2)(B)
are paid wages at rates not less than the prevailing rates for
construction, alteration, or repair of a similar character in the
locality in which the qualified home is located. Section 45L(g)(2)(B)
provides that rules similar to section 45(b)(7)(B) apply for purposes
of the correction and penalty related to the failure to satisfy the
Prevailing Wage Requirements. There are no Apprenticeship Requirements
with respect to section 45L.
The proposed regulations would provide that if a taxpayer satisfies
the Prevailing Wage Requirements, then for a qualified home that is
part of a building eligible to participate in the Energy Star
Multifamily New Construction Program acquired after December 31, 2022,
and before January 1, 2033, the credit would be $2,500 if the qualified
home meets the energy saving requirements under section 45L(c)(1)(A),
and the credit would be $5,000 if the qualified home meets the energy
saving requirements under section 45L(c)(1)(B).
C. Section 45Q
Section 45Q provides a credit for the capture and sequestration of
qualified carbon oxide. The credit is the sum of the specified dollar
amount, as provided
[[Page 60033]]
by section 45Q(a) or (b), multiplied by the metric ton of each
qualified carbon oxide specified under section 45Q(a). If a taxpayer
satisfies the PWA requirements or the BOC Exception with respect to any
qualified facility or any carbon capture equipment placed in service at
that facility, then the credit determined under section 45Q(a) is
multiplied by five. For carbon capture equipment that will be placed in
service at a qualified facility the construction of which begins on or
after January 29, 2023, the section 45Q(a) credit is multiplied by five
only if the PWA requirements are satisfied with respect to both the
qualified facility and the carbon capture equipment. For carbon capture
equipment the construction of which begins on or after January 29, 2023
that will be placed in service at a qualified facility the construction
of which began before January 29, 2023, the PWA requirements apply only
to the carbon capture equipment.
To satisfy the Prevailing Wage Requirements under section
45Q(h)(3)(A), the attributable taxpayer described in section
45Q(f)(3)(A) and Sec. 1.45Q-1(h)(1) must ensure that any laborers and
mechanics employed by the taxpayer or any contractor or subcontractor
in: (i) the construction of any qualified facility and any carbon
capture equipment placed in service at that facility, and (ii) the
alteration or repair of that facility or equipment (with respect to any
taxable year, for any portion of such taxable year that is within the
12-year period beginning on the date the facility or equipment is
originally placed in service), are paid wages at rates not less than
the prevailing rates for construction, alteration, or repair of a
similar character in the locality in which that facility and equipment
are located. Section 45Q(h)(3)(B) provides that rules similar to
section 45(b)(7)(B) apply for purposes of the correction and penalty
related to the failure to satisfy the Prevailing Wage Requirements.
Section 45Q(h)(4) provides that rules similar to section 45(b)(8) apply
for purposes of the Apprenticeship Requirements.
The proposed regulations would provide rules based on the statutory
rules.
D. Section 45U
Section 45U provides a credit for electricity produced by the
taxpayer at a qualified nuclear power facility and sold by the taxpayer
to an unrelated person during the taxable year. Generally, for taxable
years beginning after December 31, 2023, the credit is equal to the
amount by which the product of 0.3 cents multiplied by the kilowatt
hours of electricity produced by the taxpayer at a qualified nuclear
power facility and sold by the taxpayer to an unrelated person during
the taxable year, exceeds the applicable ``reduction amount'' for such
taxable year that is determined under section 45U(b)(2). If a taxpayer
satisfies the Prevailing Wage Requirements, then the credit determined
under section 45U(a) for a qualified nuclear power facility is
multiplied by five.
To satisfy the Prevailing Wage Requirements under section
45U(d)(2)(A), a taxpayer must ensure that any laborers and mechanics
employed by the taxpayer or any contractor or subcontractor in the
alteration or repair of any qualified nuclear power facility are paid
wages at rates not less than the prevailing rates for alteration or
repair of a similar character in the locality in which that facility is
located. Section 45U(d)(2)(B) provides that rules similar to section
45(b)(7)(B) apply for purposes of the correction and penalty related to
the failure to satisfy the Prevailing Wage Requirements. There are no
Apprenticeship Requirements with respect to section 45U.
The proposed regulations would provide that if a taxpayer satisfies
the Prevailing Wage Requirements, then the credit determined under
section 45U(a) for any qualified nuclear power facility would be
multiplied by five.
E. Section 45V
Section 45V provides a credit for the production of qualified clean
hydrogen by the taxpayer during the taxable year at a qualified clean
hydrogen production facility during the 10-year period beginning on the
date the facility was originally placed in service. In general, for
hydrogen produced after December 31, 2022, the credit is the product of
the kilograms of qualified clean hydrogen produced multiplied by the
applicable amount. The applicable amount is equal to the applicable
percentage of $0.60, which is determined under section 45V(b)(2). If a
taxpayer satisfies either the PWA requirements, or the BOC Exception
and the Prevailing Wage Requirements for alterations or repairs
occurring after January 29, 2023, then the credit amount determined
under section 45V(a) for any qualified clean hydrogen produced by the
taxpayer during the taxable year at a qualified clean hydrogen
production facility is multiplied by five. A taxpayer must satisfy the
Prevailing Wage Requirements with respect to an alteration or repair
that occurs after January 29, 2023, notwithstanding the BOC Exception
regarding the construction of that qualified facility.
To satisfy the Prevailing Wage Requirements under section
45V(e)(3)(A), a taxpayer must ensure that any laborers and mechanics
employed by the taxpayer or any contractor or subcontractor in: (i) the
construction of any qualified clean hydrogen production facility, and
(ii) the alteration or repair of that facility (with respect to any
taxable year, for any portion of such taxable year that is within the
10-year credit period beginning on the date that the facility was
originally placed in service),\11\ are paid wages at rates not less
than the prevailing rates for construction, alteration, or repair of a
similar character in the locality in which that facility is located.
Section 45V(e)(3)(B) provides that rules similar to section 45(b)(7)(B)
apply for purposes of the correction and penalty related to the failure
to satisfy the Prevailing Wage Requirements. Section 45V(e)(4) provides
that rules similar to section 45(b)(8) apply for purposes of the
Apprenticeship Requirements.
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\11\ Section 45V(e)(3)(A)(ii) requires the payment of wages at
prevailing rates ``with respect to any taxable year, for any portion
of such taxable year which is within the period described in
subsection (a)(2)'', with respect to the alteration or repair of
such facility. There is no ``period described in subsection
(a)(2).'' The Treasury Department and the IRS propose to interpret
the reference to ``subsection (a)(2)'' as a reference to section
45V(a)(1) where the 10-year credit period is identified, and the
proposed regulations would apply to the period described in section
45V(a)(1).
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The proposed regulations would provide that if a taxpayer satisfies
either the PWA requirements, or the BOC Exception and the Prevailing
Wage Requirements for alterations or repairs occurring after January
29, 2023, then the credit amount determined under section 45V(a) for
any qualified clean hydrogen produced by the taxpayer during the
taxable year at a qualified clean hydrogen production facility would be
multiplied by five.
F. Section 45Y
Section 45Y provides a credit for clean electricity produced by the
taxpayer at a qualified facility and sold to an unrelated person, or in
the case of a qualified facility which is equipped with a metering
device which is owned and operated by an unrelated person, sold,
consumed, or stored by the taxpayer during the taxable year, for
facilities placed in service after December 31, 2024. Generally, the
credit for any taxable year is the product of the kilowatt hours of
electricity multiplied by 0.3 cents. If a taxpayer satisfies the PWA
requirements, the One Megawatt
[[Page 60034]]
Exception, or the BOC Exception, the applicable amount under section
45Y(a)(2) equals 1.5 cents.
Section 45Y(g)(9) provides that rules similar to section 45(b)(7)
apply for purposes of the Prevailing Wage Requirements. Section
45Y(g)(10) provides that rules similar to section 45(b)(8) apply for
purposes of the Apprenticeship Requirements.
The proposed regulations would provide that if a taxpayer satisfies
the PWA requirements, then the applicable amount under section
45Y(a)(2) would equal 1.5 cents.
G. Section 45Z
Section 45Z provides a credit for clean transportation fuel
produced by the taxpayer at a qualified facility after December 31,
2024, and sold to an unrelated person in a manner described in section
45Z(a)(4). Generally, the credit is the product of the applicable
amount (determined under section 45Z(a)(2)) per gallon(s) of
transportation fuel multiplied by the emission factor for the fuel
(determined under section 45Z(b)). If a taxpayer satisfies the PWA
requirements (modified for qualified facilities placed in service
before January 1, 2025), then the applicable amount determined under
section 45Z(a)(2)(B) is $1.00, otherwise the applicable amount is 20
cents.
In general, section 45Z(f)(6)(A) provides that rules similar to
section 45(b)(7) apply for purposes of the Prevailing Wage
Requirements. However, section 45Z(f)(6)(B) provides a special rule for
qualified facilities placed in service before January 1, 2025. Under
section 45Z(f)(6)(B), the Prevailing Wage Requirements do not apply
with respect to construction of that facility but do apply to the
alteration or repair of that facility with respect to any taxable year
beginning after December 31, 2024, for which the section 45Z credit is
allowed with respect to that facility. Section 45Z(f)(7) provides that
rules similar to section 45(b)(8) apply for purposes of the
Apprenticeship Requirements.
The proposed regulations would provide that if a taxpayer satisfies
the PWA requirements, then the applicable amount determined under
section 45Z(a)(2)(B) would equal $1.00.
H. Section 48
Section 48 provides a credit for an energy property placed in
service during a taxable year. For properties placed in service after
December 31, 2022, the credit is generally six percent of the basis of
property described in section 48(a)(2)(A)(i) and two percent of the
basis of property described in section 48(a)(2)(A)(ii). If a taxpayer
satisfies the PWA requirements, the One Megawatt Exception, or the BOC
Exception, then the credit determined under section 48(a) for the basis
of each energy property placed in service during the taxable year is
multiplied by five.
To satisfy the Prevailing Wage Requirements under section
48(a)(10)(A), a taxpayer must ensure that any laborers and mechanics
employed by the taxpayer or any contractor or subcontractor in: (i) the
construction of any energy project, and (ii) the alteration or repair
of that energy project (for the five-year period beginning on the date
such project is originally placed in service), are paid wages at rates
not less than the prevailing rates for construction, alteration, or
repair of a similar character in the locality in which that energy
project is located. Section 48(a)(10)(B) provides that rules similar to
section 45(b)(7)(B) apply for purposes of the correction and penalty
related to the failure to satisfy the Prevailing Wage Requirements.
Section 48(a)(10)(C) provides a special recapture rule with respect to
alterations or repairs that occur during the five-year period after the
energy project is placed in service if that taxpayer does not satisfy
the Prevailing Wage Requirements. In general, the section 48(a)(10)(C)
recapture is determined under similar rules to those provided for in
section 50. Subject to the section 48(a)(10)(C) recapture, the taxpayer
is deemed at the time the qualified energy project is placed in service
to satisfy the Prevailing Wage Requirements for alterations or repairs
for the five-year period beginning after such project is originally
placed in service. Section 48(a)(11) provides that rules similar to
section 45(b)(8) apply for purposes of the Apprenticeship Requirements.
The proposed regulations would provide that if a taxpayer satisfies
the PWA requirements, then the credit determined under section 48 for
any qualified energy project would be multiplied by five.
I. Section 48C
Section 48C provides a credit for a qualified investment in a
qualifying advanced energy project for that taxable year (Section 48C
Credit). The IRA added section 48C(e) to the Code, extending the
Section 48C Credit to provide an additional Section 48C Credit
allocation of $10 billion. Generally, the credit amount for Section 48C
Credits allocated pursuant to section 48C(e) is equal to six percent of
the basis of the eligible property. If a taxpayer satisfies the PWA
requirements, then the credit amount determined under section 48C(a) is
30 percent.
To satisfy the Prevailing Wage Requirements under section
48C(e)(5)(A), a taxpayer must ensure that with respect to a qualifying
advanced energy project, any laborers and mechanics employed by the
taxpayer or any contractor or subcontractor in the re-equipping,
expansion, or establishment of a manufacturing facility are paid wages
at rates not less than the prevailing rates for construction,
alteration, or repair of a similar character in the locality in which
the project is located. Section 48C(e)(5)(B) provides that rules
similar to section 45(b)(7)(B) apply for purposes of the correction and
penalty related to the failure to satisfy the Prevailing Wage
Requirements. Section 48C(e)(6) provides that rules similar to section
45(b)(8) apply for purposes of the Apprenticeship Requirements.
The Treasury Department and the IRS issued Notice 2023-18, 2023-10
I.R.B. 508, and Notice 2023-44, 2023-25 I.R.B. 924, to provide guidance
under section 48C(e). These notices provide a process for the IRS to
allocate Section 48C Credits. To prevent an overallocation of Section
48C Credits, section 5.07 of Notice 2023-18 requires a taxpayer that
applies for a Section 48C Credit allocation at the 30 percent credit
amount to confirm that the taxpayer intends to satisfy the PWA
requirements. Section 5.07 of Notice 2023-18 additionally requires that
when the taxpayer provides notification that it placed the project in
service, the taxpayer must also confirm that it satisfied the PWA
requirements.
The proposed regulations would provide that if a taxpayer satisfies
both the PWA requirements and the PWA confirmation requirements
provided in Notice 2023-18 (or any subsequent guidance), then the
credit amount for Section 48C Credits allocated pursuant to section
48C(e) would be equal to 30 percent.
J. Section 48E
Section 48E provides a clean electricity investment credit for the
investment in qualified facilities and energy storage technology placed
in service for the taxable year after December 31, 2024. The credit is
generally six percent of the qualified investment. If a taxpayer
satisfies the PWA requirements, the One Megawatt Exception, or the BOC
Exception, then the credit amount determined under section 48E(a) for a
qualified investment is 30 percent.
[[Page 60035]]
Section 48E(d)(3) provides that rules similar to section 48(a)(10)
apply for purposes of the Prevailing Wage Requirements. Section
48E(d)(4) provides that rules similar to section 45(b)(8) apply for
purposes of the Apprenticeship Requirements.
The proposed regulations would provide that if a taxpayer satisfies
the PWA requirements, then the credit amount determined under section
48E(a) for a qualified investment would be equal to 30 percent.
K. Section 179D
Section 179D(a) provides a deduction for the cost of energy
efficient commercial building property placed in service during the
taxable year. Section 179D(f) provides an alternative deduction for
energy efficient building retrofit property (alternative deduction).
For taxable years beginning after December 31, 2022, section 179D(b)
provides that the deduction cannot exceed the excess (if any) of the
product of the applicable dollar value, and the square footage of the
building, over the aggregate amount of deductions under section 179D(a)
and section 179D(f) with respect to the building for the three taxable
years immediately preceding the taxable year (or for any taxable year
ending during the four-taxable-year period ending with such taxable
year, if the deduction is allowed to a person other than the taxpayer).
The alternative deduction is an amount equal to the lesser of the
``excess'' described in section 179D(b) (determined by substituting
``energy use intensity'' for ``total annual energy and power costs'')
or the aggregate adjusted basis (determined after taking into account
all adjustments with respect to the taxable year other than the
reduction under section 179D(e)) of energy efficient building retrofit
property placed in service by the taxpayer pursuant to a qualified
retrofit plan. The applicable dollar value is $0.50 increased by $0.02
(but not above $1.00) for each percentage point by which the total
annual energy and power costs (or energy use intensity, in the case of
the alternative deduction) for the building are certified to be reduced
by a percentage greater than 25 percent. If a taxpayer satisfies the
PWA requirements or the beginning of installation exception, then the
applicable dollar value of the deduction determined under section
179D(b)(2) is $2.50 increased by $0.10 (but not above $5.00).
To satisfy the Prevailing Wage Requirements under section
179D(b)(4)(A), a taxpayer must ensure that any laborers and mechanics
employed by the taxpayer or any contractor or subcontractor in the
installation of any property are paid wages at rates not less than the
prevailing rates for construction, alteration, or repair of a similar
character in the locality in which the property is located. Section
179D(b)(4)(B) provides that rules similar to section 45(b)(7)(B) apply
for purposes of the correction and penalty related to the failure to
satisfy the Prevailing Wage Requirements. Section 179D(b)(5) provides
that rules similar to section 45(b)(8) apply for purposes of the
Apprenticeship Requirements.
The proposed regulations would provide that if a taxpayer satisfies
the PWA requirements, then the applicable dollar value of the deduction
determined under section 179D(b)(2) would be $2.50 increased by $0.10
(but not above $5.00).
V. Recordkeeping Requirements
A. In General
Section 45(b)(12) authorizes the Secretary to issue such
regulations or other guidance as the Secretary determines necessary to
carry out the purposes of section 45(b), including regulations or other
guidance that provide requirements for recordkeeping or information
reporting for purposes of administering the requirements of section
45(b).
Section 6001 provides that every person liable for any tax imposed
by the Code, or for the collection thereof, must keep such records as
the Secretary may from time to time prescribe. Section 1.6001-1(a)
provides that any person subject to income tax must keep such permanent
books of account or records, including inventories, as are sufficient
to establish the amount of gross income, deductions, credits, or other
matters required to be shown by such person in any return of such tax.
Section 1.6001-1(e) provides that the books and records required by
Sec. 1.6001-1 must be retained so long as the contents thereof may
become material in the administration of any Internal Revenue law.
B. Recordkeeping With Respect to Prevailing Wage Requirements
The Copeland Act requires contractors and subcontractors subject to
the DBA to submit certified weekly payroll records reflective of work
performed on a covered contract to the contracting agency. This
requirement to comply with the DBA is statutory and inherent in the
award of a contract and the submission of weekly payroll records
becomes part of the terms of the awarded contract. In contrast, under
section 45(b)(7)(A), although the requirement to pay prevailing wages
is triggered by the beginning of construction and continues over the
entire course of a project, the requirement to pay prevailing wages
becomes binding only when a tax return claiming the increased credit is
filed. Thus, because the increased credit is not claimed until the time
of filing a return, which will only occur after a qualified facility is
placed in service, the proposed regulations would not adopt the
Copeland Act requirement to report payroll records to the IRS on a
weekly basis in advance of claiming an increased credit. The Treasury
Department and the IRS understand that adoption of the Copeland Act
reporting regime for purposes of section 45(b)(7)(A) would not assist
the IRS with administering the provision.
Instead, the proposed regulations would provide that taxpayers
would be required to establish compliance with the Prevailing Wage
Requirements at the time a return claiming the increased credit is
filed. The proposed regulations would provide that a taxpayer would be
required to do so on such forms and in such manner as the Commissioner
provides in IRS forms, publications, or other guidance. The Treasury
Department and the IRS expect that taxpayers will be required to report
at the time of filing a return the following information: (i) the
location and type of qualified facility; (ii) the applicable wage
determinations for the type and location of the facility; (iii) the
wages paid (including any correction payments) and hours worked for
each of the laborer or mechanic classifications engaged in the
construction, alteration, or repair of the facility; (iv) the number of
workers who received correction payments; (v) the wages paid and hours
worked by qualified apprentices for each of the laborer or mechanic
classifications engaged in the construction, alteration, or repair of
the facility; (vi) the total labor hours for the construction,
alteration, or repair of the facility by any laborer or mechanic
employed by the taxpayer or any contractor or subcontractor; and (vii)
the total credit claimed.
The DBA has comprehensive recordkeeping requirements that assist
the DOL in its oversight of Prevailing Wage Requirements. The DBA
recordkeeping regime is consistent with what the IRS would ordinarily
expect taxpayers to preserve to be able to substantiate that the
Prevailing Wage Requirements have been satisfied. The proposed
regulations would impose recordkeeping requirements that are generally
consistent with the
[[Page 60036]]
recordkeeping requirements under the DBA regime for purposes of the
Prevailing Wage Requirements.
The proposed regulations would require taxpayers to maintain and
preserve sufficient records to establish compliance with the
requirement that all laborers and mechanics were paid wages at rates
not less than the applicable prevailing rates. Records sufficient to
establish compliance would include payroll records that reflect the
hours worked in each classification and the wages paid to each laborer
and mechanic performing construction, alteration, or repair work on the
facility (including any correction payments made to each laborer and
mechanic). The Treasury Department and the IRS expect that most
taxpayers will use contractors and subcontractors in the construction,
alteration, or repair of facilities and that construction may occur for
several years before a facility is placed in service. The proposed
regulations would provide that it would be the responsibility of the
taxpayer to maintain payroll records that reflect the wages paid to
labors and mechanics engaged in the construction, alteration, or repair
of the qualified facility, regardless of whether the laborers and
mechanics are employed by the taxpayer, a contractor, or a
subcontractor. The proposed regulations would also impose recordkeeping
requirements related to correction and penalty payments.
The proposed regulations include a non-exhaustive list of facts and
circumstances that would be relevant to the IRS in determining whether
a failure to meet the Prevailing Wage Requirements was due to
intentional disregard. To demonstrate that a failure was not due to
intentional disregard, taxpayers would need to maintain and preserve
records sufficient to document the failure and the actions they took to
prevent, mitigate, or remedy the failure (for example, records
demonstrating that the taxpayer regularly reviewed payroll practices,
included requirements to pay prevailing wages in contracts with
contractors, and posted prevailing wage rates in a prominent place on
the job site).
The proposed regulations would also waive penalties for certain
limited failures. To the extent taxpayers intend to rely on these
penalty waiver provisions, they would need to maintain records
sufficient to demonstrate when a failure occurred and proof that the
taxpayer made the required correction payment.
C. Recordkeeping With Respect to Apprenticeship Requirements
The proposed regulations would require taxpayers subject to the
Apprenticeship Requirements to maintain sufficient records to establish
compliance with the Labor Hours Requirement, Ratio Requirement, and
Participation Requirement. Records sufficient to establish compliance
with the Apprenticeship Requirements include copies of any written
requests for apprentices by the taxpayer, contractor, or subcontractor,
any agreement entered by the taxpayer, contractor, or subcontractor
with a registered apprenticeship program, documents reflecting any
registered apprenticeship program sponsored by the taxpayer,
contractor, or subcontractor, documents verifying participation in a
registered apprenticeship program by each apprentice, records
reflecting the required ratio of apprentices to journeyworkers
prescribed by each registered apprenticeship program from which
qualified apprentices are employed, records reflecting the daily ratio
of apprentices to journeyworkers, and the payroll records for any work
performed by apprentices. The proposed regulations provide that it
would be the responsibility of the taxpayer to maintain the relevant
records for each apprentice engaged in the construction, alteration, or
repair on the qualified facility, regardless of whether the apprentice
is employed by the taxpayer, a contractor, or a subcontractor.
D. Recordkeeping for Credits Transferred Under Section 6418
Because an eligible taxpayer determines any increased credit amount
applicable to the prevailing wage and apprenticeship requirements, the
general recordkeeping requirements under these proposed regulations
would remain with an eligible taxpayer who transfers a specified credit
portion that includes an increased credit amount. The increased credit
amount that is determined by an eligible taxpayer would be reported on
the applicable forms on the return of the eligible taxpayer. The
minimum required documentation to be provided to the transferee
taxpayer is a separate requirement under the 6418 Proposed Regulations
that does not impact the requirements in these proposed regulations.
VI. Effect on Other Documents
The provisions of sections 3 and 4 of Notice 2022-61 would be
obsoleted for facilities, property, projects, or equipment the
construction, or installation of which begins after the date the
Treasury Decision adopting these regulations as final regulations is
published in the Federal Register. The proposed regulations would not
otherwise affect Notice 2022-61.
VII. Proposed Applicability Date
These regulations are proposed to apply to facilities, property,
projects, or equipment placed in service in taxable years ending after
the date these regulations are published as final in the Federal
Register and the construction or installation of which begins after the
date these regulations are published as final regulations in the
Federal Register. However, taxpayers may rely on these proposed
regulations with respect to construction or installation of a facility,
property, project, or equipment beginning on or after January 29, 2023,
and on or before the date these regulations are published as final
regulations in the Federal Register, provided, that beginning after the
date that is 60 days after August 29, 2023, taxpayers follow the
proposed regulations in their entirety and in a consistent manner.
Special Analyses
I. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA)
generally requires that a federal agency obtain the approval of the
Office of Management and Budget (OMB) before collecting information
from the public, whether such collection of information is mandatory,
voluntary, or required to obtain or retain a benefit.
The collections of information in these proposed regulations would
include reporting, recordkeeping, and third-party disclosure
requirements. These collections are required for purposes of claiming
an increased credit or deduction amount; and are necessary for the IRS
to validate that taxpayers have met the regulatory requirements and are
entitled to claim the increased credit amounts. The likely respondents
are individual, business, trust and estate filers, and tax exempt
organizations.
The proposed regulations would set forth procedures for requesting
supplemental wage determinations and wage rates for additional
classifications from the DOL. This collection is approved by OMB under
the DOL's Control Number 1235-0034. This IRS regulation does not alter
any of the DOL collections approved under this control number.
The proposed regulations would include requirements to keep records
[[Page 60037]]
sufficient to demonstrate that PWA requirements have been met as
detailed in Sec. 1.45-12. For purposes of the PRA, the recordkeeping
requirements of Sec. 1.45-12 are considered general tax records. These
general tax records are approved annually under 1545-0074 for
individuals/sole proprietors, 1545-0123 for business entities, and
1545-0047 for tax-exempt organizations. IRS will seek OMB approval
under a new OMB Control number (1545-NEW) for the burden for trust and
estate filers.
The proposed regulations would include reporting requirements that
taxpayers provide a statement with the tax return that claims an
increased credit or deduction amount that includes aggregate
information as detailed in Sec. 1.45-12. The Secretary may issue forms
and instructions in future guidance for the purpose of meeting these
reporting requirements. These reporting requirements will be covered
under 1545-0074 for individuals/sole proprietors, 1545-0123 for
business entities. IRS will solicit public comments on this requirement
and the associated burden for trusts and estates filers as reflected
below; and will seek OMB approval under a new OMB Control Number (1545-
NEW) for trust and estate filers.
The proposed regulations would include third-party disclosures that
include notifying laborers and mechanics of the applicable prevailing
wage rates as detailed in Sec. 1.45-7. The proposed regulations would
also include third party disclosures for taxpayers requesting the
dispatch of apprentices from a registered apprenticeship program as
detailed in Sec. 1.45-8. IRS will solicit public comment on this
requirement and associated burden for all filers reflected below; and
will seek OMB approval under a new OMB Control Number (1545-NEW) for
all filers for the disclosure requirement.
The collections of information contained in this notice of proposed
rulemaking has been submitted to the Office of Management and Budget
for review in accordance with the Paperwork Reduction Act. Commenters
are strongly encouraged to submit public comments electronically.
Written comments and recommendations for the proposed information
collection should be sent to <a href="https://www.reginfo.gov/public/do/PRAMain">https://www.reginfo.gov/public/do/PRAMain</a>,
with copies to the Internal Revenue Service. Find this particular
information collection by selecting ``Currently under Review--Open for
Public Comments'' then by using the search function. Submit electronic
submissions for the proposed information collection to the IRS via
email at <a href="/cdn-cgi/l/email-protection#dcacaebdf2bfb3b1b1b9b2a8af9cb5aeaff2bbb3aa"><span class="__cf_email__" data-cfemail="265654470845494b4b43485255664f545508414950">[email protected]</span></a> (indicate REG-100908-23 on the Subject
line). Comments on the collection of information should be received by
October 30, 2023. Comments are specifically requested concerning:
Whether the proposed collection of information is necessary for the
proper performance of the functions of the IRS, including whether the
information will have practical utility. The accuracy of the estimated
burden associated with the proposed collection of information. How the
quality, utility, and clarity of the information to be collected may be
enhanced. How the burden of complying with the proposed collection of
information may be minimized, including through the application of
automated collection techniques or other forms of information
technology; and estimates of capital or start-up costs and costs of
operation, maintenance, and purchase of services to provide
information.
The IRS estimates that 70 trust and estates may claim the increased
credit and that it could take approximately 40 hours to compile the
data needed for the statement attached to their return.
Estimated total annual reporting and recordkeeping burden for
trusts and estates filers: 2,800 hours.
Estimated average annual burden per respondent: 40 hours.
Estimated number of respondents: 70.
Estimated frequency of responses: Annual.
The IRS estimates that 70,000 filers may claim the increased credit
and that it could take approximately two hours to display the
prevailing wages rates and to request the dispatch of apprentices.
Estimated total annual third-party disclosure burden for all other
filers: 140,000 hours.
Estimated average annual burden per respondent: Two hours.
Estimated number of respondents: 70,000.
Estimated frequency of responses: Once.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a valid
control number assigned by the Office of Management and Budget.
II. Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to Federal rules that are subject to
the notice and comment requirements of section 553(b) of the
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely
to have a significant economic impact on a substantial number of small
entities. Unless an agency determines that a proposal is not likely to
have a significant economic impact on a substantial number of small
entities, section 603 of the RFA requires the agency to present an
initial regulatory flexibility analysis (IRFA) of the proposed rule.
The Treasury Department and the IRS have not determined whether the
proposed rule, when finalized, will likely have a significant economic
impact on a substantial number of small entities. This determination
requires further study. However, because there is a possibility of
significant economic impact on a substantial number of small entities,
an IRFA is provided in these proposed regulations. The Treasury
Department and the IRS invite comments on both the number of entities
affected and the economic impact on small entities. Pursuant to section
7805(f), this notice of proposed rulemaking has been submitted to the
Chief Counsel of Advocacy of the Small Business Administration for
comment on its impact on small business.
A. Need for and Objectives of the Rule
The proposed regulations would provide guidance to taxpayers
intending to satisfy the PWA requirements to qualify for an increased
credit or deduction under sections 30C, 45, 45Q, 45V, 45Y, 45Z, 48,
48C, 48E, and 179D and for those taxpayers intending to satisfy the
Prevailing Wage Requirements to qualify for the increased credit under
sections 45L and 45U. The proposed regulations would provide needed
guidance for taxpayers on the use of wage determinations issued by the
DOL, on the time and manner for reporting compliance with the PWA
requirements, as well as needed definitions. The proposed regulations
would also provide guidance concerning correction and penalty payments
that can be made by taxpayers who initially fail to satisfy the PWA
requirements in order to qualify for the increased credit and deduction
amounts.
The Treasury Department and the IRS intend and expect that the
increased credit amount of five times the base credit for taxpayers
that ensure the payment of paying prevailing wages and hiring
apprentices in the construction, alteration, or repair of qualified
facilities provides financial incentives that will beneficially impact
various industries involved in the production of and investment in
clean energy. These proposed regulations would provide clarifying
guidance that will assist taxpayers seeking to comply with the
[[Page 60038]]
statutory prevailing wage and apprenticeship requirements in order to
take advantage of the financial incentives. The Treasury Department and
IRS expect that the increased credit amounts available to taxpayers as
financial incentives will exceed the costs of the additional
recordkeeping and reporting obligations that would be imposed on
taxpayers by these proposed regulations.
The Treasury Department and the IRS also expect the financial
incentives for taxpayers to ensure payment of prevailing wage rates and
using apprentices will deliver benefits across the economy by creating
increased opportunities for contractors and subcontractors as well as
laborers and mechanics to become involved in clean energy production.
Allowing these increased credits and an increased deduction for
taxpayers who satisfy prevailing wage and apprentice requirements will
incentivize expansion of clean energy resources and will reduce economy
wide greenhouse gas emissions.
B. Affected Small Entities
The RFA directs agencies to provide a description of, and where
feasible, an estimate of, the number of small entities that may be
affected by the proposed rules, if adopted. The Small Business
Administration's Office of Advocacy estimates in its 2023 Frequently
Asked Questions that 99.9 percent of American businesses meet its
definition of a small business. The applicability of these proposed
regulations does not depend on the size of the business, as defined by
the Small Business Administration. As described more fully in the
preamble to this proposed regulation and in this IRFA, section 45 and
these proposed regulations may affect a variety of different entities
across several different green energy industries as there are 12
different credits with increased credit amount provisions. Although
there is uncertainty as to the exact number of small businesses within
this group, the current estimated number of respondents to these
proposed rules is 70,000 taxpayers as described in the Paperwork
Reduction Act section of the preamble. The Treasury Department and the
IRS expect to receive more information on the impact on small
businesses through comments on this proposed rule.
C. Impact of the Rules
The proposed regulations provide rules for how taxpayers can
satisfy the PWA requirements in order to seek the increased credits
under section 45 as well as the increased credit or deduction available
under sections 30C, 45L, 45Q, 45U, 45V, 45Y, 45Z, 48, 48C, 48E, and
179D. Taxpayers that seek to claim the increased credit or deduction
will have administrative costs related to reading and understanding
these proposed rules, as well as increased costs for the recordkeeping
and reporting requirements necessary to establish compliance with the
PWA requirements. The costs will vary across different-sized taxpayers
and across the type of facilities and projects in which such taxpayers
are engaged.
The Prevailing Wage Requirements would require the taxpayer to
obtain the published wage determination issued by the DOL for the
county in which the facility is located. To the extent a wage
determination does not include a required classification, or if no wage
determination has been published, the taxpayer would be required to
contact the DOL to obtain a supplemental wage determination or a wage
rate for an additional classification. The taxpayer would be required
to ensure that any contractor or subcontractor that works on the
construction, alteration, or repair of a facility has paid hourly wages
in accordance with the wage determination for each classification
required to complete such work. In order to be eligible for certain
proposed cure provisions, the taxpayer would be required to know or be
able to determine whether the laborers and mechanics employed for
construction, alteration, or repair of the facility were paid in
accordance with the applicable wage determination. Additionally, the
taxpayer would be required to retain records sufficient to establish
compliance with these proposed regulations for as long as may be
relevant. The Treasury Department and the IRS expect that some of the
recordkeeping that would be required under these proposed rules will be
consistent with recordkeeping requirements already imposed under the
DBA and the Fair Labor Standards Act, 29 U.S.C. 201 et seq.
For the Apprenticeship Requirements, the taxpayer, contractor, and
subcontractor, would be required to contact a registered apprenticeship
program for purposes of requesting the dispatch of qualified
apprentices to work on the construction, alteration, or repair of the
facility. Whether or not the registered apprenticeship program
dispatches apprentices, the taxpayer would be required to retain
records to establish compliance with these proposed regulations for as
long as may be relevant.
The taxpayer claiming the increased credit would be required to
report the payment of prevailing wages and the utilization of
apprentices consistent with the forms and instructions of the IRS.
Although the Treasury Department and the IRS do not have sufficient
data to determine precisely the likely extent of the increased costs of
compliance, the estimated burden of complying with the recordkeeping
and reporting requirements are described in the Paperwork Reduction Act
section of the preamble.
D. Alternatives Considered
The Treasury Department and the IRS considered alternatives to the
proposed regulations. The proposed regulations were designed to
minimize burdens for taxpayers while ensuring that laborers and
mechanics are paid the applicable wage rates and that the IRS has
sufficient information to administer the increased credits and
deduction provisions. The proposed regulations would not adopt the DBA
requirement of submitting weekly certified payroll records to the IRS.
The Treasury Department and IRS determined that submission of weekly
payroll records to the IRS by taxpayers would not assist the IRS with
the efficient administration of the increased credit provisions. The
Treasury Department and the IRS also considered a requirement that
taxpayers submit payroll records for all laborers and mechanics at the
time of filing a return that claims an increased credit. The Treasury
Department and the IRS determined that per laborer and per mechanic
payroll records would not provide the IRS with useful information and
would also involve substantial burdens for taxpayers to report such
information.
Comments are requested on the requirements in the proposed
regulations, including specifically, whether there are less burdensome
alternatives that ensure the IRS has sufficient information to
administer the increased credit claimed under section 45 as well as the
increased credit and deduction amounts that are claimed under sections
30C, 45L, 45Q, 45U, 45V, 45Y, 45Z, 48, 48C, 48E, and 179D.
E. Duplicative, Overlapping, or Conflicting Federal Rules
For energy facilities built under contracts with the Federal
Government, or with Federal financial or other assistance provided
under a Davis-Bacon Related Act, the proposed regulations may overlap
with the rules under the DBA, 29 CFR parts 1, 5, and 7. In all other
instances, the proposed regulations would not duplicate, overlap, or
conflict with any relevant Federal rules. The Treasury Department
[[Page 60039]]
and the IRS invite input from interested members of the public about
identifying and avoiding overlapping, duplicative, or conflicting
requirements.
III. Section 7805(f)
Pursuant to section 7805(f), this notice of proposed rulemaking has
been submitted to the Chief Counsel for the Office of Advocacy of the
Small Business Administration for comment on its impact on small
business.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA)
requires that agencies assess anticipated costs and benefits and take
certain other actions before issuing a final rule that includes any
Federal mandate that may result in expenditures in any one year by a
State, local, or Tribal government, in the aggregate, or by the private
sector, of $100 million (updated annually for inflation). This proposed
rule does not include any Federal mandate that may result in
expenditures by State, local, or Tribal governments, or by the private
sector in excess of that threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (Federalism) prohibits an agency from
publishing any rule that has federalism implications if the rule either
imposes substantial, direct compliance costs on State and local
governments, and is not required by statute, or preempts State law,
unless the agency meets the consultation and funding requirements of
section 6 of the Executive order. This proposed rule does not have
federalism implications and does not impose substantial direct
compliance costs on State and local governments or preempt State law
within the meaning of the Executive order.
VI. Executive Order 13175: Consultation and Coordination With Indian
Tribal Governments
Executive Order 13175 (Consultation and Coordination With Indian
Tribal Governments) prohibits an agency from publishing any rule that
has Tribal implications if the rule either imposes substantial, direct
compliance costs on Indian Tribal governments, and is not required by
statute, or preempts Tribal law, unless the agency meets the
consultation and funding requirements of section 5 of the Executive
order.
The Treasury Department and the IRS will hold a consultation with
Tribal leaders related to the prevailing wage and apprenticeship
requirements in these proposed regulations, which will inform the
development of the final regulations.
VII. Regulatory Planning and Review
Pursuant to the Memorandum of Agreement, Review of Treasury
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory
actions issued by the IRS are not subject to the requirements of
section 6 of Executive Order 12866, as amended. Therefore, a regulatory
impact assessment is not required.
Comments and Public Hearing
Before these proposed amendments to the regulations are adopted as
final regulations, consideration will be given to comments regarding
the notice of proposed rulemaking that are submitted timely to the IRS
as prescribed in the preamble under the ADDRESSES section. The Treasury
Department and the IRS request comments on all aspects of the proposed
regulations. All comments will be made available at <a href="https://www.regulations">https://www.regulations</a>.gov. Once submitted to the Federal eRulemaking Portal,
comments cannot be edited or withdrawn.
A public hearing has been scheduled for November 21, 2023,
beginning at 10 a.m. ET, in the Auditorium at the Internal Revenue
Building, 1111 Constitution Avenue NW, Washington, DC. Due to building
security procedures, visitors must enter at the Constitution Avenue
entrance. In addition, all visitors must present photo identification
to enter the building. Because of access restrictions, visitors will
not be admitted beyond the immediate entrance area more than 30 minutes
before the hearing starts. Participants may alternatively attend the
public hearing by telephone.
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who
wish to present oral comments at the hearing must submit an outline of
the topics to be discussed and the time to be devoted to each topic by
October 30, 2023. A period of 10 minutes will be allotted to each
person for making comments. An agenda showing the scheduling of the
speakers will be prepared after the deadline for receiving outlines has
passed. Copies of the agenda will be available free of charge at the
hearing. If no outline of the topics to be discussed at the hearing is
received by October 30, 2023, the public hearing will be cancelled. If
the public hearing is cancelled, a notice of cancellation of the public
hearing will be published in the Federal Register.
Individuals who want to testify in person at the public hearing
must send an email to <a href="/cdn-cgi/l/email-protection#1d6d687f71747e75787c6f74737a6e5d746f6e337a726b"><span class="__cf_email__" data-cfemail="6c1c190e00050f04090d1e05020b1f2c051e1f420b031a">[email protected]</span></a> to have your name added to
the building access list. The subject line of the email must contain
the regulation number REG-100908-23 and the language TESTIFY in Person.
For example, the subject line may say: Request to TESTIFY in Person at
Hearing for REG-100908-23.
Individuals who want to testify by telephone at the public hearing
must send an email to <a href="/cdn-cgi/l/email-protection#bececbdcd2d7ddd6dbdfccd7d0d9cdfed7cccd90d9d1c8"><span class="__cf_email__" data-cfemail="97e7e2f5fbfef4fff2f6e5fef9f0e4d7fee5e4b9f0f8e1">[email protected]</span></a> to receive the telephone
number and access code for the hearing. The subject line of the email
must contain the regulation number REG-100908-23 and the language
TESTIFY Telephonically. For example, the subject line may say: Request
to TESTIFY Telephonically at Hearing for REG-100908-23.
Individuals who want to attend the public hearing in person without
testifying must also send an email to <a href="/cdn-cgi/l/email-protection#f8888d9a94919b909d998a91969f8bb8918a8bd69f978e"><span class="__cf_email__" data-cfemail="94e4e1f6f8fdf7fcf1f5e6fdfaf3e7d4fde6e7baf3fbe2">[email protected]</span></a> to have
your name added to the building access list. The subject line of the
email must contain the regulation number REG-100908-23 and the language
ATTEND In Person. For example, the subject line may say: Request to
ATTEND Hearing in Person for REG-100908-23. Requests to attend the
public hearing must be received by 5:00 p.m. EST on November 17, 2023.
Hearings will be made accessible to people with disabilities. To
request special assistance during a hearing please contact the
Publications and Regulations Branch of the Office of Associate Chief
Counsel (Procedure and Administration) by sending an email to
<a href="/cdn-cgi/l/email-protection#abdbdec9c7c2c8c3cecad9c2c5ccd8ebc2d9d885ccc4dd"><span class="__cf_email__" data-cfemail="90e0e5f2fcf9f3f8f5f1e2f9fef7e3d0f9e2e3bef7ffe6">[email protected]</span></a> (preferred) or by telephone at (202) 317-6901
(not a toll-free number) by at least November 15, 2023.
Statement of Availability of IRS Documents
Guidance cited in this preamble is published in the Internal
Revenue Bulletin and is available from the Superintendent of Documents,
U.S. Government Publishing Office, Washington, DC 20402, or by visiting
the IRS website at <a href="https://www.irs.gov">https://www.irs.gov</a>.
Drafting Information
The principal author of these proposed regulations is the Office of
the Associate Chief Counsel (Passthroughs and Special Industries).
However, other personnel from the Treasury Department and the IRS
participated in the development of the proposed regulations.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
[[Page 60040]]
Proposed Amendments to the Regulations
Accordingly, the Treasury Department and the IRS propose to amend
26 CFR part 1 as follows:
PART 1--INCOME TAXES
0
Paragraph 1.The authority citation for part 1 is amended by adding
entries for Sec. Sec. 1.30C-3, 1.45-6 through 1.45-8, 1.45-12, 1.45L-
3, 1.45Q-6, 1.45U-3, 1.45V-3, 1.45Y-3, 1.45Z-3, 1.48-13, and 1.179D-3
in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.30C-3 also issued under 26 U.S.C. 30.
* * * * *
Section 1.45-6 also issued under 26 U.S.C. 45.
Section 1.45-7 also issued under 26 U.S.C. 45.
Section 1.45-8 also issued under 26 U.S.C. 45.
Section 1.45-12 also issued under 26 U.S.C. 45.
* * * * *
Section 1.45L-3 also issued under 26 U.S.C. 45L.
* * * * *
Section 1.45Q-6 also issued under 26 U.S.C. 45Q.
Section 1.45U-3 also issued under 26 U.S.C. 45U.
Section 1.45V-3 also issued under 26 U.S.C. 45V.
Section 1.45Y-3 also issued under 26 U.S.C. 45Y.
Section 1.45Z-3 also issued under 26 U.S.C. 45Z.
* * * * *
Section 1.48-13 also issued under 26 U.S.C. 48.
* * * * *
Section 1.179D-3 also issued under 26 U.S.C. 179D.
* * * * *
0
Par. 2. Sections 1.30C-1 through 1.30C-3 are added to read as follows:
Sec. Sec. 1.30C-1--1.30C-2 [Reserved]
Sec. 1.30C-3 Rules relating to the increased credit amount for
prevailing wage and apprenticeship.
(a) In general. If any qualified alternative fuel vehicle refueling
project placed in service during the taxable year satisfies the
requirements in paragraph (b) of this section, the credit determined
under section 30C(a) for any qualified alternative fuel vehicle
refueling property of a character subject to an allowance for
depreciation that is part of such project is multiplied by five.
(b) Qualified project requirements. A qualified alternative fuel
vehicle refueling project satisfies the requirements of this paragraph
(b) if it is one of the following--
(1) A project the construction of which began prior to January 29,
2023; or
(2) A project that meets the prevailing wage requirements of
section 45(b)(7) and Sec. 1.45-7, the apprenticeship requirements of
section 45(b)(8) and Sec. 1.45-8, and the recordkeeping and reporting
requirements of Sec. 1.45-12.
(c) Applicability date. This section applies to projects placed in
service in taxable years ending after [date final rule publishes in the
Federal Register], and the construction of which begins after [date
final rule publishes in the Federal Register].
0
Par. 3. Sections 1.45-0 through 1.45-12 are added to read as follows:
Sec.
* * * * *
1.45-0 Table of contents.
1.45-1--1.45-5 [Reserved]
1.45-6 Increased credit amount.
1.45-7 Prevailing wage requirements.
1.45-8 Apprenticeship requirements.
1.45-9--1.45.11 [Reserved]
1.45-12 Recordkeeping and reporting.
* * * * *
Sec. 1.45-0 Table of contents.
This section lists the table of contents for Sec. Sec. 1.45-1
through 1.45-12.
Sec. Sec. 1.45-1--1.45-5 [Reserved]
Sec. 1.45-6 Increased credit amount.
(a) In general.
(b) Qualified facility requirements.
(c) Definition of nameplate capacity for purposes of determining
maximum net output under section 45(b)(6)(B)(i).
(d) Applicability date.
Sec. 1.45-7 Prevailing wage requirements.
(a) In general.
(b) Wage determinations.
(c) Curing a failure to satisfy the prevailing wage requirements.
(d) Definitions.
(e) Applicability date.
Sec. 1.45-8 Apprenticeship requirements.
(a) In general.
(b) Labor hours requirement.
(c) Application of apprentice-to-journeyworker ratio.
(d) Participation requirement.
(e) Exceptions to the Apprenticeship Requirements.
(f) Definitions.
(g) Applicability date.
Sec. Sec. 1.45-9--1.45-11 [Reserved]
Sec. 1.45-12 Recordkeeping and reporting.
(a) In general.
(b) Recordkeeping for prevailing wage and apprenticeship
requirements.
(c) Recordkeeping for prevailing wage requirements.
(d) Recordkeeping for apprenticeship requirements.
(e) Applicability date.
Sec. Sec. 1.45-1--1.45-5 [Reserved]
Sec. 1.45-6 Increased credit amount.
(a) In general. If a qualified facility (as defined in section
45(d)) satisfies the requirements in paragraph (b) of this section, the
amount of the renewable electricity production credit determined under
section 45(a) (after the application of sections 45(b)(1) through (5))
is equal to the credit determined under section 45(a) multiplied by
five.
(b) Qualified facility requirements. A qualified facility satisfies
the requirements of this paragraph (b) if it is one of the following--
(1) A facility with a maximum net output (as determined under
paragraph (c) of this section) of less than one megawatt (as measured
in alternating current);
(2) A facility the construction of which began prior to January 29,
2023; or
(3) A facility that meets the prevailing wage requirements of
section 45(b)(7) and Sec. 1.45-7, the apprenticeship requirements of
section 45(b)(8) and Sec. 1.45-8, and the recordkeeping and reporting
requirements of Sec. 1.45-12.
(c) Definition of nameplate capacity for purposes of determining
maximum net output under section 45(b)(6)(B)(i). For purposes of
determining whether a facility has a maximum net output of less than
one megawatt (as measured in alternating current) for purposes of
section 45(b)(6)(B)(i), nameplate capacity is determinative. Nameplate
capacity for an electrical generating unit means the maximum electrical
generating output in megawatts (MW) that the unit is capable of
producing on a steady state basis and during continuous operation under
standard conditions, as measured by the manufacturer and consistent
with the definition provided in 40 CFR 96.202. Where applicable, the
International Standard Organization (ISO) conditions are used to
measure the maximum electrical generating output or usable energy
capacity.
(d) Applicability date. This section applies facilities placed in
service in taxable years ending after [date final rule publishes in the
Federal Register], and the construction of which begins after [date
final rule publishes in the Federal Register].
Sec. 1.45-7 Prevailing wage requirements.
(a) In general. In order for the increased credit under section
45(b)(6)(B)(iii) with respect to any qualified facility to be claimed,
the taxpayer must satisfy the requirements
[[Page 60041]]
of section 45(b)(7) and this section (the ``Prevailing Wage
Requirements'') by ensuring that all laborers and mechanics employed by
the taxpayer or any contractor or subcontractor in the construction of
such facility, and with respect to any taxable year, for any portion of
such taxable year that is within the 10-year period beginning on the
date the facility was placed in service, the alteration or repair of
such facility, are 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. Prevailing rates are
those rates most recently determined by the Secretary of Labor in
accordance with 40 U.S.C. chapter 31, subchapter IV (Davis-Bacon Act),
and as set forth in paragraphs (b)(2) and (3) of this section. For
purposes of determining the increased credit under section 45(b)(6) for
a taxable year, the Prevailing Wage Requirements applicable to
alteration or repair work with respect to the taxable year(s) in which
the alteration or repair of the qualified facility occurs apply. See
paragraph (d) of this section for definitions of terms used in this
section.
(b) Wage determinations--(1) In general. A taxpayer satisfies the
Prevailing Wage Requirements if the taxpayer ensures that laborers and
mechanics employed by the taxpayer or any contractor or subcontractor
in the construction, alteration, or repair of a facility are paid wages
at rates not less than those set forth in the applicable wage
determination issued by the Secretary of Labor pursuant to 40 U.S.C.
3142, 29 CFR part 1, and other implementing guidance for the specified
type of construction in the geographic area where that facility is
located. When the construction, alteration, or repair of a facility
occurs in more than one geographic area, the taxpayer, contractor, or
subcontractor must use the applicable wage determination for the work
performed in each geographic area. Subject to the requirements of this
section, the applicable wage determination is a general wage
determination described in paragraph (b)(2) of this section (including
any additional classifications and wage rates described in paragraph
(b)(3) of this section), or a supplemental wage determination described
in paragraph (b)(3) of this section.
(2) General wage determinations. Except as provided in paragraph
(b)(3) of this section, to satisfy the Prevailing Wage Requirements
described in paragraph (a) of this section, taxpayers must ensure that
laborers and mechanics employed by the taxpayer or any contractor or
subcontractor in the construction, alteration, or repair of a facility
are paid wages at rates not less than those set forth in the applicable
general wage determination(s) published by the U.S. Department of Labor
on the approved website. The applicable general wage determination is
the wage determination in effect for the specified type of construction
in the geographic area when the construction, alteration, or repair of
the facility begins.
(3) Supplemental wage determinations and rates--(i) Use of
supplemental wage determinations and rates. In the event the Secretary
of Labor has not published a general wage determination for the
relevant geographic area and type of construction for the facility, or
the Secretary of Labor has issued a general wage determination for the
relevant geographic area and type of construction, but one or more
labor classifications for the construction, alteration, or repair work
that will be done on the facility by laborers or mechanics is not
listed, the taxpayer must ensure that laborers and mechanics employed
by the taxpayer or any contractor or subcontractor in the construction,
alteration, or repair of a facility are paid wages at rates not less
than those set forth in a supplemental wage determination or in an
additional classification and wage rate issued to the taxpayer by the
U.S. Department of Labor upon request by the taxpayer, contractor, or
subcontractor in accordance with paragraph (b)(3)(ii) of this section.
A taxpayer, contractor, or subcontractor may also request a
supplemental wage determination if the location of the facility
involves work by covered laborers and mechanics that spans more than
one contiguous geographic areas.
(ii) Request for supplemental wage determinations and additional
classifications and rates--(A) Manner of making request. A taxpayer,
contractor, or subcontractor requesting a supplemental wage
determination or additional classification and wage rate under
paragraph (b)(3)(i) of this section must submit the request to the U.S.
Department of Labor at, U.S. Department of Labor, Wage and Hour
Division, Branch of Construction Wage Determinations, Washington, DC
20210, by email at <a href="/cdn-cgi/l/email-protection#c78e9586b7b5a2b1a6aeabaea9a0b0a6a0a287a3a8abe9a0a8b1"><span class="__cf_email__" data-cfemail="400912013032253621292c292e273721272500242f2c6e272f36">[email protected]</span></a>, or such other address as
may be prescribed in guidance and instructions issued by the
Administrator of the Wage and Hour Division of the U.S. Department of
Labor (Wage and Hour Division). A taxpayer, contractor, or
subcontractor should make such requests no more than 90 days before the
beginning of construction, alteration, or repair, as appropriate (or as
soon as practicable after the start of construction, alteration, or
repair, in the instance where the taxpayer, contractor, or
subcontractor cannot reasonably determine prior to the start of
construction, alteration, or repair that a supplemental wage
determination or an additional classification and wage rate is
necessary). After review, the Wage and Hour Division will notify the
taxpayer, contractor, or subcontractor as to the supplemental wage
determination or the labor classifications and wage rates to be used
for the type of work in question in the geographic area in which the
facility is located.
(B) Required information. The request for a supplemental wage
determination or additional classification and wage rate must include
the following information:
(1) The name of the taxpayer, contractor, or subcontractor
requesting the supplemental wage determination or wage rate;
(2) The general wage determination(s), if any, applicable to
construction, alteration, or repair of the facility;
(3) A description of the work to be performed, including the
type(s) of construction involved and, if the project involves multiple
types of construction, information indicating the expected cost
breakdown by type of construction;
(4) The geographic area in which the facility is being constructed,
altered, or repaired, including the name and address of the facility
(if known);
(5) The start date of construction, alteration, or repair at the
facility;
(6) The labor classification(s) needed for performance of the work
on the facility (excluding those for which wage rates are available on
an applicable general wage determination);
(7) The duties to be performed by each such labor classification on
the facility;
(8) The proposed wage rate, including any bona fide fringe
benefits, for each such labor classification;
(9) Any pertinent wage payment information that may be available;
(10) Any additional relevant information otherwise required by
forms and instructions published by the U.S. Department of Labor; and
(11) Any additional information the taxpayer wants the U.S.
Department of Labor to consider.
(iii) Special rule for qualified facilities located offshore. If a
general wage determination is not available, in lieu of requesting a
supplemental wage determination for a facility located in an offshore
area within the outer continental shelf of the United States, a
[[Page 60042]]
taxpayer, contractor, or subcontractor may rely on the general wage
determination for the relevant category of construction that is
applicable in the geographic area closest to the area in which the
qualified facility will be located.
(4) Reconsideration and review. A taxpayer may seek reconsideration
and review by the Administrator of the Wage and Hour Division of a
general wage determination, or a determination issued with respect to a
request for a supplemental wage determination or additional
classification and wage rate in accordance with the procedures set
forth in 29 CFR 1.8 and 5.13 and any subsequent guidance issued by the
U.S. Department of Labor. A taxpayer may appeal the decision of the
Administrator of the Wage and Hour Division to the U.S. Department of
Labor's Administrative Review Board in accordance with the procedures
set forth in 29 CFR part 7 and any subsequent guidance issued by the
U.S. Department of Labor. Questions regarding wage determinations and
rates may be referred to the Administrator of the Wage and Hour
Division.
(5) Timing of wage determination. The applicable prevailing wage
rates on a general wage determination are those in effect at the time
construction, alteration, or repair of the facility begins, and
generally remain valid for the duration of the work performed with
respect to the construction, alteration, or repair of the facility by
the taxpayer, contractor, or subcontractor. Taxpayers who perform any
alteration or repair of a facility after the facility is placed in
service must use the applicable wage determination in effect at the
time the alteration or repair work begins. A new wage determination
would be required to be used when work on a facility is changed to
include additional construction, alteration, or repair work not within
the scope of work of the original project, or to require work to be
performed for an additional time period not originally obligated,
including where an option to extend the term of a contract for the
construction, alteration, or repair is exercised. General wage
determinations published on the U.S. Department of Labor approved
website contain no expiration date and remain valid until revised,
superseded, or canceled. Any supplemental wage determination or
additional classification and wage rate issued under paragraph (b)(3)
of this section applies from the time the taxpayer begins the
construction, alteration, or repair of the facility. If a supplemental
wage determination or additional classification and wage rate is issued
after construction, alteration, or repair of the facility has begun,
the applicable prevailing rates apply retroactively to the date
construction began.
(6) Payment of wages. All laborers and mechanics working on a
qualified facility must be paid in the time and manner consistent with
the regular payroll practices of the taxpayer, contractor, or
subcontractor. The payment of wages must be made without subsequent
deduction or rebate on any account (except such payroll deductions as
are required by the law or permitted by regulations issued by the
Secretary of Labor), and must consist of the full amount of wages
(including bona fide fringe benefits or cash equivalents thereof) due
at time of payment computed at rates not less than those contained in
the applicable wage determination of the Secretary of Labor. A taxpayer
may discharge its wage obligations for the payment of wages by paying
the full amount in cash, by making payments to a bona fide fringe
benefit provider or incurring costs for bona fide fringe benefits, or
by a combination thereof. The taxpayer is solely responsible for
ensuring that laborers and mechanics are paid wages not less than the
prevailing rate whether employed directly by the taxpayer, a
contractor, or a subcontractor in the construction, alteration, or
repair of the facility for purposes of claiming the increased credit
under section 45(b)(6). The rules set forth in 29 CFR 5.25 through
5.33, and subsequent guidance issued by the U.S. Department of Labor
apply with respect to costs for bona fide fringe benefits that may be
credited for purposes of the payment of wages.
(7) Apprentices--(i) Rate of pay. Apprentices who perform work with
respect to the construction, alteration, or repair of a facility
consistent with the requirements of section 45(b)(8) and Sec. 1.45-8
and individuals in the first 90 days of probationary employment as an
apprentice in a registered apprenticeship program who have been
certified by the U.S. Department of Labor's Office of Apprenticeship or
a State apprenticeship agency to be eligible for probationary
employment as an apprentice, may be paid at less than the predetermined
rate for the work they perform when they are employed pursuant to and
individually registered in a bona fide apprenticeship program
registered with the U.S. Department of Labor's Office of
Apprenticeship, or with a State apprenticeship agency recognized by the
U.S. Department of Labor's Office of Apprenticeship. Every apprentice
must be paid at not less than the rate specified by the registered
apprenticeship program for the apprentice's level of progress,
expressed as a percentage of the journeyworker hourly rate specified
for the apprentice's classification in the applicable wage
determination. If the apprentice is working in a classification that is
not part of the occupation of the registered apprenticeship program,
the apprentice must be paid at the full applicable wage rate
determination for laborers or mechanics working in that classification.
Any individual listed on payroll at an apprenticeship wage, who is not
registered with a registered apprenticeship program, must be paid not
less than the applicable wage rate on the wage determination for the
classification of work actually performed to satisfy the Prevailing
Wage Requirements. In the event the U.S. Department of Labor's Office
of Apprenticeship or a State apprenticeship agency recognized by the
U.S. Department of Labor's Office of Apprenticeship withdraws approval
of an apprenticeship program, the taxpayer, contractor, or
subcontractor will no longer satisfy the Prevailing Wage Requirements
by paying apprentices less than the applicable predetermined rate for
the work performed until an acceptable program is approved.
(ii) Bona fide fringe benefits. To satisfy the Prevailing Wage
Requirements, apprentices must be paid bona fide fringe benefits in
accordance with the provisions of the registered apprenticeship
program. If the apprenticeship program does not specify the payment of
bona fide fringe benefits, apprentices must be paid the full amount of
bona fide fringe benefits listed on the wage determination for the
applicable classification in cash or in kind.
(iii) Apprenticeship ratio. The allowance for payment of wages to
apprentices at rates less than the applicable prevailing wage rates
determined by the U.S. Department of Labor is subject to any applicable
ratio of apprentices to journeyworkers required under the registered
apprenticeship program and consistent with section 45(b)(8)(B) and
Sec. 1.45-8. Any apprentice performing work on the job site in excess
of the ratio permitted under the registered program or the ratio
applicable to the geographic area of the facility pursuant to 29 CFR
5.5(a)(4)(i) must be paid not less than the applicable wage rate on the
wage determination for the work actually performed to satisfy the
Prevailing Wage Requirements.
(iv) Reciprocity of ratios and wage rates. If a taxpayer,
contractor, or subcontractor is performing
[[Page 60043]]
construction alteration, or repair work on a facility in a geographic
area other than the geographic area in which an apprenticeship program
is registered, the ratios and wage rates (expressed in percentages of
the journeyworker's hourly rate) applicable within the geographic area
in which the construction, alteration, or repair work is being
performed must be observed. If there is no applicable ratio or wage
rate for the geographic area of the facility, the ratio and wage rate
(expressed in percentages of the journeyworker's hourly rate) specified
in the registered apprenticeship program standard must be observed.
(c) Curing a failure to satisfy the prevailing wage requirements--
(1) In general. If a taxpayer fails to ensure that all laborers and
mechanics employed by the taxpayer or any contractor or subcontractor
in the construction, alteration, or repair of a qualified facility are
paid wages at rates not less than those set forth in the applicable
wage determination(s), such taxpayer will be deemed to have satisfied
the Prevailing Wage Requirements with respect to such facility for any
year if the taxpayer makes the correction and penalty payments provided
in paragraphs (c)(1)(i) and (ii) of this section.
(i) Correction payment. The taxpayer must pay any laborer or
mechanic who was paid wages at a rate below the rate described in
paragraph (b) of this section for any pay period during such year an
amount equal to the sum of:
(A) The difference between the amount of wages paid to such laborer
or mechanic for all hours worked during such period and the amount of
wages required to be paid to such laborer or mechanic pursuant to
paragraph (a) of this section for all hours worked during such period;
and
(B) Interest on the amount determined under paragraph (c)(1)(i)(A)
of this section at the Federal short-term rate as determined under
section 6621 but substituting ``6 percentage points'' for ``3
percentage points'' in section 6621(a)(2).
(ii) Penalty payment. The taxpayer must pay a penalty equal to
$5,000 multiplied by the total number of laborers and mechanics who
were paid wages at a rate below the rate described in paragraph (b) of
this section for any period during such year.
(iii) Correction and penalty payments not required if taxpayer
ineligible for increased credit under section 45(b)(6)(B)(iii). If the
taxpayer claims the increased credit under section 45(b)(6)(B)(iii) and
does not satisfy the Prevailing Wage Requirements for the claimed
increased credit amount, then the obligation to make correction and
penalty payments under paragraphs (c)(1)(i) and (ii) of this section
applies in order for the taxpayer to retain the credit. If the IRS
determines that a taxpayer claiming the increased credit under section
45(b)(6)(B)(iii) failed to meet the Prevailing Wage Requirements and
the taxpayer does not make the correction and penalty payments provided
in paragraphs (c)(1)(i) and (ii) of this section, then no penalty is
assessed under paragraph (c)(1)(ii) of this section, and the taxpayer
is not entitled to the increased credit under section 45(b)(6)(B)(iii).
Taxpayers that are not entitled to claim the increased credit amount
may still be entitled to the base amount of the renewable electricity
production credit under section 45(a) if they meet the requirements to
claim the credit.
(iv) Correction and penalty payments in the event of a transfer
pursuant to section 6418. To the extent an eligible taxpayer, as
defined in section 6418(f)(2), has determined an increased credit
amount under section 45(b)(6) and transferred such increased credit
amount as part of a specified credit portion, the obligation to make
correction and penalty payments under paragraphs (c)(1)(i) and (ii) of
this section remains with the eligible taxpayer. The obligation for an
eligible taxpayer to satisfy the Prevailing Wage Requirements becomes
binding upon the earlier of the filing of the eligible taxpayer's
return for the taxable year for which the specified credit portion is
determined with respect to the eligible taxpayer, or the filing of the
return of the transferee taxpayer for the year in which the specified
credit portion is taken into account. If the IRS determines that the
eligible taxpayer failed to meet the Prevailing Wage Requirements and
the eligible taxpayer does not then make the correction and penalty
payments provided in paragraphs (c)(1)(i) and (ii) of this section,
then no penalty is assessed under paragraph (c)(1)(ii) of this section,
and the eligible taxpayer is not entitled to the increased credit
amount determined under section 45(b)(6)(B)(iii). Section 6418 and the
regulations in this part under section 6418 control for determining the
impact of an eligible taxpayer's failure to cure on any transferee
taxpayer. The eligible taxpayer that is not entitled to claim the
increased credit amount may still be entitled to the base amount of the
renewable electricity production credit under section 45(a) if they
meet the requirements to claim the credit.
(v) Examples. The provisions of this paragraph (c)(1) may be
illustrated by the following examples, which do not take into account
any possible application of the enhanced correction and penalty payment
requirements in the case of intentional disregard under paragraph
(c)(3) of this section, the exception for wages paid before a
determination by the U.S. Department of Labor under paragraph (c)(5) of
this section, or the penalty waiver under paragraph (c)(6) of this
section. In each example, assume that the taxpayer uses the calendar
year as the taxpayer's taxable year.
(A) Example 1. Taxpayer A begins construction of a qualified
facility on February 3, 2023. The facility is placed in service on
October 10, 2023, and A claims the increased credit under section
45(b)(6) on its 2023 tax return. Laborer X was employed in the
construction, alteration, or repair of the facility in calendar year
2023 for 20 weeks and was paid on a weekly basis. X was paid wages
below the prevailing wage rate for all pay periods in calendar year
2023. All other laborers and mechanics were paid at the prevailing wage
rate. The aggregate difference between the amount of wages X was paid
and the amount required to be paid under paragraph (a) of this section
is $400 (i.e., X worked 20 weeks during the year and was underpaid by
$20 in each of those weeks). The amount of the correction payment A
must make to X is equal to $400 plus interest from the date of each
underpayment at the rate as determined under section 6621 but
substituting ``6 percentage points'' for ``3 percentage points'' in
section 6621(a)(2). The total number of laborers underpaid for any
period in 2023 was one, so the total amount of the penalty payment that
A must pay to the IRS to retain the increased credit is $5,000.
(B) Example 2. Taxpayer B begins construction of a qualified
facility on January 30, 2023. The facility is placed in service on
February 2, 2024. Taxpayer B files a claim for the increased credit
under section 45(b)(6) with its 2024 tax return. Taxpayer B paid
workers on a biweekly basis. Five laborers employed in the construction
of the facility were paid wages below the prevailing wage rates in
2023, with the difference between the amount they were paid and the
amount of wages required to be paid under paragraph (a) of this section
being $500 per laborer. One of those laborers remained employed in the
construction of the facility in 2024 and was paid wages below the
prevailing wage rate, with the difference between the amount the
laborer was paid and the amount of
[[Page 60044]]
wages required to be paid under paragraph (a) of this section being
$100. All other laborers and mechanics involved in the construction,
alteration, or repair of the facility were paid at the prevailing wage
rates. B must make correction payments of $500 plus interest from the
date of each underpayment at the rate as determined under section 6621
but substituting ``6 percentage points'' for ``3 percentage points'' in
section 6621(a)(2) to each of the five laborers that were underpaid in
2023, and a correction payment of $100 plus interest from the date of
each underpayment at the rate as determined under section 6621 but
substituting ``6 percentage points'' for ``3 percentage points'' in
section 6621(a)(2) to the laborer that was underpaid in 2024. The total
amount of the penalty payment that B must pay to the IRS to retain the
increased credit is $30,000, which includes $5,000 for each of the
laborers underpaid in 2023 and $5,000 for the one laborer underpaid in
2024.
(C) Example 3. Taxpayer B begins construction of a qualified
facility on January 30, 2023. The facility is placed in service on
February 2, 2024. Taxpayer B files a claim for the increased credit
under section 45(b)(6) with its 2024 tax return. Taxpayer B paid
workers on a biweekly basis. Lab
[…truncated; see source link]Indexed from Federal Register on August 30, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.