Rule2024-13331
Increased Amounts of Credit or Deduction for Satisfying Certain Prevailing Wage and Registered Apprenticeship Requirements
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
June 25, 2024
Effective
August 26, 2024
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document sets forth final regulations regarding the increased credit amounts or the increased deduction amount available for taxpayers satisfying prevailing wage and registered apprenticeship (collectively, PWA) requirements established by the Inflation Reduction Act of 2022. These final regulations affect taxpayers intending to satisfy the PWA requirements to be eligible for increased amounts of Federal income tax credits or an increased deduction, including those intending to make elective payment elections for available credit amounts, and those intending to transfer increased credit amounts. These final regulations also affect taxpayers intending to satisfy the prevailing wage requirements to be eligible for increased amounts of those Federal income tax credits that do not have associated apprenticeship requirements. Additionally, these final regulations affect taxpayers who initially fail to satisfy the PWA requirements (or prevailing wage requirements, as applicable) and subsequently comply with the correction and penalty procedures in order to be deemed to satisfy the PWA requirements (or prevailing wage requirements, as applicable). Finally, these final regulations address specific PWA and prevailing wage recordkeeping and reporting requirements.
Full Text
<html>
<head>
<title>Federal Register, Volume 89 Issue 122 (Tuesday, June 25, 2024)</title>
</head>
<body><pre>
[Federal Register Volume 89, Number 122 (Tuesday, June 25, 2024)]
[Rules and Regulations]
[Pages 53184-53273]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-13331]
[[Page 53183]]
Vol. 89
Tuesday,
No. 122
June 25, 2024
Part II
Department of the Treasury
-----------------------------------------------------------------------
Internal Revenue Service
-----------------------------------------------------------------------
26 CFR Part 1
Increased Amounts of Credit or Deduction for Satisfying Certain
Prevailing Wage and Registered Apprenticeship Requirements; Final Rule
Federal Register / Vol. 89 , No. 122 / Tuesday, June 25, 2024 / Rules
and Regulations
[[Page 53184]]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9998]
RIN 1545-BQ62
Increased Amounts of Credit or Deduction for Satisfying Certain
Prevailing Wage and Registered Apprenticeship Requirements
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This document sets forth final regulations regarding the
increased credit amounts or the increased deduction amount available
for taxpayers satisfying prevailing wage and registered apprenticeship
(collectively, PWA) requirements established by the Inflation Reduction
Act of 2022. These final regulations affect taxpayers intending to
satisfy the PWA requirements to be eligible for increased amounts of
Federal income tax credits or an increased deduction, including those
intending to make elective payment elections for available credit
amounts, and those intending to transfer increased credit amounts.
These final regulations also affect taxpayers intending to satisfy the
prevailing wage requirements to be eligible for increased amounts of
those Federal income tax credits that do not have associated
apprenticeship requirements. Additionally, these final regulations
affect taxpayers who initially fail to satisfy the PWA requirements (or
prevailing wage requirements, as applicable) and subsequently comply
with the correction and penalty procedures in order to be deemed to
satisfy the PWA requirements (or prevailing wage requirements, as
applicable). Finally, these final regulations address specific PWA and
prevailing wage recordkeeping and reporting requirements.
DATES:
Effective date: These regulations are effective August 26, 2024.
Applicability date: For date of applicability, see Sec. Sec.
1.30C-3(c), 1.45-6(d), 1.45-7(e), 1.45-8(h), 1.45-12(f), 1.45L-3(c),
1.45Q-6(c), 1.45U-3(c), 1.45V-3(c), 1.45Y-3(c), 1.45Z-3(c), 1.48C-3(b),
1.179D-3(c).
FOR FURTHER INFORMATION CONTACT: The Office of Associate Chief Counsel
(Passthroughs & Special Industries) at (202) 317-6853 (not a toll-free
number).
SUPPLEMENTARY INFORMATION:
Background
I. Overview
This document contains final regulations that amend the Income Tax
Regulations (26 CFR part 1) under sections 30C, 45, 45L, 45Q, 45U, 45V,
45Y, 45Z, 48C, and 179D of the Internal Revenue Code (Code), as enacted
or amended by the Inflation Reduction Act of 2022 (IRA), Public Law
117-169, 136 Stat. 1818 (August 16, 2022).
The IRA amended sections 30C, 45, 45L, 45Q, 48, 48C, and 179D to
provide increased amounts of credits or an increased deduction, as
applicable, for taxpayers who satisfy certain requirements and added
sections 45U, 45V, 45Y, 45Z, and 48E to the Code to provide new
credits, which also contain provisions for increased credit amounts for
taxpayers who satisfy certain requirements. Increased credit amounts
are available under sections 30C, 45, 45Q, 45V, 45Y, 45Z, 48, 48C, and
48E, and an increased deduction is available under section 179D for
taxpayers satisfying certain PWA requirements. Increased credit amounts
are available under sections 45L and 45U for taxpayers satisfying
certain prevailing wage requirements.\1\ The IRA includes correction
and penalty provisions available in certain situations for taxpayers
that have initially failed to satisfy the PWA requirements and are not
otherwise eligible for the increased amount of credit or deduction
because they do not qualify for an exception.
---------------------------------------------------------------------------
\1\ The provisions in sections 45L and 45U relating to increased
credit amounts do not contain apprenticeship requirements. For
simplicity, where possible, the preamble to these final regulations
uses the acronym PWA to refer to the prevailing wage and
apprenticeship requirements generally, including the prevailing wage
requirements in sections 45L and 45U.
---------------------------------------------------------------------------
Increased amounts of credits or an increased deduction are
generally available under sections 30C, 45, 45Q, 45V, 45Y, 48, 48E and
179D with respect to certain facilities, properties, projects,
technologies, or equipment if beginning of construction (or beginning
of installation for section 179D) of the facility, property, project,
technology, or equipment, as applicable, occurs before January 29, 2023
(BOC Exception). Additionally, the increased credit amounts generally
are available under sections 45, 45Y, 48, and 48E with respect to
certain facilities, projects, and technologies, as applicable, with a
maximum net output (or capacity for energy storage technology under
section 48E) of less than one megawatt (One Megawatt Exception).
Generally, if a taxpayer satisfies the PWA requirements, meets the BOC
Exception, or meets the One Megawatt Exception, the amount of credit or
deduction determined is equal to the otherwise determined amount of the
underlying credit or deduction multiplied by five.
II. PWA Provisions
A. 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),\2\ and section 45(b)(8)
provides the apprenticeship requirements (Apprenticeship
Requirements).\3\
---------------------------------------------------------------------------
\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 similar
to the requirements provided under section 45(b)(7). Sections 30C,
45L, 48C, and 179D, however, do not require the payment of wages at
rates not less than the prevailing rates after construction, re-
equipping, expansion, establishment, or installation, as applicable,
ends. Sections 45Y(g)(9) and 45Z(f)(6)(A) adopt by cross-reference
the Prevailing Wage Requirements under section 45(b)(7). Section
48E(d)(3) adopts by cross-reference the Prevailing Wage Requirements
under section 48(a)(10). Section 48(a)(10)(C) provides for a special
5-year recapture rule that applies for purposes of the Prevailing
Wage Requirements with respect to sections 48 and 48E.
\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.
---------------------------------------------------------------------------
In general, section 45 provides a credit for taxpayers producing
electricity from qualified energy resources at a qualified facility
during the 10-year period beginning on the date the facility was
originally placed in service, and selling that electricity to unrelated
persons during the taxable year. Under section 45(a), the credit is
equal to 0.3 cents multiplied by the kilowatt hours of electricity: (i)
produced by the taxpayer from qualified energy resources and at a
qualified facility during the 10-year period beginning on the date the
facility was originally placed in service, and (ii) sold by the
taxpayer to an unrelated person during the taxable year. Under section
45(b)(6), with respect to a qualified facility, if a taxpayer satisfies
the PWA requirements, meets the BOC Exception, or meets the One
Megawatt Exception, then the amount of the credit determined under
section 45(a) is multiplied by five.
B. Prevailing Wage Requirements
Section 45(b)(7)(A) provides that with respect to any qualified
facility, ``the taxpayer shall ensure that any laborers
[[Page 53185]]
and mechanics employed by the taxpayer or any contractor or
subcontractor in--(i) the construction of such facility, and (ii) with
respect to any taxable year, for any portion of such taxable year which
is within the [10-year period beginning on the date the qualified
facility was originally placed in service], the alteration or repair of
such facility, shall be paid wages at rates not less than the
prevailing rates for construction, alteration, or repair of a similar
character in the locality in which such facility is located as most
recently determined by the Secretary of Labor, in accordance with
subchapter IV of chapter 31 of title 40, United States Code [Davis-
Bacon Act or DBA].''
The Davis-Bacon Act, enacted in 1931, requires the payment of
minimum prevailing wages determined by the Department of Labor (DOL)
for laborers and mechanics working on contracts entered into by Federal
agencies and the District of Columbia, if such contracts are in excess
of $2,000 and are for the construction, alteration, or repair of public
buildings and public works. Section 3142 of the DBA requires that
Federal agencies entering into contracts covered by the DBA include the
requirements of the DBA in the contract, including the requirement to
incorporate the applicable wage determinations that set forth the
prevailing wages to be paid to laborers and mechanics. The Copeland
Act, 40 U.S.C. 3145, sets forth a requirement that the contractor
submit certified weekly payroll records to the contracting Federal
agency. Congress has included DBA requirements in other laws, often
referred to as the Davis-Bacon Related Acts, under which Federal
agencies provide assistance for construction projects through grants,
loans, insurance, and other methods. The DOL Wage and Hour Division
(WHD) administers the DBA prevailing wage provisions.
C. Correction and Penalty Related to Failure To Satisfy Prevailing Wage
Requirements
Under section 45(b)(7)(B) of the Code, a taxpayer who is not
eligible for the BOC Exception or the One Megawatt Exception and fails
to satisfy the Prevailing Wage Requirements under section 45(b)(7)(A),
is deemed to have satisfied those requirements if the taxpayer makes a
correction payment to 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 qualified facility
and pays a penalty to the Internal Revenue Service (IRS).
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 six percentage points for three
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).
Under section 45(b)(7)(B)(iii), if the IRS 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 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
for the increased credit amount. If the taxpayer does not make the
required correction and penalty payments, and therefore is not allowed
the increased credit amount, no penalty is assessed under section
45(b)(7)(B).
D. Apprenticeship Requirements
Under section 45(b)(8), with respect to the construction of any
qualified facility, taxpayers must satisfy the Apprenticeship
Requirements. The Apprenticeship Requirements impose rules regarding
labor hours, apprentice-to-journeyworker ratios, and participation by
qualified apprentices.
1. 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 excluding 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\ The DOL Office of
Apprenticeship (OA) administers provisions under the National
Apprenticeship Act related to registered apprenticeship programs.
---------------------------------------------------------------------------
\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). On January 17, 2024, the DOL
released a notice of proposed rulemaking that would once again place
apprenticeship standards in subpart A of part 29. See 89 FR 3118.
---------------------------------------------------------------------------
2. 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 DOL or the applicable State apprenticeship agency (Ratio
Requirement).
[[Page 53186]]
3. 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).
E. Exceptions to Apprenticeship Requirements
1. In General
Under section 45(b)(8)(D)(i), a taxpayer is not treated as failing
to satisfy the Apprenticeship Requirements 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 IRS
(Apprenticeship Cure Provision).
2. 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, 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.
3. 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 IRS 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 IRS 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 Labor Hours Requirement or Participation Requirement was
not satisfied.
III. Other Increased Credit Amount Provisions
A. 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 IRS publishes guidance with respect to the requirements
of section 45(b)(7)(A) and (8) is a facility eligible for the increased
credit amount in section 45(b)(6). On November 30, 2022, the Department
of the Treasury (Treasury Department) and the IRS published Notice
2022-61 in the Federal Register (87 FR 73580, corrected in 87 FR 75141
(Dec. 7, 2022)), providing guidance with respect to the PWA
requirements in section 45(b)(7) and (8), including initial guidance
for determining the beginning of construction under 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 amount of credit or deduction without satisfying the PWA
requirements, provided the taxpayer is otherwise eligible for the
credit or deduction. Similar exceptions apply under sections 30C, 45Q,
45V, 45Y, 48, 48E, and 179D.
---------------------------------------------------------------------------
\5\ Notice 2022-61 defines facility as qualified facility,
property, project, or equipment.
---------------------------------------------------------------------------
For purposes of determining when construction or installation
begins, Notice 2022-61 incorporates by reference the notices issued
under sections 45,\6\ 45Q,\7\ and 48 \8\ (collectively, IRS Notices).
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).
---------------------------------------------------------------------------
\6\ Notice 2013-29, 2013-20 I.R.B. 1085; clarified by Notice
2013-60, 2013-44 I.R.B. 431; clarified and modified by Notice 2014-
46, 2014-36 I.R.B. 520; updated by Notice 2015-25, 2015-13 I.R.B.
814; clarified and modified by Notice 2016-31, 2016-23 I.R.B. 1025;
updated, clarified, and modified by Notice 2017-04, 2017-4 I.R.B.
541; Notice 2018-59, 2018-28 I.R.B. 196; modified by Notice 2019-43,
2019-31 I.R.B. 487; modified by Notice 2020-41, 2020-25 I.R.B. 954;
clarified and modified by Notice 2021-5, 2021-3 I.R.B. 479;
clarified and modified by Notice 2021-41, 2021-29 I.R.B. 17.
\7\ Notice 2020-12, 2020-11 I.R.B. 495.
\8\ Notice 2018-59; modified by Notice 2019-43; modified by
Notice 2020-41; clarified and modified by Notice 2021-5; clarified
and modified by Notice 2021-41.
---------------------------------------------------------------------------
The IRS Notices 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 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 ten 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
[[Page 53187]]
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, energy efficient building retrofit
property, or property installed pursuant to a qualified retrofit plan
has begun if a taxpayer generally satisfies principles similar to the
Physical Work Test and the Five Percent Safe Harbor described in
section 2.02 of Notice 2022-61 regarding the beginning of construction
under Notice 2013-29. 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.
B. 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 a facility eligible
for the increased credit amount. Similar exceptions apply for a
qualified facility with a maximum net output of less than one megawatt
(as measured in alternating current) under sections 45Y(a)(2)(B)(i) and
48E(a)(2)(A)(ii)(I); an energy project with a maximum net output of
less than one megawatt of electrical (as measured in alternating
current) or thermal energy under section 48(a)(9)(B)(i); and energy
storage technology with a capacity of less than one megawatt under
section 48E(a)(2)(B)(ii)(I).
IV. Prior Guidance
On October 24, 2022, the Treasury Department and the IRS published
Notice 2022-51, 2022-43 I.R.B. 331, requesting comments on aspects of
the increased amounts of credits and deduction enacted or amended by
the IRA, including the PWA provisions. On November 30, 2022, the
Treasury Department and the IRS published Notice 2022-61. Notice 2022-
61 provided guidance on the PWA requirements that generally apply under
sections 30C, 45, 45L, 45Q, 45U, 45V, 45Y, 45Z, 48, 48C, 48E, and 179D.
Additionally, as discussed in Section III.A. of this Background, 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) for purposes of the BOC
Exception. 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.
On August 30, 2023, the Treasury Department and the IRS published a
notice of proposed rulemaking and a notice of public hearing (REG-
100908-23) in the Federal Register (88 FR 60018), corrected in 88 FR
73807 (Oct. 27, 2023), and 89 FR 25550 (April 11, 2024), providing
guidance on the PWA requirements under sections 30C, 45, 45L, 45Q, 45U,
45V, 45Y, 45Z, 48, 48C, 48E, and 179D (Proposed Regulations). The
provisions of the Proposed Regulations are explained in greater detail
in the preamble to the Proposed Regulations.
On November 22, 2023, the Treasury Department and the IRS published
a notice of proposed rulemaking and a notice of public hearing (REG-
132569-17) in the Federal Register (88 FR 82188), providing guidance
under section 48. Among other matters, the proposed regulations under
section 48 (Section 48 Proposed Regulations) withdrew and reproposed
the regulations in Sec. 1.48-13 regarding the PWA requirements under
section 48, the One Megawatt Exception under section 48(a)(9)(B)(i),
and the recapture rules under section 48(a)(10)(C) related to the
Prevailing Wage Requirements. These final regulations do not include
final regulations under section 48. Additionally, because proposed
Sec. 1.48E-3 would have incorporated the rules of proposed Sec. 1.48-
13 by cross-reference, these final regulations do not include final
regulations under section 48E. The Treasury Department and the IRS
intend to issue final regulations with respect to the PWA Requirements
in proposed Sec. 1.48-13 and proposed Sec. 1.48E-3 in future Treasury
decisions.
The Proposed Regulations provided that taxpayers may rely on
proposed Sec. 1.48E-3 with respect to construction of a qualified
facility on or after January 29, 2023, and on or before the date
proposed Sec. 1.48E-3 publishes as a final regulation 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. The Section 48 Proposed
Regulations similarly provided that taxpayers may rely on proposed
Sec. 1.48-13 with respect to construction of a property or project
beginning on or after January 29, 2023, and on or before the date
proposed Sec. 1.48-13 publishes as a final regulation in the Federal
Register, provided, that beginning after the date that is 60 days after
August 29, 2023, taxpayers follow proposed Sec. 1.48-13 in its
entirety and in a consistent manner. These final regulations do not
change the reliance provided with respect to proposed Sec. 1.48-13 and
proposed Sec. 1.48E-3.
Comments received regarding the specific PWA requirements under
sections 48 and 48E, the One Megawatt Exception under sections 48 and
48E, and the recapture rules contained in section 48(a)(10)(C), all
whether in response to the Proposed Regulations or the Section 48
Proposed Regulations, will be addressed in the future Treasury decision
adopting those rules as final regulations. Other comments on the PWA
requirements (including comments that referenced section 48 or section
48E, but addressed the PWA requirements more generally) were considered
in the drafting of these final regulations and are discussed herein.
On June 3, 2024, the Treasury Department and the IRS published a
notice of proposed rulemaking and a notice of public hearing (REG-
119283-23) in the Federal Register (89 FR 47792), proposing guidance
under sections 45Y and 48E (Section 45Y/48E Proposed Regulations). In
the Section 45Y/48E Proposed Regulations, the Treasury Department and
the IRS requested comments on the proposed definition of a qualified
facility with a maximum net output of less than one megawatt (as
measured in alternating current) for purposes of the One Megawatt
Exception under section 45Y(a)(2)(B)(i). All comments received
pertaining to the One Megawatt Exception under section 45Y(a)(2)(B)(i),
whether in response to the Proposed Regulations or the Section 45Y/48E
Proposed Regulations, will be addressed in future guidance under
section 45Y finalizing those rules. General PWA comments that were
received in response to the Proposed Regulations and that referenced
section 45Y are discussed throughout this Summary of Comments and
Explanation of Revisions because they were considered in the drafting
of these final regulations.
Summary of Comments and Explanation of Revisions
This Summary of Comments and Explanation of Revisions summarizes
the Proposed Regulations, all the substantive comments submitted in
response to the Proposed Regulations, and revisions adopted by these
final regulations. The Treasury Department
[[Page 53188]]
and the IRS received 342 written comments in response to the Proposed
Regulations. The comments are available for public inspection at
<a href="https://www.regulations.gov">https://www.regulations.gov</a> or upon request. After full consideration
of the comments received, these final regulations adopt the Proposed
Regulations with modifications in response to such comments as
described in this Summary of Comments and Explanation of Revisions.
Most comments addressed the PWA requirements in general, without
identifying a specific Code section. These comments are primarily
addressed in Sections I. through VIII. of this Summary of Comments and
Explanation of Revisions, and revisions that have been made in response
to these comments are also typically described in general terms, or by
reference to section 45, which sets forth the principal PWA
requirements. Thus, the terms qualified facility and facility as used
in Sections I. through VIII. of this Summary of Comments and
Explanation of Revisions generally includes qualified equipment,
qualified residence, qualified project, and qualified property for
purposes of sections 30C, 45, 45L, 45Q, 45U, 45V, 45Y, 45Z, 48C, and
179D, as applicable. References to an increased credit amount in
Sections I. through VIII. of this Summary of Comments and Explanation
of Revisions include the increased deduction amount available under
section 179D, as applicable. Comments specifically addressing the PWA
requirements in sections 30C, 45L, 45Q, 45U, 45V, 45Y, 45Z, 48C, and
179D are described in Section IX. of this Summary of Comments and
Explanation of Revisions.
Comments summarizing the statute or the Proposed Regulations,
recommending statutory revisions, and addressing issues that are
outside the scope of this rulemaking (such as revising other Federal
regulations and recommending changes to IRS forms) are generally not
addressed in this Summary of Comments and Explanation of Revisions or
adopted in these final regulations. Some commenters requested
additional time to submit comments. The Proposed Regulations required
all comments to be received by October 30, 2023; however, comments
received by April 25, 2024, were considered in drafting these final
regulations. In addition to addressing the comments received in
response to the Proposed Regulations, the final regulations also
include non-substantive grammatical or stylistic changes to the
Proposed Regulations.
I. Pre-Filing Activities
A. Applicability of the Davis-Bacon Act in General <SUP>9</SUP>
---------------------------------------------------------------------------
\9\ All references to the DBA regulations throughout this
Summary of Comments and Explanation of Revisions include updates to
the DBA regulations published in a final rule on August 23, 2023 (88
FR 57526).
---------------------------------------------------------------------------
Under section 45(b)(7)(A), the increased credit amount provided by
section 45(b)(6) is available with respect to a qualified facility if,
among other requirements, a taxpayer ensures that laborers and
mechanics 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 as most recently determined
by the Secretary of Labor, in accordance with'' the DBA. As explained
in the preamble to the Proposed Regulations, the phrase ``in accordance
with'' means ``in agreement or harmony with; in conformity to;
according to.'' \10\ In interpreting the ``in accordance with''
language, the preamble to the Proposed Regulations explained that the
Treasury Department and the IRS proposed to incorporate those
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.
---------------------------------------------------------------------------
\10\ 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) (meaning agreement,
conformity).
---------------------------------------------------------------------------
Under the DBA, the DOL determines the wage rates that are
``prevailing'' for each classification of covered laborers and
mechanics in the geographic area in which work is to be performed and
publishes general wage determinations providing that information to the
public. Under the DBA, Federal contracting agencies follow specified
procedures for incorporating DBA requirements and wage determinations
into covered contracts. Pursuant to the Copeland Act, contractors are
required to submit certified weekly payroll records to the contracting
agency. Under the DBA regulations, the contracting agency and the DOL
WHD have responsibility to ensure compliance with prevailing wage
requirements by engaging in periodic audits or investigations of
contracts, including examination of payroll data.
The Proposed Regulations would have largely adopted DBA guidance
relating to applicable wage rates and 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 have incorporated the DBA (or
Copeland Act) guidance regarding provisions required to be included in
contracts, those provisions related to the reporting of certified
weekly payroll records by contractors to contracting agencies, and the
various enforcement processes that are available to the DOL and the
contracting agencies to address DBA noncompliance.
As explained in the preamble to the Proposed Regulations, this
approach was intended to reflect the substantive differences between
the DBA and the Code. Under the DBA, a contractor is required to pay
prevailing wages as a condition of a Federal contract award. Under
section 45, although the requirement to ensure the payment of wages at
rates not less than the prevailing rates is generally triggered when
construction of a facility begins, that requirement becomes legally
binding only if a tax return claiming the increased credit amount is
filed. The Code does not require taxpayers who do not seek an increased
credit amount under section 45(b)(6) to ensure the payment of
prevailing wages at the beginning of construction, alteration, or
repair of a facility. Furthermore, under the correction and penalty
provisions in section 45(b)(7)(B)(i)(I) and 45(b)(7)(B)(i)(II),
taxpayers may remedy prior failures to pay wages at rates not less than
the prevailing rates, even after a return is filed, and still be
eligible for the increased credit amount. In addition, a taxpayer that
satisfies the BOC Exception or the One Megawatt Exception, if
applicable, may generally claim the increased credit amount regardless
of whether laborers and mechanics were paid prevailing wages.
Several commenters suggested that the final regulations should
incorporate additional requirements from the DBA, instead of limiting
the incorporation to those that the Treasury Department and the IRS
determine are relevant for purposes of claiming the increased credit
amount and that are necessary for, and consistent with, sound tax
administration. Some commenters asserted that not incorporating all
elements of the DBA framework was arbitrary and capricious and contrary
to the statute. Some commenters alleged that the Proposed Regulations
failed to adequately address the increased chance of improperly claimed
credits by relying too heavily on post-filing enforcement. One
commenter stated that post-filing enforcement by the IRS does not
guarantee workers' rights, including notice of entitlement to the
prevailing wage, a complaint procedure to report
[[Page 53189]]
noncompliance, protections against retaliation, or a requirement that
workers be guaranteed any wage by an enforceable contract. The
commenters also stated that the reliance on post-filing compliance was
inconsistent with the DBA and would lead to fraud, noncompliance, and
evasion of the tax rules. At least one commenter suggested that
incorporating all of the DBA requirements is necessary to more
generally address issues of fraud in the construction industry. One
commenter opined that although the IRA differed from traditional Davis-
Bacon Related Acts that expressly adopt the DOL's existing
implementation framework and confer primary enforcement authority upon
the DOL, this was because the IRA was enacted through reconciliation.
The commenter stated that this should not impact the implementation of
the prevailing wage provisions.
Although several commenters supported a more expansive
incorporation of the DBA, many other commenters stated that the
Proposed Regulations took the correct approach regarding incorporation
of the DBA. One commenter suggested that given the unique challenges of
applying a system arising in Federal contracting to the IRA's tax
credit regime, Congress did not limit the Treasury Department and the
IRS to adopting the DBA requirements and enforcement scheme word-for-
word and without modification. Many commenters acknowledged the need
for the Treasury Department and the IRS to take a reasonable approach
to interpret a Code provision that references a Federal law applicable
to Federal contracts.
These final regulations do not alter the general approach taken in
the Proposed Regulations of incorporating DBA guidance for purposes of
the PWA requirements only if it is relevant for the purposes of section
45(b)(7)(A) and the intent of the IRA, and necessary for, and
consistent with, sound tax administration. The Treasury Department and
the IRS recognize the importance of ensuring compliance with the
statute such that workers benefit from the payment of prevailing wages
on projects for which the increased amount of credit is claimed and
find that the general approach in the Proposed Regulations promotes
that goal within the constraints of the statute and in furtherance of
sound tax administration. Consistent with this framework, the final
regulations encourage taxpayers to adopt certain practices for ensuring
compliance in the interest of fulfilling statutory intent and
furthering sound tax administration.
The Treasury Department and the IRS disagree with the assertion
that the Proposed Regulations were arbitrary and capricious. This
Summary of Comments and Explanation of Revisions reiterates and expands
upon the rationale for applying the DBA provisions that are relevant
for purposes of claiming the increased tax credit and consistent with
sound tax administration. If Congress intended for the same DBA
requirements to apply under the IRA, it would have so provided. The
Treasury Department and the IRS are required to implement statutory
language as enacted, regardless of the procedure under which the
legislation was passed (for example, reconciliation). As enacted, the
statute does not indicate that the regulations setting forth the PWA
requirements must mirror the DBA in every instance. As noted in the
preamble to the Proposed Regulations, ``in accordance with'' means ``in
agreement or harmony with; in conformity to; according to.'' This does
not require exact duplication or incorporation. The differences in
statutory language and context reflect the very significant differences
between the administration of the wage provisions of Federal contracts
and the administration of the tax system, and the statute provides
flexibility for the IRS to incorporate the requirements from the DBA
that are appropriate for tax administration purposes.
The IRS's authority to determine a taxpayer's compliance with the
PWA requirements generally arises after the taxpayer files a claim for
the increased tax credit. Because taxpayers may choose not to claim the
increased credit amount, the IRS cannot determine a taxpayer's
compliance or engage in enforcement activities before the taxpayer
files a tax return claiming the increased credit amount. Imposing pre-
filing requirements through regulations would not be a reasonable
interpretation of the statutory language and would not permit the IRS
to enforce the PWA requirements in advance of filing. Many of the DBA
requirements (for example, certified weekly payroll, public notice of
wage classifications and wage rates, required contract provisions) are
either statutorily required under the DBA (or a related act) or
designed to apply to all Federal construction contracts with certainty
at the time of contract award (that is, in advance of work being
performed). Those same pre-filing requirements are not prescribed in
the Code.
As acknowledged by many commenters, the Treasury Department and the
IRS need to take a reasonable approach to interpret a Code provision
that references a Federal law applicable to Federal contracts (a system
that applies with certainty in the case of a Federal contracting agency
that solicits bids for a contract) in the context of Federal taxes (a
system designed to function with a compliance and enforcement framework
that follows only after the filing of tax returns).
Many commenters recognized that the PWA requirements are not
binding until the tax return claiming the credit is filed, yet they
still requested that the IRS impose several additional reporting,
notice, and other requirements in advance of filing for the credit. As
the requirement to pay prevailing wages does not become binding until a
taxpayer files a claim for the increased amount of credit, and the IRS
has a well-established record of effective post-filing enforcement, the
final regulations do not adopt these requests. The Treasury Department
and the IRS have also determined that imposing additional pre-filing
requirements on taxpayers could discourage taxpayers from seeking the
increased amount of credit available under the IRA, resulting in fewer
workers receiving prevailing wages. The Treasury Department and the IRS
will not impose pre-filing requirements that unnecessarily raise
compliance costs, especially for small businesses, and provide no
meaningful benefit to the IRS in administering the tax system.
In reviewing the public comments, the Treasury Department and the
IRS have decided to adopt key aspects of the Proposed Regulations and
have also determined that certain changes to the Proposed Regulations
would be appropriate to support compliance with the PWA requirements,
and to encourage taxpayers to adopt certain practices. The Treasury
Department and the IRS have made these determinations after
consultation with the DOL WHD and OA. Those changes are discussed
throughout this Summary of Comments and Explanation of Revisions.
Accordingly, as discussed in Section VII.D.3. of this Summary of
Comments and Explanation of Revisions, in cases in which it is
necessary for and consistent with sound tax administration, these final
regulations expand on the factors demonstrating intentional disregard
to reflect the value of these practices. These additional factors
incorporate the spirit and rationale of commenters' suggestions by
addressing whether a taxpayer has (among other actions): (i) conducted
regular reviews of the applicable prevailing wage rate that must be
paid to laborers and mechanics and the appropriate classification of
such
[[Page 53190]]
laborers and mechanics based on actual job duties; (ii) investigated
complaints of retaliation or adverse action resulting from reports of
suspected failures to pay prevailing wages and/or classify workers in
accordance with applicable wage determinations, and taken appropriate
actions to remedy any retaliation or adverse action and prevent it from
reoccurring; and (iii) provided laborers and mechanics with paystubs
(or access to individual payroll records) reflecting the amount being
paid per pay period (including the specific hourly rate and all
deductions from wages).
B. Specific Pre-Filing Activities Required Under the DBA
Some commenters requested that the final regulations incorporate
certain pre-filing requirements in line with DBA requirements, to
prevent fraud and ensure that workers are paid wages at rates not less
than the prevailing rates to which they are entitled. Specifically,
commenters recommended that the final regulations require: (i) the
submission of certified weekly or monthly payroll records or other
compliance reports and the government's regular review and verification
of those submitted records through job site visits and interviews with
workers, and (ii) that taxpayers, contractors, and subcontractors
include DBA provisions in contracts and post applicable wage rates on
job sites in prominent and accessible locations.
1. Certified Payroll Records, Other Compliance Reporting, and
Government Review of This Reporting
Some commenters suggested that requiring the submission of weekly
or monthly certified payroll records to the IRS or the DOL would allow
the IRS to monitor compliance with the PWA requirements. Other
commenters similarly suggested that the final regulations require the
submission of sworn monthly compliance reports to the IRS to allow for
effective monitoring of compliance with the statute prior to filing.
One commenter suggested that the IRS should regularly review the
certified payroll records submitted by contractors and subcontractors,
conduct job site visits, and interview workers to ensure that the
information reported in the certified payroll records is accurate, and
provides taxpayers with an opportunity to correct any failures in
advance of filing. This commenter acknowledged that the IRS would not
be able to withhold funds or assess penalties in connection with any
pre-filing review, because the requirement to pay prevailing wages is
not binding until the taxpayer files a tax return claiming the
increased credit amount. One commenter stated that a requirement to
regularly certify payroll will deter bad actors and preclude falsified
payroll records.
Several commenters supported the approach in the Proposed
Regulations to not require the regular submission of payroll records.
One commenter stated that the submission of weekly certified payroll
records would not assist the IRS with efficient administration of the
increased credit amount provisions. Additionally, several other
commenters stated that the requirement to submit certified weekly
payroll records would be burdensome on taxpayers. Finally, one
commenter agreed that submission of certified weekly payroll to the IRS
would not be in furtherance of sound tax administration, but the
commenter requested that contractors and subcontractors be required to
submit certified weekly payroll to taxpayers. The commenter asserted
that this could be a good way for taxpayers to monitor the activities
of contractors and subcontractors.
Applying the principle outlined in Section I.A. of this Summary of
Comments and Explanation of Revisions to incorporate only the DBA
requirements that are relevant for claiming the increased credit amount
and consistent with sound tax administration, the comments requesting
that the final regulations require the submission of pre-filing
certified payroll records or other sworn reports, the pre-filing review
of submitted payroll records, job site visits by the IRS, and
interviews of workers regarding the accuracy of submitted information
are not adopted. While these comments are not adopted, in the context
of an examination, the IRS routinely engages in activities such as
review of payroll records, site visits, and taxpayer interviews.
The comments requesting that the final regulations require the
submission of pre-filing payroll information or sworn compliance
reports appear to assert that the IRS would be able to easily discern
noncompliance on the face of payroll records or other sworn reports
submitted in advance of a taxpayer filing any claim for a related tax
credit. To the contrary, the requirement to pay prevailing wages
becomes binding only if a tax return claiming the increased credit
amount is filed. Payroll records or other sworn reports relating to the
payment of wages before a return claiming the actual increased credit
amount is filed would provide minimal benefit to the IRS's enforcement
actions, and would impose considerable administrative work on
taxpayers, including those who may not eventually claim the increased
credit amount. Many commenters acknowledge that this information would
not be used until the increased credit amount is claimed. The Treasury
Department and the IRS decline to impose these additional
administrative tasks on taxpayers because the information would provide
minimal benefit to the IRS in advance of a taxpayer filing a return
claiming the credit.
However, the Treasury Department and the IRS agree that there may
be advantages in taxpayers obtaining regular payroll records from
contractors and subcontractors. Accordingly, these final regulations
add as a factor for intentional disregard whether a taxpayer (or a
third party acting on behalf of the taxpayer) has regularly reviewed
payroll information of its contractors and subcontractors or has
required its contractors or subcontractors to regularly provide payroll
information to the taxpayer (or a third party acting on behalf of the
taxpayer). Furthermore, as discussed in Section X.A. of this Summary of
Comments and Explanation of Revisions, these final regulations adopt
and expand upon the recordkeeping requirements in the Proposed
Regulations and clarify that the DOL Form WH-347 may be used to satisfy
some of the recordkeeping requirements.
2. Mandatory Incorporation of DBA Contract Requirements and Posting of
Applicable Prevailing Wage Determinations
The Proposed Regulations would have encouraged certain behaviors
that are very similar to those required of contractors under the DBA as
factors considered for intentional disregard. These behaviors, which
the Treasury Department and the IRS view as indicative of an intent to
comply with the Prevailing Wage Requirements, would have included
incorporating provisions in any contracts entered with contractors that
require payment by the contractors and any subcontractors of wages at
rates not less than the prevailing rates and posting the applicable
prevailing wage rates in a prominent place for the duration of the
construction, alteration, or repair of the facility or otherwise
notifying employees of the applicable prevailing wage rates.
Some commenters suggested that taxpayers should be required to
include certain contract provisions required by section 3142(c) of the
DBA in their contracts with contractors and subcontractors. Some
commenters recommended the final regulations
[[Page 53191]]
mandate specific contract terms, including the taxpayer's intent to
claim the credit, the expected wage classifications of laborers and
mechanics who will work on the project, estimates of apprenticeship
hours, and flow-down responsibility clauses requiring compliance with
the PWA requirements by all contractors and subcontractors.
Additionally, commenters suggested that all solicitations, contracts,
and subcontracts include clauses committing to the proper hiring and
involvement of qualified apprentices under the Apprenticeship
Requirements.
Commenters also recommended that the final regulations adopt the
requirement in section 3142(c)(2) of the DBA that prevailing wage rates
must be posted by employers on the job site in a prominent and
accessible location where they can be easily seen by workers. The
Proposed Regulations would have included as a factor to be considered
in the determination of whether a failure to satisfy the Prevailing
Wage Requirements was due to intentional disregard, whether the
taxpayer posted in a prominent place at the facility or otherwise
provided written notice to laborers and mechanics during the
construction, alteration, or repair of the facility, of the applicable
wage rate(s) as determined by the DOL for all classifications of work
to be performed for the construction, alteration, or repair of the
facility, and that in order to be eligible to claim certain tax
benefits, employers must ensure that laborers and mechanics are paid
wages at rates not less than such wage rates. Although commenters were
supportive of this factor, some commenters were critical of the fact
that the information proposed for the notice leaves open the question
of whether the worker is actually entitled to prevailing wages because
the worker may not know whether an increased credit amount is being
claimed with respect to the work they are performing. One commenter
further requested that the poster include language regarding the right
to be properly classified as an employee, the right to be free from
retaliation related to immigration status, and information regarding
how to contact the IRS. One commenter suggested requiring each
contractor and subcontractor employing workers on projects for which an
increased credit amount could be claimed to provide each worker with an
individualized written notice identifying their respective
classification and the prevailing wage rate to which they are entitled.
The commenter suggested requiring notice to be made no later than when
construction, alteration, or repair begins, and delivering the
suggested notice along with workers' paychecks.
Although both contract language and the posting of the applicable
prevailing wage rates is required by the DBA, no similar provision
exists in section 45(b)(7) of the Code that would require taxpayers to
include specific terms in a contract or post prevailing wage rates
during construction. Applying the principle outlined in Section I.A. of
this Summary of Comments and Explanation of Revisions to incorporate
only the DBA requirements that are relevant for claiming the increased
credit amount and consistent with sound tax administration, the
Treasury Department and the IRS have decided not to require specific
DBA or other PWA-related provisions in private commercial contracts.
These agreements are executed well before a tax return claiming the
credit is filed. Similarly, the final regulations do not require the
posting of applicable wage rates, because a taxpayer may decide to
claim the increased credit amount after construction has started.
Requests regarding the posting of information related to general rights
of workers under State labor laws or other Federal laws are outside the
scope of these final regulations. For these reasons, the comments
requesting that the final regulations require the incorporation of DBA-
contract provisions and the posting of applicable prevailing wage rates
are not adopted.
However, there is likely a benefit to taxpayers seeking to comply
with the PWA requirements if the requirement to pay prevailing wages
and hire qualified apprentices is incorporated in the terms of any
contract with respect to the construction, alteration, or repair of a
facility, including lower-tier agreements between contractors and
subcontractors, and if the laborers and mechanics who are employed in
the construction of a facility are informed of the applicable
prevailing wage rates that would be required if the taxpayer claims the
increased credit amount. The Proposed Regulations would have encouraged
this behavior from taxpayers who know they are going to claim the
increased credit amount, and the final regulations incorporate and
expand upon the list of factors that may be considered by the IRS for
purposes of determining if a failure to satisfy the PWA requirements
was due to intentional disregard.
C. Including Other Conditions as a Prerequisite for Claiming the
Increased Amount of Credit
Some commenters suggested that the final regulations should require
taxpayers to provide advance notice to the IRS, the DOL, potential
employees, and the general public of their intent to claim the
increased credit amount by satisfying the PWA requirements to provide
clarity to workers. Specifically, one commenter suggested requiring
taxpayers to file a statement of intent to claim the increased credit
amount with the DOL WHD, which would then be available for public
review to enable interested parties to monitor projects that may be
subject to the PWA requirements. Another commenter recommended
requiring taxpayers to provide notice to workers, before the start of
any project for which an increased credit amount could be claimed, of
their intention to claim the increased credit amount by satisfying the
PWA requirements.
Consistent with the principles outlined in Section I.A. of this
Summary of Comments and Explanation of Revisions, the final regulations
do not adopt these suggestions. Requiring taxpayers to declare an
intent to claim an increased credit amount would provide no meaningful
benefit for the IRS's administration of the PWA requirements, and would
impose additional pre-filing requirements on taxpayers. Section
45(b)(6) does not require taxpayers to declare an intent to claim the
increased credit amount. However, as noted previously, posting or
otherwise providing general information about applicable wage rates is
a good practice for taxpayers to incorporate if the taxpayer is
planning to claim the increased credit amount. The final regulations
retain these practices as a factor that may be considered by the IRS
for purposes of determining if a failure to satisfy the Prevailing Wage
Requirements was due to intentional disregard.
Commenters also asked that the final regulations require a pre-
filing registration or reporting system, similar to that provided for
under sections 6417 and 6418, applicable to taxpayers intending to
claim the increased credit amount for satisfying the PWA requirements.
Commenters alleged that since many of the credits covered by sections
6417 and 6418 also contain PWA requirements, the language in sections
6417 and 6418 requiring information or registration can be applied to
require pre-filing registration of the intent to claim the increased
credit amount.
[[Page 53192]]
Section 6418(g)(1) provides that as a ``condition of, and prior to,
any transfer of any portion of an eligible credit'' under section 6418,
the Secretary of the Treasury or her delegate (Secretary) ``may require
such information (including, in such form or manner as is determined
appropriate by the Secretary, such information returns) or registration
as the Secretary deems necessary for purposes of preventing
duplication, fraud, improper payments, or excessive payments.'' Section
6417(d)(5) provides the Secretary with similar discretion to implement
a registration requirement. The authority to implement a pre-filing
registration requirement provided in sections 6417 and 6418 is
statutorily created and intended to address different underlying
circumstances. Sections 6417(d)(5) and 6418(g) address the use of a
registration system as a condition of and prior to certain events,
specifically, prior to the amounts being treated as payments made by
applicable entities or prior to transferring a credit.
There is no analogous statutory language in section 45 or elsewhere
in the Code related to the PWA requirements. Moreover, the registration
requirements for sections 6417 and 6418 serve the specific purposes of
preventing duplication, fraud, improper payments, or excessive
payments. Those concerns are largely unique to the elective pay and
credit transfer opportunities created by sections 6417 and 6418. In the
context of sections 6417 and 6418, the IRS implemented the registration
portal to prevent fraud and duplicate or improper payments, by
providing the IRS with basic information that will facilitate
processing and improve the administration of the credits. A pre-filing
registration or reporting mechanism in the PWA context would not
provide the IRS with actionable information for purposes of enforcing
the PWA requirements. For these reasons, the comments requesting that
the IRS establish a PWA registration system similar to that used for
sections 6417 and 6418 are not adopted.
D. Other Comments Regarding Pre-Filing Activities and IRS Enforcement
Procedures
1. Organizational Changes to the IRS and General Tax Administration
Several commenters suggested that the final regulations implement
organizational changes to the IRS. For example, one commenter
recommended that the regulations create a dedicated office of labor
standards enforcement to enforce the PWA provisions. An additional
commenter requested that the Treasury Department establish a dedicated
compliance and enforcement office. The commenter also encouraged the
Treasury Department to review State requirements for disclosures, proof
of payment, and affirmation, and adopt models that best effectuate
compliance. One commenter suggested that the Treasury Department and
the IRS create an inter-agency office with the DOL to facilitate the
receipt of contemporaneous reporting from taxpayers.
Another commenter suggested the creation of a digital platform to
be used by taxpayers to submit PWA documentation that would be
accessible by businesses, the DOL, and local apprenticeship programs.
Several commenters recommended that the Treasury Department and the IRS
partner with the DOL and applicable State agencies in the enforcement
of PWA requirements. Additional commenters requested that the Treasury
Department and the IRS establish formal partnerships with fair
contracting organizations, labor unions, and other workers' rights
organizations in order to expand the capacity to monitor jobsites. A
commenter stated that such third-party partnerships--known as Joint
Labor Compliance Monitoring Programs--have been successfully
implemented across the country as a method of improving working
conditions for workers and ensuring that projects are completed
responsibly and on time.
A few commenters suggested the final regulations prescribe specific
actions regarding IRS enforcement, compliance, and general tax
administration. For example, one commenter recommended that any IRS
audit of increased credit amounts verify and cross-reference State
labor materials to ensure prevailing wage and apprenticeship standards
are met. A commenter stated that States such as California, Washington,
and Wyoming have implemented State level apprenticeship utilization
provisions and that the States have developed user friendly systems for
contractors to report apprentice and journeyworker hours. At least one
commenter also requested that the Treasury Department ensure that audit
processes and other enforcement mechanisms are done in a transparent,
accessible manner and with close engagement with other agencies.
Several commenters provided recommendations regarding information that
should be reported on IRS forms claiming the increased credit amount. A
commenter suggested that the IRS implement a cross-withholding
mechanism, modeled after that used by the DOL under the DBA, whereby a
taxpayer engaged in two or more separate projects who is found to
violate the PWA requirements on one project is then denied the
increased credit amount with respect to any additional projects.
Comments regarding the IRS's organizational structure, coordination
with other agencies and States, how the IRS conducts audits, and
changes to IRS forms are outside the scope of these final regulations.
Therefore, the changes suggested by the comments are not adopted. In
developing the Proposed Regulations and these final regulations, the
Treasury Department and the IRS consulted extensively with the DOL and
will continue to consult with the DOL as appropriate to assist in the
administration of the PWA requirements.
2. Requests for Private Letter Rulings
One commenter recommended that the IRS permit taxpayers to submit
requests for Private Letter Rulings (PLRs) regarding compliance with
the PWA requirements. Whenever appropriate in the interest of sound tax
administration, it is the policy of the IRS to answer inquiries of
individuals and organizations regarding their status for tax purposes
and the tax effects of their acts or transactions, prior to the filing
of returns or reports that are required by the revenue laws. Revenue
Procedure 2024-1, 2024-01 I.R.B. 1, is updated each year and contains
the general procedures for requests for PLRs. There are, however,
certain areas in which the IRS will not issue rulings or determination
letters, including areas in which the IRS is temporarily not issuing
rulings or determination letters because those matters are under study.
These no-rule issues are set forth in Revenue Procedure 2024-3, 2024-01
I.R.B. 143, which is also updated annually. Issues pertaining to the
application of the IRA currently are identified in Revenue Procedure
2024-3 as matters under study by the IRS and thus are not currently
subject to PLRs, but this position is subject to change. Updates to the
no-rule issues are outside the scope of these final regulations.
3. Complaint Procedures for Underpayment of Applicable Prevailing Wage
Rates and the Failure To Hire Qualified Apprentices
The Proposed Regulations would have included whether the taxpayer
had in place procedures whereby laborers and mechanics could report
suspected failures to pay prevailing wages and/or suspected failures to
classify workers correctly in accordance with the applicable wage
determination to
[[Page 53193]]
appropriate personnel departments or managers without retaliation or
other adverse action as a factor to be considered in the determination
of intentional disregard.
Many commenters requested that the final regulations prescribe the
process through which a worker can complain about being underpaid.
Commenters suggested that the process for complaints should be
available to all interested parties, and that any person should be able
to submit complaints to the government, preferably through the IRS
website, without fear of retaliation by their employers or others. A
commenter urged the IRS to develop and inform stakeholders and the
public on complaint and enforcement procedures and provide contact
information for the IRS office that will accept and investigate
complaints. Another commenter recommended that the Treasury Department
and the IRS create a complaint mechanism with both a telephone hotline
and an online portal, and available in English and Spanish, to file
complaints.
Commenters acknowledged that unlike under the DBA, if the Treasury
Department and the IRS are informed of violations or irregularities
before the increased credit is claimed, the agencies would not be able
to immediately assess fines or mandate that taxpayers issue corrective
payments. A commenter acknowledged that there are limitations on the
IRS's remedial authority, but suggested that the Treasury Department
and the IRS have a compelling interest in instituting a complaint
mechanism to obtain vital information that they can use in determining
which taxpayers to audit. One commenter suggested permitting registered
apprenticeship programs to petition the Treasury Department if they
believe that a taxpayer is falsely claiming that the program is unable
to meet the taxpayer's request for qualified apprentices.
While the IRS takes information it receives regarding alleged tax
violations very seriously, the comments requesting that the final
regulations require a specific process regarding complaints are not
adopted. Similar to the comments addressed in Section I.D.1. of this
Summary of Comments and Explanation of Revisions regarding overall IRS
administration, the comments concerning how the IRS should address
reports of alleged tax violations are outside the scope of these final
regulations. Additionally, the commenters overstate the usefulness of
such information in the pre-filing context with respect to the PWA
requirements. A laborer or mechanic might be paid wages at rates less
than the applicable prevailing wage rates would require for such work,
but that does not mean the laborer or mechanic was underpaid for
purposes of section 45(b)(7)(A), unless and until a tax return claiming
the increased credit amount is filed. The PWA requirements apply to the
taxpayer, and the taxpayer must ensure that laborers and mechanics are
paid wages at rates not less than the appliable prevailing wage rates
for construction, alteration, or repair of a qualified facility. If a
taxpayer, contractor, or subcontractor underpays a laborer or mechanic
and does not subsequently correct the underpayment with the appropriate
backpay and interest and pay the penalty amount, then the increased
credit amount will be disallowed by the IRS.
However, the Treasury Department and the IRS acknowledge the value
in encouraging internal complaint and anti-retaliation procedures on
facilities for which taxpayers acknowledge they anticipate claiming an
increased credit amount by satisfying the PWA requirements. As
discussed in Section VII.D.3. of this Summary of Comments and
Explanation of Revisions, the final regulations include the existence
of these procedures as a factor in determining whether a failure to
satisfy the PWA requirements was due to intentional disregard. Further,
these final regulations add as factors in determining intentional
disregard whether the taxpayer posted information on how to contact the
appropriate office to report suspected failures and whether in response
to any complaint, the taxpayer investigated the complaint and took
appropriate action to remedy the situation.
Additional commenters proposed that the Treasury Department and the
IRS clarify that workers who report PWA violations are protected by the
anti-retaliation framework enacted under the Taxpayer First Act (26
U.S.C. 7623 et seq.) (TFA). Commenters raised that section 7623(d)(1)
states that no employer, contractor, or subcontractor may ``discharge,
demote, suspend, threaten, harass, or in any other manner
discriminate'' against an employee who has provided information or
assisted in ``an investigation regarding underpayment of tax or any
conduct which the employee reasonably believes constitutes a violation
of the Internal Revenue laws or any provision of Federal law relating
to tax fraud.'' Commenters stated that the TFA's anti-retaliation
provisions under section 7623(d)(1) cover reporting to the Treasury
Department, IRS, and related agencies, as well as internal reporting by
a worker to their supervisors. Commenters emphasized that section
7623(d)(2)(A) also provides the right to file a complaint with the
Secretary of Labor with respect to any reprisals and provides for a
private right of action in district court in the event that the
Secretary of Labor has not issued a final decision within 180 days of
the filing of the complaint.
The application of section 7623, including the anti-retaliation
provision enacted under the TFA, is outside the scope of these final
regulations. However, whether laborers and mechanics were provided with
a written notice of the rights conferred by the TFA is included as a
factor the IRS will consider in determining if a failure to comply with
the PWA requirements was due to intentional disregard. Additionally,
IRS Form 3949-A, Information Referral, may be submitted by anyone with
information about an alleged tax violation. The ability of any
individual or organization to notify the IRS of specific and credible
suspected tax violations serves as a powerful deterrent that supports
voluntary compliance and has the potential to provide the IRS with
information to identify and address noncompliance.
Commenters acknowledge that at any point before the tax return is
filed, it is within the taxpayer's discretion to refrain from claiming
the increased credit amount and avoid the responsibility to make any
related payments. Even so, commenters stated that the IRS is not
limited in imposing conditions that the taxpayer must meet at the time
of the construction, alteration, or repair to later claim the increased
credit amount. The Treasury Department and the IRS agree that for those
taxpayers that claim the increased credit amount on a return, the
obligation to pay prevailing wages attaches as of the time that the
work was performed. The final regulations prescribe correction
procedures that apply on a retroactive basis, including interest
accruing on any correction amounts from the date of the failure, to
account for past failures that occurred at the time the construction,
alteration, or repair work was performed.
II. PWA Transition Rule
Under the BOC Exception in sections 30C, 45, 45Q, 45V, 45Y, and
179D, taxpayers may claim the amount of the increased credit or
deduction without satisfying the PWA requirements if construction (or
installation with respect to section 179D) ``begins prior to the date
that is 60 days after the Secretary publishes guidance with respect to
the [PWA requirements].'' The Treasury Department and the IRS
[[Page 53194]]
published Notice 2022-61 on November 30, 2022, providing initial
guidance with respect to the PWA requirements and starting the 60-day
period described in those sections. Unless the One Megawatt Exception
applies, taxpayers who do not meet the BOC Exception under these Code
sections would need to satisfy the applicable PWA requirements to claim
the increased amount of credit or deduction. Under sections 45L, 45U,
45Z, and 48C, there is no BOC Exception or One Megawatt Exception, so
taxpayers need to satisfy the applicable PWA requirements to claim the
increased credit amount regardless of when construction began or how
small the facility (or respective underlying creditable activity) may
be.
As enacted or amended by the IRA, the sections containing PWA
provisions have various statutory effective dates. The PWA provisions
in section 30C apply to property placed in service after December 31,
2022.\11\ The PWA provisions in section 45 apply to facilities placed
in service after December 31, 2021.\12\ The PWA provisions in section
45L apply to dwelling units acquired after December 31, 2022.\13\ The
PWA provisions in section 45Q apply to facilities or equipment placed
in service after December 31, 2022.\14\ Section 45Y applies to
facilities placed in service after December 31, 2024.\15\ In contrast,
the effective dates of the PWA provisions in sections 45U, 45V, and 45Z
are stated in relation to when the respective electricity, hydrogen, or
transportation fuel is produced. Section 45U applies to electricity
produced and sold after December 31, 2023, in taxable years beginning
after such date.\16\ Section 45V applies to hydrogen produced after
December 31, 2022.\17\ And Section 45Z applies to transportation fuel
produced after December 31, 2024,\18\ but includes a special rule
(described in Section IX.G. of this Summary of Comments and Explanation
of Revisions) with respect to the Prevailing Wage Requirements if a
facility is placed in service before January 1, 2025. The new
allocation amounts available under section 48C(e) are effective on
January 1, 2023.\19\ The amendments to section 179D apply to taxable
years beginning after December 31, 2022.\20\
---------------------------------------------------------------------------
\11\ IRA Sec. 13404(f).
\12\ IRA Sec. 13101(k).
\13\ IRA Sec. 13304(f).
\14\ IRA Sec. 13104(i)(1). The amendments made to the
definition of a qualified section 45Q facility apply to facilities
or equipment the construction of which begins after the date of
enactment of the IRA (that is, after August 16, 2022).
\15\ IRA Sec. 13701(c).
\16\ IRA Sec. 13105(c).
\17\ IRA Sec. 13204(a)(5).
\18\ IRA Sec. 13704(c).
\19\ IRA Sec. 13501(e).
\20\ IRASec. 13303(d).
---------------------------------------------------------------------------
Several commenters requested that the final regulations clarify
whether the PWA requirements apply to work performed before January 29,
2023, both with respect to Code sections with a BOC Exception and those
without a BOC Exception. Commenters stated that it would be unfair to
require taxpayers to comply with the PWA requirements with respect to
these activities. Several commenters stated that the BOC Exception was
intended to ensure that the PWA requirements are not applied
retroactively and asked for a uniform rule applicable to all increased
credit amount provisions that the PWA requirements do not apply before
the BOC Exception trigger date. Other commenters asked that activities
that occurred before the IRS issued Notice 2022-61 (November 30, 2022)
be excluded from the PWA requirements. Some commenters stated that
significant preliminary activities may have occurred prior to the
enactment of the IRA, and they asked that the final regulations clarify
that the PWA requirements do not apply to these activities, regardless
of whether a BOC Exception may apply. One commenter suggested that the
PWA requirements apply only after these final regulations are issued.
The Treasury Department and the IRS have determined that given the
complexity of the PWA requirements, the uncertainty regarding the
potential retroactive effects of the PWA requirements, and the benefits
to tax administration gained with consistency across the various Code
sections containing PWA requirements, that a transition rule is
appropriate.
The final regulations provide that any work performed before
January 29, 2023 (the date that is 60 days after the publication of
Notice 2022-61) is not subject to the PWA requirements, regardless of
whether there is an applicable BOC Exception. Thus, with respect to
sections 45L, 45Z, and 48C, although there is no applicable BOC
Exception and regardless of when construction began, taxpayers must
only comply with the PWA requirements for the construction, alteration,
or repair work (as applicable) occurring on or after January 29, 2023.
Section 45U is not subject to the transition rule because, as described
in Section IX.D. of this Summary of Comments and Explanation of
Revisions, the Prevailing Wage Requirements of section 45U only apply
to alterations or repairs of a qualified nuclear power facility that
occur after December 31, 2023.
The transition rule also applies for taxpayers that may initially
satisfy the BOC Exception, but later fail to meet the BOC Exception
(for example, failing to meet the Continuity Requirement). These
taxpayers must satisfy the PWA requirements for construction,
alteration, or repair (as applicable) that occurs on or after January
29, 2023, but do not need to meet the PWA requirements for work that
occurred prior to that date.
III. Beginning of Construction
A. Beginning of Construction Under the IRS Notices
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).
Physical work of a significant nature can include both on-site and
offsite work. Notice 2013-29 describes that in the case of a wind
turbine, on-site physical work of a significant nature begins with the
beginning of the excavation for the foundation, the setting of anchor
bolts into the ground, or the pouring of the concrete pads of the
foundation. Physical work of a significant nature does not include
preliminary activities such as planning or designing, securing
financing, exploring, researching, obtaining permits, licensing,
conducting surveys, environmental and engineering studies, clearing a
site, test drilling of a geothermal deposit, test drilling to determine
soil condition, or excavation to change the contour of the land. Notice
2013-29 explains that removal of existing turbines and towers is
considered preliminary work and not physical work of a significant
nature.
Under the Five Percent Safe Harbor, if a taxpayer has paid or
incurred five percent or more of the total cost of the facility and
thereafter the taxpayer makes continuous effort to advance towards
completion of the facility, then the construction of the facility will
be considered to have begun. All costs properly included in the
depreciable basis of the facility are taken into account but the cost
of land or any property not integral to the facility is not included.
Taxpayers can generally choose to structure their business affairs to
meet either the Physical Work Test or the Five Percent Safe Harbor.
However,
[[Page 53195]]
once a taxpayer meets either method, beginning of construction is
established and a taxpayer may not alternate between methods.
B. Beginning of Construction and the BOC Exception Under Notice 2022-61
and the Proposed Regulations
Absent an exception, the PWA requirements apply with respect to the
construction, alteration, or repair of a qualified facility. For
purposes of the Prevailing Wage Requirements, section 45(b)(7)(A)
provides that the taxpayer must ensure the payment of prevailing wages
to laborers and mechanics employed in: (i) the ``construction'' of the
qualified facility, and (ii) for ``the alteration or repair'' of the
qualified facility during the 10-year period after the facility is
placed in service. For purposes of the Apprenticeship Requirements,
section 45(b)(8) provides that the taxpayer must satisfy the Labor
Hours Requirement ``with respect to the construction of any qualified
facility.''
For purposes of determining when construction or installation
begins under the BOC Exception, Notice 2022-61 incorporates by
reference the IRS Notices. While Notice 2022-61 served to define the
beginning of construction under the BOC Exception, Notice 2022-61 also
states generally that it provides ``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 solely
for purposes of section 179D(b)(3)(B)(i). The preamble to the Proposed
Regulations explained that until further guidance is issued on
determining when construction begins under the applicable Code
sections, taxpayers may continue to rely on the guidance provided in
Notice 2022-61 and principles similar to those under the IRS Notices
for purposes of determining when construction begins.
Section 3 of Notice 2022-61 contains guidance with respect to the
Prevailing Wage Requirements. Section 3.03(4) of Notice 2022-61
provides that ```construction, alteration, or repair' means
`construction, prosecution, completion, or repair' as defined under 29
CFR 5.2(j).'' In proposing rules under section 45(b)(7)(A), the
Treasury Department and the IRS sought to incorporate those rules of
the DBA regime relevant to the intent of the PWA requirements and
useful for tax administration. Thus, consistent with Notice 2022-61,
proposed Sec. 1.45-7(d)(2)(i) would have provided that the ``term
construction, alteration, or repair generally means construction,
prosecution, completion, or repair as defined in 29 CFR 5.2'' of the
DBA regulations.
In general, the DBA applies to contracts for construction,
alteration or repair of public buildings and public works and requires
payment of prevailing wages with respect to all mechanics and laborers
employed directly on the site of the work.\21\ Under 29 CFR 5.2,
construction, alteration, or repair is defined expansively to include
all types of work done on a particular building or work at the site of
the work, as defined in 29 CFR 5.2, by laborers and mechanics employed
by a contractor or subcontractor. This work includes, but is not
limited to, altering, remodeling, installing of items fabricated
offsite, painting and decorating, manufacturing, or furnishing of
materials, articles, and supplies or equipment on the site of the
building or work, and certain demolition or removal activities.
---------------------------------------------------------------------------
\21\ 40 U.S.C. 3142(a) and (c).
---------------------------------------------------------------------------
Notice 2022-61 and proposed Sec. 1.45-7(d)(2)(i) would have
defined construction, alteration, or repair by reference to the DBA.
This means that the activity triggering the PWA requirements for a
facility subject to the PWA requirements is determined by reference to
activities that constitute construction under the DBA. A taxpayer must
begin to satisfy the PWA requirements once construction, alteration, or
repair activities occur if those activities are described in 29 CFR
5.2. Under this definition, construction, alteration, or repair would
mean all types of work performed at the location of the qualified
facility.
C. Comments on Determining the Beginning of Construction for PWA
Purposes
Several commenters requested clarification concerning when the
obligation to comply with the PWA requirements arises in the lifespan
of a construction project apart from satisfying the BOC Exception,
including what methods may be relied upon (the Physical Work Test or
Five Percent Safe Harbor) and the Continuity Requirement. Another
commenter suggested that the final regulations incorporate the tests
from the IRS Notices into the final regulations. Commenters indicated
that there is confusion regarding the precise scope of the PWA
requirements because the word ``construction'' has different meanings
under the DBA and the IRS Notices. One commenter stated that the
preamble's use of both ``beginning of construction'' and ``start of
construction'' was confusing.
Several commenters requested clarification on when construction
begins for purposes of the PWA requirements, noting that initial
activities that constitute construction under 29 CFR 5.2 and would be
subject to prevailing wage requirements under the DBA may not be the
same activities that constitute the beginning of construction under the
IRS Notices. A commenter also requested that the final regulations
provide an exception from the PWA requirements for work subject to an
agreement entered into prior to January 29, 2023, or give taxpayers who
are a party to such agreements one year from the date the final
regulations are published to comply with the PWA requirements. Further,
commenters requested that the final regulations clarify that the
beginning of construction is determined under existing tax principles
and that preliminary activities, such as demolition or land clearing
included under the DBA as work, do not count as the beginning of
construction for PWA purposes. A commenter requested that the final
regulations confirm that the end of construction corresponds to when an
asset is placed in service and that activities afterward are not
subject to the PWA requirements unless they are a covered alteration or
repair.
A commenter contended that the BOC Exception is anti-competitive
and places an undue burden on new projects, as compared to projects
that meet the BOC Exception, because projects meeting the BOC Exception
will receive all the benefits of meeting Prevailing Wage Requirements
without having to incur any of the associated costs. The commenter
emphasized the importance of promoting a level playing field for all
taxpayers interested in qualifying for increased credit amounts across
clean energy industries.
D. Beginning of Construction for Purposes of the BOC Exception and the
PWA Requirements in General
The Treasury Department and the IRS understand commenters' concerns
and the potential for confusion in determining the beginning of
construction for purposes of the BOC Exception and the PWA
requirements. While the Physical Work Test is very similar to the
definition of construction under the DBA, certain preliminary
activities are treated differently. Some activities constituting
construction under the DBA definition would not constitute construction
activities under the Physical Work Test. For instance, under the
Physical Work Test, the demolition and removal of an existing structure
would be considered a
[[Page 53196]]
preliminary activity, not the ``beginning of construction.'' However,
under the DBA definition, the same activity would constitute
construction. The Five Percent Safe Harbor, which has no equivalent
under DBA, looks solely at incurred costs in determining whether
construction has begun. Under all three tests, once construction begins
a taxpayer must satisfy the PWA requirements with respect to all
construction, alteration, or repair as defined in proposed Sec. 1.45-
7(d)(2) by reference to 29 CFR 5.2.
The Treasury Department and the IRS have determined that using the
DBA definition of construction to define the activities that mark the
start of the obligation to comply with the PWA requirements for a
qualified facility subject to the requirements provides a uniform rule
across all the relevant Code sections. This is also consistent with the
general approach in the Proposed Regulations and Section I.A. of this
Summary of Comments and Explanation of Revisions of adopting DBA
concepts when they are relevant to sound tax administration. Using the
DBA definition of construction as the triggering activity provides a
clear and uniform rule for taxpayers to determine when the obligation
to comply with the PWA requirements begins. Thus, comments proposing
use of the IRS Notices to determine the beginning of construction for
purposes of the PWA requirements are not adopted. Providing a uniform
rule that is generally applicable across all of the PWA provisions
provides the necessary clarity sought by commenters. The final
regulations provide that the activities that mark the start of the
obligation to comply with the PWA requirements is any activity that
constitutes construction (as defined in Sec. 1.45-7(d)(3)) of a
qualified facility.
Unless an exception applies, taxpayers are required to comply with
the PWA requirements once a laborer or mechanic performs any work that
is considered construction, alteration, or repair of the qualified
facility (including work on the qualified facility that occurs at a
secondary site). Thereafter, all work with respect to the construction
(or alteration or repair), as defined in Sec. 1.45-7(d)(3) (by cross-
reference to 29 CFR 5.2), of the qualified facility is subject to the
applicable PWA requirements. The beginning of construction, for
purposes of satisfying the BOC Exception, will continue to be
determined under the IRS Notices.
In light of the differences between the tests, and because Notice
2022-61 as well as the Proposed Regulations indicated that taxpayers
could rely on the IRS Notices for determining when construction begins,
the final regulations provide transition relief for taxpayers who
applied the definitions in the IRS Notices for purposes of determining
those activities that were considered construction, alteration, or
repair of the facility subject to the PWA requirements in the initial
stages of construction. The final regulations waive penalties for
taxpayers who applied the IRS Notices for determining when the
obligation to pay prevailing wages began, provided the taxpayer makes
the appropriate correction payments to the impacted workers within 180
days of the publication of the final regulations. As part of the
transition relief, the final regulations also allow taxpayers to use
the IRS Notices for determining when construction begins under section
45(b)(8)(A) to determine the applicable percentage of labor hours
performed by qualified apprentices required in satisfying the Labor
Hours Requirement.
IV. 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. The preamble to the Proposed Regulations would
have provided that a qualified facility's nameplate capacity determines
whether the facility meets the One Megawatt Exception. Similar
exceptions apply for a qualified facility with a maximum net output of
less than one megawatt (as measured in alternating current) under
sections 45Y(a)(2)(B)(i) and 48E(a)(2)(A)(ii)(I); an energy project
with a maximum net output of less than one megawatt of electrical (as
measured in alternating current) or thermal energy under section
48(a)(9)(B)(i); and energy storage technology with a capacity of less
than one megawatt under section 48E(a)(2)(B)(ii)(I).
Proposed Sec. 1.45-6(c) would have provided that nameplate
capacity for an electrical generating unit means the maximum electrical
generating output in megawatts 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. If applicable, the International
Standard Organization (ISO) conditions are used to measure the maximum
electrical generating output or usable energy capacity.
Commenters stated that the term ``maximum net output'' is ambiguous
and that no method is provided for determining such output. A few
commenters also supported the Proposed Regulation's definition of
maximum net output and suggested carrying the nameplate capacity
definition of maximum net output forward into its final rule. One
commenter raised that for inverter-based resources, like solar and
storage facilities, maximum net output could be determined at different
stages. For such facilities, the commenter recommended clarifying that
only post-inverter maximum electrical generating output qualifies as
maximum net output. The final regulations do not adopt these changes
because the definition in proposed Sec. 1.45-6(c) contained testing
methodologies and conditions and the statute already requires the
measurement be in alternating current. The final regulations adopt the
definition without change.
Another commenter suggested clarifying when multiple energy
projects constitute a single facility for purposes of the One Megawatt
Exception under section 45. One commenter suggested adopting the eight
factors of a single project determination listed in Notice 2013-29 and
Notice 2018-59, to determine when multiple energy projects constitute a
single facility for purposes of the One Megawatt Exception. The
commenter stated that it could be difficult, such as for solar arrays
constructed on multiple buildings, to determine when multiple projects
may constitute a single facility. Another commenter stated that
taxpayers should not be permitted to subdivide projects and
construction contracts in an effort to evade the Prevailing Wage
Requirements using the One Megawatt Exception. The commenter stated
that to prevent taxpayers from manipulating the One Megawatt Exception,
the Treasury Department should evaluate whether facilities will be
using the same transmission lines or connecting to the same powerhouse.
One commenter recommended using certain factors, including ownership,
proximity, and connection to transmission lines or powerhouse, to
determine whether multiple energy projects may be deemed to constitute
one facility.
The definition of a qualified facility, energy project, or energy
storage technology under the respective Code section controls for
purposes of the One Megawatt Exception. Therefore, the definition of
qualified facility under section 45 governs for purposes of the One
Megawatt Exception under section 45(b)(6)(B)(i). Accordingly, the
application of the aggregation principles issued under Notice 2013-29
and Notice
[[Page 53197]]
2018-59 is outside the scope of these final regulations. Further, the
Section 48 Proposed Regulations would provide guidance for taxpayers
regarding the definition of an energy project. The Section 48 Proposed
Regulations would provide rules for purposes of the One Megawatt
Exception as well as other IRA bonus provisions for domestic content
and energy communities. As noted previously, comments pertaining to the
48 Proposed Regulations will be addressed in a future Treasury
decision. The applicable scope of the PWA requirements is further
discussed in Section VI. of this Summary of Comments and Explanation of
Revisions.
V. Application to the Taxpayer
A. Definition of Taxpayer, Contractor, and Subcontractor
Generally, the Proposed Regulations would have defined 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
generally will 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 Proposed Regulations would have provided that in order to earn
the increased credit amount 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 also would have provided that the taxpayer would be solely
responsible for the PWA recordkeeping requirements, the correction and
penalty provisions under the Prevailing Wage Requirements, and the Good
Faith Effort Exception and Apprenticeship Cure Provision under the
Apprenticeship Requirements. However, nothing in the Proposed
Regulations was intended to supersede requirements that might otherwise
apply to a taxpayer, contractor, or subcontractor under State or
Federal law.
Commenters requested guidance concerning whether the taxpayer is
responsible for ensuring the compliance with the PWA requirements by
contractors and subcontractors if the taxpayer may not be in privity of
contract with all contractors and subcontractors. Commenters noted that
proposed Sec. 1.45-7(d)(3) would have defined a contractor as any
person that enters into a contract with the taxpayer for the
construction, alteration, or repair of a qualified facility. However,
commenters stated that the taxpayer is not always in privity of
contract with each contractor and subcontractor. Similarly, another
commenter suggested that the definition of contractor be revised to
address situations in which the taxpayer is not in privity of contract
with the contractors, because the sponsor or developer of the facility
assumes responsibility for construction of the facility. The final
regulations clarify that the definition of contractor applies to those
situations. Additionally, a commenter stated that DOL guidance under 29
CFR 5.5(a)(6) provides that prime contractors have the responsibility
for the compliance of all the subcontractors on a covered prime
contract, whereas the Proposed Regulations state that the taxpayer is
solely responsible for PWA compliance. The final regulations retain the
requirements in the Proposed Regulations that the taxpayer is solely
responsible for the PWA requirements, including ensuring that the
relevant laborers and mechanics are paid wages at rates not less than
the prevailing rates whether employed directly by the taxpayer, a
contractor, or a subcontractor and ensuring that the Apprenticeship
Requirements are satisfied.
A commenter suggested that the final regulations adopt a safe
harbor allowing taxpayers to avoid corrections and penalty payments if
the taxpayer contracted with a third party to ensure compliance with
relevant PWA requirements. Section 45(b)(7)(A) requires that the
taxpayer ensures that laborers and mechanics are paid wages at rates
not less than the applicable prevailing wage rates with respect to the
construction, alteration, or repair of a qualified facility and under
section 45(b)(8)(A), that the required number of labor hours with
respect to the construction of a qualified facility are performed by
qualified apprentices. The burden to ensure that these requirements are
met falls with the taxpayer. The final regulations do not adopt the
suggestion to incorporate a safe harbor, but the penalty waiver in
Sec. 1.45-7(c)(6) and described in Section VII.D.4. of this Summary of
Comments and Explanation of Revisions provides an appropriately limited
exception to corrections and penalty payments in the case of
inadvertent errors.
Similarly, one commenter requested that the final regulations
permit contractors or subcontractors to make corrective payments on
behalf of the taxpayer directly to laborers or mechanics. The
correction and penalty provision in section 45(b)(7)(B)(i) requires
that the taxpayer makes payment to the laborer or mechanic of the
correction amount. The Treasury Department and the IRS appreciate
commenters' suggestions to encourage methods that result in prompt
correction payments to laborers and mechanics. Although the statute
requires that the correction payment be made by the taxpayer to the
laborers and mechanics, it does not prescribe the method by which the
taxpayer must make payment. The final regulations similarly do not
prescribe a specific method of payment and adopt the proposed rule
without change. Regardless of how payments are made, taxpayers must
maintain records demonstrating when and how correction payments were
made.
A few commenters suggested that the final regulations clarify the
requirement that the taxpayer ensure that all laborers and mechanics
employed by the taxpayer, or any contractor or subcontractor, are paid
wages at rates not less than the prevailing rates applies to all
subcontractors. Specifically, taxpayers stated that the DBA definition
of subcontractor indicates that a subcontractor includes subcontractors
of any tier, and suggested that the final regulations use the same term
in the definition of subcontractor. The definition of subcontractor in
the final regulations clarifies that the requirement applies to all
subcontractors, including those who contract with other subcontractors.
Another commenter suggested that the use of subcontractor labor
providers, such as labor brokers, should be explicitly discouraged
because of the risk of fraud. This suggestion is overbroad and
inconsistent with the plain language of section 45, which anticipates
the use of contractors and subcontractors. This suggestion is not
adopted.
B. Transferability Pursuant to Section 6418
The Treasury Department and the IRS requested comments on the
application of the PWA correction and penalty provisions in the context
of transferred credits. The credit available under section 45,
including the increased credit amount available under section 45(b)(6),
is an eligible credit subject to section 6418. Proposed Sec. 1.45-
7(c)(1)(iv) and proposed Sec. 1.45-8(e)(2)(iv) would have provided
that to the extent an eligible taxpayer, as defined in section
6418(f)(2), has determined an increased
[[Page 53198]]
credit amount under section 45(b)(6) and transferred such increased
credit amount as part of a specified credit portion pursuant to section
6418(a), the obligation to make correction and penalty payments under
proposed Sec. 1.45-7(c)(1)(i) and (ii) and the penalty payment under
proposed Sec. 1.45-8(e)(2)(i) remains with the eligible taxpayer. No
commenters disagreed with having the eligible taxpayer remain
responsible for the PWA correction and penalty provisions under
proposed Sec. 1.45-7(c)(1)(iv) or proposed Sec. 1.45-8(e)(2)(iv).
Consequently, these final regulations adopt proposed Sec. 1.45-
7(c)(1)(iv) and proposed Sec. 1.45-8(e)(2)(iv) without change.
However, commenters raised other issues related to the PWA provisions
in the context of a transfer pursuant to section 6418, which are
addressed in the following paragraphs.
Under proposed Sec. 1.45-7(c)(1)(iv) and proposed Sec. 1.45-
8(e)(2)(iv), to the extent an eligible taxpayer transfers a credit
increased pursuant to the PWA requirements, the obligation to satisfy
the PWA 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. One
commenter stated that if the eligible taxpayer is a calendar year
taxpayer and the transferee taxpayer is a fiscal year taxpayer, then
the ability of the eligible taxpayer to make any correction or penalty
payments may be shortened.
Section 6418 and the final regulations thereunder (TD 9993)
published in the Federal Register (89 FR 34770) on April 30, 2024 (6418
Final Regulations), provide that the transferee taxpayer takes into
account the transferred credit in the first taxable year ending on or
after the taxable year of the eligible taxpayer with respect to which
the credit was determined. Consequently, if an eligible taxpayer has a
calendar year taxable year and the transferee taxpayer has a fiscal
year taxable year, the transferee taxpayer's return due date generally
will be after the eligible taxpayer's return due date. In the event a
transferee taxpayer files a return that claims an increased credit
amount transferred from an eligible taxpayer prior to the eligible
taxpayer filing its return, the obligation to have satisfied the PWA
requirements becomes legally binding upon the filing of the return of
the transferee taxpayer. However, in any scenario, eligible taxpayers
will have the ability to make any required correction and penalty
payments as provided under section 45(b)(7)(B)(iv), which allows such
payments to be made within 180 days of a determination by the IRS with
respect to a failure regarding prevailing wages, or under section
45(b)(8)(D)(i) with respect to apprenticeship failures. The transferee
taxpayer filing its tax return before the eligible taxpayer does not
shorten this period. Further, the eligible taxpayer and the transferee
taxpayer are required to attach a transfer election statement
describing specific details relating to the transaction, including any
increased credit amounts, and prior to filing any tax returns, the
parties should have verified eligibility under the PWA provisions.
Therefore, the Treasury Department and the IRS did not revise the
proposed rule in these final regulations.
Commenters recommended specifying that if a credit amount increased
pursuant to the PWA requirements is transferred to multiple transferee
taxpayers, the responsibility to make correction and penalty payments
remains indivisible with the eligible taxpayer. This comment is
consistent with the Proposed Regulations, which did not distinguish
between situations with one or multiple transferee taxpayers. These
final regulations adopt the proposed rule without change.
One commenter recommended that transferee taxpayers being
transferred an eligible credit increased pursuant to the PWA
requirements should be secondarily liable for any correction and
penalty payments. The commenter stated that if the transferee taxpayer
is not secondarily liable, then the amounts may not be paid because the
eligible taxpayer will have already received the consideration from the
transfer of the tax credit. Further, the commenter suggested that the
transferee taxpayer should be required to keep the same records as the
eligible taxpayer in order to demonstrate reasonable cause with respect
to excessive credit transfers and should also be required to
contractually bind the eligible taxpayer to meet the PWA requirements,
indemnifying the transferee taxpayer for any such payments it is
secondarily required to make.
The Treasury Department and the IRS do not adopt these changes. As
explained in the preamble to the Proposed Regulations, credit amounts
increased pursuant to the PWA requirements are part of determining the
eligible credit by the eligible taxpayer. The 6418 Final Regulations
confirm that any specified credit portion is a proportionate share of
the entire eligible credit, including any increases pursuant to the PWA
requirements. Therefore, it is part of the eligible taxpayer's
responsibility to satisfy the PWA requirements and requiring the
eligible taxpayer to make any correction or penalty payments remains
appropriate. Requiring the transferee taxpayer to be secondarily liable
may inappropriately shift the responsibility to satisfy the PWA
requirements. It is the responsibility of the transferee taxpayer under
section 6418 and the 6418 Final Regulations to perform due diligence to
show reasonable cause in the event of an excessive credit transfer, but
changes to those rules are outside the scope of these final
regulations. Additionally, specific recordkeeping requirements for the
eligible taxpayer and transferee taxpayer(s) under section 6418 are
addressed in the 6418 Final Regulations and are outside the scope of
these final regulations.
A commenter recommended that a transferee taxpayer should be able
to rely on assurances from the eligible taxpayer that all covered work
was performed under the terms of a qualifying project labor agreement
(discussed in Section V.D. of this Summary of Comments and Explanation
of Revisions) to demonstrate ``reasonable cause'' in the context of an
excessive credit transfer relating to the PWA requirements. These final
regulations do not adopt this suggestion as excessive credit transfers
are outside the scope of these final regulations and are addressed in
the 6418 Final Regulations.
C. Application to Indian Tribal Governments and the Tennessee Valley
Authority
The preamble to the Proposed Regulations explained that the
statutory language of the IRA does not reflect any intent to include
exceptions from the PWA requirements other than the BOC Exception and
the One Megawatt Exception. Consequently, the Proposed Regulations
would not have included a rule that would exempt Indian Tribal
governments or the Tennessee Valley Authority (TVA) from the PWA
requirements. The Treasury Department and the IRS requested comments on
the need for any exceptions, including for Indian Tribal governments or
the TVA, from the PWA requirements in addition to those expressly
described in the statute.
1. Indian Tribal Governments
In accordance with Executive Order 13175 (Consultation and
Coordination with Indian Tribal governments) and Executive Order 14112
(Reforming Federal Funding and Support for Tribal
[[Page 53199]]
Nations To Better Embrace Our Trust Responsibilities and Promote the
Next Era of Tribal Self-Determination), the Treasury Department and the
IRS support the right of Indian Tribes to self-govern and recognize
that Indian Tribes exercise inherent sovereign powers over their
members and territory. The Treasury Department and the IRS are guided
by the fundamental principles in Executive Orders 13175 and 14112.
Under those principles, the Treasury Department and the IRS have an
obligation to consider the concerns raised by Tribes and, to the extent
permitted by law, address those concerns in the final regulations.
On September 25, 2023, the Treasury Department and the IRS held a
Tribal consultation with Tribal leaders requesting assistance in
addressing questions related to the PWA requirements in the Proposed
Regulations. Through consultation and in response to the Proposed
Regulations, the Treasury Department and the IRS received numerous
comments regarding an exception to the PWA requirements for projects
constructed by Indian Tribal governments. A number of commenters
recommended that Indian Tribal governments should not be exempted from
the PWA requirements and cited to the lack of statutory basis to grant
an exception. In contrast, other commenters supported an exception to
the PWA requirements for Indian Tribal governments.
A. Prevailing Wage Requirements and Indian Tribal Governments
With respect to the Prevailing Wage Requirements, commenters
suggested that requiring projects located on Tribal lands to comply
with wage standards set by the DOL undermines Tribal sovereignty. Some
commenters stated that the DOL provides an exception from the DOL
prevailing wage rates for work done by Indian Tribal governments using
their own employees, and advocated that the final regulations, at a
minimum, contain a similar rule under the IRA.
Commenters also stated that the DOL prevailing wage rates often are
defined at the county level, which may include higher cost urban areas
and could negatively impact projects on Tribal lands that often occur
in the rural portions of such counties. These commenters stated that
complying with wage standards set by the DOL for IRA projects could
place additional administrative burdens on Tribes by requiring Tribes
to administer two sets of prevailing wages (DOL prevailing wage
standards for IRA projects and Tribal prevailing wage standards for
other projects). As an alternative to permitting Indian Tribal
governments to set their own prevailing wage rates for IRA projects,
commenters suggested defining the term locality to include Tribal lands
as a separate category to allow Tribes to submit a request to the DOL
for a supplemental wage determination for that specific Tribal
locality.
With respect to the Prevailing Wage Requirements, the Treasury
Department and the IRS continue to understand the statutory language of
the Code as not reflecting an intent to entirely exempt Indian Tribal
governments from the PWA requirements. The statutory language also does
not reflect an intent to allow Indian Tribal governments to substitute
their own prevailing wage rates for those generally required under the
DBA.
However, in accordance with Executive Order 14112, the final
regulations provide two special rules that apply to Indian Tribal
governments (including a subdivision, agency, or instrumentality of an
Indian Tribal government). First, the final regulations provide that an
Indian Tribal government, as defined in section 30D(g)(9) of the Code,
is excepted from the Prevailing Wage Requirements under the IRA with
respect to laborers and mechanics that are employees, within the
meaning of section 3121(d)(2), of the Indian Tribal government. This
rule also applies to joint ownership arrangements that involve an
Indian Tribal government (including a subdivision, agency, or
instrumentality of an Indian Tribal government), but only with respect
to the employees, within the meaning of section 3121(d)(2), of the
Indian Tribal government. As stated in some comments from Tribes, the
DOL provides an exception from the DOL prevailing wage rates for work
done by Tribal governments using their own employees. Specifically,
under the DBA, a government agency may perform construction work in-
house with its own employees rather than contract out the work. Work
performed by these employees generally is not subject to the DBA
requirements because governmental agencies are not considered
contractors or subcontractors under the DBA. This is known as the force
account exception. The DOL has explained that in cases in which an
Indian Tribal government performs work with its own employees, the
force account exception to the DBA generally applies and the Tribal
government is not required to pay DOL-determined prevailing wages for
work done by its own employees. Tribes historically have relied on this
exception. Under these final regulations, Tribes may continue that
practice for purposes of the Prevailing Wage Requirements under the
IRA.
Second, the Treasury Department and the IRS recognize that Tribal
lands generally are not coextensive with a single geographic area for
which the DOL may have made an applicable wage determination. Comments
from Tribes requested that the final regulations define the term
``locality'' to include Tribal lands as a separate category to allow
Tribes to submit a request to the DOL for a supplemental wage
determination for specified Tribal lands. However, defining locality in
this way would require that the DOL establish a new administrative
process to implement a unique wage determination for Tribal lands; that
process is outside of the authority of the Treasury Department and the
IRS. Thus, these final regulations do not change the definition of
locality to include Tribal lands as a separate category.
However, recognizing that Tribal lands are sovereign territories
that may encompass or overlap with numerous geographic areas, the final
regulations provide a special rule for Indian Tribal governments that
perform construction, alteration, or repair of a facility on Indian
land, as that term is defined in 25 U.S.C. 3501(2). Specifically, if
the Indian land encompasses or overlaps more than one geographic area
with respect to which the DOL has made an applicable wage
determination, then the Indian Tribal government may choose the
applicable wage determination for any one of those geographical areas
and apply that applicable wage determination for work performed on any
qualified facility that is located on the Indian land. If the Indian
Tribal government chooses to use this alternative applicable wage
determination, it must maintain and preserve records sufficient to
document the applicable prevailing wage for each laborer, contractor,
or subcontractor with respect to each qualified facility on Indian
land. This rule applies to a qualified facility that is subject to
joint ownership arrangements that involve an Indian Tribal government
(including a subdivision, agency, or instrumentality of an Indian
Tribal government). This rule is intended to ease the administrative
burden on Indian Tribal governments because they can use a single
applicable wage determination for all projects on Indian land.
[[Page 53200]]
b. Apprenticeship Requirements and Indian Tribal Governments
Regarding the Apprenticeship Requirements, some commenters
supported an exception for Indian Tribal governments and stated that
Tribes may have limited access to registered apprenticeship programs.
These commenters stated that Tribal members may face burdens associated
with participating in existing State registered apprenticeship programs
that are located many miles away. A commenter requested clarification
regarding whether Tribes, like States, have the sovereign and
jurisdictional authority to develop and certify their own
apprenticeship programs rather than being required to use the DOL
approval process. The same commenter requested that the Treasury
Department and the IRS review and report on any barriers that may
disproportionately prevent Tribes from fulfilling the Apprenticeship
Requirements. Commenters suggested that if Indian Tribal governments do
not have authority to certify their own programs, then the
Apprenticeship Requirements could force Tribal governments to rely on
State or Federal apprenticeship programs, which may frustrate Indian
Tribal governments' efforts to develop their Tribal workforce.
Commenters supporting an Indian Tribal government exception to the
Apprenticeship Requirements also stated that the Good Faith Effort
Exception places too much onus on Indian Tribal governments to obtain
qualified apprentices. These commenters suggested that Indian Tribal
governments could need to submit multiple requests to multiple
apprenticeship programs and that Indian Tribal governments could need
to search across non-Tribal areas to meet the Good Faith Effort
Exception. These commenters suggested that the statute did not require
this level of apprenticeship coverage. Commenters also stated that the
Good Faith Effort Exception may not be met if a registered
apprenticeship program can meet some, but not all of requests for
qualified apprentices, and suggested that the Good Faith Effort
Exception should be satisfied if a registered apprenticeship program
could not fulfill more than 50 percent of a taxpayer, contractor, or
subcontractor's request. These commenters also suggested that the Good
Faith Effort Exception should be satisfied if a local registered
apprenticeship program cannot provide more than 50 percent of the
requested qualified apprentices. Commenters also stated that the Good
Faith Effort Exception is unreasonable for Indian Tribal governments in
rural areas because of the limited access to registered apprenticeship
programs. Finally, another commenter suggested creating a database for
taxpayers to find Tribal apprenticeship programs within their State.
With respect to the Apprenticeship Requirements, the Treasury
Department and the IRS recognize that there may be a limited number of
registered apprenticeship programs with an area of operation that
includes the geographic location of a facility located on Tribal lands.
As explained in Section VIII.B.1.f. of this Summary of Comments and
Explanation of Revisions, the final regulations clarify the scope of
the Good Faith Effort Exception with respect to situations in which
only part of the request is denied. The final regulations confirm that
if there is no registered apprenticeship program with a geographic area
of operation that includes the location of the facility, taxpayers will
be deemed to satisfy the Good Faith Effort Exception for the qualified
apprentices they (or the contractor or subcontractor) would have
requested for that occupation and location.
Indian Tribal governments may also consider sponsoring their own
registered apprenticeship programs to satisfy the Apprenticeship
Requirements. The National Apprenticeship Act (NAA) of 1937 (29 U.S.C.
50) authorizes the Secretary of Labor to formulate and promote the
furtherance of labor standards necessary to safeguard the welfare of
apprentices. The Treasury Department and the IRS have consulted with
the DOL OA and understand based on that discussion that although
neither the text of the NAA, nor the content of the NAA's implementing
regulations at 29 CFR parts 29 and 30, explicitly addresses Indian
Tribes, Indian Tribal governments may sponsor registered apprenticeship
programs and obtain registration of such a Tribal apprenticeship
program by a State or Federal governmental agency that has been
designated for that purpose.
Federal apprenticeship regulations (see 29 CFR part 29) authorize
the DOL to grant recognition, for Federal purposes, to State
apprenticeship agencies for the purpose of registering and overseeing
apprenticeship programs that operate within their respective
jurisdictions, provided that such State apprenticeship agencies operate
in accordance with the minimum standards for State apprenticeship
agencies that are established by Federal apprenticeship regulations.
Nevertheless, the DOL retains the authority under Federal
apprenticeship regulations to register any apprenticeship program that
operates within the territory of the United States, provided that, as a
general matter, the sponsor's proposed program and standards of
apprenticeship satisfy the minimum requirements stipulated in 29 CFR
parts 29 and 30.
Accordingly, Indian Tribal governments may register their own
apprenticeship programs through the DOL OA or with a recognized State
apprenticeship agency. In recognition of the unique trust and treaty
responsibilities of the Federal Government to Tribal Nations, respect
for Tribal sovereignty, and the nation-to-nation relationship between
the Federal Government and Indian Tribes, Indian Tribal governments
(including a subdivision, agency, or instrumentality of the Indian
Tribal government) are encouraged but not required to register programs
with the DOL OA. Taxpayers, contractors, and subcontractors can find
more information on guidance issued by the DOL OA at <a href="https://www.apprenticeship.gov/about-us/legislation-regulations-guidance">https://www.apprenticeship.gov/about-us/legislation-regulations-guidance</a>. For
an updated map depicting the most recent information regarding
registration agencies between the DOL OA and State apprenticeship
agencies, please visit: <a href="https://www.apprenticeship.gov/about-us/apprenticeship-system">https://www.apprenticeship.gov/about-us/apprenticeship-system</a>.
2. Tennessee Valley Authority
Several commenters requested that the final regulations not provide
an exception from the PWA requirements for the TVA, citing the lack of
statutory authority for such an exception. The Treasury Department and
the IRS agree. The final regulations do not create an exception to the
PWA requirements for the TVA.
D. Project Labor Agreements
The preamble to the Proposed Regulations explained that pre-hire
project labor agreements (PLAs) 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 amount, and
having a PLA in place may help ensure compliance with PWA requirements.
For these reasons, the Proposed Regulations would have provided that
the penalty payment requirements would not apply with respect to a
laborer or mechanic employed under a ``qualifying project labor
agreement'' if any correction payment owed to the laborer or mechanic
is paid on or before a return is filed claiming an increased credit
[[Page 53201]]
amount. The Proposed Regulations would have defined qualifying project
labor agreement as ``a pre-hire collective bargaining agreement with
one or more labor organizations that establishes the terms and
conditions of employment for a specific construction project.''
Proposed Sec. 1.45-7(c)(6)(ii) would have provided that in order to be
considered a qualifying project labor agreement, such agreement must at
a minimum: (i) bind all contractors and subcontractors on the
construction project through the inclusion of appropriate
specifications in all relevant solicitation provisions and contract
documents; (ii) contain guarantees against strikes, lockouts, and
similar job disruptions; (iii) set forth effective, prompt, and
mutually binding procedures for resolving labor disputes arising during
the term of the project labor agreement; (iv) contain provisions to pay
prevailing wages; (v) contain provisions for referring and using
qualified apprentices consistent with section 45(b)(8)(A) through (C)
and guidance issued thereunder; and (vi) be a collective bargaining
agreement with one or more labor organizations (as defined in 29 U.S.C.
152(5)) of which building and construction employees are members, as
described in 29 U.S.C. 158(f).
The Treasury Department and the IRS requested comments on the
proposed treatment of PLAs, other ways taxpayers might use PLAs to meet
the PWA requirements, and the proposed definition of a qualifying
project labor agreement. Several comments were received addressing the
proposed treatment of PLAs under the Proposed Regulations.
Several commenters asserted that the Treasury Department and the
IRS should not exempt taxpayers using PLAs from the penalty payment
requirements. Commenters stated that the proposed rule violates the
plain text of the IRA, which includes no PLA provision and does not
authorize the waiver of intentional violations and additional penalties
based on a clean energy project developer's inclusion of a PLA
requirement in its solicitation for construction services. Several
commenters stated that the IRS should not incentivize or coerce the use
of PLAs through a penalty waiver or other benefit. Commenters suggested
that PLAs will discourage taxpayers from using their existing
workforce. Commenters were also concerned with PLAs increasing the cost
of construction. Another commenter suggested that PLA mandates would
likely lead to a decrease in hiring of local, minority, women, veteran,
and other potentially disadvantaged groups. Other commenters stated
that encouraging labor unions was not the intent of the IRA. A
commenter also asserted that PLAs force contractors to replace
employees with workers from unions, undermine workforce development
strategies, force contractors to follow inefficient union work rules,
expose workers to wage theft, and expose employers to multiemployer
pension plan liabilities. The commenter also asserted that PLA mandates
force employees to join a union and pay dues and discourage competition
from nonunionized contractors. The commenter claimed that strikes have
occurred on PLA projects and that PLAs will not improve efficiency in
terms of safety, quality, or project delivery.
In contrast, other commenters asserted that PLAs help ensure
compliance with the PWA requirements. Several commenters requested that
taxpayers certifying that construction of a facility is subject to a
PLA or a collective bargaining agreement should be entitled to a safe
harbor or a rebuttable presumption of compliance with the PWA
requirements. Commenters asserted that such a presumption would be
warranted because PLAs provide assurances of compliance and contractors
operating under PLAs typically pay wages at rates that are at or above
the prevailing wage rates. At least one commenter suggested that the
final regulations should clarify that a taxpayer is deemed to have
satisfied the PWA requirements, including recordkeeping requirements,
if the taxpayer can provide proof of a valid PLA.
Other commenters suggested that the final regulations create a two-
tier compliance structure under which participants with PLAs are
awarded a presumption of compliance on several requirements (or limited
review by the IRS on examination) while other taxpayers not
participating in PLAs should be subjected to heightened scrutiny by the
IRS. A commenter stated that, in the absence of a PLA, violations of
PWA requirements would be more prevalent. Therefore, the commenter
suggested increasing the oversight and noncompliance penalties for non-
PLA projects, mandating robust recordkeeping requirements for non-PLA
projects (including the filing of certain documents with the DOL), and
creating flexible ratio requirements for PLA projects. Another
commenter suggested that taxpayers who are parties to both a collective
bargaining agreement and PLA should automatically qualify for the Good
Faith Effort Exception.
Some commenters stated that PLAs can help taxpayers ensure payment
of prevailing wages, because PLAs will: (i) require employers to
provide workers with notice of their pay rates; (ii) include
integrated, enforceable grievance and dispute resolution procedures;
and (iii) be administered and enforced by unions that are parties to
PLAs. Another commenter stated that PLAs typically establish payments
to third-party benefit trusts, and that IRS research shows that third-
party information can help promote tax compliance. Additionally,
another commenter stated that entitling taxpayers to a presumption of
compliance if their construction project is subject to a PLA would
mitigate enforcement work and therefore preserve IRS resources.
Further, several commenters stated that PLAs help promote the IRA's
goals by improving efficiency, coordination, and consistency; reducing
administrative costs; preventing increased costs and project delays;
providing a steady supply of highly skilled labor; and preventing labor
disputes. Some commenters recommended that taxpayers implementing PLAs
be exempt from a determination that they intentionally disregarded the
PWA requirements.
The Treasury Department and the IRS disagree with commenters
asserting that the Proposed Regulation's provisions regarding
qualifying project labor agreements are unwarranted, coercive, and
would increase costs. For example, studies show that PLAs in general do
not lead to a statistically significant increase in construction
costs.\22\ If a taxpayer believes that a particular PLA would
significantly raise the cost of constructing a facility, a taxpayer may
choose not to enter into a PLA. In response to concerns about hiring of
local, minority, women, veteran, and other potentially disadvantaged
groups, the Treasury Department and the IRS note that PLAs often
include provisions that create or strengthen equitable paths to
construction jobs for underserved workers, including local hire
requirements, equitable recruitment
[[Page 53202]]
goals, and community engagement requirements. Contrary to some
commenters' concerns, the final regulations do not require non-union
employees to join a union or to pay union dues. The National Labor
Relations Act permits employees to choose not to join a union in their
workplace. 29 U.S.C. 157. Non-members may choose not to pay union dues
and instead pay agency fees that cover only the share of dues used
directly for representation, such as for collective bargaining or
grievance procedures. Moreover, the final regulations do not require
any taxpayer to sign a PLA.
---------------------------------------------------------------------------
\22\ Emma Waitzman & Peter Philips, UC Berkeley Labor Ctr.,
Project Labor Agreements and Bidding Outcomes: The Case of Community
College Construction in California 3,51 (2017) ((finding no
statistically significant difference in costs between PLA and non-
PLA projects); Peter Philips & Scott Littlehale, Did PLAs on LA
Affordable Housing Projects Raise Construction Costs? (Univ. of Utah
Dep't of Econ., Working Paper No. 2015-03, 2015) (finding no
statistically significant difference in costs between PLA projects
and non-PLA projects); Cong. Research Serv., R41310, Project Labor
Agreements at 9 (2012) (surveying the empirical literature about the
effects of PLAs on costs and finding that it was inconclusive).
---------------------------------------------------------------------------
The Treasury Department and the IRS agree with commenters that
qualifying project labor agreements can help ensure compliance with the
PWA requirements. Under the final regulations, qualifying project labor
agreements will be required to include provisions requiring the payment
of wages at rates that are not less than the prevailing rates, include
contract provisions complying with the Apprenticeship Requirements, and
establish mechanisms for workers, labor organizations, and taxpayers to
correct any underpayments. These requirements will help ensure that
qualifying project labor agreements support compliance with the PWA
requirements. The requirements in PLAs, including ongoing monitoring
and administration by union officials, enforceable grievance and
dispute resolution mechanisms, and notice of pay rates, will also help
ensure compliance with the PWA requirements for claiming the increased
credit amount. For example, the final regulations require that
qualifying project labor agreements must include effective grievance
and dispute resolution provisions that would provide workers and unions
an independent mechanism for enforcing the PWA requirements included in
a qualifying project labor agreement. Grievance and dispute resolution
provisions allow workers to resolve disputes about the payment of
prevailing wages and other violations of the qualifying project labor
agreement before a taxpayer claims the increased credit amount,
assisting taxpayers in complying with the final regulations.
Regarding commenters' requests for deemed compliance or a
rebuttable presumption of compliance, the final regulations do not
adopt these comments. Tax jurisprudence requires taxpayers claiming a
tax credit to demonstrate that they have met the statutory requirements
and can substantiate their claim. The final regulations provide that
the penalties do not apply if a taxpayer uses a qualifying project
labor agreement and makes the required correction payments before
filing a return claiming the credit. The Treasury Department and the
IRS have determined that other safe harbors for PLAs or an exemption
from a finding of intentional disregard with respect to correction
payments would not strengthen compliance and understand this approach
to strike the appropriate balance between recognizing PLA benefits for
improving compliance with the PWA requirements and maintaining long-
standing tax principles.
As the Treasury Department and the IRS noted in the preamble to the
Proposed Regulations, pre-hire project labor agreements may be used by
a taxpayer to incentivize stronger labor standards and worker
protections on a construction project, and having a PLA in place may
also help ensure compliance with PWA requirements for claiming the
increased credit amount. Accordingly, the IRS would take into account
on examination whether a taxpayer has a qualifying project labor
agreement in place and would consider books and records substantiating
that a qualifying project labor agreement is being complied with as an
indication of compliance with the PWA requirements. For example,
records that would support substantiating PWA compliance could include
attestations by all counterparties that a taxpayer is in compliance
with the terms of the qualifying project labor agreement, including the
provisions requiring the payment of prevailing wages and the provisions
for referring and using qualified apprentices consistent with section
45(b)(8)(A) through (C) and guidance issued thereunder.
Several commenters suggested additions or revisions to the proposed
definition of a qualifying project labor agreement and requested
clarifications. For instance, a commenter suggested clarifying that
proposed Sec. 1.45-7(c)(6)(ii) applies to both base penalty amounts
and any enhanced penalty due to intentional disregard. Similarly,
commenters requested clarifying the impact of using a PLA on any
required correction payments. Commenters also asked for the final PWA
rules to clarify that the agreed-upon wages under a PLA are prevailing
wages for the purposes of PWA requirements. At least one commenter
asked whether agreed-upon wages under a PLA or a collective bargaining
agreement could be treated as the prevailing wage for PWA purposes.
Another commenter explained that generally, under a PLA, the taxpayer
must pay the wage rates negotiated with the union, which are often
higher than the prevailing wage rates set forth in DOL wage
determinations, but under the Proposed Regulations, taxpayers must pay
the prevailing wage rate, even if that is lower. Another commenter
stated that asking contractors to comply with prevailing wage rates,
which may be based on union work rates contained in collective
bargaining agreements not publicly available, could add risk for
contractors and reduce competition, especially from small businesses.
Additional commenters requested permitting taxpayers to satisfy the
Apprenticeship Requirements in the case of a PLA that includes a
preference to use qualified apprentices, even if the PLA does not
require compliance with all the Apprenticeship Requirements under
section 45(b)(8). A commenter asserted that the criteria that the PLA
must contain provisions for referring and using qualified apprentices
consistent with section 45(b)(8)(A) through (C) and guidance issued
thereunder was circular and did not align with PLAs generally. The
commenter explained that the requirement that the PLA incorporate the
IRA apprenticeship rules undercuts the PLA exception and makes it
superfluous. An additional commenter suggested clarifying that a PLA
for PWA purposes should allow taxpayers to use both union and non-union
registered apprenticeship programs. A commenter also suggested revising
the definition of a PLA to include a requirement for referring and
using qualified journeyworkers. Similarly, a commenter asked whether a
taxpayer may use the journeyworker-to-apprentice ratio under a PLA or a
collective bargaining agreement for PWA purposes.
Some commenters requested that the final regulations provide that
PLA provisions regarding hiring union workers be optional and that
exceptions be explicitly provided for circumstances in which union
labor is not available. Commenters suggested that the final regulations
should permit contractors who sign a PLA to use their own work rules
independent of union collective bargaining agreements. One commenter
stated that PLAs must not require payment into union benefit funds as
long as contractors have bona fide benefits and are satisfying DBA
standards. Similarly, a commenter recommended that the final
regulations provide that PLAs can only require the payment of union
dues and fringe benefits for the duration of the contract.
A commenter requested that the final regulations adopt the
definition for a qualifying project labor organization, largely based
in Executive Order 14063
[[Page 53203]]
(Use of Project Labor Agreements for Federal Construction Projects),
and permit contractors and subcontractors to compete for contracts and
subcontracts regardless of whether they are a party to a collective
bargaining agreement. The commenter also suggested revising the
definition of labor organizations to require some affiliation with a
registered apprenticeship program.
A commenter recommended incentivizing taxpayers using a PLA to
comply with all of the PLA's provisions, not just PWA-related
provisions. The commenter stated that a subset of PLAs (known as
community workforce agreements) include provisions beyond the elements
defined in the Proposed Regulations. Additionally, a commenter
recommended requiring service maintenance workers, like custodians, be
included and covered under PLAs used for PWA purposes.
Further, a commenter suggested that recordkeeping related to PLAs
be limited to producing a valid PLA covering all laborers and mechanics
at the site of work. The commenter also stated that it would be helpful
to clarify the role of collective bargaining agreements and a master
agreement, as well as the eligible status, if any, of PLAs entered and
covering periods before the publication of the proposed rules in the
Federal Register. The commenter also requested guidance concerning
whether the PLA exception still applies if some, but not all,
contractors are able to meet the PLA requirements.
Additionally, a commenter suggested that the PWA rules align the
criteria for PLAs with the provisions of commonly used PLA templates or
that the final regulations adopt a new template. The commenter stated
that the proposed rules presented six criteria for qualifying PLAs, but
many widely used PLA templates do not meet all six criteria.
The Treasury Department and the IRS agree with the comment to
clarify that proposed Sec. 1.45-7(c)(6)(ii) applies to both the $5,000
penalty and the $10,000 enhanced penalty (for the Prevailing Wage
Requirements) and proposed Sec. 1.45-8(e)(2)(v) applies to both the
$50 penalty and the $500 enhanced penalty (for the Apprenticeship
Requirements) due to intentional disregard. Under the Proposed
Regulations, the penalty payment requirement would not have applied
with respect to a laborer or mechanic employed under a qualifying
project labor agreement if any correction payment owed to the laborer
or mechanic is paid on or before a return is filed claiming an
increased credit amount. The proposed rule was intended to apply to
both penalty amounts and requires the taxpayer to make any correction
payment owed to any laborer or mechanic on or before the date on which
the increased credit amount is claimed. The final regulations provide
this clarification with respect to both the Prevailing Wage
Requirements and the Apprenticeship Requirements.
The proposed definition of qualifying project labor agreement
contains six requirements, including that it must contain provisions to
pay prevailing wages. The Treasury Department and the IRS agree with
commenters that the definition of the term prevailing wages, for the
purposes of a qualifying project labor agreement, requires
clarification. The final regulations clarify the definition of
qualifying project labor agreement to provide that it must contain
provisions to pay wages at rates not less than the prevailing wage
rates in accordance with subchapter IV of chapter 31 of title 40 of the
United States Code. This clarification aligns with the statutory
requirements regarding prevailing wage rates and maintains a clear
standard for taxpayers and tax administration. Commenters raised that
PLAs often require the payment of wages higher than prevailing wages
under the DBA. A qualifying project labor agreement may require the
payment of wages at rates that are higher than the wage rates that are
required by section 45(b)(7)(A).
The proposed definition of qualifying project labor agreement also
would have provided that it must contain provisions for referring and
using qualified apprentices consistent with section 45(b)(8)(A) through
(C) and guidance issued thereunder. The statute defines qualified
apprentice and provides the Apprenticeship Requirements. Accordingly,
the final regulations do not adopt comments to modify the
Apprenticeship Requirements for a qualifying project labor agreement.
Regarding additions to the proposed definition of qualifying
project labor agreement, the Treasury Department and the IRS considered
these comments and have not adopted these comments in the final
regulations. Specific requirements or contractual language in a PLA may
arbitrarily exclude many PLAs from the proposed definition of a
qualifying project labor agreement for reasons unrelated to ensuring
compliance with the PWA requirements. A PLA is a negotiated contract
and parties must have the appropriate flexibility to negotiate
provisions. Nothing in the final regulations precludes parties from
negotiating additional local hire, equity, or community engagement
provisions in a PLA. Since each PLA is negotiated in response to unique
project needs and labor market conditions, the Treasury Department and
the IRS do not adopt the comment to require a PLA template.
Specific to the nuclear industry, a few commenters proposed that
PLA provisions in PWA rules be expanded to include collective
bargaining agreements negotiated by nuclear operators and unions
covering their direct employees. A commenter suggested also recognizing
that such collective bargaining agreements establish the prevailing
wages for their unique classification of nuclear employees that perform
alterations or repairs. The commenter stated that there are significant
differences in the collective bargaining and benefit practices between
the construction and nuclear industries. A few commenters suggested
amending the rules to permit wages paid pursuant to collective
bargaining agreements to qualify as payment of prevailing wages under
section 45U(d)(2). One commenter stated that at a minimum, wages paid
pursuant to already-existing collective bargaining agreements should be
accepted as payment of prevailing wages. Similarly, solely for purposes
of section 45U, one commenter requested that wages and benefits paid to
non-unionized direct employees be accepted as payment of prevailing
wages, if the sum is equal to the collectively-bargained wages and
benefits paid to geographically proximate direct employees of a
qualified nuclear facility. The commenter also suggested that
provisions regarding PLAs in the Proposed Regulations be revised to
include taxpayers that have a collective bargaining agreement covering
their own employees that perform alteration and repair on facilities
eligible for the section 45U credit. The commenter also suggested that
existing collective bargaining agreements be deemed to satisfy section
45U(d)(2)(A). One commenter requested that wages and benefits paid
pursuant to a collective bargaining agreement negotiated between a
taxpayer and a union recognized as the workers' bargaining
representative by the National Labor Relations Board, be deemed to
comply with prevailing wage rules under section 45U.
A commenter requested a prevailing wage safe harbor for section 45U
to recognize the unique characteristics of nuclear power facilities.
Another commenter requested permitting, solely for purposes of section
45U, qualified nuclear power facilities that do not directly employ
collectively-bargained laborers and mechanics to benchmark
[[Page 53204]]
themselves against other similar qualified nuclear power facilities
that do directly employ collectively-bargained laborers and mechanics
for purposes of determining whether the facility is deemed to pay
prevailing wages to its directly employed employees. The commenter
stated that even if not unionized, a nuclear operator's craft employees
perform the same work under the same conditions as unionized employees
and receive generally equivalent wages, participate in the same
employer-sponsored benefit plans, and receive benefits equivalent to if
not identical to unionized employees.
The Treasury Department and the IRS recognize the nuclear power
industry's unique circumstances and that nuclear operators cannot enter
into qualifying project labor agreements as they would have been
defined under the Proposed Regulations. The section 45U credit has
Prevailing Wage Requirements for alteration or repair work of a
qualified nuclear power facility, but not during construction. For
taxpayers seeking the section 45U credit, a collective bargaining
agreement provides workers conducting an alteration or repair the same
assurances of up-front compliance that a PLA would, including union
oversight and private enforcement. A taxpayer that has a collective
bargaining agreement for a qualified nuclear facility that meets
minimum requirements analogous to the minimum requirements for a
qualifying project labor agreement should also benefit from the rule
that penalties do not apply if any correction payment owed to a laborer
or mechanic is paid before the increased credit amount is claimed. In
response to the comments, the final regulations modify the definition
of qualifying project labor agreement for section 45U. For purposes of
section 45U, in order to be a qualifying project labor agreement, such
agreement must, at a minimum: (i) be a collective bargaining agreement
with a one or more labor organizations (as defined in 29 U.S.C. 152(5))
of which employees of the qualified nuclear power facility are members
and such agreement establishes the terms and conditions of employment
at the qualified nuclear power facility; (ii) contain guarantees
against strikes, lockouts, and similar job disruptions; (iii) set forth
effective, prompt, and mutually binding procedures for resolving labor
disputes arising during the term of the collective bargaining
agreement; and (iv) contain provisions to pay wages at rates not less
than the prevailing wages in accordance with subchapter IV of chapter
31 of title 40 of the United States Code.
VI. Applicable Scope of the PWA Requirements
Section 45(b)(7)(A) provides that with respect to any qualified
facility, the taxpayer must ensure that any laborers and mechanics
employed by the taxpayer or any contractor or subcontractor in ``the
construction of such facility'' and for the 10-year period after the
facility is placed in service, ``the alteration or repair of such
facility'' are paid wages at rates not less than the applicable
prevailing wage rates. 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.
Section 45(b)(8) sets forth the Apprenticeship Requirements that
apply ``with respect to the construction of any qualified facility.''
Under the Labor Hours Requirement, section 45(b)(8)(A)(i) provides that
taxpayers must ensure ``with respect to the construction of any
qualified facility'' that the applicable percentage of the total labor
hours is performed by qualified apprentices. Under the Participation
Requirement, section 45(b)(8)(C) provides that 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.
The Proposed Regulations would have defined the scope of taxpayers'
obligation to comply with the PWA requirements consistent with this
statutory language. Under the Proposed Regulations, taxpayers would
have been required to comply generally with respect to the construction
of a qualified facility. The Proposed Regulations did not define the
meaning of construction of a qualified facility for purposes of either
the Prevailing Wage Requirements or the Apprenticeship Requirements.
Proposed Sec. 1.45-7(d)(2)(i) would have defined ``construction,
alteration, or repair'' to mean construction, prosecution, completion,
or repair as defined in 29 CFR 5.2. Under 29 CFR 5.2, construction,
prosecution, completion, or repair is defined expansively to include
``all types of work'' done on a particular building or work at the site
of the work, as defined in 29 CFR 5.2, by laborers and mechanics
employed by a contractor or subcontractor. This work includes altering,
remodeling, installing of items fabricated offsite; painting and
decorating; manufacturing or furnishing of materials, articles, and
supplies or equipment on the site of the work; and certain demolition
or removal activities.
Under the Proposed Regulations, the scope of the requirement to pay
wages at rates not less than the prevailing rates would be clarified by
the ``site of the work'' definition under the DBA. Under the DBA, the
requirement to pay prevailing wages is limited by statute to work
performed ``directly on the site of the work.'' \23\ Under the DBA,
secondary construction sites are 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 for a specific period of time. 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. As explained in the
preamble to the Proposed Regulations, the language of section
45(b)(7)(A) could be, but does not need to be, interpreted to support
an expansive reading of construction such that all construction of a
qualified facility, wherever located and however small, would be
subject to the Prevailing Wage Requirements, resulting in a
significantly broader scope under section 45(b)(7) than under the DBA.
The Proposed Regulations would have taken a less expansive reading and
applied the scope of the Prevailing Wage Requirements to the site of
the work, consistent with the DBA rules.
---------------------------------------------------------------------------
\23\ 40 U.S.C. 3142(c)(1).
---------------------------------------------------------------------------
The Treasury Department and the IRS understood the DBA approach to
the site of the work as providing useful guidance for balancing the
requirements to pay wages at rates not less than prevailing rates with
respect to the construction of a qualified facility and existing
construction practices in cases in which some construction activities
related to a facility may occur in multiple locations. This approach is
also consistent with the principle outlined in Section I.A. of this
Summary of Comments and Explanation of Revisions to incorporate the DBA
requirements that are relevant for claiming the increased credit amount
and consistent with sound tax administration. The Proposed Regulations
would have largely adopted
[[Page 53205]]
the DBA approach (including rules relating to secondary sites) for
purposes of defining the scope of the Prevailing Wage Requirements in
proposed Sec. 1.45-7(d)(6). Under proposed Sec. 1.45-7(d)(6),
taxpayers would have been subject to the requirement to ensure that
laborers and mechanics are paid wages at rates not less than prevailing
wage rates with respect to the construction, alteration, or repair at
the locality in which the facility is located, which is 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.
Many commenters requested clarification of how the definition and
the site of the work DBA-concept applies across the various Code
sections for purposes of determining what work performed in the
construction, alteration, or repair of a qualified facility is subject
to the Prevailing Wage Requirements. Commenters also emphasized that
the site of work definition must reflect the expanded realities of
modern construction practices, under which a large and growing
percentage of construction, alteration, and repair work is performed
offsite through either prefabrication, modularization, or both. A
commenter recommended that the site of work definition account for
recent technological developments in which the COVID-19 pandemic
magnified the need to build spaces that can be rapidly adjusted. A
commenter stated that a number of legal challenges to newly added
provisions to the regulations under the DBA are expected to be filed,
creating ambiguity and a lack of reliability. Commenters also suggested
providing specific examples relevant to clean energy projects.
Commenters requested that the site of work for PWA purposes no
longer incorporate the DOL definition, based on the DBA. Commenters
opined that site of the work for PWA purposes should not be based on
the scope of the DBA and should not extend to offsite or secondary
construction sites, including manufacturing sites, access roads,
substations, buildings, and similar property. Commenters argued that
incorporating the DOL definition of site of the work leads to an overly
broad application of the PWA requirements to such activities as offsite
manufacturing facilities, dedicated production lines, or modular
facilities that service multiple projects but that may service a single
large project for an extended period of time--which is not uncommon in
the clean energy industry. Commenters also sought guidance concerning
the treatment of property such as access roads and substations that may
not be eligible property associated with a qualified facility resulting
in a scope of the PWA requirements reaching beyond the qualified
facility that is eligible for the increased credit amount. One
commenter stated that the incorporation of the site of work may subject
some taxpayers to different enforcement schemes because the projects
may be subject to State or local prevailing wage laws.
Commenters also suggested that if the DBA approach is adopted in
the final rule, that any discussion of secondary manufacturing
facilities distinguish with examples between genuine offsite
manufacturing activities and those that the newly expanded DBA
definition would include. Commenters requested that the Prevailing Wage
Requirements not apply to manufacturing facilities, dedicated
production lines, prefabrication facilities, laydown yards, or ``mod-
yard'' locations that generally service multiple projects and
customers. A commenter requested that the final regulations clarify
that structures established prior to the start of construction of the
qualified facility are not covered by the phrase ``site of the work''
irrespective of their adjacency or dedication to that site. The
commenter also suggested that adjacent or virtually adjacent locations
should not be covered by the PWA requirements if they exceed a 2-mile
perimeter.
In contrast, other commenters urged the Treasury Department and the
IRS to use the DBA site of work definition for the PWA requirements,
including secondary sites that are established specifically for the
performance of the covered contract or project or dedicated
exclusively, or nearly so, to the covered contract or project for a
specific period of time. These commenters emphasized the lack of
statutory language in the IRA limiting the application of prevailing
wage rules based on where work in furtherance of the project is
performed and also suggested defining site of work to cover all
locations where construction of a covered project is performed. Another
commenter claimed that Congress deliberately chose to draft section
45(b)(7)(A) in broader terms than the DBA and recommended that the
final regulations apply to all construction sites where integral
components of the facility are constructed and dedicated support sites.
Commenters recommended that the IRS follow DBA court decisions and
mirror the considerations of DBA regulations.
The Treasury Department and the IRS agree with commenters that
additional clarity is warranted with respect to defining the scope of
the PWA requirements. The Prevailing Wage Requirements apply with
respect to the construction of a facility and with respect to the
alteration or repair of a facility. The Apprenticeship Requirements
apply with respect to construction of a facility. While the terms
construction, alteration, and repair draw meaning from the DBA,
Congress did not qualify the scope of such activities by the site of
the work rule found explicitly in the DBA in defining the scope of the
PWA requirements under the IRA. Instead, section 45(b)(7) and (8) limit
the scope of construction, alteration, or repair to those activities
occurring with respect to a qualified facility. The term qualified
facility (as described in section 45 and guidance thereunder) has
specific meaning for tax purposes.\24\
---------------------------------------------------------------------------
\24\ See, e.g., Rev. Rul. 94-31, 1994-1 C.B. 16.
---------------------------------------------------------------------------
The final regulations clarify that the PWA requirements apply with
respect to a qualified facility within the meaning of section 45. The
Treasury Department and the IRS recognize that only a portion of a
construction project may be used to produce energy covered by the IRA
tax credits. Under the general rule provided for in the final
regulations, the PWA requirements apply to the portion of the activity
that is creditable or deductible per the Code under the respective
underlying section.\25\
---------------------------------------------------------------------------
\25\ Accordingly, as applicable, the PWA requirements apply
under section 30C with respect to a qualified alternative fuel
vehicle refueling project described in section 30C(g)(1)(B)
(consisting of one or more qualified properties within the meaning
of section 30C(c) that are part of a single project); under section
45L with respect to a qualifying residence described in section
45L(a)(2)(B) (that meets the requirements of section 45L(c)(1)(A) or
(B), as applicable); under section 45Q, with respect to a qualified
facility and any carbon capture equipment placed in service at that
facility within the meaning of section 45Q(d); under section 45U
with respect to a qualified nuclear power facility within the
meaning of section 45U(b); under section 45V with respect to a
qualified clean hydrogen production facility within the meaning of
section 45V(c)(3); under section 45Y with respect to a qualified
facility within the meaning of section 45Y(b); under section 45Z,
with respect to a qualified facility within the meaning of section
45Z(d)(4) producing transportation fuel (as defined in section
45Z(d)(5)) or sustainable aviation fuel (as defined in section
45Z(a)(3)(B)); under section 48C, with respect to a qualified
investment (as defined in section 48C(b)) in a qualifying advanced
energy project within the meaning of section 48C(c)(1)(A); and under
section 179D, with respect to energy efficient commercial building
property within the meaning of section 179D(c)(1), and energy
efficient building retrofit property pursuant to a qualified
retrofit within the meaning of section 179(f); and in each case
including any guidance issued thereunder the relevant Code section.
---------------------------------------------------------------------------
[[Page 53206]]
As discussed elsewhere in this preamble, the Treasury Department
and the IRS have incorporated DBA rules if relevant and helpful for tax
administration. Despite the differing statutory language with respect
to scope, the DOL approach to site of the work under the DBA
regulations is instructive for application of the PWA requirements with
respect to activities that may occur at locations other than the
location of the facility. Accordingly, the final regulations continue
to use the DBA concept of site of the work with respect to secondary
sites to define the scope of the PWA requirements for work that occurs
at secondary locations.
The Treasury Department and the IRS also agree with the concerns
raised by the commenters on how the secondary site rule could impact
manufacturing activities that occur at offsite locations and are
performed by unrelated parties. The final regulations clarify that
adoption of the site of the work concept is designed to define the
scope of the PWA requirements and prevent an application of the rules
that would result in all work on a facility, wherever performed and
however small, being subject to the requirements. Under the final
regulation, unrelated third-party manufacturers who produce materials,
supplies, equipment, and prefabricated components for multiple
customers or the general public would not be subject to the PWA
requirements.
VII. Prevailing Wage Requirements
A. In General
Section 45(b)(7)(A)(i) requires that with respect to a qualified
facility, taxpayers who are seeking an increased credit amount ensure
that laborers and mechanics employed by the taxpayer, or any contractor
or subcontractor in the construction of such facility are paid wages at
rates not less than the prevailing rates determined by the DOL in
accordance with the DBA. Section 45(b)(7)(A)(ii) further requires that
prevailing wages are paid with respect to alteration or repair of a
qualified facility for any portion of a taxable year that is within the
10-year period beginning on the date the qualified facility was placed
in service. Proposed Sec. 1.45-7(a) generally would have provided that
a taxpayer claiming or transferring (under section 6418) the increased
credit amount under section 45(b)(6)(B)(iii) with respect to any
qualified facility must satisfy the requirements of section 45(b)(7)
and proposed Sec. 1.45-7. Proposed Sec. 1.45-7(b)(1) would have
provided that a taxpayer needs to ensure that the wages paid to
laborers and mechanics employed by the taxpayer, contractor, or
subcontractor in the construction, alteration, or repair of the
facility must be not less than the prevailing rates in the geographic
area in which such facility is located. Proposed Sec. 1.45-7(b)(6)
would have provided that 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.
A few commenters requested that the final regulations require
taxpayers, contractors, and subcontractors to adopt weekly payroll
practices, as is required for DBA-covered contracts. The commenters
stated that requiring weekly payroll would deter fraud and enable
taxpayers to ensure that contractors and subcontractors comply with PWA
requirements. Many other commenters supported the payment of prevailing
wages consistent with the taxpayer's regular payroll practices. The
commenters supported the flexibility of the proposed rule and stated
that a weekly payroll requirement would not assist the IRS in
administering the PWA requirements.
Section 45(b)(7) requires that laborers and mechanics be paid wages
at rates not less than the prevailing rates; there is no statutory
requirement that laborers and mechanics must be paid on a weekly basis.
As several commenters stated, taxpayers, contractors, and
subcontractors should have the flexibility to pay their workers in
accordance with their ordinary payroll schedules. For these reasons,
these final regulations adopt the proposed rule requiring payment in
the time and manner consistent with the regular payroll practices
without change.
A commenter requested that the final regulations provide an
exception for effective compliance with the Prevailing Wage
Requirements. The limited penalty waiver in Sec. 1.45-7(c)(6) and
described in Section VII.D.4. of this Summary of Comments and
Explanation of Revisions provides sufficient relief for inadvertent,
minor errors. Another commenter suggested clarifying whether a taxpayer
would be deemed to satisfy the Prevailing Wage Requirements for a given
year after a facility is placed in service if neither alterations nor
repairs were performed during that year. The final regulations clarify
that after a facility is placed in service, taxpayers are only required
to meet the Prevailing Wage Requirements with respect to alterations
and repairs if alterations or repairs are actually performed during the
relevant period.\26\ The final regulations also provide that if there
is no alteration or repair that occurs during the relevant year, the
taxpayer is deemed to satisfy the Prevailing Wage Requirements with
respect to that year.
---------------------------------------------------------------------------
\26\ This rule does not apply with respect to sections 30C, 45L,
48C, and 179D as those Code sections do not include a continuing
obligation for the payment of prevailing wages with respect to any
alterations or repairs that occur after the placed in service date.
---------------------------------------------------------------------------
Commenters asked that the final regulations clarify whether the
applicable prevailing wage rate is based on where the project is being
constructed or where the contractor is performing their work. Another
commenter stated that in most cases the wages paid are based on the
local market where the contractor or subcontractor obtains their labor.
Section 45(b)(7)(A) provides that the prevailing wage rate is based on
the locality of the facility that is being constructed. The Proposed
Regulations similarly would have provided that the wage rates must be
not less than the prevailing rates in the geographic area in which such
facility is located. The final regulations continue to use the DBA
concept of site of the work to address construction of a qualified
facility that occurs at one or more secondary locations. The applicable
prevailing wage rate that must be paid to laborers and mechanics is
determined by the location of the work performed, which may be the
location of the qualified facility or any secondary locations.
The Proposed Regulations would have provided a special rule for
qualified facilities located offshore so taxpayers would not need to
request a supplemental wage determination for offshore facilities.
Under the Proposed Regulations, 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. To the extent that the PWA
requirements apply to onshore activities related to an offshore wind
facility, one commenter suggested clarifying that the locality in which
such onshore activities occur, and not where the offshore wind facility
is located, would determine prevailing wage rates for those activities.
A commenter expressed their support for permitting offshore facilities
to use the general wage determination applicable
[[Page 53207]]
to the closest onshore area to the facility. The proposed rule is
adopted without change. Onshore activities that are also considered
construction of a facility within the scope of the PWA requirements
must pay wages at rates not less than the applicable prevailing rates
for the location of the work performed.
B. Determining the Applicable Prevailing Wage Rate
1. General Wage Determinations
Section 45(b)(7)(A) requires that with respect to a qualified
facility, taxpayers who are seeking an increased credit amount ensure
that laborers and mechanics employed by the taxpayer, or any contractor
or subcontractor, in the construction, alteration, or repair of such
facility are paid wages at rates not less than the prevailing rates as
most recently determined by the DOL in accordance with the DBA. As
stated in the preamble to the Proposed Regulations, prevailing wage
rates are those 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. Under the Proposed
Regulations, prevailing wage rates would be determined by the DOL in
accordance with the DBA if they are issued and published by the DOL as
a general wage determination or if issued to a taxpayer as part of a
supplemental wage determination or pursuant to a request for a wage
rate for an additional classification.
With respect to the proper timing of a wage determination, proposed
Sec. 1.45-7(b)(5) would have provided that 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 would have been required to use the applicable wage
determination in effect at the time the alteration or repair work
begins.
Commenters suggested aligning the timing of wage determinations
with the DOL regulations under the DBA, including updates to the DBA
regulations released in August of 2023, to minimize taxpayer confusion.
Several commenters requested that the final regulations provide that
prevailing wage rates be established for the entire project when
construction contracts are executed, not when construction begins,
consistent with the DBA. Commenters emphasized that prevailing wage
determinations are an important factor in determining the cost of labor
and that project costs need to be known ahead of time to accurately bid
on contracts. Commenters asserted that waiting until construction
begins to determine labor costs will lead to financial uncertainty and
may discourage participation in construction projects by many
contractors because contractors need to know what the prevailing wage
obligations are prior to bidding for a project. The commenter stated
that the need to apply new wage rates at the start of construction
would be disruptive and create unnecessary financial risk for
contractors after they have entered into a contract for construction of
a facility.
Commenters stated that portions of the Proposed Regulations refer
to a contract when referencing the timing of a DBA wage determination,
while others refer to a facility, and requested clarification. Another
commenter stated that the approach in the Proposed Regulations
conflicts with early guidance issued by the DOL regarding IRA
prevailing wage compliance.\27\ A few commenters requested that the
final regulations retain the rule that the wage determination be
determined at the beginning of construction or revise the rule to
provide for the determination of wage rates at the project level to
avoid multiple wage rates for the same work. These commenters stated
that because there is no analogous prime contract with a Federal agency
as under the DBA, connecting the wage determination timing to the
execution of a contract could be challenging. Commenters stated that
determining prevailing wage rates at the project level would allow for
greater consistency between contractors and subcontractors. Another
commenter emphasized that each taxpayer, contractor, and subcontractor
should be subject to the same applicable wage determination. At least
one commenter suggested that the final regulations should permit
taxpayers to use wage determinations at the time contracts are executed
or when construction begins.
---------------------------------------------------------------------------
\27\ U.S. Dept. of Labor, Davis-Bacon and Related Acts (DBRA)
Frequently Asked Questions, Sec. III.11, <a href="https://www.dol.gov/agencies/whd/government-contracts/construction/faq">https://www.dol.gov/agencies/whd/government-contracts/construction/faq</a>.
---------------------------------------------------------------------------
The DBA framework is predicated on a Federal contract for the
construction of public buildings and public works between the Federal
Government and contractors. Under the DBA, every contract to perform
construction, alteration, or repair to which the Federal Government is
a party must contain a provision stating the prevailing wage rates to
be paid to various classes of laborers and mechanics. The DBA
regulations generally provide that the applicable wage rates for a
contract are those in effect at the time the prime contract is awarded
by the Federal contracting agency.\28\ By contrast, under the PWA
requirements, there is no contracting party directly analogous to the
Federal Government. Under the Prevailing Wage Requirements, taxpayers
are required to ensure the payment of at least prevailing wages, but
they may do so through the execution of multiple contracts and
subcontracts or may perform the work with their own employees.
---------------------------------------------------------------------------
\28\ Under 29 CFR 5.2, the term ``contract'' means any prime
contract that is subject wholly or in part to the labor standards
provisions of any of the laws referenced by 29 CFR 5.1 and any
subcontract of any tier thereunder, let under the prime contract.
---------------------------------------------------------------------------
Because of the perceived difficulty in assigning a fixed time to
establish the applicable prevailing wage rates based on the execution
of contracts, the proposed rules would have provided that the
applicable prevailing rates are determined at the beginning of
construction. However, the Treasury Department and the IRS understand
the need for taxpayers to reduce uncertainty and determine expected
labor costs prior to entering into contracts for the construction of a
facility. Additionally, the Treasury Department and the IRS agree that
the ``in accordance with'' language in section 45(b)(7) supports
drawing from the DBA rules to determine the appropriate timing for
establishing the applicable wage rates. Accordingly, the final
regulations are revised to provide that the applicable prevailing rates
are determined at the time the contract for the construction,
alteration, or repair of the facility is executed by the taxpayer (or
the taxpayer's designee, assignee, or agent) and a contractor. The
prevailing wage rates at the time such contract is executed apply to
all subcontractors of that contractor. In circumstances in which a
taxpayer (or the taxpayer's designee, assignee, or agent) executes
separate contracts with more than one contractor, then for each such
contract, the applicable prevailing rates with respect to any work
performed by the contractor (and all subcontractors of the contractor)
are determined at the time the contract is executed by the taxpayer (or
the taxpayer's designee, assignee, or agent) and the contractor. In the
absence of a contract, or if a contractor or subcontractor is unable to
determine the date of execution of the contract, the
[[Page 53208]]
final regulations provide that the applicable wage determinations are
those in effect at the time construction starts.
These revisions address commenters' practical business concerns
regarding costs and financing and provide greater consistency with how
the applicable wage rates are established under the DBA. The final
regulations address the concern of commenters that various wage rates
would apply, or that costs will not be able to be determined up front,
because they apply the rate at the time the contract is executed
between the taxpayer and a contractor to all subsequent contracts that
flow from such contract. Thus, consistent with the DBA, the final
regulations allow for more than one wage determination to apply with
respect to the construction, alteration, or repair of a facility in
cases in which a taxpayer executes separate contracts with more than
one contractor, but nonetheless provide certainty for the taxpayer,
contractor, and subcontractor with respect to any work performed
pursuant to that contract.
The final regulations also adopt a similar framework for
alterations or repairs that occur after the facility is placed in
service with applicable wage determinations applying when a contract is
executed between a taxpayer and contractor for the alteration or repair
of a facility, or absent a contract, when the repair or alteration
starts. The final regulations also add all contracts for construction,
alteration, or repair to the list of records that may be necessary to
demonstrate compliance with the applicable Prevailing Wage
Requirements.
Under the Proposed Regulations, taxpayers generally would not have
been required to update the applicable prevailing wage rates during
construction of the facility in the event a new general wage
determination was published by the DOL after construction of the
facility begins. The preamble to the Proposed Regulations stated that a
new wage determination would be required if the 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 in the case of an option to extend the
term of a contract for the construction, alteration, or repair being
exercised. Proposed Sec. 1.45-7(b)(5) mirrored the language in the
preamble, but omitted the term substantial from the rule. The Proposed
Regulations also would have provided 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.
Several commenters were concerned about the requirement to update
prevailing wage rates during the lifespan of a construction project.
Commenters suggested clarifying how to determine when, under the
Proposed Regulations, an additional time period not originally
obligated has occurred that necessitates obtaining a new wage
determination. The commenters stated that the language with respect to
an additional time period is ambiguous and could apply to ordinary
delays and extensions that are common in construction projects.
Commenters requested that the terms substantial and additional be
defined, or a de minimis value be set, to better clarify the threshold
of new work or additional time above which taxpayers would be required
to seek a new wage determination.
The commenters recommended inclusion of language from the DBA
regulations to clarify that a new wage determination is not required if
additional time is given to complete the original commitment or if the
additional construction, alteration, and/or repair work as part of the
modification is merely incidental. Other commenters recommended the
final regulations include a substantiality threshold consistent with
DBA regulations. One commenter suggested the final regulations require
new wage rates only if there is a cardinal change to a covered project.
Another commenter suggested limiting the need for additional wage
determinations to increases in the project's budget of at least 30
percent or delays of at least 120 days to the project's expected
completion date. One commenter suggested that the wage determination in
effect at the beginning of a taxpayer's taxable year be used for all
alterations and repairs occurring in the years after a facility is
placed in service.
The Treasury Department and the IRS agree that clarifications are
needed and that the rules regarding when a new wage determination is
required should be consistent with the rules under the DBA. Under the
DBA guidance in 29 CFR 1.6, if there is additional, substantial
construction, alteration, and/or repair work not within the scope of
work of the original contract or order, or changes to require the
contractor to perform work for an additional time period not originally
obligated, including cases in which an option to extend the term of a
contract is exercised, the contracting agency must include the most
recent revision of any wage determination(s) at the time the contract
is changed or the option is exercised. This does not apply if the
contractor is simply given additional time to complete its original
commitment or if the additional construction, alteration, and/or repair
work in the modification is merely incidental. The DBA regulations also
provide rules with respect to contracts for construction, alteration,
or repair work over a period of time that is not tied to the completion
of any specific work, such as indefinite operations and maintenance or
repair contracts. The DBA regulations require contractors who are
parties to these types of contracts to update the applicable wage rates
for such contracts on an annual basis. The revised wage determination
then applies to any alteration or repair work that begins under such a
contract during the 12 months following the update until such
construction work is completed, even if the completion of that work
extends beyond the twelve-month period.
Accordingly, the final regulations update the proposed rule to
include the substantiality requirement discussed in the preamble to the
Proposed Regulations, and further clarify that the requirement to
update the wage determination does not apply if the contractor is given
more time to complete its original commitment or if the additional work
is merely incidental. The final regulations also update the proposed
rule to provide that if a taxpayer enters into a contract for
alteration or repair work over an indefinite period of time that is not
tied to the completion of any specific work, the applicable wage rates
must be updated on an annual basis.
2. Applicable Prevailing Wage Rate for General Wage Determinations
The Proposed Regulations would have provided 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. As stated in the preamble to the
Proposed Regulations, generally, the DOL conducts surveys to determine
the prevailing rate based on wage rate data submitted by contractors,
contractors' associations, labor organizations, public
[[Page 53209]]
officials, and other interested parties. In general, the Proposed
Regulations would have provided that to determine the applicable
prevailing wage rates, taxpayers would need to use the general wage
determination(s) published by the DOL under the DBA on a DOL approved
website. The current DOL approved website for publishing general wage
determinations <a href="https://www.sam.gov">https://www.sam.gov</a>.
Section 45(b)(7)(A) requires that taxpayers ensure the payment of
prevailing wages at rates not less than the prevailing rates determined
in accordance with the DBA. The Proposed Regulations would have largely
incorporated the definition of wages from 29 CFR 5.2 for the Prevailing
Wage Requirements. Under the Proposed Regulations, wages would be
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. The Proposed
Regulations would have also incorporated by reference the rules set
forth in 29 CFR 5.25 through 5.33 with respect to the costs for bona
fide fringe benefits that may be credited for purposes of the payment
of wages. The Proposed Regulations would have prescribed rules with
respect to the payment of wages including that the payment of wages be
made without deduction (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). Under the Proposed
Regulations, whether amounts are wages for purposes of the Prevailing
Wage Requirements would not be relevant in determining whether amounts
are wages or compensation for other Federal tax purposes.
One commenter suggested that prevailing wage rates established by
the DOL fail to take into account actual compensation to workers,
including fringe benefits, in all cases. The commenter suggested that
to calculate prevailing wage amounts, an employer would not be able to
take credit for the cost to set up and offer medical insurance if an
employee opts out of medical coverage. The commenter also stated that
taxpayers who enter into a collective bargaining agreement may be
disadvantaged, because the agreement could set the wages and benefits
below the prevailing wage amounts for covered employees. The commenter
suggested establishing a safe harbor whereby a taxpayer would be deemed
to satisfy Prevailing Wage Requirements if a substantial number--
defined as 90 percent--of their employees are paid prevailing wages.
This comment appears to misstate the DBA requirements, and to the
extent the comment addresses the determination of prevailing wage rates
for purposes of the DBA, the comment is outside the scope of these
regulations. The Proposed Regulations would have largely incorporated
the definition of wages from 29 CFR 5.2 for the Prevailing Wage
Requirements. Under 29 CFR 5.2 wages include 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. The Proposed
Regulations would have therefore included in the payment of prevailing
wages, the rate of costs to an employer to provide bona fide fringe
benefits. Additionally, the statute requires the payment of prevailing
wages in accordance with the DBA and does not allow lower wage rates
because there is a collective bargaining agreement or if 90 percent of
workers have been paid the applicable wage rates. Accordingly, the
changes suggested by the commenter are not incorporated.
A commenter stated that the Proposed Regulations impose no
obligation on taxpayers to confirm that fringe benefit contributions by
contractors are made to bona fide entities. The commenter suggested
requiring taxpayers to: (i) provide notice of an enforceable commitment
to provide bona fide fringe benefits, and (ii) confirm that fringe
benefit contributions made on behalf of laborers and mechanics by
contractors and subcontractors are made to a bona fide fringe benefit
fund, plan, or program. Another commenter request that the final
regulations specifically allow for the payment of non-required forms of
compensation, such as paying for a portion of health insurance, to make
up for any wage payments that are below the prevailing wage rate.
Consistent with the DBA, the final regulations clarify that a
taxpayer may discharge its wage obligations for the payment of
prevailing wages by paying the full amount in cash, by making payments
to a bona fide fringe benefit provider or incurring costs for bona
[…truncated; see source link]Indexed from Federal Register on June 25, 2024.
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.