Fact Pattern
Federal law creates a substantial tax credit for renewable energy projects by residents and businesses, called the energy investment tax credit (ITC). The amount of the ITC credit depends, according to the statute, on the date at which “construction…begins.” The full amount of the credit is available only for projects begun before a certain date established by law.
In 2013, the IRS issued a “notice” providing two methods of establishing when “construction” on a solar project has “begun”:
The first method provides that construction has begun when “physical work of a significant nature” has been carried out.
The second method provides that construction has begun when the entity carrying out the project has paid five percent or more of the total cost of the facility.
According to the notice, a project is considered to have begun whenever either of the two tests is met, so long as the project is under “continuous efforts to advance towards completion” once initiated. Whether “continuous efforts to advance towards completion” exist is assessed using all the facts and circumstances, but in all cases (according to a later, 2016 notice) will be deemed to exist if the project has been completed within four years of the year when construction was begun.
The 2013 “notice” was issued by the IRS on its own initiative and did not go through notice and comment rule-making procedures. It is not a regulation. The “notice” has since been updated many times (for example in 2018), but not in ways that are relevant to this problem. You may ignore these later notices and need not consult them.
You are part of an organization that is undertaking a large-scale, complex solar energy project. Your organization expects to be able to complete substantial planning and design of the project in a year that is early enough to qualify for the credit. However, you also expect that construction work will not start until later, in a year that would be too late to qualify for the full credit under current law. Moreover, you are concerned that the work may take about six years to complete, given the scope of the project and its complex nature.
Assignment
You are asked to write a memo of no more than five pages (double-spaced) addressing the following questions:
Is your organization likely to qualify for the credit under the guidelines laid out in the IRS notice? Why or why not?
Using techniques of statutory interpretation, what other interpretations of the statutory term when “construction…begins” might be available, and how might your organization make use of those alternative interpretations?
What deference do you think the IRS notice will receive in the courts, and what are the odds of getting the courts to overturn or alter the IRS’s interpretation of the provision?
Do you have any advice for how the project might be rethought in order to lessen the risk that your organization will not ultimately qualify for the tax credit?
Readings
The following readings should be consulted to carry out the assignment. You are not expected, and do not need to consult, any additional readings.
The 2013 IRS notice
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providing guidance on the date when construction has “begun.”
The 2016 IRS notice
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providing that projects completed within four years would automatically satisfy the “continuous program of construction” requirement.
Brian Americus and Gary L. Hecimovich (Deloitte), Special Report: Digging In: Beginning of Construction for Energy Credits (2018)
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