As discussed previously on the blog, the IRS released Notice 2013-29 on April 15 which provided guidance on determining when construction has begun on a qualified renewable energy facility for purposes of the production tax credit. The Notice provided that when determining whether construction has begun, work performed for the taxpayer by other persons under a binding written contract is taken into account. The Notice defined a written binding contract as qualifying if it is enforceable under local law against the taxpayer or a predecessor and does not limit damages to a specified amount, such as by use of a liquidated damages provision. This was a slight departure from the 1603 grant rules which had a similar provision but the liquidated damages could qualify if the damages equaled or exceeded 5 percent of the total contract price. The IRS re-released the Notice on April 24th and included in Section 4.03(1), "a contractual provision that limits damages to an amount equal to at least five percent of the total contract price will not be treated as limiting damages to a specified amount." Thus, it now conforms to the 1603 grant provision. This will likely be welcome relief to taxpayers that have already entered into contracts this year and anticipate qualifying for the beginning construction rules.
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