On Tuesday, June 18, 2024, the IRS and U.S. Department of the Treasury released final regulations (TD 9998) on the prevailing wage and apprenticeship (PWA) requirements introduced by the Inflation Reduction Act of 2022 (IRA), which, if met, allow for a “5 times bonus credit” for certain clean energy incentives.
What This Means for You
Among other things, the final regulations provided long-awaited recommendations for documentation requirements and best practices for taxpayers and their contractors pursuing clean energy projects. This guidance was a welcomed step forward for those looking for practical action items when it comes to wage and apprenticeship tracking, an administratively burdensome process that is soon to shape the systems and procedures contractors use for wage and labor record-keeping.
What Changed
Prevailing Wage Date Determination – The final regulations were revised to specify that prevailing rates are determined at the time when the taxpayer and a contractor (or subcontractor) execute the contract for construction, alteration, or repair of the facility rather than at the beginning of construction.
Documentation & Intentional Disregard – The final regulations incorporate the definition of intentional disregard for correction and penalty payments, expand upon the list of nonexhaustive factors that may be considered by the IRS to determine whether the failure was knowing or willful, and introduce numerous examples of intentional disregard. Examples of documentation suggestions are to be included in a forthcoming FORsights™ article.
Transition Rules – Under the new Beginning of Construction (BOC) transition rule, taxpayers are granted an exemption from PWA for any qualified work that took place before January 29, 2023, irrespective of whether there is an applicable BOC exception.
Good Faith Effort Exception
- A huge change from proposed regulations, final regulations stipulate that “automated or other non-substantive responses” are not in fact considered responses for the Good Faith Effort Exception (the Exception).
- Partial responses qualify for the Exception to the extent the request was denied, as long as the taxpayer hires those qualified apprentices who were in fact available within the partial denial.
- The Exception is met if there are no registered apprenticeship programs within a geographic area of the project.
- The Exception now remains in effect for 365 days (up from 120 days) from the originally denied request or lack of response.
Qualifying Project Labor Agreement – If a qualifying project labor agreement applies, and any correction payments are made in a timely manner, no penalty payments are required. The final regulations also clarify the wage rate requirements for these project labor agreements.
Apprenticeship Requirements – Apprenticeship requirements apply only to the construction of the qualified facility, and not to alteration or repair work occurring after the facility is placed in service.
Think Strategically About Your Next Project
Familiarize yourself with the expanded record-keeping and reporting requirements of PWA and see if you have systems in place prior to construction to satisfy documentation needs for payroll, labor hours, apprenticeship requirements, and curing time frames. Forvis Mazars can assist with the opportunities provided by PWA compliance and help you avoid potential penalties and interest charges.
Forvis Mazars offers a complimentary tool that can help simplify the IRA discovery process. TaxCred PRO™ for Clean Energy is an interactive questionnaire that generates a customized clean energy tax incentive report. Learn about the IRA tax credits and deductions you or your business may be eligible for and your estimated tax benefit amounts.
Get a jump-start on your clean energy research today. If you have any questions or need assistance, please reach out to a professional at Forvis Mazars.