On June 18, 2024, the U.S. Department of the Treasury and the Internal Revenue Service released final rules regarding prevailing wage and registered apprenticeship (PWA) requirements in the Inflation Reduction Act. The final rule provides clarity and guidance on the PWA requirements to developers of clean energy projects, who can claim increased tax credits of up to five times the base incentive when they pay prevailing wages to laborers and mechanics and hire registered apprentices.
While the PWA requirements took effect in January 2023, the final rules were developed after Treasury and IRS received and considered more than 300 public comments. The IRS made the unpublished rule available ahead of its scheduled publication on June 25, 2024, in the Federal Register, and has also provided an overview of the PWA requirements, frequently asked questions and a fact sheet to help promote compliance and education. The final rules will be effective 60 days after publication.
In general, if developers pay prevailing wages to laborers and mechanics and hire registered apprentices for projects supported by most of the Inflation Reduction Act's clean energy tax incentives, then developers can claim an increased credit equal to five times the base incentive. This includes projects utilizing the investment and production tax credits that help finance utility-scale wind, solar and battery storage projects, as well as for credits for carbon capture, utilization and storage, and clean hydrogen projects.
There are also limited exceptions where taxpayers may be eligible to claim the quintuple increase without meeting prevailing wage and apprenticeship requirements:
- Certain small facilities that produce clean energy under 1 megawatt
- Facilities that began construction before January 29, 2023
The final rule provides other details, including:
- Requiring that determinations of prevailing wage rates be made by the Department of Labor (DOL), consistent with the Davis-Bacon Act;
- Incentivizing practices that will encourage contemporaneous compliance;
- Implementing strong recordkeeping requirements;
- Guaranteeing that taxpayers with projects covered by qualifying project labor agreements do not need to pay penalties; and
- Clarifying apprenticeship requirements such as clearly defining what constitutes a request for qualified apprentices, what constitutes a response, and when the good faith effort exception applies.
To support the IRS' efforts in ensuring taxpayer compliance with the PWA requirements under the Inflation Reduction Act, the DOL and IRS are working on a memorandum of understanding to be signed by the end of the year. The memorandum is aimed at establishing a formalized process of collaboration between the DOL and IRS on education and enforcement of the PWA requirements.
About Duane Morris
Duane Morris has substantial experience counseling energy companies, investors and developers in the battery storage, wind, solar, geothermal and hydroelectric industries, helping them in seeking tax credits and staying in compliance with the Inflation Reduction Act, its various regulations and litigating disputes.
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