On June 29th, the IRS released Notice 2021-41 (which may be found here), which retroactively extends the Continuity Safe Harbor to six years. This follows the release of Notice 2020-41 (discussed here) on May 27, 2020, which extended the then four year Continuity Safe Harbor to five years in response to the COVID-19 pandemic. As such, under Notice 2021-41, the Continuity Safe Harbor will be met for property that began construction in calendar year 2016, 2017, 2018 or 2019 if it is placed in service within six years after the year during which construction started. For property that began construction in calendar year 2020, the five year Continuity Safe Harbor remains intact.
Prior to issuance of Notice 2021-41, if the Continuity Safe Harbor did not apply to a project, the taxpayer was required to satisfy the Continuous Construction Test (if using the Physical Work Test) or the Continuous Efforts test (if using the 5% Safe Harbor). Now, if the time period to satisfy the Continuity Safe Harbor has passed, the Continuity Requirement is satisfied if the taxpayer demonstrates satisfaction of either the Continuous Construction Test or the Continuous Efforts Test, regardless of whether the Physical Work Test or the 5% Safe Harbor was used to establish the beginning of construction.
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