The Internal Revenue Service (IRS) recently issued Notice 2017-4, which contains guidance regarding the "beginning construction" requirement for the production tax credit under Section 45 of the Internal Revenue Code (IRC) and the investment tax credit under Section 48 of the IRC.

Previously, taxpayers could establish that they began construction either by showing that:

Once either of these methods has been demonstrated, taxpayers are still required to make continuous progress toward completion, which is known as the "Continuous Construction Requirement." The Continuous Construction Requirement was considered satisfied if construction began before January 1, 2015 and the facility was placed in service before January 1, 2017. This is known as the Continuity Safe Harbor.

Notice 2017-4 extends the Continuity Safe Harbor by allowing taxpayers to qualify as long as the facility is placed in service later than either:

This gives developers that have already established that they began construction more time to complete the project without having to prove the Continuous Construction Requirement.

Another significant development in Notice 2017-4 is that it prohibits developers from combining the two methods used to show the beginning of construction. The prohibition against using the Physical Work Test and 5% Safe Harbor methods in alternating years to push back a facility’s service deadline only applies to taxpayers that began construction after June 6, 2016.

This allows developers that began construction before June 6, 2016, to refresh, or requalify, their projects under different methods each year.

Finally, Notice 2017-4 provides guidance for taxpayers that are applying the 5% Safe Harbor method to retrofitting existing facilities. To take advantage of the tax credit, the facility must be “new” as determined by the 80/20 rule.

This means that the fair market value of all used property cannot be more than 20% of the facility’s total value and that the cost of new property includes all costs included in the depreciable basis of the new property

This notice provides valuable guidance to real estate developers looking to take advantage of a renewable energy tax credit under Sections 45 or 48 of the IRC. In particular, extending the time period for the Continuity Safe Harbor requirement allows developers to take advantage of these tax credits despite needing additional time to complete their projects.