IRS extends ITC safe harbor provisions, adds ‘continuous work’ standard

investment tax credit

The Internal Revenue Service extended the safe harbor for solar projects under the Section 48 Investment Tax Credit (ITC) in Notice 2021-41 published this week. The notice extends the safe harbor rules under IRS Notice 2018-59 from four years to six years for projects that started construction from 2016-2019, and from four years to five years for projects that started construction during 2020.

The notice also provides a new choice to “demonstrate continuous work,” known as a continuity requirement, on a project, providing for the ability to utilize one of two standards, regardless of how an earlier decision was made on how to commence construction.

“Many solar companies have faced significant disruptions to their project timelines due to COVID-19, and this new notice from the IRS will give them much-needed breathing room to complete these projects,” stated Abigail Ross Hopper, president and CEO of the Solar Energy Industries Association (SEIA). “Over the last year and a half, the pandemic disrupted supply chains, shipping and construction operations, permitting processes and financing timelines. Without clarity on safe harbor rules from the IRS, some of these solar projects, and the local economic benefits they bring, would not have made it across the finish line. Businesses now have the certainty they need to keep these projects moving forward, and we thank our federal leaders at the Treasury Department for making this decision.

Summary on the New Guidance:

  • Extends the placed-in-service safe harbor to six years for projects that began construction from 2016-2019;
  • Extends the placed-in-service safe harbor to five years for projects that began construction in 2020; and
  • Allows taxpayers to demonstrate safe harbor compliance by using the “continuous effort” standard, regardless of how construction of the facility began.

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