[Federal Register Volume 89, Number 122 (Tuesday, June 25, 2024)]
[Rules and Regulations]
[Pages 53184-53273]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-13331]
[[Page 53183]]
Vol. 89
Tuesday,
No. 122
June 25, 2024
Part II
Department of the Treasury
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Internal Revenue Service
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26 CFR Part 1
Increased Amounts of Credit or Deduction for Satisfying Certain
Prevailing Wage and Registered Apprenticeship Requirements; Final Rule
Federal Register / Vol. 89 , No. 122 / Tuesday, June 25, 2024 / Rules
and Regulations
[[Page 53184]]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9998]
RIN 1545-BQ62
Increased Amounts of Credit or Deduction for Satisfying Certain
Prevailing Wage and Registered Apprenticeship Requirements
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final rule.
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SUMMARY: This document sets forth final regulations regarding the
increased credit amounts or the increased deduction amount available
for taxpayers satisfying prevailing wage and registered apprenticeship
(collectively, PWA) requirements established by the Inflation Reduction
Act of 2022. These final regulations affect taxpayers intending to
satisfy the PWA requirements to be eligible for increased amounts of
Federal income tax credits or an increased deduction, including those
intending to make elective payment elections for available credit
amounts, and those intending to transfer increased credit amounts.
These final regulations also affect taxpayers intending to satisfy the
prevailing wage requirements to be eligible for increased amounts of
those Federal income tax credits that do not have associated
apprenticeship requirements. Additionally, these final regulations
affect taxpayers who initially fail to satisfy the PWA requirements (or
prevailing wage requirements, as applicable) and subsequently comply
with the correction and penalty procedures in order to be deemed to
satisfy the PWA requirements (or prevailing wage requirements, as
applicable). Finally, these final regulations address specific PWA and
prevailing wage recordkeeping and reporting requirements.
DATES:
Effective date: These regulations are effective August 26, 2024.
Applicability date: For date of applicability, see Sec. Sec.
1.30C-3(c), 1.45-6(d), 1.45-7(e), 1.45-8(h), 1.45-12(f), 1.45L-3(c),
1.45Q-6(c), 1.45U-3(c), 1.45V-3(c), 1.45Y-3(c), 1.45Z-3(c), 1.48C-3(b),
1.179D-3(c).
FOR FURTHER INFORMATION CONTACT: The Office of Associate Chief Counsel
(Passthroughs & Special Industries) at (202) 317-6853 (not a toll-free
number).
SUPPLEMENTARY INFORMATION:
Background
I. Overview
This document contains final regulations that amend the Income Tax
Regulations (26 CFR part 1) under sections 30C, 45, 45L, 45Q, 45U, 45V,
45Y, 45Z, 48C, and 179D of the Internal Revenue Code (Code), as enacted
or amended by the Inflation Reduction Act of 2022 (IRA), Public Law
117-169, 136 Stat. 1818 (August 16, 2022).
The IRA amended sections 30C, 45, 45L, 45Q, 48, 48C, and 179D to
provide increased amounts of credits or an increased deduction, as
applicable, for taxpayers who satisfy certain requirements and added
sections 45U, 45V, 45Y, 45Z, and 48E to the Code to provide new
credits, which also contain provisions for increased credit amounts for
taxpayers who satisfy certain requirements. Increased credit amounts
are available under sections 30C, 45, 45Q, 45V, 45Y, 45Z, 48, 48C, and
48E, and an increased deduction is available under section 179D for
taxpayers satisfying certain PWA requirements. Increased credit amounts
are available under sections 45L and 45U for taxpayers satisfying
certain prevailing wage requirements.\1\ The IRA includes correction
and penalty provisions available in certain situations for taxpayers
that have initially failed to satisfy the PWA requirements and are not
otherwise eligible for the increased amount of credit or deduction
because they do not qualify for an exception.
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\1\ The provisions in sections 45L and 45U relating to increased
credit amounts do not contain apprenticeship requirements. For
simplicity, where possible, the preamble to these final regulations
uses the acronym PWA to refer to the prevailing wage and
apprenticeship requirements generally, including the prevailing wage
requirements in sections 45L and 45U.
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Increased amounts of credits or an increased deduction are
generally available under sections 30C, 45, 45Q, 45V, 45Y, 48, 48E and
179D with respect to certain facilities, properties, projects,
technologies, or equipment if beginning of construction (or beginning
of installation for section 179D) of the facility, property, project,
technology, or equipment, as applicable, occurs before January 29, 2023
(BOC Exception). Additionally, the increased credit amounts generally
are available under sections 45, 45Y, 48, and 48E with respect to
certain facilities, projects, and technologies, as applicable, with a
maximum net output (or capacity for energy storage technology under
section 48E) of less than one megawatt (One Megawatt Exception).
Generally, if a taxpayer satisfies the PWA requirements, meets the BOC
Exception, or meets the One Megawatt Exception, the amount of credit or
deduction determined is equal to the otherwise determined amount of the
underlying credit or deduction multiplied by five.
II. PWA Provisions
A. In General
The principal PWA requirements are set forth in section 45(b)(6),
(7), and (8). In general, section 45(b)(6) provides the increased
credit amount for taxpayers satisfying the PWA requirements or meeting
one of the exceptions, section 45(b)(7) provides the prevailing wage
requirements (Prevailing Wage Requirements),\2\ and section 45(b)(8)
provides the apprenticeship requirements (Apprenticeship
Requirements).\3\
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\2\ The Prevailing Wage Requirements in sections 30C(g), 45L(g),
45Q(h), 45U(d), 45V(e), 48(a)(10), 48C(e), and 179D(b) are similar
to the requirements provided under section 45(b)(7). Sections 30C,
45L, 48C, and 179D, however, do not require the payment of wages at
rates not less than the prevailing rates after construction, re-
equipping, expansion, establishment, or installation, as applicable,
ends. Sections 45Y(g)(9) and 45Z(f)(6)(A) adopt by cross-reference
the Prevailing Wage Requirements under section 45(b)(7). Section
48E(d)(3) adopts by cross-reference the Prevailing Wage Requirements
under section 48(a)(10). Section 48(a)(10)(C) provides for a special
5-year recapture rule that applies for purposes of the Prevailing
Wage Requirements with respect to sections 48 and 48E.
\3\ Sections 30C(g)(3), 45Q(h)(4), 45V(e)(4), 45Y(g)(10),
45Z(f)(7), 48(a)(11), 48C(e)(6), 48E(d)(4), and 179D(b)(5) cross-
reference the Apprenticeship Requirements in section 45(b)(8).
Sections 45L and 45U do not have Apprenticeship Requirements.
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In general, section 45 provides a credit for taxpayers producing
electricity from qualified energy resources at a qualified facility
during the 10-year period beginning on the date the facility was
originally placed in service, and selling that electricity to unrelated
persons during the taxable year. Under section 45(a), the credit is
equal to 0.3 cents multiplied by the kilowatt hours of electricity: (i)
produced by the taxpayer from qualified energy resources and at a
qualified facility during the 10-year period beginning on the date the
facility was originally placed in service, and (ii) sold by the
taxpayer to an unrelated person during the taxable year. Under section
45(b)(6), with respect to a qualified facility, if a taxpayer satisfies
the PWA requirements, meets the BOC Exception, or meets the One
Megawatt Exception, then the amount of the credit determined under
section 45(a) is multiplied by five.
B. Prevailing Wage Requirements
Section 45(b)(7)(A) provides that with respect to any qualified
facility, ``the taxpayer shall ensure that any laborers
[[Page 53185]]
and mechanics employed by the taxpayer or any contractor or
subcontractor in--(i) the construction of such facility, and (ii) with
respect to any taxable year, for any portion of such taxable year which
is within the [10-year period beginning on the date the qualified
facility was originally placed in service], the alteration or repair of
such facility, shall be paid wages at rates not less than the
prevailing rates for construction, alteration, or repair of a similar
character in the locality in which such facility is located as most
recently determined by the Secretary of Labor, in accordance with
subchapter IV of chapter 31 of title 40, United States Code [Davis-
Bacon Act or DBA].''
The Davis-Bacon Act, enacted in 1931, requires the payment of
minimum prevailing wages determined by the Department of Labor (DOL)
for laborers and mechanics working on contracts entered into by Federal
agencies and the District of Columbia, if such contracts are in excess
of $2,000 and are for the construction, alteration, or repair of public
buildings and public works. Section 3142 of the DBA requires that
Federal agencies entering into contracts covered by the DBA include the
requirements of the DBA in the contract, including the requirement to
incorporate the applicable wage determinations that set forth the
prevailing wages to be paid to laborers and mechanics. The Copeland
Act, 40 U.S.C. 3145, sets forth a requirement that the contractor
submit certified weekly payroll records to the contracting Federal
agency. Congress has included DBA requirements in other laws, often
referred to as the Davis-Bacon Related Acts, under which Federal
agencies provide assistance for construction projects through grants,
loans, insurance, and other methods. The DOL Wage and Hour Division
(WHD) administers the DBA prevailing wage provisions.
C. Correction and Penalty Related to Failure To Satisfy Prevailing Wage
Requirements
Under section 45(b)(7)(B) of the Code, a taxpayer who is not
eligible for the BOC Exception or the One Megawatt Exception and fails
to satisfy the Prevailing Wage Requirements under section 45(b)(7)(A),
is deemed to have satisfied those requirements if the taxpayer makes a
correction payment to any laborer or mechanic who was paid wages at a
rate below the required prevailing rate for any period during any year
of the construction, alteration, or repair of the qualified facility
and pays a penalty to the Internal Revenue Service (IRS).
Under section 45(b)(7)(B)(i)(I), the amount of the correction
payment is the sum of: (i) the difference between the amount of wages
paid to the laborer or mechanic during the period and the amount of
wages required to be paid to the laborer or mechanic during that period
in order to meet the Prevailing Wage Requirements; and (ii) interest on
the amount under (i) at the underpayment rate established under section
6621 (determined by substituting six percentage points for three
percentage points in section 6621(a)(2)) for the applicable period.
Under section 45(b)(7)(B)(i)(II), the amount of the penalty is
$5,000 multiplied by the total number of laborers and mechanics who
were paid wages at a rate below the prevailing wage rate described in
section 45(b)(7)(A) for any period during the year. Deficiency
procedures do not apply with respect to the assessment or collection of
this penalty pursuant to section 45(b)(7)(B)(ii).
Under section 45(b)(7)(B)(iii), if the IRS determines that the
failure to satisfy the Prevailing Wage Requirements is due to
``intentional disregard'' of those requirements, then the correction
payment to the laborer or mechanic is three times the amount that would
otherwise be determined under section 45(b)(7)(B)(i)(I), and $10,000 is
substituted for $5,000 in calculating the penalty under section
45(b)(7)(B)(i)(II).
Section 45(b)(7)(B)(iv) provides that once the IRS makes a final
determination that a taxpayer has failed to satisfy the Prevailing Wage
Requirements, the taxpayer must make the correction and penalty
payments within 180 days after the final determination to be eligible
for the increased credit amount. If the taxpayer does not make the
required correction and penalty payments, and therefore is not allowed
the increased credit amount, no penalty is assessed under section
45(b)(7)(B).
D. Apprenticeship Requirements
Under section 45(b)(8), with respect to the construction of any
qualified facility, taxpayers must satisfy the Apprenticeship
Requirements. The Apprenticeship Requirements impose rules regarding
labor hours, apprentice-to-journeyworker ratios, and participation by
qualified apprentices.
1. Labor Hours Requirement
Section 45(b)(8)(A)(i) provides that ``[t]axpayers shall ensure
that, with respect to construction of any qualified facility, not less
than the applicable percentage of the total labor hours of the
construction, alteration, or repair work (including such work performed
by any contractor or subcontractor) with respect to such facility
shall, subject to [section 45(b)(8)(B)], be performed by qualified
apprentices'' (Labor Hours Requirement). For purposes of the Labor
Hours Requirement, section 45(b)(8)(A)(ii) provides that the applicable
percentage is: (i) in the case of a qualified facility the construction
of which begins before January 1, 2023, 10 percent, (ii) in the case of
a qualified facility the construction of which begins after December
31, 2022, and before January 1, 2024, 12.5 percent, and (iii) in the
case of a qualified facility the construction of which begins after
December 31, 2023, 15 percent.
Section 45(b)(8)(E)(i) defines ``labor hours'' as the total number
of hours devoted to the performance of construction, alteration, or
repair work by any individual employed by the taxpayer or by any
contractor or subcontractor, and excluding any hours worked by foremen,
superintendents, owners, or persons employed in a bona fide executive,
administrative, or professional capacity (within the meaning of those
terms in part 541 of title 29, Code of Federal Regulations). Section
45(b)(8)(E)(ii) defines ``qualified apprentice'' as ``an individual who
is employed by the taxpayer or by any contractor or subcontractor and
who is participating in a registered apprenticeship program, as defined
in section 3131(e)(3)(B).'' Section 3131(e)(3)(B) defines a
``registered apprenticeship program'' as an apprenticeship program
registered under the Act of August 16, 1937 (commonly known as the
National Apprenticeship Act, 50 Stat. 664, chapter 663, 29 U.S.C. 50 et
seq.) that meets the standards of subpart A of part 29 and part 30 of
title 29 of the Code of Federal Regulations.\4\ The DOL Office of
Apprenticeship (OA) administers provisions under the National
Apprenticeship Act related to registered apprenticeship programs.
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\4\ Effective November 25, 2022, 29 CFR part 29 is no longer
divided into subparts A and B because subpart B (Industry Recognized
Apprenticeship Programs) was rescinded in a final rule published on
September 26, 2022 (87 FR 58269). On January 17, 2024, the DOL
released a notice of proposed rulemaking that would once again place
apprenticeship standards in subpart A of part 29. See 89 FR 3118.
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2. Ratio Requirement
Under section 45(b)(8)(B), the Labor Hours Requirement is subject
to any applicable requirements for apprentice-to-journeyworker ratios
of the DOL or the applicable State apprenticeship agency (Ratio
Requirement).
[[Page 53186]]
3. Participation Requirement
Under section 45(b)(8)(C), each taxpayer, contractor, or
subcontractor who employs four or more individuals to perform
construction, alteration, or repair work with respect to the
construction of a qualified facility must employ one or more qualified
apprentices to perform such work (Participation Requirement).
E. Exceptions to Apprenticeship Requirements
1. In General
Under section 45(b)(8)(D)(i), a taxpayer is not treated as failing
to satisfy the Apprenticeship Requirements if: (i) the taxpayer
satisfies the requirements described in section 45(b)(8)(D)(ii) (Good
Faith Effort Exception), or (ii) in the case of any failure by the
taxpayer to satisfy the Labor Hours Requirement under section
45(b)(8)(A) and the Participation Requirement under section
45(b)(8)(C), the taxpayer makes a penalty payment to the IRS
(Apprenticeship Cure Provision).
2. Good Faith Effort Exception
Under the Good Faith Effort Exception provided by section
45(b)(8)(D)(ii), a taxpayer is deemed to have satisfied the
Apprenticeship Requirements with respect to a qualified facility if the
taxpayer has requested qualified apprentices from a registered
apprenticeship program, and (i) such request has been denied, provided
that such denial is not the result of a refusal by the taxpayer or any
contractors or subcontractors engaged in the performance of
construction, alteration, or repair work with respect to such qualified
facility to comply with the established standards and requirements of
the registered apprenticeship program, or (ii) the registered
apprenticeship program fails to respond to such request within five
business days after the date on which such registered apprenticeship
program received such request.
3. Apprenticeship Cure Provision
Under section 45(b)(8)(D)(i)(II), if the Good Faith Effort
Exception does not apply, then the taxpayer will not be treated as
failing to satisfy the Labor Hours Requirement or the Participation
Requirement if the taxpayer makes a penalty payment to the IRS in an
amount equal to the product of $50 multiplied by the total labor hours
for which the Labor Hours Requirement or the Participation Requirement
was not satisfied with respect to the construction, alteration, or
repair work on the qualified facility. Under section 45(b)(8)(D)(iii),
if the IRS determines that the failure was due to intentional disregard
of the Labor Hours Requirement or Participation Requirement, then the
penalty amount increases to $500 multiplied by the total labor hours
for which the Labor Hours Requirement or Participation Requirement was
not satisfied.
III. Other Increased Credit Amount Provisions
A. Beginning of Construction Exception
Under the BOC Exception in section 45(b)(6)(B)(ii), a qualified
facility the construction of which began prior to the date that is 60
days after the IRS publishes guidance with respect to the requirements
of section 45(b)(7)(A) and (8) is a facility eligible for the increased
credit amount in section 45(b)(6). On November 30, 2022, the Department
of the Treasury (Treasury Department) and the IRS published Notice
2022-61 in the Federal Register (87 FR 73580, corrected in 87 FR 75141
(Dec. 7, 2022)), providing guidance with respect to the PWA
requirements in section 45(b)(7) and (8), including initial guidance
for determining the beginning of construction under section 45 and
other credits and the beginning of installation under section 179D.
Therefore, if a taxpayer began construction or installation of a
facility \5\ before January 29, 2023, then the taxpayer is eligible for
the increased amount of credit or deduction without satisfying the PWA
requirements, provided the taxpayer is otherwise eligible for the
credit or deduction. Similar exceptions apply under sections 30C, 45Q,
45V, 45Y, 48, 48E, and 179D.
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\5\ Notice 2022-61 defines facility as qualified facility,
property, project, or equipment.
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For purposes of determining when construction or installation
begins, Notice 2022-61 incorporates by reference the notices issued
under sections 45,\6\ 45Q,\7\ and 48 \8\ (collectively, IRS Notices).
The IRS Notices describe two methods of establishing that construction
of a facility has begun: (i) starting physical work of a significant
nature (Physical Work Test), and (ii) paying or incurring five percent
or more of the total cost of the facility (Five Percent Safe Harbor).
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\6\ Notice 2013-29, 2013-20 I.R.B. 1085; clarified by Notice
2013-60, 2013-44 I.R.B. 431; clarified and modified by Notice 2014-
46, 2014-36 I.R.B. 520; updated by Notice 2015-25, 2015-13 I.R.B.
814; clarified and modified by Notice 2016-31, 2016-23 I.R.B. 1025;
updated, clarified, and modified by Notice 2017-04, 2017-4 I.R.B.
541; Notice 2018-59, 2018-28 I.R.B. 196; modified by Notice 2019-43,
2019-31 I.R.B. 487; modified by Notice 2020-41, 2020-25 I.R.B. 954;
clarified and modified by Notice 2021-5, 2021-3 I.R.B. 479;
clarified and modified by Notice 2021-41, 2021-29 I.R.B. 17.
\7\ Notice 2020-12, 2020-11 I.R.B. 495.
\8\ Notice 2018-59; modified by Notice 2019-43; modified by
Notice 2020-41; clarified and modified by Notice 2021-5; clarified
and modified by Notice 2021-41.
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The IRS Notices provide that for purposes of the Physical Work Test
and Five Percent Safe Harbor, taxpayers must demonstrate either
continuous construction or continuous efforts (Continuity Requirement)
regardless of whether the Physical Work Test or the Five Percent Safe
Harbor was used to establish the beginning of construction. Whether a
taxpayer meets the Continuity Requirement under either test is
determined by the relevant facts and circumstances.
The IRS Notices also provide for a Continuity Safe Harbor under
which a taxpayer will be deemed to satisfy the Continuity Requirement
provided a qualified facility is placed in service no more than four
calendar years after the calendar year during which construction of the
qualified facility began for purposes of sections 45 and 48, and no
more than six calendar years after the calendar year during which
construction of the qualified facility or carbon capture equipment
began for purposes of section 45Q. For purposes of the Continuity Safe
Harbor, certain offshore projects and projects built on Federal land
under sections 45 and 48 satisfy the Continuity Requirement if such a
project is placed into service no more than ten calendar years after
the calendar year during which construction of the project began.
Until the Treasury Department and the IRS issue further guidance on
determining when construction or installation begins, taxpayers may
continue to rely on the guidance provided in Notice 2022-61 and the IRS
Notices. Specifically, to determine when construction begins for
purposes of sections 30C, 45V, 45Y, and 48E, principles similar to
those under Notice 2013-29 regarding the Physical Work Test and Five
Percent Safe Harbor apply, and taxpayers satisfying either test will be
considered to have begun construction. In addition, principles similar
to those provided in the IRS Notices regarding the Continuity
Requirement for purposes of sections 30C, 45V, 45Y, and 48E apply.
Whether a taxpayer meets the Continuity Requirement under either test
is determined by the relevant facts and circumstances. Similar
principles to those under section 3 of Notice 2016-31 regarding the
Continuity Safe Harbor also apply for purposes of sections 30C, 45V,
45Y, and 48E. Taxpayers may rely on the Continuity Safe Harbor with
[[Page 53187]]
respect to those sections, provided the facility is placed in service
no more than four calendar years after the calendar year during which
construction began.
For purposes of section 179D, installation of energy efficient
commercial building property, energy efficient building retrofit
property, or property installed pursuant to a qualified retrofit plan
has begun if a taxpayer generally satisfies principles similar to the
Physical Work Test and the Five Percent Safe Harbor described in
section 2.02 of Notice 2022-61 regarding the beginning of construction
under Notice 2013-29. The relevant facts and circumstances will
ultimately determine whether a taxpayer has begun installation.
For purposes of sections 45, 45Q, and 48, the IRS Notices will
continue to apply under each respective Code section, including
application of the Physical Work Test and Five Percent Safe Harbor, and
the rules regarding the Continuity Requirement and Continuity Safe
Harbors.
B. One Megawatt Exception
Under the One Megawatt Exception in section 45(b)(6)(B)(i), a
qualified facility that has a maximum net output of less than one
megawatt (as measured in alternating current) is a facility eligible
for the increased credit amount. Similar exceptions apply for a
qualified facility with a maximum net output of less than one megawatt
(as measured in alternating current) under sections 45Y(a)(2)(B)(i) and
48E(a)(2)(A)(ii)(I); an energy project with a maximum net output of
less than one megawatt of electrical (as measured in alternating
current) or thermal energy under section 48(a)(9)(B)(i); and energy
storage technology with a capacity of less than one megawatt under
section 48E(a)(2)(B)(ii)(I).
IV. Prior Guidance
On October 24, 2022, the Treasury Department and the IRS published
Notice 2022-51, 2022-43 I.R.B. 331, requesting comments on aspects of
the increased amounts of credits and deduction enacted or amended by
the IRA, including the PWA provisions. On November 30, 2022, the
Treasury Department and the IRS published Notice 2022-61. Notice 2022-
61 provided guidance on the PWA requirements that generally apply under
sections 30C, 45, 45L, 45Q, 45U, 45V, 45Y, 45Z, 48, 48C, 48E, and 179D.
Additionally, as discussed in Section III.A. of this Background, Notice
2022-61 established the 60-day period described in sections
30C(g)(1)(C)(i), 45(b)(6)(B)(ii), 45Q(h)(2), 45V(e)(2)(A)(i),
45Y(a)(2)(B)(ii), 48(a)(9)(B)(ii), 48E(a)(2)(A)(ii)(II) and
(a)(2)(B)(ii)(II), and 179D(b)(3)(B)(i) for purposes of the BOC
Exception. Finally, Notice 2022-61 provided guidance for determining
the beginning of construction under sections 30C, 45, 45Q, 45V, 45Y,
48, and 48E, and the beginning of installation under section 179D.
On August 30, 2023, the Treasury Department and the IRS published a
notice of proposed rulemaking and a notice of public hearing (REG-
100908-23) in the Federal Register (88 FR 60018), corrected in 88 FR
73807 (Oct. 27, 2023), and 89 FR 25550 (April 11, 2024), providing
guidance on the PWA requirements under sections 30C, 45, 45L, 45Q, 45U,
45V, 45Y, 45Z, 48, 48C, 48E, and 179D (Proposed Regulations). The
provisions of the Proposed Regulations are explained in greater detail
in the preamble to the Proposed Regulations.
On November 22, 2023, the Treasury Department and the IRS published
a notice of proposed rulemaking and a notice of public hearing (REG-
132569-17) in the Federal Register (88 FR 82188), providing guidance
under section 48. Among other matters, the proposed regulations under
section 48 (Section 48 Proposed Regulations) withdrew and reproposed
the regulations in Sec. 1.48-13 regarding the PWA requirements under
section 48, the One Megawatt Exception under section 48(a)(9)(B)(i),
and the recapture rules under section 48(a)(10)(C) related to the
Prevailing Wage Requirements. These final regulations do not include
final regulations under section 48. Additionally, because proposed
Sec. 1.48E-3 would have incorporated the rules of proposed Sec. 1.48-
13 by cross-reference, these final regulations do not include final
regulations under section 48E. The Treasury Department and the IRS
intend to issue final regulations with respect to the PWA Requirements
in proposed Sec. 1.48-13 and proposed Sec. 1.48E-3 in future Treasury
decisions.
The Proposed Regulations provided that taxpayers may rely on
proposed Sec. 1.48E-3 with respect to construction of a qualified
facility on or after January 29, 2023, and on or before the date
proposed Sec. 1.48E-3 publishes as a final regulation in the Federal
Register, provided, that beginning after the date that is 60 days after
August 29, 2023, taxpayers follow the proposed regulations in their
entirety and in a consistent manner. The Section 48 Proposed
Regulations similarly provided that taxpayers may rely on proposed
Sec. 1.48-13 with respect to construction of a property or project
beginning on or after January 29, 2023, and on or before the date
proposed Sec. 1.48-13 publishes as a final regulation in the Federal
Register, provided, that beginning after the date that is 60 days after
August 29, 2023, taxpayers follow proposed Sec. 1.48-13 in its
entirety and in a consistent manner. These final regulations do not
change the reliance provided with respect to proposed Sec. 1.48-13 and
proposed Sec. 1.48E-3.
Comments received regarding the specific PWA requirements under
sections 48 and 48E, the One Megawatt Exception under sections 48 and
48E, and the recapture rules contained in section 48(a)(10)(C), all
whether in response to the Proposed Regulations or the Section 48
Proposed Regulations, will be addressed in the future Treasury decision
adopting those rules as final regulations. Other comments on the PWA
requirements (including comments that referenced section 48 or section
48E, but addressed the PWA requirements more generally) were considered
in the drafting of these final regulations and are discussed herein.
On June 3, 2024, the Treasury Department and the IRS published a
notice of proposed rulemaking and a notice of public hearing (REG-
119283-23) in the Federal Register (89 FR 47792), proposing guidance
under sections 45Y and 48E (Section 45Y/48E Proposed Regulations). In
the Section 45Y/48E Proposed Regulations, the Treasury Department and
the IRS requested comments on the proposed definition of a qualified
facility with a maximum net output of less than one megawatt (as
measured in alternating current) for purposes of the One Megawatt
Exception under section 45Y(a)(2)(B)(i). All comments received
pertaining to the One Megawatt Exception under section 45Y(a)(2)(B)(i),
whether in response to the Proposed Regulations or the Section 45Y/48E
Proposed Regulations, will be addressed in future guidance under
section 45Y finalizing those rules. General PWA comments that were
received in response to the Proposed Regulations and that referenced
section 45Y are discussed throughout this Summary of Comments and
Explanation of Revisions because they were considered in the drafting
of these final regulations.
Summary of Comments and Explanation of Revisions
This Summary of Comments and Explanation of Revisions summarizes
the Proposed Regulations, all the substantive comments submitted in
response to the Proposed Regulations, and revisions adopted by these
final regulations. The Treasury Department
[[Page 53188]]
and the IRS received 342 written comments in response to the Proposed
Regulations. The comments are available for public inspection at
https://www.regulations.gov or upon request. After full consideration
of the comments received, these final regulations adopt the Proposed
Regulations with modifications in response to such comments as
described in this Summary of Comments and Explanation of Revisions.
Most comments addressed the PWA requirements in general, without
identifying a specific Code section. These comments are primarily
addressed in Sections I. through VIII. of this Summary of Comments and
Explanation of Revisions, and revisions that have been made in response
to these comments are also typically described in general terms, or by
reference to section 45, which sets forth the principal PWA
requirements. Thus, the terms qualified facility and facility as used
in Sections I. through VIII. of this Summary of Comments and
Explanation of Revisions generally includes qualified equipment,
qualified residence, qualified project, and qualified property for
purposes of sections 30C, 45, 45L, 45Q, 45U, 45V, 45Y, 45Z, 48C, and
179D, as applicable. References to an increased credit amount in
Sections I. through VIII. of this Summary of Comments and Explanation
of Revisions include the increased deduction amount available under
section 179D, as applicable. Comments specifically addressing the PWA
requirements in sections 30C, 45L, 45Q, 45U, 45V, 45Y, 45Z, 48C, and
179D are described in Section IX. of this Summary of Comments and
Explanation of Revisions.
Comments summarizing the statute or the Proposed Regulations,
recommending statutory revisions, and addressing issues that are
outside the scope of this rulemaking (such as revising other Federal
regulations and recommending changes to IRS forms) are generally not
addressed in this Summary of Comments and Explanation of Revisions or
adopted in these final regulations. Some commenters requested
additional time to submit comments. The Proposed Regulations required
all comments to be received by October 30, 2023; however, comments
received by April 25, 2024, were considered in drafting these final
regulations. In addition to addressing the comments received in
response to the Proposed Regulations, the final regulations also
include non-substantive grammatical or stylistic changes to the
Proposed Regulations.
I. Pre-Filing Activities
A. Applicability of the Davis-Bacon Act in General 9
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\9\ All references to the DBA regulations throughout this
Summary of Comments and Explanation of Revisions include updates to
the DBA regulations published in a final rule on August 23, 2023 (88
FR 57526).
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Under section 45(b)(7)(A), the increased credit amount provided by
section 45(b)(6) is available with respect to a qualified facility if,
among other requirements, a taxpayer ensures that laborers and
mechanics are, ``paid wages at rates not less than the prevailing rates
for construction, alteration, or repair of a similar character in the
locality in which such facility is located as most recently determined
by the Secretary of Labor, in accordance with'' the DBA. As explained
in the preamble to the Proposed Regulations, the phrase ``in accordance
with'' means ``in agreement or harmony with; in conformity to;
according to.'' \10\ In interpreting the ``in accordance with''
language, the preamble to the Proposed Regulations explained that the
Treasury Department and the IRS proposed to incorporate those
requirements of the DBA that are relevant for the purposes of section
45(b)(7)(A) and the intent of the IRA, and that are necessary for, and
consistent with, sound tax administration.
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\10\ In accordance with, Oxford English Dictionary, https://www.oed.com/search/dictionary/?scope=Entries&q=in+accordance+with
(last visited Aug. 8, 2023); see Accordance, Merriam-Webster's
Collegiate Dictionary (11th ed. 2006) (meaning agreement,
conformity).
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Under the DBA, the DOL determines the wage rates that are
``prevailing'' for each classification of covered laborers and
mechanics in the geographic area in which work is to be performed and
publishes general wage determinations providing that information to the
public. Under the DBA, Federal contracting agencies follow specified
procedures for incorporating DBA requirements and wage determinations
into covered contracts. Pursuant to the Copeland Act, contractors are
required to submit certified weekly payroll records to the contracting
agency. Under the DBA regulations, the contracting agency and the DOL
WHD have responsibility to ensure compliance with prevailing wage
requirements by engaging in periodic audits or investigations of
contracts, including examination of payroll data.
The Proposed Regulations would have largely adopted DBA guidance
relating to applicable wage rates and wage determinations and the
meaning of pertinent terms such as ``laborer'' and ``mechanic'';
``construction, alteration, or repair''; ``wages''; and ``employed.''
The Proposed Regulations would not have incorporated the DBA (or
Copeland Act) guidance regarding provisions required to be included in
contracts, those provisions related to the reporting of certified
weekly payroll records by contractors to contracting agencies, and the
various enforcement processes that are available to the DOL and the
contracting agencies to address DBA noncompliance.
As explained in the preamble to the Proposed Regulations, this
approach was intended to reflect the substantive differences between
the DBA and the Code. Under the DBA, a contractor is required to pay
prevailing wages as a condition of a Federal contract award. Under
section 45, although the requirement to ensure the payment of wages at
rates not less than the prevailing rates is generally triggered when
construction of a facility begins, that requirement becomes legally
binding only if a tax return claiming the increased credit amount is
filed. The Code does not require taxpayers who do not seek an increased
credit amount under section 45(b)(6) to ensure the payment of
prevailing wages at the beginning of construction, alteration, or
repair of a facility. Furthermore, under the correction and penalty
provisions in section 45(b)(7)(B)(i)(I) and 45(b)(7)(B)(i)(II),
taxpayers may remedy prior failures to pay wages at rates not less than
the prevailing rates, even after a return is filed, and still be
eligible for the increased credit amount. In addition, a taxpayer that
satisfies the BOC Exception or the One Megawatt Exception, if
applicable, may generally claim the increased credit amount regardless
of whether laborers and mechanics were paid prevailing wages.
Several commenters suggested that the final regulations should
incorporate additional requirements from the DBA, instead of limiting
the incorporation to those that the Treasury Department and the IRS
determine are relevant for purposes of claiming the increased credit
amount and that are necessary for, and consistent with, sound tax
administration. Some commenters asserted that not incorporating all
elements of the DBA framework was arbitrary and capricious and contrary
to the statute. Some commenters alleged that the Proposed Regulations
failed to adequately address the increased chance of improperly claimed
credits by relying too heavily on post-filing enforcement. One
commenter stated that post-filing enforcement by the IRS does not
guarantee workers' rights, including notice of entitlement to the
prevailing wage, a complaint procedure to report
[[Page 53189]]
noncompliance, protections against retaliation, or a requirement that
workers be guaranteed any wage by an enforceable contract. The
commenters also stated that the reliance on post-filing compliance was
inconsistent with the DBA and would lead to fraud, noncompliance, and
evasion of the tax rules. At least one commenter suggested that
incorporating all of the DBA requirements is necessary to more
generally address issues of fraud in the construction industry. One
commenter opined that although the IRA differed from traditional Davis-
Bacon Related Acts that expressly adopt the DOL's existing
implementation framework and confer primary enforcement authority upon
the DOL, this was because the IRA was enacted through reconciliation.
The commenter stated that this should not impact the implementation of
the prevailing wage provisions.
Although several commenters supported a more expansive
incorporation of the DBA, many other commenters stated that the
Proposed Regulations took the correct approach regarding incorporation
of the DBA. One commenter suggested that given the unique challenges of
applying a system arising in Federal contracting to the IRA's tax
credit regime, Congress did not limit the Treasury Department and the
IRS to adopting the DBA requirements and enforcement scheme word-for-
word and without modification. Many commenters acknowledged the need
for the Treasury Department and the IRS to take a reasonable approach
to interpret a Code provision that references a Federal law applicable
to Federal contracts.
These final regulations do not alter the general approach taken in
the Proposed Regulations of incorporating DBA guidance for purposes of
the PWA requirements only if it is relevant for the purposes of section
45(b)(7)(A) and the intent of the IRA, and necessary for, and
consistent with, sound tax administration. The Treasury Department and
the IRS recognize the importance of ensuring compliance with the
statute such that workers benefit from the payment of prevailing wages
on projects for which the increased amount of credit is claimed and
find that the general approach in the Proposed Regulations promotes
that goal within the constraints of the statute and in furtherance of
sound tax administration. Consistent with this framework, the final
regulations encourage taxpayers to adopt certain practices for ensuring
compliance in the interest of fulfilling statutory intent and
furthering sound tax administration.
The Treasury Department and the IRS disagree with the assertion
that the Proposed Regulations were arbitrary and capricious. This
Summary of Comments and Explanation of Revisions reiterates and expands
upon the rationale for applying the DBA provisions that are relevant
for purposes of claiming the increased tax credit and consistent with
sound tax administration. If Congress intended for the same DBA
requirements to apply under the IRA, it would have so provided. The
Treasury Department and the IRS are required to implement statutory
language as enacted, regardless of the procedure under which the
legislation was passed (for example, reconciliation). As enacted, the
statute does not indicate that the regulations setting forth the PWA
requirements must mirror the DBA in every instance. As noted in the
preamble to the Proposed Regulations, ``in accordance with'' means ``in
agreement or harmony with; in conformity to; according to.'' This does
not require exact duplication or incorporation. The differences in
statutory language and context reflect the very significant differences
between the administration of the wage provisions of Federal contracts
and the administration of the tax system, and the statute provides
flexibility for the IRS to incorporate the requirements from the DBA
that are appropriate for tax administration purposes.
The IRS's authority to determine a taxpayer's compliance with the
PWA requirements generally arises after the taxpayer files a claim for
the increased tax credit. Because taxpayers may choose not to claim the
increased credit amount, the IRS cannot determine a taxpayer's
compliance or engage in enforcement activities before the taxpayer
files a tax return claiming the increased credit amount. Imposing pre-
filing requirements through regulations would not be a reasonable
interpretation of the statutory language and would not permit the IRS
to enforce the PWA requirements in advance of filing. Many of the DBA
requirements (for example, certified weekly payroll, public notice of
wage classifications and wage rates, required contract provisions) are
either statutorily required under the DBA (or a related act) or
designed to apply to all Federal construction contracts with certainty
at the time of contract award (that is, in advance of work being
performed). Those same pre-filing requirements are not prescribed in
the Code.
As acknowledged by many commenters, the Treasury Department and the
IRS need to take a reasonable approach to interpret a Code provision
that references a Federal law applicable to Federal contracts (a system
that applies with certainty in the case of a Federal contracting agency
that solicits bids for a contract) in the context of Federal taxes (a
system designed to function with a compliance and enforcement framework
that follows only after the filing of tax returns).
Many commenters recognized that the PWA requirements are not
binding until the tax return claiming the credit is filed, yet they
still requested that the IRS impose several additional reporting,
notice, and other requirements in advance of filing for the credit. As
the requirement to pay prevailing wages does not become binding until a
taxpayer files a claim for the increased amount of credit, and the IRS
has a well-established record of effective post-filing enforcement, the
final regulations do not adopt these requests. The Treasury Department
and the IRS have also determined that imposing additional pre-filing
requirements on taxpayers could discourage taxpayers from seeking the
increased amount of credit available under the IRA, resulting in fewer
workers receiving prevailing wages. The Treasury Department and the IRS
will not impose pre-filing requirements that unnecessarily raise
compliance costs, especially for small businesses, and provide no
meaningful benefit to the IRS in administering the tax system.
In reviewing the public comments, the Treasury Department and the
IRS have decided to adopt key aspects of the Proposed Regulations and
have also determined that certain changes to the Proposed Regulations
would be appropriate to support compliance with the PWA requirements,
and to encourage taxpayers to adopt certain practices. The Treasury
Department and the IRS have made these determinations after
consultation with the DOL WHD and OA. Those changes are discussed
throughout this Summary of Comments and Explanation of Revisions.
Accordingly, as discussed in Section VII.D.3. of this Summary of
Comments and Explanation of Revisions, in cases in which it is
necessary for and consistent with sound tax administration, these final
regulations expand on the factors demonstrating intentional disregard
to reflect the value of these practices. These additional factors
incorporate the spirit and rationale of commenters' suggestions by
addressing whether a taxpayer has (among other actions): (i) conducted
regular reviews of the applicable prevailing wage rate that must be
paid to laborers and mechanics and the appropriate classification of
such
[[Page 53190]]
laborers and mechanics based on actual job duties; (ii) investigated
complaints of retaliation or adverse action resulting from reports of
suspected failures to pay prevailing wages and/or classify workers in
accordance with applicable wage determinations, and taken appropriate
actions to remedy any retaliation or adverse action and prevent it from
reoccurring; and (iii) provided laborers and mechanics with paystubs
(or access to individual payroll records) reflecting the amount being
paid per pay period (including the specific hourly rate and all
deductions from wages).
B. Specific Pre-Filing Activities Required Under the DBA
Some commenters requested that the final regulations incorporate
certain pre-filing requirements in line with DBA requirements, to
prevent fraud and ensure that workers are paid wages at rates not less
than the prevailing rates to which they are entitled. Specifically,
commenters recommended that the final regulations require: (i) the
submission of certified weekly or monthly payroll records or other
compliance reports and the government's regular review and verification
of those submitted records through job site visits and interviews with
workers, and (ii) that taxpayers, contractors, and subcontractors
include DBA provisions in contracts and post applicable wage rates on
job sites in prominent and accessible locations.
1. Certified Payroll Records, Other Compliance Reporting, and
Government Review of This Reporting
Some commenters suggested that requiring the submission of weekly
or monthly certified payroll records to the IRS or the DOL would allow
the IRS to monitor compliance with the PWA requirements. Other
commenters similarly suggested that the final regulations require the
submission of sworn monthly compliance reports to the IRS to allow for
effective monitoring of compliance with the statute prior to filing.
One commenter suggested that the IRS should regularly review the
certified payroll records submitted by contractors and subcontractors,
conduct job site visits, and interview workers to ensure that the
information reported in the certified payroll records is accurate, and
provides taxpayers with an opportunity to correct any failures in
advance of filing. This commenter acknowledged that the IRS would not
be able to withhold funds or assess penalties in connection with any
pre-filing review, because the requirement to pay prevailing wages is
not binding until the taxpayer files a tax return claiming the
increased credit amount. One commenter stated that a requirement to
regularly certify payroll will deter bad actors and preclude falsified
payroll records.
Several commenters supported the approach in the Proposed
Regulations to not require the regular submission of payroll records.
One commenter stated that the submission of weekly certified payroll
records would not assist the IRS with efficient administration of the
increased credit amount provisions. Additionally, several other
commenters stated that the requirement to submit certified weekly
payroll records would be burdensome on taxpayers. Finally, one
commenter agreed that submission of certified weekly payroll to the IRS
would not be in furtherance of sound tax administration, but the
commenter requested that contractors and subcontractors be required to
submit certified weekly payroll to taxpayers. The commenter asserted
that this could be a good way for taxpayers to monitor the activities
of contractors and subcontractors.
Applying the principle outlined in Section I.A. of this Summary of
Comments and Explanation of Revisions to incorporate only the DBA
requirements that are relevant for claiming the increased credit amount
and consistent with sound tax administration, the comments requesting
that the final regulations require the submission of pre-filing
certified payroll records or other sworn reports, the pre-filing review
of submitted payroll records, job site visits by the IRS, and
interviews of workers regarding the accuracy of submitted information
are not adopted. While these comments are not adopted, in the context
of an examination, the IRS routinely engages in activities such as
review of payroll records, site visits, and taxpayer interviews.
The comments requesting that the final regulations require the
submission of pre-filing payroll information or sworn compliance
reports appear to assert that the IRS would be able to easily discern
noncompliance on the face of payroll records or other sworn reports
submitted in advance of a taxpayer filing any claim for a related tax
credit. To the contrary, the requirement to pay prevailing wages
becomes binding only if a tax return claiming the increased credit
amount is filed. Payroll records or other sworn reports relating to the
payment of wages before a return claiming the actual increased credit
amount is filed would provide minimal benefit to the IRS's enforcement
actions, and would impose considerable administrative work on
taxpayers, including those who may not eventually claim the increased
credit amount. Many commenters acknowledge that this information would
not be used until the increased credit amount is claimed. The Treasury
Department and the IRS decline to impose these additional
administrative tasks on taxpayers because the information would provide
minimal benefit to the IRS in advance of a taxpayer filing a return
claiming the credit.
However, the Treasury Department and the IRS agree that there may
be advantages in taxpayers obtaining regular payroll records from
contractors and subcontractors. Accordingly, these final regulations
add as a factor for intentional disregard whether a taxpayer (or a
third party acting on behalf of the taxpayer) has regularly reviewed
payroll information of its contractors and subcontractors or has
required its contractors or subcontractors to regularly provide payroll
information to the taxpayer (or a third party acting on behalf of the
taxpayer). Furthermore, as discussed in Section X.A. of this Summary of
Comments and Explanation of Revisions, these final regulations adopt
and expand upon the recordkeeping requirements in the Proposed
Regulations and clarify that the DOL Form WH-347 may be used to satisfy
some of the recordkeeping requirements.
2. Mandatory Incorporation of DBA Contract Requirements and Posting of
Applicable Prevailing Wage Determinations
The Proposed Regulations would have encouraged certain behaviors
that are very similar to those required of contractors under the DBA as
factors considered for intentional disregard. These behaviors, which
the Treasury Department and the IRS view as indicative of an intent to
comply with the Prevailing Wage Requirements, would have included
incorporating provisions in any contracts entered with contractors that
require payment by the contractors and any subcontractors of wages at
rates not less than the prevailing rates and posting the applicable
prevailing wage rates in a prominent place for the duration of the
construction, alteration, or repair of the facility or otherwise
notifying employees of the applicable prevailing wage rates.
Some commenters suggested that taxpayers should be required to
include certain contract provisions required by section 3142(c) of the
DBA in their contracts with contractors and subcontractors. Some
commenters recommended the final regulations
[[Page 53191]]
mandate specific contract terms, including the taxpayer's intent to
claim the credit, the expected wage classifications of laborers and
mechanics who will work on the project, estimates of apprenticeship
hours, and flow-down responsibility clauses requiring compliance with
the PWA requirements by all contractors and subcontractors.
Additionally, commenters suggested that all solicitations, contracts,
and subcontracts include clauses committing to the proper hiring and
involvement of qualified apprentices under the Apprenticeship
Requirements.
Commenters also recommended that the final regulations adopt the
requirement in section 3142(c)(2) of the DBA that prevailing wage rates
must be posted by employers on the job site in a prominent and
accessible location where they can be easily seen by workers. The
Proposed Regulations would have included as a factor to be considered
in the determination of whether a failure to satisfy the Prevailing
Wage Requirements was due to intentional disregard, whether the
taxpayer posted in a prominent place at the facility or otherwise
provided written notice to laborers and mechanics during the
construction, alteration, or repair of the facility, of the applicable
wage rate(s) as determined by the DOL for all classifications of work
to be performed for the construction, alteration, or repair of the
facility, and that in order to be eligible to claim certain tax
benefits, employers must ensure that laborers and mechanics are paid
wages at rates not less than such wage rates. Although commenters were
supportive of this factor, some commenters were critical of the fact
that the information proposed for the notice leaves open the question
of whether the worker is actually entitled to prevailing wages because
the worker may not know whether an increased credit amount is being
claimed with respect to the work they are performing. One commenter
further requested that the poster include language regarding the right
to be properly classified as an employee, the right to be free from
retaliation related to immigration status, and information regarding
how to contact the IRS. One commenter suggested requiring each
contractor and subcontractor employing workers on projects for which an
increased credit amount could be claimed to provide each worker with an
individualized written notice identifying their respective
classification and the prevailing wage rate to which they are entitled.
The commenter suggested requiring notice to be made no later than when
construction, alteration, or repair begins, and delivering the
suggested notice along with workers' paychecks.
Although both contract language and the posting of the applicable
prevailing wage rates is required by the DBA, no similar provision
exists in section 45(b)(7) of the Code that would require taxpayers to
include specific terms in a contract or post prevailing wage rates
during construction. Applying the principle outlined in Section I.A. of
this Summary of Comments and Explanation of Revisions to incorporate
only the DBA requirements that are relevant for claiming the increased
credit amount and consistent with sound tax administration, the
Treasury Department and the IRS have decided not to require specific
DBA or other PWA-related provisions in private commercial contracts.
These agreements are executed well before a tax return claiming the
credit is filed. Similarly, the final regulations do not require the
posting of applicable wage rates, because a taxpayer may decide to
claim the increased credit amount after construction has started.
Requests regarding the posting of information related to general rights
of workers under State labor laws or other Federal laws are outside the
scope of these final regulations. For these reasons, the comments
requesting that the final regulations require the incorporation of DBA-
contract provisions and the posting of applicable prevailing wage rates
are not adopted.
However, there is likely a benefit to taxpayers seeking to comply
with the PWA requirements if the requirement to pay prevailing wages
and hire qualified apprentices is incorporated in the terms of any
contract with respect to the construction, alteration, or repair of a
facility, including lower-tier agreements between contractors and
subcontractors, and if the laborers and mechanics who are employed in
the construction of a facility are informed of the applicable
prevailing wage rates that would be required if the taxpayer claims the
increased credit amount. The Proposed Regulations would have encouraged
this behavior from taxpayers who know they are going to claim the
increased credit amount, and the final regulations incorporate and
expand upon the list of factors that may be considered by the IRS for
purposes of determining if a failure to satisfy the PWA requirements
was due to intentional disregard.
C. Including Other Conditions as a Prerequisite for Claiming the
Increased Amount of Credit
Some commenters suggested that the final regulations should require
taxpayers to provide advance notice to the IRS, the DOL, potential
employees, and the general public of their intent to claim the
increased credit amount by satisfying the PWA requirements to provide
clarity to workers. Specifically, one commenter suggested requiring
taxpayers to file a statement of intent to claim the increased credit
amount with the DOL WHD, which would then be available for public
review to enable interested parties to monitor projects that may be
subject to the PWA requirements. Another commenter recommended
requiring taxpayers to provide notice to workers, before the start of
any project for which an increased credit amount could be claimed, of
their intention to claim the increased credit amount by satisfying the
PWA requirements.
Consistent with the principles outlined in Section I.A. of this
Summary of Comments and Explanation of Revisions, the final regulations
do not adopt these suggestions. Requiring taxpayers to declare an
intent to claim an increased credit amount would provide no meaningful
benefit for the IRS's administration of the PWA requirements, and would
impose additional pre-filing requirements on taxpayers. Section
45(b)(6) does not require taxpayers to declare an intent to claim the
increased credit amount. However, as noted previously, posting or
otherwise providing general information about applicable wage rates is
a good practice for taxpayers to incorporate if the taxpayer is
planning to claim the increased credit amount. The final regulations
retain these practices as a factor that may be considered by the IRS
for purposes of determining if a failure to satisfy the Prevailing Wage
Requirements was due to intentional disregard.
Commenters also asked that the final regulations require a pre-
filing registration or reporting system, similar to that provided for
under sections 6417 and 6418, applicable to taxpayers intending to
claim the increased credit amount for satisfying the PWA requirements.
Commenters alleged that since many of the credits covered by sections
6417 and 6418 also contain PWA requirements, the language in sections
6417 and 6418 requiring information or registration can be applied to
require pre-filing registration of the intent to claim the increased
credit amount.
[[Page 53192]]
Section 6418(g)(1) provides that as a ``condition of, and prior to,
any transfer of any portion of an eligible credit'' under section 6418,
the Secretary of the Treasury or her delegate (Secretary) ``may require
such information (including, in such form or manner as is determined
appropriate by the Secretary, such information returns) or registration
as the Secretary deems necessary for purposes of preventing
duplication, fraud, improper payments, or excessive payments.'' Section
6417(d)(5) provides the Secretary with similar discretion to implement
a registration requirement. The authority to implement a pre-filing
registration requirement provided in sections 6417 and 6418 is
statutorily created and intended to address different underlying
circumstances. Sections 6417(d)(5) and 6418(g) address the use of a
registration system as a condition of and prior to certain events,
specifically, prior to the amounts being treated as payments made by
applicable entities or prior to transferring a credit.
There is no analogous statutory language in section 45 or elsewhere
in the Code related to the PWA requirements. Moreover, the registration
requirements for sections 6417 and 6418 serve the specific purposes of
preventing duplication, fraud, improper payments, or excessive
payments. Those concerns are largely unique to the elective pay and
credit transfer opportunities created by sections 6417 and 6418. In the
context of sections 6417 and 6418, the IRS implemented the registration
portal to prevent fraud and duplicate or improper payments, by
providing the IRS with basic information that will facilitate
processing and improve the administration of the credits. A pre-filing
registration or reporting mechanism in the PWA context would not
provide the IRS with actionable information for purposes of enforcing
the PWA requirements. For these reasons, the comments requesting that
the IRS establish a PWA registration system similar to that used for
sections 6417 and 6418 are not adopted.
D. Other Comments Regarding Pre-Filing Activities and IRS Enforcement
Procedures
1. Organizational Changes to the IRS and General Tax Administration
Several commenters suggested that the final regulations implement
organizational changes to the IRS. For example, one commenter
recommended that the regulations create a dedicated office of labor
standards enforcement to enforce the PWA provisions. An additional
commenter requested that the Treasury Department establish a dedicated
compliance and enforcement office. The commenter also encouraged the
Treasury Department to review State requirements for disclosures, proof
of payment, and affirmation, and adopt models that best effectuate
compliance. One commenter suggested that the Treasury Department and
the IRS create an inter-agency office with the DOL to facilitate the
receipt of contemporaneous reporting from taxpayers.
Another commenter suggested the creation of a digital platform to
be used by taxpayers to submit PWA documentation that would be
accessible by businesses, the DOL, and local apprenticeship programs.
Several commenters recommended that the Treasury Department and the IRS
partner with the DOL and applicable State agencies in the enforcement
of PWA requirements. Additional commenters requested that the Treasury
Department and the IRS establish formal partnerships with fair
contracting organizations, labor unions, and other workers' rights
organizations in order to expand the capacity to monitor jobsites. A
commenter stated that such third-party partnerships--known as Joint
Labor Compliance Monitoring Programs--have been successfully
implemented across the country as a method of improving working
conditions for workers and ensuring that projects are completed
responsibly and on time.
A few commenters suggested the final regulations prescribe specific
actions regarding IRS enforcement, compliance, and general tax
administration. For example, one commenter recommended that any IRS
audit of increased credit amounts verify and cross-reference State
labor materials to ensure prevailing wage and apprenticeship standards
are met. A commenter stated that States such as California, Washington,
and Wyoming have implemented State level apprenticeship utilization
provisions and that the States have developed user friendly systems for
contractors to report apprentice and journeyworker hours. At least one
commenter also requested that the Treasury Department ensure that audit
processes and other enforcement mechanisms are done in a transparent,
accessible manner and with close engagement with other agencies.
Several commenters provided recommendations regarding information that
should be reported on IRS forms claiming the increased credit amount. A
commenter suggested that the IRS implement a cross-withholding
mechanism, modeled after that used by the DOL under the DBA, whereby a
taxpayer engaged in two or more separate projects who is found to
violate the PWA requirements on one project is then denied the
increased credit amount with respect to any additional projects.
Comments regarding the IRS's organizational structure, coordination
with other agencies and States, how the IRS conducts audits, and
changes to IRS forms are outside the scope of these final regulations.
Therefore, the changes suggested by the comments are not adopted. In
developing the Proposed Regulations and these final regulations, the
Treasury Department and the IRS consulted extensively with the DOL and
will continue to consult with the DOL as appropriate to assist in the
administration of the PWA requirements.
2. Requests for Private Letter Rulings
One commenter recommended that the IRS permit taxpayers to submit
requests for Private Letter Rulings (PLRs) regarding compliance with
the PWA requirements. Whenever appropriate in the interest of sound tax
administration, it is the policy of the IRS to answer inquiries of
individuals and organizations regarding their status for tax purposes
and the tax effects of their acts or transactions, prior to the filing
of returns or reports that are required by the revenue laws. Revenue
Procedure 2024-1, 2024-01 I.R.B. 1, is updated each year and contains
the general procedures for requests for PLRs. There are, however,
certain areas in which the IRS will not issue rulings or determination
letters, including areas in which the IRS is temporarily not issuing
rulings or determination letters because those matters are under study.
These no-rule issues are set forth in Revenue Procedure 2024-3, 2024-01
I.R.B. 143, which is also updated annually. Issues pertaining to the
application of the IRA currently are identified in Revenue Procedure
2024-3 as matters under study by the IRS and thus are not currently
subject to PLRs, but this position is subject to change. Updates to the
no-rule issues are outside the scope of these final regulations.
3. Complaint Procedures for Underpayment of Applicable Prevailing Wage
Rates and the Failure To Hire Qualified Apprentices
The Proposed Regulations would have included whether the taxpayer
had in place procedures whereby laborers and mechanics could report
suspected failures to pay prevailing wages and/or suspected failures to
classify workers correctly in accordance with the applicable wage
determination to
[[Page 53193]]
appropriate personnel departments or managers without retaliation or
other adverse action as a factor to be considered in the determination
of intentional disregard.
Many commenters requested that the final regulations prescribe the
process through which a worker can complain about being underpaid.
Commenters suggested that the process for complaints should be
available to all interested parties, and that any person should be able
to submit complaints to the government, preferably through the IRS
website, without fear of retaliation by their employers or others. A
commenter urged the IRS to develop and inform stakeholders and the
public on complaint and enforcement procedures and provide contact
information for the IRS office that will accept and investigate
complaints. Another commenter recommended that the Treasury Department
and the IRS create a complaint mechanism with both a telephone hotline
and an online portal, and available in English and Spanish, to file
complaints.
Commenters acknowledged that unlike under the DBA, if the Treasury
Department and the IRS are informed of violations or irregularities
before the increased credit is claimed, the agencies would not be able
to immediately assess fines or mandate that taxpayers issue corrective
payments. A commenter acknowledged that there are limitations on the
IRS's remedial authority, but suggested that the Treasury Department
and the IRS have a compelling interest in instituting a complaint
mechanism to obtain vital information that they can use in determining
which taxpayers to audit. One commenter suggested permitting registered
apprenticeship programs to petition the Treasury Department if they
believe that a taxpayer is falsely claiming that the program is unable
to meet the taxpayer's request for qualified apprentices.
While the IRS takes information it receives regarding alleged tax
violations very seriously, the comments requesting that the final
regulations require a specific process regarding complaints are not
adopted. Similar to the comments addressed in Section I.D.1. of this
Summary of Comments and Explanation of Revisions regarding overall IRS
administration, the comments concerning how the IRS should address
reports of alleged tax violations are outside the scope of these final
regulations. Additionally, the commenters overstate the usefulness of
such information in the pre-filing context with respect to the PWA
requirements. A laborer or mechanic might be paid wages at rates less
than the applicable prevailing wage rates would require for such work,
but that does not mean the laborer or mechanic was underpaid for
purposes of section 45(b)(7)(A), unless and until a tax return claiming
the increased credit amount is filed. The PWA requirements apply to the
taxpayer, and the taxpayer must ensure that laborers and mechanics are
paid wages at rates not less than the appliable prevailing wage rates
for construction, alteration, or repair of a qualified facility. If a
taxpayer, contractor, or subcontractor underpays a laborer or mechanic
and does not subsequently correct the underpayment with the appropriate
backpay and interest and pay the penalty amount, then the increased
credit amount will be disallowed by the IRS.
However, the Treasury Department and the IRS acknowledge the value
in encouraging internal complaint and anti-retaliation procedures on
facilities for which taxpayers acknowledge they anticipate claiming an
increased credit amount by satisfying the PWA requirements. As
discussed in Section VII.D.3. of this Summary of Comments and
Explanation of Revisions, the final regulations include the existence
of these procedures as a factor in determining whether a failure to
satisfy the PWA requirements was due to intentional disregard. Further,
these final regulations add as factors in determining intentional
disregard whether the taxpayer posted information on how to contact the
appropriate office to report suspected failures and whether in response
to any complaint, the taxpayer investigated the complaint and took
appropriate action to remedy the situation.
Additional commenters proposed that the Treasury Department and the
IRS clarify that workers who report PWA violations are protected by the
anti-retaliation framework enacted under the Taxpayer First Act (26
U.S.C. 7623 et seq.) (TFA). Commenters raised that section 7623(d)(1)
states that no employer, contractor, or subcontractor may ``discharge,
demote, suspend, threaten, harass, or in any other manner
discriminate'' against an employee who has provided information or
assisted in ``an investigation regarding underpayment of tax or any
conduct which the employee reasonably believes constitutes a violation
of the Internal Revenue laws or any provision of Federal law relating
to tax fraud.'' Commenters stated that the TFA's anti-retaliation
provisions under section 7623(d)(1) cover reporting to the Treasury
Department, IRS, and related agencies, as well as internal reporting by
a worker to their supervisors. Commenters emphasized that section
7623(d)(2)(A) also provides the right to file a complaint with the
Secretary of Labor with respect to any reprisals and provides for a
private right of action in district court in the event that the
Secretary of Labor has not issued a final decision within 180 days of
the filing of the complaint.
The application of section 7623, including the anti-retaliation
provision enacted under the TFA, is outside the scope of these final
regulations. However, whether laborers and mechanics were provided with
a written notice of the rights conferred by the TFA is included as a
factor the IRS will consider in determining if a failure to comply with
the PWA requirements was due to intentional disregard. Additionally,
IRS Form 3949-A, Information Referral, may be submitted by anyone with
information about an alleged tax violation. The ability of any
individual or organization to notify the IRS of specific and credible
suspected tax violations serves as a powerful deterrent that supports
voluntary compliance and has the potential to provide the IRS with
information to identify and address noncompliance.
Commenters acknowledge that at any point before the tax return is
filed, it is within the taxpayer's discretion to refrain from claiming
the increased credit amount and avoid the responsibility to make any
related payments. Even so, commenters stated that the IRS is not
limited in imposing conditions that the taxpayer must meet at the time
of the construction, alteration, or repair to later claim the increased
credit amount. The Treasury Department and the IRS agree that for those
taxpayers that claim the increased credit amount on a return, the
obligation to pay prevailing wages attaches as of the time that the
work was performed. The final regulations prescribe correction
procedures that apply on a retroactive basis, including interest
accruing on any correction amounts from the date of the failure, to
account for past failures that occurred at the time the construction,
alteration, or repair work was performed.
II. PWA Transition Rule
Under the BOC Exception in sections 30C, 45, 45Q, 45V, 45Y, and
179D, taxpayers may claim the amount of the increased credit or
deduction without satisfying the PWA requirements if construction (or
installation with respect to section 179D) ``begins prior to the date
that is 60 days after the Secretary publishes guidance with respect to
the [PWA requirements].'' The Treasury Department and the IRS
[[Page 53194]]
published Notice 2022-61 on November 30, 2022, providing initial
guidance with respect to the PWA requirements and starting the 60-day
period described in those sections. Unless the One Megawatt Exception
applies, taxpayers who do not meet the BOC Exception under these Code
sections would need to satisfy the applicable PWA requirements to claim
the increased amount of credit or deduction. Under sections 45L, 45U,
45Z, and 48C, there is no BOC Exception or One Megawatt Exception, so
taxpayers need to satisfy the applicable PWA requirements to claim the
increased credit amount regardless of when construction began or how
small the facility (or respective underlying creditable activity) may
be.
As enacted or amended by the IRA, the sections containing PWA
provisions have various statutory effective dates. The PWA provisions
in section 30C apply to property placed in service after December 31,
2022.\11\ The PWA provisions in section 45 apply to facilities placed
in service after December 31, 2021.\12\ The PWA provisions in section
45L apply to dwelling units acquired after December 31, 2022.\13\ The
PWA provisions in section 45Q apply to facilities or equipment placed
in service after December 31, 2022.\14\ Section 45Y applies to
facilities placed in service after December 31, 2024.\15\ In contrast,
the effective dates of the PWA provisions in sections 45U, 45V, and 45Z
are stated in relation to when the respective electricity, hydrogen, or
transportation fuel is produced. Section 45U applies to electricity
produced and sold after December 31, 2023, in taxable years beginning
after such date.\16\ Section 45V applies to hydrogen produced after
December 31, 2022.\17\ And Section 45Z applies to transportation fuel
produced after December 31, 2024,\18\ but includes a special rule
(described in Section IX.G. of this Summary of Comments and Explanation
of Revisions) with respect to the Prevailing Wage Requirements if a
facility is placed in service before January 1, 2025. The new
allocation amounts available under section 48C(e) are effective on
January 1, 2023.\19\ The amendments to section 179D apply to taxable
years beginning after December 31, 2022.\20\
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\11\ IRA Sec. 13404(f).
\12\ IRA Sec. 13101(k).
\13\ IRA Sec. 13304(f).
\14\ IRA Sec. 13104(i)(1). The amendments made to the
definition of a qualified section 45Q facility apply to facilities
or equipment the construction of which begins after the date of
enactment of the IRA (that is, after August 16, 2022).
\15\ IRA Sec. 13701(c).
\16\ IRA Sec. 13105(c).
\17\ IRA Sec. 13204(a)(5).
\18\ IRA Sec. 13704(c).
\19\ IRA Sec. 13501(e).
\20\ IRASec. 13303(d).
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Several commenters requested that the final regulations clarify
whether the PWA requirements apply to work performed before January 29,
2023, both with respect to Code sections with a BOC Exception and those
without a BOC Exception. Commenters stated that it would be unfair to
require taxpayers to comply with the PWA requirements with respect to
these activities. Several commenters stated that the BOC Exception was
intended to ensure that the PWA requirements are not applied
retroactively and asked for a uniform rule applicable to all increased
credit amount provisions that the PWA requirements do not apply before
the BOC Exception trigger date. Other commenters asked that activities
that occurred before the IRS issued Notice 2022-61 (November 30, 2022)
be excluded from the PWA requirements. Some commenters stated that
significant preliminary activities may have occurred prior to the
enactment of the IRA, and they asked that the final regulations clarify
that the PWA requirements do not apply to these activities, regardless
of whether a BOC Exception may apply. One commenter suggested that the
PWA requirements apply only after these final regulations are issued.
The Treasury Department and the IRS have determined that given the
complexity of the PWA requirements, the uncertainty regarding the
potential retroactive effects of the PWA requirements, and the benefits
to tax administration gained with consistency across the various Code
sections containing PWA requirements, that a transition rule is
appropriate.
The final regulations provide that any work performed before
January 29, 2023 (the date that is 60 days after the publication of
Notice 2022-61) is not subject to the PWA requirements, regardless of
whether there is an applicable BOC Exception. Thus, with respect to
sections 45L, 45Z, and 48C, although there is no applicable BOC
Exception and regardless of when construction began, taxpayers must
only comply with the PWA requirements for the construction, alteration,
or repair work (as applicable) occurring on or after January 29, 2023.
Section 45U is not subject to the transition rule because, as described
in Section IX.D. of this Summary of Comments and Explanation of
Revisions, the Prevailing Wage Requirements of section 45U only apply
to alterations or repairs of a qualified nuclear power facility that
occur after December 31, 2023.
The transition rule also applies for taxpayers that may initially
satisfy the BOC Exception, but later fail to meet the BOC Exception
(for example, failing to meet the Continuity Requirement). These
taxpayers must satisfy the PWA requirements for construction,
alteration, or repair (as applicable) that occurs on or after January
29, 2023, but do not need to meet the PWA requirements for work that
occurred prior to that date.
III. Beginning of Construction
A. Beginning of Construction Under the IRS Notices
The IRS Notices describe two methods of establishing that
construction of a facility has begun: (i) starting physical work of a
significant nature (Physical Work Test), and (ii) paying or incurring
five percent or more of the total cost of the facility (Five Percent
Safe Harbor).
Physical work of a significant nature can include both on-site and
offsite work. Notice 2013-29 describes that in the case of a wind
turbine, on-site physical work of a significant nature begins with the
beginning of the excavation for the foundation, the setting of anchor
bolts into the ground, or the pouring of the concrete pads of the
foundation. Physical work of a significant nature does not include
preliminary activities such as planning or designing, securing
financing, exploring, researching, obtaining permits, licensing,
conducting surveys, environmental and engineering studies, clearing a
site, test drilling of a geothermal deposit, test drilling to determine
soil condition, or excavation to change the contour of the land. Notice
2013-29 explains that removal of existing turbines and towers is
considered preliminary work and not physical work of a significant
nature.
Under the Five Percent Safe Harbor, if a taxpayer has paid or
incurred five percent or more of the total cost of the facility and
thereafter the taxpayer makes continuous effort to advance towards
completion of the facility, then the construction of the facility will
be considered to have begun. All costs properly included in the
depreciable basis of the facility are taken into account but the cost
of land or any property not integral to the facility is not included.
Taxpayers can generally choose to structure their business affairs to
meet either the Physical Work Test or the Five Percent Safe Harbor.
However,
[[Page 53195]]
once a taxpayer meets either method, beginning of construction is
established and a taxpayer may not alternate between methods.
B. Beginning of Construction and the BOC Exception Under Notice 2022-61
and the Proposed Regulations
Absent an exception, the PWA requirements apply with respect to the
construction, alteration, or repair of a qualified facility. For
purposes of the Prevailing Wage Requirements, section 45(b)(7)(A)
provides that the taxpayer must ensure the payment of prevailing wages
to laborers and mechanics employed in: (i) the ``construction'' of the
qualified facility, and (ii) for ``the alteration or repair'' of the
qualified facility during the 10-year period after the facility is
placed in service. For purposes of the Apprenticeship Requirements,
section 45(b)(8) provides that the taxpayer must satisfy the Labor
Hours Requirement ``with respect to the construction of any qualified
facility.''
For purposes of determining when construction or installation
begins under the BOC Exception, Notice 2022-61 incorporates by
reference the IRS Notices. While Notice 2022-61 served to define the
beginning of construction under the BOC Exception, Notice 2022-61 also
states generally that it provides ``guidance for determining the
beginning of construction'' under sections 30C, 45, 45Q, 45V, 45Y, 48,
and 48E, and the beginning of installation under section 179D solely
for purposes of section 179D(b)(3)(B)(i). The preamble to the Proposed
Regulations explained that until further guidance is issued on
determining when construction begins under the applicable Code
sections, taxpayers may continue to rely on the guidance provided in
Notice 2022-61 and principles similar to those under the IRS Notices
for purposes of determining when construction begins.
Section 3 of Notice 2022-61 contains guidance with respect to the
Prevailing Wage Requirements. Section 3.03(4) of Notice 2022-61
provides that ```construction, alteration, or repair' means
`construction, prosecution, completion, or repair' as defined under 29
CFR 5.2(j).'' In proposing rules under section 45(b)(7)(A), the
Treasury Department and the IRS sought to incorporate those rules of
the DBA regime relevant to the intent of the PWA requirements and
useful for tax administration. Thus, consistent with Notice 2022-61,
proposed Sec. 1.45-7(d)(2)(i) would have provided that the ``term
construction, alteration, or repair generally means construction,
prosecution, completion, or repair as defined in 29 CFR 5.2'' of the
DBA regulations.
In general, the DBA applies to contracts for construction,
alteration or repair of public buildings and public works and requires
payment of prevailing wages with respect to all mechanics and laborers
employed directly on the site of the work.\21\ Under 29 CFR 5.2,
construction, alteration, or repair is defined expansively to include
all types of work done on a particular building or work at the site of
the work, as defined in 29 CFR 5.2, by laborers and mechanics employed
by a contractor or subcontractor. This work includes, but is not
limited to, altering, remodeling, installing of items fabricated
offsite, painting and decorating, manufacturing, or furnishing of
materials, articles, and supplies or equipment on the site of the
building or work, and certain demolition or removal activities.
---------------------------------------------------------------------------
\21\ 40 U.S.C. 3142(a) and (c).
---------------------------------------------------------------------------
Notice 2022-61 and proposed Sec. 1.45-7(d)(2)(i) would have
defined construction, alteration, or repair by reference to the DBA.
This means that the activity triggering the PWA requirements for a
facility subject to the PWA requirements is determined by reference to
activities that constitute construction under the DBA. A taxpayer must
begin to satisfy the PWA requirements once construction, alteration, or
repair activities occur if those activities are described in 29 CFR
5.2. Under this definition, construction, alteration, or repair would
mean all types of work performed at the location of the qualified
facility.
C. Comments on Determining the Beginning of Construction for PWA
Purposes
Several commenters requested clarification concerning when the
obligation to comply with the PWA requirements arises in the lifespan
of a construction project apart from satisfying the BOC Exception,
including what methods may be relied upon (the Physical Work Test or
Five Percent Safe Harbor) and the Continuity Requirement. Another
commenter suggested that the final regulations incorporate the tests
from the IRS Notices into the final regulations. Commenters indicated
that there is confusion regarding the precise scope of the PWA
requirements because the word ``construction'' has different meanings
under the DBA and the IRS Notices. One commenter stated that the
preamble's use of both ``beginning of construction'' and ``start of
construction'' was confusing.
Several commenters requested clarification on when construction
begins for purposes of the PWA requirements, noting that initial
activities that constitute construction under 29 CFR 5.2 and would be
subject to prevailing wage requirements under the DBA may not be the
same activities that constitute the beginning of construction under the
IRS Notices. A commenter also requested that the final regulations
provide an exception from the PWA requirements for work subject to an
agreement entered into prior to January 29, 2023, or give taxpayers who
are a party to such agreements one year from the date the final
regulations are published to comply with the PWA requirements. Further,
commenters requested that the final regulations clarify that the
beginning of construction is determined under existing tax principles
and that preliminary activities, such as demolition or land clearing
included under the DBA as work, do not count as the beginning of
construction for PWA purposes. A commenter requested that the final
regulations confirm that the end of construction corresponds to when an
asset is placed in service and that activities afterward are not
subject to the PWA requirements unless they are a covered alteration or
repair.
A commenter contended that the BOC Exception is anti-competitive
and places an undue burden on new projects, as compared to projects
that meet the BOC Exception, because projects meeting the BOC Exception
will receive all the benefits of meeting Prevailing Wage Requirements
without having to incur any of the associated costs. The commenter
emphasized the importance of promoting a level playing field for all
taxpayers interested in qualifying for increased credit amounts across
clean energy industries.
D. Beginning of Construction for Purposes of the BOC Exception and the
PWA Requirements in General
The Treasury Department and the IRS understand commenters' concerns
and the potential for confusion in determining the beginning of
construction for purposes of the BOC Exception and the PWA
requirements. While the Physical Work Test is very similar to the
definition of construction under the DBA, certain preliminary
activities are treated differently. Some activities constituting
construction under the DBA definition would not constitute construction
activities under the Physical Work Test. For instance, under the
Physical Work Test, the demolition and removal of an existing structure
would be considered a
[[Page 53196]]
preliminary activity, not the ``beginning of construction.'' However,
under the DBA definition, the same activity would constitute
construction. The Five Percent Safe Harbor, which has no equivalent
under DBA, looks solely at incurred costs in determining whether
construction has begun. Under all three tests, once construction begins
a taxpayer must satisfy the PWA requirements with respect to all
construction, alteration, or repair as defined in proposed Sec. 1.45-
7(d)(2) by reference to 29 CFR 5.2.
The Treasury Department and the IRS have determined that using the
DBA definition of construction to define the activities that mark the
start of the obligation to comply with the PWA requirements for a
qualified facility subject to the requirements provides a uniform rule
across all the relevant Code sections. This is also consistent with the
general approach in the Proposed Regulations and Section I.A. of this
Summary of Comments and Explanation of Revisions of adopting DBA
concepts when they are relevant to sound tax administration. Using the
DBA definition of construction as the triggering activity provides a
clear and uniform rule for taxpayers to determine when the obligation
to comply with the PWA requirements begins. Thus, comments proposing
use of the IRS Notices to determine the beginning of construction for
purposes of the PWA requirements are not adopted. Providing a uniform
rule that is generally applicable across all of the PWA provisions
provides the necessary clarity sought by commenters. The final
regulations provide that the activities that mark the start of the
obligation to comply with the PWA requirements is any activity that
constitutes construction (as defined in Sec. 1.45-7(d)(3)) of a
qualified facility.
Unless an exception applies, taxpayers are required to comply with
the PWA requirements once a laborer or mechanic performs any work that
is considered construction, alteration, or repair of the qualified
facility (including work on the qualified facility that occurs at a
secondary site). Thereafter, all work with respect to the construction
(or alteration or repair), as defined in Sec. 1.45-7(d)(3) (by cross-
reference to 29 CFR 5.2), of the qualified facility is subject to the
applicable PWA requirements. The beginning of construction, for
purposes of satisfying the BOC Exception, will continue to be
determined under the IRS Notices.
In light of the differences between the tests, and because Notice
2022-61 as well as the Proposed Regulations indicated that taxpayers
could rely on the IRS Notices for determining when construction begins,
the final regulations provide transition relief for taxpayers who
applied the definitions in the IRS Notices for purposes of determining
those activities that were considered construction, alteration, or
repair of the facility subject to the PWA requirements in the initial
stages of construction. The final regulations waive penalties for
taxpayers who applied the IRS Notices for determining when the
obligation to pay prevailing wages began, provided the taxpayer makes
the appropriate correction payments to the impacted workers within 180
days of the publication of the final regulations. As part of the
transition relief, the final regulations also allow taxpayers to use
the IRS Notices for determining when construction begins under section
45(b)(8)(A) to determine the applicable percentage of labor hours
performed by qualified apprentices required in satisfying the Labor
Hours Requirement.
IV. One Megawatt Exception
Under the One Megawatt Exception in section 45(b)(6)(B)(i), a
qualified facility that has a maximum net output of less than one
megawatt (as measured in alternating current) is eligible for the
increased credit amount. The preamble to the Proposed Regulations would
have provided that a qualified facility's nameplate capacity determines
whether the facility meets the One Megawatt Exception. Similar
exceptions apply for a qualified facility with a maximum net output of
less than one megawatt (as measured in alternating current) under
sections 45Y(a)(2)(B)(i) and 48E(a)(2)(A)(ii)(I); an energy project
with a maximum net output of less than one megawatt of electrical (as
measured in alternating current) or thermal energy under section
48(a)(9)(B)(i); and energy storage technology with a capacity of less
than one megawatt under section 48E(a)(2)(B)(ii)(I).
Proposed Sec. 1.45-6(c) would have provided that nameplate
capacity for an electrical generating unit means the maximum electrical
generating output in megawatts that the unit is capable of producing on
a steady state basis and during continuous operation under standard
conditions, as measured by the manufacturer and consistent with the
definition provided in 40 CFR 96.202. If applicable, the International
Standard Organization (ISO) conditions are used to measure the maximum
electrical generating output or usable energy capacity.
Commenters stated that the term ``maximum net output'' is ambiguous
and that no method is provided for determining such output. A few
commenters also supported the Proposed Regulation's definition of
maximum net output and suggested carrying the nameplate capacity
definition of maximum net output forward into its final rule. One
commenter raised that for inverter-based resources, like solar and
storage facilities, maximum net output could be determined at different
stages. For such facilities, the commenter recommended clarifying that
only post-inverter maximum electrical generating output qualifies as
maximum net output. The final regulations do not adopt these changes
because the definition in proposed Sec. 1.45-6(c) contained testing
methodologies and conditions and the statute already requires the
measurement be in alternating current. The final regulations adopt the
definition without change.
Another commenter suggested clarifying when multiple energy
projects constitute a single facility for purposes of the One Megawatt
Exception under section 45. One commenter suggested adopting the eight
factors of a single project determination listed in Notice 2013-29 and
Notice 2018-59, to determine when multiple energy projects constitute a
single facility for purposes of the One Megawatt Exception. The
commenter stated that it could be difficult, such as for solar arrays
constructed on multiple buildings, to determine when multiple projects
may constitute a single facility. Another commenter stated that
taxpayers should not be permitted to subdivide projects and
construction contracts in an effort to evade the Prevailing Wage
Requirements using the One Megawatt Exception. The commenter stated
that to prevent taxpayers from manipulating the One Megawatt Exception,
the Treasury Department should evaluate whether facilities will be
using the same transmission lines or connecting to the same powerhouse.
One commenter recommended using certain factors, including ownership,
proximity, and connection to transmission lines or powerhouse, to
determine whether multiple energy projects may be deemed to constitute
one facility.
The definition of a qualified facility, energy project, or energy
storage technology under the respective Code section controls for
purposes of the One Megawatt Exception. Therefore, the definition of
qualified facility under section 45 governs for purposes of the One
Megawatt Exception under section 45(b)(6)(B)(i). Accordingly, the
application of the aggregation principles issued under Notice 2013-29
and Notice
[[Page 53197]]
2018-59 is outside the scope of these final regulations. Further, the
Section 48 Proposed Regulations would provide guidance for taxpayers
regarding the definition of an energy project. The Section 48 Proposed
Regulations would provide rules for purposes of the One Megawatt
Exception as well as other IRA bonus provisions for domestic content
and energy communities. As noted previously, comments pertaining to the
48 Proposed Regulations will be addressed in a future Treasury
decision. The applicable scope of the PWA requirements is further
discussed in Section VI. of this Summary of Comments and Explanation of
Revisions.
V. Application to the Taxpayer
A. Definition of Taxpayer, Contractor, and Subcontractor
Generally, the Proposed Regulations would have defined the term
taxpayer to mean any taxpayer as defined in section 7701(a)(14),
including applicable entities described in section 6417(d)(1)(A). This
generally will be the entity that claims the credit (as increased under
section 45(b)(6)) or makes an election under section 6417 with respect
to such credit amount on a Federal income tax return.
The Proposed Regulations would have provided that in order to earn
the increased credit amount under section 45(b)(6) by satisfying the
PWA requirements, the taxpayer would be solely responsible for: (i)
ensuring that the relevant laborers and mechanics are paid wages not
less than the prevailing rate whether employed directly by the
taxpayer, or by a contractor, or a subcontractor, and (ii) ensuring
that the Apprenticeship Requirements are satisfied. The Proposed
Regulations also would have provided that the taxpayer would be solely
responsible for the PWA recordkeeping requirements, the correction and
penalty provisions under the Prevailing Wage Requirements, and the Good
Faith Effort Exception and Apprenticeship Cure Provision under the
Apprenticeship Requirements. However, nothing in the Proposed
Regulations was intended to supersede requirements that might otherwise
apply to a taxpayer, contractor, or subcontractor under State or
Federal law.
Commenters requested guidance concerning whether the taxpayer is
responsible for ensuring the compliance with the PWA requirements by
contractors and subcontractors if the taxpayer may not be in privity of
contract with all contractors and subcontractors. Commenters noted that
proposed Sec. 1.45-7(d)(3) would have defined a contractor as any
person that enters into a contract with the taxpayer for the
construction, alteration, or repair of a qualified facility. However,
commenters stated that the taxpayer is not always in privity of
contract with each contractor and subcontractor. Similarly, another
commenter suggested that the definition of contractor be revised to
address situations in which the taxpayer is not in privity of contract
with the contractors, because the sponsor or developer of the facility
assumes responsibility for construction of the facility. The final
regulations clarify that the definition of contractor applies to those
situations. Additionally, a commenter stated that DOL guidance under 29
CFR 5.5(a)(6) provides that prime contractors have the responsibility
for the compliance of all the subcontractors on a covered prime
contract, whereas the Proposed Regulations state that the taxpayer is
solely responsible for PWA compliance. The final regulations retain the
requirements in the Proposed Regulations that the taxpayer is solely
responsible for the PWA requirements, including ensuring that the
relevant laborers and mechanics are paid wages at rates not less than
the prevailing rates whether employed directly by the taxpayer, a
contractor, or a subcontractor and ensuring that the Apprenticeship
Requirements are satisfied.
A commenter suggested that the final regulations adopt a safe
harbor allowing taxpayers to avoid corrections and penalty payments if
the taxpayer contracted with a third party to ensure compliance with
relevant PWA requirements. Section 45(b)(7)(A) requires that the
taxpayer ensures that laborers and mechanics are paid wages at rates
not less than the applicable prevailing wage rates with respect to the
construction, alteration, or repair of a qualified facility and under
section 45(b)(8)(A), that the required number of labor hours with
respect to the construction of a qualified facility are performed by
qualified apprentices. The burden to ensure that these requirements are
met falls with the taxpayer. The final regulations do not adopt the
suggestion to incorporate a safe harbor, but the penalty waiver in
Sec. 1.45-7(c)(6) and described in Section VII.D.4. of this Summary of
Comments and Explanation of Revisions provides an appropriately limited
exception to corrections and penalty payments in the case of
inadvertent errors.
Similarly, one commenter requested that the final regulations
permit contractors or subcontractors to make corrective payments on
behalf of the taxpayer directly to laborers or mechanics. The
correction and penalty provision in section 45(b)(7)(B)(i) requires
that the taxpayer makes payment to the laborer or mechanic of the
correction amount. The Treasury Department and the IRS appreciate
commenters' suggestions to encourage methods that result in prompt
correction payments to laborers and mechanics. Although the statute
requires that the correction payment be made by the taxpayer to the
laborers and mechanics, it does not prescribe the method by which the
taxpayer must make payment. The final regulations similarly do not
prescribe a specific method of payment and adopt the proposed rule
without change. Regardless of how payments are made, taxpayers must
maintain records demonstrating when and how correction payments were
made.
A few commenters suggested that the final regulations clarify the
requirement that the taxpayer ensure that all laborers and mechanics
employed by the taxpayer, or any contractor or subcontractor, are paid
wages at rates not less than the prevailing rates applies to all
subcontractors. Specifically, taxpayers stated that the DBA definition
of subcontractor indicates that a subcontractor includes subcontractors
of any tier, and suggested that the final regulations use the same term
in the definition of subcontractor. The definition of subcontractor in
the final regulations clarifies that the requirement applies to all
subcontractors, including those who contract with other subcontractors.
Another commenter suggested that the use of subcontractor labor
providers, such as labor brokers, should be explicitly discouraged
because of the risk of fraud. This suggestion is overbroad and
inconsistent with the plain language of section 45, which anticipates
the use of contractors and subcontractors. This suggestion is not
adopted.
B. Transferability Pursuant to Section 6418
The Treasury Department and the IRS requested comments on the
application of the PWA correction and penalty provisions in the context
of transferred credits. The credit available under section 45,
including the increased credit amount available under section 45(b)(6),
is an eligible credit subject to section 6418. Proposed Sec. 1.45-
7(c)(1)(iv) and proposed Sec. 1.45-8(e)(2)(iv) would have provided
that to the extent an eligible taxpayer, as defined in section
6418(f)(2), has determined an increased
[[Page 53198]]
credit amount under section 45(b)(6) and transferred such increased
credit amount as part of a specified credit portion pursuant to section
6418(a), the obligation to make correction and penalty payments under
proposed Sec. 1.45-7(c)(1)(i) and (ii) and the penalty payment under
proposed Sec. 1.45-8(e)(2)(i) remains with the eligible taxpayer. No
commenters disagreed with having the eligible taxpayer remain
responsible for the PWA correction and penalty provisions under
proposed Sec. 1.45-7(c)(1)(iv) or proposed Sec. 1.45-8(e)(2)(iv).
Consequently, these final regulations adopt proposed Sec. 1.45-
7(c)(1)(iv) and proposed Sec. 1.45-8(e)(2)(iv) without change.
However, commenters raised other issues related to the PWA provisions
in the context of a transfer pursuant to section 6418, which are
addressed in the following paragraphs.
Under proposed Sec. 1.45-7(c)(1)(iv) and proposed Sec. 1.45-
8(e)(2)(iv), to the extent an eligible taxpayer transfers a credit
increased pursuant to the PWA requirements, the obligation to satisfy
the PWA requirements becomes binding upon the earlier of the filing of
the eligible taxpayer's return for the taxable year for which the
specified credit portion is determined with respect to the eligible
taxpayer or the filing of the return of the transferee taxpayer for the
year in which the specified credit portion is taken into account. One
commenter stated that if the eligible taxpayer is a calendar year
taxpayer and the transferee taxpayer is a fiscal year taxpayer, then
the ability of the eligible taxpayer to make any correction or penalty
payments may be shortened.
Section 6418 and the final regulations thereunder (TD 9993)
published in the Federal Register (89 FR 34770) on April 30, 2024 (6418
Final Regulations), provide that the transferee taxpayer takes into
account the transferred credit in the first taxable year ending on or
after the taxable year of the eligible taxpayer with respect to which
the credit was determined. Consequently, if an eligible taxpayer has a
calendar year taxable year and the transferee taxpayer has a fiscal
year taxable year, the transferee taxpayer's return due date generally
will be after the eligible taxpayer's return due date. In the event a
transferee taxpayer files a return that claims an increased credit
amount transferred from an eligible taxpayer prior to the eligible
taxpayer filing its return, the obligation to have satisfied the PWA
requirements becomes legally binding upon the filing of the return of
the transferee taxpayer. However, in any scenario, eligible taxpayers
will have the ability to make any required correction and penalty
payments as provided under section 45(b)(7)(B)(iv), which allows such
payments to be made within 180 days of a determination by the IRS with
respect to a failure regarding prevailing wages, or under section
45(b)(8)(D)(i) with respect to apprenticeship failures. The transferee
taxpayer filing its tax return before the eligible taxpayer does not
shorten this period. Further, the eligible taxpayer and the transferee
taxpayer are required to attach a transfer election statement
describing specific details relating to the transaction, including any
increased credit amounts, and prior to filing any tax returns, the
parties should have verified eligibility under the PWA provisions.
Therefore, the Treasury Department and the IRS did not revise the
proposed rule in these final regulations.
Commenters recommended specifying that if a credit amount increased
pursuant to the PWA requirements is transferred to multiple transferee
taxpayers, the responsibility to make correction and penalty payments
remains indivisible with the eligible taxpayer. This comment is
consistent with the Proposed Regulations, which did not distinguish
between situations with one or multiple transferee taxpayers. These
final regulations adopt the proposed rule without change.
One commenter recommended that transferee taxpayers being
transferred an eligible credit increased pursuant to the PWA
requirements should be secondarily liable for any correction and
penalty payments. The commenter stated that if the transferee taxpayer
is not secondarily liable, then the amounts may not be paid because the
eligible taxpayer will have already received the consideration from the
transfer of the tax credit. Further, the commenter suggested that the
transferee taxpayer should be required to keep the same records as the
eligible taxpayer in order to demonstrate reasonable cause with respect
to excessive credit transfers and should also be required to
contractually bind the eligible taxpayer to meet the PWA requirements,
indemnifying the transferee taxpayer for any such payments it is
secondarily required to make.
The Treasury Department and the IRS do not adopt these changes. As
explained in the preamble to the Proposed Regulations, credit amounts
increased pursuant to the PWA requirements are part of determining the
eligible credit by the eligible taxpayer. The 6418 Final Regulations
confirm that any specified credit portion is a proportionate share of
the entire eligible credit, including any increases pursuant to the PWA
requirements. Therefore, it is part of the eligible taxpayer's
responsibility to satisfy the PWA requirements and requiring the
eligible taxpayer to make any correction or penalty payments remains
appropriate. Requiring the transferee taxpayer to be secondarily liable
may inappropriately shift the responsibility to satisfy the PWA
requirements. It is the responsibility of the transferee taxpayer under
section 6418 and the 6418 Final Regulations to perform due diligence to
show reasonable cause in the event of an excessive credit transfer, but
changes to those rules are outside the scope of these final
regulations. Additionally, specific recordkeeping requirements for the
eligible taxpayer and transferee taxpayer(s) under section 6418 are
addressed in the 6418 Final Regulations and are outside the scope of
these final regulations.
A commenter recommended that a transferee taxpayer should be able
to rely on assurances from the eligible taxpayer that all covered work
was performed under the terms of a qualifying project labor agreement
(discussed in Section V.D. of this Summary of Comments and Explanation
of Revisions) to demonstrate ``reasonable cause'' in the context of an
excessive credit transfer relating to the PWA requirements. These final
regulations do not adopt this suggestion as excessive credit transfers
are outside the scope of these final regulations and are addressed in
the 6418 Final Regulations.
C. Application to Indian Tribal Governments and the Tennessee Valley
Authority
The preamble to the Proposed Regulations explained that the
statutory language of the IRA does not reflect any intent to include
exceptions from the PWA requirements other than the BOC Exception and
the One Megawatt Exception. Consequently, the Proposed Regulations
would not have included a rule that would exempt Indian Tribal
governments or the Tennessee Valley Authority (TVA) from the PWA
requirements. The Treasury Department and the IRS requested comments on
the need for any exceptions, including for Indian Tribal governments or
the TVA, from the PWA requirements in addition to those expressly
described in the statute.
1. Indian Tribal Governments
In accordance with Executive Order 13175 (Consultation and
Coordination with Indian Tribal governments) and Executive Order 14112
(Reforming Federal Funding and Support for Tribal
[[Page 53199]]
Nations To Better Embrace Our Trust Responsibilities and Promote the
Next Era of Tribal Self-Determination), the Treasury Department and the
IRS support the right of Indian Tribes to self-govern and recognize
that Indian Tribes exercise inherent sovereign powers over their
members and territory. The Treasury Department and the IRS are guided
by the fundamental principles in Executive Orders 13175 and 14112.
Under those principles, the Treasury Department and the IRS have an
obligation to consider the concerns raised by Tribes and, to the extent
permitted by law, address those concerns in the final regulations.
On September 25, 2023, the Treasury Department and the IRS held a
Tribal consultation with Tribal leaders requesting assistance in
addressing questions related to the PWA requirements in the Proposed
Regulations. Through consultation and in response to the Proposed
Regulations, the Treasury Department and the IRS received numerous
comments regarding an exception to the PWA requirements for projects
constructed by Indian Tribal governments. A number of commenters
recommended that Indian Tribal governments should not be exempted from
the PWA requirements and cited to the lack of statutory basis to grant
an exception. In contrast, other commenters supported an exception to
the PWA requirements for Indian Tribal governments.
A. Prevailing Wage Requirements and Indian Tribal Governments
With respect to the Prevailing Wage Requirements, commenters
suggested that requiring projects located on Tribal lands to comply
with wage standards set by the DOL undermines Tribal sovereignty. Some
commenters stated that the DOL provides an exception from the DOL
prevailing wage rates for work done by Indian Tribal governments using
their own employees, and advocated that the final regulations, at a
minimum, contain a similar rule under the IRA.
Commenters also stated that the DOL prevailing wage rates often are
defined at the county level, which may include higher cost urban areas
and could negatively impact projects on Tribal lands that often occur
in the rural portions of such counties. These commenters stated that
complying with wage standards set by the DOL for IRA projects could
place additional administrative burdens on Tribes by requiring Tribes
to administer two sets of prevailing wages (DOL prevailing wage
standards for IRA projects and Tribal prevailing wage standards for
other projects). As an alternative to permitting Indian Tribal
governments to set their own prevailing wage rates for IRA projects,
commenters suggested defining the term locality to include Tribal lands
as a separate category to allow Tribes to submit a request to the DOL
for a supplemental wage determination for that specific Tribal
locality.
With respect to the Prevailing Wage Requirements, the Treasury
Department and the IRS continue to understand the statutory language of
the Code as not reflecting an intent to entirely exempt Indian Tribal
governments from the PWA requirements. The statutory language also does
not reflect an intent to allow Indian Tribal governments to substitute
their own prevailing wage rates for those generally required under the
DBA.
However, in accordance with Executive Order 14112, the final
regulations provide two special rules that apply to Indian Tribal
governments (including a subdivision, agency, or instrumentality of an
Indian Tribal government). First, the final regulations provide that an
Indian Tribal government, as defined in section 30D(g)(9) of the Code,
is excepted from the Prevailing Wage Requirements under the IRA with
respect to laborers and mechanics that are employees, within the
meaning of section 3121(d)(2), of the Indian Tribal government. This
rule also applies to joint ownership arrangements that involve an
Indian Tribal government (including a subdivision, agency, or
instrumentality of an Indian Tribal government), but only with respect
to the employees, within the meaning of section 3121(d)(2), of the
Indian Tribal government. As stated in some comments from Tribes, the
DOL provides an exception from the DOL prevailing wage rates for work
done by Tribal governments using their own employees. Specifically,
under the DBA, a government agency may perform construction work in-
house with its own employees rather than contract out the work. Work
performed by these employees generally is not subject to the DBA
requirements because governmental agencies are not considered
contractors or subcontractors under the DBA. This is known as the force
account exception. The DOL has explained that in cases in which an
Indian Tribal government performs work with its own employees, the
force account exception to the DBA generally applies and the Tribal
government is not required to pay DOL-determined prevailing wages for
work done by its own employees. Tribes historically have relied on this
exception. Under these final regulations, Tribes may continue that
practice for purposes of the Prevailing Wage Requirements under the
IRA.
Second, the Treasury Department and the IRS recognize that Tribal
lands generally are not coextensive with a single geographic area for
which the DOL may have made an applicable wage determination. Comments
from Tribes requested that the final regulations define the term
``locality'' to include Tribal lands as a separate category to allow
Tribes to submit a request to the DOL for a supplemental wage
determination for specified Tribal lands. However, defining locality in
this way would require that the DOL establish a new administrative
process to implement a unique wage determination for Tribal lands; that
process is outside of the authority of the Treasury Department and the
IRS. Thus, these final regulations do not change the definition of
locality to include Tribal lands as a separate category.
However, recognizing that Tribal lands are sovereign territories
that may encompass or overlap with numerous geographic areas, the final
regulations provide a special rule for Indian Tribal governments that
perform construction, alteration, or repair of a facility on Indian
land, as that term is defined in 25 U.S.C. 3501(2). Specifically, if
the Indian land encompasses or overlaps more than one geographic area
with respect to which the DOL has made an applicable wage
determination, then the Indian Tribal government may choose the
applicable wage determination for any one of those geographical areas
and apply that applicable wage determination for work performed on any
qualified facility that is located on the Indian land. If the Indian
Tribal government chooses to use this alternative applicable wage
determination, it must maintain and preserve records sufficient to
document the applicable prevailing wage for each laborer, contractor,
or subcontractor with respect to each qualified facility on Indian
land. This rule applies to a qualified facility that is subject to
joint ownership arrangements that involve an Indian Tribal government
(including a subdivision, agency, or instrumentality of an Indian
Tribal government). This rule is intended to ease the administrative
burden on Indian Tribal governments because they can use a single
applicable wage determination for all projects on Indian land.
[[Page 53200]]
b. Apprenticeship Requirements and Indian Tribal Governments
Regarding the Apprenticeship Requirements, some commenters
supported an exception for Indian Tribal governments and stated that
Tribes may have limited access to registered apprenticeship programs.
These commenters stated that Tribal members may face burdens associated
with participating in existing State registered apprenticeship programs
that are located many miles away. A commenter requested clarification
regarding whether Tribes, like States, have the sovereign and
jurisdictional authority to develop and certify their own
apprenticeship programs rather than being required to use the DOL
approval process. The same commenter requested that the Treasury
Department and the IRS review and report on any barriers that may
disproportionately prevent Tribes from fulfilling the Apprenticeship
Requirements. Commenters suggested that if Indian Tribal governments do
not have authority to certify their own programs, then the
Apprenticeship Requirements could force Tribal governments to rely on
State or Federal apprenticeship programs, which may frustrate Indian
Tribal governments' efforts to develop their Tribal workforce.
Commenters supporting an Indian Tribal government exception to the
Apprenticeship Requirements also stated that the Good Faith Effort
Exception places too much onus on Indian Tribal governments to obtain
qualified apprentices. These commenters suggested that Indian Tribal
governments could need to submit multiple requests to multiple
apprenticeship programs and that Indian Tribal governments could need
to search across non-Tribal areas to meet the Good Faith Effort
Exception. These commenters suggested that the statute did not require
this level of apprenticeship coverage. Commenters also stated that the
Good Faith Effort Exception may not be met if a registered
apprenticeship program can meet some, but not all of requests for
qualified apprentices, and suggested that the Good Faith Effort
Exception should be satisfied if a registered apprenticeship program
could not fulfill more than 50 percent of a taxpayer, contractor, or
subcontractor's request. These commenters also suggested that the Good
Faith Effort Exception should be satisfied if a local registered
apprenticeship program cannot provide more than 50 percent of the
requested qualified apprentices. Commenters also stated that the Good
Faith Effort Exception is unreasonable for Indian Tribal governments in
rural areas because of the limited access to registered apprenticeship
programs. Finally, another commenter suggested creating a database for
taxpayers to find Tribal apprenticeship programs within their State.
With respect to the Apprenticeship Requirements, the Treasury
Department and the IRS recognize that there may be a limited number of
registered apprenticeship programs with an area of operation that
includes the geographic location of a facility located on Tribal lands.
As explained in Section VIII.B.1.f. of this Summary of Comments and
Explanation of Revisions, the final regulations clarify the scope of
the Good Faith Effort Exception with respect to situations in which
only part of the request is denied. The final regulations confirm that
if there is no registered apprenticeship program with a geographic area
of operation that includes the location of the facility, taxpayers will
be deemed to satisfy the Good Faith Effort Exception for the qualified
apprentices they (or the contractor or subcontractor) would have
requested for that occupation and location.
Indian Tribal governments may also consider sponsoring their own
registered apprenticeship programs to satisfy the Apprenticeship
Requirements. The National Apprenticeship Act (NAA) of 1937 (29 U.S.C.
50) authorizes the Secretary of Labor to formulate and promote the
furtherance of labor standards necessary to safeguard the welfare of
apprentices. The Treasury Department and the IRS have consulted with
the DOL OA and understand based on that discussion that although
neither the text of the NAA, nor the content of the NAA's implementing
regulations at 29 CFR parts 29 and 30, explicitly addresses Indian
Tribes, Indian Tribal governments may sponsor registered apprenticeship
programs and obtain registration of such a Tribal apprenticeship
program by a State or Federal governmental agency that has been
designated for that purpose.
Federal apprenticeship regulations (see 29 CFR part 29) authorize
the DOL to grant recognition, for Federal purposes, to State
apprenticeship agencies for the purpose of registering and overseeing
apprenticeship programs that operate within their respective
jurisdictions, provided that such State apprenticeship agencies operate
in accordance with the minimum standards for State apprenticeship
agencies that are established by Federal apprenticeship regulations.
Nevertheless, the DOL retains the authority under Federal
apprenticeship regulations to register any apprenticeship program that
operates within the territory of the United States, provided that, as a
general matter, the sponsor's proposed program and standards of
apprenticeship satisfy the minimum requirements stipulated in 29 CFR
parts 29 and 30.
Accordingly, Indian Tribal governments may register their own
apprenticeship programs through the DOL OA or with a recognized State
apprenticeship agency. In recognition of the unique trust and treaty
responsibilities of the Federal Government to Tribal Nations, respect
for Tribal sovereignty, and the nation-to-nation relationship between
the Federal Government and Indian Tribes, Indian Tribal governments
(including a subdivision, agency, or instrumentality of the Indian
Tribal government) are encouraged but not required to register programs
with the DOL OA. Taxpayers, contractors, and subcontractors can find
more information on guidance issued by the DOL OA at https://www.apprenticeship.gov/about-us/legislation-regulations-guidance. For
an updated map depicting the most recent information regarding
registration agencies between the DOL OA and State apprenticeship
agencies, please visit: https://www.apprenticeship.gov/about-us/apprenticeship-system.
2. Tennessee Valley Authority
Several commenters requested that the final regulations not provide
an exception from the PWA requirements for the TVA, citing the lack of
statutory authority for such an exception. The Treasury Department and
the IRS agree. The final regulations do not create an exception to the
PWA requirements for the TVA.
D. Project Labor Agreements
The preamble to the Proposed Regulations explained that pre-hire
project labor agreements (PLAs) may be used to incentivize stronger
labor standards and worker protections in the types of construction
projects for which taxpayers may seek the increased credit amount, and
having a PLA in place may help ensure compliance with PWA requirements.
For these reasons, the Proposed Regulations would have provided that
the penalty payment requirements would not apply with respect to a
laborer or mechanic employed under a ``qualifying project labor
agreement'' if any correction payment owed to the laborer or mechanic
is paid on or before a return is filed claiming an increased credit
[[Page 53201]]
amount. The Proposed Regulations would have defined qualifying project
labor agreement as ``a pre-hire collective bargaining agreement with
one or more labor organizations that establishes the terms and
conditions of employment for a specific construction project.''
Proposed Sec. 1.45-7(c)(6)(ii) would have provided that in order to be
considered a qualifying project labor agreement, such agreement must at
a minimum: (i) bind all contractors and subcontractors on the
construction project through the inclusion of appropriate
specifications in all relevant solicitation provisions and contract
documents; (ii) contain guarantees against strikes, lockouts, and
similar job disruptions; (iii) set forth effective, prompt, and
mutually binding procedures for resolving labor disputes arising during
the term of the project labor agreement; (iv) contain provisions to pay
prevailing wages; (v) contain provisions for referring and using
qualified apprentices consistent with section 45(b)(8)(A) through (C)
and guidance issued thereunder; and (vi) be a collective bargaining
agreement with one or more labor organizations (as defined in 29 U.S.C.
152(5)) of which building and construction employees are members, as
described in 29 U.S.C. 158(f).
The Treasury Department and the IRS requested comments on the
proposed treatment of PLAs, other ways taxpayers might use PLAs to meet
the PWA requirements, and the proposed definition of a qualifying
project labor agreement. Several comments were received addressing the
proposed treatment of PLAs under the Proposed Regulations.
Several commenters asserted that the Treasury Department and the
IRS should not exempt taxpayers using PLAs from the penalty payment
requirements. Commenters stated that the proposed rule violates the
plain text of the IRA, which includes no PLA provision and does not
authorize the waiver of intentional violations and additional penalties
based on a clean energy project developer's inclusion of a PLA
requirement in its solicitation for construction services. Several
commenters stated that the IRS should not incentivize or coerce the use
of PLAs through a penalty waiver or other benefit. Commenters suggested
that PLAs will discourage taxpayers from using their existing
workforce. Commenters were also concerned with PLAs increasing the cost
of construction. Another commenter suggested that PLA mandates would
likely lead to a decrease in hiring of local, minority, women, veteran,
and other potentially disadvantaged groups. Other commenters stated
that encouraging labor unions was not the intent of the IRA. A
commenter also asserted that PLAs force contractors to replace
employees with workers from unions, undermine workforce development
strategies, force contractors to follow inefficient union work rules,
expose workers to wage theft, and expose employers to multiemployer
pension plan liabilities. The commenter also asserted that PLA mandates
force employees to join a union and pay dues and discourage competition
from nonunionized contractors. The commenter claimed that strikes have
occurred on PLA projects and that PLAs will not improve efficiency in
terms of safety, quality, or project delivery.
In contrast, other commenters asserted that PLAs help ensure
compliance with the PWA requirements. Several commenters requested that
taxpayers certifying that construction of a facility is subject to a
PLA or a collective bargaining agreement should be entitled to a safe
harbor or a rebuttable presumption of compliance with the PWA
requirements. Commenters asserted that such a presumption would be
warranted because PLAs provide assurances of compliance and contractors
operating under PLAs typically pay wages at rates that are at or above
the prevailing wage rates. At least one commenter suggested that the
final regulations should clarify that a taxpayer is deemed to have
satisfied the PWA requirements, including recordkeeping requirements,
if the taxpayer can provide proof of a valid PLA.
Other commenters suggested that the final regulations create a two-
tier compliance structure under which participants with PLAs are
awarded a presumption of compliance on several requirements (or limited
review by the IRS on examination) while other taxpayers not
participating in PLAs should be subjected to heightened scrutiny by the
IRS. A commenter stated that, in the absence of a PLA, violations of
PWA requirements would be more prevalent. Therefore, the commenter
suggested increasing the oversight and noncompliance penalties for non-
PLA projects, mandating robust recordkeeping requirements for non-PLA
projects (including the filing of certain documents with the DOL), and
creating flexible ratio requirements for PLA projects. Another
commenter suggested that taxpayers who are parties to both a collective
bargaining agreement and PLA should automatically qualify for the Good
Faith Effort Exception.
Some commenters stated that PLAs can help taxpayers ensure payment
of prevailing wages, because PLAs will: (i) require employers to
provide workers with notice of their pay rates; (ii) include
integrated, enforceable grievance and dispute resolution procedures;
and (iii) be administered and enforced by unions that are parties to
PLAs. Another commenter stated that PLAs typically establish payments
to third-party benefit trusts, and that IRS research shows that third-
party information can help promote tax compliance. Additionally,
another commenter stated that entitling taxpayers to a presumption of
compliance if their construction project is subject to a PLA would
mitigate enforcement work and therefore preserve IRS resources.
Further, several commenters stated that PLAs help promote the IRA's
goals by improving efficiency, coordination, and consistency; reducing
administrative costs; preventing increased costs and project delays;
providing a steady supply of highly skilled labor; and preventing labor
disputes. Some commenters recommended that taxpayers implementing PLAs
be exempt from a determination that they intentionally disregarded the
PWA requirements.
The Treasury Department and the IRS disagree with commenters
asserting that the Proposed Regulation's provisions regarding
qualifying project labor agreements are unwarranted, coercive, and
would increase costs. For example, studies show that PLAs in general do
not lead to a statistically significant increase in construction
costs.\22\ If a taxpayer believes that a particular PLA would
significantly raise the cost of constructing a facility, a taxpayer may
choose not to enter into a PLA. In response to concerns about hiring of
local, minority, women, veteran, and other potentially disadvantaged
groups, the Treasury Department and the IRS note that PLAs often
include provisions that create or strengthen equitable paths to
construction jobs for underserved workers, including local hire
requirements, equitable recruitment
[[Page 53202]]
goals, and community engagement requirements. Contrary to some
commenters' concerns, the final regulations do not require non-union
employees to join a union or to pay union dues. The National Labor
Relations Act permits employees to choose not to join a union in their
workplace. 29 U.S.C. 157. Non-members may choose not to pay union dues
and instead pay agency fees that cover only the share of dues used
directly for representation, such as for collective bargaining or
grievance procedures. Moreover, the final regulations do not require
any taxpayer to sign a PLA.
---------------------------------------------------------------------------
\22\ Emma Waitzman & Peter Philips, UC Berkeley Labor Ctr.,
Project Labor Agreements and Bidding Outcomes: The Case of Community
College Construction in California 3,51 (2017) ((finding no
statistically significant difference in costs between PLA and non-
PLA projects); Peter Philips & Scott Littlehale, Did PLAs on LA
Affordable Housing Projects Raise Construction Costs? (Univ. of Utah
Dep't of Econ., Working Paper No. 2015-03, 2015) (finding no
statistically significant difference in costs between PLA projects
and non-PLA projects); Cong. Research Serv., R41310, Project Labor
Agreements at 9 (2012) (surveying the empirical literature about the
effects of PLAs on costs and finding that it was inconclusive).
---------------------------------------------------------------------------
The Treasury Department and the IRS agree with commenters that
qualifying project labor agreements can help ensure compliance with the
PWA requirements. Under the final regulations, qualifying project labor
agreements will be required to include provisions requiring the payment
of wages at rates that are not less than the prevailing rates, include
contract provisions complying with the Apprenticeship Requirements, and
establish mechanisms for workers, labor organizations, and taxpayers to
correct any underpayments. These requirements will help ensure that
qualifying project labor agreements support compliance with the PWA
requirements. The requirements in PLAs, including ongoing monitoring
and administration by union officials, enforceable grievance and
dispute resolution mechanisms, and notice of pay rates, will also help
ensure compliance with the PWA requirements for claiming the increased
credit amount. For example, the final regulations require that
qualifying project labor agreements must include effective grievance
and dispute resolution provisions that would provide workers and unions
an independent mechanism for enforcing the PWA requirements included in
a qualifying project labor agreement. Grievance and dispute resolution
provisions allow workers to resolve disputes about the payment of
prevailing wages and other violations of the qualifying project labor
agreement before a taxpayer claims the increased credit amount,
assisting taxpayers in complying with the final regulations.
Regarding commenters' requests for deemed compliance or a
rebuttable presumption of compliance, the final regulations do not
adopt these comments. Tax jurisprudence requires taxpayers claiming a
tax credit to demonstrate that they have met the statutory requirements
and can substantiate their claim. The final regulations provide that
the penalties do not apply if a taxpayer uses a qualifying project
labor agreement and makes the required correction payments before
filing a return claiming the credit. The Treasury Department and the
IRS have determined that other safe harbors for PLAs or an exemption
from a finding of intentional disregard with respect to correction
payments would not strengthen compliance and understand this approach
to strike the appropriate balance between recognizing PLA benefits for
improving compliance with the PWA requirements and maintaining long-
standing tax principles.
As the Treasury Department and the IRS noted in the preamble to the
Proposed Regulations, pre-hire project labor agreements may be used by
a taxpayer to incentivize stronger labor standards and worker
protections on a construction project, and having a PLA in place may
also help ensure compliance with PWA requirements for claiming the
increased credit amount. Accordingly, the IRS would take into account
on examination whether a taxpayer has a qualifying project labor
agreement in place and would consider books and records substantiating
that a qualifying project labor agreement is being complied with as an
indication of compliance with the PWA requirements. For example,
records that would support substantiating PWA compliance could include
attestations by all counterparties that a taxpayer is in compliance
with the terms of the qualifying project labor agreement, including the
provisions requiring the payment of prevailing wages and the provisions
for referring and using qualified apprentices consistent with section
45(b)(8)(A) through (C) and guidance issued thereunder.
Several commenters suggested additions or revisions to the proposed
definition of a qualifying project labor agreement and requested
clarifications. For instance, a commenter suggested clarifying that
proposed Sec. 1.45-7(c)(6)(ii) applies to both base penalty amounts
and any enhanced penalty due to intentional disregard. Similarly,
commenters requested clarifying the impact of using a PLA on any
required correction payments. Commenters also asked for the final PWA
rules to clarify that the agreed-upon wages under a PLA are prevailing
wages for the purposes of PWA requirements. At least one commenter
asked whether agreed-upon wages under a PLA or a collective bargaining
agreement could be treated as the prevailing wage for PWA purposes.
Another commenter explained that generally, under a PLA, the taxpayer
must pay the wage rates negotiated with the union, which are often
higher than the prevailing wage rates set forth in DOL wage
determinations, but under the Proposed Regulations, taxpayers must pay
the prevailing wage rate, even if that is lower. Another commenter
stated that asking contractors to comply with prevailing wage rates,
which may be based on union work rates contained in collective
bargaining agreements not publicly available, could add risk for
contractors and reduce competition, especially from small businesses.
Additional commenters requested permitting taxpayers to satisfy the
Apprenticeship Requirements in the case of a PLA that includes a
preference to use qualified apprentices, even if the PLA does not
require compliance with all the Apprenticeship Requirements under
section 45(b)(8). A commenter asserted that the criteria that the PLA
must contain provisions for referring and using qualified apprentices
consistent with section 45(b)(8)(A) through (C) and guidance issued
thereunder was circular and did not align with PLAs generally. The
commenter explained that the requirement that the PLA incorporate the
IRA apprenticeship rules undercuts the PLA exception and makes it
superfluous. An additional commenter suggested clarifying that a PLA
for PWA purposes should allow taxpayers to use both union and non-union
registered apprenticeship programs. A commenter also suggested revising
the definition of a PLA to include a requirement for referring and
using qualified journeyworkers. Similarly, a commenter asked whether a
taxpayer may use the journeyworker-to-apprentice ratio under a PLA or a
collective bargaining agreement for PWA purposes.
Some commenters requested that the final regulations provide that
PLA provisions regarding hiring union workers be optional and that
exceptions be explicitly provided for circumstances in which union
labor is not available. Commenters suggested that the final regulations
should permit contractors who sign a PLA to use their own work rules
independent of union collective bargaining agreements. One commenter
stated that PLAs must not require payment into union benefit funds as
long as contractors have bona fide benefits and are satisfying DBA
standards. Similarly, a commenter recommended that the final
regulations provide that PLAs can only require the payment of union
dues and fringe benefits for the duration of the contract.
A commenter requested that the final regulations adopt the
definition for a qualifying project labor organization, largely based
in Executive Order 14063
[[Page 53203]]
(Use of Project Labor Agreements for Federal Construction Projects),
and permit contractors and subcontractors to compete for contracts and
subcontracts regardless of whether they are a party to a collective
bargaining agreement. The commenter also suggested revising the
definition of labor organizations to require some affiliation with a
registered apprenticeship program.
A commenter recommended incentivizing taxpayers using a PLA to
comply with all of the PLA's provisions, not just PWA-related
provisions. The commenter stated that a subset of PLAs (known as
community workforce agreements) include provisions beyond the elements
defined in the Proposed Regulations. Additionally, a commenter
recommended requiring service maintenance workers, like custodians, be
included and covered under PLAs used for PWA purposes.
Further, a commenter suggested that recordkeeping related to PLAs
be limited to producing a valid PLA covering all laborers and mechanics
at the site of work. The commenter also stated that it would be helpful
to clarify the role of collective bargaining agreements and a master
agreement, as well as the eligible status, if any, of PLAs entered and
covering periods before the publication of the proposed rules in the
Federal Register. The commenter also requested guidance concerning
whether the PLA exception still applies if some, but not all,
contractors are able to meet the PLA requirements.
Additionally, a commenter suggested that the PWA rules align the
criteria for PLAs with the provisions of commonly used PLA templates or
that the final regulations adopt a new template. The commenter stated
that the proposed rules presented six criteria for qualifying PLAs, but
many widely used PLA templates do not meet all six criteria.
The Treasury Department and the IRS agree with the comment to
clarify that proposed Sec. 1.45-7(c)(6)(ii) applies to both the $5,000
penalty and the $10,000 enhanced penalty (for the Prevailing Wage
Requirements) and proposed Sec. 1.45-8(e)(2)(v) applies to both the
$50 penalty and the $500 enhanced penalty (for the Apprenticeship
Requirements) due to intentional disregard. Under the Proposed
Regulations, the penalty payment requirement would not have applied
with respect to a laborer or mechanic employed under a qualifying
project labor agreement if any correction payment owed to the laborer
or mechanic is paid on or before a return is filed claiming an
increased credit amount. The proposed rule was intended to apply to
both penalty amounts and requires the taxpayer to make any correction
payment owed to any laborer or mechanic on or before the date on which
the increased credit amount is claimed. The final regulations provide
this clarification with respect to both the Prevailing Wage
Requirements and the Apprenticeship Requirements.
The proposed definition of qualifying project labor agreement
contains six requirements, including that it must contain provisions to
pay prevailing wages. The Treasury Department and the IRS agree with
commenters that the definition of the term prevailing wages, for the
purposes of a qualifying project labor agreement, requires
clarification. The final regulations clarify the definition of
qualifying project labor agreement to provide that it must contain
provisions to pay wages at rates not less than the prevailing wage
rates in accordance with subchapter IV of chapter 31 of title 40 of the
United States Code. This clarification aligns with the statutory
requirements regarding prevailing wage rates and maintains a clear
standard for taxpayers and tax administration. Commenters raised that
PLAs often require the payment of wages higher than prevailing wages
under the DBA. A qualifying project labor agreement may require the
payment of wages at rates that are higher than the wage rates that are
required by section 45(b)(7)(A).
The proposed definition of qualifying project labor agreement also
would have provided that it must contain provisions for referring and
using qualified apprentices consistent with section 45(b)(8)(A) through
(C) and guidance issued thereunder. The statute defines qualified
apprentice and provides the Apprenticeship Requirements. Accordingly,
the final regulations do not adopt comments to modify the
Apprenticeship Requirements for a qualifying project labor agreement.
Regarding additions to the proposed definition of qualifying
project labor agreement, the Treasury Department and the IRS considered
these comments and have not adopted these comments in the final
regulations. Specific requirements or contractual language in a PLA may
arbitrarily exclude many PLAs from the proposed definition of a
qualifying project labor agreement for reasons unrelated to ensuring
compliance with the PWA requirements. A PLA is a negotiated contract
and parties must have the appropriate flexibility to negotiate
provisions. Nothing in the final regulations precludes parties from
negotiating additional local hire, equity, or community engagement
provisions in a PLA. Since each PLA is negotiated in response to unique
project needs and labor market conditions, the Treasury Department and
the IRS do not adopt the comment to require a PLA template.
Specific to the nuclear industry, a few commenters proposed that
PLA provisions in PWA rules be expanded to include collective
bargaining agreements negotiated by nuclear operators and unions
covering their direct employees. A commenter suggested also recognizing
that such collective bargaining agreements establish the prevailing
wages for their unique classification of nuclear employees that perform
alterations or repairs. The commenter stated that there are significant
differences in the collective bargaining and benefit practices between
the construction and nuclear industries. A few commenters suggested
amending the rules to permit wages paid pursuant to collective
bargaining agreements to qualify as payment of prevailing wages under
section 45U(d)(2). One commenter stated that at a minimum, wages paid
pursuant to already-existing collective bargaining agreements should be
accepted as payment of prevailing wages. Similarly, solely for purposes
of section 45U, one commenter requested that wages and benefits paid to
non-unionized direct employees be accepted as payment of prevailing
wages, if the sum is equal to the collectively-bargained wages and
benefits paid to geographically proximate direct employees of a
qualified nuclear facility. The commenter also suggested that
provisions regarding PLAs in the Proposed Regulations be revised to
include taxpayers that have a collective bargaining agreement covering
their own employees that perform alteration and repair on facilities
eligible for the section 45U credit. The commenter also suggested that
existing collective bargaining agreements be deemed to satisfy section
45U(d)(2)(A). One commenter requested that wages and benefits paid
pursuant to a collective bargaining agreement negotiated between a
taxpayer and a union recognized as the workers' bargaining
representative by the National Labor Relations Board, be deemed to
comply with prevailing wage rules under section 45U.
A commenter requested a prevailing wage safe harbor for section 45U
to recognize the unique characteristics of nuclear power facilities.
Another commenter requested permitting, solely for purposes of section
45U, qualified nuclear power facilities that do not directly employ
collectively-bargained laborers and mechanics to benchmark
[[Page 53204]]
themselves against other similar qualified nuclear power facilities
that do directly employ collectively-bargained laborers and mechanics
for purposes of determining whether the facility is deemed to pay
prevailing wages to its directly employed employees. The commenter
stated that even if not unionized, a nuclear operator's craft employees
perform the same work under the same conditions as unionized employees
and receive generally equivalent wages, participate in the same
employer-sponsored benefit plans, and receive benefits equivalent to if
not identical to unionized employees.
The Treasury Department and the IRS recognize the nuclear power
industry's unique circumstances and that nuclear operators cannot enter
into qualifying project labor agreements as they would have been
defined under the Proposed Regulations. The section 45U credit has
Prevailing Wage Requirements for alteration or repair work of a
qualified nuclear power facility, but not during construction. For
taxpayers seeking the section 45U credit, a collective bargaining
agreement provides workers conducting an alteration or repair the same
assurances of up-front compliance that a PLA would, including union
oversight and private enforcement. A taxpayer that has a collective
bargaining agreement for a qualified nuclear facility that meets
minimum requirements analogous to the minimum requirements for a
qualifying project labor agreement should also benefit from the rule
that penalties do not apply if any correction payment owed to a laborer
or mechanic is paid before the increased credit amount is claimed. In
response to the comments, the final regulations modify the definition
of qualifying project labor agreement for section 45U. For purposes of
section 45U, in order to be a qualifying project labor agreement, such
agreement must, at a minimum: (i) be a collective bargaining agreement
with a one or more labor organizations (as defined in 29 U.S.C. 152(5))
of which employees of the qualified nuclear power facility are members
and such agreement establishes the terms and conditions of employment
at the qualified nuclear power facility; (ii) contain guarantees
against strikes, lockouts, and similar job disruptions; (iii) set forth
effective, prompt, and mutually binding procedures for resolving labor
disputes arising during the term of the collective bargaining
agreement; and (iv) contain provisions to pay wages at rates not less
than the prevailing wages in accordance with subchapter IV of chapter
31 of title 40 of the United States Code.
VI. Applicable Scope of the PWA Requirements
Section 45(b)(7)(A) provides that with respect to any qualified
facility, the taxpayer must ensure that any laborers and mechanics
employed by the taxpayer or any contractor or subcontractor in ``the
construction of such facility'' and for the 10-year period after the
facility is placed in service, ``the alteration or repair of such
facility'' are paid wages at rates not less than the applicable
prevailing wage rates. Under section 45(b)(7)(A)(ii), the prevailing
wage rates that are required to be paid with respect to such
construction, alteration, or repair are determined by reference to the
prevailing rates for construction, alteration, or repair of a similar
character in the locality in which such facility is located.
Section 45(b)(8) sets forth the Apprenticeship Requirements that
apply ``with respect to the construction of any qualified facility.''
Under the Labor Hours Requirement, section 45(b)(8)(A)(i) provides that
taxpayers must ensure ``with respect to the construction of any
qualified facility'' that the applicable percentage of the total labor
hours is performed by qualified apprentices. Under the Participation
Requirement, section 45(b)(8)(C) provides that each taxpayer,
contractor, or subcontractor who employs four or more individuals ``to
perform construction, alteration, or repair work with respect to the
construction of a qualified facility'' must employ one or more
qualified apprentices.
The Proposed Regulations would have defined the scope of taxpayers'
obligation to comply with the PWA requirements consistent with this
statutory language. Under the Proposed Regulations, taxpayers would
have been required to comply generally with respect to the construction
of a qualified facility. The Proposed Regulations did not define the
meaning of construction of a qualified facility for purposes of either
the Prevailing Wage Requirements or the Apprenticeship Requirements.
Proposed Sec. 1.45-7(d)(2)(i) would have defined ``construction,
alteration, or repair'' to mean construction, prosecution, completion,
or repair as defined in 29 CFR 5.2. Under 29 CFR 5.2, construction,
prosecution, completion, or repair is defined expansively to include
``all types of work'' done on a particular building or work at the site
of the work, as defined in 29 CFR 5.2, by laborers and mechanics
employed by a contractor or subcontractor. This work includes altering,
remodeling, installing of items fabricated offsite; painting and
decorating; manufacturing or furnishing of materials, articles, and
supplies or equipment on the site of the work; and certain demolition
or removal activities.
Under the Proposed Regulations, the scope of the requirement to pay
wages at rates not less than the prevailing rates would be clarified by
the ``site of the work'' definition under the DBA. Under the DBA, the
requirement to pay prevailing wages is limited by statute to work
performed ``directly on the site of the work.'' \23\ Under the DBA,
secondary construction sites are considered part of the site of the
work if a significant portion of a building or work is constructed at
the secondary site for specific use in the designated building or work
and the site either was established specifically for the performance of
the covered contract or project or dedicated exclusively, or nearly so,
to the covered contract or project for a specific period of time. By
comparison, section 45(b)(7)(A)(i) and (ii) requires the payment of
prevailing wages generally in the construction of a qualified facility
and the alteration or repair of such facility. As explained in the
preamble to the Proposed Regulations, the language of section
45(b)(7)(A) could be, but does not need to be, interpreted to support
an expansive reading of construction such that all construction of a
qualified facility, wherever located and however small, would be
subject to the Prevailing Wage Requirements, resulting in a
significantly broader scope under section 45(b)(7) than under the DBA.
The Proposed Regulations would have taken a less expansive reading and
applied the scope of the Prevailing Wage Requirements to the site of
the work, consistent with the DBA rules.
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\23\ 40 U.S.C. 3142(c)(1).
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The Treasury Department and the IRS understood the DBA approach to
the site of the work as providing useful guidance for balancing the
requirements to pay wages at rates not less than prevailing rates with
respect to the construction of a qualified facility and existing
construction practices in cases in which some construction activities
related to a facility may occur in multiple locations. This approach is
also consistent with the principle outlined in Section I.A. of this
Summary of Comments and Explanation of Revisions to incorporate the DBA
requirements that are relevant for claiming the increased credit amount
and consistent with sound tax administration. The Proposed Regulations
would have largely adopted
[[Page 53205]]
the DBA approach (including rules relating to secondary sites) for
purposes of defining the scope of the Prevailing Wage Requirements in
proposed Sec. 1.45-7(d)(6). Under proposed Sec. 1.45-7(d)(6),
taxpayers would have been subject to the requirement to ensure that
laborers and mechanics are paid wages at rates not less than prevailing
wage rates with respect to the construction, alteration, or repair at
the locality in which the facility is located, which is defined to
include any secondary sites where a significant portion of the
construction, alteration, or repair of the facility occurs, provided
that the secondary site either was established specifically for, or
dedicated exclusively for a specific period of time to, the
construction, alteration, or repair of the facility.
Many commenters requested clarification of how the definition and
the site of the work DBA-concept applies across the various Code
sections for purposes of determining what work performed in the
construction, alteration, or repair of a qualified facility is subject
to the Prevailing Wage Requirements. Commenters also emphasized that
the site of work definition must reflect the expanded realities of
modern construction practices, under which a large and growing
percentage of construction, alteration, and repair work is performed
offsite through either prefabrication, modularization, or both. A
commenter recommended that the site of work definition account for
recent technological developments in which the COVID-19 pandemic
magnified the need to build spaces that can be rapidly adjusted. A
commenter stated that a number of legal challenges to newly added
provisions to the regulations under the DBA are expected to be filed,
creating ambiguity and a lack of reliability. Commenters also suggested
providing specific examples relevant to clean energy projects.
Commenters requested that the site of work for PWA purposes no
longer incorporate the DOL definition, based on the DBA. Commenters
opined that site of the work for PWA purposes should not be based on
the scope of the DBA and should not extend to offsite or secondary
construction sites, including manufacturing sites, access roads,
substations, buildings, and similar property. Commenters argued that
incorporating the DOL definition of site of the work leads to an overly
broad application of the PWA requirements to such activities as offsite
manufacturing facilities, dedicated production lines, or modular
facilities that service multiple projects but that may service a single
large project for an extended period of time--which is not uncommon in
the clean energy industry. Commenters also sought guidance concerning
the treatment of property such as access roads and substations that may
not be eligible property associated with a qualified facility resulting
in a scope of the PWA requirements reaching beyond the qualified
facility that is eligible for the increased credit amount. One
commenter stated that the incorporation of the site of work may subject
some taxpayers to different enforcement schemes because the projects
may be subject to State or local prevailing wage laws.
Commenters also suggested that if the DBA approach is adopted in
the final rule, that any discussion of secondary manufacturing
facilities distinguish with examples between genuine offsite
manufacturing activities and those that the newly expanded DBA
definition would include. Commenters requested that the Prevailing Wage
Requirements not apply to manufacturing facilities, dedicated
production lines, prefabrication facilities, laydown yards, or ``mod-
yard'' locations that generally service multiple projects and
customers. A commenter requested that the final regulations clarify
that structures established prior to the start of construction of the
qualified facility are not covered by the phrase ``site of the work''
irrespective of their adjacency or dedication to that site. The
commenter also suggested that adjacent or virtually adjacent locations
should not be covered by the PWA requirements if they exceed a 2-mile
perimeter.
In contrast, other commenters urged the Treasury Department and the
IRS to use the DBA site of work definition for the PWA requirements,
including secondary sites that are established specifically for the
performance of the covered contract or project or dedicated
exclusively, or nearly so, to the covered contract or project for a
specific period of time. These commenters emphasized the lack of
statutory language in the IRA limiting the application of prevailing
wage rules based on where work in furtherance of the project is
performed and also suggested defining site of work to cover all
locations where construction of a covered project is performed. Another
commenter claimed that Congress deliberately chose to draft section
45(b)(7)(A) in broader terms than the DBA and recommended that the
final regulations apply to all construction sites where integral
components of the facility are constructed and dedicated support sites.
Commenters recommended that the IRS follow DBA court decisions and
mirror the considerations of DBA regulations.
The Treasury Department and the IRS agree with commenters that
additional clarity is warranted with respect to defining the scope of
the PWA requirements. The Prevailing Wage Requirements apply with
respect to the construction of a facility and with respect to the
alteration or repair of a facility. The Apprenticeship Requirements
apply with respect to construction of a facility. While the terms
construction, alteration, and repair draw meaning from the DBA,
Congress did not qualify the scope of such activities by the site of
the work rule found explicitly in the DBA in defining the scope of the
PWA requirements under the IRA. Instead, section 45(b)(7) and (8) limit
the scope of construction, alteration, or repair to those activities
occurring with respect to a qualified facility. The term qualified
facility (as described in section 45 and guidance thereunder) has
specific meaning for tax purposes.\24\
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\24\ See, e.g., Rev. Rul. 94-31, 1994-1 C.B. 16.
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The final regulations clarify that the PWA requirements apply with
respect to a qualified facility within the meaning of section 45. The
Treasury Department and the IRS recognize that only a portion of a
construction project may be used to produce energy covered by the IRA
tax credits. Under the general rule provided for in the final
regulations, the PWA requirements apply to the portion of the activity
that is creditable or deductible per the Code under the respective
underlying section.\25\
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\25\ Accordingly, as applicable, the PWA requirements apply
under section 30C with respect to a qualified alternative fuel
vehicle refueling project described in section 30C(g)(1)(B)
(consisting of one or more qualified properties within the meaning
of section 30C(c) that are part of a single project); under section
45L with respect to a qualifying residence described in section
45L(a)(2)(B) (that meets the requirements of section 45L(c)(1)(A) or
(B), as applicable); under section 45Q, with respect to a qualified
facility and any carbon capture equipment placed in service at that
facility within the meaning of section 45Q(d); under section 45U
with respect to a qualified nuclear power facility within the
meaning of section 45U(b); under section 45V with respect to a
qualified clean hydrogen production facility within the meaning of
section 45V(c)(3); under section 45Y with respect to a qualified
facility within the meaning of section 45Y(b); under section 45Z,
with respect to a qualified facility within the meaning of section
45Z(d)(4) producing transportation fuel (as defined in section
45Z(d)(5)) or sustainable aviation fuel (as defined in section
45Z(a)(3)(B)); under section 48C, with respect to a qualified
investment (as defined in section 48C(b)) in a qualifying advanced
energy project within the meaning of section 48C(c)(1)(A); and under
section 179D, with respect to energy efficient commercial building
property within the meaning of section 179D(c)(1), and energy
efficient building retrofit property pursuant to a qualified
retrofit within the meaning of section 179(f); and in each case
including any guidance issued thereunder the relevant Code section.
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[[Page 53206]]
As discussed elsewhere in this preamble, the Treasury Department
and the IRS have incorporated DBA rules if relevant and helpful for tax
administration. Despite the differing statutory language with respect
to scope, the DOL approach to site of the work under the DBA
regulations is instructive for application of the PWA requirements with
respect to activities that may occur at locations other than the
location of the facility. Accordingly, the final regulations continue
to use the DBA concept of site of the work with respect to secondary
sites to define the scope of the PWA requirements for work that occurs
at secondary locations.
The Treasury Department and the IRS also agree with the concerns
raised by the commenters on how the secondary site rule could impact
manufacturing activities that occur at offsite locations and are
performed by unrelated parties. The final regulations clarify that
adoption of the site of the work concept is designed to define the
scope of the PWA requirements and prevent an application of the rules
that would result in all work on a facility, wherever performed and
however small, being subject to the requirements. Under the final
regulation, unrelated third-party manufacturers who produce materials,
supplies, equipment, and prefabricated components for multiple
customers or the general public would not be subject to the PWA
requirements.
VII. Prevailing Wage Requirements
A. In General
Section 45(b)(7)(A)(i) requires that with respect to a qualified
facility, taxpayers who are seeking an increased credit amount ensure
that laborers and mechanics employed by the taxpayer, or any contractor
or subcontractor in the construction of such facility are paid wages at
rates not less than the prevailing rates determined by the DOL in
accordance with the DBA. Section 45(b)(7)(A)(ii) further requires that
prevailing wages are paid with respect to alteration or repair of a
qualified facility for any portion of a taxable year that is within the
10-year period beginning on the date the qualified facility was placed
in service. Proposed Sec. 1.45-7(a) generally would have provided that
a taxpayer claiming or transferring (under section 6418) the increased
credit amount under section 45(b)(6)(B)(iii) with respect to any
qualified facility must satisfy the requirements of section 45(b)(7)
and proposed Sec. 1.45-7. Proposed Sec. 1.45-7(b)(1) would have
provided that a taxpayer needs to ensure that the wages paid to
laborers and mechanics employed by the taxpayer, contractor, or
subcontractor in the construction, alteration, or repair of the
facility must be not less than the prevailing rates in the geographic
area in which such facility is located. Proposed Sec. 1.45-7(b)(6)
would have provided that all laborers and mechanics working on a
qualified facility must be paid in the time and manner consistent with
the regular payroll practices of the taxpayer, contractor, or
subcontractor.
A few commenters requested that the final regulations require
taxpayers, contractors, and subcontractors to adopt weekly payroll
practices, as is required for DBA-covered contracts. The commenters
stated that requiring weekly payroll would deter fraud and enable
taxpayers to ensure that contractors and subcontractors comply with PWA
requirements. Many other commenters supported the payment of prevailing
wages consistent with the taxpayer's regular payroll practices. The
commenters supported the flexibility of the proposed rule and stated
that a weekly payroll requirement would not assist the IRS in
administering the PWA requirements.
Section 45(b)(7) requires that laborers and mechanics be paid wages
at rates not less than the prevailing rates; there is no statutory
requirement that laborers and mechanics must be paid on a weekly basis.
As several commenters stated, taxpayers, contractors, and
subcontractors should have the flexibility to pay their workers in
accordance with their ordinary payroll schedules. For these reasons,
these final regulations adopt the proposed rule requiring payment in
the time and manner consistent with the regular payroll practices
without change.
A commenter requested that the final regulations provide an
exception for effective compliance with the Prevailing Wage
Requirements. The limited penalty waiver in Sec. 1.45-7(c)(6) and
described in Section VII.D.4. of this Summary of Comments and
Explanation of Revisions provides sufficient relief for inadvertent,
minor errors. Another commenter suggested clarifying whether a taxpayer
would be deemed to satisfy the Prevailing Wage Requirements for a given
year after a facility is placed in service if neither alterations nor
repairs were performed during that year. The final regulations clarify
that after a facility is placed in service, taxpayers are only required
to meet the Prevailing Wage Requirements with respect to alterations
and repairs if alterations or repairs are actually performed during the
relevant period.\26\ The final regulations also provide that if there
is no alteration or repair that occurs during the relevant year, the
taxpayer is deemed to satisfy the Prevailing Wage Requirements with
respect to that year.
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\26\ This rule does not apply with respect to sections 30C, 45L,
48C, and 179D as those Code sections do not include a continuing
obligation for the payment of prevailing wages with respect to any
alterations or repairs that occur after the placed in service date.
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Commenters asked that the final regulations clarify whether the
applicable prevailing wage rate is based on where the project is being
constructed or where the contractor is performing their work. Another
commenter stated that in most cases the wages paid are based on the
local market where the contractor or subcontractor obtains their labor.
Section 45(b)(7)(A) provides that the prevailing wage rate is based on
the locality of the facility that is being constructed. The Proposed
Regulations similarly would have provided that the wage rates must be
not less than the prevailing rates in the geographic area in which such
facility is located. The final regulations continue to use the DBA
concept of site of the work to address construction of a qualified
facility that occurs at one or more secondary locations. The applicable
prevailing wage rate that must be paid to laborers and mechanics is
determined by the location of the work performed, which may be the
location of the qualified facility or any secondary locations.
The Proposed Regulations would have provided a special rule for
qualified facilities located offshore so taxpayers would not need to
request a supplemental wage determination for offshore facilities.
Under the Proposed Regulations, in lieu of requesting a supplemental
wage determination for a facility located in an offshore area within
the outer continental shelf of the United States, a taxpayer,
contractor, or subcontractor would be permitted to rely on the general
wage determination for the relevant category of construction that is
applicable in the geographic area closest to the area in which the
qualified facility will be located. To the extent that the PWA
requirements apply to onshore activities related to an offshore wind
facility, one commenter suggested clarifying that the locality in which
such onshore activities occur, and not where the offshore wind facility
is located, would determine prevailing wage rates for those activities.
A commenter expressed their support for permitting offshore facilities
to use the general wage determination applicable
[[Page 53207]]
to the closest onshore area to the facility. The proposed rule is
adopted without change. Onshore activities that are also considered
construction of a facility within the scope of the PWA requirements
must pay wages at rates not less than the applicable prevailing rates
for the location of the work performed.
B. Determining the Applicable Prevailing Wage Rate
1. General Wage Determinations
Section 45(b)(7)(A) requires that with respect to a qualified
facility, taxpayers who are seeking an increased credit amount ensure
that laborers and mechanics employed by the taxpayer, or any contractor
or subcontractor, in the construction, alteration, or repair of such
facility are paid wages at rates not less than the prevailing rates as
most recently determined by the DOL in accordance with the DBA. As
stated in the preamble to the Proposed Regulations, prevailing wage
rates are those determined to be prevailing for laborers and mechanics
for the various classifications of work performed with respect to a
specified type of construction in a geographic area. Under the Proposed
Regulations, prevailing wage rates would be determined by the DOL in
accordance with the DBA if they are issued and published by the DOL as
a general wage determination or if issued to a taxpayer as part of a
supplemental wage determination or pursuant to a request for a wage
rate for an additional classification.
With respect to the proper timing of a wage determination, proposed
Sec. 1.45-7(b)(5) would have provided that the applicable prevailing
wage rates on a general wage determination are those in effect at the
time construction, alteration, or repair of the facility begins, and
generally remain valid for the duration of the work performed with
respect to the construction, alteration, or repair of the facility by
the taxpayer, contractor, or subcontractor. Taxpayers who perform any
alteration or repair of a facility after the facility is placed in
service would have been required to use the applicable wage
determination in effect at the time the alteration or repair work
begins.
Commenters suggested aligning the timing of wage determinations
with the DOL regulations under the DBA, including updates to the DBA
regulations released in August of 2023, to minimize taxpayer confusion.
Several commenters requested that the final regulations provide that
prevailing wage rates be established for the entire project when
construction contracts are executed, not when construction begins,
consistent with the DBA. Commenters emphasized that prevailing wage
determinations are an important factor in determining the cost of labor
and that project costs need to be known ahead of time to accurately bid
on contracts. Commenters asserted that waiting until construction
begins to determine labor costs will lead to financial uncertainty and
may discourage participation in construction projects by many
contractors because contractors need to know what the prevailing wage
obligations are prior to bidding for a project. The commenter stated
that the need to apply new wage rates at the start of construction
would be disruptive and create unnecessary financial risk for
contractors after they have entered into a contract for construction of
a facility.
Commenters stated that portions of the Proposed Regulations refer
to a contract when referencing the timing of a DBA wage determination,
while others refer to a facility, and requested clarification. Another
commenter stated that the approach in the Proposed Regulations
conflicts with early guidance issued by the DOL regarding IRA
prevailing wage compliance.\27\ A few commenters requested that the
final regulations retain the rule that the wage determination be
determined at the beginning of construction or revise the rule to
provide for the determination of wage rates at the project level to
avoid multiple wage rates for the same work. These commenters stated
that because there is no analogous prime contract with a Federal agency
as under the DBA, connecting the wage determination timing to the
execution of a contract could be challenging. Commenters stated that
determining prevailing wage rates at the project level would allow for
greater consistency between contractors and subcontractors. Another
commenter emphasized that each taxpayer, contractor, and subcontractor
should be subject to the same applicable wage determination. At least
one commenter suggested that the final regulations should permit
taxpayers to use wage determinations at the time contracts are executed
or when construction begins.
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\27\ U.S. Dept. of Labor, Davis-Bacon and Related Acts (DBRA)
Frequently Asked Questions, Sec. III.11, https://www.dol.gov/agencies/whd/government-contracts/construction/faq.
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The DBA framework is predicated on a Federal contract for the
construction of public buildings and public works between the Federal
Government and contractors. Under the DBA, every contract to perform
construction, alteration, or repair to which the Federal Government is
a party must contain a provision stating the prevailing wage rates to
be paid to various classes of laborers and mechanics. The DBA
regulations generally provide that the applicable wage rates for a
contract are those in effect at the time the prime contract is awarded
by the Federal contracting agency.\28\ By contrast, under the PWA
requirements, there is no contracting party directly analogous to the
Federal Government. Under the Prevailing Wage Requirements, taxpayers
are required to ensure the payment of at least prevailing wages, but
they may do so through the execution of multiple contracts and
subcontracts or may perform the work with their own employees.
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\28\ Under 29 CFR 5.2, the term ``contract'' means any prime
contract that is subject wholly or in part to the labor standards
provisions of any of the laws referenced by 29 CFR 5.1 and any
subcontract of any tier thereunder, let under the prime contract.
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Because of the perceived difficulty in assigning a fixed time to
establish the applicable prevailing wage rates based on the execution
of contracts, the proposed rules would have provided that the
applicable prevailing rates are determined at the beginning of
construction. However, the Treasury Department and the IRS understand
the need for taxpayers to reduce uncertainty and determine expected
labor costs prior to entering into contracts for the construction of a
facility. Additionally, the Treasury Department and the IRS agree that
the ``in accordance with'' language in section 45(b)(7) supports
drawing from the DBA rules to determine the appropriate timing for
establishing the applicable wage rates. Accordingly, the final
regulations are revised to provide that the applicable prevailing rates
are determined at the time the contract for the construction,
alteration, or repair of the facility is executed by the taxpayer (or
the taxpayer's designee, assignee, or agent) and a contractor. The
prevailing wage rates at the time such contract is executed apply to
all subcontractors of that contractor. In circumstances in which a
taxpayer (or the taxpayer's designee, assignee, or agent) executes
separate contracts with more than one contractor, then for each such
contract, the applicable prevailing rates with respect to any work
performed by the contractor (and all subcontractors of the contractor)
are determined at the time the contract is executed by the taxpayer (or
the taxpayer's designee, assignee, or agent) and the contractor. In the
absence of a contract, or if a contractor or subcontractor is unable to
determine the date of execution of the contract, the
[[Page 53208]]
final regulations provide that the applicable wage determinations are
those in effect at the time construction starts.
These revisions address commenters' practical business concerns
regarding costs and financing and provide greater consistency with how
the applicable wage rates are established under the DBA. The final
regulations address the concern of commenters that various wage rates
would apply, or that costs will not be able to be determined up front,
because they apply the rate at the time the contract is executed
between the taxpayer and a contractor to all subsequent contracts that
flow from such contract. Thus, consistent with the DBA, the final
regulations allow for more than one wage determination to apply with
respect to the construction, alteration, or repair of a facility in
cases in which a taxpayer executes separate contracts with more than
one contractor, but nonetheless provide certainty for the taxpayer,
contractor, and subcontractor with respect to any work performed
pursuant to that contract.
The final regulations also adopt a similar framework for
alterations or repairs that occur after the facility is placed in
service with applicable wage determinations applying when a contract is
executed between a taxpayer and contractor for the alteration or repair
of a facility, or absent a contract, when the repair or alteration
starts. The final regulations also add all contracts for construction,
alteration, or repair to the list of records that may be necessary to
demonstrate compliance with the applicable Prevailing Wage
Requirements.
Under the Proposed Regulations, taxpayers generally would not have
been required to update the applicable prevailing wage rates during
construction of the facility in the event a new general wage
determination was published by the DOL after construction of the
facility begins. The preamble to the Proposed Regulations stated that a
new wage determination would be required if the contract is changed to
include additional, substantial construction, alteration, or repair
work not within the scope of work of the original contract, or to
require work to be performed for an additional time period not
originally obligated, including in the case of an option to extend the
term of a contract for the construction, alteration, or repair being
exercised. Proposed Sec. 1.45-7(b)(5) mirrored the language in the
preamble, but omitted the term substantial from the rule. The Proposed
Regulations also would have provided that taxpayers would need to
update the applicable wage rate(s), as necessary, with respect to any
alteration or repair of a facility that begins after the facility has
been placed in service. Taxpayers would do this by ensuring that wages
are paid for such alteration or repair based on the general wage
determination in effect when the alteration or repair begins.
Several commenters were concerned about the requirement to update
prevailing wage rates during the lifespan of a construction project.
Commenters suggested clarifying how to determine when, under the
Proposed Regulations, an additional time period not originally
obligated has occurred that necessitates obtaining a new wage
determination. The commenters stated that the language with respect to
an additional time period is ambiguous and could apply to ordinary
delays and extensions that are common in construction projects.
Commenters requested that the terms substantial and additional be
defined, or a de minimis value be set, to better clarify the threshold
of new work or additional time above which taxpayers would be required
to seek a new wage determination.
The commenters recommended inclusion of language from the DBA
regulations to clarify that a new wage determination is not required if
additional time is given to complete the original commitment or if the
additional construction, alteration, and/or repair work as part of the
modification is merely incidental. Other commenters recommended the
final regulations include a substantiality threshold consistent with
DBA regulations. One commenter suggested the final regulations require
new wage rates only if there is a cardinal change to a covered project.
Another commenter suggested limiting the need for additional wage
determinations to increases in the project's budget of at least 30
percent or delays of at least 120 days to the project's expected
completion date. One commenter suggested that the wage determination in
effect at the beginning of a taxpayer's taxable year be used for all
alterations and repairs occurring in the years after a facility is
placed in service.
The Treasury Department and the IRS agree that clarifications are
needed and that the rules regarding when a new wage determination is
required should be consistent with the rules under the DBA. Under the
DBA guidance in 29 CFR 1.6, if there is additional, substantial
construction, alteration, and/or repair work not within the scope of
work of the original contract or order, or changes to require the
contractor to perform work for an additional time period not originally
obligated, including cases in which an option to extend the term of a
contract is exercised, the contracting agency must include the most
recent revision of any wage determination(s) at the time the contract
is changed or the option is exercised. This does not apply if the
contractor is simply given additional time to complete its original
commitment or if the additional construction, alteration, and/or repair
work in the modification is merely incidental. The DBA regulations also
provide rules with respect to contracts for construction, alteration,
or repair work over a period of time that is not tied to the completion
of any specific work, such as indefinite operations and maintenance or
repair contracts. The DBA regulations require contractors who are
parties to these types of contracts to update the applicable wage rates
for such contracts on an annual basis. The revised wage determination
then applies to any alteration or repair work that begins under such a
contract during the 12 months following the update until such
construction work is completed, even if the completion of that work
extends beyond the twelve-month period.
Accordingly, the final regulations update the proposed rule to
include the substantiality requirement discussed in the preamble to the
Proposed Regulations, and further clarify that the requirement to
update the wage determination does not apply if the contractor is given
more time to complete its original commitment or if the additional work
is merely incidental. The final regulations also update the proposed
rule to provide that if a taxpayer enters into a contract for
alteration or repair work over an indefinite period of time that is not
tied to the completion of any specific work, the applicable wage rates
must be updated on an annual basis.
2. Applicable Prevailing Wage Rate for General Wage Determinations
The Proposed Regulations would have provided that a general wage
determination would be one issued and published by the DOL that
includes a list of wage and bona fide fringe benefit rates determined
to be prevailing for laborers and mechanics for the various
classifications of work performed with respect to a specified type of
construction in a geographic area. As stated in the preamble to the
Proposed Regulations, generally, the DOL conducts surveys to determine
the prevailing rate based on wage rate data submitted by contractors,
contractors' associations, labor organizations, public
[[Page 53209]]
officials, and other interested parties. In general, the Proposed
Regulations would have provided that to determine the applicable
prevailing wage rates, taxpayers would need to use the general wage
determination(s) published by the DOL under the DBA on a DOL approved
website. The current DOL approved website for publishing general wage
determinations https://www.sam.gov.
Section 45(b)(7)(A) requires that taxpayers ensure the payment of
prevailing wages at rates not less than the prevailing rates determined
in accordance with the DBA. The Proposed Regulations would have largely
incorporated the definition of wages from 29 CFR 5.2 for the Prevailing
Wage Requirements. Under the Proposed Regulations, wages would be
defined as the basic hourly rate of pay; any contribution irrevocably
made by a contractor or subcontractor to a trustee or to a third person
pursuant to a bona fide fringe benefit fund, plan, or program; and the
rate of costs to the contractor or subcontractor that may be reasonably
anticipated in providing bona fide fringe benefits to laborers and
mechanics pursuant to an enforceable commitment to carry out a
financially responsible plan or program, which was communicated in
writing to the laborers and mechanics affected. The Proposed
Regulations would have also incorporated by reference the rules set
forth in 29 CFR 5.25 through 5.33 with respect to the costs for bona
fide fringe benefits that may be credited for purposes of the payment
of wages. The Proposed Regulations would have prescribed rules with
respect to the payment of wages including that the payment of wages be
made without deduction (except such payroll deductions as are required
by the law or permitted by regulations issued by the Secretary of
Labor) and must consist of the full amount of wages (including bona
fide fringe benefits or cash equivalents thereof). Under the Proposed
Regulations, whether amounts are wages for purposes of the Prevailing
Wage Requirements would not be relevant in determining whether amounts
are wages or compensation for other Federal tax purposes.
One commenter suggested that prevailing wage rates established by
the DOL fail to take into account actual compensation to workers,
including fringe benefits, in all cases. The commenter suggested that
to calculate prevailing wage amounts, an employer would not be able to
take credit for the cost to set up and offer medical insurance if an
employee opts out of medical coverage. The commenter also stated that
taxpayers who enter into a collective bargaining agreement may be
disadvantaged, because the agreement could set the wages and benefits
below the prevailing wage amounts for covered employees. The commenter
suggested establishing a safe harbor whereby a taxpayer would be deemed
to satisfy Prevailing Wage Requirements if a substantial number--
defined as 90 percent--of their employees are paid prevailing wages.
This comment appears to misstate the DBA requirements, and to the
extent the comment addresses the determination of prevailing wage rates
for purposes of the DBA, the comment is outside the scope of these
regulations. The Proposed Regulations would have largely incorporated
the definition of wages from 29 CFR 5.2 for the Prevailing Wage
Requirements. Under 29 CFR 5.2 wages include any contribution
irrevocably made by a contractor or subcontractor to a trustee or to a
third person pursuant to a bona fide fringe benefit fund, plan, or
program; and the rate of costs to the contractor or subcontractor that
may be reasonably anticipated in providing bona fide fringe benefits to
laborers and mechanics pursuant to an enforceable commitment to carry
out a financially responsible plan or program, which was communicated
in writing to the laborers and mechanics affected. The Proposed
Regulations would have therefore included in the payment of prevailing
wages, the rate of costs to an employer to provide bona fide fringe
benefits. Additionally, the statute requires the payment of prevailing
wages in accordance with the DBA and does not allow lower wage rates
because there is a collective bargaining agreement or if 90 percent of
workers have been paid the applicable wage rates. Accordingly, the
changes suggested by the commenter are not incorporated.
A commenter stated that the Proposed Regulations impose no
obligation on taxpayers to confirm that fringe benefit contributions by
contractors are made to bona fide entities. The commenter suggested
requiring taxpayers to: (i) provide notice of an enforceable commitment
to provide bona fide fringe benefits, and (ii) confirm that fringe
benefit contributions made on behalf of laborers and mechanics by
contractors and subcontractors are made to a bona fide fringe benefit
fund, plan, or program. Another commenter request that the final
regulations specifically allow for the payment of non-required forms of
compensation, such as paying for a portion of health insurance, to make
up for any wage payments that are below the prevailing wage rate.
Consistent with the DBA, the final regulations clarify that a
taxpayer may discharge its wage obligations for the payment of
prevailing wages by paying the full amount in cash, by making payments
to a bona fide fringe benefit provider or incurring costs for bona fide
fringe benefits, or by a combination thereof. As discussed previously,
wages are defined to include contributions irrevocably made by a
contractor or subcontractor to a trustee or to a third person pursuant
to a bona fide fringe benefit fund, plan, or program. Failures by
contractors or subcontractors to make payments to bona fide plans or
programs may result in laborers and mechanics being paid wages at rates
less than the required prevailing wage rates. However, there is
flexibility because the taxpayer, contractor, or subcontractor can pay
the entire prevailing wage amount through the basic hourly rate,
including the cash equivalent of fringe benefits. They are permitted,
but not required, to provide bona fide fringe benefits. If they do
provide bona fide fringe benefits, the cost of those benefits is
included in the prevailing wage rate. It is ultimately the taxpayer's
responsibility to ensure compliance with the Prevailing Wage
Requirements. These final regulations do not require any specific
method for the taxpayer to ensure compliance; however, taxpayers must
maintain records reflecting that compliance.
Other commenters opined that the DOL prevailing wage rates are
based on unreliable methodologies and are flawed and inaccurate. A
commenter stated that existing prevailing wage laws have an
inflationary impact on construction costs. Similarly, a commenter
suggested that the rates used for the wages are generally drawn from
the nearest urban center and don't necessarily reflect local market
conditions. A commenter expressed that the prevailing wage rates
published by the DOL are subject to change and can vary greatly by
location, category, and job type. The commenter suggested the
uncertainty of prevailing wage rates will inhibit investment in clean
energy projects and raise the cost and risk of such projects.
Under section 45(b)(7)(A), the increased credit amount provided by
section 45(b)(6) is available with respect to a qualified facility if a
taxpayer ensures that laborers and mechanics are paid wages at rates
not less than the prevailing rates for construction, alteration, or
repair of a similar character in the locality in which such facility is
located as most recently determined by the Secretary of Labor in
accordance with the DBA. The statute mandates the use of prevailing
wage rates determined by the DOL. The DOL
[[Page 53210]]
wage determination survey process and data sufficiency are outside the
scope of these final regulations.
Commenters also stated that union classifications are complex and
confusing and that nonunion contractors may struggle to classify
certain jobs with descriptions contained in collective bargaining
agreements that are not shared publicly. The commenter raised that the
DOL has applied union work rules and job descriptions to any
classification for which the union rate prevails. A commenter
recommended that taxpayers, contractors, and subcontractors should not
be penalized for failing to conform to job descriptions that are not
published by the DOL and/or the unions whose wage scales are found to
be prevailing. The commenter suggested that, at a minimum, no
intentional violation penalty should be assessed in the absence of
publication of the job descriptions for each trade, which can be
readily accomplished by posting hyperlinks to union collective
bargaining agreements, or the DOL dictionary of occupation definitions.
Commenters also encouraged the Treasury Department and the IRS to
recognize that new clean energy technologies require new labor
classifications and suggested providing additional guidance regarding
other types of professional workers unique to clean energy that should
be considered distinct from laborers or mechanics. Commenters also
requested that the DOL FAQs be amended to no longer preemptively
declare that clean technology workers will generally be deemed covered
and classified under so-called established trades, particularly with
regard to solar and wind turbine industries. Commenters stated that
standardization and definition regarding multiple labor categories is
necessary to avoid protracted delays and confusion. Similarly, a
commenter suggested that taxpayers should not be penalized for
misclassifications arising from delays in the DOL determinations.
Another commenter stated that no clear labor classifications exist for
workers directly employed by nuclear power plant operators.
Other commenters recommended implementing the DOL system of trade
and craft classifications under the DBA, including updates to the DBA
regulations released in August of 2023. A commenter stated that the
update contained specific recommendations for prevailing wage
classifications, including new definitions of geographic localities and
broader definitions of construction to better reflect work on clean
energy projects.
The Treasury Department and the IRS appreciate commenters' concerns
and suggestions regarding emerging technologies and the need for
consistency and transparency in the classification process. However,
revisions to the DOL regulations and other guidance regarding worker
classifications for DBA purposes are outside the scope of these final
regulations.
Commenters also requested that the final regulations clarify the
types of construction subject to wage determinations. For purposes of
determining the applicable general wage determination, the Proposed
Regulations would have provided that the types of construction for
which wage determinations may be issued include, but are not limited
to, building, residential, heavy, and highway, which are the types of
construction for which the DOL issues general wage determinations under
the DBA.\29\
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\29\ Dep't of Labor, ALL AGENCY MEMORANDUM NO. 130 (March 17,
1978).
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A commenter recommended clarifying that the DOL definition and
interpretation of the types of construction should control for PWA
purposes and that only those types of construction designated by the
DOL as of a similar character in the locality should be permitted for
IRA projects. Other commenters supported only recognizing the DOL's
four major categories of construction.
The language in the Proposed Regulations was intended to align with
the types of construction for which the DOL currently issues wage
determinations and allow for additional or different classifications
should the DOL designate additional classifications in the future. The
final regulations clarify that the types of construction are those
identified by the DOL and provide the flexibility for the DOL to add to
or modify those categories as necessary within the DOL's existing
authorities. Any decision by the DOL to add to or modify those
categories is outside of the scope of these final regulations.
A commenter requested that the final regulations clarify whether
the definition of wages as used in sections 45(b)(7)(A) and 45Q(h)(3)
has the same meaning as wages provided by 48 CFR 22.401 and whether
such wages should be computed according to 48 CFR 22.406-2. The final
regulations do not adopt this comment because section 45(b)(7)(A)
requires taxpayers to ensure that wages are paid at rates not less than
the prevailing rates in accordance with the DBA and not the Federal
Acquisition Regulations in Title 48 of the Code of Federal Regulations.
One commenter recommended expressly adopting the DBA's ``30-percent
rule,'' whereby the prevailing wage rate is defined as the rate paid to
the greatest number or laborers or mechanics in the classification on
similar projects in the area during the period in question, provided
that the wage is paid to at least 30 percent of those employed in the
classification. Section 45(b)(7)(A)(ii) requires taxpayers who are
seeking an increased credit amount to ensure that laborers and
mechanics are paid wages at rates that are not less than the prevailing
rates ``as most recently determined'' by the DOL in accordance with the
DBA. The Proposed Regulations would have provided for incorporation of
DBA rules for determining prevailing wage rates by defining prevailing
wage rates as those rates most recently determined by the DOL.
Consistent with section 45(b)(7)(A)(ii), the final regulations retain
the rule from the Proposed Regulations; they do not incorporate the
comment to expressly adopt the 30-percent rule.
3. Supplemental Wage Determinations and Rates for Additional
Classification Requests
The Proposed Regulations would have provided special procedures for
the limited circumstances in which a general wage determination does
not provide an applicable wage rate(s) for the work to be performed on
the facility or if there is no applicable general wage determination.
These circumstances would include cases in which no general wage
determination has been issued for the geographic area or for the
specified type of construction, or in which the DOL has issued a
general wage determination for the relevant geographic area and type of
construction, but one or more labor classifications necessary for the
construction, alteration, or repair work that will be done on the
facility is not listed as part of that determination.
The Proposed Regulations would have provided that under these
circumstances, a taxpayer, contractor, or subcontractor would need to
request a supplemental wage determination or request a prevailing wage
rate for an additional classification from the DOL. Under the Proposed
Regulations, a taxpayer, contractor, or subcontractor could have also
requested a supplemental wage determination if the location of the
facility involves work by covered laborers and mechanics that spans
more than one contiguous geographic area. The procedures for
[[Page 53211]]
requesting a supplemental wage determination or a prevailing wage rate
for an additional classification from the DOL were intended to
correspond to the provisions under the DBA that allow contracting
agencies to seek a project wage determination or a conformance under 29
CFR 1.5(b) and 5.5(a)(1)(iii), respectively.
With respect to supplemental wage determination requests and
requests for additional classifications and wage rates, proposed Sec.
1.45-7(b)(3)(ii)(A) would have provided that a taxpayer, contractor, or
subcontractor should make such requests no more than 90 days before the
beginning of construction, alteration, or repair, as appropriate. While
the procedures for requesting a supplemental wage determination or
rates for additional classifications would have generally been
consistent with DBA rules, there is no similar timing requirement under
DBA rules with respect to project wage determinations or conformances
that are requested by the contracting agency. The 90-day limitation was
proposed to limit requests for hypothetical wage determinations that
were not tied to actual construction projects in the final planning
stages. According to the DOL, this concern is addressed in the DBA
context through the involvement of the contracting agency, but there is
no contracting agency involved in the construction of facilities for
PWA purposes that would help avoid unnecessary and hypothetical
requests.
Commenters generally expressed support of the supplemental wage
determination and additional classification process. Commenters stated
that the procedures were largely consistent with processes under the
DBA and were necessary given the constant transformational nature of
the construction industry. One commenter expressed support for the
requirement that any requests for additional wage determinations bear a
reasonable relationship to the established wage rates, consistent with
the DBA rules. The commenter also supported the IRS's recognition that
a request for a prevailing wage rate for an additional classification
would not be permitted to be used to split, subdivide, or otherwise
avoid application of classifications listed in a general wage
determination. In addition, commenters supported adopting the DOL test
for determining whether to approve a taxpayer or contractor's request
to add a missing classification to a DBA wage determination. Some
commenters requested that the final regulations expressly adopt the DOL
three-part conformance test for adding missing classifications to wage
determinations. Commenters claimed that adopting DOL regulations
governing conformance requests would help protect multiskilled
occupations from unscrupulous contractors inventing unnecessary
subclassifications for the purpose of paying workers less. The
commenters also suggested clarifying that the DOL will consider the
views of construction workers to be employed in the requested
classification and stakeholders, including labor unions in the affected
area, with respect to the adequacy of the requested classification and/
or proposed wage and fringe benefits rates.
The Treasury Department and the IRS coordinated extensively with
the DOL in drafting the supplemental wage determination and additional
classification process outlined in the Proposed Regulations. The
procedures in proposed Sec. 1.45-7(b)(3) for requesting a supplemental
wage determination or a rate for an additional classification from the
DOL would have corresponded to the provisions under the DBA that allow
contracting agencies to seek a project wage determination or a
conformance under 29 CFR 1.5(b) and 5.5(a)(1)(iii), respectively. They
would have included certain minor differences from the conformance
process to account for the absence of a Federal contracting agency. The
comments suggesting that the DOL should alter its underlying process
and methodology for determining prevailing wages (both in the DBA and
the PWA context) are not adopted. Additionally, changes to DOL
procedures regarding the DBA are outside the scope of these final
regulations as the DOL administers those DBA provisions.
Several commenters shared concerns with the wage determination
process administered by the DOL. One commenter stated that numerous
occupations in the clean energy industry are unrepresented in the
general wage determinations currently offered by the DOL, such as wind
technicians often relied upon for the installation and assembly of
onshore and offshore wind turbines. One commenter stated that nuclear
power generating facilities are different than other construction
projects, including other electric generating facilities, and that the
specialized roles performed by employees at nuclear facilities are not
always covered by existing DOL classifications. A commenter also asked
for guidance on how to categorize specific repairs or alterations of an
existing nuclear facility for purposes of DOL general wage
determinations. Similarly, commenters recommended providing additional
guidance about multi-category projects, such as who will make the final
determination on the classification of a project (for example, building
or heavy), and the category a contractor should follow.
Comments requesting additional classifications and additional
guidance from the DOL on the application of appropriate classifications
are outside the scope of these final regulations. The procedures for
requesting a supplemental wage determination or a prevailing wage rate
for an additional classification from the DOL continue to apply.
Some commenters were critical of the proposed rule requiring that a
taxpayer, contractor, or subcontractor request a supplemental wage
determination no more than 90 days before the beginning of construction
of a facility. Commenters stated that the 90-day period is too short
because of the high importance of the prevailing wage determination on
the cost of labor. Similar to general wage determinations, commenters
stated that it is necessary to know project costs at the bidding stage,
and bidding on contracts to construct a facility takes place far more
than 90 days before the beginning of construction, often more than one
year prior to construction beginning. Some commenters suggested the
time be extended to a year before a bid is due or 24 months before the
beginning of construction, asserting that this would provide all
potential bidders with sufficient clarity on wage determinations and
job classifications in sufficient time to make informed bids on solar
and other clean energy projects. The commenter also stated that this
would reduce the number of requests to the DOL, which will mitigate the
burden on government regulators and allow them to process requests more
efficiently.
The Treasury Department and the IRS agree with the comments seeking
additional time to request supplemental wage determinations and rates
for additional classifications. The commenters persuasively argued that
wage determinations issued at or near the beginning of construction are
not helpful for taxpayers who will likely seek to enter contracts well
in advance of construction starting. Taxpayers and their contractors
need certainty regarding the labor costs of a project at the time of
entering contracts for work to be performed rather than when
construction begins. Moreover, the 90-day period prior to construction
starting lacks consistency with the rules under the DBA. The final
regulations revise the Proposed Regulations to align the timing of
requests for supplemental
[[Page 53212]]
wage determinations or rates for additional classification with the
contract framework adopted for general wage determinations. The final
regulations update when taxpayers must request a supplemental wage
determination or rate for additional classification from the DOL to
provide greater certainty for taxpayers and better align with the rules
under the DBA, while also preventing an influx of hypothetical requests
for supplemental wage determinations or additional classifications that
would be administratively burdensome to the DOL.
Under the final regulations, requests for supplemental wage
determinations cannot be made more than 90 days before the date the
contract between the taxpayer (or the taxpayer's designee, assignee, or
agent) and a contractor for construction, alteration, or repair of the
facility is expected to be executed. The final regulations further
prescribe that any supplemental wage determinations are required to be
incorporated into the contract between the taxpayer and contractor
within 180 days of issuance. The 180-day period for incorporation into
a contract provides consistency with the DBA rules under 29 CFR
1.6(a)(3)(i).
Under the final regulations, requests for prevailing wage rates for
additional classifications can be made any time after a contract for
the construction, alteration, or repair of a facility has been executed
between the taxpayer and a contractor. The final regulations balance
the need of taxpayers for increased certainty regarding labor costs at
or near the time of entering a contract with the need to limit
hypothetical requests that are not tied to actual construction
projects. The DOL WHD has advised the Treasury Department and the IRS
that most taxpayers will likely not need to use the process for
requesting a supplemental wage determination or request a rate for an
additional classification because of the availability of general wage
determinations.
Commenters requested that the final regulations provide that if a
response from the DOL for an additional wage rate is not provided
within a specific time period, such as 60 days, the prevailing wage
rate requirement for that role should no longer apply. Under the
Proposed Regulations, the procedures for requesting a prevailing wage
rate for an additional classification from the DOL were intended to
correspond to the provisions under the DBA that allow contracting
agencies to seek a conformance under 29 CFR 5.5(a)(1)(iii). Section
5.5(a)(1)(iii) of the DBA regulations provides that the DOL will
approve, modify, or disapprove any classification action within 30 days
of receipt or advise the requesting contracting agency within the 30-
day period that additional time is necessary. To retain consistency
with the DBA and address the valid taxpayer and contractor concerns
regarding cost certainty and preventing unreasonable delays, the final
regulations adopt similar language that the DOL will resolve requests
for a prevailing wage rate for an additional classification within 30
days of receipt or advise the requester within the 30-day period that
additional time is necessary. The final regulations do not, however,
adopt the commenters suggestion that a delay in receiving an additional
wage rate excepts a taxpayer from the requirement to pay wages at rates
not less than the prevailing rates for that role.
An additional commenter recommended that, in instances in which
taxpayers receive a supplemental wage determination or a prevailing
wage rate for an additional classification, taxpayers be provided a 30-
day grace period during which to pay the affected employees the
difference between the wage determination and previous wage rates. A
commenter also proposed a 30-day grace period following a denial or
partial-relief from an appeal with respect to wage determinations
generally.
The Treasury Department and the IRS recognize the possibility that
the DOL response to a request for a supplemental wage determination or
additional classifications may not be issued until after laborers and
mechanics have started working on the facility or project. The Proposed
Regulations would have provided that the taxpayer would not be
considered to have failed to meet the Prevailing Wage Requirements with
respect to any mechanics or laborers whose wage rate was subject to the
request and who were paid less than the prevailing wage rate before the
determination by the DOL if the taxpayer requests the supplemental wage
determination or prevailing wage rate for an additional classification
before the beginning of construction (or as soon as practicable after
the start of construction) and makes a correction payment within 30
days of the determination to each laborer or mechanic equal to the
difference between the amount of wages paid to such laborer or mechanic
before the determination and the amount of wages required by the
Prevailing Wage Requirements to be paid to such laborer or mechanic
during such period. This exception is intended to mitigate a rule that
would require taxpayers to make correction and penalty payments for
failures to pay a prevailing wage rate that could not be timely
determined by the taxpayer. The same considerations do not apply to the
request for additional time while an appeal with respect to a wage
determination is pending. Therefore, the final regulations adopt the
proposed rule without change.
Commenters also requested that the final regulations require
consistency between who can request supplemental wage determinations or
additional classifications and who can seek reconsideration of such a
decision. A commenter stated that proposed Sec. 1.45-7(b)(3)(ii)(A)
would have provided that a taxpayer, contractor, or subcontractor
request a supplemental wage determination or additional classification
and wage rate and after review, the DOL WHD will notify the taxpayer,
contractor, or subcontractor as to the supplemental wage determination
or the labor classifications and wage rates to be used for the type of
work in question in the geographic area in which the facility is
located. However, proposed Sec. 1.45-7(b)(4) would have provided that,
in connection with seeking a reconsideration of a wage determination, a
``taxpayer may seek reconsideration and review by the Administrator of
the Wage and Hour Division of a general wage determination, or a
determination issued with respect to a request for a supplemental wage
determination or additional classification and wage rate.'' In
contrast, one commenter requested that only taxpayers be permitted to
request supplemental wage determinations. Under 29 CFR 1.8(a), any
interested party may seek reconsideration of a wage determination.
The final regulations clarify that any supplemental wage
determination or rate for additional classification request may be made
by the taxpayer, contractor, or subcontractor. With respect to seeking
a reconsideration of a general wage determination, or a determination
issued with respect to a request for a supplemental wage determination
or rate for additional classification request, the final regulations
further clarify that the taxpayer, contractor, or subcontractor may
seek the reconsideration. Ultimately, the taxpayer must ensure that the
PWA requirements are satisfied regardless of whether a contractor or
subcontractor requested a supplemental wage determination or requested
an additional classification.
[[Page 53213]]
4. Applicable Prevailing Wage Rate for Apprentices
With respect to the prevailing wage rates for apprentices, the
Proposed Regulations would have adopted 29 CFR 5.5(a)(4)(i), allowing
the payment of wages that differ from the applicable prevailing wage
rate to apprentices who are participating in a registered
apprenticeship program. The Proposed Regulations would have also
provided that taxpayers and contractors or subcontractors who employ
individuals who are not in a registered apprenticeship program or who
employ apprentices in excess of applicable ratios permitted by the
registered apprenticeship program would need to pay those individuals
the full prevailing wage rate listed for the classification of the work
performed in the applicable wage determination.
A commenter recommended increasing the rate of pay for apprentices,
given the frequency at which apprentices travel for work. This comment
is not adopted as the prevailing rate of pay for work performed by
apprentices is determined by the DOL and is outside the scope of these
final regulations. Comments concerning employing apprentices in excess
of the applicable ratios are discussed in Section VIII.A.2. and
employing individuals who are not apprentices because they are not
participating in a registered apprenticeship program are discussed in
Section VIII.A.5., of this Summary of Comments and Explanation of
Revisions.
The Proposed Regulations would have provided a reciprocity rule.
Under the proposed reciprocity rule, if the construction is occurring
in a geographic area other than the geographic area in which an
apprenticeship program is registered, the ratio applicable within the
geographic area where the construction is being performed would apply.
If there is no applicable ratio for the geographic area of the
facility, the ratio specified in the registered apprenticeship program
standard would apply.
Commenters requested clarification on the applicable apprentice-to-
journeyworker ratio if work is performed outside of the geographic area
in which the apprenticeship program typically operates. A few
commenters suggested that the final regulations adopt a reciprocity
standard that would permit taxpayers to apply either the
apprenticeship-to-journeyworker ratio set by the registered
apprenticeship program or the State where the construction is being
performed. Another commenter recommended giving taxpayers flexibility
to determine the appropriate ratio and wage rates if the taxpayer,
contractor, or subcontractor is performing covered work in a geographic
area other than that in which the apprenticeship program is registered.
The Treasury Department and the IRS appreciate commenters'
requested clarification on the proposed reciprocity rule and work that
is performed outside of the geographic area in which the apprenticeship
program is registered. The proposed reciprocity rule would have largely
followed the rule in 29 CFR 5.5(a)(4)(i)(D) regarding the payment of
prevailing wages to apprentices. Based on consultations with the DOL,
the Treasury Department and the IRS understand that this rule is
intended to apply in cases in which the ratio requirement of the State
where the construction occurs is stricter than that of the registered
apprenticeship program. The final regulations largely adopt the
proposed rule, and also clarify that if more than one apprentice-to-
journeyworker ratio could apply because the construction work is
occurring in a geographic area where the registered apprenticeship
program is not registered, the taxpayer must comply with the
apprentice-to-journeyworker ratio set for the geographic area where the
construction occurs. Thus, if the geographic area in which the
construction is occurring requires a higher number of journeyworkers
per apprentices than the ratio required by the registered
apprenticeship program, then the taxpayer, contractor, or subcontractor
must follow the stricter ratio. The final regulations also adopt the
proposed rule that the wage rates (expressed in percentage of the
journeyworker hourly rate) applicable in the geographic area in which
the construction, alteration, or repair work is performed must be
observed.
A commenter requested guidance for determining the apprentice or
apprentices that must be paid not less than the full prevailing wage
rate for their hours if the daily ratio requirement is not satisfied.
The final regulations clarify that the taxpayer, contractor, or
subcontractor, as applicable, has the discretion to determine which
apprentice(s) must receive the full prevailing wage rate for hours
worked if there is a failure to satisfy the Ratio Requirement.
At least one commenter recommended that the final regulations not
require taxpayers to pay at least the full prevailing wage rate to
apprentices in excess of the applicable ratio. Under the DBA, any
apprentice performing work on the job site in excess of the ratio
permitted under the registered program or the ratio applicable to the
geographic area of the facility pursuant to 29 CFR 5.5(a)(4)(i) must be
paid not less than the full applicable prevailing wage rate on the wage
determination for the work actually performed. The Proposed Regulations
would have provided that the calculation of the prevailing wage rate
for the work of apprentices would be in accordance with the DBA rules.
The proposed rule is adopted as final.
A commenter raised that the Proposed Regulations appear to limit
the number of apprentices that can be paid the apprenticeship rate to
the number of apprenticeships required by the regulation. The commenter
stated that limiting the number of apprentices that can be paid the
apprenticeship rate to the number of apprentices required by the
regulation discourages the use of a larger number of apprentices and
would seem to violate the policy objectives of the requirements to use
apprentices. On the other hand, a commenter recommended adopting the
DOL oversight and quality control standards, including apprentice-to-
journeyworker ratios, to help ensure safe training of apprentices.
Apprentice-to-journeyworker ratios prescribe the minimum number of
journeyworkers required for each apprentice that is on a job site on a
given day to ensure the appropriate training and supervision of
apprentices and to maintain workplace safety. The apprentice-to-
journeyworker ratio does not impose a cap on the total number of
apprentices that can be paid the apprentice rate. For example, a
taxpayer may satisfy a 1:1 ratio by hiring one journeyworker and one
apprentice or by hiring 20 journeyworkers and 20 apprentices. The
prescribed ratio does not restrict the total number of individuals that
are hired.
C. Definitions
Commenters suggested clarifying the extent to which the relevant
definitions under proposed Sec. 1.45-7(d) for the Prevailing Wage
Requirements apply to the proposed Sec. 1.45-8(f) definitions for the
Apprenticeship Requirements. The final regulations align the relevant
definitions for the Prevailing Wage Requirements in Sec. 1.45-7(d)
with the Apprenticeship Requirements in Sec. 1.45-8(g).
1. Laborer and Mechanic
Proposed Sec. 1.45-7(d)(7) would have defined the terms laborer
and mechanic consistent with the definition under the
[[Page 53214]]
DBA as those individuals whose duties are manual or physical in nature
(including those individuals who use tools or who are performing the
work of a trade). Under the Proposed Regulations, laborers and
mechanics would not have included individuals whose duties are
primarily administrative, executive, or clerical, rather than manual.
Persons employed in a bona fide executive, administrative, or
professional capacity as defined in 29 CFR part 541 would not be deemed
to be laborers or mechanics. These individuals are generally exempt
under the Fair Labor Standards Act and are not labors or mechanics for
purposes of the DBA. Consistent with the DBA, working forepersons who
devote more than 20 percent of their time during a workweek to laborer
or mechanic duties, and who do not meet the criteria for exemption
under 29 CFR part 541, also would be considered laborers and mechanics
for the time spent conducting laborer and mechanic duties. Under the
Proposed Regulations, laborers and mechanics would have included
apprentices and helpers. The Treasury Department and the IRS requested
comments on the treatment of working forepersons or owners performing
the duties of laborers and mechanics under certain circumstances, and
other executive or administrative personnel who also perform duties of
a manual or physical nature, in the construction, alteration, or repair
of a qualified facility.
At least one commenter requested that the Treasury Department and
the IRS confirm that the terms laborer and mechanic are defined as
under the DBA to include individuals whose duties are manual or
physical in nature rather than primarily administrative, executive, or
clerical. Commenters also requested that the final regulations exclude
certain owners and specialized employees from the definitions of
laborer and mechanic, such as engineers, architects, inspectors,
testers, and troubleshooters; wind or solar commissioning technicians;
workers involved in tie-ins and other commissioning, testing, and
troubleshooting of grid-connected facilities after mechanical
completion; workers associated with initial energization, testing, and
synchronization of installed equipment; wind turbine commissioners; and
other similar professionals. In requesting these exclusions from the
definition of laborer or mechanic, commenters analogized work described
in the DOL Field Operations Handbook (FOH) \30\ that is not covered
under the DBA unless those individuals are performing the duties of a
laborer or mechanic.
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\30\ The DOL Field Operations Handbook for administering the DBA
can be found at https://www.dol.gov/agencies/whd/field-operations-handbook/Chapter-15.
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Commenters generally supported the working foreperson rule, but
some sought additional guidance regarding whether the 20-percent
threshold applies to professional workers other than working
forepersons. Some commenters requested clarifying that any foreperson,
owner, or administrative, executive, or clerical personnel contributing
more than 20 percent of their time during a workweek to laborer or
mechanic duties be considered laborers and mechanics for the time spent
conducting laborer and mechanic duties, even if they are exempt under
29 CFR part 541. Other commenters suggested limiting the application of
the 20-percent threshold to these other individuals, but only if they
are not exempt under 29 CFR part 541. A few commenters suggested that
individuals who own at least a 20 percent equity interest and work on a
construction project, should also be excluded from the PWA
requirements, because they are not subject to DBA requirements to
receive prevailing wages. One commenter asked if non-exempt individuals
(other than working forepersons) who devote 20 percent or less of their
time to laborer and mechanic duties are laborers and mechanics. One
commenter stated that it would be difficult for taxpayers and
contractors to bifurcate supervisory and direct time for a working
foreperson in determining the 20-percent threshold.
The final regulations incorporate the definitions of laborer and
mechanic from the Proposed Regulations, which is largely consistent
with the definition of those terms for DBA purposes. The Treasury
Department and the IRS have determined that providing an exhaustive
list of those specialized employees who are not laborers or mechanics
or defining laborers and mechanics on an industry-by-industry basis is
not practical and does not provide the necessary flexibility for future
industry developments. Although the DOL FOH may provide some guidance
to taxpayers, whether an individual is a laborer or mechanic will
depend on the specific job duties and the relevant facts and
circumstances. The final regulations also adopt the rule that persons
employed in a bona fide executive, administrative, or professional
capacity as defined in 29 CFR part 541 are not deemed to be laborers or
mechanics and the working foreperson rule as proposed. The final
regulations do not extend the working forepersons rule to other working
professionals or adopt any exceptions from the proposed rule for
owners.
2. Employed
Consistent with the DBA, proposed Sec. 1.45-7(d)(4) would have
provided that the definition of employed means ``performing the duties
of a laborer or mechanic for the taxpayer, contractor, or subcontractor
(as applicable), regardless of whether the individual would be
characterized as an employee or an independent contractor for other
Federal tax purposes.'' For purposes of the Prevailing Wage
Requirements, this definition would generally be different and broader
than the definition used elsewhere in the Code, for example with
respect to employment taxes, as well as the associated reporting and
withholding obligations. Laborers and mechanics who are independent
contractors for employment tax purposes may be considered employed for
purposes of the Prevailing Wage Requirements.
Commenters supported the Proposed Regulation's definition of
``employed.'' The commenters stated that the application of prevailing
wages to all workers, even if they are non-employees, aligns with the
DBA. The Treasury Department and the IRS agree, and the proposed
definition is adopted without change.
3. Construction, Alteration, or Repair
Proposed Sec. 1.45-7(d)(2)(i) would have provided that the term
construction, alteration, or repair generally means ``construction,
prosecution, completion, or repair'' as defined in 29 CFR 5.2 of the
DBA regulations. In general, 29 CFR 5.2 defines construction,
prosecution, completion, or repair as all types of work done on a
particular building or work at the site of the work. Proposed Sec.
1.45-7(d)(2)(i) would have also clarified that construction,
alteration, or repair for purposes of the PWA requirements has no
bearing on any other sections of the Code, including any determination
of construction, alteration, repair, or maintenance under section 162
or 263 of the Code.
Some commenters requested clarification on the definition of
construction, alteration, or repair of a facility. Commenters also
requested clarification that alteration or repair means construction-
like or construction-type activities. One commenter suggested
clarifying the differences between construction and alteration or
repair so that a taxpayer may determine those activities that
constitute construction and those that are
[[Page 53215]]
alteration or repair. Commenters also recommended clarifying whether,
as under the DBA, the PWA requirements do not apply to installation
work related to supply or service contracts, unless such installation
involves substantial construction work distinct and separable from the
non-construction aspects of the contract. One commenter requested
clarifying that the work of material suppliers is not considered
construction consistent with the DBA. Another commenter requested that
the final regulations clarify that certain preliminary work that is not
considered construction for DBA purposes (such as exploratory
drilling), is not considered construction for PWA purposes.
In response to comments the final regulations clarify that
``construction, alteration, or repair'' means the same activities that
are covered by the DBA definition of construction, prosecution,
completion, or repair under 29 CFR 5.2 that are performed with respect
to a facility. Activities that are excluded from the DBA definition of
construction, prosecution, completion, or repair under 29 CFR 5.2 are
similarly excluded under the final regulations. This definition of
construction, alteration, or repair covers some activities that occur
during the construction of a facility before it is placed in service as
well as activities that take place after placed in service as
alterations or repairs. Further, specific installation work (as
applicable) that occurs during the construction of a facility would be
subject to PWA requirements consistent with 29 CFR 5.2. As discussed in
Section VI. of this Summary of Comments and Explanation of Revisions,
the final regulations clarify that construction of a facility is
interpreted consistent with the underlying definition of a facility for
tax purposes.
4. Maintenance
Proposed Sec. 1.45-7(d)(2)(i) would have provided that the term
construction, alteration, or repair generally excludes maintenance work
that occurs after a facility is placed in service. The preamble to the
Proposed Regulations stated that maintenance would be work that is
ordinary and regular in nature and designed to maintain existing
functionality of a facility as opposed to an isolated or infrequent
repair of a facility to restore specific functionality or adapt the
facility for a different or improved use.
Under the Proposed Regulations, work designed to maintain and
preserve functionality of a facility after it is placed in service
would have included basic maintenance such as regular inspections of
the facility, regular cleaning and janitorial work, replacing materials
with limited lifespans such as filters and light bulbs, and the
calibration of any equipment. Proposed Sec. 1.45-7(d)(2)(i) would have
provided that maintenance work that occurs before the facility is
placed in service may constitute construction for which prevailing
wages must be paid in order to claim the increased credit amount. Under
the Proposed Regulations, maintenance would not have included work that
improves a facility, adapts it for a different use, or restores
functionality as a result of inoperability. Proposed Sec. 1.45-
7(d)(2)(ii) would have also included an example.
Commenters requested additional guidance on how to determine
whether work performed after a facility is placed in service is
alteration or repair work or maintenance work. One commenter requested
clarification on how to distinguish between work that restores
functionality and work designed to maintain and preserve existing
functionalities. Commenters also suggested clarifying whether work
performed before or after a facility is placed in service impacts
whether it would be considered maintenance work.
One commenter suggested that the final regulations provide that
maintenance work includes the standard replacement of equipment and
parts (including with functionally similar, yet improved parts), minor
or incidental repair or installation work, and routine tasks preventing
failure or decline. Another commenter requested that the final
regulations define maintenance to exclude work that is extended in
nature, involves a major replacement, or is otherwise not regular and
customary for the applicable type of project. Several commenters also
requested that the final regulations define maintenance to include
reactive maintenance, isolated or infrequent repair to restore specific
functionality; troubleshooting; activities related to operations
(operations and maintenance or O&M work); and work performed by
welders, winders, or machinists to address a customer service outage.
Another commenter suggested that work performed under a construction
contract warranty after a facility is placed in service should be
treated as maintenance work.
A few commenters suggested that the final regulations incorporate a
de minimis threshold to distinguish between maintenance and alteration
or repair work based on either a specified dollar amount and/or a
percentage of the original capitalized cost of the qualified facility.
Other commenters suggested that the term maintenance in the Proposed
Regulations be revised to mirror descriptions of maintenance work in
DBA sub-regulatory guidance, the Service Contract Act (SCA), nuclear
industry maintenance standards, or regulations and case law related to
sections 162 and 263.
Commenters stated that the example provided under proposed Sec.
1.45-7(d)(2)(ii) may have unintentionally suggested a broader
definition of alteration or repair than anticipated, because the
example described the replacement of a part in an inverter as a rare
occurrence although it may be a regular occurrence at a solar farm. A
few commenters suggested that the final regulations incorporate
additional examples of basic maintenance, and alteration or repair
activities, as applied to specific facilities or properties, including
alternative fuel infrastructure, solar farms, biogas systems, ethanol
facilities, nuclear facilities, and offshore wind facilities.
In the Proposed Regulations, the Treasury Department and the IRS
sought to distinguish between alteration and repair work (for which
payment of prevailing wages is required whether the work occurs before
or after the qualified facility is placed in service) and maintenance
work (for which payment of prevailing wages is required only if the
work occurs before a qualified facility is placed in service),
consistent with the DBA and DOL sub-regulatory guidance contained in
the Prevailing Wage Resource Book (PWRB).\31\
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\31\ The DOL Prevailing Wage Resource Book can be found at
https://www.dol.gov/agencies/whd/government-contracts/prevailing-wage-resource-book/determining-which-labor-standards-apply#_SCA-covered_maintenance_work.
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While 29 CFR 5.2 includes various activities that fall within the
definition of construction, including altering, remodeling, some
installation work, and painting and decorating, it does not
specifically address maintenance work. However, the DOL PWRB compares
servicing and maintenance work typically covered by the SCA and
construction activities of all types that are covered by the DBA.
The DOL PWRB describes maintenance work that would be covered by
the SCA, and not the DBA, as work that is routinely scheduled and
continuous or recurring. According to the PWRB, SCA-covered maintenance
work typically includes: (i) work that is needed to keep the building
or work in its current condition so that it may continue to be used;
(ii) work that does not improve the current condition or function of
the building or work; or (iii) work that may be completed relatively
[[Page 53216]]
quickly. Additionally, according to the PWRB, SCA-covered maintenance
work uses skills that are not typical of the construction trade. By
contrast, the PWRB states that DBA-covered repair work typically
includes activities such as the restoration or improvement of a
building or work by replacement, overhaul, or reprocessing of
constituent parts or materials. According to the PWRB, DBA-covered
repair work includes an activity that: (i) generally improves the
building or work, either by fixing something that is not functioning
properly or by improving upon the building or work's existing
condition; (ii) is not continuous or recurring, but involves the
correction of individual problems or defects as separate and segregable
incidents; (iii) improves the building or work's structural strength,
stability, safety, capacity, efficiency, or usefulness; or (iv) takes
more time to complete. Finally, according to the PWRB, DBA-covered
repair work uses skills that are typical of the construction trades.
The DOL PWRB also states that an important factor in determining
coverage under the SCA or the DBA is whether the activity is undertaken
as part of a construction project prior to its completion. For example,
the DBA applies if cleanup, landscaping, carpet laying, and drapery
installation activities are undertaken as an integral part of or in
conjunction with new construction, such as under a construction
contract under which such activities preceded and are conditional to
acceptance of a building or public work by the owner. The SCA, however,
applies if the same activities are performed after construction and
after contractors and subcontractors have finished and left the site,
and after the contracting agency has accepted the building.
The Proposed Regulations would have distilled the guidance in 29
CFR 5.2 and the guidance in the DOL PWRB \32\ to provide that work
designed to maintain and preserve functionality of a facility after it
is placed in service would not be subject to the Prevailing Wage
Requirements. Work designed to maintain and preserve functionality of a
facility after it is placed in service would have included basic
maintenance such as regular inspections of the facility, regular
cleaning and janitorial work, replacing materials with limited
lifespans such as filters and light bulbs, and the calibration of any
equipment. However, paying prevailing wages would be required for work
that improves a facility, adapts it for a different use, or restores
functionality as a result of inoperability.
---------------------------------------------------------------------------
\32\ The Proposed Regulations relied on a prior version of the
PWRB. These final regulations reflect updates to the PWRB made in
April of 2024.
---------------------------------------------------------------------------
The Treasury Department and the IRS agree that additional
clarification on the distinction between alteration and repair work and
maintenance work is needed. Accordingly, the final regulations revise
the Proposed Regulations to more closely align with 29 CFR 5.2 and DOL
sub-regulatory guidance in the PWRB.
Specifically, the final regulations provide that maintenance work
is work that is routinely scheduled and continuous or recurring. The
final regulations explain that maintenance normally involves the
activity of keeping the facility in its current condition so that it
may continue to be used. The final regulations include additional
clarifying criteria that repair work normally includes an activity
that: (i) improves the facility, either by fixing something that is not
functioning properly or by improving upon the facility's existing
condition; (ii) involves the correction of individual problems or
defects as separate and segregable incidents and is not continuous or
recurring; or (iii) improves the facility's structural strength,
stability, safety, capacity, efficiency, or usefulness. The final
regulations retain the proposed rule that maintenance work that occurs
before the qualified facility is placed in service generally
constitutes construction work for which wages at rates not less than
the prevailing rates must be paid.
As stated by many commenters, and several administrative decisions
involving the application of the DBA or the SCA,\33\ the determination
of whether work is properly viewed as maintenance or as an alteration
or repair is dependent on the specific facts and circumstances of the
work. The final regulations clarify that the facts and circumstances
are ultimately determinative.
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\33\ See Norsaire Systems Inc., WAB Case No. 94-06, 1995 WL
90009 (Feb. 28, 1995) (explaining that the distinction between
covered construction work and non-covered service and maintenance
work depended on using a number of nondeterminative factors to
closely examine actual work performed); see also ITT Base Services,
Inc., B-220518.2 (Nov. 10, 1986) (noting that distinguishing between
construction and maintenance activities may be difficult, and some
repair activities could reasonably be categorized as either Davis-
Bacon Act or Service Contract Act repair work depending upon the
context in which they are performed); Four Star Maintenance, B-
229703 (Apr. 7, 1988) (noting that the determination of whether
items of work involve basic maintenance within the coverage of the
Service Contract Act, or are more in the nature of construction,
alteration, or repair within the scope of the Davis-Bacon Act, is
largely a matter of judgment).
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Because of the highly factual nature of the determination regarding
whether an activity is maintenance or alteration or repair work, the
final regulations do not adopt suggestions to include additional
examples distinguishing between maintenance and alteration or repair.
Additionally, the example in proposed Sec. 1.45-7(d)(2)(ii) has been
removed. Providing industry-by-industry examples is not practicable and
may imply an inconsistent application of the general rule. As stated in
the comments, for example, the proposed example was not indicative of
ordinary practices in the solar industry. The Treasury Department and
the IRS understand that taxpayers may encounter difficulties in
distinguishing maintenance from alterations or repairs; however, the
additional information contained in the final regulations provides
taxpayers with sufficient guidance to help differentiate their
activities based on the taxpayer's relevant facts and circumstances.
Additionally, the Treasury Department and the IRS decline, at this
time, to provide a de minimis threshold or safe harbor distinguishing
between maintenance work and alteration or repair work.
D. Correction and Penalty Procedures
1. In General
Section 45(b)(7)(B)(i) provides that if a taxpayer fails to satisfy
the Prevailing Wage requirements, the taxpayer ``shall be deemed to
have satisfied such requirement under such subparagraph with respect to
such facility for any year if, with respect to any laborer or mechanic
who was paid wages at a rate below the [prevailing rate] for any period
during such year,'' the taxpayer makes the applicable correction
payments and pays the penalty. Under section 45(b)(7)(B)(i)(II), the
amount of the penalty is $5,000 multiplied by the total number of
laborers and mechanics who were paid wages at a rate below the required
prevailing rates. Section 45(b)(7)(B)(iii) provides that if the failure
to ensure that the laborers and mechanics are paid wages at rates not
less than the prevailing rates is found to be due to intentional
disregard, then the amount of the correction payment is tripled and the
amount of the penalty payment is doubled.
The Proposed Regulations would have required the payment of wages
at rates not less than the prevailing wage rates at the time work is
performed with respect to the construction, alteration, or repair of a
facility in order to claim the increased credit amount. The Proposed
Regulations would have also provided that the requirement to pay not
less than
[[Page 53217]]
the prevailing wage rates becomes binding only if the increased credit
amount is claimed on a return, and that the obligation to make
correction payments and pay the penalty would not become binding until
a return is filed claiming the increased credit amount.
The preamble to the Proposed Regulations stated that, in general,
taxpayers would be obligated to make any necessary correction payments
to any laborer and mechanic on or before the date a return is filed
claiming an increased credit amount. Under the Proposed Regulations,
the earliest time that a taxpayer can make a penalty payment to the IRS
would have been at the time of filing a tax return claiming the
increased credit amount. However, taxpayers would retain the option of
making correction payments to laborers and mechanics at any time after
the initial wage payments were made and in advance of the filing of a
tax return claiming the increased credit amount in order to limit the
amount of additional interest the taxpayer would have to pay at the
elevated rates set forth in section 45(b)(7)(B)(i)(I)(bb). The Proposed
Regulations would have provided that whether taxpayers make the
necessary correction payments and pay the penalty amounts promptly is
one of the facts and circumstances that would be considered for
purposes of the enhanced penalties for intentional disregard.
Under section 45(b)(7)(B)(iv), once the IRS makes a final
determination that a taxpayer has failed to satisfy the Prevailing Wage
Requirements, the taxpayer must make the correction and penalty
payments within 180 days after the final determination to be eligible
for the increased credit. The Proposed Regulations would have also
provided a deadline for a taxpayer's ability to use the correction and
penalty provisions to rectify a failure to comply with the Prevailing
Wage Requirements once the IRS makes a final determination that a
taxpayer has failed to satisfy the Prevailing Wage Requirements. The
Proposed Regulations would have clarified that this final determination
would come in the form of a notice sent by the IRS.
One commenter argued that it is inequitable to permit taxpayers to
receive the benefit of increased credit amounts before workers received
their rightful compensation. The commenter stated that the penalty and
cure provisions allow corrections after the filing of a tax return,
when the credit is already claimed. The commenter suggested that the
final regulations require correction no later than the earlier of the
tax return filing or when the taxpayer receives an economic benefit.
Another commenter recommended that corrective payments be required to
be paid within 90 days following the year in which the original
compensation should have been paid.
One commenter suggested that if the taxpayer's failure to pay
prevailing wages was unintentional, the taxpayer should be given 90
days to make correction and penalty payments, but if the taxpayer acted
intentionally then the taxpayer should be given 30 days to pay the
penalty and two weeks to make correction payments. An additional
commenter suggested extending the cure period to permit taxpayers to
cure further mistakes once they become known.
The comments requesting changes to the timing of correction and
penalty payments are not adopted. The prevailing wage provisions
generally require compliance with the payment of applicable prevailing
wage rates at the time work is performed. The final regulations
reiterate the position in the Proposed Regulations that the correction
and penalty provisions relate back to the time of the failure. For
example, the final regulations provide that interest accrues on back
wages to the time of the failure to pay wages at rates not less than
the applicable prevailing rates. However, section 45(b)(7)(B)(iv)
permits taxpayers to make correction and penalty payments up to 180
days after a final determination and remain eligible for the increased
credit amount. These final regulations encourage the taxpayer to make
correction payments sooner by waiving the penalty payment requirement
if the taxpayer makes the required correction payment in a timely
manner and meets additional requirements. Further, taxpayers may avoid
some of the challenges in making correction payments, such as locating
former employees, by addressing any failures immediately after
discovering them.
Consistent with section 45(b)(7)(B)(ii), the Proposed Regulations
would have provided that deficiency procedures do not apply to the
assessment or collection of any penalty payment required to be made in
connection with a failure to meet the Prevailing Wage Requirements. The
Proposed Regulations would have clarified that although deficiency
procedures would not apply to the penalty payment, deficiency
procedures would apply to any determination by the IRS disallowing a
taxpayer's claim for the increased credit amount (for example, because
of a failure to pay prevailing wages and the correction and penalty
amounts). Under the Proposed Regulations, if the taxpayer does not
correct, and therefore is not subsequently granted the increased credit
amount, no penalty would have been assessed under section 45(b)(7)(B).
Commenters requested that the final regulations provide guidance
regarding a taxpayer's ability to contest an IRS determination that a
taxpayer failed to pay prevailing wages. Commenters suggested that
deficiency procedures be made available to challenge correction payment
amounts due to laborers and mechanics once a final determination is
made. A commenter suggested that taxpayers be provided a forum to
expeditiously resolve any disputes regarding disallowed credits and all
appeals of IRS determinations before such decisions become final.
Commenters stated that, other than a failure to make the required
correction and penalty payments, the Proposed Regulations do not
specify under what circumstances there would be a determination by the
IRS disallowing a claim for the increased credit amount.
The deficiency procedures are statutorily precluded and providing
taxpayers prepayment forums to resolve disputes would cause
unreasonable delays to workers who were entitled to correction payments
from receiving the full amount of underpaid wages. Additionally, the
statutory 180-day period taxpayers are allowed to cure a failure after
receiving a final determination does not toll the general three-year
statute of limitations for assessment under section 6501. Thus, the
final regulations do not provide any additional forum for taxpayers to
challenge an IRS determination. However, if a taxpayer refuses to make
correction and penalty payments, the increased credit amount will be
disallowed. Any disallowance of a credit, including disallowance of
increased credit amounts, would be subject to deficiency procedures
(including the opportunity to seek review by the IRS Independent Office
of Appeals) and a taxpayer would be able to petition the U.S. Tax Court
to review the underlying deficiency determination on a de novo basis.
A commenter appreciated the Treasury Department and the IRS's
consideration of waivers for penalties and provisions for curing wage
deficiencies but recommended that the taxpayer be given the opportunity
to review and cure mistakes. The commenter explained that due to the
complexity of the PWA requirements, the logistics of projects, and the
management of people, there will be instances in which the taxpayer
will not meet all of the PWA requirements
[[Page 53218]]
perfectly. The Treasury Department and the IRS agree and have provided
for a limited penalty waiver to address such circumstances as discussed
in Section VII.D.4. of this Summary of Comments and Explanation of
Revisions.
One commenter stated that a failure to maintain records by one or
more subcontractors or a subsequent determination by the IRS that
additional work, additional laborers or mechanics, or secondary
construction sites are covered by the PWA requirements may create a
circumstance in which the curative payment cannot be calculated because
of the absence of records. The commenter suggested that the taxpayer
not be disallowed the increased credit amount under such circumstances
if the taxpayer is willing to make a curative payment based on a
reasonable estimate of the wages that should have been paid. Commenters
also suggested that the final regulations waive penalties and the
requirement to make correction payments if the taxpayer hires a third-
party reviewer, such as a certified public accountant, to review
payroll records for compliance with the Prevailing Wage Requirements.
Permitting taxpayers to rely on a third-party reviewer to
demonstrate compliance is inconsistent with the statutory requirement
that the taxpayer ensure that laborers and mechanics are paid
prevailing wages. Maintaining adequate records is the taxpayer's
responsibility under section 6001 as explained in Section X.A. of this
Summary of Comments and Explanation of Revisions. A failure to maintain
adequate records, even those of lower tier subcontractors, does not
excuse taxpayers from their obligations to comply with the PWA
requirements.
One commenter requested that the final regulations provide that
corrective payments are neither taxable income to the workers nor
deductible by the payors. The commenter stated that taxing corrective
payments is unfair to the workers and argued that a taxpayer or
transferee who receives the benefit of the tax credits should not be
able to ``double dip'' and take a tax deduction for the payment of the
penalty or the increased corrective payments. The determination of
whether correction payments are taxable to a laborer or mechanic or
deductible by the payor is governed by Federal tax law that is outside
the scope of these final regulations.
Commenters stated that the preamble to the Proposed Regulations
explained that the regulations would adopt, by cross-reference, the
review and appeal procedures available to any interested party under
the DBA with respect to wage determinations generally. Commenters
explained that a DBA determination can be appealed to the DOL, a
process that could take longer than the 180-day cure period under
section 45(b)(7)(B)(iv). Commenters also sought clarification that the
180-day cure period would be tolled until a taxpayer has exhausted the
appellate remedies with the DOL. From a practical standpoint, the
commenter emphasized that once wages are paid it would be harmful to
both employees and employers to attempt to claw back such payments if
there is a subsequent determination by the DOL that results in the
correction and penalty payments not being owed.
The final regulations do not adopt this comment to provide for
tolling of the 180-day cure period if a wage determination has been
appealed to the DOL. With respect to the commenter's comparison to the
review and appeal procedures for wage determinations, that process is
distinct from the 180-day period after an IRS determination during
which a taxpayer may make correction and penalty payments to be deemed
to have complied with the Prevailing Wage Requirements. The review and
appeal procedures available to a taxpayer under the Proposed
Regulations regarding wage determinations are with respect to the DOL's
determination of an applicable prevailing wage rate. The IRS's
determination of a failure to pay prevailing wage rates triggering the
180-day cure period is not subject to appeal, and thus not subject to
tolling. Section 45(b)(7)(B)(ii) provides that the deficiency
procedures for income, estate, gift, and certain excise taxes do not
apply with respect to the assessment or collection of any penalty
imposed by section 45(b)(7)(B). A taxpayer would, however, be able to
appeal any disallowance of the increased credit amount after the
expiration of the 180-day cure period.
Regarding the commenter's practical concern, if a taxpayer believes
that the IRS incorrectly issued a final determination that the taxpayer
failed to pay prevailing wages, then the taxpayer may decline to make
correction and penalty payments and wait to petition an IRS deficiency
determination to the U.S. Tax Court following the end of the 180-day
cure period. Alternatively, after the IRS issues a final determination,
the taxpayer could make correction and penalty payments and remain
eligible for the increased credit amount. The taxpayer in this scenario
would retain the ability to seek a refund of the penalty payments paid
to the IRS.
One commenter observed that the cost of penalties is steep, given
the reliance that most taxpayers will have to place on contractors and
subcontractors to comply with the PWA requirements. The Treasury
Department and the IRS recognize that taxpayers will have to oversee
and rely on contractors and subcontractors to comply with the PWA
requirements. However, the statutory text of the IRA puts the
responsibility on the taxpayer to ensure that contractors and
subcontractors comply with the PWA requirements, including section
45(b)(7)(B)(i)(ll), which prescribes the amount of penalty payment.
Through the factors considered for purposes of intentional disregard,
these regulations create a framework that encourages taxpayer
practices, such as quarterly compliance reviews and flow-down contract
provisions, that will assist taxpayers in complying with the Prevailing
Wage Requirements. Further, these regulations reflect the Treasury
Department's and the IRS's waiver authority with respect to the penalty
if the failures were small in amount or occurred in a limited number of
pay periods.
Additionally, a commenter requested that, specifically for the
initial years following the application of the PWA requirements to the
section 45Z credit, taxpayers be exempted from penalties if they make
correction payments. The commenter stated that any noncompliance during
initial years will more likely be a result of inexperience than
intentional disregard. The Treasury Department and the IRS understand
commenters' concerns regarding how the correction and penalty
procedures affect each relevant industry or taxpayers claiming the
increased amount of credit. A transition rule is provided for section
45Z, described in Section IX.G. of this Summary of Comments and
Explanation of Revisions. The penalty waiver for inadvertent errors is
described in Section VII.D.4. of this Summary of Comments and
Explanation of Revisions.
2. Laborers or Mechanics Who Cannot Be Located
Under section 45(b)(7)(B)(i), a taxpayer is deemed to satisfy the
Prevailing Wage Requirements if, with respect to any laborer or
mechanic who was paid wages at rates less than the prevailing rates for
any period during that year, the taxpayer makes a correction payment to
the affected laborer or mechanic and the required penalty payment to
the IRS. Section 45(b)(7)(B)(i) does not except taxpayers from the
requirement to make the
[[Page 53219]]
correction payment, even if the taxpayer is unable to locate the
laborer or mechanic.
The preamble to the Proposed Regulations explained that the
Treasury Department and the IRS expect that taxpayers will be able to
establish having made correction payments even if a former laborer or
mechanic cannot be located and provided examples of how such payments
could be made, such as compliance with State unclaimed property rules
and withholding and information reporting obligations as means of
substantiating the payments. The Treasury Department and the IRS
requested comments concerning appropriate rules for situations in which
laborers and mechanics who are owed wages cannot be located and how
taxpayers may establish that they have made the required correction
payment described in section 45(b)(7)(B)(i)(I).
A few commenters suggested that the final regulations provide
additional guidance regarding situations in which correction payments
are due to affected laborers or mechanics who cannot be located. A
commenter suggested the formalization of specific procedures by the
Treasury Department for such circumstances and asked the Treasury
Department to solicit further comments from stakeholders on this issue.
One commenter suggested requiring the taxpayer to send the corrective
payment amount to the State where the missing worker performed the work
along with payroll information validating the payment amount, and
records of attempts by the taxpayer to reach the former laborer or
mechanic. One commenter stated that the final regulations should not
rely on State unclaimed property laws. A commenter stated that State
unclaimed property laws may impose additional burdens and complexities
on taxpayers (such as requirements that due diligence efforts be
undertaken by a holder of unclaimed property to find the rightful owner
of such property before the property can be delivered to the State).
Other commenters asked that the final regulations provide that a
payment made to a State pursuant to the State's unclaimed property
rules be deemed to satisfy the correction payment requirement for
purposes of section 45(b)(7)(B)(i)(I).
The Treasury Department and the IRS recognize that the construction
of a qualified facility may occur over the course of several years and
some taxpayers who fail to meet the Prevailing Wage Requirements may be
unable to locate all laborers and mechanics to which correction
payments must be made. However, section 45(b)(7)(B)(i) does not excuse
taxpayers from the requirement to make the correction payment, even if
the taxpayer is unable to locate the laborer or mechanic. Unless
another exception applies, if a taxpayer fails to make and substantiate
all necessary correction payments, the taxpayer will not be eligible
for the increased credit amount. Although the statute and final
regulations permit corrections, contemporaneous compliance with the
Prevailing Wage Requirements will likely be easier for taxpayers to
administer and substantiate, because locating workers after a project
has ended may be difficult and time consuming. The final regulations
confirm that a taxpayer is not excused from the requirement to make the
correction payment even if the taxpayer is unable to locate a laborer
or mechanic.
As provided for under the Proposed Regulations, the Treasury
Department and the IRS continue to expect that taxpayers will be able
to substantiate having made all necessary correction payments even if a
former laborer or mechanic cannot be located. In general, States have
developed specific rules for the payment of wages to former laborers
and mechanics who cannot be located. These rules can include diligence
requirements to locate the laborer or mechanic, information reporting
obligations to relevant State agencies on the unclaimed wage amounts,
and requirements to remit any unclaimed wage amounts to State control
as unclaimed property after defined holding periods. A taxpayer will be
deemed to have paid a correction payment to a laborer or mechanic who
cannot be located if the taxpayer can establish that correction
payments have been made. A taxpayer may establish that correction
payments have been made by demonstrating compliance with the applicable
State unclaimed property law and all Federal and State withholding and
information reporting requirements with respect to the payments.
3. Intentional Disregard
Section 45(b)(7)(B)(iii) provides that if the failure to ensure
that the laborers and mechanics are paid wages at rates not less than
the applicable prevailing wage rates is found to be due to intentional
disregard, then the amount of the correction payment is tripled and the
amount of the penalty payment is doubled. The Proposed Regulations
would have provided that failures to meet the Prevailing Wage
Requirements would be due to intentional disregard if they are knowing
or willful, which is a determination that must be made by considering
all relevant facts and circumstances. The Proposed Regulations would
have provided a non-exhaustive list of factors that may be relevant to
this determination.
Proposed Sec. 1.45-7(c)(3)(iii) provided that the relevant facts
and circumstances in weighing intentional disregard would include
whether a failure to satisfy the Prevailing Wage Requirements was part
of a pattern of conduct that includes repeated or systemic failures to
ensure that the laborers and mechanics were paid wages at or above the
applicable prevailing wage rate and whether the taxpayer: (i) failed to
take steps to determine the applicable classifications of laborers and
mechanics; (ii) failed to take steps to determine the applicable
prevailing wage rate(s) for laborers and mechanics; (iii) promptly
cured any failures to ensure that laborers and mechanics were paid
wages not less than the applicable prevailing rates; (iv) has been
required to make a penalty payment in previous years; (v) undertook a
quarterly, or more frequent, review of wages paid to mechanics and
laborers to ensure that wages not less than the applicable prevailing
wage rate were paid; (vi) included provisions in any contracts entered
into with contractors that required the contractors and any
subcontractors retained by the contractors to pay laborers and
mechanics at or above the prevailing wage rates and maintain records to
ensure the taxpayer's compliance with the recordkeeping requirements;
(vii) posted in a prominent place at the facility or otherwise provided
written notice to laborers and mechanics during the construction,
alteration, or repair of the facility: (a) of the applicable wage
rate(s) as determined by the DOL for all classifications of work to be
performed for the construction, alteration, or repair of the facility,
and (b) that in order to be eligible to claim certain tax benefits,
employers must ensure that laborers and mechanics are paid wages at
rates not less than such wage rates; and (viii) had in place procedures
whereby laborers and mechanics could report suspected failures to pay
prevailing wages and/or suspected failures to classify workers in
accordance with the wage determination of workers to appropriate
personnel departments or managers without retaliation or adverse
action. The Treasury Department and the IRS requested comments on
additional criteria that might be used as part of a facts and
circumstances analysis of intentional disregard in this context.
[[Page 53220]]
Many commenters generally expressed support for enhanced penalties
for intentional failures to comply with the PWA requirements and the
factors that would be considered in the Proposed Regulations. One
commenter suggested that the Treasury Department and the IRS engage in
outreach to educate taxpayers about distinguishing between intentional
and unintentional violations of the PWA requirements. Some commenters
recommended that the final regulations provide an inclusive and
exhaustive list of practices for taxpayers to follow in order to show
they acted with proper diligence and in good faith in trying to meet
the PWA requirements. The final regulations do not incorporate this
suggestion. Although the final regulations provide a detailed list of
factors for determining intentional disregard, the list remains non-
exhaustive. There may be additional factors that the IRS will consider
based on the specific facts and circumstances of the failure. These
final regulations provide guidance to taxpayers about the application
of the PWA requirements to assist with compliance, including the
numerous factors that the IRS will consider in determining whether
failures to comply were the result of intentional disregard.
Commenters had the following suggestions for additional factors or
modifications to the proposed factors. Several commenters suggested
that the final regulations include intentional disregard factors
relating to pre-filing activities that are not applicable to taxpayers
claiming the increased credit amount (for example, whether a taxpayer
regularly submitted certified weekly payroll records to the IRS or
publicly declared the intent to claim the credit). Because those
underlying pre-filing activities are not applicable, the comments
suggesting factors relating to those specific actions are not included
as factors demonstrating intentional disregard. However, several other
commenters suggested additional factors or modifications to the
proposed factors relating to other pre-filing activities, that while
not required, could be relevant to a determination of intentional
disregard.
Specifically, with respect to the factors in proposed Sec. 1.45-
7(c)(3)(iii)(A) through (C) commenters suggested that the final
regulations clarify what would constitute a pattern of conduct and a
failure to take steps to determine applicable classifications and wage
rates. One commenter suggested that a taxpayer's pattern of conduct
include the taxpayer's conduct on non-IRA projects and violations
unrelated to prevailing wage rules (including violations under DBA).
Another commenter recommended that the final regulations consider the
taxpayer's history of violations of any Federal, State, or local laws.
The Treasury Department and the IRS agree that some additional
clarification would be helpful for taxpayers and the IRS. The final
regulations clarify that taking steps to determine applicable
classifications and wage rates could include a quarterly or more
frequent review of these actions by the taxpayer (or a third party
acting on behalf of the taxpayer). The final regulations retain the
factor describing a pattern of conduct and clarify that the pattern of
conduct could include failures to pay prevailing wages as required
under other laws. The final regulations do not specifically include all
possible violations of law; although certain violations may be relevant
depending on the facts and circumstances. What constitutes a pattern
will depend on the facts and circumstances.
Commenters also suggested modifications to the factors in proposed
Sec. 1.45-7(c)(3)(iii)(H) and (I). Specifically, commenters stated
that proof, via signatures of laborers and mechanics, that covered
employees have been given notice of the taxpayer's intent to pay
prevailing wages should be a factor. The final regulations retain the
factor from the Proposed Regulations regarding written notice to
laborers and mechanics. However, this factor relates to the notice that
in order to claim certain tax benefits, employers must ensure that
laborers and mechanics are paid wages at rates not less than prevailing
wage rates. It does not consider whether a taxpayer disclosed their
intent to claim a tax benefit. In response to the comment, the final
regulations further clarify that acknowledgement of the notice by the
laborer or mechanic is an additional factor.
Commenters also suggested that the poster or notice to employees
described in proposed Sec. 1.45-7(c)(3)(iii)(H) include instructions
on how laborers and mechanics may contact the taxpayers' personnel
departments or taxpayers' managers to report suspected failures to pay
prevailing wages and/or suspected failures to classify workers without
retaliation or adverse action. The final regulations include this
additional information. At least one commenter suggested that the
factor in proposed Sec. 1.45-7(c)(3)(iii)(I) regarding whether a
taxpayer had in place a procedure to report suspected failures to pay
prevailing wages without retaliation or adverse action be expanded to
include employment tax violations or workplace standards laws. The
commenter also suggested the factor be revised to also require that no
actual retaliation or adverse action occurred. The final regulations
incorporate the comments regarding employment tax and workplace
standards violations. The final regulations also consider whether the
taxpayer investigated complaints and took appropriate action.
A commenter suggested adding a factor addressing the use of
debarred contractors. The commenter stated that contractors who are
debarred from working on publicly funded projects for serious
violations of DBA prevailing wage requirements are more likely to
violate the Prevailing Wage Requirements on IRA projects. The Treasury
Department and the IRS agree that knowingly contracting with debarred
contractors could be a factor demonstrating intentional disregard. The
final regulations reflect this comment.
Several commenters made general suggestions that the intentional
disregard factors should be strengthened to encourage behaviors that
will help ensure that laborers and mechanics working on projects for
which an increased credit amount may be claimed are paid prevailing
wages. As stated elsewhere in this preamble, the Treasury Department
and the IRS agree that adding factors to encourage certain practices
will further compliance with the Prevailing Wage Requirements.
Accordingly, the final regulations add new factors that consider
whether the taxpayer has: (i) provided or otherwise made available to
laborers and mechanics paystubs or other individual payroll records
reflecting the amount being paid per pay period (including the specific
hourly rate and any deductions from wages); (ii) conducted
investigations or otherwise reviewed complaints of retaliation or
adverse actions against workers for reporting the underpayment of wages
and took appropriate corrective action; (iii) provided notice regarding
possible rights under the Taxpayer First Act; and (iv) whether the
taxpayer failed to maintain and preserve records in accordance with
Sec. 1.45-12.
Some commenters stated that considering all relevant facts and
circumstances in determining whether a failure to comply with the PWA
requirements was intentional would be burdensome to taxpayers who would
have to investigate their contractors and subcontractors about possible
failures. One commenter suggested that additional guidance consider the
degrees of separation between contractual parties responsible for
[[Page 53221]]
fulfilling the PWA requirements. The final regulations do not
incorporate this suggestion. Under section 45(b)(7)(A), the taxpayer
must ensure that any laborers and mechanics employed by the taxpayer,
contractor, or subcontractor are paid wages at rates not less than the
prevailing rates. If the taxpayer fails to do so, and that failure is
due to intentional disregard, the enhanced correction and penalty
payments apply. It is the obligation of the taxpayer to ensure that its
contractors and subcontractors pay wages at rates not less than the
applicable prevailing wage rates if the taxpayer claims the increased
credit amount, regardless of the number of contracts separating the
taxpayer and the subcontractor. This responsibility of the taxpayer is
one reason why the final regulations include factors that help
demonstrate whether a taxpayer's failure was due to intentional
disregard.
One commenter requested that intentional disregard penalties be
solely limited to those taxpayers who admit to intentionally failing to
pay prevailing wages. The final regulations do not adopt this
suggestion, as the statute does not limit the application of
intentional disregard penalties to only those who admit to
intentionally failing to pay prevailing wages.
The Proposed Regulations would have also provided a rebuttable
presumption against a finding of intentional disregard if the taxpayer
made the correction and penalty payments before receiving a notice of
an examination with respect to a return that claimed the underlying
increased amount of credit. This presumption of no intentional
disregard is intended to encourage taxpayers who discover a failure to
meet the Prevailing Wage Requirements after filing a return to promptly
use the correction and penalty procedures to remedy that failure.
Some commenters supported the rebuttable presumption against
intentional disregard and agreed that it would encourage taxpayers to
make timely curative payments. Other commenters were critical of the
presumption and suggested that it might encourage taxpayers to avoid
promptly curing failures or allow taxpayers who knowingly or willfully
violate the PWA requirements to avoid penalties. A few commenters
suggested that the final regulations modify the presumption to apply
only if the taxpayer makes the required correction and penalty payments
before: (i) the earlier of the filing of the tax return claiming the
credit or one year after discovering the failure, or (ii) the earlier
of receiving notice of an examination from the IRS or one year after
discovering the failure.
The final regulations adopt the rebuttable presumption of no
intentional disregard as proposed. The Treasury Department and the IRS
appreciate the concerns of commenters. However, the presumption of no
intentional disregard as proposed provides a valuable incentive to
encourage taxpayers to regularly review and confirm that they are
complying with the PWA requirements. Additionally, the rebuttable
presumption requires all correction payments (including correction
payments if a former laborer or mechanic cannot be located as described
in Section VII.D.2. of this Summary of Comments and Explanation of
Revisions) and penalty amounts be paid before the taxpayer receives a
notice of examination. If the taxpayer does not correct the failure to
ensure that prevailing wages are paid (either as a precursor to the
application of the rebuttable presumption or otherwise in response to
an IRS determination of a failure), the taxpayer is not eligible for
the increased credit amount. Taxpayers are encouraged to regularly
review payroll records to ensure that workers are paid prevailing
wages. Conducting reviews and curing discovered failures to pay
prevailing wages several years after payments were made may be
difficult, particularly if multiple contractors and subcontractors were
involved in the project.
A few commenters suggested including a presumption of intentional
disregard if a labor union or other worker representative reaches out
to a taxpayer, project developer, or contractor and raises concerns
about the PWA requirements and the project developer or taxpayer
chooses to move forward without making any changes regardless of the
concern that was raised. Commenters also suggested finding that
taxpayers acted with intentional disregard if they did not diligently
investigate their contractor and subcontractor practices. For the
reasons noted herein regarding the factors for intentional disregard,
the suggestions to include a new presumption of intentional disregard
are not adopted. The final regulations retain the approach of providing
factors that will be considered in determining whether a failure was
due to intentional disregard based on all relevant facts and
circumstances.
4. Penalty Waiver
In general, the IRS may exercise its discretion to waive or decline
to assert penalties in the interest of sound tax administration. The
Proposed Regulations would have provided limited penalty waivers for
instances in which the failures to pay prevailing wages to laborers and
mechanics for the construction, alteration, or repair of a facility
were small in amount or occurred in a limited number of pay periods.
The Proposed Regulations would have also provided that the penalty
waiver cannot be used after a return has been filed claiming the
increased credit amount. Finally, the Proposed Regulations would have
applied the waiver authority in a manner that assists taxpayers seeking
to be eligible for the increased credit amount while remaining
consistent with the statutory requirement to ensure that laborers and
mechanics are paid applicable prevailing wage rates. As noted in the
preamble to the Proposed Regulations, the Treasury Department and the
IRS understand that taxpayers intending to pay prevailing wage rates
may make payroll errors or classification errors with respect to work
that is performed by laborers or mechanics. The Proposed Regulations
sought to account for these circumstances while continuing to ensure
that laborers and mechanics are paid according to the applicable
prevailing wage rates.
Proposed Sec. 1.45-7(c)(6)(i) provided that the penalty payment
requirement would be waived with respect to the construction,
alteration, or repair performed by a laborer or mechanic during a
calendar year if: (i) the taxpayer makes the required correction
payment (back wages and interest) by the earlier of: (a) 30 days after
the taxpayer became aware of the error, or (b) the date on which the
tax return claiming the increased credit amount is filed; and (ii)
either: (a) the laborer or mechanic is paid below the prevailing wage
rate for not more than 10 percent of all pay periods of the calendar
year (or part thereof) during which the laborer or mechanic worked on
the construction, alteration, or repair of the facility, or (b) the
difference between the amount the laborer or mechanic was paid for the
calendar year (or part thereof) during which the laborer or mechanic
worked on the construction, alteration, or repair of the facility and
the amount required to be paid by the Prevailing Wage Requirements for
the calendar year is not greater than 2.5 percent of the amount
required under the Prevailing Wage Requirements. The Proposed
Regulations would have used calendar years to measure any failures
because taxpayers, contractors, and subcontractors performing
construction
[[Page 53222]]
may have different taxable years and laborers and mechanics are
generally paid on a calendar year basis. The Treasury Department and
the IRS requested comments on the proposed use of calendar years in
place of taxable years for this purpose.
Many commenters were supportive of the penalty waiver, but they
provided practical concerns with the 30-day correction period and the
maximum underpayment period and amount due to the short-term nature of
some construction work, as well as the logistical difficulties
involving multiple payroll periods and/or payroll processors used by
different contractors and subcontractors. Commenters suggested
increasing both the correction period and maximum underpayment period
and amount to provide more time to account for these practical
difficulties. Some commenters suggested increasing the correction
period to 60 or 90 days. Others suggested raising the maximum
underpayment period to the greater of three pay periods or 20 percent
of all pay periods in a calendar year, and the maximum underpayment
amount to the greater of $5,000 or five percent of all amounts required
to be paid in a calendar year. Another commenter suggested removing the
maximum underpayment amounts entirely. At least one commenter supported
finalizing the rule as is in the Proposed Regulations, because it is
sufficient to address de minimis payroll errors. A few commenters
suggested that the waiver should not be available to a taxpayer who did
not provide their workers notice of their wage rate, maintained poor
records, exercised no contemporaneous monitoring or due diligence, or
retaliated against workers who complained of not being paid the
prevailing wage. Given the complexity of the PWA requirements, one
commenter recommended limiting penalties that apply to businesses with
fewer than 50 employees.
In recognition of the comments that the proposed correction period
is too short to be useful, the final regulations revise the proposed
penalty waiver to provide that corrections must be made by the last day
of the first month following the end of the calendar quarter in which
the failure occurred. The final regulations clarify that the correction
must be made within the relevant time period after the failure
occurred, not when the taxpayer becomes aware of the failure. This
revised correction period is intended to coincide with the due date for
the filing of Federal employment tax returns. The Treasury Department
and the IRS expect that most employers will have conducted a review of
payroll for each quarter in connection with the filing of their
quarterly employment tax return, and they should be aware of failures
at this time. This change will result in a correction period that
generally ranges from one to three months depending on when the failure
occurred.
The final regulations also modify the proposed waiver provision by
increasing the maximum underpayment amount to underpayments that do not
exceed five percent of all amounts required to be paid in a calendar
year. The final regulations retain the maximum underpayment period as
proposed to reflect the intent that this waiver provision apply only to
minor errors that occur infrequently. The change to the correction
period provides additional time, more certainty, and aligns with filing
of the majority of employment tax returns. This change also removes the
knowledge requirement, providing a more definitive correction period
for taxpayer certainty and aiding IRS administration.
A few commenters indicated support of the use of calendar years for
purposes of the waiver provision. No commenters suggested a different
time period. Thus, the final regulations adopt calendar years as the
appropriate period to measure failures for purposes of the waiver
provisions.
VIII. Apprenticeship Requirements
A. In General
1. Scope
Under section 45(b)(8), in order to satisfy the Apprenticeship
Requirements, certain requirements with respect to the construction of
any qualified facility relating to labor hours, apprentice-to-
journeyworker ratios, and participation by qualified apprentices must
be satisfied. Under section 45(b)(8)(D)(i), a taxpayer is not treated
as failing to satisfy the Apprenticeship Requirements in section
45(b)(8) if: (i) the taxpayer satisfies the Good Faith Effort
Exception, or (ii) in the case of any failure by the taxpayer to
satisfy the Labor Hours Requirement under section 45(b)(8)(A) and the
Participation Requirement under section 45(b)(8)(C), the taxpayer makes
a penalty payment to the IRS under the Apprenticeship Cure Provision.
Proposed Sec. 1.45-8(a) generally would have provided that a
taxpayer claiming or transferring (under section 6418) the increased
credit amount under section 45(b)(6)(B)(iii) with respect to any
qualified facility must satisfy the requirements of section 45(b)(8)
and proposed Sec. 1.45-8. Proposed Sec. 1.45-8(b), (c), and (d) would
have provided the Labor Hours Requirement, the Ratio Requirement, and
the Participation Requirement, respectively. Proposed Sec. 1.45-8(e)
would have detailed exceptions to the Apprenticeship Requirements,
enabling the taxpayer to be deemed to have satisfied the Apprenticeship
Requirements if the taxpayer has either made a good faith effort to
meet the Apprenticeship Requirements as described in proposed Sec.
1.45-8(e)(1) or made the penalty payment provided in proposed Sec.
1.45-8(e)(2) for any failures to which the Good Faith Effort Exception
does not apply. Proposed Sec. 1.45-8(f) would have provided additional
definitions applicable to the Apprenticeship Requirements.
Section 45(b)(8) imposes the Apprenticeship Requirements with
respect to the construction of any qualified facility. As discussed in
Section VI. of this Summary of Comments and Explanation of Revisions,
the final regulations clarify that the qualified facility for both the
Prevailing Wage Requirements and the Apprenticeship Requirements is
defined as a qualified facility under section 45.
Commenters asked whether the Apprenticeship Requirements applied to
work performed on a qualified facility after the facility is placed in
service. Commenters asserted that the statutory text supports limiting
the Apprenticeship Requirements to the construction of the qualified
facility. Many commenters pointed to the explicit language in section
45(b)(7)(A)(ii) applying the Prevailing Wage Requirements to alteration
and repair activities in the 10-year period after a facility is placed
in service, and they stated that there is no similar language in
section 45(b)(8) applying the Apprenticeship Requirements to alteration
and repair activities for the period after a facility is placed in
service. Commenters also pointed out the impracticality of applying the
Apprenticeship Requirements to alteration and repair activities after a
facility is placed in service. Commenters emphasized that repairs to
facilities already in service usually must be made as quickly as
possible. They indicated that such repairs are often a short-term
project, and requesting, hiring, and onboarding qualified apprentices
consistent with the Labor Hours Requirement would cause costly delays.
Commenters stated that during large power outages and other
emergencies, energy-production facilities are primarily focused on
returning power to customers in as timely and efficient a manner as
possible.
[[Page 53223]]
While there is some ambiguity in the statutory text regarding
whether the Apprenticeship Requirements apply to the alteration or
repair of a qualified facility after it is placed in service, the more
natural reading of section 45(b)(8) supports the interpretation of the
commenters that the Apprenticeship Requirements only apply to the
construction of a qualified facility. Under this reading, alterations
and repairs occurring while a facility is being constructed would be
subject to the Apprenticeship Requirements, but those occurring after
the facility is placed in service would not.
Section 45(b)(7) is clear that the Prevailing Wage Requirements
apply to two distinct periods with respect to the construction,
alteration, or repair of a qualified facility: (i) construction under
section 45(b)(7)(A)(i); and (ii) alteration or repair for any portion
of a taxable year that is within the 10-year period beginning on the
date the qualified facility is placed in service under section
45(b)(7)(A)(ii). Conversely, section 45(b)(8) provides requirements
that apply only with respect to the construction of any qualified
facility. The lack of any explicit language in section 45(b)(8) with
respect to alterations or repairs during the 10-year period after a
facility is placed in service, as is seen in section 45(b)(7), suggests
that the Apprenticeship Requirements do not apply after a facility is
placed in service.
This conclusion is also supported by the specific language in the
Apprenticeship Requirements. The applicable percentage under the Labor
Hours Requirement in section 45(b)(8)(A) applies to the total labor
hours of the construction, alteration, or repair work performed with
respect to construction of the qualified facility. This language
suggests that although hours spent on alteration and repair work can be
part of the calculation used to determine whether the Labor Hours
Requirement is satisfied, the requirement only applies to the
construction of the qualified facility and not after it is placed in
service. Similar language is used in section 45(b)(8)(C) in which the
Participation Requirement is limited by the phrase ``with respect to
the construction of the facility.'' Together, the language of these
provisions suggests that taxpayers, contractors, and subcontractors may
perform alteration and repair work that would be subject to the
Apprenticeship Requirements, but that obligation only applies during
construction and not after the facility is placed in service. The final
regulations have been amended to confirm that the Apprenticeship
Requirements apply only to the construction of the qualified facility
including alteration and repair work that is performed prior to the
facility being placed in service, and not to alteration or repair work
occurring after the facility is placed in service.
2. Labor Hours Requirement
Section 45(b)(8)(A)(i) provides that ``[t]axpayers shall ensure
that, with respect to the construction of any qualified facility, not
less than the applicable percentage of the total labor hours of the
construction, alteration, or repair work (including such work performed
by any contractor or subcontractor) with respect to such facility
shall, subject to [section 45(b)(8)(B)], be performed by qualified
apprentices.'' This rule is referred to as the Labor Hours Requirement.
For purposes of the Labor Hours Requirement, section
45(b)(8)(A)(ii) provides that the applicable percentage is: (i) 10
percent in the case of a qualified facility the construction of which
begins before January 1, 2023; (ii) 12.5 percent in the case of a
qualified facility the construction of which begins after December 31,
2022, and before January 1, 2024; and (iii) 15 percent in the case of a
qualified facility the construction of which begins after December 31,
2023. Section 45(b)(8)(E)(i) provides that the term ``labor hours''
means the total number of hours devoted to the performance of
construction, alteration, or repair work by any individual employed by
the taxpayer or by any contractor or subcontractor, and excludes any
hours worked by foremen, superintendents, owners, or persons employed
in a bona fide executive, administrative, or professional capacity
(within the meaning of those terms in part 541 of title 29, Code of
Federal Regulations).
Commenters recommended that the final regulations clarify that
there is no minimum amount of time that a qualified apprentice must be
registered or employed in order to count the qualified apprentice's
work towards the labor hours requirement. The statute does not impose a
minimum time period, and the Treasury Department and the IRS have
determined that any additional requirement would not be in furtherance
of the IRA or in the interest of sound tax administration. Thus, the
final regulations do not require a minimum number of hours worked
before labor hours count toward the total labor hours performed by a
qualified apprentice.
Commenters requested that the final regulations provide additional
guidance regarding how to calculate the total labor hours and the
applicable percentage. Specifically, a few commenters requested
guidance on the period of time the total labor hours requirement
encompasses and when the applicable percentage should be calculated.
Similarly, another commenter asked whether total labor hours should be
calculated on a trade-by-trade basis or by aggregating all contractors'
labor hours. A commenter stated that one of the examples in the
Proposed Regulations seemed to imply that the Labor Hour Requirement
apply to each contractor and subcontractor involved in the
construction, alteration, or repair of a covered facility, rather than
the aggregate labor hours for the construction project. One commenter
requested that the final regulations clarify that the labor hours
calculation does not include hours worked by contractors with fewer
than four employees. Another commenter asked whether on-the-job
training hours worked by qualified apprentices at locations other than
the location of the facility count for purposes of the Labor Hours
Requirement.
Consistent with the statutory language in section 45(b)(8)(A)(i),
the final regulations clarify that the Labor Hours Requirement applies
to the construction of a facility, not on a contractor-by-contractor or
trade-by-trade basis. The final regulations further clarify that
taxpayers determine whether the Labor Hours Requirement has been
satisfied by aggregating all labor hours worked by laborers and
mechanics on the construction of the facility (including those hours
worked by contractors with fewer than four employees), from the
beginning of construction through the time the facility is placed in
service and calculating whether the applicable percentage of those
labor hours was worked by qualified apprentices. Accordingly,
taxpayers, contractors, and subcontractors will need to keep track of
labor hours from the beginning of the construction of the facility
until the project or facility is placed in service. Additionally, since
the statute requires not less than the applicable percentage of total
labor hours of construction, alteration, or repair work with respect to
the qualified facility be performed by qualified apprentices, on-the-
job training hours worked by qualified apprentices at a location other
than the location of the facility do not count for purposes of the
Labor Hours Requirement. Training hours of qualified apprentices at the
location of the facility that involve the performance of construction,
alteration, or repair work with respect to the qualified
[[Page 53224]]
facility count towards the labor hours performed by qualified
apprentices for purposes of the Labor Hours Requirement. The final
regulations provide examples to illustrate these calculations.
One commenter asked whether the hours worked by a working
foreperson are included in the total number of labor hours in
calculating the applicable percentage for purposes of the Labor Hours
Requirement. One commenter requested guidance on whether a
subcontractor, who only had working foremen on site to complete a
project, and no qualified apprentices, would be considered to have
worked zero labor hours and would not be subject to any penalties. The
Proposed Regulations would have provided that working forepersons who
devote more than 20 percent of their time during a workweek to laborer
or mechanic duties, and who do not meet the criteria for exemption of
29 CFR part 541, are considered laborers and mechanics for the time
spent conducting laborer and mechanic duties for purposes of the
Prevailing Wage Requirements. As discussed in Section VII.C.1. of this
Summary of Comments and Explanation of Revisions, the final regulations
retain this rule. The Proposed Regulations also would have provided
that the hours worked by forepersons, regardless of whether they are
considered working forepersons for purposes of the Prevailing Wage
Requirements are excluded from labor hours for purposes of the Labor
Hours Requirement. The final regulations also retain this rule.
Commenters suggested that the regulations clarify whether the Labor
Hours Requirement applies to projects with three or fewer employees.
The comment seems to be asking whether the Labor Hours Requirement
applies if the Participation Requirement does not apply. The two
requirements are separate. Under the Participation Requirement in
section 45(b)(8)(C), each taxpayer, contractor, or subcontractor who
employs four or more individuals to perform construction, alteration,
or repair work with respect to the construction of a qualified facility
must employ one or more qualified apprentices. There is no similar
minimum threshold in the Labor Hours Requirement. To satisfy the
Apprenticeship Requirements, a taxpayer needs to satisfy the Labor
Hours Requirement, the Ratio Requirement, and the Participation
Requirement. If the Participation Requirement does not apply, the
taxpayer will still need to satisfy the Labor Hours Requirement and the
Ratio Requirement.
Commenters also requested guidance on the effect of the Good Faith
Effort Exception with respect to the Labor Hours Requirement. The
Proposed Regulations would have provided that if a taxpayer,
contractor, or subcontractor qualifies for the Good Faith Effort
Exception, the number of hours that the qualified apprentices would
have performed had a registered apprenticeship program supplied those
qualified apprentices, would have counted towards the number of labor
hours performed by qualified apprentices. The Proposed Regulations
included an example illustrating the interaction between the Labor
Hours Requirement and the Good Faith Effort Exception. The final
regulations retain this rule and example.
Commenters also inquired whether total labor hours continue to be
aggregated for all work in subsequent tax years after construction has
ended, or only for those labor hours resulting from covered alteration
or repair work. Another commenter requested further examples
illustrating the proper calculation of labor hours for the 10-year
period beginning on the date the facility was originally placed in
service. Because the final regulations clarify that the Apprenticeship
Requirements apply only to the construction (including alterations and
repairs during construction) of the qualified facility, and not to
alteration or repair work occurring after the facility is placed in
service, the Labor Hours Requirement does not apply after the qualified
facility has been placed in service. The final regulations incorporate
additional examples clarifying this rule.
Another commenter suggested that the final regulations clarify
whether the hours qualified apprentices are paid as journeyworkers as a
result of failing the daily Ratio Requirement count towards the Labor
Hours Requirement as qualified apprentice hours or as journeyworker
hours. Proposed Sec. 1.45-8(c)(3) would have provided that any labor
hours performed by any qualified apprentice in excess of the applicable
apprentice-to-journeyworker ratio may not be counted as hours performed
by qualified apprentices for purpose of the Labor Hours Requirement.
The final regulations retain this rule and clarify that these labor
hours performed by qualified apprentices in excess of the apprentice-
to-journeyworker ratio will count towards the total labor hours but
will not count as hours performed by qualified apprentices for the
purposes of calculating the applicable percentage.
A commenter requested additional examples addressing work performed
in years after the initial year of construction. The final regulations
address this comment by providing an example illustrating the
calculation of the Labor Hours Requirement after the initial year of
construction.
3. Ratio Requirement
Under section 45(b)(8)(B), the Labor Hours Requirement is subject
to any applicable requirements for apprentice-to-journeyworker ratios
of the DOL or the applicable State apprenticeship agency. Under 29 CFR
part 29, registered apprenticeship programs prescribe a numeric ratio
of apprentices to journeyworkers in their standards of
apprenticeship.\34\ This ratio is intended to ensure that there are
enough journeyworkers to oversee the work of qualified apprentices,
provide appropriate training, and maintain workplace safety. The
Treasury Department and the IRS understand that the DOL and State
apprenticeship agencies review and approve the prescribed ratio
requirements. Proposed Sec. 1.45-8(c)(2), would have provided that the
allowable ratio of apprentices to journeyworkers on the job site in any
occupation and its corresponding classification on any day must comply
with the applicable apprentice-to-journeyworker ratio of the registered
apprenticeship program in accordance with 29 CFR part 29. The Treasury
Department and the IRS requested comments on the application of the
Ratio Requirement for purposes of satisfying the Apprenticeship
Requirements. Commenters generally supported the Ratio Requirement
aligning with ratio requirements set by registered apprenticeship
programs.
---------------------------------------------------------------------------
\34\ On January 17, 2024, the DOL published a notice of proposed
rulemaking (ETA-2023-0004) in the Federal Register (89 FR 3118), to
revise the regulations for registered apprenticeships. Under
proposed 29 CFR 29.8(a)(19) each registered apprenticeship program
must have a written set of standards of apprenticeship that includes
the program's specific numeric ratio of apprentices to
journeyworkers. National Apprenticeship System Enhancements, 89 FR
3118, 3279 (proposed Jan. 17, 2024).
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As discussed in section VII.B.4. of this Summary of Comments and
Explanation of Revisions, the Proposed Regulations would have provided
a reciprocity rule for purposes of the payment of applicable prevailing
wage rates for qualified apprentices. The final regulations adopt the
reciprocity rule under the Prevailing Wage Requirements as proposed.
The comments with respect to the reciprocity rule and the need for
clarity on the ratio requirement if registered apprenticeship programs
supply qualified apprentices outside of the geographic area in which
the program is
[[Page 53225]]
registered applies equally with respect to the Ratio Requirement under
the Apprenticeship Requirements. Accordingly, the final regulations
adopt the reciprocity rule for purposes of determining the applicable
ratio of apprentices to journeyworkers under the Ratio Requirement. The
final regulations clarify that if more than one apprentice-to-
journeyworker ratio could apply because the construction work is
occurring in a geographic area where the registered apprenticeship
program is not registered, the taxpayer must comply with the
apprentice-to-journeyworker ratio set for the geographic area where the
construction occurs.
One commenter recommended that the final regulations clarify
whether taxpayers, contractors, or subcontractors must only follow the
ratio requirement of a registered apprenticeship program in those
States and localities that prescribe ratio requirements for private
sector projects. There is no such exception under the Ratio
Requirement, and therefore the final regulations do not adopt this
suggestion.
One commenter suggested that registered apprenticeship programs in
some States may have a difficult time supplying enough qualified
apprentices to meet the applicable apprentice-to-journeyworker ratios.
The comment is inconsistent with the general application of
apprenticeship ratio requirements. The Treasury Department and the IRS
understand from the DOL that ratio requirements of registered
apprenticeship programs that are reviewed and approved by the DOL and
State apprenticeship agencies do not prescribe a certain number of
qualified apprentices at a job site. Instead, they prescribe the number
of journeyworkers required for each qualified apprentice that is on a
job site on a given day. If on a particular day there are no qualified
apprentices scheduled to work, there is no ratio requirement to adhere
to. Additionally, comments regarding substantive ratio requirements set
by registered apprenticeship programs and reviewed and approved by the
DOL and State apprenticeship agencies are outside the scope of these
final regulations.
One commenter suggested that the final regulations should
incorporate the DOL regulations at 29 CFR part 29 to account for the
fact that collective bargaining agreements may prohibit employers from
abiding by the Ratio Requirement. The commenter was concerned that
contractors may be faced with conflicting obligations and that
taxpayers may be required to pay penalties as a result of negotiations
outside of the taxpayer's control. The Treasury Department and the IRS
understand that collective bargaining agreements may have terms that
prohibit the use of apprentice-to-journeyworker ratios established as
part of a registered apprenticeship program; however, section
45(b)(8)(B) provides that the Labor Hours Requirement is subject to the
apprentice-to-journeyworker ratios of the DOL or the applicable State
apprenticeship agency. The Treasury Department and the IRS decline to
provide a rule in the final regulations that is contrary to this
statutory requirement. Changes to the ratio requirements that are
approved by the DOL OA or applicable State apprenticeship agencies as
part of the standards for registered apprenticeship programs under 29
CFR part 29 are outside the scope of these final regulations.
The Proposed Regulations would have provided that the applicable
ratio established by the registered apprenticeship program would need
to be satisfied each day during construction, alteration, or repair of
the qualified facility for which qualified apprentice labor hours are
being claimed. Some commenters stated that it would be administratively
challenging to comply with the Ratio Requirement each day. One
commenter suggested that the apprenticeship-to-journeyworker ratio be
measured over a 30-day time period. One commenter suggested providing a
safe harbor for taxpayers who are able to meet the relevant
apprenticeship-to-journeyworker ratio requirement for at least 90
percent of the working days of a construction project. Additionally, a
commenter requested guidance on the effect on taxpayers' responsibility
to meet applicable apprenticeship-to-journeyworker ratios if a
registered apprenticeship program is unable to supply the necessary
qualified apprentices requested by the taxpayer. At least one commenter
stated that applying the Ratio Requirement on a daily basis aligns with
industry custom.
The Treasury Department and the IRS recognize that there may be
scheduling conflicts or other issues that may make it difficult to meet
the Ratio Requirement. Under 29 CFR 29.5, registered apprenticeship
programs must have a ratio requirement as part of their program
standards. According to the DOL, it is industry practice for registered
apprenticeship programs to set daily ratio requirements to ensure the
safety and welfare of the apprentices and properly oversee the work of
apprentices, and requiring different ratios under the final regulations
could be administratively challenging and confusing. Additionally, a
daily requirement is needed to determine whether a qualified apprentice
may be paid at a rate less than the prevailing rate for work performed
that day as explained in Section VII.B.4. of this Summary of Comments
and Explanation of Revisions. Accordingly, the final regulations
confirm that the Ratio Requirement applies each day.
One commenter requested that the final regulations require that
registered apprenticeship programs identify and publish their
apprentice-to-journeyworker ratios. Based on consultations with the
DOL, the Treasury Department and the IRS understand that apprentice-to-
journeyworker ratios of individual registered apprenticeship programs
are not publicly available. However, under 29 CFR 29.5(b)(7), the ratio
of apprentices to journeyworkers is a part of a registered
apprenticeship program's standards of apprenticeship. A registered
apprenticeship program's apprentice-to-journeyworker ratio is provided
to an employer when the employer joins a registered apprenticeship
program and agrees to abide by the standards of apprenticeship under 29
CFR part 29. The DOL regulates registered apprenticeship programs, and
requests to impose requirements on registered apprenticeship programs
is outside the scope of these final regulations.
4. Participation Requirement
Under section 45(b)(8)(C), each taxpayer, contractor, or
subcontractor who employs four or more individuals to perform
construction, alteration, or repair work with respect to the
construction of a qualified facility must employ one or more qualified
apprentices to perform that work. The Proposed Regulations would have
provided that the Participation Requirement would be satisfied as long
as the taxpayer, contractor, or subcontractor employs one or more
qualified apprentices to perform work on the facility and this
requirement would not be a daily requirement. Additionally, the
Proposed Regulations would have clarified that it would be the
responsibility of the taxpayer to ensure that any contractor or
subcontractor with four or more employees who perform work on the
facility has hired one or more qualified apprentices. The preamble to
the Proposed Regulations explained that the Treasury Department and the
IRS proposed to interpret the Participation Requirement as designed to
prevent taxpayers from satisfying the Labor Hours Requirement by only
hiring
[[Page 53226]]
qualified apprentices to perform one type of work and instead
encourages taxpayers to use qualified apprentices across the full range
of work performed with respect to the facility.
Commenters requested clarification on how to determine whether a
taxpayer, contractor, or subcontractor employs four or more individuals
to perform construction, alteration, or repair work with respect to the
construction of a qualified facility. One commenter sought confirmation
that the Participation Requirement does not apply on a daily basis.
Commenters specifically requested clarification on whether the number
of employees counted in determining whether the Participation
Requirement applies are only those employed in the construction of the
facility at the same time and at the same location.
Under section 45(b)(8)(C), the Participation Requirement applies if
the taxpayer, contractor, or subcontractor employs four or more
individuals to perform construction, alteration, or repair work with
respect to the construction of a qualified facility. It does not
require employment of four individuals in the construction of the
qualified facility at the same time or at the same location. The final
regulations clarify that the Participation Requirement applies if the
taxpayer, contractor, or subcontractor employ four individuals in the
construction of the qualified facility at any time during the
construction, regardless of whether they are employed at the same
location or at the same time.
Commenters suggested raising the number of employees that are
required for the Participation Requirement to apply so that qualified
apprentices will only need to be employed on larger projects with more
resources. Section 45(b)(8)(C) provides that each taxpayer, contractor,
or subcontractor who employs four or more individuals to perform
construction, alteration, or repair work with respect to the
construction of a qualified facility must employ one or more qualified
apprentices to perform such work. The final regulations adhere to the
statutory requirement under section 45(b)(8)(C).
5. Other General Apprenticeship Issues
Section 45(b)(8)(A) provides, in relevant part, that taxpayers must
ensure that not less than the applicable percentage of the total labor
hours of the construction, alteration, or repair work with respect to
such facility are performed by qualified apprentices. Consistent with
this statutory provision, the Proposed Regulations would have provided
that the taxpayer would be solely responsible for ensuring that the
Apprenticeship Requirements are satisfied. Some commenters stated that
this provision is burdensome on taxpayers because it makes them
responsible for the hiring decisions of contractors and subcontractors.
Specifically, commenters were concerned that taxpayers may fail to
satisfy the Apprenticeship Requirements if a contractor does not hire a
sufficient number of qualified apprentices.
The statute requires that the taxpayer ensure that the applicable
percentage of total labor hours are performed by qualified apprentices,
irrespective of which entity employs the qualified apprentices. If a
contractor or subcontractor does not comply with the Labor Hours
Requirement, the taxpayer retains the opportunity to cure that failure
by paying the penalty described under section 45(b)(8)(D)(i)(II). Thus,
subject to the Participation Requirement, the taxpayer retains some
flexibility in ensuring that the Apprenticeship Requirements are
satisfied.
One commenter suggested that the final regulations require
taxpayers to collect and audit their contractor and subcontractors'
requests for qualified apprentices. Taxpayers may establish procedures
to help ensure their compliance with the Apprenticeship Requirements.
Those procedures may include regularly reviewing the qualified
apprentice hiring practices of contractors and subcontractors or
including requirements to hire qualified apprentices in contracts.
Whether a taxpayer regularly reviewed contractors' and subcontractors'
use of qualified apprentices is a factor in determining intentional
disregard.
A commenter stated that depending on a construction project's
geographic access to registered apprenticeship programs, it could be
impractical for some smaller contractors to maintain the relatively
high percentage of qualified apprentices necessary to meet each of the
Apprenticeship Requirements. The Participation Requirement, which does
not require the hiring of qualified apprentices if a contractor does
not employ four or more individuals, provides limited relief for
smaller businesses and addresses potential burdens. Further, the Good
Faith Effort Exception discussed in Section VIII.B.1. of this Summary
of Comments and Explanation of Revisions may provide relief in those
circumstances raised by commenters. Accordingly, the final regulations
do not provide any additional exceptions.
Section 45(b)(8)(E)(ii) defines a qualified apprentice as an
individual who is employed by the taxpayer or by any contractor or
subcontractor and who is participating in a registered apprenticeship
program, as defined in section 3131(e)(3)(B). For purposes of the
Apprenticeship Requirements, the Proposed Regulations would have
defined a qualified apprentice, in part, as an individual who is
employed by the taxpayer or by any contractor or subcontractor who is
participating in a registered apprenticeship program. Under the
Proposed Regulations, participating in a registered apprenticeship
program would have included entering into a written agreement with a
registered apprenticeship program. The Proposed Regulations would have
also provided that for purposes of the Prevailing Wage Requirements, an
apprentice includes an individual in the first 90 days of probationary
employment who has been certified by the DOL OA or a State
apprenticeship agency (if appropriate) to be eligible for probationary
employment as an apprentice. One commenter asked for the final
regulations to clarify whether the term qualified apprentice includes
those individuals in the first 90 days of probationary employment with
the registered apprenticeship program, similar to how such individuals
are treated as apprentices under 29 CFR 22.401. The final regulations
clarify that a qualified apprentice includes those individuals in the
first 90 days of probationary employment with the registered
apprenticeship program because they are participating in the registered
apprenticeship program.
The Proposed Regulations would have provided that pre-
apprenticeship programs do not qualify as registered apprenticeship
programs for purposes of section 45(b)(8) and hours worked as part of a
pre-apprenticeship program would not count towards the Labor Hours
Requirement. Commenters recommended that the Treasury Department and
the IRS permit other programs, such as trade schools, colleges,
programs run by local high schools and school districts, and other
privately run, non-registered apprenticeship or workforce development
programs to supply apprentices to taxpayers, contactors, or
subcontractors to satisfy the Apprenticeship Requirements. Commenters
asserted that permitting programs in addition to registered
apprenticeship programs to supply apprentices will help ease the
expected short supply of qualified apprentices
[[Page 53227]]
due to high demand. A commenter also explained that biogas systems are
usually co-located at farms and some members in the biogas industry
rely on apprenticeship programs run through local high schools and
school districts, that help provide hands-on experience and develop
interest for agricultural careers. The commenter suggested including
those school-based apprenticeship programs if they meet certain
criteria.
Although the Treasury Department and the IRS understand there may
be advantages to hiring individuals through programs other than
registered apprenticeship programs, the statute requires that qualified
apprentices be employed by the taxpayer, contractor, or subcontractor
and be participating in a registered apprenticeship program for
purposes of the Apprenticeship Requirements. The final regulations
adhere to the statutory requirements and the proposed rule is adopted
without change.
Several commenters indicated a general concern with the lack of
qualified apprentices to staff construction projects. One commenter
stated that in the next five to ten years, the construction industry is
bracing for hundreds of billions of dollars of additional
infrastructure spending and tax incentives. The commenter was skeptical
that there are sufficient registered apprenticeship programs and
qualified apprentices available to meet the Apprenticeship
Requirements. An additional commenter shared survey data indicating
that the necessary registered apprenticeship programs have not been
established in their geographic area. The same commenter also opined
that there are not enough qualified apprentices currently enrolled in
registered apprenticeship programs to supply a workforce capable of
meeting the Labor Hour Requirements.
Comments discussing the possible shortage of qualified apprentices
or registered apprenticeship programs are outside the scope of these
final regulations. However, the Treasury Department and the IRS
appreciate that the commenters raised these concerns and have consulted
with the DOL OA regarding them. The DOL OA explained that group
registered apprenticeship programs that typically place qualified
apprentices with multiple employers for on-the-job training are
designed to expand with demand because they typically only admit as
many qualified apprentices as they have guaranteed placements for. If
there are additional employers, they can admit additional qualified
apprentices to their programs. The DOL OA also indicated that over the
last several years the DOL has made significant investments in the
registered apprenticeship space to prepare and expand access to
qualified apprentices. The DOL OA is ready to assist in the creation of
new registered programs that may be needed to meet the increased demand
for apprentices. Taxpayers, contractors, and subcontractors are
encouraged to start their own registered apprenticeship programs to
help increase the supply of qualified apprentices.
Additionally, the Good Faith Effort Exception contemplates that the
supply of available qualified apprentices may not always match the
demand necessary to meet the Apprenticeship Requirements and provides
relief in those cases as explained in Section VIII.B.1. of this Summary
of Comments and Explanation of Revisions. However, use of the Good
Faith Effort Exception if there is no registered apprenticeship program
that operates in the geographic location of the facility is expected to
be rare because registered apprenticeship programs can operate across
State and county lines and are expected to expand according to demands.
A commenter requested that the final regulations clarify that a
registered apprenticeship program may only provide qualified
apprentices for the specific classification(s) requested by the
taxpayer. The regulation of registered apprenticeship programs is
outside the scope of these final regulations. Taxpayers, contractors,
and subcontractors retain flexibility in their hiring decisions,
including with respect to qualified apprentices. Under these final
regulations, the hours that are worked by a qualified apprentice only
qualify towards the Labor Hours Requirement and the Participation
Requirement to the extent the qualified apprentice is performing
construction, alteration, or repair work with respect to the
construction of a facility consistent with the occupation in which the
qualified apprentice is training.
Another commenter claimed that the Proposed Regulations would place
the responsibility to provide qualified apprentices on group sponsors
of registered apprenticeship programs, thereby limiting taxpayer
incentives to launch their own programs and hire qualified apprentices
in other circumstances. The Proposed Regulations did not intend to
restrict taxpayers, contractors, or subcontractors from developing
their own registered apprenticeship programs. The final regulations
clarify that taxpayers, contractors, and subcontractors have the
flexibility to create their own registered apprenticeship program
(within the meaning of section 3131(e)(3)(B)) or partner with existing
registered apprenticeship programs to satisfy the Apprenticeship
Requirements.
Another commenter requested that the final regulations require that
any funds contributed to a registered apprenticeship program must be
used to train qualified apprentices. While the Treasury Department and
the IRS understand that commenters want to ensure funds contributed to
a registered apprenticeship program are used appropriately, this is
outside the scope of the final regulations.
Several commenters requested assistance in finding registered
apprenticeship programs to provide qualified apprentices to a project.
The DOL OA, in collaboration with participating State apprenticeship
agencies, has created an online search tool to assist taxpayers,
contractors, and subcontractors in finding registered apprenticeship
programs (currently https://www.apprenticeship.gov/partner-finder).
Taxpayers, contractors, and subcontractors can search for registered
apprenticeship programs by occupation or industry in a certain State,
city, or zip code. Taxpayers, contractors, and subcontractors can also
contact the DOL OA or their State apprenticeship agency for assistance
in locating registered apprenticeship programs.
A commenter also stated that the Apprenticeship Requirements could
create new challenges for taxpayers who depend on labor from other
countries to help install equipment. The commenter explained that
foreign contractors and subcontractors will be unable to meet the
Apprenticeship Requirements because they are not permitted to hire
qualified apprentices from registered apprenticeship programs. The
commenter suggested that the final regulations expand the Good Faith
Effort Exception to provide reasonable accommodations for taxpayers who
rely on foreign companies for specific work.
The Treasury Department and the IRS understand from the DOL OA that
DOL regulations governing registered apprenticeship programs do not
prohibit foreign employers from hiring qualified apprentices from
registered apprenticeship programs or registering an apprenticeship
program, provided certain requirements are satisfied (for example, the
foreign employer must have a physical presence in the United States and
be legally authorized to conduct business in the United States). The
DOL OA confirmed that there are several registered apprenticeship
programs sponsored by foreign employers. Accordingly, the Treasury
[[Page 53228]]
Department and the IRS decline to provide special exceptions for
taxpayers who use foreign contractors or subcontractors for specific
work as the statute does not contemplate such an exception.
A commenter requested that the final regulations clarify the effect
of the DOL deregistering a registered apprenticeship program. The
commenter recommended that the final regulations permit taxpayers,
contractors, and subcontractors to continue to pay the applicable
apprenticeship prevailing wage rate if a registered apprenticeship
program is deregistered, provided the taxpayer, contractor, or
subcontractor can find a new registered apprenticeship program for the
apprentices already employed within 90 days from the date the taxpayer,
contractor, or subcontractor is notified in writing that the program
was deregistered. The commenter also requested that the Treasury
Department and the IRS provide an option for enrolling apprentices in
registered apprenticeship programs that offer remote learning in the
event a registered apprenticeship program is deregistered.
The Treasury Department and the IRS understand that programs may be
deregistered by the DOL OA or the State apprenticeship agency as a
result of the program's failure to follow the requirements in 29 CFR
parts 29 and 30. When an apprenticeship program is deregistered, the
DOL OA or State apprenticeship agency assists with transferring the
apprentices to other registered apprenticeship programs. The DOL OA has
indicated that deregistration is rare and the process leading up to
deregistration involves ample opportunities for programs to take
corrective action prior to deregistration such that there will be time
for taxpayers, contractors, and subcontractors to find new registered
apprenticeship programs or qualified apprentices if a program is at
risk of deregistration.
The final regulations do not adopt this comment. Section 45(b)(8)
requires the use of qualified apprentices participating in a registered
apprenticeship program. An individual registered in an apprenticeship
program that has been deregistered is no longer a qualified apprentice
and the hours worked by the individual after deregistration of the
program will not qualify towards the Apprenticeship Requirements. The
Treasury Department and the IRS also decline to permit taxpayers,
contractors, or subcontractors to pay the reduced applicable
apprenticeship prevailing wage rate in the event of deregistration as
doing so would be inconsistent with the statute.
A commenter recommended that the final regulations provide guidance
for situations in which the construction work outlasts the qualified
apprentice's tenure with a registered apprenticeship program, because
the qualified apprentice is promoted, graduates, or otherwise leaves
the program. The employment of individuals who are no longer qualified
apprentices for any reason will not qualify for purposes of the
Apprenticeship Requirements.
Similarly, a few commenters requested guidance regarding the impact
to the Apprenticeship Requirements if circumstances change in the
middle of construction of a facility, such as qualified apprentice
labor becoming unavailable. The Treasury Department and the IRS
understand there might be situations in which qualified apprentice
labor becomes unavailable, which may affect a taxpayer's ability to
comply with the Labor Hours Requirement. In this situation, taxpayers
may be eligible for the Good Faith Effort Exception (if those
requirements are satisfied) or may cure the failure to meet the
Apprenticeship Requirements by paying the prescribed penalty under
section 45(b)(8)(D)(i)(II). The Good Faith Effort Exception and the
Apprenticeship Cure Provision are discussed in Section VIII.B. of this
Summary of Comments and Explanation of Revisions.
A commenter also suggested that in order to ensure high quality on-
the-job training in registered apprenticeship programs, the final
regulations should either support or require employers seeking the
increased amounts of credit to be registered training agents and
demonstrate their proof of status with a registered apprenticeship
program. Because registered apprenticeship programs must provide
supervised work experience and training on the job, the use of
qualified apprentices already ensures quality on-the-job training, and
the final regulations do not require taxpayers, contractors, or
subcontractors to register as training agents.
B. Exceptions to the Apprenticeship Requirements
Under section 45(b)(8)(D)(i), a taxpayer is not treated as failing
to satisfy the Apprenticeship Requirements in section 45(b)(8) if: (i)
the taxpayer satisfies the Good Faith Effort Exception in section
45(b)(8)(D)(ii), or (ii) in the case of any failure by the taxpayer to
satisfy the Labor Hours Requirement under section 45(b)(8)(A) and the
Participation Requirement under section 45(b)(8)(C), the taxpayer makes
a penalty payment to the IRS.
1. Good Faith Effort Exception
Under the Good Faith Effort Exception, a taxpayer is deemed to have
satisfied the Apprenticeship Requirements with respect to a qualified
facility if the taxpayer has requested qualified apprentices from a
registered apprenticeship program and: (i) such request has been
denied, provided that such denial is not the result of a refusal by the
taxpayer or any contractors or subcontractors engaged in the
performance of construction, alteration, or repair work with respect to
such qualified facility to comply with the established standards and
requirements of the registered apprenticeship program, or (ii) the
registered apprenticeship program fails to respond to such request
within five business days after the date on which such registered
apprenticeship program received the request.
The Proposed Regulations would have provided that, generally, a
taxpayer is deemed to have satisfied the Apprenticeship Requirements
with respect to a request for qualified apprentices if the taxpayer,
contractor, or subcontractor submitted a written request for qualified
apprentices to at least one registered apprenticeship program that: (i)
has a geographic area of operation that includes the location of the
facility, or that can reasonably be expected to provide apprentices to
the location of the facility; (ii) trains apprentices in the
occupation(s) needed to perform construction, alteration, or repair
with respect to the facility; and (iii) has a usual and customary
business practice of entering into agreements with employers for the
placement of apprentices in the occupation for which they are training,
pursuant to its standards and requirements. The Proposed Regulations
would have further required that the request be in writing and sent
electronically or by registered mail. The Proposed Regulations would
have defined a registered apprenticeship program to mean a program that
has been registered by the DOL OA or a recognized State apprenticeship
agency pursuant 29 CFR parts 29 and 30, as meeting the basic standards
and requirements of the DOL (DOL Apprenticeship Standards).
The Proposed Regulations would have provided that the Good Faith
Effort Exception is specific to the request for qualified apprentices
made by the taxpayer, contractor, or subcontractor, including the
number of apprentice hours for which the request for apprentices has
been made to a
[[Page 53229]]
registered apprenticeship program. Thus, the Good Faith Effort
Exception would have applied to the specific portion of the request for
qualified apprentices that was not responded to or denied. The Proposed
Regulations would also have provided that the denial of a request for
qualified apprentices would qualify for the Good Faith Effort Exception
for a period of 120 days after the denial and that taxpayers,
contractors, or subcontractors would be required to submit an
additional request for apprentices every 120 days after a denial to
continue to qualify for the Good Faith Effort Exception. The Treasury
Department and the IRS requested comments on the duration of requests
for qualified apprentices under the Good Faith Effort Exception.
The Treasury Department and the IRS are aware that the DOL OA, as
well as State apprenticeship agencies, routinely provide technical
expertise on registered apprenticeship program matters, including
identifying registered apprenticeship programs and assisting employers
seeking to register their own programs. The Treasury Department and the
IRS requested comments on whether and how the proposed Good Faith
Effort Exception might account for a situation in which a taxpayer
contacts the DOL OA or the appropriate State apprenticeship agency
regarding their apprenticeship request, in addition to contacting a
specific registered apprenticeship program(s).
The Treasury Department and the IRS also requested comments on how
the proposed Good Faith Effort Exception would align with current
practices with respect to use of apprentices in the construction,
alteration, or repair of facilities. In particular, the Treasury
Department and the IRS requested comments on the role of collective
bargaining agreements, PLAs, and other agreements to satisfy the
request for apprentices under the Good Faith Effort Exception. The
following sections summarize the comments received. The final
regulations provide further guidance regarding the Good Faith Effort
Exception and revise the Proposed Regulations in response to the
comments received.
a. Content and Scope of a Request
The Proposed Regulations would have required that a request for
qualified apprentices must include the proposed dates of employment,
occupation of apprentices needed, location of the work to be performed,
number of apprentices needed, the expected number of labor hours to be
performed by the apprentices, and the name and contact information of
the taxpayer, contractor, or subcontractor requesting employment of
apprentices from the registered apprenticeship program. The Proposed
Regulations would have also required that the request state that the
request for qualified apprentices is made with an intent to employ
apprentices in the occupation for which they are being trained and in
accordance with the requirements and standards of the registered
apprenticeship program.
Several commenters requested that the final regulations further
clarify what information must be included in the request for qualified
apprentices for purposes of the Good Faith Effort Exception. At least
one commenter asked whether the request could estimate the dates of
employment and the number of qualified apprentices needed. Commenters
suggested that the final regulations require requests to explain the
need for qualified apprentices and provide the exact number of
qualified apprentices needed. Other commenters specifically asked that
the request be required to include the name and contact information of
the entity that will employ the qualified apprentices.
The final regulations retain the proposed rule requiring taxpayers,
contractors, and subcontractors to include specific and detailed
information concerning the qualified apprentices that are requested and
the work to be performed with certain revisions to provide greater
clarity for taxpayers and to strengthen the Good Faith Effort
Exception. The final regulations further require that a request must
identify who will employ the qualified apprentices. The Treasury
Department and the IRS understand that requests for qualified
apprentices will be based on projections or estimates of the work to be
performed including the duration of the work and the number of hours.
Nonetheless, the estimates must be consistent with the requester's
intent to employ the qualified apprentices. Accordingly, the final
regulations provide that requests may include reasonable estimates, and
also require that the request include a statement of intent to employ
qualified apprentices consistent with the hours and dates of employment
included in the request.
The Treasury Department and the IRS are aware of the concerns about
potential abuse of the Good Faith Effort Exception. Taxpayers,
contractors, and subcontractors should be mindful that requests that
lack specific details of employment or do not reflect reasonable
estimates will not be considered valid requests under the final
regulations. Consistent with the general rule in Sec. 1.45-12 that
taxpayers must maintain and preserve records sufficient to demonstrate
compliance with the applicable PWA requirements, taxpayers need to keep
records demonstrating the estimates included in the request were
reasonable, such as projected and actual labor needs (both for
journeyworkers and qualified apprentices) during the construction of
the qualified facility, and any factors impacting those needs, such as
apprentice utilization plans or contract requirements, as applicable.
b. Required Format of a Request
Commenters recommended that the final regulations require taxpayers
to make requests for qualified apprentices in writing and by telephone.
Commenters argued that adding the requirement to contact registered
apprenticeship programs by telephone would ensure taxpayers,
contractors, and subcontractors use forms of communication that are
reasonably calculated to properly and timely notify registered
apprenticeship programs of their requests.
The Treasury Department and the IRS recognize that some taxpayers,
contractors, and subcontractors have ongoing relationships with
registered apprenticeship programs and may request qualified
apprentices from the program informally, such as by telephone. However,
in administering the Good Faith Effort Exception the IRS needs to be
able to verify and evaluate the request for qualified apprentices,
including if the request was received by the registered apprenticeship
program and whether the request included the necessary details to be
considered a valid request. Accordingly, the final regulations retain
the rule that a request to a registered apprenticeship program must be
a written request, sent electronically or by registered mail, for
purposes of the Good Faith Effort Exception. Taxpayers, contractors, or
subcontractors are permitted and encouraged to contact registered
apprenticeship programs in writing and by telephone, but in order to
satisfy the Good Faith Effort Exception, the request must be in
writing.
c. Required Recipients of a Request
A commenter stated that many employers who are signatories to
collective bargaining agreements with building trades labor unions
request qualified apprentices from the labor union and not from a
registered apprenticeship program. The commenters indicated that this
is the common practice because the labor union will have a list of
qualified
[[Page 53230]]
apprentices who will be dispatched to the employer's job site. The
commenter suggested the final regulations revise the Good Faith Effort
Exception to reflect this practice. The Treasury Department and the IRS
understand that this practice may occur; however, section
45(b)(8)(D)(ii) provides that requests for qualified apprentices must
be made to a registered apprenticeship program. Accordingly, the
Treasury Department and the IRS decline to amend the Good Faith Effort
Exception to allow this alternative procedure.
The Proposed Regulations would have provided that in order to
qualify for the Good Faith Effort Exception, taxpayers, contractors, or
subcontractors must submit a written request for qualified apprentices
to at least one registered apprenticeship program, which has a
geographic area of operation that includes the location of the
facility, or to a registered apprenticeship program that can reasonably
be expected to provide apprentices to the location of the facility. In
the preamble to the Proposed Regulations, the Treasury Department and
the IRS explained that although a taxpayer only needs to submit a
request to one registered apprenticeship program, depending on the size
of the facility and the likelihood of multiple occupations involved in
the construction of the facility, a taxpayer may need to submit a
request to more than one apprenticeship program in order to meet the
Good Faith Effort Exception.
Several commenters suggested that the final regulations require
taxpayers to request qualified apprentices from all available
registered apprenticeship programs. Other commenters requested the
final regulations retain the requirement to contact at least one
available registered apprenticeship program in order to meet the Good
Faith Effort Exception. Given that the statute does not impose this
requirement, it would be unreasonable to require taxpayers to contact
all possible apprenticeship programs. The final regulations adopt the
proposed rule without change. In order to qualify for the Good Faith
Effort Exception, taxpayers, contractors, or subcontractors must submit
a written request for qualified apprentices to at least one registered
apprenticeship program. The Good Faith Effort Exception is limited to
the number of qualified apprentice labor hours that are requested as
part of a valid request for qualified apprentices.
A commenter requested that the final regulations clarify that
taxpayers are not required to request apprentices from the same
geographic area as the project. The final regulations do not require
taxpayers to use qualified apprentices from a program located in the
same geographic area as the project to meet the Labor Hours
Requirement. Taxpayers, contractors, or subcontractors have the
flexibility to request and use qualified apprentices from any location
so long as the apprentices are part of a registered apprenticeship
program. However, as provided herein, in order to qualify for the Good
Faith Effort Exception, taxpayers are required to request qualified
apprentices from at least one apprenticeship program with a geographic
area of operation that includes the geographic location of the
facility.
Commenters requested additional guidance regarding how to determine
those apprenticeship programs that would reasonably be expected to
provide apprentices to the location of a facility. Some commenters
suggested making this requirement less ambiguous by requiring
taxpayers, contractors, and subcontractors to contact all registered
apprenticeship programs within a certain distance from the project
location. One commenter suggested that taxpayers should be required to
accept apprentices from a ``sister'' program either from within the
same State or from one or more States adjacent to the State in which
the construction is occurring. Other commenters recommended being able
to unconditionally use local registered apprenticeship programs. A
commenter also recommended clarifying the expectations for nonunion
contractors to use apprentices from union-affiliated programs if
nonunion programs are not locally available.
The Treasury Department and the IRS agree that additional
clarification is needed on which registered apprenticeship program must
be contacted to satisfy the Good Faith Effort Exception. The proposed
rule was intended to require sending the request to a registered
apprenticeship program that would ordinarily provide apprentices to the
area where the facility is located. The Treasury Department and the IRS
have determined that this prerequisite is sufficiently addressed in the
requirement that the registered apprenticeship program have a
geographic area of operation that includes the location of the
facility, because those registered apprenticeship programs can
reasonably be expected to provide apprentices to the area where the
facility is located. Accordingly, the proposed requirement to contact a
registered apprenticeship program that can reasonably be expected to
provide apprentices to the location of the facility is not retained in
the final regulations. The final regulations clarify that the
geographic area of operation of a registered apprenticeship program has
the same meaning as geographic area and locality for purposes of the
Prevailing Wage Requirements. In most cases, this will mean that the
registered apprenticeship program operates in the county, independent
city, or other civil subdivision of the State in which the facility is
located, regardless of where the registered apprenticeship program is
physically located.
Commenters requested guidance with respect to the application of
the Good Faith Effort Exception if there is no registered
apprenticeship program with a geographic area of operation that
includes the location of the facility or that can be reasonably
expected to provide apprentices to a project. A commenter also
requested guidance in situations in which certain trades lacked
qualified apprentices either locally or nationally. Commenters also
requested clarification on how to determine that there are no
registered apprenticeship programs in the geographic area or that can
be reasonably expected to provide apprentices to a project. Other
commenters recommended requiring taxpayers, contractors, or
subcontractors to seek assistance from the DOL OA or State
apprenticeship agency if the taxpayer is having trouble locating a
registered apprenticeship program with a geographic area of operation
that includes the location of the facility in order to qualify for the
Good Faith Effort Exception.
Although the Treasury Department and the IRS expect this situation
to be rare, the final regulations address the application of the Good
Faith Effort Exception in the absence of a registered apprenticeship
program with an area of operation that includes the location of the
facility. The final regulations provide that if there is no registered
apprenticeship program with a geographic area of operation that
includes the location of the facility, taxpayers will be deemed to
satisfy the Good Faith Effort Exception for the apprentices they (or
the contractor or subcontractor) would have requested for that
occupation.
Taxpayers, contractors, and subcontractors should keep records
sufficient to substantiate that there are no existing registered
apprenticeship programs with a geographic area of operation that
includes the facility at the time the request would have been made, as
well as documentation of the requests for apprentices that would have
been made, including the specific work
[[Page 53231]]
and hours that would have been performed by the apprentices if a
registered apprenticeship program were available. Taxpayers are also
able, but not required for the purposes of the Good Faith Effort
Exception, to create their own registered apprenticeship programs.
Because registered apprenticeship programs can operate across State
and county lines, determining that a registered apprenticeship program
does not have a geographic area of operation that includes the location
of the facility may necessitate contacting the registered
apprenticeship program to determine its geographic area of operation.
Taxpayers should also consider contacting the DOL OA or relevant State
apprenticeship agency for assistance in locating registered
apprenticeship programs and documenting that no registered
apprenticeship programs are available. Examples of evidence that no
registered apprenticeship programs were available could include written
confirmation from registered apprenticeship programs that they do not
have a geographic area of operation that includes the location of the
facility or confirmation from the DOL OA or the relevant State
apprenticeship agency that there are no existing registered
apprenticeship programs with a geographic area of operation that
includes the facility.
Commenters also requested guidance on how a taxpayer, contractor,
or subcontractor who sponsors its own registered apprenticeship program
and employs qualified apprentices would qualify for the Good Faith
Effort Exception. The final regulations clarify that if a taxpayer,
contractor, or subcontractor is a registered apprenticeship program
sponsor and there are no available qualified apprentices in the
registered apprenticeship program sponsored by the taxpayer,
contractor, or subcontractor, the taxpayer, contractor, or
subcontractor may qualify for the Good Faith Effort Exception by
demonstrating that it made a request to another registered
apprenticeship program (and such request was denied or not responded to
within five business days) or by establishing that there are no other
registered apprenticeship programs with an area of operation that
includes the location of the facility.
One commenter stated that it is customary for some employers who
are signatories to collective bargaining agreements to hire qualified
apprentices through the union instead of by contacting a registered
apprenticeship program. The commenter requested the final rule clarify
that this practice is permissible. The final regulations do not adopt
this suggestion. The Treasury Department and the IRS recognize that an
employer may not directly contact a registered apprenticeship program
for qualified apprentices if the employer is a signatory to a
collective bargaining agreement with a labor organization. However, for
purposes of satisfying the Good Faith Effort Exception, the taxpayer
must have requested qualified apprentices from a registered
apprenticeship program and not a labor organization.
In the preamble to the Proposed Regulations, the Treasury
Department and the IRS requested comments on whether and how the
proposed Good Faith Effort Exception might take into account a
situation in which a taxpayer contacts the DOL OA or the appropriate
State apprenticeship agency regarding their apprenticeship request, in
addition to contacting a specific registered apprenticeship program or
programs. Some commenters requested that the final regulations clarify
that a taxpayer's outreach to the DOL OA or a State apprenticeship
agency has no bearing on whether a taxpayer qualifies for a Good Faith
Effort Exception. The Treasury Department and the IRS have determined
that taxpayers, contractors, or subcontractors are not required to
contact the DOL OA or State apprenticeship agency to satisfy the Good
Faith Effort Exception. However, as noted previously, it is recommended
that taxpayers, contractors, and subcontractors contact the DOL OA or a
State apprenticeship agency if they have difficulty locating a
registered apprenticeship program. Additionally, the final regulations
provide that evidence that the taxpayer, contractor, or subcontractor
contacted the DOL OA or a State apprenticeship agency for assistance
will be considered in determining whether taxpayers, contractors, or
subcontractors acted with intentional disregard if the Good Faith
Effort Exception does not apply.
d. Timing of a Request
Commenters asked that the final regulations clarify when a request
must be made in order to satisfy the Good Faith Effort Exception.
Several commenters recommended that requests should be made within a
certain time before the requested qualified apprentices are needed.
Some commenters indicated that in the absence of a temporal
requirement, some taxpayers, contractors, or subcontractors may make
last-minute requests for qualified apprentices. The commenters asserted
that it may be very difficult or impossible for a registered
apprenticeship program to respond to a request for qualified
apprentices without adequate time to staff the request. Some commenters
suggested that there may be a loophole allowing for the application of
the Good Faith Effort Exception in situations in which it was not
intended to apply if the final regulations do not impose a temporal
requirement. Commenters proposed time periods that ranged from five
days before qualified apprentices are needed (if a taxpayer,
contractor, or subcontractor has a pre-existing relationship with the
registered apprenticeship program) to 90 days before qualified
apprentices are needed in the absence of a pre-existing relationship.
Several commenters suggested that requests should be required 10 to 14
days before qualified apprentices are expected to start work on the
project.
The DOL OA has indicated that typical apprenticeship cycles in
construction involve at least 2,000 hours of on-the-job training and at
least 144 hours of related instruction for each year of the
apprenticeship program. According to the DOL OA, registered
apprenticeship programs in the construction industry typically hire
qualified apprentices in cohorts, and advance notice is needed to allow
the registered apprenticeship program adequate time to supply the
requested qualified apprentices within the timeframe needed.
The Treasury Department and the IRS agree that in order to satisfy
the Good Faith Effort Exception, the initial request for qualified
apprentices must be made with enough advance notice to allow registered
apprenticeship programs time to respond. The Treasury Department and
the IRS also recognize that given the nature of construction projects,
and the desire to complete projects on time, a shorter timeframe may be
appropriate for any subsequent requests once construction is underway.
Accordingly, the final regulations require that taxpayers, contractors,
and subcontractors must make an initial request for qualified
apprentice(s) from a registered apprenticeship program at least 45 days
before the qualified apprentice is requested to begin work on the
facility so that registered apprenticeship programs have adequate time
to plan for the anticipated need. The final regulations also clarify
that to satisfy the Good Faith Effort Exception, any subsequent
requests to the same registered apprenticeship program must be made no
later than 14 days before qualified apprentices are requested to begin
work on the facility.
[[Page 53232]]
The Treasury Department and the IRS received numerous comments
regarding the 120-day period for which the denial or nonresponse of a
request for qualified apprentices is considered to satisfy the Good
Faith Effort Exception and the requirement for taxpayers to submit
additional requests for qualified apprentices to continue to satisfy
the Good Faith Effort Exception at the end of the 120-day period. Some
commenters suggested eliminating the requirement to submit additional
requests or extending the time before an additional request needs to be
made from 120 days to one year, noting that the 120-day period could be
impractical or burdensome, create uncertainty, and that it might not
increase the hiring of qualified apprentices. Several commenters
asserted that the 120-day period and the requirement to submit
additional requests lacked a statutory basis, because the statutory
text of the Good Faith Effort Exception in section 45(b)(8)(D) does not
prescribe or mention any 120-day period and does not require any
renewal by the taxpayer of its request for a qualified apprentice in
order to be deemed to satisfy the Apprenticeship Requirements. Other
commenters suggested that the 120-day period be shortened to better
align with project timelines for subcontractors who typically conclude
their work on a project well within the 120-day window.
Commenters also asked that the final regulations clarify if
subsequent requests have to be made to the same registered
apprenticeship program and if there is a limit on the number of times
an additional request needed to be made in order to satisfy the Good
Faith Effort Exception. Additionally, a commenter suggested that the
final regulations require follow-up requests for qualified apprentices
to include the names of any registered apprenticeship programs the
taxpayer previously contacted for qualified apprentices. Commenters
also asked whether the Labor Hours Requirement applied if taxpayers,
contractors, or subcontractors met the Good Faith Effort Exception for
120 days, and subsequently obtained qualified apprentices in response
to an additional request made after the expiration of the 120-day
period. If the Labor Hours Requirement applied in this scenario, the
commenter requested guidance on how to determine if a taxpayer
satisfied the Labor Hours Requirement under these circumstances.
The Treasury Department and the IRS agree with the comments
indicating that the 120-day period introduces unnecessary uncertainty
with respect to labor supply and costs. A request that is initially
denied for lack of available qualified apprentices that is later
accepted pursuant to a renewed request after only 120 days could
disrupt staffing decisions. Moreover, the Treasury Department and the
IRS acknowledge that a requirement to submit additional requests after
120 days could increase burdens in cases in which businesses may not
have the staff or staffing flexibility to comply with a requirement for
multiple, ongoing requests. However, the Treasury Department and the
IRS also recognize the value in prescribing the duration of requests to
prevent the Good Faith Effort Exception from allowing the
Apprenticeship Requirements to be avoided in their entirety if
qualified apprentices will likely be available for work at some time
during the lifespan of a construction project as the supply adjusts to
demands.
Based on the comments received and in consultation with the DOL,
the Treasury Department and the IRS have determined that the maximum
duration of a request for qualified apprentices is 365 days (366 days
in case of a leap year). The final regulations have been revised to
provide that taxpayers must submit additional requests 365 days (366
days in case of a leap year) after the denial of a previous request to
continue to satisfy the Good Faith Effort Exception. The final
regulations also clarify that the annual duration applies if a
taxpayer, contractor, or subcontractor is not able to locate a
registered apprenticeship program with an area of operation that
includes the location of the facility.
Extending the maximum duration of requests for qualified
apprentices to an annual period will allow employers sufficient time to
assess future work needs appropriate for qualified apprentices without
causing uncertainty for existing staff and unexpected costs that might
otherwise result if requests were required on a more frequent basis. It
also allows sufficient time for the supply of qualified apprentices to
adjust to the construction demands of the location of the facility
through the registration of new apprenticeship programs and recruitment
of qualified apprentices into those programs. The final regulations
retain the rule that requests for purposes of the Good Faith Effort
Exception must be specific as to the dates of employment and the
expected number of hours the qualified apprentices are needed with the
intent to employ the qualified apprentices consistent with the request.
Taxpayers, contractors, or subcontractors making general requests that
lack an intent to employ the qualified apprentices consistent with the
request would not satisfy the Good Faith Effort Exception. The final
regulations also clarify that requests for qualified apprentices do not
need to be made to the same registered apprenticeship program that
received and denied an earlier request.
The final regulations also include an example in response to the
request for clarification on how the Labor Hours Requirement applies if
a taxpayer satisfies the Good Faith Effort Exception for one 365-day
period (or 366-day period in the case of a leap year), and then obtains
qualified apprentices in response to an additional request for
qualified apprentices that is made later.
e. Definition of a Response
The Proposed Regulations would have provided that an
acknowledgement, whether in writing or otherwise by a registered
apprenticeship program, of receipt of the request is a sufficient
response for purposes of the Good Faith Effort Exception. Several
commenters requested that the final regulations modify this proposed
requirement and provide that open-ended and non-substantive replies do
not constitute a response for purposes of satisfying the Good Faith
Effort Exception. Commenters were concerned that if a non-substantive
acknowledgement is treated as a response, taxpayers could be foreclosed
from relying on the Good Faith Effort Exception and be unable to
satisfy the Apprenticeship Requirements despite legitimate attempts to
do so. They also stated that the proposed rule could lead to
uncertainty for taxpayers and indefinitely delay construction while
taxpayers attempt to comply with the Apprenticeship Requirements.
Another commenter requested that the final regulations require the
acknowledgment to be in writing, consistent with the requirement that
the request must be in writing.
The Treasury Department and the IRS agree with the concerns raised
by the commenters. Accordingly, the final regulations provide that a
response is a substantive written reply that agrees, in part or in
whole, to the specific requirements in the taxpayer's, contractor's, or
subcontractor's request. Automated or other non-substantive responses
or acknowledgments are not responses for purposes of the Good Faith
Effort Exception.
One commenter suggested the final regulations clarify that if a
program replies with a non-substantive response, the taxpayer is not
required to follow up with the registered apprenticeship program for a
more specific response. The Treasury Department and the IRS
[[Page 53233]]
agree that additional guidance is needed on the procedures after a
taxpayer, contractor, or subcontractor makes an initial request to a
registered apprenticeship program. The final regulations clarify that,
for purposes of the Good Faith Effort Exception and subject to the
annual duration of a request, a taxpayer, contractor, or subcontractor
does not need to follow up with the registered apprenticeship program
after an initial request is made or after receipt of a non-substantive
response.
Although follow-up requests are not required for purposes of the
Good Faith Effort Exception, the Treasury Department and the IRS
encourage taxpayers, contractors, and subcontractors to regularly
follow up with registered apprenticeship programs regarding requests
for qualified apprentices, and the final regulations clarify that
evidence that this occurred is a factor the IRS will consider in
determining whether there is intentional disregard of the
Apprenticeship Requirements if the Good Faith Effort Exception does not
apply.
f. Denial of a Request
The Proposed Regulations would have provided that a denial of a
request means that the registered apprenticeship program denied the
request in its entirety. The Proposed Regulations would have further
provided that a registered apprenticeship program's response that it
could partially fulfill a request in the occupation(s) for which it
trains apprentices would not constitute a denial of the request with
respect to the parts of the request that could be fulfilled. Commenters
suggested that the final regulations require taxpayers to accept all
qualified apprentices offered by a registered apprenticeship program,
even if a registered apprenticeship program is only partially able to
meet a request. The final regulations clarify that partial denials may
also serve as a valid basis for the Good Faith Effort Exception with
respect to the portion denied, provided that the taxpayer, contractor,
or subcontractor hires the qualified apprentices that are available for
the construction as provided by the registered apprenticeship program
in its response. The final regulations also clarify through an example
that a denial that follows an initial acceptance and is received prior
to the start of the requested work (for example, if a registered
apprenticeship program indicates it can provide qualified apprentices
to a project and is subsequently unable to fulfill the request) may
also serve as a valid basis for the Good Faith Effort Exception.
Commenters also asked if the Labor Hours Requirement is
proportionately reduced in the event of a partial denial. The Treasury
Department and the IRS understand the need for clarification on the
interaction between the Labor Hours Requirement and the Good Faith
Effort Exception. An example in proposed Sec. 1.45-8(e)(1)(ii)(F)
illustrates that if a request is partially denied, the part of the
request that was denied would qualify for the Good Faith Effort
Exception. As proposed, the example would have stated the number of
qualified apprentice labor hours that would qualify for the Good Faith
Effort Exception, but it did not clearly indicate how these hours are
treated. The final regulations contain a revised example clarifying
that there is no proportionate reduction of the Labor Hours
Requirement. Instead, the qualified apprentice labor hours that qualify
for the Good Faith Effort Exception are treated as labor hours
performed by qualified apprentices.
Commenters requested that the final regulations clarify how to
determine the date on which a registered apprenticeship program
received a request for purposes of the Good Faith Effort Exception. One
commenter suggested that the date of receipt should be determined by a
proof of receipt from a delivery service. As explained in Section
VIII.B.1.b. of this Summary of Comments and Explanation of Revisions,
for purposes of the Good Faith Effort Exception, requests for qualified
apprentices must be in writing and sent electronically or by registered
mail. The final regulations provide that date of receipt of the request
is the date an email request is sent to the registered apprenticeship
program, or the date of delivery shown on a receipt from the registered
mail delivery.
Under section 45(b)(8)(D)(ii)(I), in order to satisfy the Good
Faith Effort Exception, a denial of a request for qualified apprentices
cannot be ``the result of a refusal by the taxpayer or any contractors
or subcontractors engaged in the performance of construction,
alteration or repair work with respect to such qualified facility to
comply with the established standards and requirements of the
registered apprenticeship program.'' The Proposed Regulations
reiterated this requirement. The preamble to the Proposed Regulations
provided further that ``if a registered apprenticeship program requires
a requesting employer to enter into an agreement with the registered
apprenticeship program, then a denial of the request because the
employer refused to enter into the agreement would not be a valid
denial for purposes of the Good Faith Effort Exception.''
A few commenters requested that the final regulations confirm that
the established standards and requirements of the registered
apprenticeship program refer to those requirements included in the DOL
Apprenticeship Standards. Commenters asserted that requiring taxpayers
to comply with requirements other than those necessary to comply with
the DOL Apprenticeship Standards would unfairly restrict a taxpayer's
ability to negotiate contract terms with a registered apprenticeship
program. Some commenters were also concerned that the proposed rule
would require taxpayers, contractors, and subcontractors who are not
parties to collective bargaining agreements or PLAs to enter into these
agreements in order to comply with a union registered apprenticeship
program's standards and requirements. Commenters stated that non-union
contractors generally do not employ qualified apprentices enrolled in
union sponsored registered apprenticeship programs, and they requested
confirmation that this rule would not require them to do so. A
commenter also requested guidance concerning what remedies are
available to taxpayers if there is a conflict between standards imposed
by an apprenticeship program registered by the DOL OA and an
apprenticeship program registered by a State apprenticeship agency. The
commenter requested clarification that taxpayers may choose to request
and employ qualified apprentices from either registered apprenticeship
program.
The Treasury Department and the IRS agree that the final
regulations should further clarify what established standards and
requirements means. Under section 45(b)(8)(D)(ii) the denial cannot be
a result of a failure to comply with the ``established standards and
requirements'' of a registered apprenticeship program (as defined in
section 3131(e)(3)(B)). Section 3131(e)(3)(B) requires a registered
apprenticeship program to satisfy the DOL Apprenticeship Standards.
Section 29.5 of the current DOL Apprenticeship Standards provides
the standards of apprenticeship that an apprenticeship program must
satisfy to be eligible for approval and registration by the DOL OA or a
State apprenticeship agency.\35\ Under 29 CFR 29.5(a), the
apprenticeship program must have ``an organized, written plan
[[Page 53234]]
(program standards) embodying the terms and conditions of employment,
training, and supervision of one or more apprentices in an
apprenticeable occupation, as defined in this part, and subscribed to
by a sponsor who has undertaken to carry out the apprentice training
program.'' Section 29.5(b) lists 23 different provisions that the
program standards must address, including the employment and training
of the apprentice, the term of apprenticeship and the minimum
qualifications required by a sponsor for persons entering the
apprenticeship program. The Treasury Department and the IRS have
determined that the use of the phrase ``established standards'' in
section 45(b)(8)(D)(ii)(l) of the Code should be construed as a
reference to the DOL Apprenticeship Standards referenced by section
3131(e)(3)(B) of the Code and contained in 29 CFR parts 29 and 30.
Based on consultation with the DOL OA, the Treasury Department and the
IRS understand that the DOL also refers to the established standards as
the DOL Apprenticeship Standards that are applicable to--and required
of--all employers who wish to join the registered apprenticeship
program for the purpose of employing apprentices.
---------------------------------------------------------------------------
\35\ On January 17, 2024, the DOL released an NPRM proposing to
update the DOL Apprenticeship Standards contained in 29 CFR part 29.
See 89 FR 3118.
---------------------------------------------------------------------------
However, Congress's use of the phrase ``established standards and
requirements'' captures more than the DOL Apprenticeship Standards. In
order to give meaning to the words ``and requirements,'' terms and
conditions beyond those contained in the DOL Apprenticeship Standards
(those that are necessary for DOL approval) must not be rejected by
taxpayers, contractors, and subcontractors for purposes of the Good
Faith Effort Exception. Whether additional requirements may be imposed
by the registered apprenticeship program will depend, in part, on what
the DOL allows the registered apprenticeship program to require. The
DOL is the agency responsible for regulating registered apprenticeship
programs, and the DOL determines the permissible standards and
requirements of a registered apprenticeship program. The DOL OA has
indicated it is important for efficient oversight and administration of
registered apprenticeship programs that these programs not be required
to establish separate standards and requirements for the purposes of
the IRA.
The Treasury Department and the IRS appreciate the importance of
the DOL's management of the registered apprenticeship program and the
DOL's well-established understanding of what constitutes established
standards and requirements for the registered apprenticeship programs
that the DOL is responsible for overseeing and approving. Based on
consultation with the DOL OA, the Treasury Department and the IRS also
understand that registered apprenticeship programs are expected to
provide prospective employers with the program's established standards
and requirements, including those reviewed by the DOL or the State
apprenticeship agency.
The Treasury department and the IRS have determined that the final
regulations must interpret the statutory language in a way that gives
meaning to the entire phrase, and also appropriately recognize
procedures implemented by the DOL OA. Accordingly, the final
regulations provide that the requirements referenced as part of the
established standards and requirements are those additional
requirements that are established by the registered apprenticeship
program for the placement of apprentices, applicable to all employers
participating in the registered apprenticeship program, and not found
by the DOL OA or a State apprenticeship agency to be contrary to the
DOL guidance regarding the administration of registered apprenticeship
programs.
Consistent with this explanation and in response to comments, the
final regulations revise the proposed rule with respect to the
established standards and requirements that must not be rejected by
taxpayers, contractors, or subcontractors for purposes of satisfying
the Good Faith Effort Exception. For example, if a registered
apprenticeship program requires all employers who request qualified
apprentices to enter into an agreement with the registered
apprenticeship program, sign a collective bargaining agreement, and pay
user fees, and these requirements have not been found by the DOL OA or
a State apprenticeship agency to be contrary to DOL guidance regarding
the administration of registered apprenticeship programs, then a denial
of the request because the employer refused to enter into the
agreement, sign the collective bargaining agreement, or pay the user
fees would not qualify as a valid denial for purposes of the Good Faith
Effort Exception. In order to substantiate the Good Faith Effort
Exception, a taxpayer will be expected to document that a denial of a
request was not because of the taxpayer's refusal to comply with the
established standards and requirements of the registered apprenticeship
program.
Taxpayers, contractors, and subcontractors also retain the ability
to contact other registered apprenticeship programs that do not have
similar requirements in an effort to satisfy the Apprenticeship
Requirements or the Good Faith Effort Exception. Because of the
requirement that taxpayers, contractors, and subcontractors contact
registered apprenticeship programs with a geographic area of operation
that includes the location of the facility, the Treasury Department and
the IRS do not anticipate that the established standards and
requirements of the registered apprenticeship program will conflict
with those required by State law. In the unlikely event that they do,
the taxpayer, contractor, or subcontractor should contact the DOL OA
for assistance.
g. Other Good Faith Effort Exception Issues
A commenter asked the Treasury Department and the IRS to consider
limiting the number of Good Faith Effort Exceptions available per trade
to encourage taxpayers to individually sponsor new registered
apprenticeship programs. The Treasury Department and the IRS
acknowledge that there is interest in developing new registered
apprenticeship programs to meet the anticipated need for additional
qualified apprentices. The final regulations already impose some limits
on the Good Faith Effort Exception through the requirement to submit
additional requests following the denial of a request and other
requirements relating to the required contents and scope of a request.
The final regulations do not otherwise impose a limit on the
availability of using the Good Faith Effort Exception.
Under section 45(b)(8)(D)(ii), to satisfy the Good Faith Effort
Exception, requests must be made for qualified apprentices from a
registered apprenticeship program as defined in section 3131(e)(3)(B).
One commenter was concerned that employers would fund apprenticeship
programs and request qualified apprentices from those programs in an
effort to manufacture denials. To reduce abuse of the Good Faith Effort
Exception, the commenter recommended requiring apprenticeship requests
to be sent only to registered programs with a prior record of operation
and prior record of meeting certain graduation rates. A few other
commenters were concerned with the proliferation of new registered
apprenticeship programs that are registered with the DOL but do not
provide training to a meaningful number of workers.
As discussed in Section VIII.B.1.c., the final regulations clarify
that a taxpayer cannot satisfy the Good Faith
[[Page 53235]]
Effort Exception through a denial from a registered apprenticeship
program it sponsors. If the program sponsored by the taxpayer has no
available qualified apprentices, the taxpayer must contact other
registered apprenticeship programs for qualified apprentices to satisfy
the Apprenticeship Requirements or the Good Faith Effort Exception.
Additionally, while the Treasury Department and the IRS recognize that
there are concerns that the Good Faith Effort Exception may be abused,
the statute requires requests of qualified apprentices from registered
apprenticeship programs. Registered apprenticeship programs are
registered by the DOL OA or a recognized State apprenticeship agency,
pursuant to the standards in 29 CFR parts 29 and 30. As indicated in
Section II.D.1. of this Background, the DOL is responsible for
regulating the registered apprenticeship programs, and the extent to
which operational history, graduation rates, and training are relevant
to registration is more appropriate for the DOL to determine. Comments
suggesting that the final regulations impose requirements on registered
apprenticeship programs beyond those required by the DOL are outside
the scope of these final regulations and are not adopted.\36\
---------------------------------------------------------------------------
\36\ Under 29 CFR 29.5(a), registered apprenticeship programs
must have an organized, written plan embodying the terms and
conditions of employment, training, and supervision of one or more
apprentices in an apprenticeable occupation, as defined in 29 CFR
part 29, and subscribed to by a sponsor who has undertaken to carry
out the apprentice training program. Additionally, under 29 CFR
29.5(b)(3), a registered apprenticeship program's program standards
must contain provisions that outline the work process in which the
apprentice will receive supervised work experience and training on
the job. Accordingly, taxpayers are required to make requests to
programs that provide meaningful training to qualified apprentices.
The DOL's proposed 29 CFR 29.8(a) provides that each registered
apprenticeship program must have a written set of standards of
apprenticeship that will govern the conduct and operation of that
program. 89 FR 3118, 3278.
---------------------------------------------------------------------------
Another commenter suggested that taxpayers make requests solely to
the DOL registered apprenticeship programs. Under 45(b)(8)(D)(ii), to
qualify for the Good Faith Effort Exception, a taxpayer is required to
make a request for a qualified apprentice from a registered
apprenticeship program, as defined in section 3131(e)(3)(B). Under
3131(e)(3)(B), a registered apprenticeship program means an
apprenticeship registered under the Act of August 16, 1937 (commonly
known as the National Apprenticeship Act; 50 Stat. 664, chapter 663; 29
U.S.C. 50 et seq.) that meets the standards of subpart A of part 29 and
part 30 of title 29, Code of Federal Regulations.
29 CFR 29.3(a) provides that eligibility for registration of an
apprenticeship program is conditioned upon a program's conformity with
the apprenticeship program standards of 29 CFR part 29. For a program
to be determined by the DOL as conforming with the standards under 29
CFR part 29, the program must apply for registration and be registered
with the DOL OA or with a State apprenticeship agency recognized by the
DOL OA. 29 CFR 29.2 defines a State apprenticeship agency to mean an
agency of a State government that has responsibility and accountability
for apprenticeship within the State. 29 CFR 29.2 specifies that only a
State apprenticeship agency may seek recognition by the DOL OA as an
agency that has been properly constituted under an acceptable law or
Executive order, and authorized by the DOL OA to register and oversee
apprenticeship programs. Thus, the final regulations provide that a
request may be made to a registered apprenticeship program that is
either registered by the DOL OA or a State apprenticeship agency.
Regardless of whether the program is registered by the DOL OA or a
State apprenticeship agency, the registered apprenticeship program must
meet the standards of 29 CFR parts 29 and 30.
A commenter recommended expanding the Good Faith Effort Exception
to make allowances for emergency circumstances during which it may not
be practicable or in the public interest to ensure compliance with the
Apprenticeship Requirements, such as during an unexpected outage due to
severe weather or operational issues. The commenter explained that in
these circumstances, companies must be able to restore service quickly
to provide critical fuel supplies.
The Treasury Department and the IRS acknowledge that there may be
circumstances in which it will be impractical to have qualified
apprentices perform work on the qualified facility. However, the
Apprenticeship Requirements do not require qualified apprentices to
work at all times. The Participation Requirement only requires each
taxpayer, contractor, or subcontractor who employs four or more
individuals to perform construction, alteration, or repair work with
respect to the construction of a qualified facility to employ one or
more qualified apprentices to perform such work. The Labor Hours
Requirement only requires taxpayers to ensure that not less than a
certain percentage (10 percent, 12.5 percent, or 15 percent, depending
on the date on which construction began) of total labor hours of the
construction, alteration, or repair work (including such work performed
by any contractor or subcontractor) with respect to such facility, be
performed by qualified apprentices.
In other words, taxpayers have flexibility in satisfying the Labor
Hours Requirement. Additionally, the Apprenticeship Requirements apply
only to the construction of the qualified facility (including
alteration and repair performed during construction), and not to
alteration or repair work conducted after the facility is placed in
service. Because the Apprenticeship Requirements do not apply to the
alteration or repair work after a facility is placed in service and
because the Labor Hours Requirement only requires qualified apprentices
to perform a certain percentage of work, the Treasury Department and
the IRS have determined that the Good Faith Effort Exception does not
need to be expanded to make allowances for emergency circumstances
contemplated by the commenter.
One commenter requested that the Treasury Department and the IRS
grant a Good Faith Effort Exception in situations in which taxpayers
are denied qualified apprentices because States have illegally and
unjustifiably delayed or denied registration of apprenticeship
programs. The Good Faith Effort Exception requires a request to a
registered apprenticeship program. If the apprenticeship program is not
registered, the denial of or nonresponse to that request is irrelevant
for purposes of the Good Faith Effort Exception. The Treasury
Department and the IRS decline to adopt an exception from that rule
based on the reasons an apprenticeship program is denied registration.
Commenters asked for clarification regarding the operation of the
Good Faith Effort Exception for employers that do not participate in
registered apprenticeship programs that share a ``pool'' of qualified
apprentices. The Treasury Department and the IRS are interpreting these
comment letters as referring to group registered apprenticeship
programs, under which the registered apprenticeship program places
qualified apprentices with multiple-employer participants. One
commenter stated that many construction firms typically sponsor an
existing employee's apprenticeship through an association, community-
based, or employer-run registered apprenticeship programs and the
commenter was concerned that the
[[Page 53236]]
Good Faith Effort Exception would not align with those existing
practices.
Section 45(b)(8)(D)(ii) provides that taxpayers are deemed to
satisfy the Apprenticeship Requirements if they have requested
qualified apprentices from a registered apprenticeship program and such
request has been denied or if the registered apprenticeship program
fails to respond within five business days of receiving a request. The
Proposed Regulations would have provided that a taxpayer, contractor,
or subcontractor must submit a written request to at least one
registered apprenticeship program that has a usual and customary
business practice of entering into agreements with employers for the
placement of qualified apprentices in the occupation for which they are
training.
The Treasury Department and the IRS recognize that many contractors
currently sponsor existing employees through registered apprenticeship
programs, and hours worked by those employees may satisfy the
Apprenticeship Requirements, provided all requirements are met.
However, as discussed in Section VII.B.1.c. of this Summary of
Explanations and Revisions, if a taxpayer, contractor, or subcontractor
is a registered apprenticeship program sponsor and there are no
available qualified apprentices in the registered apprenticeship
program sponsored by the taxpayer, contractor, or subcontractor, then
the taxpayer, contractor, or subcontractor may only qualify for the
Good Faith Effort Exception by demonstrating that it made a request to
another registered apprenticeship program (and such request was denied
or not responded to within five business days) or by establishing that
there are no other registered apprenticeship programs with an area of
operation that includes the location of the facility. The final
regulations clarify this requirement.
A commenter asked the Treasury Department and the IRS to consider
requiring the DOL OA or the appropriate State apprenticeship agency
representative to sign off on a taxpayer's satisfaction of the Good
Faith Effort Exception. As discussed in Section V.A. of this Summary of
Comments and Explanation of Revisions, the taxpayer is ultimately
responsible for ensuring compliance with the PWA requirements,
including exceptions to the requirements such as the Good Faith Effort
Exception, and may not rely on other parties, the DOL OA, or State
apprenticeship agencies to certify compliance. Consequently, the final
regulations do not adopt this suggestion. The final regulations provide
that contacting the DOL OA or a State apprenticeship agency for
assistance in locating a registered apprenticeship program may be a
factor for purposes of determining intentional disregard.
A commenter suggested requiring taxpayers relying on the Good Faith
Effort Exception to summarize their good faith efforts as part of their
reporting to the IRS. As an example, the commenter stated that
taxpayers could list the registered apprenticeship programs from which
they requested qualified apprentices, the dates of their requests, and
any reasons that their requests were denied. The final regulations
retain the requirement from the Proposed Regulations that taxpayers
must maintain and preserve sufficient records to demonstrate compliance
with the PWA requirements, and if the taxpayer is relying on the Good
Faith Effort Exception, this includes any written requests for the
employment of qualified apprentices from registered apprenticeship
programs and all correspondence with the registered apprenticeship
program regarding the request, including denials of such requests.
Whether, and to what extent information must be provided to the IRS at
filing will be addressed in IRS forms, instructions, and publications.
Some commenters suggested that to qualify for the Good Faith Effort
Exception, taxpayers, contactors, or subcontractors should develop and
submit apprenticeship utilization plans to the Treasury Department. The
Treasury Department and the IRS decline to include this requirement in
the final regulations because such rules would not further tax
administration and are not required by the statute. While an
apprenticeship utilization plan is not required for the Good Faith
Effort Exception, the existence of a utilization plan may assist
taxpayers in requesting qualified apprentices from a registered
apprenticeship program and the final regulations provide that the
development and use of an apprenticeship utilization plan is a factor
the IRS will consider in determining whether the failure to satisfy the
Apprenticeship Requirements is due to intentional disregard.
2. Apprenticeship Cure Provision
a. General Procedures
Commenters requested additional guidance concerning the
Apprenticeship Cure Provision. Specifically, comments asked if there is
a deadline for the penalty payment provided by section
45(b)(8)(D)(i)(II) to cure any failure to satisfy the Labor Hours
Requirement and Participation Requirement, and whether, for such
penalties, the IRS would issue a final determination consistent with
the Prevailing Wage Requirements, a statutory notice of deficiency, or
other notice to the taxpayer regarding this penalty. The Treasury
Department and the IRS understand the need for clarification regarding
the deadline to make the penalty payment required by the Apprenticeship
Cure Provision.
With respect to failures to pay wages at rates not less than the
prevailing rates, section 45(b)(7)(B)(iv) provides that the taxpayer
must make required correction and penalty payments within 180 days
after a final determination to be eligible for the increased credit
amount. There is no similar statutory requirement in the Apprenticeship
Cure Provision. Further, section 45(b)(7)(B)(ii) provides that
Subchapter B of chapter 63 (relating to deficiency procedures for
income, estate, gift, and certain excise taxes) does not apply with
respect to the assessment or collection of any penalty imposed by
section 45(b)(7) with respect to the Prevailing Wage Requirements.
Section 45(b)(8) does not provide a similar exception to the deficiency
procedures with respect to the Apprenticeship Cure Provision. The final
regulations clarify that there is no specific deadline for payment of
the penalty required by the Apprenticeship Cure Provision. The
deficiency procedures apply to the penalty payments for the failure to
satisfy the Apprenticeship Requirements. Although there is no specific
statutory deadline for payment of the penalty, as discussed in Section
VII.D.3. of this Summary of Comments and Explanation of Revisions, if a
taxpayer makes the necessary penalty payments before the taxpayer
receives notice of an examination from the IRS with respect to a claim
for the increased credit amount under section 45(b)(6), the taxpayer
will be presumed not to have intentionally disregarded the
Apprenticeship Requirements.
At least one commenter suggested clarifying whether the Treasury
Department and the IRS intended to double-count the penalty with
respect to any given labor hour if the taxpayer fails to meet both the
Labor Hours Requirement and Participation Requirement. The Proposed
Regulations would have provided that if a taxpayer fails both the Labor
Hours Requirement and the Participation Requirement the penalty would
equal the sum of the penalty for the failure to meet the Labor Hours
Requirement plus the penalty for failure to meet the Participation
[[Page 53237]]
Requirement. The penalty provision of section 45(b)(8)(D)(i)(II)
provides that the penalty applies to any failure by the taxpayer to
satisfy the Labor Hours Requirement under section 45(b)(8)(A) and the
Participation Requirement under section 45(b)(8)(C). The use of ``any
failure'' reflects a broad scope such that taxpayers may be subject to
penalties for failure to meet the Labor Hours Requirement and the
Participation Requirement with respect to the same facility.
One commenter requested that the Treasury Department and the IRS
exercise discretion to decline to impose penalties for any failure to
satisfy the Participation Requirement with respect to any contractor or
subcontractor that qualifies as a small business under the U.S. Small
Business Administration's guidance. Although the Treasury Department
and the IRS appreciate the concern for small businesses, the
Participation Requirement in section 45(b)(8)(C) applies to each
taxpayer, contractor, or subcontractor who employs four or more
individuals to perform construction, alteration, or repair work with
respect to the construction of a qualified facility. The final
regulations retain the proposed rule consistent with this statutory
language.
b. Intentional Disregard
The Proposed Regulations would have provided that failures to meet
the Apprenticeship Requirements would be due to intentional disregard,
and subject to enhanced penalty amounts, if the failure is knowing or
willful, considering all relevant facts and circumstances. The Proposed
Regulations would have provided a non-exhaustive list of facts and
circumstances that may be relevant to determining whether the failure
was knowing or willful.
In assessing intentional disregard, commenters recommended
considering whether the taxpayer: (i) used and complied with an
apprenticeship utilization plan; (ii) failed to require contractors and
subcontractors to forward to the taxpayer all requests to registered
apprenticeship programs for qualified apprentices within five business
days of when the requests were made; (iii) failed to audit requests to
registered apprenticeship programs for qualified apprentices to ensure
compliance with the labor hours, participation, and ratio obligations
in the Apprenticeship Requirements; and (iv) abided by anti-retaliation
procedures. The Proposed Regulations would have provided that the
failure to meet the Labor Hours Requirement or the Participation
Requirement would be due to intentional disregard if the failure was
knowing or willful. The determination that a failure was knowing or
willful will be made by considering all the relevant facts and
circumstances.
The final regulations provide a non-exhaustive list of facts and
circumstances that may be relevant to determine whether the failure was
knowing or willful. The Treasury Department and the IRS agree that the
following factors are relevant and may be considered in determining
whether a failure was due to intentional disregard: (i) the taxpayer's
use of and compliance with an apprenticeship utilization plan; (ii) the
taxpayer requiring contractors and subcontractors to forward to the
taxpayer requests to registered apprenticeship programs within five
business days of when requests are made; (iii) whether taxpayers
regularly reviewed contractors' and subcontractors' use of qualified
apprentices; and (iv) investigating complaints concerning failures to
comply with the Apprenticeship Requirements and complaints concerning
retaliation. The final regulations incorporate these additional factors
and other clarifying edits consistent with the intentional disregard
factors in Sec. 1.45-7(c)(3) that are applicable to the Prevailing
Wage Requirements. Intentional disregard for purposes of the Prevailing
Wage Requirements is discussed in Section VII.D.3. of this Summary of
Comments and Explanation of Revisions.
A commenter recommended that a taxpayer who is found to have failed
the Good Faith Effort Exception, be presumed to have done so with
intentional disregard. The Good Faith Effort Exception is intended to
provide relief for taxpayers, contractors, and subcontractors who were
unable to employ qualified apprentices despite making valid requests
for qualified apprentices to registered apprenticeship programs. The
failure to qualify for the Good Faith Effort Exception does not create
a presumption of intentional disregard because the intentional
disregard provisions are only relevant if the taxpayer has otherwise
failed to meet the Apprenticeship Requirements. Thus, the Treasury
Department and the IRS decline to adopt the commenter's suggestion.
A commenter suggested that the Treasury Department and the IRS
adopt a presumption that the taxpayer did not act in good faith if a
labor union or representative of a registered apprenticeship program
contacted the taxpayer, contractor, or subcontractor and made them
aware of the apprenticeship requirement and the availability of
qualified apprentices and was ignored. The Treasury Department and the
IRS decline to adopt this recommendation. The Proposed Regulations
would have provided a non-exhaustive list of facts and circumstances
considered to determine whether a failure to satisfy the Apprenticeship
Requirements is due to intentional disregard. If a taxpayer makes a
request for qualified apprentices to a registered apprenticeship
program and the registered apprenticeship program informs the taxpayer
of available qualified apprentices, but the taxpayer does not employ
the available qualified apprentices and fails to satisfy the
Apprenticeship Requirements, then the taxpayer's refusal to employ the
available qualified apprentices could be considered in determining
whether the taxpayer's failure was due to intentional disregard.
However, if labor unions or representatives of registered
apprenticeship programs are reaching out to taxpayers regarding the
Apprenticeship Requirements and the availability of qualified
apprentices and taxpayers ignore these solicitations, taxpayers will
not automatically be deemed to have acted with intentional disregard.
IX. Applying the PWA Provisions for Increased Amounts of Credit and
Deduction Under Other Code Sections
The majority of the comments the Treasury Department and the IRS
received relate to the general application of the PWA requirements
across multiple Code sections, and those comments have been addressed
in Sections I. through VIII. of this Summary of Comments and
Explanation of Revisions. Additional comments that relate solely to
specific Code sections are discussed in this Section IX. of this
Summary of Comments and Explanation of Revisions.
A. Section 30C
Section 30C provides a credit for the cost of any qualified
alternative fuel vehicle refueling property placed in service during
the taxable year. For properties placed in service before January 1,
2023, the credit is equal to 30 percent. For properties placed in
service after December 31, 2022, the credit is equal to 30 percent (6
percent for property of a character subject to depreciation). If a
taxpayer satisfies the PWA requirements in sections 30C(g)(2) and (3)
or meets the BOC Exception with respect to a qualified alternative fuel
vehicle refueling project, then the
[[Page 53238]]
credit determined under section 30C(a) for any qualified alternative
fuel vehicle refueling property of a character subject to an allowance
for depreciation that is part of such project is multiplied by five.
For purposes of the PWA requirements, section 30C(g)(1)(B) defines a
qualified alternative fuel vehicle refueling project as a project
consisting of one or more properties that are part of a single project.
The Prevailing Wage Requirements in section 30C(g)(2)(A) are that the
taxpayer ensure that laborers and mechanics employed by the taxpayer or
any contractor or subcontractor in the construction of any qualified
alternative fuel vehicle refueling property that is part of a qualified
alternative fuel vehicle refueling project are paid wages at rates not
less than prevailing rates. Under section 30(c)(g)(3), rules similar to
the rules in section 45(b)(8) apply regarding the Apprenticeship
Requirements.
Proposed Sec. 1.30C-3(b) would have provided that a qualified
alternative fuel vehicle refueling project would satisfy the PWA
requirements for the increased credit amount if the project either
begins construction prior to January 29, 2023, or meets the Prevailing
Wage Requirements of section 45(b)(7) and proposed Sec. 1.45-7, the
Apprenticeship Requirements of section 45(b)(8) and proposed Sec.
1.45-8, and the recordkeeping and reporting requirements of proposed
Sec. 1.45-12.
Commenters asked whether cross-references in proposed Sec. 1.30C-
3(b)(2) to sections 45(b)(7) and 45(b)(8) meant that PWA requirements
apply to alteration or repair work after a qualified property is placed
in service under section 30C. Commenters asserted that the statutory
text of section 30C(g)(2)(A) limits the PWA requirements only to the
construction of any qualified alternative fuel vehicle refueling
property. Commenters also stated the impracticality of imposing PWA
requirements under section 30C after qualified alternative fuel vehicle
refueling property is placed in service. Commenters emphasized that
alteration or repair work of such property often requires a trained
technician due to the necessary skill sets for both the hardware and
software characteristics of the charging property. Commenters further
stated that requesting and waiting for qualified apprentices in order
to complete alteration or repair work could imperil a taxpayer's
ability to comply with national uptime requirements implemented by the
Department of Transportation through the National Electric Vehicle
Infrastructure program.
Section 30C(g)(2)(A) states that the Prevailing Wage Requirements
apply in the construction of any qualified alternative fuel vehicle
refueling property that is part of a qualified alternative fuel vehicle
refueling project. Nothing in section 30C requires the payment of
prevailing wages with respect to alterations or repairs after the
property is placed in service. By contrast, section 45(b)(7)(A)
provides that the Prevailing Wage Requirements apply in the
construction of a facility and to the alteration and repair of the
facility in the 10-year period after placed in service. The final
regulations clarify that the Prevailing Wage Requirements do not apply
after a section 30C project is placed in service. The applicable scope
of the PWA requirements is explained in Section VI. of this Summary of
Comments and Explanation of Revisions. As explained in Section
VIII.A.1. of this Summary of Comments and Explanation of Revisions, the
Apprenticeship Requirements apply only during the construction of the
qualified alternative fuel vehicle refueling property that is part of a
qualified alternative fuel vehicle refueling project (including
alterations and repairs that occur during construction) and not with
respect to any alteration or repair after a section 30C project is
placed in service. Under the transition rule described in Section II.
of this Summary of Comments and Explanation of Revisions, the PWA
requirements do not apply to any work performed before January 29,
2023.
Another commenter suggested that the Treasury Department and the
IRS consider aligning the implementation of PWA requirements for
section 30C projects with forthcoming guidance on section 30C eligible
census tracts. On January 19, 2024, the Treasury Department and the IRS
issued Notice 2024-20 providing notice of intent to propose regulations
on eligible census tracts under section 30C. Notice 2024-20 does not
address the application of PWA requirements under section 30C. Guidance
concerning eligible census tracts under section 30C is outside the
scope of these final regulations.
B. Section 45L
Section 45L provides a credit for a qualified new energy efficient
home (qualified home) that is constructed by an eligible contractor and
acquired by a person from that eligible contractor for use as a
residence during the taxable year. In the case of a qualifying
residence that meets the Prevailing Wage Requirements, section
45L(g)(1) provides an increased credit amount. The Prevailing Wage
Requirements in section 45L(g)(2)(A) are that the taxpayer must ensure
that laborers and mechanics employed by the taxpayer or any contractor
or subcontractor in the construction of any qualified residence are
paid wages at rates not less than prevailing rates.
Proposed Sec. 1.45L-3(a) would have provided that with respect to
a qualified home, the credit determined under section 45L(a)(2)(B)(i)
is $2,500 and the credit determined under section 45L(a)(2)(B)(ii) is
$5,000 if the qualified home meets the requirements under section
45L(c)(1)(A) or 45L(c)(1)(B), as applicable; is constructed by an
eligible contractor; is acquired by a person for use as a residence
during the taxable year; and satisfies the Prevailing Wage Requirements
of section 45(b)(7) and proposed Sec. 1.45-7, and the recordkeeping
and reporting requirements of proposed Sec. 1.45-12.
One commenter stated that the Proposed Regulations may have
erroneously incorporated the requirement in proposed Sec. 1.45-7(a) to
pay prevailing wages during the 10-year period after a facility is
placed in service and requested that the final regulations specify
whether the PWA requirements apply after a facility is placed in
service.
Section 45L(g)(2)(A) provides that the Prevailing Wage Requirements
apply ``in the construction of such residence.'' Nothing in section 45L
requires the payment of prevailing wages with respect to alterations or
repairs after construction of a qualified residence ends. For the
reasons described in Section IX.A. of this Summary of Comments and
Explanation of Revisions, the final regulations clarify that the
Prevailing Wage Requirements under section 45L do not apply after
construction of a qualified residence ends. The applicable scope of the
Prevailing Wage Requirements is explained in Section VI. of this
Summary of Comments and Explanation of Revisions. Under the transition
rule described in Section II. of this Summary of Comments and
Explanation of Revisions, the Prevailing Wage Requirements do not apply
to any work performed before January 29, 2023.
C. Section 45Q
Section 45Q provides a credit for the capture and sequestration of
qualified carbon oxide using equipment placed in service at a qualified
facility. Section 45Q(h) provides an increased credit amount for
qualified facilities or any carbon capture equipment placed in service
or installed at such facilities that satisfies the PWA requirements.
[[Page 53239]]
Proposed Sec. 1.45Q-6(b)(1) would have provided that to claim the
increased credit amount with respect to a qualified facility the
construction of which begins on or after January 29, 2023, and any
carbon capture equipment placed in service at such facility, the
taxpayer must meet the Prevailing Wage Requirements of section 45(b)(7)
and proposed Sec. 1.45-7 with respect to such facility and equipment,
the Apprenticeship Requirements of section 45(b)(8) and proposed Sec.
1.45-8 with respect to the construction of such facility and equipment,
and the recordkeeping and reporting requirements of proposed Sec.
1.45-12.
Proposed Sec. 1.45Q-6(b)(2) would have provided that to claim the
increased credit amount with respect to any carbon capture equipment
the construction of which begins on or after January 29, 2023, and that
is installed at a qualified facility the construction of which began
prior to such date, the taxpayer must meet the Prevailing Wage
Requirements of section 45(b)(7) and proposed Sec. 1.45-7 with respect
to such equipment, the Apprenticeship Requirements of section 45(b)(8)
and proposed Sec. 1.45-8 with respect to the construction of such
equipment, and the recordkeeping and reporting requirements of proposed
Sec. 1.45-12.
Proposed Sec. 1.45Q-6(b)(3) would have provided that to claim the
increased credit amount a taxpayer does not need to meet the PWA
requirements with respect to the construction of carbon capture
equipment the construction of which begins prior to January 29, 2023,
provided that such equipment is installed at a qualified facility the
construction of which also begins prior to January 29, 2023.
Commenters sought clarification regarding the application of PWA
requirements to construction of a qualified facility the construction
of which begins on or after January 29, 2023. Commenters opined that
section 45Q(h)(2)(A) could be interpreted to apply the PWA requirements
with respect to construction of a facility before it is known or even
expected to be within the definition of a qualified facility.
Commenters argued that this would equate to a retroactive application
of the PWA requirements and may have a negative impact on the
construction of these facilities. Commenters stated that facilities may
be built in 2023, but the decision to construct and install carbon
capture equipment can come later as technologies develop. Commenters
argued that a retroactive application of PWA requirements would put an
end to investment in this area. At least one commenter also contended
that the penalty and cure provisions built into the PWA requirements
would be a far from certain means to secure the increased credit amount
under section 45Q. The commenter stated that construction contracts for
facilities with no plans for carbon capture would have no reason to
require contractors to retain and disclose wage and apprenticeship
information to the taxpayer. Without such information, the taxpayer
would be unable to later determine the applicable correction and
penalty payments.
Section 45Q(h)(2)(A) states that to qualify for the increased
credit amount, the taxpayer must satisfy the PWA requirements with
respect to the construction of any qualified facility the construction
of which begins on or after January 29, 2023, as well as any carbon
capture equipment placed in service at such facility. Under section
45Q(d), a facility may be a qualified facility, even if carbon capture
equipment was not included in its original planning and design, so long
as construction of the facility and carbon capture equipment begins
before January 1, 2033. There is no exception from the PWA requirements
if the construction of the qualified facility begins on or after
January 29, 2023. The commenters' suggestions are not adopted in the
final regulations.
One commenter stated that the definition of a qualified facility
could be construed as requiring taxpayers to satisfy the PWA
requirements with respect to the entire facility even if only a small
portion of the facility is responsible for the carbon oxide emission
stream. Similarly, a commenter recommended clarifying that the scope of
construction, alteration, or repair work only applies to the single
process train of carbon capture equipment as defined in Sec. 1.45Q-
2(c)(3), and is not inclusive of any other construction, alteration, or
repair work performed at the facility or plant. The applicable scope of
the PWA requirements is explained in Section VI. of this Summary of
Comments and Explanation of Revisions.
Another commenter stated that proposed Sec. 1.45Q-6(b) would have
erroneously incorporated the requirement in section 45(b)(7) and
proposed Sec. 1.45-7 to pay prevailing wages for the alteration or
repair of a facility during the 10-year period after a facility is
placed in service, even though section 45Q(h)(3)(A)(ii) prescribes the
payment of prevailing wages for alteration or repair during the 12-year
period beginning on the date the equipment was originally placed in
service. The final regulations clarify that the Prevailing Wage
Requirements under section 45Q apply with respect to the alteration or
repair of a qualified facility or carbon capture equipment placed in
service at such facility during the applicable 12-year period. As
explained in Section VIII.A.1. of this Summary of Comments and
Explanation of Revisions, the Apprenticeship Requirements apply only
during the construction of the facility and not with respect to any
alteration or repair after a facility is placed in service. Under the
transition rule described in Section II. of this Summary of Comments
and Explanation of Revisions, the PWA requirements do not apply to any
work performed before January 29, 2023.
D. Section 45U
Section 45U provides a credit for electricity produced by the
taxpayer at a qualified nuclear power facility (as defined in section
45U(b)(1)) and sold by the taxpayer to an unrelated person during the
taxable year. Generally, for taxable years beginning after December 31,
2023, the credit is equal to the amount by which the product of 0.3
cents multiplied by the kilowatt hours of electricity produced by the
taxpayer at a qualified nuclear power facility and sold by the taxpayer
to an unrelated person during the taxable year exceeds the reduction
amount (as determined under section 45(b)(2)) for such taxable year.
Under section 45U(d), if a taxpayer satisfies the Prevailing Wage
Requirements with respect to a qualified nuclear power facility, then
the credit determined under section 45U(a) for the qualified nuclear
power facility is multiplied by five. Under section 45U(d)(2)(A), the
Prevailing Wage Requirements apply to the alteration or repair of any
qualified nuclear power facility.
Proposed Sec. 1.45U-3(a) would have provided that the amount of
the zero-emission nuclear power production credit for the taxable year
is equal to the credit amount determined under section 45U(a)
multiplied by five, if a qualified nuclear power facility satisfies the
Prevailing Wage Requirements of section 45(b)(7) and proposed Sec.
1.45-7 in the alteration or repair of such facility, and the
recordkeeping and reporting requirements of proposed Sec. 1.45-12.
One commenter suggested that the final regulations create an
exception from the Prevailing Wage Requirements under section 45U for
taxpayers, contractors, and subcontractors who have fewer than 25
employees. There is no statutory exception for employers of less than
25 individuals and, consistent
[[Page 53240]]
with the statute, the final regulations do not adopt one.
The applicable scope of the Prevailing Wage Requirements is
explained in Section VI. of this Summary of Comments and Explanation of
Revisions. As discussed in Section II. of this Summary of Comments and
Explanation of Revisions, a transition rule is unnecessary because the
Prevailing Wage Requirements under section 45U apply to electricity
produced and sold after December 31, 2023, in taxable years beginning
after such date. The Treasury Department and the IRS interpret section
13105(c) of the IRA as providing that the Prevailing Wage Requirements
only apply to alterations or repairs of a qualified nuclear power
facility occurring in taxable years beginning after December 31, 2023.
The final regulations are clarified to reflect the statutory effective
date under section 45U of the Code for alteration and repairs. Finally,
as explained in Section V.D. of this Summary of Comments and
Explanation of Revisions, the final rules include a definition of
``qualifying project labor agreement'' that is modified specifically
for the purposes of section 45U.
E. Section 45V
Section 45V provides a credit for the production of qualified clean
hydrogen by the taxpayer during the taxable year at a qualified clean
hydrogen production facility during the 10-year period beginning on the
date the facility was originally placed in service. Proposed Sec.
1.45V-3(b)(1) would have provided that with respect to a facility the
construction of which began prior to January 29, 2023, the taxpayer
must meet the Prevailing Wage Requirements of section 45(b)(7) and
proposed Sec. 1.45-7 with respect to an alteration or repair of the
facility that occurs after January 29, 2023 (to the extent applicable),
and must meet the recordkeeping and reporting requirements of proposed
Sec. 1.45-12, in order to claim the increased credit amount. Proposed
Sec. 1.45V-3(b)(2) would have provided that with respect to a
facility, a taxpayer must meet the Prevailing Wage Requirements of
section 45(b)(7) and proposed Sec. 1.45-7, the Apprenticeship
Requirements of section 45(b)(8) and proposed Sec. 1.45-8, and the
recordkeeping and reporting requirements of proposed Sec. 1.45-12 in
order to claim the increased credit amount.
No comments were received specifically pertaining to proposed Sec.
1.45V-3. The applicable scope of the PWA requirements is explained in
Section VI. of this Summary of Comments and Explanation of Revisions.
As explained in Section VIII.A.1. of this Summary of Comments and
Explanation of Revisions, the Apprenticeship Requirements apply only
during the construction of the facility and not with respect to any
alteration or repair after a facility is placed in service. Under the
transition rule described in Section II. of this Summary of Comments
and Explanation of Revisions, the PWA requirements do not apply to any
work performed before January 29, 2023. Proposed Sec. 1.45V-3 is
otherwise adopted without change.
F. Section 45Y
Section 45Y provides a credit for clean electricity produced by the
taxpayer at a qualified facility and sold to an unrelated person, or in
the case of a qualified facility that is equipped with a metering
device that is owned and operated by an unrelated person, sold,
consumed, or stored by the taxpayer during the taxable year, for
facilities placed in service after December 31, 2024. Generally, the
credit for any taxable year is the product of the kilowatt hours of
electricity multiplied by either: (i) 0.3 cents (the base amount under
section 45Y(a)(2)(A)); or (ii) 1.5 cents (the alternative amount under
section 45Y(a)(2)(B)) for certain qualified facilities. Under section
45Y(c), both the base amount and the alternative amount are adjusted
for inflation in years beginning after 2024.
Proposed Sec. 1.45Y-3(a) would have provided that the amount of
the credit for producing clean electricity determined under section
45Y(a)(2) equals 1.5 cents if any qualified clean electricity
production facility satisfies the requirements of proposed Sec. 1.45Y-
3(b). Proposed Sec. 1.45Y-3(b) would have provided that a qualified
facility satisfies the PWA requirements by having a maximum net output
of less than one megawatt (as measured in alternating current), or
beginning construction prior to January 29, 2023, or meeting the
Prevailing Wage Requirements of section 45(b)(7) and proposed Sec.
1.45-7, the Apprenticeship Requirements of section 45(b)(8) and
proposed Sec. 1.45-8, and the recordkeeping and reporting requirements
of proposed Sec. 1.45-12.
Commenters suggested definitions regarding the One Megawatt
Exception for purposes of section 45Y and requested clarifications with
respect to determining nameplate capacity. A few commenters suggested
testing methodologies for purposes of the greenhouse gas emissions rate
under section 45Y(b)(2) and specific approaches for publishing those
emissions rates under section 45Y(b)(2)(C)(i). Comments regarding the
One Megawatt Exception for the purposes of section 45Y will be
addressed in future guidance under section 45Y finalizing those rules.
The applicable scope of the PWA requirements is explained in
Section VI. of this Summary of Comments and Explanation of Revisions.
As explained in Section VIII.A.1. of this Summary of Comments and
Explanation of Revisions, the Apprenticeship Requirements apply only
during the construction of the facility (including alterations and
repairs that occur during construction) and not with respect to any
alteration or repair after a facility is placed in service. Under the
transition rule described in Section II. of this Summary of Comments
and Explanation of Revisions, the PWA requirements do not apply to any
work performed before January 29, 2023. The final regulations also
clarify that for certain facilities, the applicable amount determined
under section 45Y(a)(2) is the alternative amount described in section
45Y(a)(2)(B), subject to adjustment for inflation as provided by
section 45Y(c). Proposed Sec. 1.45Y-3 is otherwise adopted without
change.
G. Section 45Z
Section 45Z provides a credit for clean transportation fuel
produced by the taxpayer at a qualified facility after December 31,
2024, and sold to an unrelated person in a manner described in section
45Z(a)(4). Generally, the credit is the product of the applicable
amount (determined under section 45Z(a)(2) and (3)) per gallon (or
gallon equivalent) of transportation fuel multiplied by the emissions
factor for the fuel (determined under section 45Z(b)). If a taxpayer
satisfies the PWA requirements in sections 45Z(f)(6) and (7), then the
applicable amount is $1.00 for transportation fuel that is not a
sustainable aviation fuel (non-SAF) (determined under section
45Z(a)(2)(B)) and $1.75 for transportation fuel that is a sustainable
aviation fuel (SAF) (determined under section 45Z(a)(3)(A)(ii)). If the
taxpayer does not satisfy the PWA requirements in section 45Z(f)(6) and
(7), the applicable amount is 20 cents for non-SAF and 35 cents for
SAF. Under section 45Z(c), the applicable amounts are adjusted for
inflation in years beginning after 2024.
In general, section 45Z(f)(6)(A) provides that rules similar to
section 45(b)(7) apply for purposes of the Prevailing Wage
Requirements. Section 45Z(f)(7) provides that rules similar to section
45(b)(8) apply for purposes of the Apprenticeship Requirements.
[[Page 53241]]
Section 45Z(f)(6)(B) provides a special rule for a facility placed in
service before January 1, 2025. Under this rule, if a facility is
placed in service before January 1, 2025, the taxpayer is not subject
to the Prevailing Wage Requirements with respect to the construction of
the facility but is subject to the Prevailing Wage Requirements for the
alteration or repair of the facility with respect to any taxable year
beginning after December 31, 2024, for which the section 45Z credit is
allowed. Section 13704(c) of the IRA provides that these provisions are
effective for transportation fuel produced after December 31, 2024.
Proposed Sec. 1.45Z-3(b)(1) would have provided that a qualified
facility that begins construction on or after January 29, 2023, and is
placed in service after December 31, 2024, satisfies the requirements
for the increased credit under section 45Z of the Code if it meets the
Prevailing Wage Requirements of section 45(b)(7) and proposed Sec.
1.45-7, the Apprenticeship Requirements of section 45(b)(8) and
proposed Sec. 1.45-8, and the recordkeeping and reporting requirements
of proposed Sec. 1.45-12. Proposed Sec. 1.45Z-3(b)(2) would have
provided that a qualified facility that is placed in service before
January 1, 2025, satisfies the requirements for the increased credit
amount under section 45Z if it meets the Prevailing Wage Requirements
of section 45(b)(7) and proposed Sec. 1.45-7, the Apprenticeship
Requirements of section 45(b)(8) and proposed Sec. 1.45-8, and the
recordkeeping and reporting requirements of proposed Sec. 1.45-12,
with respect to any alteration or repair of the facility with respect
to any taxable year beginning after December 31, 2024, for which the
credit is allowed under section 45Z.
With respect to the proposed rule in Sec. 1.45Z-3(b)(1),
commenters asked that the final regulations clarify the requirements
for the increased credit amount with respect to facilities that begin
construction before January 29, 2023, but are not placed in service
until after December 31, 2024. Commenters asked whether the Proposed
Regulations intended to create a BOC Exception for section 45Z. Some
commenters indicated support for a BOC Exception for consistency with
other increased credit provisions, while others argued that there is no
statutory support for a BOC Exception. Other commenters generally
requested transition relief from the PWA requirements and suggested
that the final regulations clarify proposed Sec. 1.45Z-3(b)(1) to
remove the clause requiring construction on or after January 29, 2023.
In response to comments, the final regulations modify the Proposed
Regulations in several respects. With respect to the rule in proposed
Sec. 1.45Z-3(b)(1) for facilities placed in service after December 31,
2024, the final regulations remove the clause requiring construction on
or after January 29, 2023. The Treasury Department and the IRS agree
that this language, which was intended to provide transition relief
similar to that described in Section II. of this Summary of Comments
and Explanation of Revisions, was confusing. Taxpayers can satisfy the
requirements for the increased credit amount regardless of whether
construction began before or after January 29, 2023. The Treasury
Department and the IRS decline to prescribe a BOC Exception through
regulation because Congress did not statutorily provide for one. Under
the transition rule described in Section II. of this Summary of
Comments and Explanation of Revisions, the PWA requirements do not
apply for any work performed before January 29, 2023. Thus, the final
regulations provide that for facilities placed in service on or after
January 1, 2025, taxpayers must meet the Prevailing Wage Requirements,
but only for construction, alteration, and repair work performed on or
after January 29, 2023.
Regarding the special rule proposed in Sec. 1.45Z-3(b)(2) for
facilities placed in service before January 1, 2025, commenters
requested that the final regulations clarify that the special rule in
section 45Z(f)(6)(B) applies to all facilities placed in service before
January 1, 2025, regardless of whether construction began before
January 29, 2023. The final regulations confirm that with respect to
all facilities placed in service before January 1, 2025 (regardless of
when construction began), the Prevailing Wage Requirements do not apply
with respect to construction, but taxpayers must satisfy the Prevailing
Wage Requirements with respect to any alteration or repair of the
facility for taxable years beginning after December 31, 2024, for which
the credit is allowed.
At least one commenter asserted that the special rule in section
45Z(f)(6)(B) also includes an exception from the Apprenticeship
Requirements for facilities placed in service before January 1, 2025.
Section 45Z(f)(6)(A) provides that, ``[s]ubject to [the special rule
of] subparagraph (B), rules similar to the [prevailing wage] rules of
section 45(b)(7) shall apply.'' Section 45Z(f)(7) provides that
``[r]ules similar to the apprenticeship requirement rules of section
45(b)(8) shall apply.'' Under section 13101(k) of the IRA, the rules of
section 45(b)(7) and 45(b)(8) apply with respect to facilities that are
placed in service after December 31, 2021. Thus, the Treasury
Department and the IRS interpret the PWA requirements of sections
45Z(f)(6) and 45Z(f)(7) generally as applying to any qualified facility
that is placed in service after December 31, 2021, subject to the
transition rule described in Section II. of this Summary of Comments
and Explanation of Revisions. There is no exception to the
Apprenticeship Requirements in section 45Z(f)(7), regardless of whether
a facility is placed in service before, on, or after January 1, 2025.
In the absence of a statutory basis, the Treasury Department and the
IRS do not provide an exception to the Apprenticeship Requirements in
the final regulations.
While there is no statutory basis to except taxpayers from the
Apprenticeship Requirements in section 45Z, the Treasury Department and
the IRS agree that the proposed rule caused confusion for taxpayers
that intend to place a qualified facility in service before January 1,
2025. The Proposed Regulations suggested that taxpayers that placed a
qualified facility in service before January 1, 2025, must only satisfy
the Prevailing Wage Requirements and the Apprenticeship Requirements
with respect to alterations and repairs that occur in taxable years
beginning after December 31, 2024. This incorrectly suggested that
there was an Apprenticeship Requirement with respect to alterations and
repairs to a facility after it is placed in service and did not address
whether the construction of a qualified facility is subject to the
Apprenticeship Requirements prior to the facility being placed in
service.
In recognition of the confusion created by the Proposed
Regulations, the final regulations provide additional transition relief
under section 45Z for taxpayers who relied on the Proposed Regulations
with respect to the Apprenticeship Requirements for facilities placed
in service before January 1, 2025. In general, the final regulations
allow taxpayers to continue to rely on the Proposed Regulations up to
the date these regulations are published in the Federal Register. The
final regulations provide that taxpayers may rely on proposed Sec.
1.45Z-3(b)(2) for an additional 90 days from the date these regulations
are published in the Federal Register as transition relief from the
Apprenticeship Requirements. This 90-day period will provide taxpayers
[[Page 53242]]
with time to locate and request qualified apprentices from registered
apprenticeship programs for any remaining construction work that occurs
after 90 days after the date these regulations are published in the
Federal Register and before the facility is placed in service. This
transition relief does not apply to facilities that are placed in
service after December 31, 2024. Such facilities must comply with the
Prevailing Wage Requirements and the Apprenticeship Requirements with
respect to construction, alteration, or repair work beginning on or
after January 29, 2023.
A commenter asked for clarification regarding the applicable amount
used to calculate the increased credit amount under section 45Z if the
PWA requirements are satisfied. The commenter requested that the
description of the credit amount in proposed Sec. 1.45Z-3(a) be
amended to clarify that the alternative applicable amount of the credit
is $1.00 per gallon for non-SAF (and $1.75 for SAF) and not $5.00 per
gallon for non-SAF ($8.75 for SAF).
Section 45Z generally provides a base applicable amount, and if the
PWA requirements are satisfied, an alternative applicable amount that
is five times the base amount. The Treasury Department and the IRS
recognize that proposed Sec. 1.45Z-3(a) could have been interpreted to
mean that the entire increased credit amount determined under section
45Z(a) should be multiplied by five, rather than just the base
applicable amount. The final regulations clarify that if the PWA
requirements are satisfied, then the applicable amount is the
alternative applicable amount determined under section 45Z(a)(2)(B) for
non-SAF or section 45Z(a)(3)(A)(ii) for SAF, each subject to
adjustments for inflation under section 45Z(c).
H. Section 48C
Section 48C provides a credit for a qualified investment in a
qualifying advanced energy project for that taxable year (section 48C
Credit). The IRA added section 48C(e) to the Code, extending the
section 48C Credit to provide an additional section 48C Credit
allocation of $10 billion. Generally, the credit amount for section 48C
Credits allocated pursuant to section 48C(e) is equal to six percent of
the basis of the eligible property. Under section 48C(e)(4), if a
taxpayer satisfies the PWA Requirements in section 48C(e)(5) and (6)
with respect to a qualifying advance energy project, then the credit
amount determined under section 48C(a) is 30 percent.
To satisfy the Prevailing Wage Requirements under section
48C(e)(5)(A), a taxpayer must ensure that with respect to a qualifying
advanced energy project, any laborers and mechanics employed by the
taxpayer or any contractor or subcontractor in the re-equipping,
expansion, or establishment of a manufacturing facility are paid wages
at rates not less than the prevailing rates for construction,
alteration, or repair of a similar character in the locality in which
the project is located. Section 48C(e)(5)(B) provides that rules
similar to section 45(b)(7)(B) apply for purposes of the correction and
penalty related to the failure to satisfy the Prevailing Wage
Requirements. Section 48C(e)(6) provides that rules similar to section
45(b)(8) apply for purposes of the Apprenticeship Requirements.
A section 48C Credit allocation is made after an application and
project certification. The extension of section 48C and the additional
allocations under section 48C(e) are effective on January 1, 2023. The
Treasury Department and the IRS issued Notice 2023-18, 2023-10 I.R.B.
508, Notice 2023-44, 2023-25 I.R.B. 924, and Notice 2024-36, 2024-24
I.R.B. 1479, to provide guidance under section 48C(e). These notices
provide a process for the IRS to allocate section 48C Credits. To
prevent an overallocation of section 48C Credits, section 5.07 of
Notice 2023-18 requires a taxpayer that applies for a section 48C
Credit allocation at the 30 percent credit amount to confirm that the
taxpayer intends to satisfy the PWA requirements. Section 5.07 of
Notice 2023-18 additionally requires that if the taxpayer provides
notification that it placed the project in service, the taxpayer must
also confirm that it satisfied the PWA requirements.
The Proposed Regulations would have provided that if a taxpayer
satisfies both the PWA requirements and the PWA confirmation
requirements provided in Notice 2023-18 (or any subsequent guidance),
then the credit amount for section 48C Credits allocated pursuant to
section 48C(e) of the Code would be equal to 30 percent. Notice 2023-44
provides that a property placed in service prior to being awarded a
section 48C Credit under the section 48C(e) program is not eligible to
receive such an allocation. It is possible that a taxpayer will have
performed work after January 1, 2023, with respect to the construction,
alteration, or repair of a qualifying advanced energy project and
before being awarded an allocation under section 48C.
Proposed Sec. 1.48C-3 would have provided that the increased
credit amount is available for any qualifying advanced energy project
that satisfies the Prevailing Wage Requirements of section 45(b)(7) and
proposed Sec. 1.45-7, the Apprenticeship Requirements of section
45(b)(8) and proposed Sec. 1.45-8, and the recordkeeping and reporting
requirements of proposed Sec. 1.45-12.
One commenter stated that the Proposed Regulations may have
erroneously incorporated the requirement in proposed Sec. 1.45-7(a) to
pay prevailing wages during the 10-year period after a facility is
placed in service and requested that the final regulations specify
whether the PWA requirements apply after a facility is placed in
service. Section 48C provides that the Prevailing Wage Requirements
apply in the ``re-equipping, expansion, or establishment of a
manufacturing facility.'' Nothing in section 48C requires the payment
of prevailing wages with respect to alterations or repairs after a
qualifying advanced energy project is placed in service. For the
reasons described in Sections VIII.A.1. and IX.A. of this Summary of
Comments and Explanation of Revisions, the final regulations amend the
Proposed Regulations to confirm that the PWA requirements under section
48C apply only during the re-equipping, expansion, or establishment of
a qualifying advanced energy project and not with respect to any
alteration or repair after a qualifying advanced energy project is
placed in service. Under the transition rule described in Section II.
of this Summary of Comments and Explanation of Revisions, the PWA
requirements do not apply to any work performed before January 29,
2023.
Additionally, a commenter requested guidance concerning whether for
purposes of section 48C projects the PWA requirements are similarly
limited to the same eligible property defined by 48C(c)(2). The
commenter asked for PWA requirements to be limited to this same
eligible property and any costs integral to that eligible property--
excluding any work related to the building or its structural
components. The applicable scope of the PWA requirements is explained
in Section VI. of this Summary of Comments and Explanation of
Revisions.
I. Section 179D
Section 179D(a) generally allows a deduction in an amount equal to
the cost of energy efficient commercial building property placed in
service during the taxable year. Section 179D(f) generally allows as a
deduction for the taxable year the amount of the aggregate adjusted
basis of energy efficient
[[Page 53243]]
building retrofit property placed in service by the taxpayer pursuant
to a qualified retrofit plan. Under section 179D(b)(3), (4), and (5),
an increased deduction amount is allowed if the taxpayer ensures that
laborers and mechanics employed by the taxpayer or any contractor or
subcontractor in the installation of any energy efficient commercial
building property, energy efficient building retrofit property, or
property installed pursuant to a qualified retrofit plan (collectively,
179D qualified property) are paid wages at rates not less than the
prevailing rates and satisfies the Apprenticeship Requirements. Under
section 179D(g), the increased deduction amount in 179D(b) is subject
to an adjustment for inflation in taxable years beginning after 2022.
Proposed Sec. 1.179D-3(b) would have provided that the increased
deduction is available for any 179D qualified property that either
began installation prior to January 29, 2023, or meets the Prevailing
Wage Requirements of section 45(b)(7) and proposed Sec. 1.45-7, the
Apprenticeship Requirements of section 45(b)(8) and proposed Sec.
1.45-8, and the recordkeeping and reporting requirements of proposed
Sec. 1.45-12.
One commenter stated that the Proposed Regulations may have
erroneously incorporated the requirement in proposed Sec. 1.45-7(a) to
pay prevailing wages during the 10-year period after a property is
placed in service and requested that the final regulations specify
whether the PWA requirements apply after a property is placed in
service. Section 179D provides that the Prevailing Wage Requirements
apply ``in the installation of any property.'' Nothing in section 179D
requires the payment of prevailing wages with respect to alterations or
repairs after such installation. For the reasons described more fully
in Sections VIII.A.1. and IX.A. of this Summary of Comments and
Explanation of Revisions, the final regulations amend the Proposed
Regulations to confirm that the PWA requirements under section 179D
apply only during the installation of the 179D qualified property and
not with respect to any alteration or repair after the 179D qualified
property is placed in service. The applicable scope of the PWA
requirements is explained in Section VI. of this Summary of Comments
and Explanation of Revisions. Under the transition rule described in
Section II. of this Summary of Comments and Explanation of Revisions,
the PWA requirements do not apply to any work performed before January
29, 2023. The final regulations also clarify that the deduction amounts
are increased for inflation.
On October 5, 2022, the IRS issued Notice 2022-48 and requested
comments with respect to the allocation of the section 179D deduction
and the criteria that the Treasury Department and the IRS should
consider in drafting rules to determine the person that is primarily
responsible for designing the property under section 179D(d)(3)(A). The
Proposed Regulations would have provided general rules for satisfying
the PWA requirements for purposes of section 179D, but the Proposed
Regulations would not have addressed the allocation of the deduction in
the case of 179D qualified property installed on, or in property owned
by, a specified tax-exempt entity as described in section
179D(d)(3)(B).
A few commenters suggested that the Treasury Department and the IRS
provide an exception to meeting PWA requirements for primary designers
who are allocated the deduction under section 179D(d)(3)(A). For
example, the commenters explained that because designers do not
directly employ laborers, mechanics, contractors, or subcontractors and
because the allocating tax-exempt entity has little interest in
undertaking the compliance burden for an allocated deduction, the
designer will have difficulty ensuring compliance with the PWA
requirements. Another commenter suggested that the regulations require
the contractor to consult with all other contractors and subcontractors
on the project and certify that they are not also seeking the
allocation of the deduction, similar to an approach developed by the
General Services Administration.
The Proposed Regulations would not have provided rules regarding
the allocation of the deduction in the case of 179D qualified property
installed on or in property owned by a specified tax-exempt entity.
After reviewing comments, the Treasury Department and the IRS
determined that the section 179D allocation is outside the scope of
these final regulations and rules for the section 179D allocation will
be addressed in future guidance.
One commenter asked whether architects and engineers who do not
employ laborers, mechanics, contractors, or subcontractors
automatically qualify for the increased section 179D deductions.
Generally applicable rules for laborers and mechanics are discussed in
Section VII.C.1. of this Summary of Comments and Explanation of
Revisions. Another commenter stated that without a de minimis threshold
for noncompliance, small, accidental deviations may prevent earning the
increased section 179D deduction. The limited penalty waiver is
discussed in Section VII.D.4. of this Summary of Comments and
Explanation of Revisions.
Additionally, a commenter requested that section 179D be modified
so that the relevant property's basis is not reduced by the amount of
the claimed deduction under section 179D. The commenter stated that
reducing the property's basis by the received deduction amount may
actually place the taxpayer worse off financially. Statutory revisions
are outside the scope of these final regulations.
X. Recordkeeping and Reporting Requirements
A. In General
Section 45(b)(12) authorizes the Secretary to issue such
regulations or other guidance as the Secretary determines necessary to
carry out the purposes of section 45(b), including regulations or other
guidance that provide requirements for recordkeeping or information
reporting for purposes of administering the requirements of section
45(b). Section 6001 provides that every person liable for any tax
imposed by the Code, or for the collection thereof, must keep such
records as the Secretary may from time to time prescribe. Section
1.6001-1(a) provides that any person subject to income tax must keep
such permanent books of account or records, including inventories, as
are sufficient to establish the amount of gross income, deductions,
credits, or other matters required to be shown by such person in any
return of such tax. Section 1.6001-1(e) provides that the books and
records required by Sec. 1.6001-1 must be retained so long as the
contents thereof may become material in the administration of any
Internal Revenue law.
Proposed Sec. 1.45-12(a) would have provided that the increased
credit amount must be claimed in such form and manner as may be
prescribed in IRS forms or instructions or in publications or guidance
published in the Internal Revenue Bulletin. The preamble to the
Proposed Regulations also stated that the Proposed Regulations would
require taxpayers to provide a statement with the tax return that
claims an increased amount of credit or deduction that includes
aggregate information as detailed in proposed Sec. 1.45-12.
The Proposed Regulations would have imposed recordkeeping
requirements that are generally consistent with the recordkeeping
requirements under the DBA regime for purposes of the PWA requirements.
Proposed Sec. 1.45-12(b)
[[Page 53244]]
would have provided that with respect to each qualified facility for
which a taxpayer is claiming or transferring (under section 6418) an
increased credit amount under section 45(b)(6)(A), unless section
45(b)(6)(B)(i) or 45(b)(6)(B)(ii) applies, the taxpayer would be
required to maintain and preserve records sufficient to demonstrate
compliance with the applicable PWA requirements in proposed Sec. Sec.
1.45-7 and 1.45-8, respectively. Under the Proposed Regulations, at a
minimum, those records would have included payroll records for each
laborer and mechanic (including each qualified apprentice) employed by
the taxpayer, contractor, or subcontractor in the construction,
alteration, or repair of the qualified facility.
Proposed Sec. 1.45-12(c) would have provided an enumerated list of
records, in addition to payroll records otherwise maintained by the
taxpayer, that may be sufficient to establish compliance with the
Prevailing Wage Requirements. The list in proposed Sec. 1.45-12(c)
included the following information for each laborer or mechanic
(including each qualified apprentice) employed by the taxpayer, a
contractor, or subcontractor with respect to each qualified facility:
(i) identifying information, including the name, social security or tax
identification number, address, telephone number, and email address;
(ii) the location and type of qualified facility; (iii) the labor
classification(s) the taxpayer applied to the laborer or mechanic for
determining the prevailing wage rate and documentation supporting the
applicable classification, including the applicable wage determination;
(iv) the hourly rate(s) of wages paid (including rates of contributions
or costs for bona fide fringe benefits or cash equivalents thereof) for
each applicable labor classification; (v) records to support any
contribution irrevocably made on behalf of a laborer or mechanic to a
trustee or other third person pursuant to a bona fide fringe benefit
program, and the rate of costs that were reasonably anticipated in
providing bona fide fringe benefits to laborers and mechanics pursuant
to an enforceable commitment to carry out a plan or program described
in 40 U.S.C. 3141(2)(B), including records demonstrating that the
enforceable commitment was provided in writing to the laborers and
mechanics affected; (vi) the total number of labor hours worked per pay
period; (vii) the total wages paid for each pay period (including
identifying any deductions from wages); (viii) records to support wages
paid to any apprentices at less than the applicable prevailing wage
rates, including records reflecting the registration of the apprentices
with a registered apprenticeship program and the applicable wage rates
and apprentice-to-journeyworker ratios prescribed by the apprenticeship
program; and (ix) the amount and timing of any correction payments and
documentation reflecting the calculation of the correction payments.
Proposed Sec. 1.45-12(d) would have required taxpayers subject to
the Apprenticeship Requirements to maintain sufficient records to
establish compliance with the Labor Hours Requirement, Ratio
Requirement, and Participation Requirement. Under the Proposed
Regulations, records that may be sufficient to demonstrate compliance
with the applicable Apprenticeship Requirements in Sec. 1.45-8 would
have included the following information for each apprentice employed by
the taxpayer, a contractor, or subcontractor with respect to each
qualified facility: (i) any written requests for the employment of
apprentices from registered apprenticeship programs, including any
contacts with the DOL OA or a State apprenticeship agency regarding
requests for apprentices from registered apprenticeship programs; (ii)
any agreements entered into with registered apprenticeship programs
with respect to the construction, alteration, or repair of the
facility; (iii) documents reflecting the standards and requirements of
any registered apprenticeship program, including the applicable ratio
requirement prescribed by each registered apprenticeship program from
which taxpayers, contractors, or subcontractors employ apprentices;
(iv) the total number of labor hours worked by apprentices; and (v)
records reflecting the daily ratio of apprentices to journeyworkers.
The Proposed Regulations under sections 30C, 45L, 45Q, 45U, 45V,
45Y, 45Z, 48C, and 179D would have provided similar recordkeeping
requirements as described in proposed Sec. 1.45-12.
As discussed in Section I. of this Summary of Comments and
Explanation of Revisions, several commenters suggested that that final
regulations should impose additional reporting and recordkeeping
requirements, including many pre-filing reporting requirements such as
certified weekly payroll and monthly apprenticeship hours reporting.
However, other commenters stated that having to comply with the
recordkeeping and reporting requirements as proposed would be
burdensome and create costly administrative work for business owners.
These commenters requested that documentation and reporting
requirements be as streamlined and minimal as possible.
As explained in greater detail in Section I. of this Summary of
Comments and Explanation of Revisions, the final regulations strike an
appropriate balance between imposing requirements intended to encourage
the timely and correct payment of prevailing wages and the hiring of
qualified apprentices while recognizing the prospective nature inherent
in the increased amount of credit and deduction. The Treasury
Department and the IRS want to avoid imposing unnecessary
administrative work on taxpayers, especially small businesses. However,
the IRS must be able to determine taxpayer compliance with the PWA
requirements once a return is filed claiming an increased amount of
credit or deduction. For this reason, the final regulations do not
incorporate the suggestions regarding pre-filing activities, although
many comments are incorporated as factors for determining intentional
disregard, and instead adopt the robust recordkeeping and reporting
requirements from the Proposed Regulations. The final regulations
provide recordkeeping and reporting requirements that are consistent
with the DBA, relevant for the purposes of the increased amount of
credit and deduction and the intent of the IRA, and that are necessary
for, and consistent with, sound tax administration.
Many commenters stated that the proposed regulations struck an
appropriate balance between ensuring there is significant documentation
to ensure compliance without adding unnecessary burden. Some commenters
requested that taxpayers be provided flexibility related to the
recordkeeping requirements, while others asked for guidance on how to
demonstrate compliance with the recordkeeping requirements and whether
specific records would satisfy the recordkeeping requirement. A few
commenters suggested that the final regulations incorporate or require
specific forms or reporting methods similar to those used in other
contexts (for example, the IRS Form 1099). Some commenters suggested
taxpayers could use the DOL's Registered Apprenticeship Partners
Information Data System (commonly referred to as RAPIDS) to assist in
reporting compliance with the Participation Requirement. Another
commenter suggested the final regulations require taxpayer to report
evidence of compliance with the Good Faith Effort Exception at filing.
[[Page 53245]]
The final regulations largely follow the approach in the Proposed
Regulations. Consistent with IRS practice, the final regulations adopt
the rule from the Proposed Regulations that the increased credit amount
must be claimed in such form and manner as may be prescribed in IRS
forms, instructions, publications, or guidance published in the
Internal Revenue Bulletin. Comments suggesting specific forms or
reporting methods are not incorporated. It is critical that the IRS
retain the ability to prescribe the required reporting requirements in
relevant forms and instructions to allow for modifications as
necessary. Draft forms and instructions are typically made available
for public comment on https://www.irs.gov.
To provide flexibility to taxpayers, the final regulations do not
prescribe a specific form or manner in which records must be kept. In
response to comments that asked whether certain records would be
sufficient, the final regulations indicate that an accurately completed
DOL Form WH-347 may constitute a sufficient record reflecting the
payment of prevailing wages to the individuals identified on the form
for the period identified on the form for purposes of Sec. 1.45-12.
The final regulations also add copies of contracts for construction,
alteration, or repair of the facility with any contractor or
subcontractor to the list of records that may be sufficient to
demonstrate compliance with the Prevailing Wage Requirements. In most
cases, payroll records alone will not demonstrate a taxpayer's
compliance with the totality of the PWA requirements. Nothing in these
regulations is intended to restrict the IRS's authority to request
additional records to determine whether the taxpayer has complied with
the PWA requirements. For example, during an examination, the IRS may
request information and documents with respect to the taxpayer's
process for the proper identification, classification, and payment of
wages to laborers and mechanics performing construction on the
qualified facility and for determining labor needs on a construction
project, including specific apprenticeship needs.
Commenters requested guidance on the length of time records need to
be maintained. A commenter stated that once a construction project is
completed, the taxpayer would no longer have access to competitively
sensitive data, such as wage information, stored by contractors and
subcontractors. One commenter suggested that records should be retained
for at least three years after all work on the construction project is
completed. Another commenter suggested requiring taxpayers to retain
adequate payroll records for at least five years from the projected end
of the tax credit period. At least one commenter suggested that not
retaining adequate records should be considered evidence of intentional
disregard. The commenter emphasized that maintaining such records would
not be burdensome because records are now kept digitally. The final
regulations clarify that taxpayers are required to maintain and
preserve records sufficient to establish compliance with the PWA
requirements for relevant tax years as provided for under section 6001
and Sec. 1.6001-1(e). The final regulations also add the failure to
maintain records to the intentional disregard factors.
Some commenters stated that it might be difficult for taxpayers to
obtain records of wages paid by contractors and subcontractors.
Commenters suggested permitting taxpayers to rely on written
certifications from contractors and subcontractors that the contractor
or subcontractor is complying with the PWA requirements, including
recordkeeping. One commenter suggested that the final regulations
permit taxpayers to rely on contractual provisions that require strict
adherence to IRS goals and standards. Another commenter was concerned
that despite contractual agreements between the taxpayer and a general
contractor detailing the PWA requirements, taxpayers would be subject
to the subcontractors' recordkeeping abilities, over which they have no
control.
Commenters also claimed that the proposed recordkeeping
requirements raise privacy and antitrust concerns. Specifically,
commenters argued that requiring taxpayers to maintain the payroll
records of contractors and subcontractors could violate Federal or
State privacy laws or company policies on the proper handling of
personally identifiable information (PII) such as social security
numbers and dates of birth. Commenters suggested: (i) allowing the
direct employer (whether that is the taxpayer, contractor, or
subcontractor) to maintain required payroll records and confidential
employee information subject to contractual provisions requiring the
maintenance and preservation of the records and permitting access to
such records by the IRS as part of a duly issued audit request; (ii)
allowing the taxpayer to collect and maintain the payroll records and
data specified in proposed Sec. 1.45-12 with a third-party vendor
subject to similar contractual provisions and access to the IRS audit
function; (iii) allowing taxpayers, transferee taxpayers, and/or their
agents to inspect payroll records and data under a nondisclosure
arrangement as part of proper due diligence without taking physical
custody or control of such payroll records or data; (iv) allowing
payroll records and data to be collected and maintained by the taxpayer
or any contractor in a manner that redacts certain sensitive
information as long as the information is maintained by the direct
employer pursuant to contractual arrangements; and (v) allowing
alternative forms of validation for hourly wage rates and other payroll
data to avoid antitrust and confidentiality concerns among taxpayers,
contractors, and subcontractors. A commenter recommended that for
recordkeeping of fringe benefits, the final regulations should accept
sworn statements of contributions as sufficient. The commenter stated
that it is exceedingly difficult for entities to monitor and verify
subcontractor contributions to fringe benefit programs.
Consistent with the requirements in section 45(b)(7) and (8) that
the taxpayer ensure that the Prevailing Wage Requirements and
Apprenticeship Requirements are satisfied, the final regulations adopt
the rule as proposed that the taxpayer is required to maintain all
relevant records, regardless of whether the laborers and mechanics are
employed by the taxpayer, a contractor, or a subcontractor. In response
to comments regarding privacy concerns and data sensitivity, the final
regulations amend the proposed rule to clarify that records need only
contain the last four digits of a social security number. The final
regulations also provide three alternatives that taxpayers may use to
satisfy the recordkeeping requirements in Sec. 1.45-12. These
alternatives are intended to assist taxpayers in satisfying the
recordkeeping requirements while also complying with applicable law.
Under the final regulations: (i) taxpayers may collect and physically
retain redacted records from every relevant contractor and
subcontractor; (ii) taxpayers may use a third-party vendor to collect
and physically retain records from every relevant contractor and
subcontractor on behalf of the taxpayer, and the records may have PII
redacted to comply with applicable privacy laws; or (iii) taxpayers,
contractors, and subcontractors may physically retain unredacted
records for their own employees. Under all three alternatives,
unredacted records must be made available to the IRS upon request.
[[Page 53246]]
Although retaining records consistent with one or more of these
options will constitute satisfaction of the recordkeeping requirements
in Sec. 1.45-12 of these final regulations, the Prevailing Wage
Requirements in Sec. 1.45-7 and the Apprenticeship Requirements in
Sec. 1.45-8 of these final regulations must be satisfied (as
applicable) in order for the taxpayer to obtain the increased amount of
credit or deduction. The taxpayer is ultimately responsible for
compliance with the PWA requirements and may not rely on certifications
from contractors and subcontractors that they are complying with PWA
requirements (including recordkeeping). Taxpayers may delegate certain
recordkeeping activities to comply with applicable laws; however, the
ultimate responsibility to ensure compliance with the PWA requirements
remains with the taxpayer, and taxpayers may not rely on a contractual
provision to delegate that responsibility to contractors and
subcontractors for purposes of satisfying the PWA requirements.
Additionally, taxpayers should consider the impact that a recordkeeping
approach may have on their ability to demonstrate the facts and
circumstances listed in Sec. Sec. 1.45-7(c)(3)(iii) and 1.45-
8(f)(2)(ii) pertaining to intentional disregard.
The preamble to the Proposed Regulations would have provided that
to demonstrate that a failure was not due to intentional disregard,
taxpayers must maintain and preserve records sufficient to document any
failures to satisfy the Prevailing Wage Requirements or the
Apprenticeship Requirements, and the actions taken to prevent,
mitigate, or remedy the failure (for example, records demonstrating
that the taxpayer regularly reviewed payroll practices, included
requirements to pay prevailing wages in contracts with contractors, and
posted prevailing wage rates in a prominent place on the job site). The
preamble to the Proposed Regulations also indicated that the Proposed
Regulations would have imposed recordkeeping requirements related to
correction and penalty payments, penalty waiver provisions, and the
Good Faith Effort Exception. The final regulations incorporate these
provisions as described in the preamble to the Proposed Regulations and
clarify that any failures to satisfy the Prevailing Wage Requirements
and the actions taken to prevent, mitigate, or remedy the failure may
be documented with records demonstrating that the taxpayer engaged an
independent third party to aid in the review of payroll information.
B. Recordkeeping for Credits Transferred Pursuant to Section 6418
The Proposed Regulations would have provided that because an
eligible taxpayer determines any increased credit amount applicable to
the PWA requirements, the general recordkeeping requirements would
remain with an eligible taxpayer who transfers a specified credit
portion that includes an increased credit amount. The increased credit
amount that is determined by an eligible taxpayer would be reported on
the return of the eligible taxpayer. The minimum required documentation
to be provided to the transferee taxpayer is a separate requirement
under the 6418 Final Regulations that does not impact the requirements
in these final regulations. Comments received relating to section 6418
and responses by the Treasury Department and the IRS are discussed in
Section V.B. of this Summary of Comments and Explanation of Revisions.
XI. Applicability Date
The Proposed Regulations would have provided that the final
regulations apply to facilities, property, projects, or equipment
placed in service in taxable years ending after the date these final
regulations are published in the Federal Register and the construction,
or installation, of which begins after the date these final regulations
are published in the Federal Register. The Proposed Regulations would
have provided that taxpayers could rely on the Proposed Regulations
with respect to construction or installation of a facility, property,
project, or equipment beginning on or after January 29, 2023, and on or
before the date these final regulations are published, provided, that
beginning after the date that is 60 days after August 29, 2023,
taxpayers follow the Proposed Regulations in their entirety and in a
consistent manner. The Proposed Regulations would have also provided
that the provisions of sections 3 and 4 of Notice 2022-61 would be
obsoleted for facilities, property, projects, or equipment the
construction, or installation of which begins after the date these
final regulations are published. The Proposed Regulations would not
have otherwise affected Notice 2022-61.
Several commenters requested transition relief with respect to the
applicability date of these final regulations. One commenter suggested
that because Notice 2022-61 was used to justify the application of PWA
requirements to projects that started after January 29, 2023, the IRS
should establish a new effective date for the IRA's PWA requirements.
The commenter argued that, at a minimum, additional guidance set forth
in the Proposed Regulations and the final regulations should be applied
only prospectively. The commenter raised that the rescission of
guidance issued in Notice 2022-61, if done on a retroactive basis,
would be arbitrary and capricious and a violation of the Administrative
Procedure Act, 5 U.S.C. 702, unless the IRS provides much greater
explanation for its actions.
As stated in Section II. of this Summary of Comments and
Explanation of Revisions, the final regulations provide a transition
rule under which the PWA requirements do not apply to construction,
alteration, and repair activities occurring before January 29, 2023.
Further, the final regulations generally apply to qualified facilities
placed in service in taxable years ending after June 25, 2024 and the
construction of which begins after June 25, 2024. Additionally,
taxpayers may choose to apply the final regulations to qualified
facilities placed in service in taxable years ending on or before June
25, 2024, and qualified facilities placed in service in taxable years
ending after June 25, 2024, the construction of which begins before
June 25, 2024, provided that taxpayers follow the final regulations in
their entirety and in a consistent manner. Taxpayers may also rely on
the Proposed Regulations with respect to construction of a qualified
facility beginning on or after January 29, 2023, and on or before June
25, 2024, provided, that beginning after the date that is 60 days after
August 29, 2023, taxpayers follow the Proposed Regulations in their
entirety and in a consistent manner.
Consistent with the Proposed Regulations, the final regulations
confirm that the obsoletion of sections 3 and 4 of Notice 2022-61 is
prospective as it applies facilities, property, projects, or equipment
the construction, or installation, of which begins after June 25, 2024.
The final regulations do not otherwise affect Notice 2022-61.
XII. Severability
If any provision in this rulemaking is held to be invalid or
unenforceable facially, or as applied to any person or circumstance, it
shall be severable from the remainder of this rulemaking, and shall not
affect the remainder thereof, or the application of the provision to
other persons not similarly situated or to other dissimilar
circumstances.
Applicability Dates
These regulations apply to qualified facilities placed in service
in taxable
[[Page 53247]]
years ending after June 25, 2024 and the construction of which begins
after June 25, 2024. Taxpayers may choose to apply these regulations to
qualified facilities placed in service in taxable years ending on or
before June 25, 2024, and qualified facilities placed in service in
taxable years ending after June 25, 2024, the construction of which
begins before June 25, 2024, provided that taxpayers follow these
regulations in their entirety and in a consistent manner. Taxpayers may
also continue to rely on the Proposed Regulations with respect to
construction of a qualified facility beginning on or after January 29,
2023, and on or before June 25, 2024, provided, that beginning after
the date that is 60 days after August 29, 2023, taxpayers follow the
Proposed Regulations in their entirety and in a consistent manner.
Effect on Other Documents
Sections 3 and 4 of Notice 2022-61 are obsoleted for facilities,
property, projects, or equipment the construction, or installation, of
which begins after August 26, 2024.
Special Analyses
I. Regulatory Planning and Review
Pursuant to the Memorandum of Agreement, Review of Treasury
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory
actions issued by the IRS are not subject to the requirements of
section 6(b) of Executive Order 12866, as amended. Therefore, a
regulatory impact assessment is not required.
II. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA)
generally requires that a Federal agency obtain the approval of the
Office of Management and Budget (OMB) before collecting information
from the public, whether such collection of information is mandatory,
voluntary, or required to obtain or retain a benefit.
The collections of information in these final regulations contain
reporting, recordkeeping, and third-party disclosure requirements, each
of which is described below. These collections are required for
purposes of claiming an increased amount of credit or deduction; and
are necessary for the IRS to validate that taxpayers have met the
regulatory requirements and are eligible to claim the increased credit
amounts. The likely respondents are individual, business, trust and
estate filers, and tax-exempt organizations.
These final regulations set forth procedures for requesting
supplemental wage determinations and wage rates for additional
classifications from the DOL. This collection is approved by the OMB
under DOL Control Number 1235-0034. These final regulations do not
alter any of the DOL collections approved under this control number.
These final regulations include requirements to keep records
sufficient to demonstrate that the PWA requirements have been met as
detailed in Sec. 1.45-12. For purposes of the PRA, the records
required to be kept pursuant to Sec. 1.45-12 are considered general
tax records. The collection of these general tax records is approved
annually under 1545-0074 for individuals/sole proprietors, 1545-0123
for business entities, and 1545-0047 for tax-exempt organizations. The
IRS received from the OMB a new OMB Control number (1545-2315) for
trust and estate filers.
These final regulations also include reporting requirements that
taxpayers provide a statement with the tax return that claims an
increased amount of credit or deduction that includes aggregate
information as detailed in Sec. 1.45-12. The IRS may issue forms and
instructions in future guidance for the purpose of meeting these
reporting requirements. These reporting requirements will be covered
under 1545-0074 for individuals/sole proprietors and 1545-0123 for
business entities. These reporting requirements are covered under the
new OMB Control Number (1545-2315) for trust and estate filers.
These final regulations include third-party disclosures that
include notifying laborers and mechanics of the applicable prevailing
wage rates as detailed in Sec. 1.45-7. These final regulations also
include third-party disclosures for taxpayers requesting the dispatch
of qualified apprentices from a registered apprenticeship program as
detailed in Sec. 1.45-8. The third-party disclosures apply to all
filers. The third-party disclosures applicable to all filers are also
covered under the new OMB Control Number (1545-2315).
In the Notice of Proposed Rulemaking, the Treasury Department and
the IRS requested public comments on the proposed collections of
information including: (i) whether the proposed collection of
information is necessary for the proper performance of the functions of
the IRS; (ii) the accuracy of the estimated burden associated with the
proposed collection of information; (iii) how the quality, utility, and
clarity of the information to be collected may be enhanced; (iv) how
the burden of complying with the proposed collection of information may
be minimized; and (v) estimates of capital or start-up costs and costs
of operation, maintenance, and purchase of services to provide
information.
One commenter suggested the Treasury Department and the IRS provide
additional clarification regarding the estimated time for filers to
find and display the prevailing wage rates and to request qualified
apprentices from registered apprenticeship programs. One commenter
suggested that the estimate failed to consider additional actions
related to complying with PWA rules, such as tracking the payment of
prevailing wages and usage of qualified apprentices. Commenters stated
that it may take some taxpayers more than two hours annually to find
and display the prevailing wage rates and to request qualified
apprentices from registered apprenticeship programs. Another commenter
expressed confusion over the difference in the proposed compliance time
required by trusts and estate in comparison to all other filers.
The Treasury Department and the IRS agree that the estimated annual
burden with respect to the reporting and recordkeeping requirements of
these final regulations can be clarified. The preamble to the NPRM
estimated these recordkeeping and reporting obligations necessary for
compliance with the PWA Requirements will take 40 hours annually. This
estimate was submitted as part of seeking a new OMB control number with
respect to trust and estate filers. The estimate will also be submitted
to OMB as part of the annual approval process with respect to the OMB
control numbers that already exist for other filers.\37\ This estimate
includes time necessary for taxpayers to become familiar with the
obligations set forth in these regulations. Much of the data taxpayers
will be required to maintain, such as the applicable prevailing wage
rates, is readily available from DOL websites. Additionally, the
recordkeeping requirements with respect to amounts paid to laborers and
mechanics are similar to existing requirements imposed by other law.
While exact data is not available to estimate the additional burden
imposed by these regulations, the Treasury Department and the IRS have
retained the estimate of 40 hours.
---------------------------------------------------------------------------
\37\ Additional information on taxpayer compliance burdens can
be found in Publication 5743, IRS Taxpayer Compliance Burden,
https://www.irs.gov/pub/irs-pdf/p5743.pdf.
---------------------------------------------------------------------------
The commenters also suggested that the two hours estimated for all
filers with respect to the third-party disclosures did not properly
account for the expected burdens. The Treasury
[[Page 53248]]
Department and the IRS agree with this comment and have revised the
estimate to account for the burden of complying with the Apprenticeship
Requirements. The final regulations require taxpayers to request
qualified apprentices from an apprenticeship program with an area of
operation that includes the location of the facility and may require
taxpayers to submit additional requests on an annual basis if requests
have been denied. Further, the final regulations will require taxpayers
to review the standards and requirements of the registered
apprenticeship program as part of making a request, which will likely
take more than the two hours estimated as part of the preamble to the
proposed regulations. Accordingly, the Treasury Department and the IRS
have determined that the estimated burden to comply with the third-
party disclosures is four hours instead of two hours.
No other public comments were received by the IRS directed
specifically at the PRA or on the collection requirements, but
commenters generally articulated the burdens associated with the
documentation requirements contained in the Proposed Regulations. As
described in the relevant portions of this preamble, the Treasury
Department and the IRS believe that the documentation requirements are
necessary to administer the increased credit amounts resulting from
compliance with the PWA requirements.
III. Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to Federal rules that are subject to
the notice and comment requirements of section 553(b) of the
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely
to have a significant economic impact on a substantial number of small
entities. Unless an agency determines that a proposal is not likely to
have a significant economic impact on a substantial number of small
entities, section 603 of the RFA requires the agency to present a final
regulatory flexibility analysis (FRFA) of the final regulations. The
Treasury Department and the IRS have not determined whether the final
regulations will likely have a significant economic impact on a
substantial number of small entities. This determination requires
further study. Because there is a possibility of significant economic
impact on a substantial number of small entities, a FRFA is provided in
these final regulations.
Pursuant to section 7805(f) of the Code, the Proposed Regulations
were submitted to the Chief Counsel of the Office of Advocacy of the
Small Business Administration for comment on its impact on small
business. The Treasury Department and the IRS also requested comments
generally with respect to the number of entities affected by the
Proposed Regulations and the economic impact on small entities.
A. Need for and Objectives of the Rule
The final regulations provide clarifying guidance for taxpayers
intending to satisfy the PWA requirements to qualify for the increased
amounts of credit or deduction under sections 30C, 45, 45Q, 45V, 45Y,
45Z, 48C, and 179D and for those taxpayers intending to satisfy the
Prevailing Wage Requirements to qualify for the increased credit
amounts under sections 45L and 45U. These final regulations provide
needed guidance for taxpayers on obtaining and using applicable wage
determinations issued by the DOL, on the time and manner for reporting
compliance with the PWA requirements, as well as needed definitions.
The final regulations also provide guidance concerning correction and
penalty payments that can be made by taxpayers who initially fail to
satisfy the PWA requirements in order to qualify for the increased
amounts of credit and deduction.
The Treasury Department and the IRS expect that the increased
amounts of credit and deduction of five times the base amount of credit
or deduction for taxpayers that ensure the payment of paying prevailing
wages and hiring qualified apprentices in the construction, alteration,
or repair of qualified facilities provides financial incentives that
will beneficially impact various industries involved in the investment
in and production of clean energy. These final regulations provide
clarifying guidance that will assist taxpayers seeking to comply with
the statutory PWA requirements in order to take advantage of the
financial incentives. In the absence of this clarifying guidance,
taxpayers would be required to rely solely upon the language of the
Code in determining how to comply with the PWA requirements, which
would likely deter many taxpayers from seeking the increased amounts of
credit and deduction and would otherwise greatly increase the costs of
compliance for taxpayers choosing to pursue the credits. The Treasury
Department and the IRS expect that the increased credit and deduction
amounts available to taxpayers as financial incentives will exceed the
costs of the additional recordkeeping and reporting obligations imposed
on taxpayers by these regulations beyond those otherwise be required by
the statute.
The Treasury Department and the IRS also expect the financial
incentives of the increased amounts of credit and deduction for
taxpayers that ensure payment of prevailing wage rates and use of
qualified apprentices will deliver benefits across the economy by
creating increased opportunities for contractors and subcontractors as
well as laborers and mechanics to become involved in clean energy
production. Allowing these increased amounts of credits and deduction
for taxpayers who satisfy the PWA requirements will incentivize
expansion of clean energy resources and will reduce economy wide
greenhouse gas emissions.
B. Significant Issues Raised by Public Comments in Response to the
Initial Regulatory Flexibility Analysis
The Small Business Administration's Office of Advocacy provided
comments on the initial regulatory flexibility analysis (IRFA) set
forth in the Proposed Regulations. Specifically, the Office of Advocacy
commented that the IRFA did not adequately describe regulated small
entities, that the IRFA did not adequately estimate potential impacts
to regulated small entities, and that the IRFA did not adequately
discuss specific alternatives that might reduce the impact on small
entities.
Other comments were received on the burdens associated with the PWA
requirements, including burdens on small businesses. One commenter
requested that the process for obtaining wage determinations from the
DOL be streamlined to avoid delays that might increase uncertainty and
costs for contractors. Another commenter suggested that because
prevailing wage rates are subject to change, the PWA requirements
create uncertainty and risk that will increase costs for construction
projects. One commenter suggested reducing the burden on small
businesses to qualify for the Good Faith Effort Exception. Another
commenter proposed that the Treasury Department and the IRS decline to
impose penalties for any failure to satisfy the Participation
Requirement with respect to any contractor or subcontractor that
qualifies as a ``small business'' under the U.S. Small Business
Administration's ``Table of Size Standards''.
The Treasury Department and the IRS have made a number of revisions
to these final regulations to assist taxpayers, including small
businesses, and reduce the burdens associated with
[[Page 53249]]
complying with the PWA requirements. These revisions are discussed in
this Summary of Comments and Explanation of Revisions of the preamble
to these regulations and in this FRFA.
C. Affected Small Entities
The RFA directs agencies to provide a description of, and if
feasible, an estimate of, the number of small entities that may be
affected by the proposed rules, if adopted. The Small Business
Administration's (SBA) Office of Advocacy estimates in its 2023
Frequently Asked Questions that 99.9 percent of American businesses
meet its definition of a small business. The applicability of these
Proposed Regulations does not depend on the size of the business, as
defined by the SBA. These final regulations may affect a variety of
different entities across several different green energy industries as
they prescribe rules with respect to ten different sections of the Code
with provisions related to increased amounts of credit and deduction.
The Office of Advocacy commented that the IRFA did not describe or
estimate the number of impacted small entities and did not provide
information related to such entities such as the North American
Industry Classification System (NAICS) classifications. The Office of
Advocacy also commented that because the regulation requires taxpayers
to verify compliance for contracted work, that the Proposed Regulations
were directly regulating the contractors hired to perform the work and
that the IRFA failed to consider the impact of the proposed rules on
these contractors and subcontractors, many of which are likely small
businesses. The Treasury Department and the IRS utilize tax data as the
basis for its Regulatory Flexibility Act analysis. Tax entities supply
information on tax forms, which information is processed and recorded
by the IRS. This data is then available to the IRS office of Research,
Applied Analytics and Statistics and to the Treasury Department's
Office of Tax Policy for use in estimating the impact of tax regulation
on businesses.
Tax data is the more appropriate data as it provides nearly
universal coverage of the entities that are affected by these tax
regulations. All taxpayers and many potential taxpayers are represented
in the universe of tax data. Second, the tax data more accurately
reflect the level of organization to which tax regulations are
applicable because tax data is collected on the entity rather than the
enterprise level. Overwhelmingly, business tax regulations apply to the
entity level making tax data a natural fit for the analysis of
regulatory impact. Further, with limited exceptions, tax regulations
apply to all entities organized in a particular manner regardless of
industry or size. Finally, analysis of the implications of tax
regulations for the purposes of the Paperwork Reduction Act and any
Special Analyses, including the Regulatory Impact Analysis, are carried
out using tax data. Generally, restricting analysis for the RFA to tax
data prevents difficulties in reconciling the different analyses within
a given regulation.
Reliance on tax data has some drawbacks. In general, tax forms do
not collect information unless it is directly relevant to the
calculation of tax liability. The NAICS codes referenced by the Office
of Advocacy are included on tax forms for informational purposes and
may not be reliable. For example, past the first two-digits of the
NAICS code, economic sector level, entries may be left blank in the raw
data. In addition, for a tax entity that is comprised of multiple
different enterprises that each operate in a different industry, the
NAICS code reported on a tax form may not reflect the appropriate
industry for the regulation under analysis. Furthermore, most tax
returns have no independent verification of the accuracy of NAICS
codes. Notwithstanding this concern, tax data remains the most
appropriate data for analysis of the implications of tax regulations.
The Treasury Department and the IRS have considered other data
alternatives including Census data sources, such as the Statistics of
U.S. Businesses (SUSB) suggested by SBA's Office of Advocacy. The 2020
SUSB includes only six million firms and eight million establishments
while the proposed tax data include approximately 18 million business
entities. Unlike the SUSB data, the tax data include more small
businesses, not only ones with at least one employee. Tax data provide
a more inclusive estimate of businesses affected by tax regulations. In
conclusion, while tax data are an appropriate resource for evaluating
the impact of tax regulations, this data does not permit some of the
usual analysis presented to the SBA. Furthermore, since the NAICS codes
reported on the tax return may not accurately reflect the industry of
the entity, applying separate standards by industry is inadvisable.
Thus, the Treasury Department and the IRS have determined that
reliance on NAICS codes would not accurately reflect the entities
affected by these regulations. Further, the Treasury Department and the
IRS currently do not have useable tax data that reflects the entities
that will be affected by these regulations. While there is uncertainty
as to the exact number of small businesses within this group, the
Treasury Department and the IRS continue to estimate that approximately
70,000 taxpayers will be impacted as described in the preamble to the
Proposed Regulations.
With respect to the Office of Advocacy's comments regarding the
regulation of contractors and subcontractors, these regulations provide
guidance for taxpayers that seek the increased amounts of credit and
deduction provided under the IRA by ensuring the payment of prevailing
wage rates and the use of qualified apprentices with respect to the
construction of qualified facilities. The regulations do not directly
regulate the contractors and subcontractors who may be hired by
taxpayers. The taxpayers claiming the increased amounts of credit and
deduction are the entities responsible for compliance with the PWA
requirements. While the final regulations set forth and incentivize
various practices, taxpayers retain flexibility to determine how best
to ensure compliance with the statutory requirements and the
recordkeeping and reporting obligations imposed as part of these final
regulations.
D. Impact of the Rules
These final regulations provide rules for how taxpayers can satisfy
the PWA requirements in order to seek the increased credit amounts
under section 45 as well as the increased amounts of credit or
deduction available under sections 30C, 45L, 45Q, 45U, 45V, 45Y, 45Z,
48C, and 179D. Taxpayers that seek to claim the increased amount of
credit or deduction will have administrative costs related to reading
and understanding these final regulations, as well as increased costs
for the recordkeeping and reporting requirements necessary to establish
compliance with the PWA requirements. The costs will vary across
different-sized taxpayers and across the type of facilities and
projects in which such taxpayers are engaged.
The Prevailing Wage Requirements require the taxpayer to obtain the
published wage determination issued by the DOL for the county in which
the facility is located. To the extent a wage determination does not
include a required classification, or if no wage determination has been
published, the taxpayer is required to contact the DOL to obtain a
supplemental wage determination or a wage rate for an additional
classification. The taxpayer is required to ensure that any contractor
or subcontractor that works on the
[[Page 53250]]
construction, alteration, or repair of a facility has paid hourly wages
in accordance with the applicable wage determination for each
classification required to complete such work. In order to be eligible
for certain cure provisions, the taxpayer is required to know or be
able to determine whether the laborers and mechanics employed for
construction, alteration, or repair of the facility were paid in
accordance with the applicable wage determination. Additionally, the
taxpayer is required to retain records sufficient to establish
compliance for as long as may be relevant. The Treasury Department and
the IRS expect that some of the recordkeeping that is required under
these rules will be consistent with recordkeeping requirements already
imposed under the DBA and the Fair Labor Standards Act, 29 U.S.C. 201
et seq.
In adopting these final regulations, the Treasury Department and
the IRS have made several revisions that will ease burdens for
taxpayers. A few commenters commented on the time that will be required
for taxpayers and contractors to read and understand these regulations.
In a number of instances, the final regulations have been revised in
response to comments to assist taxpayers with understanding the rules,
including through clarifying explanations in the preamble, edits to the
regulatory text, and additional examples.
Other changes have been made throughout these regulations that will
reduce burdens on taxpayers. The Proposed Regulations would have
established the time that construction starts as the applicable time
for taxpayers and contractors to determine applicable wage rates.
Commenters stated this would be burdensome for taxpayers to determine
labor costs and could require the renegotiation of contracts that have
been executed. In response to these comments, the final regulations
provide that generally the applicable prevailing wage rates are
determined at the time a taxpayer (or the taxpayer's designee,
assignee, or agent) executes the contract for the construction,
alteration, or repair of the facility with a contractor. The final
regulations also provide transition rules that delay the start of the
PWA Requirements to assist taxpayers with complying with the PWA
requirements. Under the transition rules, the PWA requirements only
apply for work performed on or after January 29, 2023, which follows
the issuance of the initial guidance on the PWA requirements by the
Treasury Department and the IRS. The final regulations also prescribe
penalty waivers for taxpayers who make limited errors in compliance
with the Prevailing Wage Requirements. In response to comments, the
threshold to qualify for the penalty waivers has been increased to
underpayments that do not exceed five percent of all amounts required
to be paid in a calendar year to make the penalty waiver more
accessible to taxpayers with small failures.
For the Apprenticeship Requirements, the taxpayer, contractor, or
subcontractor, is required to contact a registered apprenticeship
program for purposes of requesting the dispatch of qualified
apprentices to work on the construction, alteration, or repair of the
facility. Whether or not the registered apprenticeship program
dispatches qualified apprentices, the taxpayer is required to maintain
and preserve records to establish compliance for as long as may be
relevant.
The Apprenticeship Requirements have also been revised in these
final regulations that will reduce burdens for taxpayers. In response
to several comments, the final regulations clarify that the requirement
to use qualified apprentices only applies with respect to the
construction of a facility prior to the facility being placed in
service, and does not apply to alterations or repairs after the
facility is placed in service. Several comments were received on the
burden of the Proposed Regulations that would have required the renewal
of requests for qualified apprentices every 120 days for taxpayers to
continue to qualify for the Good Faith Effort Exception. These final
regulations have extended the 120-day period to provide that qualified
apprentices only need to be requested on an annual basis to qualify for
the Good Faith Effort Exception. This revision reduces burdens for
taxpayers and contractors who would have been required to evaluate
labor needs on a frequent basis and provides taxpayers and their
contractors with flexibility to make hiring decisions over a longer
period of time.
The taxpayer claiming the increased credit or deduction amount is
required to report the payment of prevailing wages and the utilization
of qualified apprentices consistent with the forms and instructions of
the IRS. Although the Treasury Department and the IRS do not have
sufficient data to precisely determine the likely extent of the
increased costs of compliance, the estimated burden of complying with
the recordkeeping and reporting requirements are described in Section
II. of this Special Analyses pertaining to the Paperwork Reduction Act.
E. Alternatives Considered
The Treasury Department and the IRS considered alternatives to
these final regulations. The Office of Advocacy commented that the
recordkeeping and reporting requirements of the Proposed Regulations
would likely discourage small entities from bidding on clean energy
projects because they will incur heightened compliance costs without
sharing in the financial benefits of the increased amounts of credit
and deduction. In contrast, several commenters recommended that the
Treasury Department and the IRS adopt additional pre-filing enforcement
processes to ensure that laborers and mechanics are paid wages at rates
not less than the applicable prevailing wage rates. Commenters
suggested that that final regulations impose significant additional
reporting and recordkeeping requirements, including many pre-filing
reporting requirements such as certified weekly payroll and monthly
apprenticeship hours reporting.
The final regulations strike an appropriate balance between these
alternatives that minimizes burdens for taxpayers and their contractors
while also ensuring that laborers and mechanics are paid wages at rates
not less than the applicable prevailing wage rates, and ultimately that
the IRS has sufficient information to administer the provisions related
to increased amounts of credit and deduction that are claimed on
returns filed by taxpayers. Thus, the final regulations do not adopt
the pre-filing alternatives urged by the commenters, including the DBA
requirement of submitting weekly certified payroll records to the IRS.
The submission of weekly payroll records to the IRS by taxpayers would
not assist the IRS with the efficient administration of the increased
credit amount provisions and would increase burdens for taxpayers. The
Treasury Department and the IRS also considered an alternative
requirement that taxpayers submit payroll records for all laborers and
mechanics at the time of filing a return that claims an increased
credit amount. The Treasury Department and the IRS determined that per-
laborer and per-mechanic payroll records would not provide the IRS with
useful information and would also involve substantial burdens for
taxpayers to report such information.
The Office of Advocacy also commented that the IRFA did not analyze
how the Proposed Regulations treatment of PLAs would increase the
compliance costs of the regulation to small construction firms because
they primarily use non-union labor. As
[[Page 53251]]
discussed in Section V.D. of this Summary of Comments and Explanation
of Revisions, the Treasury Department and the IRS have determined that
PLAs may help taxpayers comply with the PWA requirements. Further,
studies show that PLAs do not necessarily increase construction costs.
Lastly, a taxpayer may choose to use a PLA for construction of its
facility; it is not a mandate.
A few commenters expressed concern regarding the potential of the
PWA requirements to inflate construction costs, increase the time to
complete clean energy projects, and lessen the participation of small
businesses in such projects. Commenters opined that by using the DBA
prevailing wage rates, the Treasury Department and the IRS were setting
wage standards using a process that is flawed and inaccurate, and that
will have inflationary impacts on construction costs. The Prevailing
Wage Requirements for an increased credit (or deduction) amount are set
forth in the various provisions of the IRA that direct the use of
prevailing wage rates as determined by the Secretary of Labor in
accordance with the DBA. Thus, alternatives to using the DBA prevailing
rates were not adopted in the final regulations as they would lack a
statutory basis. Further, DOL processes for setting wage standards is
within the DOL's jurisdiction and thus outside the scope of these final
regulations.
F. Duplicative, Overlapping, or Conflicting Federal Rules
For facilities built under contracts with the Federal Government,
or with Federal financial or other assistance provided under a Davis-
Bacon Related Act, the final regulations may overlap with the rules
under the DBA, 29 CFR parts 1, 5, and 7. In all other instances, the
final regulations do not duplicate, overlap, or conflict with any
relevant Federal rules.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 requires
that agencies assess anticipated costs and benefits and take certain
other actions before issuing a final rule that includes any Federal
mandate that may result in expenditures in any one year by a State,
local, or Tribal government, in the aggregate, or by the private
sector, of $100 million (updated annually for inflation). These final
regulations do not include any Federal mandate that may result in
expenditures by State, local, or Tribal governments, or by the private
sector in excess of that threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (Federalism) prohibits an agency from
publishing any rule that has federalism implications if the rule either
imposes substantial, direct compliance costs on State and local
governments, and is not required by statute, or preempts State law,
unless the agency meets the consultation and funding requirements of
section 6 of the Executive order. These final regulations do not have
federalism implications and do not impose substantial direct compliance
costs on State and local governments or preempt State law within the
meaning of the Executive order.
VI. Executive Order 13175: Consultation and Coordination With Indian
Tribal Governments
Executive Order 13175 (Consultation and Coordination with Indian
Tribal governments) prohibits an agency from publishing any rule that
has Tribal implications if the rule either imposes substantial, direct
compliance costs on Indian Tribal governments, and is not required by
statute, or preempts Tribal law, unless the agency meets the
consultation and funding requirements of section 5 of the Executive
order. On September 25, 2023, the Treasury Department and the IRS held
a consultation with Tribal leaders requesting assistance in addressing
questions related to the Proposed Regulations, which informed the
development of these final regulations.
VII. Congressional Review Act
Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.),
the Office of Information and Regulatory Affairs designated this rule
as a major rule as defined by 5 U.S.C. 804(2).
Statement of Availability of IRS Documents
IRS notices and other guidance cited in this preamble are published
in the Internal Revenue Bulletin (or Cumulative Bulletin) and are
available from the Superintendent of Documents, U.S. Government
Publishing Office, Washington, DC 20402, or by visiting the IRS website
at https://www.irs.gov.
Drafting Information
The principal author of these final regulations is the Office of
the Associate Chief Counsel (Passthroughs and Special Industries).
However, other personnel from the Office of Chief Counsel, the Treasury
Department, and the IRS participated in the development of these
regulations.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 is amended by adding
entries for Sec. Sec. 1.30C-3, 1.45-6 through 1.45-8, 1.45-12, 1.45L-
3, 1.45Q-6, 1.45U-3, 1.45V-3, 1.45Y-3, 1.45Z-3, 1.48C-3, and 1.179D-3
in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.30C-3 also issued under 26 U.S.C. 30.
* * * * *
Section 1.45-6 also issued under 26 U.S.C. 45.
Section 1.45-7 also issued under 26 U.S.C. 45.
Section 1.45-8 also issued under 26 U.S.C. 45.
Section 1.45-12 also issued under 26 U.S.C. 45.
* * * * *
Section 1.45L-3 also issued under 26 U.S.C. 45L.
* * * * *
Section 1.45Q-6 also issued under 26 U.S.C. 45Q.
Section 1.45U-3 also issued under 26 U.S.C. 45U.
Section 1.45V-3 also issued under 26 U.S.C. 45V.
Section 1.45Y-3 also issued under 26 U.S.C. 45Y.
Section 1.45Z-3 also issued under 26 U.S.C. 45Z.
* * * * *
Section 1.179D-3 also issued under 26 U.S.C. 179D.
* * * * *
0
Par. 2. Sections 1.30C-1 through 1.30C-3 are added to read as follows:
Sec. Sec. 1.30C-1--1.30C-2 [Reserved]
Sec. 1.30C-3 Rules relating to the increased credit amount for
prevailing wage and apprenticeship.
(a) In general. If any qualified alternative fuel vehicle refueling
project (as defined by section 30C(g)(1)(B)) placed in service during
the taxable year satisfies the requirements in paragraph (b) of this
section, the credit determined under section 30C(a) for any qualified
alternative fuel vehicle refueling property of a character subject to
an allowance for depreciation that is part of such project is
multiplied by five.
(b) Qualified alternative fuel vehicle refueling project
requirements. A qualified alternative fuel vehicle
[[Page 53252]]
refueling project satisfies the requirements of this paragraph (b) if
it is one of the following--
(1) A project the construction of which began prior to January 29,
2023; or
(2) A project that meets the prevailing wage requirements of
section 45(b)(7) and Sec. 1.45-7, the apprenticeship requirements of
section 45(b)(8) and Sec. 1.45-8, and the recordkeeping and reporting
requirements of Sec. 1.45-12, all with respect to the construction of
any qualified alternative fuel refueling property within the meaning of
section 30C before such project is placed in service.
(c) Applicability date. This section applies to qualified
alternative fuel vehicle refueling projects placed in service in
taxable years ending after June 25, 2024, and the construction of which
begins after June 25, 2024. Taxpayers may apply this section to
qualified alternative fuel vehicle refueling projects placed in service
in taxable years ending on or before June 25, 2024, and qualified
alternative fuel vehicle refueling projects placed in service in
taxable years ending after June 25, 2024, the construction of which
begins before June 25, 2024, provided that taxpayers follow this
section in its entirety and in a consistent manner.
0
Par. 3. Sections 1.45-0 through 1.45-12 are added to read as follows:
Sec.
* * * * *
1.45-0 Table of contents.
1.45-1--1.45-5 [Reserved]
1.45-6 Increased credit amount.
1.45-7 Prevailing wage requirements.
1.45-8 Apprenticeship requirements.
1.45-9--1.45.11 [Reserved]
1.45-12 Recordkeeping and reporting.
* * * * *
Sec. 1.45-0 Table of contents.
This section lists the table of contents for Sec. Sec. 1.45-1
through 1.45-12.
Sec. Sec. 1.45-1--1.45-5 [Reserved]
Sec. 1.45-6 Increased credit amount.
(a) In general.
(b) Qualified facility requirements.
(c) Definition of nameplate capacity for purposes of determining
maximum net output under section 45(b)(6)(B)(i).
(d) Applicability date.
Sec. 1.45-7 Prevailing wage requirements.
(a) Prevailing wage requirements.
(b) Wage determinations.
(c) Curing a failure to satisfy the prevailing wage requirements.
(d) Definitions.
(e) Applicability date.
Sec. 1.45-8 Apprenticeship requirements.
(a) Apprenticeship requirements.
(b) Labor hours requirement.
(c) Ratio requirement.
(d) Participation requirement.
(e) Examples.
(f) Exceptions to the apprenticeship requirements.
(g) Definitions.
(h) Applicability date.
Sec. Sec. 1.45-9--1.45-11 [Reserved]
Sec. 1.45-12 Recordkeeping and reporting.
(a) In general.
(b) Recordkeeping for the prevailing wage and apprenticeship
requirements.
(c) Recordkeeping for the prevailing wage requirements.
(d) Recordkeeping for the apprenticeship requirements.
(e) Satisfaction of the recordkeeping requirements.
(f) Applicability date.
Sec. Sec. 1.45-1--1.45-5 [Reserved]
Sec. 1.45-6 Increased credit amount.
(a) In general. If a qualified facility (as defined in section 45)
satisfies the requirements in paragraph (b) of this section, the amount
of the renewable electricity production credit determined under section
45(a) (after the application of section 45(b)(1) through (5)) is equal
to the credit determined under section 45(a) multiplied by five.
(b) Qualified facility requirements. A qualified facility satisfies
the requirements of this paragraph (b) if it is one of the following--
(1) A facility with a maximum net output (as determined under
paragraph (c) of this section) of less than one megawatt (as measured
in alternating current);
(2) A facility the construction of which began prior to January 29,
2023; or
(3) A facility that meets the prevailing wage requirements of
section 45(b)(7) and Sec. 1.45-7, the apprenticeship requirements of
section 45(b)(8) and Sec. 1.45-8, and the recordkeeping and reporting
requirements of Sec. 1.45-12.
(c) Definition of nameplate capacity for purposes of determining
maximum net output under section 45(b)(6)(B)(i). For purposes of
determining whether a facility has a maximum net output of less than
one megawatt (as measured in alternating current) for purposes of
section 45(b)(6)(B)(i), nameplate capacity is determinative. Nameplate
capacity for an electrical generating unit means the maximum electrical
generating output in megawatts that the unit is capable of producing on
a steady state basis and during continuous operation under standard
conditions, as measured by the manufacturer and consistent with the
definition provided in 40 CFR 96.202. If applicable, the International
Standard Organization (ISO) conditions are used to measure the maximum
electrical generating output or usable energy capacity.
(d) Applicability date. This section applies to qualified
facilities placed in service in taxable years ending after June 25,
2024, and the construction of which begins after June 25, 2024.
Taxpayers may apply this section to qualified facilities placed in
service in taxable years ending on or before June 25, 2024, and
qualified facilities placed in service in taxable years ending after
June 25, 2024, the construction of which begins before June 25, 2024,
provided that taxpayers follow this section in its entirety and in a
consistent manner.
Sec. 1.45-7 Prevailing wage requirements.
(a) Prevailing wage requirements--(1) In general. Except as
provided in paragraphs (a)(2), (3), and (c) of this section, a taxpayer
claiming or transferring (under section 6418) the increased credit
amount under section 45(b)(6)(B)(iii) with respect to any qualified
facility must satisfy the requirements of section 45(b)(7) and this
section by ensuring that all laborers and mechanics employed by the
taxpayer or any contractor or subcontractor in the construction of such
facility, and with respect to any taxable year, for any portion of such
taxable year that is within the 10-year period beginning on the date
the qualified facility was placed in service, the alteration or repair
of such facility, are paid wages at rates not less than the prevailing
rates for construction, alteration, or repair of a similar character in
the locality in which such facility is located (Prevailing Wage
Requirements). If alteration or repair of a qualified facility occurs
during any portion of such taxable year(s) within the 10-year period
after the qualified facility was placed in service, the Prevailing Wage
Requirements apply with respect to such taxable year(s) in which that
alteration or repair occurs. If no alteration or repair work occurs
during the taxable year(s) with respect to the qualified facility after
the facility is placed in service, the taxpayer is deemed to satisfy
the Prevailing Wage Requirements with respect to such taxable year.
Prevailing rates are those rates most recently determined by the
Secretary of Labor in accordance with 40 U.S.C. chapter 31, subchapter
IV (Davis-Bacon Act), and as set forth in paragraph (b) of this
section. See paragraph (d) of this section for definitions of terms
used in this section.
[[Page 53253]]
(2) Transition relief. Taxpayers are excepted from the Prevailing
Wage Requirements with respect to any activities that would be
considered construction, alteration, or repair of the qualified
facility and that occurred prior to January 29, 2023.
(3) Relief for Indian Tribal governments. An Indian Tribal
government, as defined in section 30D(g)(9), and including any
subdivision, agency, or instrumentality of the Indian Tribal
government, is excepted from the Prevailing Wage Requirements with
respect to laborers and mechanics that are employees, within the
meaning of section 3121(d)(2), of the Indian Tribal government. This
paragraph (a)(3) also applies to a qualified facility that is subject
to joint ownership arrangements that involve an Indian Tribal
government, including any subdivision, agency, or instrumentality of
the Indian Tribal government. However, any activity that would be
considered construction, alteration, or repair of the qualified
facility that is not performed by Indian Tribal government employees
(within the meaning of section 3121(d)(2)), but that is instead
performed by or through a contractor or subcontractor, is subject to
the Prevailing Wage Requirements described in this paragraph (a).
(b) Wage determinations--(1) In general. A taxpayer satisfies the
Prevailing Wage Requirements with respect to a qualified facility, if
the taxpayer ensures that laborers and mechanics employed by the
taxpayer or any contractor or subcontractor in the construction,
alteration, or repair of the facility are paid wages at rates not less
than those set forth in the applicable wage determination issued by the
Secretary of Labor pursuant to 40 U.S.C. 3142, 29 CFR part 1, and other
implementing guidance for the specified type of construction in the
geographic area where that facility is located. If the construction,
alteration, or repair of a facility occurs in more than one geographic
area, the taxpayer, contractor, or subcontractor must use the
applicable wage determination for the work performed in each geographic
area. Subject to the requirements of this section, the applicable wage
determination is a general wage determination described in paragraph
(b)(2) of this section (including any additional classifications and
wage rates described in paragraph (b)(3) of this section), or a
supplemental wage determination described in paragraph (b)(3) of this
section.
(2) General wage determinations--(i) In general. Except as provided
in paragraph (b)(3) of this section, to satisfy the Prevailing Wage
Requirements described in paragraph (a) of this section with respect to
a qualified facility, taxpayers must ensure that laborers and mechanics
employed by the taxpayer or any contractor or subcontractor in the
construction, alteration, or repair of the facility are paid wages at
rates not less than those set forth in the applicable general wage
determination(s) published by the U.S. Department of Labor on the
approved website. The applicable general wage determination is the
general wage determination in effect for the specified type of
construction in the geographic area at the time a contract for the
construction, alteration, or repair of the facility is executed by the
taxpayer (or the taxpayer's designee, assignee, or agent) and any
contractor. The applicable general wage determination will continue in
effect for any additional contracts executed by such contractor with
any subcontractors with respect to the construction, alteration, or
repair of the facility. In the absence of a contract (or if the date of
execution of the contract cannot be reasonably determined), the
applicable general wage determination is the general wage determination
in effect for the specified type of construction in the geographic area
when the construction, alteration, or repair of the facility starts.
(ii) Wage determinations applicable to Indian Tribal governments.
If the taxpayer is an Indian Tribal government, as defined in section
30D(g)(9), including any subdivision, agency, or instrumentality of the
Indian Tribal government, and the construction, alteration, or repair
of a qualified facility occurs on Indian land, as defined in 25 U.S.C.
3501(2), that encompasses or overlaps with more than one geographic
area with respect to which the U.S. Department of Labor has issued a
general wage determination, the Indian Tribal government may choose the
general wage determination applicable for any one of those geographic
areas and apply that general wage determination for work performed on
any qualified facility that is located on the Indian land. This
paragraph (b)(2)(ii) also applies to a qualified facility that is
subject to joint ownership arrangements that involve an Indian Tribal
government, including any subdivision, agency, or instrumentality of
the Indian Tribal government. If the Indian Tribal government chooses
to use a single general wage determination under this paragraph
(b)(2)(ii), it must maintain and preserve records sufficient to
document the applicable prevailing wage rates for each laborer and
mechanic employed by the Indian Tribal government or any contractor or
subcontractor with respect to each qualified facility on Indian land.
(3) Supplemental wage determinations and additional classifications
and rates--(i) Use of supplemental wage determinations and additional
classifications and rates. In the event the Secretary of Labor has not
issued a general wage determination for the relevant geographic area
and type of construction for the facility, or the Secretary of Labor
has issued a general wage determination for the relevant geographic
area and type of construction, but one or more labor classifications
for the construction, alteration, or repair work that will be done on
the facility by laborers or mechanics is not listed, the taxpayer must
ensure that laborers and mechanics employed by the taxpayer or any
contractor or subcontractor in the construction, alteration, or repair
of a facility are paid wages at rates not less than those set forth in
a supplemental wage determination or in an additional classification
and wage rate issued to the taxpayer by the U.S. Department of Labor
upon request by the taxpayer, contractor, or subcontractor in
accordance with paragraph (b)(3)(ii) of this section. A taxpayer,
contractor, or subcontractor may also request a supplemental wage
determination if the location of the facility involves work by covered
laborers and mechanics that spans more than one contiguous geographic
area.
(ii) Request for supplemental wage determinations and additional
classifications and rates--(A) Manner of making request. A taxpayer,
contractor, or subcontractor requesting a supplemental wage
determination or additional classification and wage rate under
paragraph (b)(3)(i) of this section must submit the request to the U.S.
Department of Labor at, U.S. Department of Labor, Wage and Hour
Division, Branch of Construction Wage Determinations, Washington, DC
20210, by email at [email protected], or such other address as
may be prescribed in guidance and instructions issued by the
Administrator of the Wage and Hour Division of the U.S. Department of
Labor (Wage and Hour Division).
(B) Timing of supplemental wage determination requests. A taxpayer,
contractor, or subcontractor should make requests for a supplemental
wage determination no more than 90 days before the taxpayer (or the
taxpayer's designee, assignee, or agent) expects to execute the
contract for the
[[Page 53254]]
construction, alteration, or repair of the facility with a contractor.
In the absence of a contract, the taxpayer, contractor, or
subcontractor should make such requests no more than 90 days before
construction, alteration, or repair of the facility starts.
(C) Timing of requests for prevailing wage rates for additional
classifications. A request for prevailing wage rates for additional
classifications can be made any time after a contract for the
construction, alteration, or repair of a facility has been executed
between the taxpayer (or the taxpayer's designee, assignee, or agent)
and a contractor. In the absence of a contract, the taxpayer,
contractor, or subcontractor should make such requests no more than 90
days before construction, alteration, or repair of the facility starts.
If the taxpayer, contractor, or subcontractor cannot reasonably
determine prior to execution of the contract between the taxpayer (or
the taxpayer's designee, assignee, or agent) and the contractor or
prior to the start of the construction, alteration, or repair work that
an additional classification and wage rate is necessary, the taxpayer,
contractor, or subcontractor should make such request as soon as
practicable after determining that an additional classification and
wage rate is necessary.
(D) Required information. The request for a supplemental wage
determination or additional classification and wage rate must include
the following information:
(1) The name of the taxpayer, contractor, or subcontractor
requesting the supplemental wage determination or wage rate;
(2) The general wage determination(s), if any, applicable to
construction, alteration, or repair of the facility;
(3) A description of the work to be performed, including the
type(s) of construction involved and, if the project involves multiple
types of construction, information indicating the expected cost
breakdown by type of construction;
(4) The geographic area in which the facility is being constructed,
altered, or repaired, including the name and address of the facility
(if known);
(5) The date the taxpayer (or the taxpayer's designee, assignee, or
agent) expects to enter into a contract with a contractor for which a
supplemental wage determination is needed or the date of execution of
the contract with a contractor for which a prevailing wage rate for an
additional classification is needed;
(6) The start date of construction, alteration, or repair at the
facility;
(7) The labor classification(s) needed for performance of the work
on the facility (excluding those for which wage rates are available on
an applicable general wage determination);
(8) The duties to be performed by each such labor classification on
the facility;
(9) The proposed wage rate, including any bona fide fringe
benefits, for each such labor classification;
(10) Any pertinent wage payment information that may be available;
(11) Any additional relevant information otherwise required by
forms and instructions published by the U.S. Department of Labor; and
(12) Any additional information the taxpayer, contractor, or
subcontractor wants the U.S. Department of Labor to consider.
(iii) Issuance of supplemental wage determinations and additional
classifications and wage rates. After review, the Wage and Hour
Division will notify the taxpayer, contractor, or subcontractor as to
the supplemental wage determination or the labor classifications and
wage rates to be used for the type of work in question in the
geographic area in which the facility is located. Supplemental wage
determinations issued by the Wage and Hour Division are effective for
180 calendar days from the date such determinations are issued. If a
supplemental wage determination is not incorporated into the contract
(or, in the absence of a contract, if construction has not started)
during the 180-day period, the determination is no longer effective,
and a new supplemental wage determination will need to be requested.
The Wage and Hour Division will resolve requests for a prevailing wage
rate for an additional classification within 30 days of receipt of the
request or will advise the requester within the 30-day period that
additional time is necessary.
(iv) Special rule for qualified facilities located offshore. If a
general wage determination is not available, in lieu of requesting a
supplemental wage determination for a qualified facility located in an
offshore area within the outer continental shelf of the United States,
a taxpayer, contractor, or subcontractor may rely on the general wage
determination for the relevant category of construction that is
applicable in the geographic area closest to the area in which the
qualified facility will be located.
(4) Reconsideration and review. A taxpayer, contractor, or
subcontractor may seek reconsideration and review by the Administrator
of the Wage and Hour Division of a general wage determination, or a
determination issued with respect to a request for a supplemental wage
determination or additional classification and wage rate in accordance
with the procedures set forth in 29 CFR 1.8 and 5.13 and any subsequent
guidance issued by the U.S. Department of Labor. A taxpayer,
contractor, or subcontractor may appeal the decision of the
Administrator of the Wage and Hour Division to the U.S. Department of
Labor's Administrative Review Board in accordance with the procedures
set forth in 29 CFR part 7 and any subsequent guidance issued by the
U.S. Department of Labor. Questions regarding wage determinations and
rates may be referred to the Administrator of the Wage and Hour
Division.
(5) Timing of wage determination. The applicable prevailing wage
rates on a general wage determination are those in effect at the time a
contract for the construction, alteration, or repair of the qualified
facility is executed by the taxpayer (or the taxpayer's designee,
assignee, or agent) and a contractor. After the qualified facility is
placed in service, the applicable prevailing wage rates on a general
wage determination for the alteration or repair of a qualified facility
are those in effect at the time the contract for the alteration or
repair work is executed by the taxpayer (or the taxpayer's designee,
assignee, or agent) and a contractor. The applicable prevailing wage
rates on a general wage determination at the time such contract is
executed apply to all subcontractors of that contractor. If a taxpayer
(or the taxpayer's designee, assignee, or agent) executes separate
contracts with more than one contractor with respect to the
construction, alteration, or repair of the qualified facility, then,
for each such contract, the applicable prevailing wage rates with
respect to any work performed by the contractor (and all subcontractors
of the contractor) are determined at the time the contract is executed
by the taxpayer (or the taxpayer's designee, assignee, or agent). If no
contract exists with respect to the construction, alteration, or repair
of the qualified facility (or if the date of execution of the relevant
contract cannot be reasonably determined), the applicable prevailing
wage rates on a general wage determination are those in effect at the
time the construction, alteration, or repair work starts. The
applicable prevailing wage rates of a general wage determination
generally remain valid for the duration of the work performed with
respect to the construction, alteration, or repair of the qualified
facility by the taxpayer, contractor, or subcontractor. A new general
wage determination is required to be used if the contract between the
[[Page 53255]]
taxpayer (or the taxpayer's designee, assignee, or agent) and the
contractor for work on a facility is modified to include additional
substantial construction, alteration, or repair work not within the
scope of work of the original contract, or to require work to be
performed for an additional time period not originally obligated,
including if an option to extend the term of a contract for the
construction, alteration, or repair is exercised. A new general wage
determination is not required if the contractor is simply given
additional time to complete its original commitment or if the
additional construction, alteration, and/or repair work in the
modification of the contract is merely incidental. In circumstances in
which a new general wage determination is required, the applicable
prevailing wage rates on a general wage determination are those in
effect at the time the additional substantial work is agreed to or at
the time when an option to extend the term of the contract is executed.
If a taxpayer enters into a contract for alteration or repair work over
an indefinite period of time that is not tied to the completion of any
specific work, the applicable prevailing wage rates must be updated on
an annual basis on the anniversary date of such contract. General wage
determinations published on the U.S. Department of Labor approved
website contain no expiration date and remain valid until revised,
superseded, or canceled. Any supplemental wage determination issued
under paragraph (b)(3) of this section applies without expiration from
the time the taxpayer incorporates the supplemental wage determination
into the contract provided that the supplemental wage determination is
incorporated into the contract within 180 days of issuance of the
supplemental wage determination. If there is no contract, any
supplemental wage determination issued under paragraph (b)(3) of this
section applies without expiration from the time construction,
alteration, or repair starts provided the construction, alteration, or
repairs starts within 180 days of issuance of the supplemental
determination. Any additional classification and wage rate issued under
paragraph (b)(3) of this section applies without expiration from the
earlier of the date of issuance or the first day in which work in the
additional classification was performed. If a supplemental wage
determination or additional classification and wage rate is issued
after construction, alteration, or repair of the facility has started,
the applicable prevailing rates apply retroactively to the date
construction started.
(6) Payment of wages. All laborers and mechanics working on a
qualified facility must be paid in the time and manner consistent with
the regular payroll practices of the taxpayer, contractor, or
subcontractor, as applicable. The payment of wages must be made without
subsequent deduction or rebate on any account (except such payroll
deductions as are required by the law or permitted by regulations
issued by the Secretary of Labor), and must consist of the full amount
of wages (including bona fide fringe benefits or cash equivalents
thereof) due at the time of payment computed at rates not less than
those contained in the applicable wage determination of the Secretary
of Labor. A taxpayer may discharge its wage obligations for the payment
of wages by paying the full amount in cash, by making payments to a
bona fide fringe benefit provider or incurring costs for bona fide
fringe benefits, or by a combination thereof. The taxpayer is solely
responsible for ensuring that laborers and mechanics are paid wages not
less than the prevailing rate whether employed directly by the
taxpayer, a contractor, or a subcontractor in the construction,
alteration, or repair of the qualified facility for purposes of
claiming the increased credit amount under section 45(b)(6)(B)(iii).
The rules set forth in 29 CFR 5.25 through 5.33, and any subsequent
guidance issued by the U.S. Department of Labor apply with respect to
costs for bona fide fringe benefits that may be credited for purposes
of the payment of wages.
(7) Apprentices--(i) Rate of pay. Apprentices who perform work with
respect to the construction, alteration, or repair of a qualified
facility consistent with the requirements of section 45(b)(8) and Sec.
1.45-8 may be paid wages at rates that are less than the rates that
would otherwise apply under paragraph (a) of this section. Every
apprentice must be paid wages at rates not less than the rates
specified by the registered apprenticeship program for the apprentice's
level of progress, expressed as a percentage of the journeyworker
hourly rate specified for the apprentice's classification in the
applicable wage determination. If the apprentice is working in a
classification that is not part of the occupation of the registered
apprenticeship program, the apprentice must be paid not less than the
applicable wage rate on the wage determination for laborers or
mechanics working in that classification. Any individual listed on
payroll at an apprenticeship wage, who is not participating in a
registered apprenticeship program, must be paid not less than the
applicable wage rate on the wage determination for the classification
of work actually performed to satisfy the Prevailing Wage Requirements.
In the event the U.S. Department of Labor's Office of Apprenticeship or
a State apprenticeship agency recognized by the U.S. Department of
Labor's Office of Apprenticeship withdraws approval of an
apprenticeship program, the taxpayer, contractor, or subcontractor will
no longer satisfy the Prevailing wage Requirements by paying
apprentices less than the applicable predetermined rate for the work
performed until an acceptable program is approved.
(ii) Bona fide fringe benefits. To satisfy the Prevailing Wage
Requirements, apprentices must be paid bona fide fringe benefits in
accordance with the provisions of the registered apprenticeship
program. If the apprenticeship program does not specify the payment of
bona fide fringe benefits, apprentices must be paid the full amount of
bona fide fringe benefits listed on the wage determination for the
applicable classification in cash or in kind.
(iii) Apprenticeship ratio. The allowance for payment of wages to
apprentices at rates less than the applicable prevailing wage rates
determined by the U.S. Department of Labor is subject to any applicable
ratio of apprentices to journeyworkers required under the registered
apprenticeship program and consistent with section 45(b)(8)(B) and
Sec. 1.45-8. Any apprentice performing construction, alteration, or
repair work on the job site in excess of the ratio permitted under the
registered program or the ratio applicable to the geographic area of
the facility pursuant to 29 CFR 5.5(a)(4)(i) must be paid not less than
the applicable wage rate on the wage determination for the work
actually performed to satisfy the Prevailing Wage Requirements.
Taxpayers, contractors, or subcontractors have the discretion to
determine which apprentice(s) must receive the full prevailing wage
rate for hours worked if the applicable ratio of apprentices to
journeyworkers has not been met.
(iv) Reciprocity of ratios and wage rates. If a taxpayer,
contractor, or subcontractor is performing construction, alteration, or
repair work on a facility in a geographic area other than the
geographic area in which an apprenticeship program is registered, the
taxpayer, contractor, or subcontractor must comply with the apprentice-
to-journeyworker ratios
[[Page 53256]]
applicable within the geographic area in which the construction,
alteration, or repair work is being performed. If there is no
applicable ratio for the geographic area of the facility, the ratio
specified in the registered apprenticeship program standard must be
observed. The wage rates (expressed in percentages of the
journeyworker's hourly rate) applicable within the geographic area in
which the construction, alteration, or repair work is being performed
must be observed.
(c) Curing a failure to satisfy the prevailing wage requirements--
(1) In general. If a taxpayer fails to ensure that all laborers and
mechanics employed by the taxpayer or any contractor or subcontractor
in the construction, alteration, or repair of a qualified facility are
paid wages at rates not less than those set forth in the applicable
wage determination(s), such taxpayer will be deemed to have satisfied
the Prevailing Wage Requirements with respect to such facility for any
year if the taxpayer makes the correction and penalty payments provided
in paragraphs (c)(1)(i) and (ii) of this section.
(i) Correction payment. The taxpayer must pay any laborer or
mechanic who was paid wages at a rate below the rate described in
paragraph (b) of this section for any pay period during such year an
amount equal to the sum of:
(A) The difference between the amount of wages paid to such laborer
or mechanic for all hours worked during such period and the amount of
wages required to be paid to such laborer or mechanic pursuant to
paragraph (a) of this section for all hours worked during such period;
and
(B) Interest on the amount determined under paragraph (c)(1)(i)(A)
of this section at the Federal short-term rate as determined under
section 6621 but substituting ``6 percentage points'' for ``3
percentage points'' in section 6621(a)(2).
(ii) Penalty payment. The taxpayer must pay a penalty equal to
$5,000 multiplied by the total number of laborers and mechanics who
were paid wages at a rate below the rate described in paragraph (b) of
this section for any period during such year.
(iii) Correction and penalty payments not required if taxpayer
ineligible for increased credit amount under section 45(b)(6)(B)(iii).
If the taxpayer claims the increased credit amount under section
45(b)(6)(B)(iii) and does not satisfy the Prevailing Wage Requirements
for the claimed increased credit amount, then the obligation to make
correction and penalty payments under paragraphs (c)(1)(i) and (ii) of
this section applies in order for the taxpayer to retain the credit. If
the IRS determines that a taxpayer claiming the increased credit amount
under section 45(b)(6)(B)(iii) failed to meet the Prevailing Wage
Requirements and the taxpayer does not make the correction and penalty
payments provided in paragraphs (c)(1)(i) and (ii) of this section,
then no penalty is assessed under paragraph (c)(1)(ii) of this section,
and the taxpayer is not eligible for the increased credit amount under
section 45(b)(6)(B)(iii). Taxpayers that are not eligible to claim the
increased credit amount may still be eligible to claim the base amount
of the renewable electricity production credit under section 45(a) if
they meet the requirements to claim the credit.
(iv) Correction and penalty payments in the event of a transfer
pursuant to section 6418. To the extent an eligible taxpayer, as
defined in section 6418(f)(2), has determined an increased credit
amount under section 45(b)(6) and transferred such increased credit
amount as part of a specified credit portion, the obligation to make
correction and penalty payments under paragraphs (c)(1)(i) and (ii) of
this section remains with the eligible taxpayer. The obligation for an
eligible taxpayer to satisfy the Prevailing Wage Requirements becomes
binding upon the earlier of the filing of the eligible taxpayer's
return for the taxable year for which the specified credit portion is
determined with respect to the eligible taxpayer, or the filing of the
return of the transferee taxpayer for the year in which the specified
credit portion is taken into account. If the IRS determines that the
eligible taxpayer failed to meet the Prevailing Wage Requirements and
the eligible taxpayer does not then make the correction and penalty
payments provided in paragraphs (c)(1)(i) and (ii) of this section,
then no penalty is assessed under paragraph (c)(1)(ii) of this section,
and the eligible taxpayer is not eligible for the increased credit
amount determined under section 45(b)(6)(B)(iii). Section 6418 and the
regulations under section 6418 control for determining the impact of an
eligible taxpayer's failure to cure on any transferee taxpayer. The
eligible taxpayer that is not eligible to claim the increased credit
amount may still be eligible to claim the base amount of the renewable
electricity production credit under section 45(a) if they meet the
requirements to claim the credit.
(v) Special rule for laborers and mechanics who cannot be located.
A taxpayer will be deemed to have paid a correction payment, under this
paragraph (c)(1), to a laborer or mechanic who cannot be located if the
taxpayer can establish that correction payments have been made. A
taxpayer may establish that correction payments have been made by
demonstrating compliance with the applicable State unclaimed property
law and all Federal and State withholding and information reporting
requirements with respect to the payments.
(vi) Examples. The provisions of this paragraph (c)(1) are
illustrated by the following examples, which do not take into account
any possible application of the enhanced correction and penalty payment
requirements in the case of intentional disregard under paragraph
(c)(3) of this section, the exception for wages paid before a
determination by the U.S. Department of Labor under paragraph (c)(5) of
this section, or the penalty waiver under paragraph (c)(6) of this
section. In each example, assume that the taxpayer uses the calendar
year as the taxpayer's taxable year.
(A) Example 1. Taxpayer A starts construction of a qualified
facility on February 3, 2023. The facility is placed in service on
October 10, 2023, and Taxpayer A claims the increased credit amount
under section 45(b)(6)(B)(iii) on its 2023 tax return. Laborer X was
employed in the construction, alteration, or repair of the facility in
calendar year 2023 for 20 weeks and was paid on a weekly basis. Laborer
X was paid wages below the prevailing wage rate for all pay periods in
calendar year 2023. All other laborers and mechanics were paid wages at
the prevailing wage rate. The aggregate difference between the amount
of wages Laborer X was paid and the amount required to be paid under
paragraph (a) of this section is $400 (that is, Laborer X worked 20
weeks during the year and was underpaid by $20 in each of those weeks).
The amount of the correction payment Taxpayer A must make to Laborer X
is equal to $400 plus interest from the date of each underpayment at
the rate as determined under section 6621 but substituting ``6
percentage points'' for ``3 percentage points'' in section 6621(a)(2).
The total number of laborers underpaid for any period in 2023 was one,
so the total amount of the penalty payment that Taxpayer A must pay to
the IRS to retain the increased credit amount is $5,000.
(B) Example 2. Taxpayer B starts construction of a qualified
facility on January 30, 2023. The facility is placed in service on
February 2, 2024. Taxpayer B claims the increased credit amount under
section 45(b)(6)(B)(iii) on its 2024 tax return. Taxpayer B paid
workers on a biweekly basis. Five laborers employed in the construction
of the facility were paid wages at rates
[[Page 53257]]
below the prevailing wage rates in 2023, with the difference between
the amount they were paid and the amount of wages required to be paid
under paragraph (a) of this section being $500 per laborer. One of
those laborers remained employed in the construction of the facility in
2024 and was paid wages below the prevailing wage rate in 2024, with
the difference between the amount the laborer was paid and the amount
of wages required to be paid under paragraph (a) of this section being
$100. All other laborers and mechanics involved in the construction,
alteration, or repair of the facility were paid wages at the prevailing
wage rates. Taxpayer B must make correction payments of $500 plus
interest from the date of each underpayment at the rate as determined
under section 6621 but substituting ``6 percentage points'' for ``3
percentage points'' in section 6621(a)(2) to each of the five laborers
that were underpaid in 2023, and a correction payment of $100 plus
interest from the date of each underpayment at the rate as determined
under section 6621 but substituting ``6 percentage points'' for ``3
percentage points'' in section 6621(a)(2) to the laborer that was
underpaid in 2024. The total amount of the penalty payment that
Taxpayer B must pay to the IRS to retain the increased credit amount is
$30,000, which includes $5,000 for each laborer underpaid in 2023 and
$5,000 for the laborer underpaid in 2024.
(C) Example 3. Taxpayer C starts construction of a qualified
facility on January 30, 2023. The facility is placed in service on
February 2, 2024. Taxpayer C claims the increased credit amount under
section 45(b)(6)(B)(iii) on its 2024 tax return. Taxpayer C paid
workers on a biweekly basis. Laborer Y was employed in the construction
of the facility for 22 weeks in 2023 was paid wages at rates below the
prevailing wage rates for the first 20 weeks of her employment in the
amount of $500 (that is, Laborer Y was underpaid $50 in each of the 10
biweekly periods). For the last biweekly pay period, Taxpayer C paid
Laborer Y the correct prevailing rate for the work performed during the
period, plus $500 for the amounts that were underpaid in the first 10
periods. All other laborers and mechanics involved in the construction,
alteration, or repair of the facility were paid at the prevailing wage
rates. Taxpayer C is required to make a correction payment to Laborer Y
in the amount of the interest from the date of each underpayment at the
rate as determined under section 6221 but substituting ``6 percentage
points'' for ``3 percentage points'' in section 6221(a)(2) to the
laborer that was underpaid in 2023. To retain the increased credit
amount, Taxpayer C must make a penalty payment of $5,000 to the IRS
with respect to Laborer Y.
(2) Deficiency procedures not to apply. The penalty payment
required by paragraph (c)(1)(ii) of this section may be assessed and
collected without regard to the deficiency procedures provided by
subchapter B of chapter 63 of the Code. Any determination by the IRS
disallowing a claim for the increased credit amount under section
45(b)(6) will be subject to the deficiency procedures of subchapter B
of chapter 63.
(3) Intentional disregard--(i) Application of section 45
(b)(7)(B)(iii). If the IRS determines that any failure to satisfy the
Prevailing Wage Requirements in paragraph (a) of this section is due to
intentional disregard of the requirement--
(A) The correction payment under paragraph (c)(1)(i) of this
section is increased to three times the sum determined in paragraph
(c)(1)(i) of this section; and
(B) The penalty payment under paragraph (c)(1)(ii) of this section
is increased to $10,000 multiplied by the total number of laborers and
mechanics who were paid wages at a rate below the rate described in
paragraph (b) of this section for any period during such year.
(ii) Meaning of intentional disregard. A failure to ensure that any
laborer or mechanic employed in the construction, alteration, or repair
of a qualified facility is paid wages at the prevailing wage rate is
due to intentional disregard if it is knowing or willful.
(iii) Facts and circumstances considered. The facts and
circumstances that are considered in determining whether a failure to
satisfy the Prevailing Wage Requirements is due to intentional
disregard include, but are not limited to--
(A) Whether the failure was part of a pattern of conduct that
includes repeated or systemic failures to ensure that the laborers and
mechanics were paid wages at rates not less than the applicable
prevailing wage rate, including failures to pay prevailing wages as
required under other applicable laws;
(B) Whether the taxpayer took steps to determine or review the
applicable classifications of laborers and mechanics, such as through a
quarterly, or more frequent, review of the applicable classifications
of laborers and mechanics according to the actual duties performed by
those laborers and mechanics;
(C) Whether the taxpayer took steps to determine or review the
applicable prevailing wage rate(s) for laborers and mechanics to ensure
usage of correct rates by all contractors and subcontractors, such as
through a quarterly, or more frequent, review of the prevailing wage
rates;
(D) Whether the taxpayer promptly cured any failures to ensure that
laborers and mechanics were paid wages at rates not less than the
applicable prevailing rates;
(E) Whether the taxpayer has been required to make a penalty
payment under paragraph (c)(1)(ii) of this section in previous years;
(F) Whether the taxpayer undertook (or engaged an independent third
party to aid in conducting) a quarterly, or more frequent, review of
wages paid to mechanics and laborers to ensure that wages at rates not
less than the applicable prevailing wage rates were paid (including by
reviewing payroll information of contractors and subcontractors or by
requiring contractors and subcontractors to regularly provide payroll
information to the taxpayer or a third party acting on behalf of the
taxpayer);
(G) Whether the taxpayer included provisions in any contracts
entered into with contractors that required the contractors and any
subcontractors retained by the contractors to pay laborers and
mechanics wages at rates not less than the prevailing wage rates and
maintain records to ensure the taxpayer's compliance with recordkeeping
requirements set forth in Sec. 1.45-12;
(H) Whether the taxpayer posted in a prominent place at the
qualified facility or otherwise provided written notice to laborers and
mechanics during the construction, alteration, or repair of the
qualified facility, the applicable wage rate(s) as determined by the
U.S. Department of Labor for all classifications of work to be
performed for the construction, alteration, or repair of the facility,
that in order to be eligible to claim certain tax benefits, employers
must ensure that laborers and mechanics are paid wages at rates not
less than such wage rates, and instructions on how laborers and
mechanics may contact the taxpayers' personnel departments or
taxpayers' managers to report suspected failures to pay prevailing
wages and/or suspected failures to classify workers in accordance with
applicable wage determinations, employment tax violations, or
violations of workplace standard laws without retaliation or adverse
action;
[[Page 53258]]
(I) Whether laborers and mechanics were given the opportunity to
acknowledge notice provided by the taxpayer, contractor, or
subcontractor that in order to be eligible to claim certain tax
benefits, taxpayers must ensure that laborers and mechanics employed by
the taxpayer, contractor, or subcontractor in the construction of a
qualified facility are paid wages at rates not less than prevailing
wage rates;
(J) Whether the taxpayer had in place procedures whereby laborers
and mechanics could report suspected failures to pay prevailing wages
and/or suspected failures to classify workers in accordance with the
wage determination of workers, employment tax violations, or violations
of workplace standard laws to appropriate personnel departments or
managers without retaliation or adverse action, and whether taxpayer
investigated such reports by laborers and mechanics and had internal
controls to prevent failures to pay prevailing wages and classify
workers in accordance with the wage determination of workers,
employment tax violations, and violations of workplace standard laws;
(K) Whether all laborers and mechanics were provided with a written
notice of the rights conferred by the whistleblower provisions of the
Taxpayer First Act in section 7623(d);
(L) Whether all laborers and mechanics were provided with paystubs
(or access to individual payroll records) reflecting the amount they
were paid per pay period (including the specific hourly rate and all
deductions from wages);
(M) Whether the taxpayer investigated any complaints of retaliation
or adverse action resulting from, reports of suspected failures to pay
prevailing wages and/or classify workers in accordance with applicable
wage determinations, employment tax violations, or violations of
workplace standard laws and took appropriate actions to remedy any
retaliation or adverse action and prevent it from reoccurring;
(N) Whether the taxpayer, contractor, or subcontractor contracted
with contractors who, at the time the work was performed, was known by
the taxpayer, contractor, or subcontractor to be debarred by a
municipality, State, or the U.S. Department of Labor for violations
related to the underpayment of local, State, or Federal prevailing
wages; and
(O) Whether the taxpayer failed to maintain and preserve records in
accordance with Sec. 1.45-12 sufficient to establish compliance with
the prevailing wage requirements for relevant tax years.
(iv) Examples. The provisions of this paragraph (c)(3) are
illustrated by the following examples, which take into account certain
facts and circumstances described in paragraph (c)(3)(iii) of this
section, that are considered in applying the enhanced correction and
penalty payment requirements in the case of intentional disregard.
These examples do not take into account any possible application of the
exception for wages paid before a determination by the U.S. Department
of Labor under paragraph (c)(5) of this section, or the penalty waiver
under paragraph (c)(6) of this section. In each example, assume that
the taxpayer uses the calendar year as the taxpayer's taxable year.
(A) Example 1. Taxpayer D failed to satisfy the Prevailing Wage
Requirements with respect to the construction of a qualified facility.
Taxpayer D did not include contract language that requires the payment
of prevailing wages in the contract executed with the contractor nor
did it require similar contract provisions in any subcontracts.
Taxpayer D did not post in a prominent place at the qualified facility
or otherwise notify any laborers or mechanics that in order to claim
certain tax benefits (the increased credit amount described in section
45(b)(6)(B)(iii)) taxpayers must ensure that laborers and mechanics are
paid wages at rates not less than prevailing wage rates for
construction of the qualified facility. Taxpayer D did not have a
process for laborers and mechanics to report suspected failures to pay
prevailing wages and/or suspected failures to classify workers in
accordance with applicable wage determinations. Additionally, Taxpayer
D did not have a procedure for the review of wages paid to laborers and
mechanics to ensure that wages at rates not less than the applicable
prevailing wage rate were paid, nor did Taxpayer D undertake any actual
review of the wages paid to any laborers or and mechanics employed in
the construction of the qualified facility. Taxpayer D failed to
maintain any records documenting wages paid to laborers and mechanics
in connection with the construction of the facility. Considering all of
the facts and circumstances, Taxpayer D's failure to satisfy the
Prevailing Wage Requirements would be considered due to intentional
disregard for purposes of this paragraph (c)(3) and Taxpayer D would be
subject to the enhanced correction and penalty payments described in
paragraph (c)(3)(i) of this section.
(B) Example 2. Taxpayer E failed to satisfy the Prevailing Wage
Requirements with respect to the construction of a qualified facility.
Taxpayer E included contract language that requires the payment of
prevailing wages in the contract executed with the contractor and
required similar language be included in all subcontracts. Taxpayer E
posted in a prominent place at the qualified facility that in order to
claim tax benefits (that is, the increased credit amount described in
section 45(b)(6)(B)(iii)) employers must ensure that laborers and
mechanics are paid wages at rates not less than prevailing wage rates
for the construction of the qualified facility. Additionally, Taxpayer
E created procedures for a quarterly review of the applicable
classifications of laborers and mechanics according to the actual
duties performed by those laborers and mechanics and the actual wages
paid to laborers and mechanics. In cases in which reviews found any
instance that a laborer or mechanic was paid wages at rates less than
the applicable prevailing wage rates, Taxpayer E promptly cured the
failure. Considering all of the facts and circumstances, Taxpayer E's
failure to satisfy the Prevailing Wage Requirements would not be
considered due to intentional disregard for purposes of this paragraph
(c)(3) and Taxpayer E would not be subject to the enhanced correction
and penalty payments described in paragraph (c)(3)(i) of this section.
Taxpayer E would be subject to the normal correction and penalty
payments described in paragraph (c)(1)(i) of this section.
(v) Rebuttable presumption of no intentional disregard. If a
taxpayer makes the correction and penalty payments required by
paragraphs (c)(1)(i) and (ii) of this section before receiving notice
of an examination from the IRS with respect to a claim for the
increased credit amount under section 45(b)(6), the taxpayer will be
presumed not to have intentionally disregarded the Prevailing Wage
Requirements in paragraph (a) of this section. The IRS may rebut this
presumption based on the relevant facts and circumstances.
(4) Limitation on the availability of cure--(i) 180-day limit. In
the case of a final determination by the IRS with respect to any
failure by the taxpayer to satisfy the Prevailing Wage Requirements in
paragraph (a) of this section, the cure provision in paragraph (c)(1)
of this section does not apply unless the correction and penalty
payments described in paragraphs (c)(1)(i) and (ii) of this section are
made by the taxpayer on or before the date
[[Page 53259]]
that is 180 days after the date of such determination.
(ii) Final determination. For purposes of paragraph (c)(4)(i) of
this section, a final determination occurs on the date the IRS sends to
the taxpayer a notice stating that the taxpayer has failed to satisfy
the Prevailing Wage Requirements under paragraph (a) of this section.
(5) Exception for wages paid before a supplemental wage
determination or additional classification and wage rate is issued by
the U.S. Department of Labor Wage and Hour Division. If a taxpayer has
requested a supplemental wage determination or an additional
classification and wage rate from the Wage and Hour Division in
accordance with paragraph (b)(3)(ii) of this section and the Wage and
Hour Division makes a wage determination or issues an additional
classification and wage rate determination after the construction,
alteration, or repair of a qualified facility has started, the taxpayer
will not be considered to have failed to meet the Prevailing Wage
Requirements under paragraph (a) of this section with respect to wages
paid to any mechanic or laborer whose wage rate was subject to the
request and who was paid below the prevailing wage rate before the
determination by the Wage and Hour Division if the taxpayer makes a
payment within 30 days of the determination to each laborer or mechanic
equal to the difference between the amount of wages paid to such
laborer or mechanic before the determination and the amount of wages
required to be paid to such laborer or mechanic pursuant to paragraph
(a) of this section during such period.
(6) Waiver of the penalty--(i) Availability of waiver. The penalty
payment required by paragraph (c)(1)(ii) of this section to cure a
failure to satisfy the Prevailing Wage Requirements in paragraph (a) of
this section is waived with respect to a laborer or mechanic employed
in the construction, alteration, or repair of a qualified facility
during a calendar year if the taxpayer makes the correction payment
required by paragraph (c)(1)(i) of this section by the last day of the
first month that follows the end of the calendar quarter in which the
failure occurred, and:
(A) The laborer or mechanic is paid wages at rates less than the
amount required to be paid under paragraph (b) of this section for not
more than 10 percent of all pay periods of the calendar year (or part
thereof) during which the laborer or mechanic was employed in the
construction, alteration, or repair of the qualified facility; or
(B) The difference between the amount the laborer or mechanic was
paid during the calendar year (or part thereof) and the amount required
to be paid under paragraph (b) of this section is not greater than 5
percent of the amount required to be paid under paragraph (b) of this
section.
(ii) Project labor agreements. The penalty payments required by
paragraphs (c)(1)(ii) and (c)(3)(i)(B) of this section to cure a
failure to satisfy the Prevailing Wage Requirements in paragraph (a) of
this section do not apply with respect to a laborer or mechanic
employed in the construction, alteration, or repair work of a qualified
facility if the work is done pursuant to a pre-hire collective
bargaining agreement with one or more labor organizations that
establishes the terms and conditions of employment for a specific
construction project (Qualifying Project Labor Agreement) and any
correction payment owed to any laborer or mechanic is paid on or before
the date on which the increased credit amount is claimed under section
45(b)(6). In order to be considered a Qualifying Project Labor
Agreement, such agreement must at a minimum:
(A) Bind all contractors and subcontractors on the construction
project through the inclusion of appropriate specifications in all
relevant solicitation provisions and contract documents;
(B) Contain guarantees against strikes, lockouts, and similar job
disruptions;
(C) Set forth effective, prompt, and mutually binding procedures
for resolving labor disputes arising during the term of the project
labor agreement;
(D) Contain provisions to pay wages at rates not less than the
prevailing rates in accordance with subchapter IV of chapter 31 of
title 40 of the United States Code;
(E) Contain provisions for referring and using qualified
apprentices consistent with section 45(b)(8)(A) through (C) and
guidance issued thereunder; and
(F) Be a collective bargaining agreement with one or more labor
organizations (as defined in 29 U.S.C. 152(5)) of which building and
construction employees are members, as described in 29 U.S.C. 158(f).
(iii) Transition Waiver. The penalty payment required by paragraph
(c)(1)(ii) of this section to cure a failure to satisfy the Prevailing
Wage Requirements in paragraph (a) of this section is waived with
respect to a laborer or mechanic who performed work in the
construction, alteration, or repair of a qualified facility on or after
January 29, 2023, and prior to June 25, 2024, if the taxpayer relied
upon Notice 2022-61, 2022-52 I.R.B. 560, or the Proposed Regulations
(REG-100908-23) (88 FR 60018), corrected in 88 FR 73807 (Oct. 27,
2023), corrected in 89 FR 25550 (April 11, 2024), to determine when the
activities of any laborer or mechanic became subject to the Prevailing
Wage Requirements, and the taxpayer makes the correction payments
required by paragraph (c)(1)(i) of this section with respect to such
laborer and mechanics within 180 days of June 25, 2024.
(iv) Examples. The provisions of this paragraph (c)(6) are
illustrated by the following examples, which do not take into account
any possible application of the enhanced correction and penalty payment
requirements in the case of intentional disregard under paragraph
(c)(3) of this section or the exception for wages paid before a
determination by the U.S. Department of Labor under paragraph (c)(5) of
this section. In each example, assume that the taxpayer uses the
calendar year as the taxpayer's taxable year.
(A) Example 1. Taxpayer F starts construction of a qualified
facility on February 1, 2023. The facility is placed in service on
October 10, 2023, and Taxpayer F claims the increased credit amount
under section 45(b)(6)(B)(iii) on its 2023 tax return filed on April
15, 2024. Taxpayer F employs Laborer Z in the construction of the
facility for a total of 36 weekly pay periods. Taxpayer F pays Laborer
Z wages at the prevailing wage rate for all pay periods except for the
pay periods ending on April 8, April 22, and May 20. Under the
applicable prevailing wage rate, Laborer Z should have been paid a
total of $35,000 in 2023, but was instead paid only $30,000. Taxpayer F
ensures that all other laborers and mechanics employed in the
construction, alteration, or repair of the facility are paid wages at
the prevailing wage rate. Taxpayer F becomes aware of the failure on
June 1, 2023. On June 19, 2023, Taxpayer F pays Laborer Z the
correction payment required by paragraph (c)(1)(i) of this section. The
penalty waiver applies to Taxpayer F. Although the difference between
the amount Laborer Z was paid in 2023 and the amount required to be
paid under the applicable prevailing wage rate was greater than five
percent ($5,000/$35,000 = 14.29%), Laborer Z was paid below the
prevailing wage rate for only three out of 36 pay periods, or 8.3% of
the applicable pay periods. Furthermore, Taxpayer F made the correction
payment before the last day of the first month that follows the end
[[Page 53260]]
of the calendar quarter in which the failure occurred.
(B) Example 2. Taxpayer G starts construction of a qualified
facility on February 1, 2024. The facility is placed in service on
October 10, 2024, and Taxpayer G claims the increased credit under
section 45(b)(6)(B)(iii) on its 2024 tax return filed on April 15,
2025. Taxpayer G hires Contractor M to assist in the construction, and
Contractor M employs Laborer Y in the construction of the facility for
a total of 36 pay periods. Contractor M pays Laborer Y wages at the
prevailing wage rate for all pay periods except for the pay periods
ending on February 24 and March 2 of 2024. Under the applicable
prevailing wage rate, Laborer Y should have been paid a total of
$50,000 in 2024, but was instead paid only $49,000. All other laborers
and mechanics employed in the construction, alteration, or repair of
the facility are paid wages at the prevailing wage rate. Taxpayer G
learns on January 1, 2025, that Laborer Y was paid wages at rates that
were less than the prevailing wage rates, and on January 19, 2025,
Taxpayer G pays Laborer Y the correction payment required by paragraph
(c)(1)(i) of this section. The penalty waiver does not apply to
Taxpayer G. Laborer Y was paid wages at rates below the prevailing wage
rate for two out of 36 pay periods, or 5.5% of the applicable pay
periods, and the difference between the amount Laborer Y was paid in
2024 and the amount required to be paid under the applicable prevailing
wage rate was $1,000, which is only 2% of the amount required to be
paid under the applicable prevailing wage rate. However, because
Taxpayer G did not make the correction payments until January 19, 2025,
which was later than the last day of the first month that followed the
end of the calendar quarter in which the failure occurred, Taxpayer G
does not qualify for the penalty waiver. Taxpayer G must pay a penalty
of $5,000 with respect to the failure.
(C) Example 3. Taxpayer H starts the construction of a qualified
facility on April 8, 2024. The facility is placed in service on
December 1, 2024, and Taxpayer H claims the increased credit amount
under section 45(b)(6)(B)(iii) on its 2024 tax return filed on April
15, 2025. Taxpayer H employs Laborer X in the construction of the
facility for a total of 34 pay periods. Due to a failure to classify
workers in accordance with the wage determination, Taxpayer H pays
Laborer X wages at rates below the prevailing wage rates for the first
12 pay periods. Under the applicable prevailing wage rate, Laborer X
should have been paid $20,000 during those 12 pay periods, but was
instead paid only $17,000. All other laborers and mechanics employed in
the construction, alteration, or repair of the facility were paid wages
at the prevailing wage rates. Taxpayer H becomes aware of the failure
on July 15, 2024, and on July 30, 2024, Taxpayer H pays Laborer X the
correction payments required by paragraph (c)(1)(i) of this section.
For the 22 pay periods from July 1, 2024, through December 1, 2024,
Taxpayer H pays Laborer X the correct prevailing wage rate in amounts
that total $41,000. The penalty waiver applies to Taxpayer H. Taxpayer
H made the correction payment on July 30, 2024, which was before the
last day of the first month that followed the end of the quarter in
which the failures occurred. Although Laborer X was paid wages at a
rate below the prevailing wage rate for 35% (12 pay periods with
underpayments/34 total pay periods) of the applicable pay periods, the
difference between the total amount Laborer X was paid in 2024 and the
amount required to be paid under the applicable prevailing wage rate
was $3,000, which is only 4.9% of the total amount required to be paid
to Laborer X under the applicable prevailing wage rate ($3,000/
$61,000).
(D) Example 4. Taxpayer I begins construction of a qualified
facility on August 29, 2024. The facility is placed in service on June
30, 2025, and Taxpayer I claims the increased credit amount under
section 45(b)(6)(B)(iii) on its 2025 tax return. Taxpayer I employs
Laborer W in the construction of the facility for a total of 25 weekly
pay periods in 2025. Taxpayer I pays Laborer W wages at or above the
prevailing wage rate for all pay periods except for the pay periods
ending on April 12, May 10, and June 14. Under the applicable
prevailing wage rate, Laborer W should have been paid $25,000 in 2025,
but was instead paid only $20,000. Taxpayer I ensures that all other
laborers and mechanics employed in the construction, alteration, or
repair of the facility are paid at the prevailing wage rate. Taxpayer I
has in place a pre-hire collective bargaining agreement, but the
agreement does not contain a provision for referring and using
qualified apprentices. Taxpayer I becomes aware of the failure to pay
Laborer W at the prevailing wage rate on June 30, 2025, and on July 4,
2025, Taxpayer I pays Laborer W the correction payment required by
paragraph (c)(1)(i) of this section. The penalty waiver does not apply
to Taxpayer I. The difference between the amount Laborer W was paid in
2025 and the amount required to be paid under the applicable prevailing
wage rate was $5,000, which is 20% of the amount required to be paid
under the applicable prevailing wage rate. Laborer W was paid below the
prevailing wage rate for three out of 25 pay periods, or 12% of the
applicable pay periods. Taxpayer I does not have in place a Qualifying
Project Labor Agreement because the pre-hire collective bargaining
agreement does not contain a provision for referring and using
qualified apprentices as required by paragraph (c)(6)(ii)(E) of this
section.
(E) Example 5. Taxpayer J intends to construct a qualified facility
and claim the increased credit amount under section 45(b)(6)(B)(iii).
Taxpayer J executes a contract for the construction of the facility and
engages in construction activities as defined in paragraph (d)(3) of
this section starting August 1, 2023. Taxpayer J began construction as
of September 1, 2023, pursuant to the Physical Work Test in Notice
2022-61. During the period of August 1 to September 1 of 2023, Taxpayer
J paid all laborers and mechanics wages at rates below the applicable
prevailing wage rates in reliance on Notice 2022-61 regarding when
construction began for purposes of satisfying the requirements of
section 45(b)(7). After September 1, 2023, Taxpayer J paid all laborers
and mechanics wages at the prevailing wage rate for the appropriate
classification for work performed on the facility. Within 180 days of
June 25, 2024, Taxpayer J makes correction payments to all affected
laborers and mechanics for the period of August 1, 2023. to September
1, 2023, equal to the amount described in paragraph (c)(1)(i) of this
section. Pursuant to paragraph (c)(6)(iii) of this section, the penalty
under paragraph (c)(1)(ii) of this section is waived.
(d) Definitions. Solely for purposes of this section, the following
definitions apply:
(1) Apprentice. The term apprentice has the same meaning as
qualified apprentice in Sec. 1.45-8(g)(8).
(2) Bona fide fringe benefits. The term bona fide fringe benefits
means fringe benefits described in 29 CFR part 5. Bona fide fringe
benefits include medical or hospital care, pensions on retirement or
death, compensation for injuries or illness resulting from occupational
activity, or insurance to provide any of the foregoing; unemployment
benefits; life insurance, disability insurance, sickness insurance, or
accident insurance; vacation or holiday pay; defraying costs of
apprenticeship or other similar programs; or other bona fide fringe
benefits (each as described in 29 CFR
[[Page 53261]]
part 5 and other U.S. Department of Labor guidance). Consistent with 29
CFR 5.29, bona fide fringe benefits do not include benefits required by
other Federal, State, or local law.
(3) Construction, alteration, or repair. The term construction,
alteration, or repair generally means those activities, described in 29
CFR 5.2 as being construction, prosecution, completion, or repair that
are performed with respect to a qualified facility as defined under
section 45. Construction, alteration, or repair does not include any
activities that are excluded from the requirement to pay prevailing
wages under the definitions described in 29 CFR 5.2. Repair work
normally includes an activity that improves the facility, either by
fixing something that is not functioning properly or by improving upon
the facility's existing condition; involves the correction of
individual problems or defects as separate and segregable incidents and
is not continuous or recurring; or improves the facility's structural
strength, stability, safety, capacity, efficiency, or usefulness.
Construction, alteration, or repair does not include work that is
ordinary and regular in nature that is designed to maintain and
preserve existing functionalities of a facility after it is placed in
service. Work designed to maintain and preserve functionality of a
facility after it is placed in service includes basic maintenance such
as regular inspections of the facility, regular cleaning and janitorial
work, regular replacement of materials with limited lifespans such as
filters and light bulbs, and the regular calibration of equipment.
However, such work that occurs before the facility is placed in service
may constitute construction for which prevailing wages must be paid in
order to claim the increased credit amount. Maintenance generally
includes work that is needed to keep the facility in its current
condition so that it may continue to be used and work that does not
improve the current condition or function of a facility. Maintenance is
routinely scheduled and continuous or recurring. Ultimately, the
determination of whether an activity can be categorized as
construction, alteration, or repair is dependent on the facts and
circumstances. This definition has no bearing on any other sections of
the Code, including any determination of construction, alteration,
repair, or maintenance under sections 162 or 263 of the Code, unless
specified otherwise in the Code or in this chapter.
(4) Contractor. The term contractor means any person that enters
into a contract directly with the taxpayer (or the taxpayer's designee,
assignee, or agent) for the construction, alteration, or repair of a
qualified facility.
(5) Employed. The term employed means performing the duties of a
laborer or mechanic for the taxpayer, contractor, or subcontractor (as
applicable), regardless of whether the individual would be
characterized as an employee or an independent contractor for other
Federal tax purposes.
(6) General wage determination. The term general wage determination
means a wage determination issued by the U.S. Department of Labor and
published on the approved website. A general wage determination
provides the minimum hourly wage rates (both the basic hourly rate of
pay and bona fide fringe benefit rates) that the U.S. Department of
Labor has determined are prevailing for laborers and mechanics in
specified types of construction in a given geographic area.
(7) Geographic area and locality. The terms geographic area and
locality mean the county, independent city, or other civil subdivision
of the State in which a qualified facility is located. The terms
geographic area and locality also include areas located offshore of the
United States and within the outer continental shelf of the United
States and the U.S. territories. If construction, alteration, or repair
work is performed in multiple counties, independent cities, or other
civil subdivisions, the geographic area may include all counties,
independent cities, or other civil subdivisions in which the work will
be performed. The locality in which a facility is located is defined as
the physical place or places where the facility will be placed in
service and remain. The locality of the facility also includes
secondary locations where a significant portion of the facility is
constructed, altered, or repaired provided that such construction is
for specific use at that facility and does not simply reflect the
manufacture or construction of a product made available to the general
public, and provided further that the site is either established
specifically for, or dedicated exclusively for a specific period of
time to, the construction, alteration, or repair of the facility. A
significant portion means one or more entire portion(s) or module(s) of
the facility, such as a completed room or structure, with minimal
construction work remaining other than the installation and/or final
assembly of the portions or modules at the place where the facility
will be placed in service and remain. A significant portion does not
include materials or prefabricated component parts delivered to the
location of a facility. A specific period of time means a period of
weeks, months, or more, and does not include circumstances in which a
site at which multiple facilities are in progress is shifted
exclusively to a single facility for a few hours or days in order to
meet a deadline. The locality of the facility also includes any
adjacent or virtually adjacent dedicated support sites, including job
headquarters, tool yards, batch plants, borrow pits, and similar
facilities of a taxpayer, contractor, or subcontractor that are
established specifically for or dedicated exclusively to the
construction, alteration, or repair of the facility, and adjacent or
virtually adjacent to either a primary construction site or a secondary
construction site.
(8) Laborer and mechanic--(i) In general. The terms laborer and
mechanic mean those individuals whose duties are manual or physical in
nature (including those individuals who use tools or who are performing
the work of a trade). The terms laborer and mechanic include
apprentices and helpers. The terms do not apply to individuals whose
duties are primarily administrative, executive, or clerical, rather
than manual. Persons employed in a bona fide executive, administrative,
or professional capacity as defined in 29 CFR part 541 are not deemed
to be laborers or mechanics. Working forepersons who devote more than
20 percent of their time during a workweek to laborer or mechanic
duties, and who do not meet the criteria for exemption of 29 CFR part
541, are considered laborers and mechanics for the time spent
conducting laborer and mechanic duties.
(ii) Examples--(A) Individual working in professional capacity.
Taxpayer hires an architect (Architect) to design a qualified facility
and general layout of the site including access roads and ancillary
buildings to support the facility. Taxpayer engages a general
contractor (Contractor) to construct the qualified facility based on
the drafting plans of Architect. Contractor hires an electrical
engineer (Engineer) to assist Architect and Contractor with design and
placement of the electrical systems necessary to support the qualified
facility. Engineer oversees and inspects construction of the electrical
systems to ensure the systems conform to the facility's specifications
and Architect's drafting plans. Architect and Engineer do not perform
any actual duties of a laborer or mechanic during their employment with
Taxpayer and Contractor. Architect and Engineer are working in a
professional capacity as defined under 29 CFR part 541 and are exempt
employees under the DBA. Architect and Engineer are not
[[Page 53262]]
considered laborers and mechanics for the duration of their employment
for purposes of this section and Taxpayer does not need to ensure they
are paid wages at rates not less than the prevailing wage rates for
purposes of claiming the increased credit amount under section
45(b)(6)(B)(iii).
(B) Working foreperson. A supervisory employee who is a working
foreperson (Foreperson) spends 60% of the time during the workweek (24
hours of a 40 hour workweek) performing administrative functions such
as preparing timecards, supervising work on the qualified facility and
arranging for deliveries. Foreperson spends the remaining 40% (16
hours) of the time performing the duties of an electrician with respect
to construction of a qualified facility. Because Foreperson devoted
more than 20% of their time during the workweek to laborer or mechanic
duties, Foreperson must be paid wages at rates not less than the
electrician's applicable prevailing wage rate for the 16 hours spent
doing the duties of an electrician for purposes of the Prevailing Wage
Requirements.
(9) Subcontractor. The term subcontractor means any person that
enters into a contract with a contractor for the construction,
alteration, or repair of a qualified facility. The term subcontractor
also includes any person that agrees to perform or be responsible for
the performance of any part of a contract entered into between the
taxpayer (or the taxpayer's designee, assignee, or agent) and a
contractor (or between a contractor and another subcontractor) with
respect to the construction, alteration, or repair of a qualified
facility.
(10) Taxpayer. The term taxpayer means any taxpayer as defined in
section 7701(a)(14), including applicable entities described in section
6417(d)(1)(A). In the case of a credit transferred under section 6418,
the term taxpayer means the eligible taxpayer that determines the
eligible credit to be transferred and makes a transfer election under
section 6418 to transfer any specified credit portion (including 100
percent) of an eligible credit determined with respect to any eligible
credit property of such eligible taxpayer for any taxable year.
(11) Type of construction. The type of construction is the general
category of construction as established by the U.S. Department of Labor
for the publication of general wage determinations as defined in 29 CFR
1.2.
(12) Wages. The term wages generally means wages as defined in 29
CFR 5.2. In general, wages means the basic hourly rate of pay; any
contribution irrevocably made by a taxpayer, contractor, or
subcontractor to a trustee or to a third person pursuant to a bona fide
fringe benefit fund, plan, or program; and the rate of costs to the
taxpayer, contractor, or subcontractor that may be reasonably
anticipated in providing bona fide fringe benefits to laborers and
mechanics pursuant to an enforceable commitment to carry out a
financially responsible plan or program, provided the commitment was
communicated in writing to the laborers and mechanics affected. Whether
amounts are wages for prevailing wage purposes is not relevant in
determining whether amounts are wages or compensation for other Federal
tax purposes.
(e) Applicability date. This section applies to qualified
facilities placed in service in taxable years ending after June 25,
2024, and the construction of which begins after June 25, 2024.
Taxpayers may apply this section to qualified facilities placed in
service in taxable years ending on or before June 25, 2024, and
qualified facilities placed in service in taxable years ending after
June 25, 2024, the construction of which begins before June 25, 2024,
provided that taxpayers follow this section in its entirety and in a
consistent manner.
Sec. 1.45-8 Apprenticeship requirements.
(a) Apprenticeship requirements--(1) In general. Except as provided
in paragraphs (a)(2) and (f) of this section, a taxpayer claiming or
transferring (under section 6418) the increased credit amount under
section 45(b)(6)(B)(iii) with respect to any qualified facility must
satisfy the requirements of section 45(b)(8) and this section with
respect to the construction of such facility (Apprenticeship
Requirements). The taxpayer is solely responsible for ensuring that the
Apprenticeship Requirements are satisfied. See paragraph (g) of this
section for definitions of terms used in this section.
(2) Transition relief. Taxpayers are excepted from the
Apprenticeship Requirements with respect to any activities that would
be considered construction, alteration, or repair of the qualified
facility and that occurred prior to January 29, 2023.
(b) Labor hours requirement--(1) Percentage of total labor hours. A
taxpayer claiming or transferring (under section 6418) the increased
credit amount under section 45(b)(6) must ensure that qualified
apprentices (hired by the taxpayer, contractor, or subcontractor)
perform not less than the applicable percentage of the total labor
hours of the construction, alteration, or repair work (including work
performed by any contractor or subcontractor) with respect to any
qualified facility prior to the facility being placed in service,
subject to the apprentice-to-journeyworker ratio described in paragraph
(c) of this section. The percentage of total labor hours is calculated
on a per qualified facility basis, aggregating all hours worked by all
laborers and mechanics (including the hours of qualified apprentices)
during construction of the facility and dividing the total hours work
by all laborers and mechanics by the hours of the qualified
apprentices.
(2) Applicable percentage. For purposes of paragraph (b)(1) of this
section, and subject to paragraph (b)(3) of this section, the
applicable percentage is--
(i) 10 percent in the case of a qualified facility, the
construction of which begins before January 1, 2023;
(ii) 12.5 percent in the case of a qualified facility, the
construction of which begins after December 31, 2022, and before
January 1, 2024; and
(iii) 15 percent in the case of a qualified facility, the
construction of which begins after December 31, 2023.
(3) Transition rule. Taxpayers may apply the rules set forth in
Notice 2022-61, 2022-52 I.R.B. 560, or these regulations for
determining when construction began for purposes of the applicable
percentage of labor hours performed by qualified apprentices required
under section 45(b)(8)(A) and paragraph (b)(2) of this section.
(c) Ratio requirement--(1) In general. The labor hours requirement
under paragraph (b) of this section is subject to any applicable
requirements for apprentice-to-journeyworker ratios of the U.S.
Department of Labor or the applicable State apprenticeship agency.
(2) Ratio. The allowable ratio of apprentices to journeyworkers on
the job site in any occupation and its corresponding classification on
any day must comply with the applicable apprentice-to-journeyworker
ratio of the registered apprenticeship program in accordance with 29
CFR part 29. If a taxpayer, contractor, or subcontractor is performing
construction, alteration, or repair work on a qualified facility in a
geographic area other than the geographic area in which an
apprenticeship program is registered, the taxpayer, contractor, or
subcontractor must comply with the apprentice-to-journeyworker ratios
applicable within the geographic area in which the construction,
alteration, or repair work is being performed. If there is no
applicable ratio for the geographic area of the qualified facility, the
ratio
[[Page 53263]]
specified in the registered apprenticeship program standard must be
observed.
(3) Failure to meet ratio requirements. For purposes of section
45(b)(8)(B) and paragraph (b) of this section, if on any day the ratio
of apprentices to journeyworkers exceeds the ratio established in
accordance with paragraph (c)(2) of this section, subject to the
requirements of the registered apprenticeship program, the labor hours
performed by any qualified apprentice in excess of the ratio may not be
counted as hours performed by qualified apprentices for purposes of the
labor hours requirement. The hours devoted to the performance of
construction, alteration, or repair work by any qualified apprentice in
excess of the ratio will be counted towards the total labor hours, but
will not be counted as hours performed by qualified apprentices for
purposes of the labor hours requirement under paragraph (b) of this
section.
(d) Participation requirement. Each taxpayer, contractor, or
subcontractor who employs four or more individuals to perform
construction, alteration, or repair work with respect to the
construction of a qualified facility must employ one or more qualified
apprentices to perform work with respect to the construction,
alteration, or repair of the qualified facility prior to the facility
being placed in service. The participation requirement applies if a
taxpayer, contractor, or subcontractor employs four or more individuals
in the construction of the qualified facility over the entire course of
the construction, regardless of whether they are employed at the same
location or at the same time.
(e) Examples. The provisions of paragraphs (b) through (d) of this
section are illustrated by the following examples. For purposes of the
following examples, assume that each taxpayer has a calendar year
taxable year.
(i) Example 1. Taxpayer A starts construction of a qualified
facility on April 1, 2023. Accordingly, Taxpayer A must ensure that at
least 12.5% of the total labor hours are performed by qualified
apprentices. The facility is placed in service on April 1, 2025, and
Taxpayer A claims the increased credit amount under section
45(b)(6)(B)(iii) on its 2025 tax return. A total of eight individuals
performed construction, alteration, or repair work during the
construction of the facility, all of whom were employed directly by
Taxpayer A. Taxpayer A employed four journeyworkers and no qualified
apprentices from April 1, 2023 through October 31, 2024. Taxpayer A
hired four qualified apprentices and retained three journeyworkers to
perform construction on the facility for the period of November 1, 2024
through March 31, 2025. The registered apprenticeship program from
which Taxpayer A requested the apprentices required a ratio of one
journeyworker for every apprentice. In the first year of construction,
a total of 10,000 labor hours were performed on construction,
alteration, or repair work of the facility, with each journeyworker
working 2,500 hours. In the second year of construction, 7,000 labor
hours were performed on construction, alteration, or repair work of the
facility, with each qualified apprentice and journeyworker working
1,000 hours during this time. On each day of work during the second
year of construction, the three journeyworkers oversaw the work of the
four qualified apprentices. A total of 17,000 labor hours were spent on
the construction, alteration, or repair work of the facility, requiring
that 2,125 labor hours be performed by qualified apprentices. Only
3,000 labor hours performed by qualified apprentices count towards the
labor hours requirement because the ratio requirement was only
satisfied with respect to the work of three qualified apprentices.
Taxpayer A satisfied the labor hours requirement under paragraph (b)(2)
of this section because more than 12.5% (3,000 qualified apprentice
hours/17,000 total labor hours = 17.6%) of the total labor hours were
performed by qualified apprentices. Taxpayer A was also subject to the
participation requirement because four or more individuals employed by
Taxpayer A performed construction work on the facility. Taxpayer A
satisfied the participation requirement because Taxpayer A hired at
least one qualified apprentice to perform construction, alteration, or
repair with respect to the facility.
(ii) Example 2. Taxpayer B intends to construct a qualified
facility to claim the increased credit amount under section
45(b)(6)(B)(iii) and executes a contract for the construction of the
facility. On December 31, 2023, Taxpayer B expends sufficient funds to
meet the 5 Percent Safe Harbor for beginning of construction in
reliance on Notice 2022-61. Construction activities as defined in
paragraph (d)(3) of this section start on January 1, 2024. In reliance
on Notice 2022-61, Taxpayer B employs qualified apprentices for 12.5%
of the total construction hours to complete the qualified facility.
Because Taxpayer B applies the 12.5% applicable percentage in reliance
on Notice 2022-61 for construction beginning before January 1, 2024,
but after December 31, 2022, Taxpayer B has satisfied the Labor Hours
Requirement, assuming all other provisions of the Labor Hours
Requirement are also satisfied.
(iii) Example 3. Taxpayer C starts construction of a qualified
facility on April 1, 2023, and complies with the Labor Hours
Requirement, the Ratio Requirement, and the Participation Requirement
with respect to the construction of the facility before it is placed in
service on April 1, 2025. Taxpayer C claims the increased credit amount
under section 45(b)(6)(B)(iii) on its 2025 tax return. The qualified
facility was repaired from September 1, 2025, through October 31, 2025.
No qualified apprentices were employed for the repairs. Taxpayer C did
not fail the Apprenticeship Requirements because the Apprenticeship
Requirements do not apply after the qualified facility is placed in
service.
(iv) Example 4. Taxpayer D starts construction of a qualified
facility on April 1, 2023. Accordingly, Taxpayer D must ensure that at
least 12.5% of the total labor hours are performed by qualified
apprentices. The facility is placed in service on April 1, 2025, and
Taxpayer D claims the increased credit amount under section
45(b)(6)(B)(iii) on its 2025 tax return. Taxpayer D employed 12
individuals to perform the construction, alteration, and repair work on
the qualified facility. Taxpayer D is subject to the participation
requirement. For the first year of construction, a total of 25,000
labor hours were performed on the construction, alteration, or repair
of the facility, 3,000 of which were performed by qualified
apprentices. For the second year of construction, an additional 25,000
labor hours were performed on the construction, alteration, or repair
of the facility, 3,250 of which were performed by qualified
apprentices. The ratio requirement was satisfied for all labor hours
performed by qualified apprentices. Taxpayer D has satisfied the labor
hours requirement because 12.5% (6,250 labor hours divided by 50,000
labor hours) of the total labor hours were performed by qualified
apprentices.
(v) Example 5. Taxpayer E starts construction of a qualified
facility on January 1, 2024. Accordingly, Taxpayer E must ensure that
at least 15% of the total labor hours are performed by qualified
apprentices. The facility is placed in service on June 1, 2026.
Taxpayer E claims the increased credit amount under section
45(b)(6)(B)(iii) on its 2026 tax return. All individuals who performed
the construction, alteration,
[[Page 53264]]
or repair work were employed directly by Taxpayer E. A total of 50,000
labor hours were spent on the construction, alteration, or repair work
of the facility, 7,000 of which were performed by qualified apprentices
and the ratio requirement was met for all 7,000 labor hours. Qualified
apprentices also spent 500 hours in classroom training at a location
other than the location of the qualified facility in preparation for
the performance of construction, alteration, or repair work at the
qualified facility. Taxpayer E did not satisfy the labor hours
requirement under paragraph (b)(2) of this section because less than
15% of the total labor hours were performed by qualified apprentices.
The hours spent on classroom training at a location other than the
location of the qualified facility in preparation for the construction,
alteration, or repair of the facility are not considered labor hours
performed by qualified apprentices.
(f) Exceptions to the apprenticeship requirements. If a taxpayer
fails to satisfy the Apprenticeship Requirements in paragraph (a) of
this section with respect to the construction, alteration, or repair of
any qualified facility prior to the facility being placed in service,
the taxpayer will nonetheless be deemed to have satisfied the
Apprenticeship Requirements if the taxpayer has made a good faith
effort to meet the Apprenticeship Requirements as described in
paragraph (f)(1) of this section (Good Faith Effort Exception) or made
the penalty payment provided in paragraph (f)(2) of this section
(Apprenticeship Cure Provision) for any failures to which the Good
Faith Effort Exception does not apply.
(1) Good faith effort exception--(i) In general. A taxpayer is
deemed to have satisfied the Apprenticeship Requirements of this
section with respect to a request for qualified apprentices if the
taxpayer meets the following requirements:
(A) Request for qualified apprentices. The taxpayer, contractor, or
subcontractor must submit a written request for qualified apprentices
to at least one registered apprenticeship program that has a geographic
area of operation that includes the location of the qualified facility;
trains qualified apprentices in the occupation(s) needed to perform
construction, alteration, or repair with respect to the facility; and
has a usual and customary business practice of entering into agreements
with employers for the placement of qualified apprentices in the
occupation for which they are training, consistent with the standards
and requirements set forth in 29 CFR parts 29 and 30, and any
subsequent guidance issued by the Department of Labor. Such request
must be in writing and sent electronically or by registered mail. The
initial request to a registered apprenticeship program for qualified
apprentices must be made no later than 45 days before the qualified
apprentices are requested to start work. Any subsequent requests for
qualified apprentices made to the same registered apprenticeship
program after the initial request must be made no later than 14 days
before the qualified apprentices are requested to start work. If there
is no registered apprenticeship program that has a geographic area of
operation that includes the location of the qualified facility; trains
qualified apprentices in the occupation(s) needed to perform
construction, alteration, or repair with respect to the facility; and
has a usual and customary business practice of entering into agreements
with employers for the placement of qualified apprentices in the
occupation for which they are training, consistent with the standards
and requirements set forth in 29 CFR parts 29 and 30, and any
subsequent guidance issued by the Department of Labor, the taxpayer
will be deemed to satisfy the Good Faith Effort Exception with respect
to the qualified apprentices that the taxpayer, contractor, or
subcontractor would have requested.
(1) Content of valid request. The request of the taxpayer,
contractor, or subcontractor must include the proposed dates of
employment, occupation of qualified apprentices needed, location of the
work to be performed, number of qualified apprentices needed, the
number of labor hours expected to be performed by the qualified
apprentices, and the name and contact information of the taxpayer,
contractor, or subcontractor requesting employment of qualified
apprentices from the registered apprenticeship program. Reasonable
estimates of the foregoing information are permissible. The request
must also state that the request for qualified apprentices is made with
an intent to employ qualified apprentices in the occupation for which
they are being trained and in accordance with the requirements and
standards of the registered apprenticeship program and to employ
qualified apprentices consistent with the expected number of hours and
dates of employment specified in the request. If the employer of the
requested qualified apprentices is not the same as the taxpayer,
contractor, or subcontractor submitting the request for qualified
apprentices, then the request must include the name of the employer.
(2) Duration of request. If the taxpayer, contractor, or
subcontractor submits a request in accordance with paragraph
(f)(1)(i)(A) of this section and the request is denied or not responded
to, the taxpayer will be deemed to have exercised a Good Faith Effort
with respect to the request for the period described in the request but
not exceeding 365 days (366 days in case of a leap year). For requests
that are denied or not responded to and include a period of employment
for qualified apprentices that exceeds 365 days (366 days in case of a
leap year), the taxpayer, contractor, or subcontractor must submit one
or more additional requests with respect to the period of such request
in excess of 365 days (366 days in case of a leap year). The taxpayer
will not be deemed to have exercised a Good Faith Effort beyond 365
days (366 days in case of a leap year) of a previously denied request
unless the taxpayer submits an additional request. There is no limit on
the number of requests a taxpayer, contractor, or subcontractor may
submit to one or more registered apprenticeship programs for purposes
of the Good Faith Effort Exception and the taxpayer, contractor, or
subcontractor is not required to make subsequent requests to the same
registered apprenticeship program in order to qualify for the Good
Faith Effort Exception. The 365 day (366 days in case of a leap year)
duration of requests for qualified apprentices also applies in
circumstances in which there is no registered apprenticeship program
with a geographic area of operation that includes the location of the
facility at the time a taxpayer, contractor, or subcontractor attempts
to requests qualified apprentices from a registered apprenticeship
program.
(B) Denial of request. If a taxpayer, contractor, or subcontractor
submits a request in accordance with paragraph (f)(1)(i)(A) of this
section and the request is denied (including after an initial
acceptance and before the scheduled qualified apprentice work starts),
the taxpayer will be deemed to satisfy the requirements of section
45(b)(8)(A) through (C), and paragraphs (b) through (d) of this
section, provided that such denial is not the result of a refusal by
the taxpayer or any contractors or subcontractors engaged in the
performance of construction, alteration, or repair work with respect to
such qualified facility to comply with the established standards and
requirements of the registered apprenticeship program. The denial of a
request is only valid for purposes of establishing a Good Faith Effort
with respect to the portion(s) of the request that were denied. In the
case of a partial
[[Page 53265]]
denial, a taxpayer, contractor, or subcontractor must accept the
qualified apprentices offered in response to the request to satisfy the
Good Faith Effort with respect to the portion of the request that was
denied. If a request is partially denied, the qualified apprentice
labor hours specified in the request that were denied that qualify for
the Good Faith Effort Exception are considered to be labor hours
performed by qualified apprentices. Subject to the requirements of
paragraph (f)(1)(i)(A)(2) of this section, the taxpayer, contractor, or
subcontractor does not need to follow up with the registered
apprenticeship program after the initial request or after the receipt
of a non-substantive response. The date on which a registered
apprenticeship program received a request for qualified apprentices is
determined by the date the electronic request is sent to the registered
apprenticeship program or the date of delivery shown on a receipt from
the registered mail delivery.
(C) Response to a valid request. A response to a valid request for
qualified apprentices is a substantive written reply to the request
that agrees, in whole or in part, to the specific requirements in the
taxpayer's, contractor's, or subcontractor's request. If the registered
apprenticeship program fails to provide a response to a request
submitted in accordance with paragraph (f)(1)(i)(A) of this section
within five business days after the date on which such registered
apprenticeship program received the taxpayer's (or its contractor or
subcontractor) request, then such request is deemed to be denied.
(D) Employer sponsored apprenticeship programs. A taxpayer,
contractor, or subcontractor that sponsors one or more internal
registered apprenticeship programs and that is unable to employ a
sufficient number of qualified apprentices through such programs to
meet the Apprenticeship Requirements must submit a request for
qualified apprentices to at least one registered apprenticeship program
that it does not sponsor in order to satisfy the Good Faith Effort
Exception.
(ii) Examples. The provisions of this paragraph (f)(1) are
illustrated by the following examples.
(A) Example 1. Taxpayer F submits a request to a registered
apprenticeship program by email. The registered apprenticeship program
responds three days later indicating that it has qualified apprentices
ready to start work, but the reply email from the registered
apprenticeship program is automatically forwarded to Taxpayer F's spam
or junk mail folder, and Taxpayer F does not see the email response.
Taxpayer F would not qualify for the Good Faith Effort Exception with
respect to this request because the registered apprenticeship program
provided a substantive reply to the request that agreed to the specific
requirements in Taxpayer F's request within five business days.
(B) Example 2. Contractor G submits a request for qualified
apprentices from a registered apprenticeship program with an area of
operation outside of the geographic area of the qualified facility.
Contractor G's request is denied because the registered apprenticeship
program does not operate in the geographic area where the qualified
facility is located. Contractor G's request would not qualify for the
Good Faith Effort Exception because the registered apprenticeship
program does not have a geographic area of operation that includes the
location of the qualified facility.
(C) Example 3. Contractor H submits a request for qualified
apprentices to a registered apprenticeship program. Under its
established standards and requirements, the registered apprenticeship
program requires contractors to enter into an agreement to partner with
that registered apprenticeship program. Contactor H refuses to enter
into the agreement, and as a result, the registered apprenticeship
program denies Contractor H's request for qualified apprentices. The
requirement to enter into the agreement to partner with the registered
apprenticeship program applies to all employers who request apprentices
from the registered apprenticeship program. Neither the Department of
Labor nor a recognized State apprenticeship agency has found the
requirement to enter into such an agreement to be contrary to
Department of Labor guidance regarding the administration of registered
apprenticeship programs. Contractor H's request would not qualify for
the Good Faith Effort Exception because Contractor H refused to comply
with the established standards and requirements of the registered
apprenticeship program.
(D) Example 4. Contractor I submits a request for qualified
apprentices from a registered apprenticeship program on November 15,
2024. Contractor I's request states that it seeks to employ four
qualified apprentices for the period starting on January 2, 2025, and
ending June 30, 2025, for a total of 4,160 hours (1,040 hours x four
qualified apprentices). On November 18, 2024, the registered
apprenticeship program informs Contractor I that it can supply four
qualified apprentices for the requested time period. On December 29,
2024, the registered apprenticeship program informs Contractor I that
it is only able to supply two of the four qualified apprentices.
Contractor I does not submit any additional requests for qualified
apprentices from a registered apprenticeship program. Contractor I's
request would qualify for the Good Faith Effort Exception for 2,080
hours (1,040 hours for each of the two requested qualified apprentices
that were denied after the request was initially accepted), provided
Contractor I accepted the two qualified apprentices that were offered
for the requested period.
(E) Example 5. Contractor J submits a written request for qualified
apprentices from a registered apprenticeship program on June 1, 2025.
Contractor J's request states that it seeks to employ three qualified
apprentices for a period starting September 1, 2025, and ending
December 31, 2026. The registered apprenticeship program denies the
request on June 2, 2025. Contractor J's request satisfies the Good
Faith Effort Exception with respect to the three qualified apprentices
that were denied for the period beginning September 1, 2025, and ending
August 31, 2026. Contractor J's request does not satisfy the Good Faith
Effort Exception with respect to the period beginning September 1,
2026, and ending December 31, 2026, because that is the portion of the
denied request that exceeded 365 days (366 days in case of a leap year)
and Contractor J did not submit an additional valid request for that
period.
(2) Apprenticeship cure provision--(i) In general. A taxpayer that
fails to satisfy the Apprenticeship Requirements in paragraph (a) of
this section with respect to the construction, alteration, or repair of
any qualified facility prior to the facility being placed in service,
will be deemed to satisfy the Apprenticeship Requirements if the
taxpayer pays the IRS a penalty equal to $50 multiplied by the total
labor hours for which the requirements described in paragraph (b) or
(d) of this section were not satisfied with respect to the
construction, alteration, or repair work on such qualified facility.
(A) Total labor hours for which the labor hours requirement is not
met. For failures to meet the percentage of total labor hours
requirement in paragraph (b)(1) of this section, the total labor hours
for which the requirement was not satisfied is calculated as the
difference between the total labor hours performed by qualified
apprentices that would be required to meet the applicable percentage
under paragraph (b)(2) of this section and the sum of the labor hours
actually worked by all
[[Page 53266]]
qualified apprentices consistent with the applicable ratio of
apprentices to journeyworkers and the hours qualifying for the Good
Faith Effort exception.
(B) Total labor hours for which the participation requirement is
not met. For failures to meet the participation requirement in
paragraph (d) of this section, the total labor hours for which the
requirement was not satisfied is calculated as the total labor hours of
construction, alteration, or repair work with respect to the facility
performed by all laborers or mechanics employed by the taxpayer,
contractor, or subcontractor that failed to meet the participation
requirement of the qualified facility divided by the number of laborers
or mechanics employed by such taxpayer, contractor, or subcontractor
that performed construction, alteration, or repair work on the
facility.
(C) Penalty payment not required if taxpayer ineligible for
increased credit amount under section 45(b)(6)(B)(iii). If the taxpayer
claims the increased credit amount under section 45(b)(6)(B)(iii) and
does not satisfy the Apprenticeship Requirements for the claimed
increased credit amount, then the obligation to make the penalty
payment under paragraph (f)(2)(i) of this section applies. If the IRS
determines that a taxpayer claiming the increased credit amount under
section 45(b)(6)(B)(iii) failed to meet the Apprenticeship Requirements
and the taxpayer does not make the penalty payment required under
paragraph (f)(2)(i) of this section, then no penalty is assessed under
paragraph (f)(2)(i) of this section, and the taxpayer is not eligible
for the increased credit amount under section 45(b)(6)(B)(iii).
Taxpayers that are not eligible to claim the increased credit amount
may still be eligible to claim the base amount of the renewable
electricity production credit under section 45(a) if they meet the
requirements to claim the credit.
(D) Examples. The provisions of paragraph (f)(2)(i) of this section
are illustrated by the following examples, which do not take into
account any possible application of the exception for Good Faith Effort
Exception under paragraph (f)(1) of this section, the enhanced penalty
payment requirement in the case of intentional disregard under
paragraph (f)(2)(ii) of this section, or the inapplicability of the
penalty in the case of a Qualifying Project Labor Agreement under
paragraph (f)(2)(v) of this section. In each example, assume that the
taxpayer uses the calendar year as the taxpayer's taxable year.
(1) Example 1. Taxpayer K starts construction of a qualified
facility on April 1, 2023. Accordingly, Taxpayer K must ensure that at
least 12.5% of the total labor hours are performed by qualified
apprentices. The facility is placed in service on April 1, 2025, and
Taxpayer K claims the increased credit amount under section
45(b)(6)(B)(iii) on its 2025 tax return. All individuals who performed
the construction, alteration, or repair work were employed directly by
Taxpayer K, including two qualified apprentices. Taxpayer K employed
enough journeyworkers to satisfy the Ratio Requirement. A total of
50,000 labor hours were spent on the construction, alteration, or
repair work of the facility, 6,000 of which were performed by qualified
apprentices. Taxpayer K has satisfied the participation requirement
because Taxpayer K has employed at least one qualified apprentice.
Taxpayer K failed to satisfy the labor hours requirement under
paragraph (b)(2) of this section because less than 12.5% of the total
labor hours were performed by qualified apprentices. Qualified
apprentices must have performed at least 6,250 labor hours (50,000 x
12.5%), so the total labor hours by which the labor hours requirement
was not satisfied is 250 (6,250-6,000). To cure Taxpayer K's failure to
meet the labor hours requirement, Taxpayer K must pay a penalty of
$12,500 (250 x $50).
(2) Example 2. Taxpayer L starts construction of a qualified
facility on February 10, 2023. Accordingly, Taxpayer L must ensure that
at least 12.5% of the total labor hours are performed by qualified
apprentices. The facility is placed in service on February 10, 2026,
and Taxpayer L claims the increased credit amount under section
45(b)(6)(B)(iii) on its 2026 tax return. Taxpayer L employs 10
individuals to perform construction, alteration, or repair work of the
facility, two of whom are qualified apprentices. Taxpayer L employed
enough journeyworkers to satisfy the Ratio Requirement. Taxpayer L also
hires Contractor M, who employs five individuals to perform
construction, alteration, or repair work of the facility, none of whom
are qualified apprentices. A total of 50,000 labor hours were spent on
the construction, alteration, or repair work of the facility, 6,500 of
which were performed by qualified apprentices. Of the total 50,000
labor hours, 33,000 labor hours were performed by individuals employed
by Taxpayer L and 17,000 labor hours were performed by individuals
employed by Contractor M. Taxpayer L has satisfied the labor hours
requirement under paragraph (b)(2) of this section because more than
12.5% of the total labor hours were performed by qualified apprentices.
However, Taxpayer L failed to satisfy the participation requirement
under paragraph (d) of this section because Contractor M employed five
individuals but no qualified apprentices. The total labor hours for
which the participation requirement was not satisfied is equal to the
total labor hours performed by individuals employed by Contractor M
(17,000) divided by the number of individuals employed by Contractor M
(five) on the construction of the qualified facility, which is 3,400
hours (17,000/5). To cure the failure to meet the Apprenticeship
Requirements, Taxpayer L must pay a penalty of $170,000 (3,400 x $50).
(3) Example 3. Taxpayer N starts construction of a qualified
facility on January 1, 2024. Accordingly, Taxpayer N must ensure that
at least 15% of the total labor hours are performed by qualified
apprentices. The facility is placed in service on January 1, 2025, and
Taxpayer N claims the increased credit amount under section
45(b)(6)(B)(iii) on its 2025 tax return. Taxpayer N employs 15
individuals to perform construction, alteration, or repair work of the
facility, none of whom is a qualified apprentice. Taxpayer N also hires
Contractor O, who employs five individuals to perform construction,
alteration, or repair work of the facility, one of whom is a qualified
apprentice. At the time Taxpayer N claims the increased credit amount,
a total of 20,000 labor hours were spent on the construction,
alteration, or repair work of the facility, 1,000 of which were
performed by the qualified apprentice. Of the 20,000 total labor hours,
15,000 labor hours were performed by individuals employed by Taxpayer N
and 5,000 labor hours were performed by individuals employed by
Contractor O. Taxpayer N failed to satisfy the labor hours requirement
under paragraph (b)(2) of this section because less than 15% of the
total labor hours were performed by qualified apprentices. Qualified
apprentices must have performed at least 3,000 labor hours, so the
total labor hours by which the labor hours requirement was not
satisfied is 2,000. Taxpayer N also failed to satisfy the participation
requirement under paragraph (d) of this section because Taxpayer N
employed 15 individuals but no qualified apprentices. The total labor
hours for which the participation requirement was not satisfied is
1,000, which is equal to the total labor hours performed
[[Page 53267]]
by individuals employed by Taxpayer N (15,000) divided by the number of
individuals employed by Taxpayer N (15), which is 1,000 (15,000/15).
The total labor hours by which Taxpayer N failed to meet the labor
hours and participation requirements is 3,000 (2,000 + 1,000). To cure
Taxpayer N's failure to meet the Apprenticeship Requirements, Taxpayer
N must pay a penalty of $150,000 (3,000 x $50).
(4) Example 4. Taxpayer P starts construction of a qualified
facility on April 1, 2023. Accordingly, Taxpayer P must ensure that at
least 12.5% of the total labor hours are performed by qualified
apprentices. The facility is placed in service on January 5, 2024, and
Taxpayer P claims the increased credit amount under section
45(b)(6)(B)(iii) on its 2024 tax return. Taxpayer P hires Contractors
Q, R, and S to perform the construction, alteration, and repair of the
qualified facility. Contractor Q employs 10 journeyworkers who work
10,000 hours and one qualified apprentice who works 400 hours.
Contractor R employs four journeyworkers who work 4,000 hours and five
qualified apprentices who work 2,000 hours. Contractor S employs three
journeyworkers who work 3,000 hours and one qualified apprentice who
works 400 hours. The registered apprenticeship program for all of the
qualified apprentices has prescribed a 1:1 apprentice-to-journeyworker
ratio. For each day, all journeyworkers and qualified apprentices
employed by the contractors are on the job site. The contractors have
satisfied the participation requirement under paragraph (d) of this
section because they each employed one or more qualified apprentices.
The total labor hours are 19,800 hours, and the total hours worked by
qualified apprentices are 2,800. However, Contractor R employed one
qualified apprentice in excess of the apprentice-to-journeyworker ratio
(five qualified apprentices: four journeyworkers) that was prescribed
by the apprenticeship program. Because Contractor R employed one
qualified apprentice in excess of the apprentice-to-journeyworker ratio
on each day that Contractor R performed work on the facility, 400 of
the qualified apprentice hours worked by Contractor R do not count
towards the labor hour requirement. Thus, Taxpayer P has failed to meet
the labor hours requirement under paragraph (b)(2) of this section
because only 2,400 hours worked by qualified apprentices are counted
for purposes of the labor hours requirement. The total labor hours by
which Taxpayer P failed to meet the labor hours requirement is 75
(2,475 required hours (19,800 x 12.5%)-2,400 qualified apprentice hours
worked). To cure Taxpayer P's failure to meet the Apprenticeship
Requirements, Taxpayer P must pay a penalty of $3,750 (75 x $50).
(ii) Intentional disregard--(A) Application of section
45(b)(8)(D)(iii). If the IRS determines that any failure to satisfy the
Apprenticeship Requirements in paragraph (b) or (d) of this section is
due to intentional disregard of those requirements, the amount of the
penalty payment under paragraph (f)(2) of this section is increased to
$500 multiplied by the total labor hours for which the requirements
described in paragraph (b) or (d) of this section were not satisfied
with respect to the construction, alteration, or repair work on such
qualified facility.
(B) Meaning of intentional disregard. A failure to satisfy the
Apprenticeship Requirements of paragraph (b) or (d) of this section is
due to intentional disregard if it is knowing or willful.
(C) Facts and circumstances considered. The facts and circumstances
that are considered in determining whether a failure to satisfy the
Apprenticeship Requirements is due to intentional disregard include,
but are not limited to--
(1) Whether the failure was part of a pattern of conduct that
includes repeated or systemic failures to ensure compliance with the
Apprenticeship Requirements;
(2) Whether the taxpayer took steps to determine or review the
applicable percentage of labor hours required to be performed by
qualified apprentices;
(3) Whether the taxpayer sought to promptly cure any failures;
(4) Whether the taxpayer has been required to make a penalty
payment under paragraph (f)(2) of this section in previous years;
(5) Whether the taxpayer included provisions in any contracts
entered into with contractors that required the employment of qualified
apprentices by the contractor and any subcontractors consistent with
the labor hour requirement of section 45(b)(8)(A) and the participation
requirement of section 45(b)(8)(C) and whether taxpayers regularly
reviewed contractors' and subcontractors' use of qualified apprentices;
(6) Whether the taxpayer required contractors and subcontractors to
forward to the taxpayer requests to registered apprenticeship programs
within five business days of when requests were made;
(7) Whether the taxpayer made no attempt to comply with the
Apprenticeship Requirements;
(8) Whether the taxpayer developed and used a plan to utilize
qualified apprentices in the construction, alteration, or repair of the
qualified facility;
(9) Whether the taxpayer, contractor, or subcontractor regularly
followed up with registered apprenticeship programs regarding requests
for qualified apprentices;
(10) Whether the taxpayer, contractor, or subcontractor contacted
the Department of Labor's Office of Apprenticeship or relevant State
apprenticeship agency for assistance in locating a registered
apprenticeship program;
(11) Whether the taxpayer had in place procedures whereby
individuals could report suspected failures to comply with the
Apprenticeship Requirements, without retaliation or adverse action,
whether taxpayer investigated such reports by individuals, and whether
the taxpayer had internal controls to prevent the failures to comply
with the Apprenticeship Requirements;
(12) Whether the taxpayer investigated complaints of retaliation or
adverse action resulting from reports of suspected failures to comply
with the Apprenticeship Requirements, and took appropriate actions to
remedy any retaliation or adverse action and prevent it from
reoccurring; and
(13) Whether taxpayer failed to maintain and preserve records
sufficient to establish compliance with the apprenticeship requirements
for relevant tax years.
(D) Examples. The provisions of paragraph (f)(2)(ii) of this
section are illustrated by the following examples, which take into
account certain facts and circumstances described in paragraph
(f)(2)(ii)(C) of this section, that are considered in applying the
enhanced penalty payment requirement in the case of intentional
disregard. These examples do not take into account any possible
application of the exception for Good Faith Effort Exception under
paragraph (f)(1) of this section or the inapplicability of the penalty
in the case of a Qualifying Project Labor Agreement under paragraph
(f)(2)(v) of this section. In each example, assume that the taxpayer
uses the calendar year as the taxpayer's taxable year.
(1) Example 1. Taxpayer T failed to satisfy the labor hours
requirement of section 45(b)(8)(A), the participation requirement of
section 45(b)(8)(C), and the requirements described in
[[Page 53268]]
paragraphs (b) and (d) of this section. Taxpayer T did not create a
plan to utilize qualified apprentices in the construction, alteration,
or repair of the qualified facility. Taxpayer T did not include
contract provisions that requires the hiring of qualified apprentices
and the compliance with the labor hours requirement described in
section 45(b)(8)(A) and the participation requirement described in
section 45(b)(8)(C), nor did Taxpayer T require those contract
provisions in any subcontracts. Neither Taxpayer T nor any contractors
or subcontractors made any requests to a registered apprenticeship
program for qualified apprentices. Taxpayer T also did not have
procedures in place to audit whether contractors or subcontractors made
a request to a registered apprenticeship program. Taxpayer T's failures
to satisfy the labor hours requirement of section 45(b)(8)(A), the
participation requirement of section 45(b)(8)(C), and the requirements
described in paragraphs (b) and (d) of this section would be considered
due to intentional disregard for purposes of paragraph (f)(2)(ii) of
this section. After considering all of the facts and circumstances,
Taxpayer T would be subject to the enhanced penalty payment described
in paragraph (f)(2)(ii)(A) of this section.
(2) Example 2. Taxpayer U failed to satisfy the labor hours
requirement of section 45(b)(8)(A), the participation requirement of
section 45(b)(8)(C), and the requirements described in paragraphs (b)
and (d) of this section. Taxpayer U created a plan to utilize qualified
apprentices in the construction, alteration, or repair of a qualified
facility. Taxpayer U included contract provisions that required the
hiring of qualified apprentices and the compliance with the labor hours
requirement described in section 45(b)(8)(A) and the participation
requirement described in section 45(b)(8)(C) and required those
contract provisions in any subcontracts. Taxpayer U and all contractors
and subcontractors of Taxpayer U requested relevant qualified
apprentices from registered apprenticeship programs. Taxpayer U also
created procedures to audit whether contractors or subcontractors made
a request to a registered apprenticeship program and ensured that the
registered apprenticeship programs were contacted in writing. In cases
in which a registered apprenticeship program replied to a proper
request described in paragraph (f)(1)(i)(A)(1) of this section with a
non-substantive response, Taxpayer U encouraged follow-ups to the
registered apprenticeship program. Additionally, Taxpayer U contacted
and encouraged contractors and subcontractors to contact the Department
of Labor's Office of Apprenticeship and the State apprenticeship agency
in cases in which Taxpayer U, or any contractors or subcontractors,
experienced difficulty in locating a registered apprenticeship program.
After considering all of the facts and circumstances, Taxpayer U's
failure to satisfy the labor hours requirement of section 45(b)(8)(A),
the participation requirement of section 45(b)(8)(C), and the
requirements described in paragraphs (b) and (d) of this section would
not be considered due to intentional disregard for purposes of
paragraph (f)(2)(ii) of this section.
(E) Rebuttable presumption of no intentional disregard. If a
taxpayer makes the penalty payment required by this paragraph (f)(2)
before receiving notice of an examination from the IRS with respect to
a claim for the increased credit amount under section 45(b)(6), the
taxpayer will be presumed not to have intentionally disregarded the
Apprenticeship Requirements in paragraphs (b) and (d) of this section.
The IRS may rebut this presumption based on the relevant facts and
circumstances.
(iii) Deficiency procedures to apply. The penalty payment required
by this paragraph (f)(2) is subject to deficiency procedures of
subchapter B of chapter 63 of the Code.
(iv) Penalty payments in the event of a transfer pursuant to
section 6418. To the extent an eligible taxpayer, as defined in section
6418(f)(2), has determined an increased credit amount under section
45(b)(6) and transferred such increased credit amount as part of a
specified credit portion, the obligation to make a penalty payment
under paragraph (f)(2)(i) of this section remains with the eligible
taxpayer. The obligation for an eligible taxpayer to satisfy the
Apprenticeship Requirements becomes binding upon the earlier of the
filing of the eligible taxpayer's return for the taxable year for which
the specified credit portion is determined with respect to the eligible
taxpayer, or the filing of the return of the transferee taxpayer for
the year in which the specified credit portion is taken into account.
If the IRS determines that the eligible taxpayer failed to meet the
Apprenticeship Requirements and the eligible taxpayer does not then
make the penalty payments provided in paragraph (f)(2)(i) of this
section, then no penalty is assessed under paragraph (f)(2)(i) of this
section, and the eligible taxpayer is not eligible for the increased
credit amount determined under section 45(b)(6)(B)(iii). Section 6418
and the regulations under section 6418 control for determining the
impact of an eligible taxpayer's failure to cure on any transferee
taxpayer.
(v) Project labor agreements. The penalty payment required by this
paragraph (f)(2) to cure a failure to satisfy the Apprenticeship
Requirements in paragraphs (b) and (d) of this section does not apply
with respect to the construction, alteration, or repair work of a
qualified facility if the work is done pursuant to a Qualifying Project
Labor Agreement as defined in Sec. 1.45-7(c)(6)(ii).
(g) Definitions. Solely for purposes of this section, the following
definitions apply:
(1) Construction, alteration, or repair. The term construction,
alteration, or repair has the same meaning as in Sec. 1.45-7(d)(3).
(2) Contractor. The term contractor has the same meaning as in
Sec. 1.45-7(d)(4).
(3) Employed. The term employed has the same meaning as in Sec.
1.45-7(d)(5).
(4) Established standards and requirements. The term established
standards and requirements means those standards of apprenticeship
required by 29 CFR parts 29 and 30 for registered apprenticeship
programs, as well as any additional requirements established by the
registered apprenticeship program for the placement of apprentices and
applicable to all employers participating in the registered
apprenticeship program. Such requirements must not be found by the U.S.
Department of Labor's Office of Apprenticeship or a recognized State
apprenticeship agency to be contrary to Department of Labor guidance
regarding the administration of registered apprenticeship programs.
(5) Geographic area. The term geographic area for purposes of
determining the geographic area of operation of a registered
apprenticeship program has the same meaning as the term geographic area
and locality defined in Sec. 1.45-7(d)(7).
(6) Journeyworker. The term journeyworker means an individual who
has attained a level of skill, abilities, and competencies recognized
within an industry as having mastered the skills and competencies
required for the occupation. Use of the term may also refer to a
mentor, technician, specialist, or other skilled individual who has
documented sufficient skills and knowledge of an occupation, either
through formal apprenticeship or
[[Page 53269]]
through practical on-the-job experience and formal training.
(7) Labor hours. The term labor hours means the total number of
hours devoted to the performance of construction, alteration, or repair
work by any individual employed by the taxpayer or by any contractor or
subcontractor. Labor hours do not include hours worked by foremen,
superintendents, owners, or persons employed in bona fide executive,
administrative, or professional capacities (as defined in 29 CFR part
541).
(8) Qualified apprentice. The term qualified apprentice means an
individual who is employed by the taxpayer or by any contractor or
subcontractor and who is participating in a registered apprenticeship
program. An individual is participating in a registered apprenticeship
program if, the individual has entered into a written agreement with a
registered apprenticeship program containing the terms and conditions
of the employment and training of the apprentice and has been
registered as an apprentice with the U.S. Department of Labor's Office
of Apprenticeship or a recognized State apprenticeship agency during
the time period in which work is performed by the apprentice for the
taxpayer, contractor, or subcontractor, or the individual is in the
first 90 days of probationary employment as an apprentice in a
registered apprenticeship program and the individual has been certified
by the U.S. Department of Labor's Office of Apprenticeship or a
recognized State apprenticeship agency as eligible for probationary
employment as an apprentice.
(9) Registered apprenticeship program. A registered apprenticeship
program means a program that has been registered by the U.S. Department
of Labor's Office of Apprenticeship or a recognized State
apprenticeship agency, pursuant to the National Apprenticeship Act and
its implementing regulations for registered apprenticeship at 29 CFR
parts 29 and 30, as meeting the basic standards and requirements of the
Department of Labor for approval of such program for Federal purposes.
Registration of a program is evidenced by a Certificate of Registration
or other written indicia. Registered apprenticeship programs include
those that taxpayers, contractors, or subcontractors sponsor, create,
or partner with and include joint and non-joint programs (as those
terms are used in 29 CFR part 29).
(10) State apprenticeship agency. The term State apprenticeship
agency means an agency of a State government that has responsibility
and accountability for apprenticeship within the State and that has
been recognized and authorized by the U.S. Department of Labor's Office
of Apprenticeship to register and oversee apprenticeship programs and
agreements for Federal purposes.
(11) Subcontractor. The term subcontractor has the same meaning as
in Sec. 1.45-7(d)(10).
(12) Taxpayer. The term taxpayer has the same meaning as in Sec.
1.45-7(d)(11).
(h) Applicability date. This section applies to qualified
facilities placed in service in taxable years ending after June 25,
2024, and the construction of which begins after June 25, 2024.
Taxpayers may apply this section to qualified facilities placed in
service in taxable years ending on or before June 25, 2024, and
qualified facilities placed in service in taxable years ending after
June 25, 2024, the construction of which begins before June 25, 2024,
provided that taxpayers follow this section in its entirety and in a
consistent manner.
Sec. Sec. 1.45-9--1.45.11 [Reserved]
Sec. 1.45-12 Recordkeeping and reporting.
(a) In general. The increased credit amount determined under
section 45(b)(6) must be claimed in such form and manner as may be
prescribed in IRS forms, instructions, publications, or guidance
published in the Internal Revenue Bulletin. See Sec. 601.601 of this
chapter. Consistent with sections 45 and 6001 and Sec. 1.6001-1(e), a
taxpayer claiming or transferring (under section 6418) an increased
credit amount under section 45(b)(6)(A) must maintain and preserve
records sufficient to establish compliance with the requirements of
sections 45(b)(6)(B), (b)(7), and (8), as applicable. In the case of
any credit transferred under section 6418 reflecting an increased
credit amount, the requirement to maintain and preserve sufficient
records demonstrating compliance with the applicable prevailing wage
and apprenticeship requirements remains with the eligible taxpayer that
determined and transferred the credit. For definitions of terms used in
this section, see Sec. 1.45-7(d) with respect to the prevailing wage
requirements, and Sec. 1.45-8(g) with respect to the apprenticeship
requirements.
(b) Recordkeeping for the prevailing wage and apprenticeship
requirements. With respect to each qualified facility for which a
taxpayer is claiming or transferring (under section 6418) a credit
reflecting an increased credit amount under section 45(b)(6)(A)(iii),
the taxpayer must maintain and preserve records sufficient to
demonstrate compliance with the applicable prevailing wage and
apprenticeship requirements in sections 45(b)(7) and (8) and Sec. Sec.
1.45-7 and 1.45-8, respectively. At a minimum, those records include
payroll records for each laborer and mechanic (including each qualified
apprentice) employed by the taxpayer, contractor, or subcontractor in
the construction, alteration, or repair of the qualified facility. If
work is done pursuant to a Qualifying Project Labor Agreement as
defined in Sec. 1.45-7(c)(6)(ii), the taxpayer should also maintain
and preserve records related to that Qualifying Project Labor
Agreement.
(c) Recordkeeping for the prevailing wage requirements. In addition
to payroll records otherwise maintained by the taxpayer, records
sufficient to demonstrate compliance with the applicable prevailing
wage requirements in section 45(b)(7) and Sec. 1.45-7 may include
Forms WH-347 completed fully and correctly with information for each
laborer and mechanic (including each qualified apprentice) employed by
the taxpayer, a contractor, or subcontractor with respect to each
qualified facility. Records sufficient to demonstrate compliance with
the applicable prevailing wage requirements in section 45(b)(7) and
Sec. 1.45-7 may also include the following other documents and records
with respect to each qualified facility:
(1) Identifying information for each laborer and mechanic who
worked on the construction, alteration, or repair of the qualified
facility, including the name, the last four digits of a social security
or tax identification number, address, telephone number, and email
address;
(2) The location and type of construction of the qualified
facility;
(3) The labor classification(s) the taxpayer applied to each
laborer and mechanic for determining the prevailing wage rate and
documentation supporting the applicable classification, including the
applicable wage determination and copies of executed contracts for
construction, alteration, or repair of the qualified facility with any
contractor or subcontractor;
(4) The hourly rate(s) of wages paid (including rates of
contributions or costs for bona fide fringe benefits or cash
equivalents thereof) for each applicable labor classification described
in paragraph (c)(3) of this section;
(5) Records to support any contribution irrevocably made on behalf
of each laborer or mechanic to a trustee or other third person pursuant
to a bona fide fringe benefit program, and the rate
[[Page 53270]]
of costs that were reasonably anticipated in providing bona fide fringe
benefits to laborers and mechanics pursuant to an enforceable
commitment to carry out a plan or program described in 40 U.S.C.
3141(2)(B), including records demonstrating that the enforceable
commitment was provided in writing to the laborers and mechanics
affected;
(6) The total number of hours worked by each laborer and mechanic
per pay period;
(7) The total wages paid to each laborer and mechanic for each pay
period (including identifying any deductions from wages);
(8) Records to support wages paid to any qualified apprentices at
less than the applicable prevailing wage rates, including records
reflecting an individual's participation in a registered apprenticeship
program and the applicable wage rates and apprentice- to-journeyworker
ratios prescribed by the registered apprenticeship program;
(9) The amount and timing of any correction and penalty payments
and documentation reflecting the calculation of the correction and
penalty payments, including records to demonstrate eligibility for the
penalty waiver in Sec. 1.45-7(c)(6);
(10) Records to document any failures to pay prevailing wages and
the actions taken to prevent, mitigate, or remedy the failure (for
example, records demonstrating that the taxpayer (or an independent
third party engaged by the taxpayer) regularly reviewed payroll
practices, included requirements to pay prevailing wages in contracts
with contractors, and posted prevailing wage rates in a prominent place
on the job site); and
(11) Records related to any complaints received by the taxpayer,
contractor, or subcontractor that the taxpayer, contractor, or
subcontractor was paying wages less than the applicable prevailing wage
rate for work performed by laborers and mechanics with respect to the
qualified facility.
(d) Recordkeeping for the apprenticeship requirements. Records
sufficient to demonstrate compliance with the applicable apprenticeship
requirements in section 45(b)(8) and Sec. 1.45-8 may include the
following information with respect to each qualified facility:
(1) Any written requests for the employment of qualified
apprentices from registered apprenticeship programs, including any
contacts with the U.S. Department of Labor's Office of Apprenticeship
or a State apprenticeship agency regarding requests for qualified
apprentices from registered apprenticeship programs;
(2) Any agreements entered into with registered apprenticeship
programs with respect to the construction, alteration, or repair of the
facility;
(3) Documents reflecting the standards and requirements of all
registered apprenticeship programs from which taxpayers, contractors,
or subcontractors employed qualified apprentices with respect to the
construction, alteration, or repair of the facility (including the
applicable ratio requirement prescribed by each registered
apprenticeship program);
(4) The total number of labor hours worked with respect to the
construction, alteration, or repair of the qualified facility,
including and identifying hours worked by each qualified apprentice;
(5) Records reflecting the daily ratio of apprentices to
journeyworkers;
(6) Records demonstrating compliance with the Good Faith Effort
Exception in Sec. 1.45-8(f)(1) (including requests for qualified
apprentices, correspondence with registered apprenticeship programs,
and denials of requests);
(7) The amount and timing of any penalty payments and documentation
reflecting the calculation of the penalty payments;
(8) Records to document any failures to satisfy the apprenticeship
requirements under section 45(b)(8) and Sec. 1.45-8 and the actions
taken to prevent, mitigate, or remedy the failure; and
(9) Records related to any complaints received by the taxpayer,
contractor, or subcontractor that the taxpayer, contractor, or
subcontractor was not satisfying the apprenticeship requirements under
section 45(b)(8) and Sec. 1.45-8.
(e) Satisfaction of the recordkeeping requirements. Taxpayers may
satisfy the recordkeeping requirements in this section as follows:
(1) Taxpayers may collect and physically retain relevant records
from every contractor and subcontractor. The records may have
personally identifiable information (PII) redacted to comply with
applicable privacy laws. Unredacted information must be made available
to the IRS upon request;
(2) Taxpayers, contractors, and subcontractors may provide relevant
records to a third party vendor to physically retain on behalf of the
taxpayer. The records may have PII redacted to comply with applicable
privacy laws. Unredacted records must be made available to the IRS upon
request; or
(3) Taxpayers, contractors, and subcontractors may each physically
retain the relevant unredacted records for their own employees.
Unredacted records must be made available to the IRS upon request.
(f) Applicability date. This section applies to qualified
facilities placed in service in taxable years ending after June 25,
2024, and the construction of which begins after June 25, 2024.
Taxpayers may apply this section to qualified facilities placed in
service in taxable years ending on or before June 25, 2024, and
qualified facilities placed in service in taxable years ending after
June 25, 2024, the construction of which begins before June 25, 2024,
provided that taxpayers follow this section in its entirety and in a
consistent manner.
0
Par. 4. Sections 1.45L-1 through 1.45L-3 are added to read as follows:
Sec. Sec. 1.45L-1--1.45L-2 [Reserved]
Sec. 1.45L-3 Rules relating to the increased credit amount for
prevailing wage.
(a) In general. With respect to a qualified residence described in
section 45L(a)(2)(B), the credit determined under section
45L(a)(2)(B)(i) is $2,500 and the credit determined under section
45L(a)(2)(B)(ii) is $5,000 if the qualified residence described in
section 45L(a)(2)(B)--
(1) Meets the requirements under section 45L(c)(1)(A) or
45L(c)(1)(B), as applicable;
(2) Is constructed by an eligible contractor;
(3) Is acquired by a person for use as a residence during the
taxable year; and
(4) Satisfies the prevailing wage requirements of section 45(b)(7)
and Sec. 1.45-7, and the recordkeeping and reporting requirements of
Sec. 1.45-12, with respect to the construction of the qualified
residence before such residence is acquired by a person for use as a
residence.
(b) Definitions--(1) Qualified residence. For purposes of this
section, a qualified residence means a qualified new energy efficient
home as defined in section 45L(b)(2).
(2) Eligible contractor. For purposes of this section, an eligible
contractor means an eligible contractor as defined in section
45L(b)(1).
(c) Applicability date. This section applies to any qualified new
energy efficient home acquired for use as a residence in taxable years
ending after June 25, 2024, and the construction of which begins after
June 25, 2024. Taxpayers may apply this section to any qualified new
energy efficient home acquired for use as a residence in taxable years
ending on or before June 25, 2024, and any qualified new energy
efficient home acquired for use as a residence in taxable years ending
after June 25, 2024, the construction of which
[[Page 53271]]
begins before June 25, 2024, provided that taxpayers follow this
section in its entirety and in a consistent manner.
0
Par. 5. Section 1.45Q-6 is added to read as follows:
Sec. 1.45Q-6 Rules relating to the increased credit amount for
prevailing wage and apprenticeship.
(a) In general. If the requirements in paragraph (b) of this
section are satisfied with respect to any qualified facility or any
carbon capture equipment placed in service at that facility, then the
credit determined under section 45Q(a) is multiplied by five.
(b) Qualified facility and carbon capture equipment requirements.
The requirements of this paragraph (b) are satisfied if any of the
following requirements are met--
(1) With respect to a qualified facility within the meaning of
section 45Q the construction of which begins on or after January 29,
2023, and any carbon capture equipment within the meaning of section
45Q placed in service at such facility, the taxpayer meets the
prevailing wage requirements of section 45(b)(7) and Sec. 1.45-7 with
respect to the construction of such facility and equipment and with
respect to the alteration or repair of such facility and equipment for
any taxable year, for any portion of such taxable year that is within
the period described in section 45Q(3)(A) or (4)(A) after the facility
or equipment was originally placed in service, the apprenticeship
requirements of section 45(b)(8) and Sec. 1.45-8, and the
recordkeeping and reporting requirements of Sec. 1.45-12;
(2) With respect to any carbon capture equipment within the meaning
of section 45Q the construction of which begins on or after January 29,
2023, and that is installed at a qualified facility the construction of
which began prior to January 29, 2023, the taxpayer meets the
prevailing wage requirements of section 45(b)(7) and Sec. 1.45-7 with
respect to the construction of such equipment and with respect to the
alteration or repair of such equipment for any taxable year, for any
portion of such taxable year that is within the period described in
section 45Q(3)(A) or (4)(A) after the equipment was originally placed
in service, the apprenticeship requirements of section 45(b)(8) and
Sec. 1.45-8, and the recordkeeping and reporting requirements of Sec.
1.45-12; or
(3) Carbon capture equipment within the meaning of section 45Q the
construction of which began prior to January 29, 2023, and such
equipment is installed at a qualified facility the construction of
which began prior to January 29, 2023.
(c) Applicability date. This section applies to qualified
facilities and carbon capture equipment placed in service in taxable
years ending after June 25, 2024, and the construction of which begins
after June 25, 2024. Taxpayers may apply this section to qualified
facilities and carbon capture equipment placed in service in taxable
years ending on or before June 25, 2024, and qualified facilities and
carbon capture equipment placed in service in taxable years ending
after June 25, 2024, the construction of which begins before June 25,
2024, provided that taxpayers follow this section in its entirety and
in a consistent manner.
0
Par. 6. Sections 1.45U-1 through 1.45U-3 are added to read as follows:
Sec. Sec. 1.45U-1--1.45U-2 [Reserved]
Sec. 1.45U-3 Rules relating to the increased credit amount for
prevailing wage.
(a) In general. If a qualified nuclear power facility satisfies the
prevailing wage requirements of section 45(b)(7) and Sec. 1.45-7 for
any alteration or repair with respect to such qualified nuclear power
facility within the meaning of section 45U(b)(1), and the recordkeeping
and reporting requirements of Sec. 1.45-12, then the amount of the
zero-emission nuclear power production credit for the taxable year is
equal to the credit amount determined under section 45U(a) multiplied
by five.
(b) Qualifying Project Labor Agreement for a qualified nuclear
power facility. For the purposes of section 45U and Sec. 1.45-
7(c)(6)(ii), in order to be a Qualifying Project Labor Agreement, such
agreement must, at a minimum:
(1) Be a collective bargaining agreement with a one or more labor
organizations (as defined in 29 U.S.C. 152(5)) of which employees of
the qualified nuclear power facility are members and such agreement
establishes the terms and conditions of employment at the qualified
nuclear power facility;
(2) Contain guarantees against strikes, lockouts, and similar job
disruptions;
(3) Set forth effective, prompt, and mutually binding procedures
for resolving labor disputes arising during the term of the collective
bargaining agreement; and
(4) Contain provisions to pay wages at rates not less than the
prevailing rates in accordance with subchapter IV of chapter 31 of
title 40 of the United States Code.
(c) Applicability date. This section applies to alterations and
repairs of qualified nuclear power facilities that are performed after
June 25, 2024, for taxable years beginning after June 25, 2024.
Taxpayers may apply this section to alterations and repairs of
qualified nuclear power facilities that are performed prior to June 25,
2024 provided that taxpayers follow this section in its entirety and in
a consistent manner.
0
Par. 7. Sections 1.45V-1 through 1.45V-3 are added to read as follows:
Sec. Sec. 1.45V-1--1.45V-2 [Reserved]
Sec. 1.45V-3 Rules relating to the increased credit amount for
prevailing wage and apprenticeship.
(a) In general. If any qualified clean hydrogen production facility
(as defined in section 45V(c)(3)) satisfies the requirements in
paragraph (b) of this section, then the amount of the credit for
producing qualified clean hydrogen determined under section 45V(a) with
respect to qualified clean hydrogen described in section 45V(b)(2) is
equal to the credit amount determined under section 45V(a) multiplied
by five.
(b) Qualified clean hydrogen production facility requirements. A
qualified clean hydrogen production facility satisfies the requirements
of this paragraph (b) if it is one of the following--
(1) A facility the construction of which began prior to January 29,
2023, and that meets the prevailing wage requirements of section
45(b)(7) and Sec. 1.45-7 with respect to alterations or repairs of a
qualified facility within the meaning of section 45V that occur after
January 29, 2023 (to the extent applicable), and that meets the
recordkeeping and reporting requirements of Sec. 1.45-12; or
(2) A facility that meets the prevailing wage requirements of
section 45(b)(7) and Sec. 1.45-7, the apprenticeship requirements of
section 45(b)(8) and Sec. 1.45-8, and the recordkeeping and reporting
requirements of Sec. 1.45-12 with respect to the construction,
alteration, or repair of a qualified facility within the meaning of
section 45V.
(c) Applicability date. This section applies to qualified clean
hydrogen production facilities placed in service in taxable years
ending after June 25, 2024, and the construction of which begins after
June 25, 2024. Taxpayers may apply this section to qualified clean
hydrogen production facilities placed in service in taxable years
ending on or before June 25, 2024, and qualified clean hydrogen
production facilities placed in service in taxable years ending after
June 25, 2024, the construction of which begins before June 25, 2024,
provided that taxpayers follow this
[[Page 53272]]
section in its entirety and in a consistent manner.
0
Par. 8. Sections 1.45Y-1 through 1.45Y-3 are added to read as follows:
Sec. Sec. 1.45Y-1--1.45Y-2 [Reserved]
Sec. 1.45Y-3 Rules relating to the increased credit amount for
prevailing wage and apprenticeship.
(a) In general. If any qualified clean electricity production
facility satisfies the requirements in paragraph (b) of this section,
the amount of the credit for producing clean electricity determined
under section 45Y(a) is the alternative amount described in section
45Y(a)(2)(B), subject to adjustment provided by section 45Y(c).
(b) Qualified clean electricity production facility requirements. A
qualified facility satisfies the requirements of this paragraph (b) if
it is one of the following--
(1) A facility with a maximum net output of less than one megawatt
(as measured in alternating current);
(2) A facility the construction of which began prior to January 29,
2023; or
(3) A facility that meets the prevailing wage requirements of
section 45(b)(7) and Sec. 1.45-7, the apprenticeship requirements of
section 45(b)(8) and Sec. 1.45-8, and the recordkeeping and reporting
requirements of Sec. 1.45-12 with respect to the construction,
alteration, or repair of a qualified clean electricity production
facility within the meaning of section 45Y.
(c) Applicability date. This section applies to qualified clean
electricity production facilities placed in service in taxable years
ending after June 25, 2024, and the construction of which begins after
June 25, 2024. Taxpayers may apply this section to qualified clean
electricity production facilities placed in service in taxable years
ending on or before June 25, 2024, and qualified clean electricity
production facilities placed in service in taxable years ending after
June 25, 2024, the construction of which begins before June 25, 2024,
provided that taxpayers follow this section in its entirety and in a
consistent manner.
0
Par. 9. Sections 1.45Z-1 through 1.45Z-3 are added to read as follows:
Sec. Sec. 1.45Z-1--1.45Z-2 [Reserved]
Sec. 1.45Z-3 Rules relating to the increased credit amount for
prevailing wage and apprenticeship.
(a) In general. If any qualified facility (as defined in section
45Z(d)(4)) satisfies the requirements in paragraph (b) of this section,
the applicable amount used to calculate the clean fuel production
credit determined under section 45Z(a) is the alternative amount
described in section 45Z(a)(2)(B) or 45Z(a)(3)(A)(ii), as applicable,
subject to the inflation adjustment provided by section 45Z(c).
(b) Qualified facility for clean fuel production requirements. A
qualified facility (as defined in section 45Z(d)(4)) satisfies the
requirements of this paragraph (b) if it is one of the following--
(1) A qualified facility that is placed in service after December
31, 2024, that meets the prevailing wage requirements of section
45(b)(7) and Sec. 1.45-7, the apprenticeship requirements of section
45(b)(8) and Sec. 1.45-8, and the recordkeeping and reporting
requirements of Sec. 1.45-12 with respect to the construction,
alteration, or repair of such qualified facility; or
(2) A qualified facility that is placed in service before January
1, 2025, that meets the prevailing wage requirements of section
45(b)(7) and Sec. 1.45-7 with respect to any alteration or repair of
such qualified facility that is performed in taxable years beginning
after December 31, 2024, the apprenticeship requirements of section
45(b)(8) and Sec. 1.45-8 with respect to the construction of such
qualified facility, and the recordkeeping and reporting requirements of
Sec. 1.45-12.
(3) Special transition rule for facilities placed in service before
January 1, 2025. Solely for purposes of the apprenticeship requirements
of section 45(b)(8) and Sec. 1.45-8, taxpayers that place a qualified
facility in service before January 1, 2025, must satisfy the
apprenticeship requirements with respect to construction of the
facility that occurs 90 days after June 25, 2024.
(c) Applicability date. This section applies to qualified
facilities for clean fuel production placed in service in taxable years
ending after June 25, 2024, and the construction of which begins after
June 25, 2024. Taxpayers may apply this section to qualified facilities
for clean fuel production placed in service in taxable years ending on
or before June 25, 2024, and qualified facilities for clean fuel
production placed in service in taxable years ending after June 25,
2024, the construction of which begins before June 25, 2024, provided
that taxpayers follow this section in its entirety and in a consistent
manner.
0
Par. 10. Sections 1.48C-1 through 1.48C-3 are added to read as follows:
Sec. Sec. 1.48C-1--1.48C-2 [Reserved]
Sec. 1.48C-3 Rules relating to the increased credit amount for
prevailing wage and apprenticeship.
(a) In general. If any qualifying advanced energy project (as
defined in section 48C(c)(1)(A)) satisfies the prevailing wage
requirements of section 45(b)(7) and Sec. 1.45-7, the apprenticeship
requirements of section 45(b)(8) and Sec. 1.45-8, and the
recordkeeping and reporting requirements of Sec. 1.45-12, with respect
to the re-equipping, expansion, or establishment of a qualifying
advanced energy project within the meaning of section 48C, the
qualifying advanced energy project credit determined under section
48C(a) for any taxable year with respect to credits allocated pursuant
to section 48C(e) is an amount equal to 30 percent of the qualified
investment for the taxable year. For purposes of this section, the term
re-equipping, expansion, or establishment means those activities
described in Sec. Sec. 1.45-7(d)(3) and 1.45-8(g)(1) that are
performed with respect to a qualifying advanced energy project within
the meaning of section 48C before such project is placed in service.
(b) Applicability date. This section applies to qualifying advanced
energy projects placed in service in taxable years ending after June
25, 2024, and the re-equipping, expansion, or establishment of which
begins after June 25, 2024. Taxpayers may apply this section to
qualifying advanced energy projects placed in service in taxable years
ending on or before June 25, 2024, and qualifying advanced energy
projects placed in service in taxable years ending after June 25, 2024,
the re-equipping, expansion, or establishment of which begins before
June 25, 2024, provided that taxpayers follow this section in its
entirety and in a consistent manner.
0
Par. 11. Sections 1.179D-1 through 1.179D-3 are added to read as
follows:
Sec. Sec. 1.179D-1--1.179D-2 [Reserved]
Sec. 1.179D-3 Rules relating to the increased deduction for
prevailing wage and apprenticeship.
(a) In general. If any energy efficient commercial building
property (as defined in section 179D(c)(1)), energy efficient building
retrofit property (as defined in section 179D(f)(3)), or property
installed pursuant to a qualified retrofit plan (as defined in section
179D(f)(2)) satisfies the requirements in paragraph (b) of this
section, the applicable dollar value for determining the maximum amount
of the deduction determined under section 179D(b)(2) is the increased
amount
[[Page 53273]]
described in section 179D(b)(3)(A). For purposes of this section,
installation means those activities described in Sec. Sec. 1.45-
7(d)(3) and 1.45-8(g)(1) that are performed with respect to energy
efficient commercial building property, energy efficient building
retrofit property, or property installed pursuant to a qualified
retrofit plan within the meaning of section 179D before such property
is placed in service.
(b) Certain energy efficient commercial building property
requirements. Energy efficient commercial building property, energy
efficient building retrofit property, or property installed pursuant to
a qualified retrofit plan satisfies the requirements of this paragraph
(b) if it is one of the following--
(1) Property the installation of which began prior to January 29,
2023; or
(2) Property that meets the prevailing wage requirements of section
45(b)(7) of the Code and Sec. 1.45-7, the apprenticeship requirements
of section 45(b)(8) of the Code and Sec. 1.45-8, and the recordkeeping
and reporting requirements of Sec. 1.45-12, all with respect to the
installation of any property.
(c) Applicability date. This section applies to energy efficient
commercial building property, energy efficient building retrofit
property, or property installed pursuant to a qualified retrofit plan
installed in taxable years ending after June 25, 2024, and the
installation of which begins after June 25, 2024. Taxpayers may apply
this section to energy efficient commercial building property, energy
efficient building retrofit property, or property installed pursuant to
a qualified retrofit plan installed in taxable years ending on or
before June 25, 2024, and energy efficient commercial building
property, energy efficient building retrofit property, or property
installed pursuant to a qualified retrofit plan installed in taxable
years ending after June 25, 2024, the installation of which begins
before June 25, 2024, provided that taxpayers follow this section in
its entirety and in a consistent manner.
Douglas W. O'Donnell,
Deputy Commissioner.
Approved: June 9, 2024.
Aviva R. Aron-Dine,
Acting Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2024-13331 Filed 6-18-24; 8:45 am]
BILLING CODE 4830-01-P