IRS extends safe harbour for solar projects under ITC notice

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The IRS notice will provide greater support for solar developers whose construction has been delayed by COVID-19. Image: Steve Buissinne

The US Internal Revenue Service (IRS) has extended the safe harbour period for solar projects under the investment tax credit (ITC), providing support for projects that have been disrupted by the pandemic.

In response to COVID-19, the safe harbour period for solar projects which began construction between 2016-2020 would be extended. For properties that started construction between 2016-2019, safe harbour is extended from four to six years, while those started in 2020 set to receive one additional year’s grace, taking the total to five years.

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“The Notice provides much anticipated and welcome relief for taxpayers developing projects that have been delayed by circumstances related to COVID-19,” said law firm Stoel Rives in an analysis of the announcement.

Notice 2021-41 also presented new options for developers to demonstrate the continuity of their construction efforts, allowing them to use either of the two available standards, regardless of how earlier decisions were made.

Previous IRS notices recognised the construction of a project if physical work of a substantial nature had begun, or if the taxpayer had paid 5% of the total cost of a project.

But the notice does clarify that, failing safe harbour principles being proven, the continuity requirement is met if the developer demonstrates either continuous construction or the continuous efforts tests, regardless of previous assessments.

“This new notice from the IRS will give them much-needed breathing room to complete these projects,” a Solar Energy Industries Association (SEIA) spokesperson said.

21 May 2024
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