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IRA Tax Credits

Status

The Inflation Reduction Act was signed into law on Aug. 16, 2022, and provides over $270 billion in tax credits for the construction of solar, wind, hydrogen, carbon sequestration, electric vehicle charging stations and other clean energy projects.

A new policy in Subtitle D-Energy Security of the IRA grants developers/taxpayers a bonus tax credit 500% greater than a baseline tax credit of 6%, but this is conditioned on requirements that project contractors pay Davis-Bacon prevailing wages and utilize apprentices enrolled in government-registered apprenticeship programs. This new policy is an unprecedented expansion of Davis-Bacon and government-registered apprenticeship requirements/enticements onto private construction projects via the federal tax code.

On Nov. 30, Treasury and the IRS released guidance regarding tax credits for private clean energy projects funded by the Inflation Reduction Act conditioned on compliance with prevailing wage and government-registered apprenticeship requirements. Treasury and the IRS also released FAQs to provide additional information on prevailing wage and apprenticeship requirements.

The prevailing wage and apprenticeship provisions outlined in the guidance will now apply to projects that begin construction on or after Jan. 30, 2023––60 days after the guidance’s publication in the Federal Register. Treasury indicated it “plans to issue additional proposed regulations with respect to these requirements in the coming months.”

In order to access full tax credits, developers of qualifying projects are required to use apprentices from government-registered apprenticeship programs for at least 15% of the total labor hours of the project in 2024, which phases in at 12.5% for construction work in 2023 and increases to 15% in 2024 and thereafter. Each contractor and subcontractor employing four or more individuals on a qualifying project must employ one or more apprentices from a government-registered apprenticeship program.

Developers seeking the full bonus credit must require contractors and subcontractors to pay laborers and mechanics employed for the construction and alteration or repair of a qualifying project an hourly prevailing wage rate set by the DOL via the Davis-Bacon Act.

The guidance does not provide clarity on whether Treasury and the IRS or the DOL will be enforcing compliance and the additional regulatory red tape and practices that typically accompany regulations related to the DBA, though this may be clarified in future regulations and guidance documents.

Construction trade unions and their allies have approached clean energy developers and contractors and insisted a project labor agreement is required to qualify for the full tax credits from Treasury. No such provision exists in the IRA or in the Treasury guidance or FAQs. A PLA is not needed to ensure that contractors meet the IRA’s prevailing wage and government-registered apprenticeship program requirements.

On Aug. 29, the U.S. Treasury Department’s Internal Revenue Service released a proposed rule and FAQs on provisions of the ABC-opposed Inflation Reduction Act, which will affect the developers, contractors and workers that are building clean energy projects eligible for more than $270 billion in federal tax credits. To learn more details about the proposed rule, see ABC’s Newsline article.

The Treasury’s Notice of Proposed Rulemaking, Increased Credit or Deduction Amounts for Satisfying Certain Prevailing Wage and Apprenticeship Requirements, proposes regulations clarifying the applicability of tax credits for the construction of private clean energy projects funded by the IRA––including solar, wind, hydrogen, carbon sequestration, electric vehicle charging stations and more––conditioned on compliance with controversial prevailing wage and government-registered apprenticeship requirements.

According to a survey of ABC contractor members published Oct. 24, 98% of respondents stated that prevailing wage and government-registered apprenticeship policies imposed by the Inflation Reduction Act will make them less likely to bid on clean energy projects. 

On Oct. 30, ABC submitted comments to the IRS and issued a Oct. 31 press release, calling on the Biden administration to clarify prevailing wage and apprenticeship requirements and eliminate unnecessary provisions that depart from the letter of the law, including the proposed rule’s incentivization of project labor agreements that restrict competition and unfairly favor unions.

A final rule is not expected until December 2024. The proposed rule states that taxpayers seeking to comply with the IRA may rely on these regulations until a final rule is published.

Desired Outcome

ABC will continue to advocate for fixes to the restrictive labor policies enacted by the IRA, and the unnecessary cost increases they will cause for contractors and developers.

In the meantime, ABC will continue to provide resources on IRA’s provisions to assist members in maximizing the potential opportunities presented by the IRA while navigating the unique difficulties posed by its expansion of Davis-Bacon and GRAP requirements into the private sector.

Explore ABC’s IRA webpage today at abc.org/ira. If you have additional questions regarding the IRA, please contact [email protected].



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