Increased Amounts of Credit or Deduction for Satisfying Certain Prevailing Wage and Registered Apprenticeship Requirements

Federal RegisterJun 25, 2024

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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.

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

§§ 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.

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.

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.

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),

and section 45(b)(8) provides the apprenticeship requirements (Apprenticeship Requirements).

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.

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.

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

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.

The DOL Office of Apprenticeship (OA) administers provisions under the National Apprenticeship Act related to registered apprenticeship programs.

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.

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).

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

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.

Notice 2022-61 defines facility as qualified facility, property, project, or equipment.

For purposes of determining when construction or installation begins, Notice 2022-61 incorporates by reference the notices issued under sections 45,

45Q,

and 48

(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).

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.

Notice 2020-12, 2020-11 I.R.B. 495.

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.

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

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 Registe

r (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 § 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 § 1.48E-3 would have incorporated the rules of proposed § 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 § 1.48-13 and proposed § 1.48E-3 in future Treasury decisions.

The Proposed Regulations provided that taxpayers may rely on proposed § 1.48E-3 with respect to construction of a qualified facility on or after January 29, 2023, and on or before the date proposed § 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 § 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 § 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 § 1.48-13 in its entirety and in a consistent manner. These final regulations do not change the reliance provided with respect to proposed § 1.48-13 and proposed § 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

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

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).

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.”

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.

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).

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

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

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

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.

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

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

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.

The PWA provisions in section 45 apply to facilities placed in service after December 31, 2021.

The PWA provisions in section 45L apply to dwelling units acquired after December 31, 2022.

The PWA provisions in section 45Q apply to facilities or equipment placed in service after December 31, 2022.

Section 45Y applies to facilities placed in service after December 31, 2024.

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.

Section 45V applies to hydrogen produced after December 31, 2022.

And Section 45Z applies to transportation fuel produced after December 31, 2024,

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.

The amendments to section 179D apply to taxable years beginning after December 31, 2022.

IRA § 13404(f).

IRA § 13101(k).

IRA § 13304(f).

IRA § 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).

IRA § 13701(c).

IRA § 13105(c).

IRA § 13204(a)(5).

IRA § 13704(c).

IRA § 13501(e).

IRA§ 13303(d).

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,

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 § 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.

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.

40 U.S.C. 3142(a) and (c).

Notice 2022-61 and proposed § 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

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 § 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 § 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 § 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 § 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 § 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

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 § 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 § 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 § 1.45-7(c)(1)(iv) and proposed § 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

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 § 1.45-7(c)(1)(i) and (ii) and the penalty payment under proposed § 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 § 1.45-7(c)(1)(iv) or proposed § 1.45-8(e)(2)(iv). Consequently, these final regulations adopt proposed § 1.45-7(c)(1)(iv) and proposed § 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 § 1.45-7(c)(1)(iv) and proposed § 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

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.

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

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 § 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.

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

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.

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 § 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

(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 § 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 § 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

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 § 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.”

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.

40 U.S.C. 3142(c)(1).

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

the DBA approach (including rules relating to secondary sites) for purposes of defining the scope of the Prevailing Wage Requirements in proposed § 1.45-7(d)(6). Under proposed § 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 c

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