The IRS has issued final regulations on the prevailing wage and apprenticeship (PWA) requirements for claiming an increased credit or deduction for certain clean energy projects. By satisfying the PWA requirements, taxpayers can generally increase the base amount of the credit or deduction by five times. (IR 2024-168; TD 9998, 6/18/2024)
Background.
The Inflation Reduction Act increased certain credit or deduction amounts for taxpayers who satisfy the PWA requirements when constructing, altering, or repairing certain clean energy facilities, properties, projects, or equipment. Generally, to qualify for the increased credit or deduction amounts, taxpayers must:
- Ensure that laborers and mechanics employed in the construction, alteration or repair of the facility or property, project or equipment are paid at least the applicable prevailing wage,
- Meet certain requirements when employing qualified apprentices from registered apprenticeship programs, and
- Meet specific recordkeeping and reporting requirements.
The PWA requirements apply to all contractors and subcontractors who employ laborers and mechanics in construction, alteration, or repair work. But it is the responsibility of the taxpayer claiming the increased credit or deduction to ensure that the PWA requirements are satisfied.
The PWA provisions include significant penalties for taxpayers who claim the increased credits or deduction but fail to meet the PWA requirements.
Final regs.
According to the Treasury Department, the IRS considered more than 300 public comments before finalizing these rules. The final regs include rules that:
- Require prevailing wage rates to be determined by the DOL, consistent with the Davis-Bacon Act.
- Incentivize contemporaneous compliance with the PWA requirements.
- Implement strong recordkeeping requirements.
- Guarantee taxpayers with projects covered by “qualifying project labor agreements” will not be penalized; and
- Clarify apprenticeship requirements by clearly defining what constitutes a request for qualified apprentices, what constitutes a response, and when the good faith effort exception applies.
To help taxpayers comply with the PWA requirements, the IRS has released Publication 5983, IRA Prevailing Wage and Apprenticeship Requirements Fact Sheet, and updated Publication 5855, IRA Prevailing Wage & Registered Apprenticeship Overview, which provides a summary of the PWA requirements and the Prevailing wage and apprenticeship frequently asked questions (FAQs), which provide more details about the PWA requirements and information on how to alert the IRS of violations related to the PWA requirements.
“The IRS is committed to ensuring that taxpayers claiming the clean energy credits comply with all of the applicable prevailing wage and apprenticeship requirements. The additional resources the IRS has received are making a difference for our efforts to ramp up taxpayer service and enforcement, and we will continue to build on these improvements,” IRS Commissioner Danny Werfel said.
For more information about the prevailing wage and apprenticeship requirements for claiming clean energy credits, see Checkpoint’s Federal Tax Coordinator ¶ L-16467.
Get all the latest tax, accounting, audit, and corporate finance news with Checkpoint Edge. Sign up for a free 7-day trial today.
