60-Day Clock Is Ticking On Prevailing Wage, Apprenticeship Requirements

• Published date: 26 December 2022
• Subject Matter: Employment and HR, Real Estate and Construction, Employee Benefits & Compensation, Construction & Planning
• Law Firm: Holland & Knight
• Author: Mr Amish Shah and Mary Kate Nicholson

Highlights

• The Inflation Reduction Act (IRA) significantly changes the tax code to incentivize companies to invest in energy security, reduce carbon emissions and increase energy innovation.
• To maximize the value of the tax credits contained in the IRA companies must follow labor rules that include paying specific workers a "prevailing wage" and employing a certain number of registered apprentices.
• The IRA generally provided that these labor rules go into effect 60 days after the U.S. Department of Treasury and Internal Revenue Service (IRS) issue guidance. The guidance was issued on Nov. 29, 2022, starting the 60-day clock.

President Joe Biden signed the Inflation Reduction Act (IRA) into law on Aug. 16, 2022. The massive legislative package revises policy on taxes, healthcare, agriculture and energy. In particular, the IRA modifies and expands existing credits and creates new tax credits for a variety of renewable energy and carbon capture industries and projects. In many cases, these provisions provide a "bonus credit" if certain labor rules are met. These labor rules contain both prevailing wage and apprenticeship rules. Under the statute, these labor rules go into effect 60 days after the U.S. Department of Treasury and Internal Revenue Service (IRS) issue guidance.

A full description of the IRA can be found in a previous Holland & Knight alert, "The Inflation Reduction Act: Summary of the Budget Reconciliation Act," published on Aug. 8, 2022. Background on the labor rules as they related to the tax incentives can be found in a previous Holland & Knight alert, "The Inflation Reduction Act's Labor Rules for Energy Tax Credits and Carbon Capture," published on Sept. 29, 2022.

This Holland & Knight alert focuses on the guidance recently issued by the Treasury Department and the IRS.

Treasury and IRS Guidance

In Notice 2022-61, released on Nov. 29, 2022, the Treasury Department and IRS provided taxpayers with the awaited prevailing wage and apprenticeship guidance. Notably, the guidance officially starts the 60-day clock. If the construction of a facility begins upon expiration of the 60 days - that is, on or after Jan. 29, 2023 - and the facility's maximum net output is greater than 1 megawatt, alternating current (MWac), the prevailing wage and apprenticeship requirement must be satisfied in order for the taxpayer to receive the "bonus" credit under Sections 30C, 45, 45Q, 45V, 45Y, 48, 48C and 48E, as well as an increased deduction under Section...