The U.S. Department of the Treasury and the Internal Revenue Service have released final regulations outlining how taxpayers can seek increased tax benefits by meeting prevailing wage and apprenticeship (PWA) requirements on qualifying clean energy projects.

The regulations involve increased credit amounts for certain federal income tax credits and incentives, including the energy investment tax credit (ITC) and production tax credit (PTC).

Taxpayers may quality for increased credit amounts by meeting one of the following:

• The PWA requirements;
• The beginning of construction exception; or
• The one megawatt exception.

Of particular note, a PWA Transition Rule provides that any work performed before January 29, 2023, is not subject to the PWA requirements regardless of whether there is an applicable beginning of construction exception. As a result, taxpayers must only comply with PWA requirements for the construction, alteration, or repair work that occurs on or after January 29, 2023.

The PWA Transition Rule also applies to taxpayers that began construction before January 29, 2023, but later fail to meet the beginning of construction exception -- by failing to meet the continuity safe harbor, for example. These taxpayers must satisfy the PWA requirements for work performed on or after January 29, 2023, but not for work that occurred prior to that date.

The final regulations also clarify that the apprenticeship requirements do not apply after the project is placed in service. Apprenticeship requirements apply to alterations and repairs occurring while a facility is being constructed, but not to those occurring after the facility is placed in service.

The Orrick energy tax team is continuing to review the final regulations and will provide additional analysis.