IRS PTC beginning of construction guidance issued

New guidance provides added certainty to taxpayers

​IRS clarifies prior guidance related to the production tax credit and investment tax credit in lieu of PTC.


The Internal Revenue Service (IRS) and US Department of Treasury (Treasury) released Notice 2017-04 on December 15, 2016, clarifying prior guidance related to the production tax credit (PTC) and investment tax credit (ITC) in lieu of PTC with just weeks left in the year.

As 2016 winds down, some taxpayers are rushing to begin constructing renewable energy projects that use wind, biomass, geothermal, hydropower, and waste resources to generate electricity in order to remain eligible for federal incentives that are phasing down or expiring after year-end. This new guidance provides added certainty to taxpayers planning to grandfather or “re-start” construction in 2016 on projects that may have started in earlier years in order to qualify for a 100-percent value PTC or ITC in lieu of PTC.

Notice 2017-04

Notice 2017-041 principally addresses three tax technical issues that emerged as issues of concern for taxpayers after the IRS issued prior guidance in early 2016, Notice 2016-31.2

Prior to 2016-31, projects had a two-year “Continuity Safe Harbor” period in which taxpayers could place projects in service without the need to prove under facts and circumstances that the taxpayer began construction and continued thereon with construction activities until completion. The two-year Continuity Safe Harbor period began on the tax credit termination date, regardless of the actual date on which the taxpayer began construction.

Following a multi-year extension and phaseout of the PTC and ITC in lieu of PTC enacted by Congress in 2015, the IRS issued Notice 2016-31, revising the two-year Continuity Safe Harbor by providing that a facility will be considered to satisfy the Continuity Safe Harbor if a taxpayer places a facility in service by the later of four calendar years from the calendar year during which construction of the facility began, or December 31, 2016.

This change requiring measurement from the actual year in which construction began had the unintended consequence of rendering ineligible certain projects that started construction in 2013 (or earlier) that could not be completed and placed in service before December 31, 2017 (or earlier).

Notice 2017-04 adopted a simple “fix” by changing a single date in the preceding guidance. The notice provides that a taxpayer will be deemed to satisfy the Continuity Safe Harbor if a project is placed in service by the later of four calendar years following the calendar year in which construction began, or December 31, 2018.3

This change allows taxpayers that started construction in 2013 or earlier to be placed in the same position they would have been under prior guidance had Notice 2016-31 simply rolled forward the prior guidance’s two-year Continuity Safe Harbor.

Alternating methods
The new notice also addresses the prohibition first created in Notice 2016-31 that barred taxpayers from alternating between methods to begin construction (i.e., beginning physical work in year one and then incurring 5 percent of project costs in year two) in order to extend their safe harbor period.

Notice 2017-04 provides that this rule will only apply prospectively to facilities the construction of which begins after June 6, 2016, the official publication date of Notice 2016-31.4

Finally, the notice clarifies that for purposes of wind facility ‘repowering’ and, specifically, the “80/20 Rule,” the “cost of new property” includes “all costs properly included in the depreciable basis of the new property.”5

In recent years, many taxpayers have considered refurbishing old wind farms in order to be considered a new facility for PTC purposes and start a new PTC credit period. Under the 80/20 Rule, discussed herein, a taxpayer is required to compare the costs of new property relative to the value of any used property that will remain at the facility. The notice provides some clarity to taxpayers as they calculate various repowering scenarios for particular components that may be added existing wind facilities.

Download the PDF to learn more.


If you have any questions or comments, please contact your Deloitte Tax client service team or one of our WNT FTA: Methods, Periods, & Credits specialists:

Gary Hecimovich, Tax partner, Deloitte Tax LLP, +1 202 879 4936

Brian Americus, Tax senior manager, Deloitte Tax LLP, +1 202 220 2022

Joel Meister, Tax manager, Deloitte Tax LLP, +1 202 220 2096


1 Notice 2017-04, 2017-3 I.R.B. 1.

2 Notice 2016-31, 2016-23 I.R.B. 1025.

3 Notice 2017-04 at section 3.

4 Id. at section 4.

5 Id. at section 5.

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