The issues that may be addressed in the additional guidance relate primarily to two areas. First, more specificity around what it means to use continuous efforts to compete a project. Second, what happens to a project’s 2013 start of construction status when it is transferred whether to a strategic investor in an asset sale, a “flip” partnership in a tax equity transaction or to a lessor in a sale-leaseback.
It was suggested that any “transfer” guidance may be similar to the relatively accommodating rules in FAQs 23 and 24 in the Treasury’s cash grant start of construction guidance. Those FAQs generally permit transfers, so long as the original developer (1) transfers meaningful development rights along with the safe-harbored assets, (2) retains more than a 20 percent equity interest in the project or (3) the transfer is a sale-leaseback within no later than 90-days after the placed in service date of the project. A client alert discussing the cash grant FAQs is available here.
With respect to the meaning of continuous efforts, it was suggested that the government is considering an additional safe harbor whereby if a project starts construction in 2013 and is completed by a stipulated date that it will be deemed to have met the applicable continual work requirement. It is possible that the later the placed in service date is then the greater the qualified expenses that must have been incurred in 2013 will be. Such certainty would mean that as long as placed in service was achieved by the stipulated date and the required level of expenses were incurred in 2013 developers and their investors would not have to wrestle with questions like how many days a pause in construction is permissible. However, the government is reported to have considered such a rule when it was drafting Notice 2013-29 and did not adopt it, so it is possible that such an approach will be declined in this iteration as well.
If developers truly want certainty, Mr. Kelley suggested that he understood the IRS would entertain requests for private letter rulings regarding more detailed and nuanced fact patterns. A private letter ruling can take a number of months to obtain and the filing and legal fees can be substantial. Nonetheless for a large project with a completion date well in the future, a private letter ruling may be worth the investment to obtain certainty and attract the most advantageous terms and conditions from tax equity investors.