Published date: 09/17/2025
What is the Inflation Reduction Act (IRA)?
The Inflation Reduction Act (IRA), signed into law on August 16, 2022, represents a major federal initiative aimed at addressing climate change. It allocates substantial funding toward clean energy incentives, opening pathways for companies, workers, and communities to engage in the transition to a more sustainable energy economy.
How did the IRA come to be?
The IRA was the result of years of debate in Congress over how to address climate change while also spurring economic growth. The IRA is part of a broader governmental strategy to lower costs for working families, expand domestic manufacturing, and drive clean energy investment.
What does the IRA do?
The IRA offers tax credits to encourage investment in renewable energy projects such as solar, wind, and battery storage. It also provides funding for advanced manufacturing, clean transportation, and energy efficiency upgrades, with labor requirements built in to ensure these investments result in creating sustainable careers.
What exactly is a tax credit?
A tax credit is a direct reduction in the amount of federal taxes an organization or individual owes. In the context of IRA and qualifying energy construction projects, we’re specifically referring to businesses and developers. For example, if a developer invests in a qualifying clean energy project, they can apply a percentage of that investment as a credit against their tax bill.
Unlike a deduction (which lowers taxable income), a credit lowers the actual taxes owed dollar for dollar. Under the IRA, many renewable energy projects can qualify for an Investment Tax Credit (ITC) of up to 30% of project costs – so long as specific requirements are followed (addressed in the next question below).
Certain projects may also qualify for bonus credits, such as:
- A 5x multiplier of the base credit by meeting the Prevailing Wage & Apprenticeship Requirements
- Allocated credit for building in low-income communities
- Bonus for investing in “energy communities” historically dependent on fossil fuels
- Extra credit for meeting domestic content standards
In some cases, non-taxable entities (like municipalities or nonprofits) can also benefit by using “direct pay” provisions in lieu of credits.
How does Prevailing Wage & Apprenticeship (PW&A) compliance factor in?
To receive the maximum value of most IRA clean energy tax credits, project owners must meet Prevailing Wage and Apprenticeship (PW&A) requirements. This means contractors on the project must:
- Pay workers Federal prevailing wages
- Substantiate these requirements with proper documentation
- Utilize qualified apprentices for 10-15% of total labor from registered programs and follow daily apprentice to journeymen ratios.
What are the penalties for non-compliance with PW&A requirements?
Failing to meet PW&A requirements doesn’t just reduce the value of your tax credits; it can also trigger additional costs and liabilities.
Common penalties include:
- Reduced or lost credits: If PW&A requirements aren’t met, the ITC base credit is not multiplied by 5x
- Financial penalties: Taxpayer is responsible for paying penalties for underpayment of prevailing wage rates, as well as penalties for unmet apprentice hours. These amounts can add up quickly on large projects. Many project owners indemnify the contractors for incurred penalties.
- Delays and reputational risks: Non-compliance can stall project timelines, complicate financing, and create reputational concerns with partners, investors, and regulators.
Because of these risks, it’s important to treat PW&A compliance not just as a requirement, but as a financial safeguard for their project.
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What is the One Big Beautiful Bill Act and how does it affect the IRA?
On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law. While it did not repeal the IRA, it introduced major changes to existing tax incentives. Among the most significant were:
- Solar and wind projects will stop qualifying for tax credits after December 31, 2025.
- Stricter definitions around when a project is considered to have “begun construction.”
- Adjusted phaseouts and bonuses for technologies like carbon sequestration, hydrogen, and nuclear coming in the near future.
- Expanded domestic content requirements and new restrictions on using foreign-sourced components.
As of today, the full implications of OBBBA are still being evaluated by legal and tax professionals. Many of its provisions are subject to further IRS and Treasury guidance and clarification, meaning this remains a shifting and evolving legal landscape.
Contractors, project owners, and municipalities should expect ongoing adjustments in the months ahead.
How does an organization claim tax credits?
Even if a project meets eligibility requirements, credits aren’t automatically applied. The process typically involves:
- Tracking compliance data during the project (including worker payroll records and apprenticeship documentation )
- Substantiating the data with the help of a qualified tax professional
- Submitting workpaper documentation to the IRS to claim credits or direct payment
Without proper documentation, credits can be denied or clawed back during an audit.
Why Do You Need the Help of a Tax Professional to Claim Tax Credits?
While technology can simplify compliance tracking, interpreting and applying tax law requires specialized expertise. Tax professionals play a critical role in:
- Reviewing project data to confirm eligibility and maximize available credits
- Interpreting complex rules around PW&A compliance, bonus credits, and OBBBA changes
- Preparing the documentation needed to support claims
- Reducing the risk of errors or disputes that could lead to penalties or lost credits
Because the rules are complex and continue to evolve, most project owners work closely with experienced tax advisors to safeguard the financial value of their clean energy investments.
How can LCPtracker help?
Navigating IRA and OBBBA compliance requirements can be complex, but utilizing technology can help increase the likelihood of receiving bonus tax credits and reducing potential penalties. LCPtracker and leading tax advisory firm Baker Tilly, provide a joint end-to-end compliance solution that:
- Automates certified payroll reporting
- Tracks apprentice participation
- Flags potential wage classification issues
- Centralizes contractor and subcontractor data
- Readies compliance records for IRS submission
