Published date: 10/17/2024
Ask the Expert Takeover
The theme of this month’s Ask the Expert installment is the Inflation Reduction Act (IRA). Speaking on the topic is Baker Tilly’s Laura Cataldo.
Laura Cataldo is a director with Baker Tilly’s development advisory practice. She works with construction organizations of all sizes to evaluate business practices and assist with management challenges. Having specialized in the construction industry for almost 25 years, Laura offers a depth of experience working with management teams to improve profitability and succeed in the changing marketplace. She leads a dedicated team that provides federal compliance advisory. For projects seeking IRA credits, the team’s main goal is to substantiate the 5x multiplied tax credit. This advisory includes contractor support, and tools, processes and resources that establish, monitor and document compliance.
Question
Does a project need to be completed before claiming IRA credits?
Answer: Yes, a taxpayer cannot seek tax credits under the Inflation Reduction Act (IRA) until the project is placed in service. Federal regulations define placed in service as “the time that a property is first placed by the taxpayer in a condition or state of readiness and availability for a specifically assigned function, whether for use in a trade or business, for the production of income, in a tax-exempt activity, or in a personal activity.” Essentially, the project must be fully operational and capable of performing its designated purpose before you can claim the tax credits.
This requirement ensures that tax credits are only awarded to projects that have been completed and are actively contributing to energy efficiency or renewable energy production. It also helps prevent premature claims and aligns the tax benefits with the actual performance and utility of the project. Therefore, ensuring your project is placed in service is a critical step in the process of claiming IRA credits.
Question
If a project has multiple phases of construction, is this considered one project or separate projects for purposes of the prevailing wage and apprenticeship (PW&A) requirements?
Answer: There are a few answers to this question.
Filing for a tax credit, with the required documentation to support the filing, occurs after the project is placed in service. Therefore, if a project is filing two separate credits, the PW&A requirement for each project would be separate.
The final rule clarified that the PW&A requirements apply only to the construction, alteration or repair of the portion of a project that is creditable under the relevant credit. Therefore, if a project has two phases and only one phase relates to the creditable property, that is the only work covered by the PW&A requirement.
The final rule defined that the most recent modification of a wage determination before the contract date is applicable for each contract that a taxpayer establishes with a contractor. Therefore, if contracts for Phase 1 and Phase 2 are established with separate contractors on separate dates, multiple wage determinations will be in place.
The final rule clarified that the rules regarding when a new wage determination is required should be consistent with the rules under the Davis-Bacon Act (DBA). Under the DBA guidance in 29 CFR 1.6, if there is additional, substantial construction, alteration and/or repair work not within the scope of work of the original contract or order, or changes to require the contractor to perform work for an additional time period not originally obligated, including cases in which an option to extend the term of a contract is exercised, the contracting agency must include the most recent revision of any wage determination(s) at the time the contract is changed or the option is exercised. This does not apply if the contractor is simply given additional time to complete its original commitment or if the additional construction, alteration, and/or repair work in the modification is merely incidental.
Bio: Laura Cataldo is a director with Baker Tilly’s development advisory practice. She works with construction organizations of all sizes to evaluate business practices and assist with management challenges. Having specialized in the construction industry for almost 25 years, Laura offers a depth of experience working with management teams to improve profitability and succeed in the changing marketplace. She leads a dedicated team that provides federal compliance advisory. For projects seeking IRA credits, the team’s main goal is to substantiate the 5x multiplied tax credit. This advisory includes contractor support, and tools, processes and resources that establish, monitor and document compliance.
To learn more about Baker Tilly’s PW&A compliance program, including their relationship with LCPtracker, or to discuss how they can assist your organization, check out Baker Tilly’s website or contact Laura at [email protected].
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Want an opportunity to get questions like these and other topics answered in person? Check out our events page for our educational Spark Seminars. These are perfect opportunities for you to hear from industry experts and expand your prevailing wage knowledge.
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These materials are being issued with the understanding that LCPtracker is not engaged in rendering legal or other professional services and is providing these for informational purposes only. If legal, accounting, or tax expert assistance is required, the services of a competent legal, accounting or tax professional should be sought.