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October 29, 2022
On Oct. 5, 2022, the U.S. Department of Treasury and Internal Revenue Service issued a request for comments regarding implementation of the Inflation Reduction Act, notably on Davis-Bacon and apprenticeship requirements. The legislation, opposed by ABC, was signed into law on Aug. 16, 2022, and provides over $369 billion in tax credits for the construction of solar, wind, hydrogen, carbon sequestration, electric vehicle charging stations and other clean energy projects. Developers/taxpayers can receive a bonus tax credit 500% greater than a baseline tax credit of 6%, but this is conditioned on requirements that project contractors pay Davis-Bacon prevailing wages and utilize apprentices enrolled in government-registered apprenticeship programs. This new policy is an unprecedented expansion of Davis-Bacon and registered apprenticeship requirements/enticements onto private construction projects via the federal tax code.
Treasury and IRS are seeking feedback on prevailing wage, apprenticeship, domestic content and energy communities requirements under the IRA by Nov. 4, 2022. The wage and apprenticeship provisions apply to projects that begin construction 60 days after Treasury has published relevant guidance with respect to the requirements. It has been reported that Treasury intends to issue guidance by the end of the year, so this aspect of the IRA may be in effect as early as March 2023.
On Oct. 25, ABC launched a survey to all contractor members to help inform a detailed letter in response to Treasury and IRS’s request for comments. If you did not receive the survey, please reach out to Michael Altman at [email protected] to receive the link. The survey will close at 12 p.m. ET on Monday, Oct. 31.
Apprenticeship Provisions
In order to access full tax credits, developers of qualifying projects are required to use apprentices from government-registered apprenticeship programs for at least 15% of the total labor hours of the project in 2024, which phases in at 10% for construction work beginning in 2022, 12.5% for construction work in 2023 and 15% in 2024 and thereafter. Each contractor and subcontractor employing four or more individuals on a qualifying project must employ one or more apprentices from a government-registered apprenticeship program. Of note, taxpayers who have made a good faith effort to hire qualified apprentices with respect to the construction of a project are deemed to satisfy the requirement and are eligible for the bonus rate, assuming they have also met the prevailing wage requirement when required. A good faith effort is defined as requesting apprentices and receiving a denial or not receiving a response within five business days, although Treasury is asking for feedback about this good faith effort process.
ABC chapters and members with government-registered apprenticeship programs should prepare for new opportunities as a result of enactment of the IRA.
Davis-Bacon Provisions
Developers seeking the full bonus credit must require contractors and subcontractors to pay laborers and mechanics employed for the construction and alteration or repair of a qualifying project an hourly prevailing wage rate set by the U.S. Department of Labor via the Davis-Bacon Act. It is unclear if Treasury/IRS or the DOL will be enforcing compliance and the additional regulatory red tape and practices that typically accompany regulations related to the DBA. Of note, the DOL is currently engaged in a total rewrite of its regulations governing enforcement of the DBA independent of the IRA, adding to the uncertainty over compliance issues. The IRS is seeking feedback on this issue.
ABC members with experience complying with the DBA may find new opportunities in the clean energy space as a result of this law. ABC chapters should consider providing additional webinars, forums and educational content around DBA compliance for membership to prepare for these changes.
Developers/taxpayers failing to comply with both of these requirements face significant and varying penalties that may undermine the value of the tax credits.
ABC is concerned the prevailing wage and apprenticeship requirements tied to the IRA’s tax incentives on clean energy projects will needlessly increase costs, harm small businesses, exacerbate the construction industry’s skilled labor shortage and expand a harmful regulatory bureaucracy to clean energy projects that will ultimately undermine America’s energy security and slow down its swift transition to clean energy.
For more details on IRA’s prevailing wage and apprenticeship requirements, see ABC’s member webinar. Please reach out to Michael Altman at [email protected] for additional information.
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