Internal Revenue Service (IRS) Notice 2016-31, released initially in May 2016, clarifies and expands previous IRS guidance on satisfying the “beginning of construction” requirement for renewable energy facilities to qualify for production tax credits (PTC), reflecting the extensions of the PTC under the Protecting Americans from Tax Hikes Act of 2015 (PATH Act).
The Notice reiterates that the physical work test focuses on the nature of the work performed, not the amount or the cost. If the work performed is of a significant nature, there is no fixed minimum amount of work, or monetary or percentage threshold required to satisfy the physical work test. The Notice also provides non-exclusive examples to illustrate physical work of a significant nature for various types of renewable energy facilities.
For geothermal facilities, it could mean physical activities that are undertaken at a project site after a valid discovery. Physical work of a significant nature does not include preliminary activities, such as planning and designing, securing financing, exploring, researching, conducting geologic mapping and modeling, and obtaining permits and licenses.