Tag: Inflation Reduction Act

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Clean Incentives: What Canada Can  Learn from the US Playbook on  Wage Compliance and Clean  Technology

clean incentives podcast overview

Table of Contents

Introduction

Clean technology projects are booming in North America, and with them come new labour requirements tied to valuable tax incentives. Our Business Development Manager, Taylor Gant, recently joined Brenden Sigalet on the Bennett Jones LLP’s Clean Incentives podcast to discuss how prevailing wage compliance is shaping the  industry in both the U.S. and Canada.

Watch this clip where Taylor explains why payroll verification goes beyond the numbers. Clean Incentives is a production of the Bennett Jones Business Law Talks Podcast and is shared here with permission.

Key Highlights

  • Payroll is more than paperwork
    Taylor explained that certified payroll is only a synthesis of many documents. Mistakes happen, so compliance requires checking cheque stubs, timesheets, and fringe remittances to ensure workers are truly paid what they’re owed.
  • Lessons from the U.S. Inflation Reduction Act
    The U.S. tied prevailing wage and apprenticeship requirements to clean energy tax credits under the IRA. Responsibility often falls on the taxpayer claiming credits, creating new challenges for contractors and developers.
  • Differences between the US IRA and Canada ITC
    Canada’s rules look similar at a high level but differ in key ways:
    apprenticeship percentages (10% vs. 15% in the U.S.), stricter “reasonable effort” timelines, and reliance on collective labour agreements.
  • Prevailing wage documentation pushback
    Contractors sometimes resist providing detailed records, especially when requirements weren’t written into contracts. Best practice is to involve legal, tax, and compliance teams early to ensure agreements cover documentation needs.
  • CT ITC penalties for non-compliance
    Both U.S. and Canadian systems impose financial penalties and back pay obligations. In serious cases, negligence can escalate fines dramatically or reduce the value of tax credits.

Why This Matters

At Alliant Consulting, our role is to help clients navigate these evolving compliance landscapes. By auditing payroll before regulators do, we ensure contractors and developers can claim incentives confidently while protecting workers’ rights.

As clean technology projects accelerate, compliance is becoming a cornerstone of both financial success and industry integrity. To learn more about how we support clean technology projects, contact our team or listen to the full podcast episode hosted by Bennett Jones LLP.

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The OBBBA Notice on Inflation Reduction Act Prevailing Wage Requirements

Image showing lawmakers discussing the OBBBA notice on prevailing wage requirements

Table of Contents

Introduction

The Inflation Reduction Act (IRA) introduced transformative clean energy tax incentives, including bonus credits for projects that meet specific labor standards. Among these, the prevailing wage and apprenticeship requirements have become central to maximizing certain tax benefits. Recently, the One Big Beautiful Bill Act (OBBBA) introduced new updates (Notice 2025-42) on August 15, 2025 that reshape how these labor rules apply, specifically under Sections 45Y and 48E. This blog explores the original IRA framework, its impact on taxpayers, and the nuanced changes brought by Notice 2025-42.

Prior IRS Guidance: Beginning of Construction – A Quick Overview

Under the IRA, prevailing wage and apprenticeship requirements must be met to qualify for enhanced tax credits. Failure to comply may result in penalties and the loss of bonus credit eligibility. For a full debrief on how this affects projects, visit our YouTube series.

The credits directly addressed in the OBBBA BOC notice include:

  • Clean Electricity Production Credit (§45Y)
  • Clean Electricity Investment Credit (§48E)

The prevailing wage requirement mandates that workers be paid at least the wage rates set by the U.S. Department of Labor.

Under the proposed IRS guidance, the beginning of construction date determines if prevailing wage and apprenticeship (PWA) requirements apply to the construction of a qualified facility. Under the Beginning of Construction (BOC) Exception, a qualified facility which began construction prior to January 29, 2023 is eligible for the increased credit amounts without meeting PWA requirements.

The IRA initial guidance (87 FR 73580) specified that the BOC date could be determined under the following methods:

  • The Physical Work Test
    • Verifies that “physical work of a significant nature” has begun. This takes into account work performed by the taxpayer or subcontractors prior to the manufacture, construction, or production of the applicable wind or solar facility. The test focuses on the type of work, not its cost or volume. This includes both off-site and on-site work, such as:
      • Manufacturing of components, mounting equipment, support structures (e.g., racks, rails, inverters, transformers), and other power conditioning equipment
  • The Five Percent Safe Harbor
    • Defines beginning of construction as the period when:
      • (i) A taxpayer pays or incurs (within the meaning of § 1.461-1(a)(1) and (2)) five percent or more of the total cost of the facility
  • The Continuity Requirement and Continuity Safe Harbor
    • Under the Physical Work Test and Five Percent Safe Harbor, taxpayers must demonstrate continuous construction or continuous efforts regardless of which method was used to establish the beginning of construction (see section 2.02(3) of Notice 2022-61).
    • The Continuity Safe Harbor provides that the continuity requirement will be considered met if the facility is placed in service within a certain time frame, outlined in the applicable tax credit.

The OBBBA’s Changes – Notice 2025-42

The following rules set forth by the OBBBA have an effective date of September 2, 2025 for applicable wind and solar facilities. Thus, projects that began before this date are not subject to this update.

Wind and solar projects that begin construction within 12 months of the OBBBA’s enactment (prior to July 5, 2026), can still qualify for the full credit with no placed-in-service deadline. For any wind and solar projects that fall outside of this one-year safe harbor, the OBBBA shortens the timeline for these projects to qualify for the credits, requiring these facilities to be placed in service by December 31, 2027.

The OBBBA modifies the beginning of construction regulations for the §45Y and §48E tax credits to prevent artificial manipulation or acceleration of eligibility. Key changes include:

  • Restricting the “Beginning of Construction” determination to the Physical Work Test only
    • The “Five Percent Safe Harbor” is not applicable to most facilities for this purpose and may only be used for low-output solar facilities (1.5 megawatts or less).
  • Maintaining the Continuity Requirement, which is satisfied if continuous physical work is performed.
    • There are specified excusable disruptions to a continuous program of construction, such as weather delays, permitting issues, or supply shortages (see section 4.02 of Notice 2025-42).

Exception: Continuity Safe Harbor

A taxpayer is deemed to satisfy the continuity requirement if the facility is placed in service by the end of the calendar year that is no more than four years after the year construction began.

If the facility is not placed in service within that four-year window, whether the continuity requirement is met will be determined based on facts and circumstances.

Example from Notice 2025-42:

  • If construction begins on August 20, 2025, and the facility is placed in service by December 31, 2029, the Continuity Safe Harbor is satisfied.
  • If the facility is placed in service after January 1, 2030, the IRS will evaluate whether the continuity requirement was met. July 5, 2026, marks the cut-off for beginning construction to claim the §45Y and §48E tax credits, so taxpayers seeking to earn these credits must do so before the termination date. This termination applies to applicable wind and solar facilities.

The OBBBA Update’s Effects on You

The new BOC rules under Notice 2025-42 apply to wind and solar projects that do not begin construction before September 2, 2025, under prior IRS guidance. Projects that begin construction before that date, including those relying on the 5% Safe Harbor, will remain governed by the prior IRS guidance on BOC.

For projects starting after September 2, 2025, taxpayers and developers must rely solely on the Physical Work Test as outlined in Notice 2025-42 to establish construction start dates (aside from low-output solar facilities) and must meet continuity requirements to retain eligibility for §45Y and §48E credits.

The July 5, 2026, cutoff is another critical milestone: projects that begin construction after this date and are placed in service after December 31, 2027, will no longer qualify for enhanced tax credits. Therefore, many taxpayers and developers will be pushing to get their project’s BOC date established prior to July 5, 2026, and must be aware of these new guidelines. Projects that start after July 5, 2026, will need to ensure that they are well-planned and on track to be placed in service prior to December 31, 2027.

Understanding these changes and planning accordingly is essential for maximizing incentives and avoiding disqualification, especially when it comes to the newly established deadlines. As the regulatory landscape evolves, staying informed and proactive will be key to successful clean energy project development. Alliant is here to assist you with all things prevailing wage to help you maximize your credit.

Need assistance? Feel free to contact us for solutions catered your projects.

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Inflation Reduction Act Apprenticeship Requirements

Supervisor and group of factory workers wearing hard hats meeting brief together before starting the day's work.

The contents of this blog post have been partially transcribed from our YouTube video, “Inflation Reduction Act (IRA) Apprenticeship Requirements”. We also cover the recordkeeping and prevailing wage requirements.

The Inflation Reduction Act opens tax incentives available to all taxpayers, and the requirement to comply with regulation to keep these credits becomes a rising priority. Amongst these requirements are the apprenticeship requirements. There are three main apprenticeship requirements under IRA: the Labor Hour Requirements, Ratio Requirements, and Participation Requirements. All requirements must be met to qualify for certain tax benefits and to avoid penalties.

Table of Contents

Labor Hour Requirements

The first requirement is the Labor Hour Requirement. This requirement sets a percentage of registered apprentice hours performed in reference to the total labor hours across the project. These percentages vary depending on the beginning of construction. 

  • If construction on your project began before January 1st, 2023, 10% of your overall project’s labor hours should be performed by registered apprentices. 
  • If the project began after December 31st, 2022, and before January 1st, 2024, 12.5% of hours should be registered apprentice hours.
  • Any construction occurring after December 31st, 2023 will have a 15% percentage requirement.

Ratio Requirement

When apprentices are on a project, they are typically supervised by journeymen. However, the provisions for the ratio at which the number of apprentices that a journeyman may supervise can vary. Under IRA, taxpayers must ensure that they are meeting the applicable supervision requirements under the state or federal provisions. The ratio will be determined either by the DOL or the applicable State apprenticeship agency. You may consult the applicable body to find your journeyman to apprentice ratio to avoid violations.

Base Participation Requirement

The base participation requirement for apprentices under IRA is as follows:

Each taxpayer, contractor, or subcontractor that hires 4 or more employees to work on a qualified facility must employ at least 1 registered apprentice. This requirement is maintained across the life of the project and is applicable across all contractors. 

Let’s examine a few scenarios to see how this is applied.

  • In scenario one, a contractor begins work on site and is going to have 6 employees. The participation requirement states that, because a minimum of 4 employees are performing work, at least 1 registered apprentice should be on payroll.
  • In scenario two, a contractor is consistently employing a different employee each week. Once the employee count of workers on site meets 4, a registered apprentice must be employed.

Good Faith Effort Exception

A contractor may possibly be exempt from apprenticeship requirements if they demonstrate the “Good Faith Effort Exception”. Under this exception, a taxpayer would be considered compliant under the apprenticeship requirements if they’ve demonstrated attempts to request an apprentice from a registered apprenticeship program and one of the following occurs: 1) The request is denied through no fault of the taxpayer, or 2) No response is provided within 5 business days after the request was received by the apprenticeship program. 

As noted by the IRS, “The good faith effort exception only applies to the specific portion of the request for apprentices that was not responded to or was denied. If a request was not responded to or was denied, the taxpayer must submit an additional request(s) to a registered apprenticeship program after 120 days to continue to be eligible for the good faith effort exception.” 

As provided by the IRA requirements, records must be kept, such as those indicating these attempts and proof of instances of exemption to thoroughly document efforts. 

How to Employ Apprentices

The IRS Guidance references an apprenticeship program tool, available at apprenticeship.gov. The Office of Apprenticeship’s “partner finder” and “apprenticeship job finder” tools provide access to different apprenticeship programs depending on your location and occupation. You may use either of these tools to find an apprenticeship program for a classification being employed on your project, and you may reach out to halls listed and attempt to employ a registered apprentice. 

You may also reach out to any state or local apprenticeship programs or offices in the project region that would assist in dispatching apprentices to meet this requirement.

Penalties

Per 87 FR 73580 Section 2, taxpayers who are unable to meet the ratio or participation requirements, or the “Good Faith Effort Exception”, may have to pay a penalty of $50 multiplied by the number of hours for which the requirement was not satisfied to the Secretary of Labor. If this is determined by the Secretary of Labor to be an intentional disregard for the provisions, the fine increases from $50 to $500 per hour. Taxpayers may also be forced to pay back the majority of credit received.

With this in mind, it’s important to meet the Apprenticeship Requirements under IRA and avoid costly penalties. If you have any questions or need further assistance, feel free to contact us. 

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Inflation Reduction Act Overview

The contents of this blog post have been partially transcribed from our YouTube video, “Inflation Reduction Act (IRA) Overview”.

The Inflation Reduction Act, or, the IRA is the biggest investment in clean energy in the United States. The goal is to fight climate change and increase economic opportunity. The tax incentives are available to all taxpayers, corporate and private entities that meet the criteria within each tax provision. For many of these provisions come the inclusion of prevailing wage and apprenticeship requirements.

Table of Contents

Inflation Reduction Act (IRA) and Tax Credits

On August 16th, 2022, the Inflation Reduction Act was signed into action, providing tax incentives for several tax credit provisions that involve clean energy projects. 

One specific example Is the Production Tax Credit. This provides taxpayers the possibility of acquiring $2.60 per kilowatt hour credit for electricity produced at qualified facilities. To gain this credit, taxpayers would have to satisfy the prevailing wage and apprenticeship requirements, otherwise that credit is reduced.

In the context of the IRA, a taxpayer is anyone attempting to receive the tax credit or incentive, and this includes contractors.

The Davis-Bacon Act and the Related Acts itself are not subject under the IRA, including enforcement regulations. However, there are similarities in how certain provisions are derived. 

  • The IRA follows the same prevailing wage requirement as it pertains to “Laborers & Mechanics” under DBA.
  • Apprentices are expected to have the same certification requirements under DBA. 
  • What’s considered the “Site of Work” and “Construction, Alteration, and Repair” are defined the same both under DBA and IRA.

Requirements to Obtain Tax Credits

The IRS 87 FR 73580 guidance outlines requirements for obtaining tax credits. The two main ones to be found for prevailing wage are (1) the payment of prevailing wage rates and (2) maintaining records. The applicable rates are to be found for laborers and mechanics as defined at 29 CFR 5.2(m), performing construction, alteration, or repair. 

Remember, there is no exception for independent contractors.

Maintaining Records

Section 16.001-1(a) of the Income Tax Regulations states taxpayers must keep records to establish the amount of claimed credits. This documentation should include the applicable wage determination provided by the DOL and documentation showing each worker, their classification, gross pay, hours worked, and proper prevailing wage rate of pay. This includes the appropriate fringe benefits. It’s important that these records are maintained to prove the requirements are being met.

If a taxpayer fails to pay prevailing wage rates, they can still be considered to have satisfied the requirements if they:

  1. Pay the laborers or mechanics the difference between the paid wages and the prevailing wage rates, plus interest of 3%; and
  2. Pay a $5,000 fine per laborer or mechanic who was underpaid, to the Secretary of Labor

This fine increases to three times the sum of (a) and $10,000 per violation if it was found to have been an intentional underpayment.

The IRA Proposed Rules

On August 29th, 2023, the IRS and the Treasury issued “proposed rules” that would update the PWA (prevailing wage and apprenticeship) requirements under the Inflation Reduction Act. The document provides clarification on many issues that arose after the original guidance was published in November of 2022. Some of the highlights include: 

  • A denial of a request for a qualified apprentice would not automatically qualify the taxpayer for the Good Faith Effort Exception. There would be a requirement to resubmit a request for apprentices every 120 days, in the event of a valid denial by the apprenticeship program. 
  • A new general wage determination is required to be used when a contract is changed to include additional, substantial construction, alteration, or repair work not within the scope of work of the original contract, or to require work to be performed for an additional time period not originally obligated. 
  • Apprentices not in a Registered Apprenticeship Program, or not supervised at the correct ratio, must be paid at the full prevailing wage rate for the classification and cannot have those hours counted towards the Apprentice Labor Hour Requirement. 

Many major topics are addressed, including cure and penalty provisions for failure to meet the requirements. Any taxpayer wishing to claim the increased tax credits should ensure that they are familiar with these proposed regulations. Alliant is here to help answer any questions, help clients stay informed, and to ensure full compliance with all of the IRA PWA requirements. If you’d like any further assistance, feel free to contact us.

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Inflation Reduction Act Renewable Energy Projects

With heightened concern regarding the United States’ staggering carbon emissions, the Inflation Reduction Act (IRA) is pushing to reduce the country’s carbon emission output by roughly 40% by 2030. To reach this ambitious climate investment, the IRS has issued a plan to promote development in regions that are or have previously been dependent on the fossil fuel industry, whether through extraction, processing, or steady usage. These areas are known as energy communities.

To entice developers to initiate and construct projects in energy communities, the IRS and the Department of Treasury have issued guidance on how to obtain investment tax credits and production tax credits for renewable energy-specific projects, outlined in Notice 2023-38.

The available tax credits include a 2% energy community bonus, which increases the base investment tax credit (ITC) amount or the production tax credit (PTC) rate. Additionally, if a project satisfies prevailing wage and apprenticeship requirements, a 10% energy community bonus is provided instead.

Notice 2023-38 provides extensive insight into the components that make up energy communities, requirements developers must satisfy to receive bonuses, and applicable project components that will be accepted by the IRS.
 

For further information, please refer to the following links:
1. https://www.jdsupra.com/legalnews/what-is-an-energy-community-irs-6672439/
2. https://www.foley.com/en/insights/publications/2023/05/treasury-irs-guidance-content-bonus-credit-energy.