Tag: IRS

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
• Ratio Requirement
• Base Participation Requirement
• Good Faith Effort Exception
• How to Employ Apprentices
• Penalties

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. 

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
• Requirements to Obtain Tax Credits
• Maintaining Records
• The IRA Proposed Rules

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.