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June 27, 2024

Final regulations on prevailing wage and apprenticeship requirements provide more details for taxpayers seeking bonus renewable energy tax credits

  • Final regulations on the prevailing wage and apprenticeship (PW&A) requirements for claiming increased renewable energy credits clarify the consequences for failing to meet the requirements.
  • They also confirm that the prevailing wage requirements apply to the construction, alteration and repair of a facility but the apprenticeship requirements apply only to the construction of a facility.
  • The final regulations also lay out the expectations for specific recordkeeping and reporting requirements.

The IRS and Treasury Department released final regulations (TD 9998) on the increased credits or deductions available for taxpayers satisfying the PW&A requirements established by the Inflation Reduction Act (IRA). The final regulations adopt the proposed regulations for the most part, with some modifications and clarifications.

The final regulations are effective August 24, 2024.

The IRS indicated that, in the months ahead, it will "dedicate significant resources to promoting and enforcing compliance with the final clean energy rules." Nevertheless, the IRS does not currently anticipate providing additional guidance in the form of Private Letter Rulings on compliance with the PW&A rules.


The IRA allows for a bonus tax credit or deduction for taxpayers satisfying certain PW&A requirements for the construction, installation, alteration or repair of a qualified facility, qualified property, qualified project or qualified equipment. The bonus credit is five times the base credit or deduction.

The bonus credits are also available to certain facilities that meet one of two exceptions to the PW&A requirements: the one-megawatt exception or the beginning-of-construction exception.

The PW&A requirements apply to the following credits:

  • IRC Section 30C credit for alternative fuel vehicle refueling property
  • IRC Section 45 production tax credit (PTC)
  • IRC Section 45Q credit for carbon oxide sequestration
  • IRC Section 45V hydrogen PTC
  • IRC Section 45Y technology-neutral PTC
  • IRC Section 45Z credit for clean fuel production
  • IRC Section 48C qualifying advanced energy credit
  • IRC Section 48 investment tax credit (ITC)
  • IRC Section 48E technology-neutral ITC
  • IRC Section 179D deduction for energy-efficient commercial buildings

The prevailing wage, but not apprenticeship, requirements apply to the following credits:

  • IRC Section 45L credit for new energy-efficient homes
  • IRC Section 45U credit for zero-emission nuclear power production

The IRS released earlier guidance in Notice 2022-61 in November 2022 (see Tax Alert 2022-1832) and proposed regulations (REG-100908-23) in August 2023 (see Tax Alert 2023-1469). Treasury and the IRS received 342 written comments in response to the proposed regulations.

Prevailing wage requirements

The IRS said in the Preamble of the final regulations that, in order to provide a uniform rule across all Internal Revenue Code sections, the Davis Bacon Act definition of construction should be used to define the activities marking the start of the obligation to comply with the PW&A requirements for a qualified facility.

The prevailing wage requirements apply to laborers and mechanics that are (1) employed by the taxpayer and its contractors or subcontractors, and (2) engaged in the construction, alteration or repair of a qualified facility. For production tax credits such as IRC Sections 45, 45Q and 45V, this requirement applies for any tax year within the applicable production tax credit period beginning on the date the facility is placed in service. For IRC Section 48 and 48E investment tax credits, this requirement applies for any tax year within the five-year period beginning on the date the project is placed in service.

The prevailing wage must be at least the wage paid in that locality for similar services, as most recently determined by the Secretary of Labor, at the time the taxpayer enters into the prime contract for the project. Taxpayers can use to determine the rate for the geographic area and labor classification. If a comparable rate is not listed, the taxpayer can request a wage determination by submitting a request to the Wage and Hour Division of the Department of Labor.

Under the final regulations, if a taxpayer enters into a contract that is for alteration or repair work over an indefinite period and is not tied to the completion of any specific work, the applicable wage rates must be updated annually on the anniversary date of that contract.


The final regulations clarify that the applicable prevailing rates are determined at the time the contract for the construction, alteration or repair of the facility is executed by the taxpayer and a contractor (and apply to all subcontractors of that contractor). If a taxpayer executes separate contracts with more than one contractor, then the applicable prevailing rates for each contract for any work performed by the contractor (and all subcontractors of the contractor) are determined at the time the contract is executed by the taxpayer and the contractor. In the absence of a contract, or if a contractor or subcontractor is unable to determine the date of the contract's execution, the applicable wage determinations are those in effect at the time construction starts.

Under the final regulations, requests for supplemental wage determinations cannot be made more than 90 days before the date the contract between the taxpayer and a contractor for construction, alteration or repair of the facility is expected to be executed. Any supplemental wage determinations must be incorporated into the contract between the taxpayer and contractor within 180 days of issuance.

Qualified apprenticeship requirements

The final regulations modified the proposed regulations by confirming that the apprenticeship requirements apply to construction of a facility but do not apply to alteration or repair work after the facility has been placed in service. If apprentices are used, however, they must be paid at a rate specified by the registered apprenticeship program. In the absence of such participation, the minimum rate of pay defaults to the applicable labor classification.

A certain percentage of construction must be performed by qualified apprentices (i.e., participants in a registered apprentice program). The final regulations clarify that the Labor Hours Requirement applies to the construction of the facility, not on a contractor-by-contractor or trade-by-trade basis. The applicable percentage of construction that must be performed is:

  • 10% for qualified facilities whose construction begins before January 1, 2023
  • 12.5% for qualified facilities whose construction begins after December 31, 2022, and before January 1, 2024
  • 15% for qualified facilities whose construction began after December 31, 2023

Under the Participation Requirement, each taxpayer, contractor or subcontractor employing four or more individuals to construct a qualified facility or project must employ one or more qualified apprentices to perform that work. The final regulations clarify that the work does not have to be performed at the same time or in the same location. In addition, the final regulations confirm that the Ratio Requirement must be met on each day of work and the ratio itself will be governed by the applicable registered apprenticeship program.

Taxpayers failing to meet the Labor Hours Requirement or the Participation Requirement could pay a penalty of $50 multiplied by the total labor hours for which each of the apprenticeship requirements were not met ($500 per labor hour if the failure is found to result from intentional disregard). The Preamble to the final regulations suggests that the penalty may be applied twice if the taxpayer fails both requirements. Although the final regulations do not provide a deadline for remitting such penalties, the timing of that payment will influence whether the taxpayer will be deemed to have intentionally disregarded the requirements.

Taxpayers will not be penalized for failing to employ qualified apprentices if they satisfy the good-faith exception. Treas. Reg. Section 1.45-8(f) lists the actions that may satisfy the good-faith exception requirements, including submitting a valid written request for qualified apprentices to at least one registered apprenticeship program with a geographic area of operation that includes the location of the qualified facility. Based upon comments, the IRS increased the duration of time for which the exception is valid from 120 days to 365 days (or 366 days for a leap year). Therefore, taxpayers are only required to submit requests to an apprenticeship program on an annual basis.

Beginning-of-construction exception

For purposes of claiming the Beginning-of-Construction Exception, the IRS stated in the Preamble that taxpayers may continue to rely on the guidance provided in Notice 2022-61 and the other IRS Notices on beginning of construction until it issues further guidance on determining when construction or installation begins.

To establish the beginning-of-construction date, taxpayers must demonstrate that construction on a qualified facility has begun by either: (1) starting "physical work of a significant nature" either onsite or offsite (the Physical Work Test) or (2) paying or incurring 5% or more of the total cost of the facility (the 5% Safe Harbor). In addition, taxpayers must demonstrate either continuous construction or continuous efforts (Continuity Requirement), regardless of whether the Physical Work Test or the 5% Safe Harbor was used to establish the beginning of construction (see Tax Alert 2022-1832).

For credits under IRC Section 45 and 48, the Continuity requirement will be satisfied if the qualified facility is placed in service no more than four calendar years after its construction began. For qualified facilities or carbon capture equipment under IRC Section 45Q, placement in service must occur no more than six years after construction began. A 10-year period applies to certain offshore projects and projects built on federal land under IRC Sections 45 and 48.

Curing noncompliance

Taxpayers that do not meet the prevailing wage or apprenticeship requirements during construction can still receive the increased credit or deduction if they make correction payments to workers promptly after discovering noncompliance and remit penalty payments to the IRS. To cure noncompliance, taxpayers that failed to pay the prevailing wage must:

  • Pay the workers the difference between what they were paid and what they were supposed to be paid, plus interest (at the federal short-term rate plus 6 percentage points)
  • Pay the IRS a penalty of $5,000 for each worker who was not paid at the prevailing wage rate in the year

The correction and penalty payments could increase if the failure is found to result from intentional disregard. In this case, the correction payment triples and the penalty payment doubles.

The proposed regulations would allow taxpayers to avoid the penalties associated with the failure to pay prevailing wages if they were to make a correction payment within 30 days of the taxpayer becoming aware of the shortfall. The final regulations revised this period by requiring taxpayers to make corrective payments by the last day of the first month following the calendar quarter in which the failure occurred. The IRS provided for a transition period for those taxpayers that relied upon the previous guidance.

The final regulations confirm that the IRS will continue to expect the taxpayer to substantiate that the correction payments were made even if the laborer cannot be located. For example, a taxpayer may satisfy this requirement by "demonstrating compliance with the applicable State unclaimed property law and all Federal and State withholding and information reporting requirements with respect to the payments." Depending upon the state, this compliance may require the collection and reporting of personally identifiable information, such as social security numbers.

Even if corrective payments are not made on a timely basis to avoid penalties, the final regulations confirm that taxpayers may preserve the ability to claim increased credits and deductions by making the correction and penalty payments within 180 days of a final determination by the IRS.

The final regulations list 15 factors that the IRS will consider in determining whether the failure to pay the prevailing wage is a due to intentional disregard. The determination is not limited to these factors but include whether the taxpayer:

  • Took steps to determine applicable classifications and wage rates through a quarterly or more frequent review of these actions (or through a third party acting on behalf of the taxpayer)
  • Had in place procedures whereby laborers and mechanics could report suspected failures to pay prevailing wages and/or suspected failures to classify workers
  • Failed to maintain and preserve records in accordance with Treas. Reg. Section 1.45-12 sufficient to establish compliance with the prevailing wage requirements for the relevant tax years

The final regulations list 13 factors that the IRS will consider in determining whether the failure to comply with the apprenticeship requirements is a due to intentional disregard, including whether the failure was part of a pattern of conduct and whether the taxpayer had in place procedures whereby individuals could report suspected failures to comply with the requirements and the taxpayer investigated complaints of adverse actions resulting from reporting these failures.


The final regulations adopt the recordkeeping and reporting requirements from the proposed regulations. The IRS declined to add any prefiling requirements.

The IRS said in the Preamble that the final regulations do not prescribe a specific form or manner in which records must be kept, in order to provide taxpayers with flexibility. The IRS noted, however, that an accurately completed DOL Form WH-347 may constitute a sufficient record reflecting the payment of prevailing wages to the individuals identified on the form for the period identified. In most cases, payroll records alone will not demonstrate a taxpayer's compliance with the PW&A requirements.

The final regulations also provide three alternative ways that taxpayers may satisfy the recordkeeping requirements in Treas. Reg. Section 1.45-12: (1) taxpayers may collect and physically retain redacted records from every relevant contractor and subcontractor; (2) taxpayers may use a third-party vendor to collect and physically retain records from every relevant contractor and subcontractor on behalf of the taxpayer, and the records may have personally identifiable information redacted to comply with applicable privacy laws; or (3) taxpayers, contractors and subcontractors may physically retain unredacted records for their own employees. Under all three alternatives, unredacted records must be made available to the IRS upon request.

Transferring credits

Under the final regulations, taxpayers that have transferred the credits subject to the PW&A requirements are liable for any correction payments and penalties. They are also responsible for keeping the records of complying with the PW&A requirements. Thus, the IRS specifically rejected any suggestion that a transferee should be secondarily liable for the PW&A requirements.


Throughout the Preamble of the final regulations, the IRS specifically addressed suggestions from commenters, thereby setting certain expectations as to how it may audit eligible taxpayers. Because significant reliance is placed on conformity with the Davis Bacon Act, taxpayers will need to understand both the Department of Labor requirements as well as the applicable tax guidance. The final regulations place a substantial burden on taxpayers to retain sufficient records to support their compliance with the PW&A requirements upon IRS audit.

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Contact Information

For additional information concerning this Alert, please contact:

Americas Power & Utilities National Tax Group

  • Brian Murphy, Americas Power & Utilities National Tax Leader (              
  • Rob Harrill, Americas Power & Utilities National Indirect Tax Leader (

Credits and incentives and sustainability

Government Contract Services (Davis-Bacon Act Compliance)

Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor