February 13, 2023

The Internal Revenue Service (IRS) issued Notice 2023-18 to establish the Inflation Reduction Act program to allocate $10 billion of section 48C (Qualifying Advanced Energy Product Credit) credits for qualified investments in eligible qualifying advanced energy projects (the section 48C(e) program). The term “qualifying energy project” means a project that: (1) re-equips, expands, or establishes an industrial or manufacturing facility for the production or recycling of specified advanced energy property, like fuel cells, microturbines, or energy storage systems and components; (2) re-equips any industrial or manufacturing facility with equipment designed to reduce greenhouse gas emissions by at least 20 percent; or (3) re-equips, expands or establishes an industrial facility for the processing, refining or recycling of critical materials.

Per this notice, to receive funding through the section 48C(e) program, contractors must meet the prevailing wage and apprenticeship requirements SWACCA lobbied to get included in the Inflation Reduction Act. With regard to the prevailing wage requirements, contractors must ensure that any laborers and mechanics employed by the contractor or subcontractor in the re-equipping, expansion, or establishment of a manufacturing facility that is part of a qualifying advanced energy project are paid wages at rates not less than the prevailing rates for construction, alteration, or repair of a similar character in the locality in which such project is located as most recently determined by the Secretary of Labor.

With regard to apprenticeship, contractors are required to ensure that not less than the “applicable percentage” of the total labor hours of the construction, alteration, or repair work must be performed by “qualified apprentices” in a “registered” apprenticeship program. The “applicable percentage” of total labor hours is: (1) 10% for construction that begins before January 1, 2023; (2) 12.5% for construction that begins after December 31, 2022, and before January 1, 2024; and (3) 15% for construction that begins after December 31, 2023. Moreover, each contractor or subcontractor who employs four or more individuals to perform construction, alteration, or repair work with respect to the construction of a qualified facility must employ one or more qualified apprentices to perform such work.

A taxpayer that satisfies the prevailing wage and apprenticeship requirements may claim a credit that is equal to 30% of the qualified investment for such taxable year with respect to any qualified energy project. An individual that fails to satisfy the prevailing wage and apprenticeship requirements generally may only claim a credit equal to 6% of the taxpayer’s qualified investment for such taxable with respect to any qualified advanced energy project.

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