IRS Issues Guidance on Prevailing Wage and Apprenticeship Requirements

(Parker Tax Publishing December 2022)

The IRS issued initial guidance on the prevailing wage and apprenticeship requirements that generally apply to certain tax provisions, as amended by the Inflation Reduction Act of 2022. This initial guidance also serves as the published guidance establishing the 60-day period described in those tax provisions with respect to the applicability of the prevailing wage and apprenticeship requirements incorporated in those provisions and also provides guidance for determining the beginning of construction of a facility for certain tax credits, and the beginning of installation of certain property with respect to the energy efficient commercial buildings deduction. 87 Fed. Reg. 73580 (11/30/22).

Background

The Inflation Reduction Act of 2022 (2022 IRA) (Pub. L. 117-169) amended Code Secs. 30C, 45, 45L, 45Q, 45U, 45V, 45Y, 45Z, 48, 48C, 48E, and Code Sec. 179D to add prevailing wage and apprenticeship requirements in order for taxpayers to qualify for increased credit or deduction amounts. On November 30, the IRS issued a Notice on the prevailing wage and apprenticeship requirements that generally apply to those amended tax provisions. The Notice also serves as the published guidance under Code Secs. 30C(g)(1)(C)(i), 45(b)(6)(B)(ii), 45Q(h)(2), 45V(e)(2)(A)(i), 45Y(a)(2)(B)(ii), 48(a)(9)(B)(ii), 48E(a)(2)(A)(ii)(II) and (a)(2)(B)(ii)(II), and 179D(b)(3)(B)(i) establishing the 60-day period described in those sections with respect to the applicability of the prevailing wage and apprenticeship requirements. Additionally, the Notice provides guidance for determining the beginning of construction under Code Secs. 30C, 45, 45Q, 45V, 45Y, 48, and Code Sec. 48E, and the beginning of installation under Code Sec. 179D solely for purposes of Code Sec. 179D(b)(3)(B)(i).

Guidance With Respect to Prevailing Wage Rate Requirements

Section 3 of the Notice provides that the Prevailing Wage Rate Requirements under Code Sec. 45(b)(7)(A) and the substantially similar provisions set forth in Code Secs. 30C, 45L, 45Q, 45U, 45V, 45Y, 45Z, 48, 48C, 48E, and Code Sec. 179D will be satisfied if:

(1) the taxpayer satisfies the Prevailing Wage Rate Requirements with respect to any laborer or mechanic employed in the construction, alteration, or repair of a facility, property, project, or equipment by the taxpayer or any contractor or subcontractor of the taxpayer; and

(2) the taxpayer maintains and preserves sufficient records, including books of account or records for work performed by contractors or subcontractors of the taxpayer, to establish that such laborers and mechanics were paid wages not less than such prevailing rates, in accordance with the general recordkeeping requirements under Code Sec. 6001 and Reg. Sec. 1.6001 - 1, et seq.

Under the Notice, if the Secretary of Labor has published on www.sam.gov a prevailing wage determination for the geographic area and type or types of construction applicable to the facility, including all labor classifications for the construction, alteration, or repair work that will be done on the facility by laborers or mechanics, that wage determination contains the prevailing rates for the laborers or mechanics who perform work on the facility as most recently determined by the Secretary of Labor as identified in Code Sec. 45(b)(7)(A). The Notice describes the procedures that are designed to be used to request an unlisted classification only in the limited circumstance when no labor classification on the applicable prevailing wage determination applies to the planned work.

If the Secretary of Labor has not published a prevailing wage determination for the geographic area and type of construction for the facility on www.sam.gov, or the Secretary of Labor has issued a prevailing wage determination for the geographic area and type of construction, but one or more labor classifications for the construction, alteration, or repair work that will be done on the facility by laborers or mechanics is not listed, then the taxpayer can rely on the procedures established by the Secretary of Labor for purposes of the requirement to pay prevailing rates determined by the Secretary of Labor. To rely on the procedures to request a wage determination or wage rate, and to rely on the wage determination or rate provided in response to the request, the taxpayer must contact the Department of Labor, Wage and Hour Division via email at IRAprevailingwage@dol.gov and provide the Wage and Hour Division with the type of facility, facility location, proposed labor classifications, proposed prevailing wage rates, job descriptions and duties, and any rationale for the proposed classifications. The taxpayer may use these procedures to request a wage determination, or wage rates for the unlisted classifications, applicable to the construction, alteration, or repair of the facility. After review, the Department of Labor, Wage and Hour Division will notify the taxpayer as to the labor classifications and wage rates to be used for the type of work in question in the area in which the facility is located.

Example: ABC Construction (ABC) employs laborers and mechanics to construct a facility. ABC also uses a contractor and subcontractor to construct the facility. The Department of Labor has issued a prevailing wage determination that applies to the type of construction that the laborers and mechanics perform for the county in which the facility is located. ABC ensures that the taxpayer, contractor, and subcontractor pay each laborer and mechanic a wage rate equal to the applicable rates for their respective labor classifications listed in this prevailing wage determination. ABC maintains records that are sufficient to establish that it and the contractor and subcontractor paid wages not less than such prevailing wage rates. Such records include but are not limited to, identifying the applicable wage determination, the laborers and mechanics who performed construction work on the facility, the classifications of work they performed, their hours worked in each classification, and the wage rates paid for the work. Under these facts, ABC is considered to have satisfied the Prevailing Wage Rate Requirements with respect to the facility.

Guidance with Respect to Apprenticeship Requirements

Section 4 of the Notice provides that a taxpayer satisfies the apprenticeship requirements described in Code Sec. 45(b)(8) if:

(1) The taxpayer satisfies the Apprenticeship Labor Hour Requirements, subject to any applicable Apprenticeship Ratio Requirements;

(2) The taxpayer satisfies the Apprenticeship Participation Requirements; and

(3) The taxpayer complies with the general recordkeeping requirements under Code Sec. 6001 and Reg. Sec. 1.6001-1, including maintaining books of account or records for contractors or subcontractors of the taxpayer, as applicable, in sufficient form to establish that the Apprenticeship Labor Hour and the Apprenticeship Participation Requirements have been satisfied.

Under the Good Faith Effort Exception, the taxpayer is considered to have made a good faith effort in requesting qualified apprentices if the taxpayer requests qualified apprentices from a registered apprenticeship program in accordance with usual and customary business practices for registered apprenticeship programs in a particular industry.

Pursuant to Code Sec. 6001 and Reg. Sec. 1.6001-1, a taxpayer must maintain sufficient books and records establishing the taxpayer's request of qualified apprentices from a registered apprenticeship program and the program's denial of such request or non-response to such request, as applicable.

Example: ABC Construction (ABC) employs workers and qualified apprentices to construct a new facility. Construction of the facility begins in calendar year 2023, and the construction of the facility is completed in calendar year 2023. To satisfy the apprenticeship labor hour requirement, the percentage of total labor hours to be performed by qualified apprentices is 12.5 percent for 2023. The total labor hours for the construction of the facility is 10,000 labor hours. ABC employed qualified apprentices that performed a total of 1,150 hours of construction on the facility. On each day that a qualified apprentice performed construction work on the facility for the taxpayer, the applicable requirements for apprentice-to-journey worker ratios of the Department of Labor or the applicable State Apprenticeship Agency were met. ABC also hired a contractor to assist with construction of the facility for 1,000 labor hours of the 10,000 total labor hours. The contractor employed qualified apprentices that performed a total of 100 hours of construction on the facility. On each day that a qualified apprentice performed construction work on the facility for the contractor, the applicable requirements for apprentice-to-journey worker ratios of the Department of Labor or the applicable State Apprenticeship Agency were met. ABC ensured that the taxpayer and the contractor each employed one or more qualified apprentices because the taxpayer and contractor each employed four or more individuals to perform construction work on the qualified facility. ABC maintained sufficient records to establish that it and the contractor it hired satisfied the Apprenticeship Labor Hour Requirement of 1,250 total labor hours for the facility (12.5% of 10,000 labor hours), and the Apprenticeship Ratio and Apprenticeship Participation Requirements. Under these facts, ABC is considered to have satisfied the Apprenticeship Labor Hour, Apprenticeship Ratio, and Apprenticeship Participation Requirements of the statute with respect to the facility.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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