Title 26—Internal Revenue--Volume 1
PART 1—INCOME TAXES
§ 1.45-7   Prevailing wage requirements.
(a) Prevailing wage requirements —(1) In general. Except as provided in paragraphs (a)(2), (3), and (c) of this section, a taxpayer claiming or transferring (under section 6418) the increased credit amount under section 45(b)(6)(B)(iii) with respect to any qualified facility must satisfy the requirements of section 45(b)(7) and this section by ensuring that all laborers and mechanics employed by the taxpayer or any contractor or subcontractor in the construction of such facility, and with respect to any taxable year, for any portion of such taxable year that is within the 10-year period beginning on the date the qualified facility was placed in service, the alteration or repair of such facility, 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 facility is located (Prevailing Wage Requirements). If alteration or repair of a qualified facility occurs during any portion of such taxable year(s) within the 10-year period after the qualified facility was placed in service, the Prevailing Wage Requirements apply with respect to such taxable year(s) in which that alteration or repair occurs. If no alteration or repair work occurs during the taxable year(s) with respect to the qualified facility after the facility is placed in service, the taxpayer is deemed to satisfy the Prevailing Wage Requirements with respect to such taxable year. Prevailing rates are those rates most recently determined by the Secretary of Labor in accordance with 40 U.S.C. chapter 31, subchapter IV (Davis-Bacon Act), and as set forth in paragraph (b) of this section. See paragraph (d) of this section for definitions of terms used in this section.
(2) Transition relief. Taxpayers are excepted from the Prevailing Wage Requirements with respect to any activities that would be considered construction, alteration, or repair of the qualified facility and that occurred prior to January 29, 2023.
(3) Relief for Indian Tribal governments. An Indian Tribal government, as defined in section 30D(g)(9), and including any subdivision, agency, or instrumentality of the Indian Tribal government, is excepted from the Prevailing Wage Requirements with respect to laborers and mechanics that are employees, within the meaning of section 3121(d)(2), of the Indian Tribal government. This paragraph (a)(3) also applies to a qualified facility that is subject to joint ownership arrangements that involve an Indian Tribal government, including any subdivision, agency, or instrumentality of the Indian Tribal government. However, any activity that would be considered construction, alteration, or repair of the qualified facility that is not performed by Indian Tribal government employees (within the meaning of section 3121(d)(2)), but that is instead performed by or through a contractor or subcontractor, is subject to the Prevailing Wage Requirements described in this paragraph (a).
(b) Wage determinations —(1) In general. A taxpayer satisfies the Prevailing Wage Requirements with respect to a qualified facility, if the taxpayer ensures that laborers and mechanics employed by the taxpayer or any contractor or subcontractor in the construction, alteration, or repair of the facility are paid wages at rates not less than those set forth in the applicable wage determination issued by the Secretary of Labor pursuant to 40 U.S.C. 3142, 29 CFR part 1, and other implementing guidance for the specified type of construction in the geographic area where that facility is located. If the construction, alteration, or repair of a facility occurs in more than one geographic area, the taxpayer, contractor, or subcontractor must use the applicable wage determination for the work performed in each geographic area. Subject to the requirements of this section, the applicable wage determination is a general wage determination described in paragraph (b)(2) of this section (including any additional classifications and wage rates described in paragraph (b)(3) of this section), or a supplemental wage determination described in paragraph (b)(3) of this section.
(2) General wage determinations —(i) In general. Except as provided in paragraph (b)(3) of this section, to satisfy the Prevailing Wage Requirements described in paragraph (a) of this section with respect to a qualified facility, taxpayers must ensure that laborers and mechanics employed by the taxpayer or any contractor or subcontractor in the construction, alteration, or repair of the facility are paid wages at rates not less than those set forth in the applicable general wage determination(s) published by the U.S. Department of Labor on the approved website. The applicable general wage determination is the general wage determination in effect for the specified type of construction in the geographic area at the time a contract for the construction, alteration, or repair of the facility is executed by the taxpayer (or the taxpayer's designee, assignee, or agent) and any contractor. The applicable general wage determination will continue in effect for any additional contracts executed by such contractor with any subcontractors with respect to the construction, alteration, or repair of the facility. In the absence of a contract (or if the date of execution of the contract cannot be reasonably determined), the applicable general wage determination is the general wage determination in effect for the specified type of construction in the geographic area when the construction, alteration, or repair of the facility starts.
(ii) Wage determinations applicable to Indian Tribal governments. If the taxpayer is an Indian Tribal government, as defined in section 30D(g)(9), including any subdivision, agency, or instrumentality of the Indian Tribal government, and the construction, alteration, or repair of a qualified facility occurs on Indian land, as defined in 25 U.S.C. 3501(2), that encompasses or overlaps with more than one geographic area with respect to which the U.S. Department of Labor has issued a general wage determination, the Indian Tribal government may choose the general wage determination applicable for any one of those geographic areas and apply that general wage determination for work performed on any qualified facility that is located on the Indian land. This paragraph (b)(2)(ii) also applies to a qualified facility that is subject to joint ownership arrangements that involve an Indian Tribal government, including any subdivision, agency, or instrumentality of the Indian Tribal government. If the Indian Tribal government chooses to use a single general wage determination under this paragraph (b)(2)(ii), it must maintain and preserve records sufficient to document the applicable prevailing wage rates for each laborer and mechanic employed by the Indian Tribal government or any contractor or subcontractor with respect to each qualified facility on Indian land.
(3) Supplemental wage determinations and additional classifications and rates —(i) Use of supplemental wage determinations and additional classifications and rates. In the event the Secretary of Labor has not issued a general wage determination for the relevant geographic area and type of construction for the facility, or the Secretary of Labor has issued a general wage determination for the relevant 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, the taxpayer must ensure that laborers and mechanics employed by the taxpayer or any contractor or subcontractor in the construction, alteration, or repair of a facility are paid wages at rates not less than those set forth in a supplemental wage determination or in an additional classification and wage rate issued to the taxpayer by the U.S. Department of Labor upon request by the taxpayer, contractor, or subcontractor in accordance with paragraph (b)(3)(ii) of this section. A taxpayer, contractor, or subcontractor may also request a supplemental wage determination if the location of the facility involves work by covered laborers and mechanics that spans more than one contiguous geographic area.
(ii) Request for supplemental wage determinations and additional classifications and rates —(A) Manner of making request. A taxpayer, contractor, or subcontractor requesting a supplemental wage determination or additional classification and wage rate under paragraph (b)(3)(i) of this section must submit the request to the U.S. Department of Labor at, U.S. Department of Labor, Wage and Hour Division, Branch of Construction Wage Determinations, Washington, DC 20210, by email at IRAprevailingwage@dol.gov, or such other address as may be prescribed in guidance and instructions issued by the Administrator of the Wage and Hour Division of the U.S. Department of Labor (Wage and Hour Division).
(B) Timing of supplemental wage determination requests. A taxpayer, contractor, or subcontractor should make requests for a supplemental wage determination no more than 90 days before the taxpayer (or the taxpayer's designee, assignee, or agent) expects to execute the contract for the construction, alteration, or repair of the facility with a contractor. In the absence of a contract, the taxpayer, contractor, or subcontractor should make such requests no more than 90 days before construction, alteration, or repair of the facility starts.
(C) Timing of requests for prevailing wage rates for additional classifications. A request for prevailing wage rates for additional classifications can be made any time after a contract for the construction, alteration, or repair of a facility has been executed between the taxpayer (or the taxpayer's designee, assignee, or agent) and a contractor. In the absence of a contract, the taxpayer, contractor, or subcontractor should make such requests no more than 90 days before construction, alteration, or repair of the facility starts. If the taxpayer, contractor, or subcontractor cannot reasonably determine prior to execution of the contract between the taxpayer (or the taxpayer's designee, assignee, or agent) and the contractor or prior to the start of the construction, alteration, or repair work that an additional classification and wage rate is necessary, the taxpayer, contractor, or subcontractor should make such request as soon as practicable after determining that an additional classification and wage rate is necessary.
(D) Required information. The request for a supplemental wage determination or additional classification and wage rate must include the following information:
( 1 ) The name of the taxpayer, contractor, or subcontractor requesting the supplemental wage determination or wage rate;
( 2 ) The general wage determination(s), if any, applicable to construction, alteration, or repair of the facility;
( 3 ) A description of the work to be performed, including the type(s) of construction involved and, if the project involves multiple types of construction, information indicating the expected cost breakdown by type of construction;
( 4 ) The geographic area in which the facility is being constructed, altered, or repaired, including the name and address of the facility (if known);
( 5 ) The date the taxpayer (or the taxpayer's designee, assignee, or agent) expects to enter into a contract with a contractor for which a supplemental wage determination is needed or the date of execution of the contract with a contractor for which a prevailing wage rate for an additional classification is needed;
( 6 ) The start date of construction, alteration, or repair at the facility;
( 7 ) The labor classification(s) needed for performance of the work on the facility (excluding those for which wage rates are available on an applicable general wage determination);
( 8 ) The duties to be performed by each such labor classification on the facility;
( 9 ) The proposed wage rate, including any bona fide fringe benefits, for each such labor classification;
( 10 ) Any pertinent wage payment information that may be available;
( 11 ) Any additional relevant information otherwise required by forms and instructions published by the U.S. Department of Labor; and
( 12 ) Any additional information the taxpayer, contractor, or subcontractor wants the U.S. Department of Labor to consider.
(iii) Issuance of supplemental wage determinations and additional classifications and wage rates. After review, the Wage and Hour Division will notify the taxpayer, contractor, or subcontractor as to the supplemental wage determination or the labor classifications and wage rates to be used for the type of work in question in the geographic area in which the facility is located. Supplemental wage determinations issued by the Wage and Hour Division are effective for 180 calendar days from the date such determinations are issued. If a supplemental wage determination is not incorporated into the contract (or, in the absence of a contract, if construction has not started) during the 180-day period, the determination is no longer effective, and a new supplemental wage determination will need to be requested. The Wage and Hour Division will resolve requests for a prevailing wage rate for an additional classification within 30 days of receipt of the request or will advise the requester within the 30-day period that additional time is necessary.
(iv) Special rule for qualified facilities located offshore. If a general wage determination is not available, in lieu of requesting a supplemental wage determination for a qualified facility located in an offshore area within the outer continental shelf of the United States, a taxpayer, contractor, or subcontractor may rely on the general wage determination for the relevant category of construction that is applicable in the geographic area closest to the area in which the qualified facility will be located.
(4) Reconsideration and review. A taxpayer, contractor, or subcontractor may seek reconsideration and review by the Administrator of the Wage and Hour Division of a general wage determination, or a determination issued with respect to a request for a supplemental wage determination or additional classification and wage rate in accordance with the procedures set forth in 29 CFR 1.8 and 5.13 and any subsequent guidance issued by the U.S. Department of Labor. A taxpayer, contractor, or subcontractor may appeal the decision of the Administrator of the Wage and Hour Division to the U.S. Department of Labor's Administrative Review Board in accordance with the procedures set forth in 29 CFR part 7 and any subsequent guidance issued by the U.S. Department of Labor. Questions regarding wage determinations and rates may be referred to the Administrator of the Wage and Hour Division.
(5) Timing of wage determination. The applicable prevailing wage rates on a general wage determination are those in effect at the time a contract for the construction, alteration, or repair of the qualified facility is executed by the taxpayer (or the taxpayer's designee, assignee, or agent) and a contractor. After the qualified facility is placed in service, the applicable prevailing wage rates on a general wage determination for the alteration or repair of a qualified facility are those in effect at the time the contract for the alteration or repair work is executed by the taxpayer (or the taxpayer's designee, assignee, or agent) and a contractor. The applicable prevailing wage rates on a general wage determination at the time such contract is executed apply to all subcontractors of that contractor. If a taxpayer (or the taxpayer's designee, assignee, or agent) executes separate contracts with more than one contractor with respect to the construction, alteration, or repair of the qualified facility, then, for each such contract, the applicable prevailing wage rates with respect to any work performed by the contractor (and all subcontractors of the contractor) are determined at the time the contract is executed by the taxpayer (or the taxpayer's designee, assignee, or agent). If no contract exists with respect to the construction, alteration, or repair of the qualified facility (or if the date of execution of the relevant contract cannot be reasonably determined), the applicable prevailing wage rates on a general wage determination are those in effect at the time the construction, alteration, or repair work starts. The applicable prevailing wage rates of a general wage determination generally remain valid for the duration of the work performed with respect to the construction, alteration, or repair of the qualified facility by the taxpayer, contractor, or subcontractor. A new general wage determination is required to be used if the contract between the taxpayer (or the taxpayer's designee, assignee, or agent) and the contractor for work on a facility is modified 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, including if an option to extend the term of a contract for the construction, alteration, or repair is exercised. A new general wage determination is not required if the contractor is simply given additional time to complete its original commitment or if the additional construction, alteration, and/or repair work in the modification of the contract is merely incidental. In circumstances in which a new general wage determination is required, the applicable prevailing wage rates on a general wage determination are those in effect at the time the additional substantial work is agreed to or at the time when an option to extend the term of the contract is executed. If a taxpayer enters into a contract for alteration or repair work over an indefinite period of time that is not tied to the completion of any specific work, the applicable prevailing wage rates must be updated on an annual basis on the anniversary date of such contract. General wage determinations published on the U.S. Department of Labor approved website contain no expiration date and remain valid until revised, superseded, or canceled. Any supplemental wage determination issued under paragraph (b)(3) of this section applies without expiration from the time the taxpayer incorporates the supplemental wage determination into the contract provided that the supplemental wage determination is incorporated into the contract within 180 days of issuance of the supplemental wage determination. If there is no contract, any supplemental wage determination issued under paragraph (b)(3) of this section applies without expiration from the time construction, alteration, or repair starts provided the construction, alteration, or repair starts within 180 days of issuance of the supplemental determination. Any additional classification and wage rate issued under paragraph (b)(3) of this section applies without expiration from the earlier of the date of issuance or the first day in which work in the additional classification was performed. If a supplemental wage determination or additional classification and wage rate is issued after construction, alteration, or repair of the facility has started, the applicable prevailing rates apply retroactively to the date construction started.
(6) Payment of wages. All laborers and mechanics working on a qualified facility must be paid in the time and manner consistent with the regular payroll practices of the taxpayer, contractor, or subcontractor, as applicable. The payment of wages must be made without subsequent deduction or rebate on any account (except such payroll deductions as are required by the law or permitted by regulations issued by the Secretary of Labor), and must consist of the full amount of wages (including bona fide fringe benefits or cash equivalents thereof) due at the time of payment computed at rates not less than those contained in the applicable wage determination of the Secretary of Labor. A taxpayer may discharge its wage obligations for the payment of wages by paying the full amount in cash, by making payments to a bona fide fringe benefit provider or incurring costs for bona fide fringe benefits, or by a combination thereof. The taxpayer is solely responsible for ensuring that laborers and mechanics are paid wages not less than the prevailing rate whether employed directly by the taxpayer, a contractor, or a subcontractor in the construction, alteration, or repair of the qualified facility for purposes of claiming the increased credit amount under section 45(b)(6)(B)(iii). The rules set forth in 29 CFR 5.25 through 5.33, and any subsequent guidance issued by the U.S. Department of Labor apply with respect to costs for bona fide fringe benefits that may be credited for purposes of the payment of wages.
(7) Apprentices —(i) Rate of pay. Apprentices who perform work with respect to the construction, alteration, or repair of a qualified facility consistent with the requirements of section 45(b)(8) and § 1.45-8 may be paid wages at rates that are less than the rates that would otherwise apply under paragraph (a) of this section. Every apprentice must be paid wages at rates not less than the rates specified by the registered apprenticeship program for the apprentice's level of progress, expressed as a percentage of the journeyworker hourly rate specified for the apprentice's classification in the applicable wage determination. If the apprentice is working in a classification that is not part of the occupation of the registered apprenticeship program, the apprentice must be paid not less than the applicable wage rate on the wage determination for laborers or mechanics working in that classification. Any individual listed on payroll at an apprenticeship wage, who is not participating in a registered apprenticeship program, must be paid not less than the applicable wage rate on the wage determination for the classification of work actually performed to satisfy the Prevailing Wage Requirements. In the event the U.S. Department of Labor's Office of Apprenticeship or a State apprenticeship agency recognized by the U.S. Department of Labor's Office of Apprenticeship withdraws approval of an apprenticeship program, the taxpayer, contractor, or subcontractor will no longer satisfy the Prevailing Wage Requirements by paying apprentices less than the applicable predetermined rate for the work performed until an acceptable program is approved.
(ii) Bona fide fringe benefits. To satisfy the Prevailing Wage Requirements, apprentices must be paid bona fide fringe benefits in accordance with the provisions of the registered apprenticeship program. If the apprenticeship program does not specify the payment of bona fide fringe benefits, apprentices must be paid the full amount of bona fide fringe benefits listed on the wage determination for the applicable classification in cash or in kind.
(iii) Apprenticeship ratio. The allowance for payment of wages to apprentices at rates less than the applicable prevailing wage rates determined by the U.S. Department of Labor is subject to any applicable ratio of apprentices to journeyworkers required under the registered apprenticeship program and consistent with section 45(b)(8)(B) and § 1.45-8. Any apprentice performing construction, alteration, or repair work on the job site in excess of the ratio permitted under the registered program or the ratio applicable to the geographic area of the facility pursuant to 29 CFR 5.5(a)(4)(i) must be paid not less than the applicable wage rate on the wage determination for the work actually performed to satisfy the Prevailing Wage Requirements. Taxpayers, contractors, or subcontractors have the discretion to determine which apprentice(s) must receive the full prevailing wage rate for hours worked if the applicable ratio of apprentices to journeyworkers has not been met.
(iv) Reciprocity of ratios and wage rates. If a taxpayer, contractor, or subcontractor is performing construction, alteration, or repair work on a facility in a geographic area other than the geographic area in which an apprenticeship program is registered, the taxpayer, contractor, or subcontractor must comply with the apprentice-to-journeyworker ratios applicable within the geographic area in which the construction, alteration, or repair work is being performed. If there is no applicable ratio for the geographic area of the facility, the ratio specified in the registered apprenticeship program standard must be observed. The wage rates (expressed in percentages of the journeyworker's hourly rate) applicable within the geographic area in which the construction, alteration, or repair work is being performed must be observed.
(c) Curing a failure to satisfy the prevailing wage requirements —(1) In general. If a taxpayer fails to ensure that all laborers and mechanics employed by the taxpayer or any contractor or subcontractor in the construction, alteration, or repair of a qualified facility are paid wages at rates not less than those set forth in the applicable wage determination(s), such taxpayer will be deemed to have satisfied the Prevailing Wage Requirements with respect to such facility for any year if the taxpayer makes the correction and penalty payments provided in paragraphs (c)(1)(i) and (ii) of this section.
(i) Correction payment. The taxpayer must pay any laborer or mechanic who was paid wages at a rate below the rate described in paragraph (b) of this section for any pay period during such year an amount equal to the sum of:
(A) The difference between the amount of wages paid to such laborer or mechanic for all hours worked during such period and the amount of wages required to be paid to such laborer or mechanic pursuant to paragraph (a) of this section for all hours worked during such period; and
(B) Interest on the amount determined under paragraph (c)(1)(i)(A) of this section at the Federal short-term rate as determined under section 6621 but substituting “6 percentage points” for “3 percentage points” in section 6621(a)(2).
(ii) Penalty payment. The taxpayer must pay a penalty equal to $5,000 multiplied by the total number of laborers and mechanics who were paid wages at a rate below the rate described in paragraph (b) of this section for any period during such year.
(iii) Correction and penalty payments not required if taxpayer ineligible for increased credit amount under section 45(b)(6)(B)(iii). If the taxpayer claims the increased credit amount under section 45(b)(6)(B)(iii) and does not satisfy the Prevailing Wage Requirements for the claimed increased credit amount, then the obligation to make correction and penalty payments under paragraphs (c)(1)(i) and (ii) of this section applies in order for the taxpayer to retain the credit. If the IRS determines that a taxpayer claiming the increased credit amount under section 45(b)(6)(B)(iii) failed to meet the Prevailing Wage Requirements and the taxpayer does not make the correction and penalty payments provided in paragraphs (c)(1)(i) and (ii) of this section, then no penalty is assessed under paragraph (c)(1)(ii) of this section, and the taxpayer is not eligible for the increased credit amount under section 45(b)(6)(B)(iii). Taxpayers that are not eligible to claim the increased credit amount may still be eligible to claim the base amount of the renewable electricity production credit under section 45(a) if they meet the requirements to claim the credit.
(iv) Correction and penalty payments in the event of a transfer pursuant to section 6418. To the extent an eligible taxpayer, as defined in section 6418(f)(2), has determined an increased credit amount under section 45(b)(6) and transferred such increased credit amount as part of a specified credit portion, the obligation to make correction and penalty payments under paragraphs (c)(1)(i) and (ii) of this section remains with the eligible taxpayer. The obligation for an eligible taxpayer to satisfy the Prevailing Wage Requirements becomes binding upon the earlier of the filing of the eligible taxpayer's return for the taxable year for which the specified credit portion is determined with respect to the eligible taxpayer, or the filing of the return of the transferee taxpayer for the year in which the specified credit portion is taken into account. If the IRS determines that the eligible taxpayer failed to meet the Prevailing Wage Requirements and the eligible taxpayer does not then make the correction and penalty payments provided in paragraphs (c)(1)(i) and (ii) of this section, then no penalty is assessed under paragraph (c)(1)(ii) of this section, and the eligible taxpayer is not eligible for the increased credit amount determined under section 45(b)(6)(B)(iii). Section 6418 and the regulations under section 6418 control for determining the impact of an eligible taxpayer's failure to cure on any transferee taxpayer. The eligible taxpayer that is not eligible to claim the increased credit amount may still be eligible to claim the base amount of the renewable electricity production credit under section 45(a) if they meet the requirements to claim the credit.
(v) Special rule for laborers and mechanics who cannot be located. A taxpayer will be deemed to have paid a correction payment, under this paragraph (c)(1), to a laborer or mechanic who cannot be located if the taxpayer can establish that correction payments have been made. A taxpayer may establish that correction payments have been made 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.
(vi) Examples. The provisions of this paragraph (c)(1) are illustrated by the following examples, which do not take into account any possible application of the enhanced correction and penalty payment requirements in the case of intentional disregard under paragraph (c)(3) of this section, the exception for wages paid before a determination by the U.S. Department of Labor under paragraph (c)(5) of this section, or the penalty waiver under paragraph (c)(6) of this section. In each example, assume that the taxpayer uses the calendar year as the taxpayer's taxable year.
(A) Example 1. Taxpayer A starts construction of a qualified facility on February 3, 2023. The facility is placed in service on October 10, 2023, and Taxpayer A claims the increased credit amount under section 45(b)(6)(B)(iii) on its 2023 tax return. Laborer X was employed in the construction, alteration, or repair of the facility in calendar year 2023 for 20 weeks and was paid on a weekly basis. Laborer X was paid wages below the prevailing wage rate for all pay periods in calendar year 2023. All other laborers and mechanics were paid wages at the prevailing wage rate. The aggregate difference between the amount of wages Laborer X was paid and the amount required to be paid under paragraph (a) of this section is $400 (that is, Laborer X worked 20 weeks during the year and was underpaid by $20 in each of those weeks). The amount of the correction payment Taxpayer A must make to Laborer X is equal to $400 plus interest from the date of each underpayment at the rate as determined under section 6621 but substituting “6 percentage points” for “3 percentage points” in section 6621(a)(2). The total number of laborers underpaid for any period in 2023 was one, so the total amount of the penalty payment that Taxpayer A must pay to the IRS to retain the increased credit amount is $5,000.
(B) Example 2. Taxpayer B starts construction of a qualified facility on January 30, 2023. The facility is placed in service on February 2, 2024. Taxpayer B claims the increased credit amount under section 45(b)(6)(B)(iii) on its 2024 tax return. Taxpayer B paid workers on a biweekly basis. Five laborers employed in the construction of the facility were paid wages at rates below the prevailing wage rates in 2023, with the difference between the amount they were paid and the amount of wages required to be paid under paragraph (a) of this section being $500 per laborer. One of those laborers remained employed in the construction of the facility in 2024 and was paid wages below the prevailing wage rate in 2024, with the difference between the amount the laborer was paid and the amount of wages required to be paid under paragraph (a) of this section being $100. All other laborers and mechanics involved in the construction, alteration, or repair of the facility were paid wages at the prevailing wage rates. Taxpayer B must make correction payments of $500 plus interest from the date of each underpayment at the rate as determined under section 6621 but substituting “6 percentage points” for “3 percentage points” in section 6621(a)(2) to each of the five laborers that were underpaid in 2023, and a correction payment of $100 plus interest from the date of each underpayment at the rate as determined under section 6621 but substituting “6 percentage points” for “3 percentage points” in section 6621(a)(2) to the laborer that was underpaid in 2024. The total amount of the penalty payment that Taxpayer B must pay to the IRS to retain the increased credit amount is $30,000, which includes $5,000 for each laborer underpaid in 2023 and $5,000 for the laborer underpaid in 2024.
(C) Example 3. Taxpayer C starts construction of a qualified facility on January 30, 2023. The facility is placed in service on February 2, 2024. Taxpayer C claims the increased credit amount under section 45(b)(6)(B)(iii) on its 2024 tax return. Taxpayer C paid workers on a biweekly basis. Laborer Y was employed in the construction of the facility for 22 weeks in 2023 and was paid wages at rates below the prevailing wage rates for the first 20 weeks of her employment in the amount of $500 (that is, Laborer Y was underpaid $50 in each of the 10 biweekly periods). For the last biweekly pay period, Taxpayer C paid Laborer Y the correct prevailing rate for the work performed during the period, plus $500 for the amounts that were underpaid in the first 10 periods. All other laborers and mechanics involved in the construction, alteration, or repair of the facility were paid at the prevailing wage rates. Taxpayer C is required to make a correction payment to Laborer Y in the amount of the interest from the date of each underpayment at the rate as determined under section 6221 but substituting “6 percentage points” for “3 percentage points” in section 6221(a)(2) to the laborer that was underpaid in 2023. To retain the increased credit amount, Taxpayer C must make a penalty payment of $5,000 to the IRS with respect to Laborer Y.
(2) Deficiency procedures not to apply. The penalty payment required by paragraph (c)(1)(ii) of this section may be assessed and collected without regard to the deficiency procedures provided by subchapter B of chapter 63 of the Code. Any determination by the IRS disallowing a claim for the increased credit amount under section 45(b)(6) will be subject to the deficiency procedures of subchapter B of chapter 63.
(3) Intentional disregard —(i) Application of section 45 (b)(7)(B)(iii) . If the IRS determines that any failure to satisfy the Prevailing Wage Requirements in paragraph (a) of this section is due to intentional disregard of the requirements—
(A) The correction payment under paragraph (c)(1)(i) of this section is increased to three times the sum determined in paragraph (c)(1)(i) of this section; and
(B) The penalty payment under paragraph (c)(1)(ii) of this section is increased to $10,000 multiplied by the total number of laborers and mechanics who were paid wages at a rate below the rate described in paragraph (b) of this section for any period during such year.
(ii) Meaning of intentional disregard. A failure to ensure that any laborer or mechanic employed in the construction, alteration, or repair of a qualified facility is paid wages at the prevailing wage rate is due to intentional disregard if it is knowing or willful.
(iii) Facts and circumstances considered. The facts and circumstances that are considered in determining whether a failure to satisfy the Prevailing Wage Requirements is due to intentional disregard include, but are not limited to—
(A) Whether the failure was part of a pattern of conduct that includes repeated or systemic failures to ensure that the laborers and mechanics were paid wages at rates not less than the applicable prevailing wage rate, including failures to pay prevailing wages as required under other applicable laws;
(B) Whether the taxpayer took steps to determine or review the applicable classifications of laborers and mechanics, such as through a quarterly, or more frequent, review of the applicable classifications of laborers and mechanics according to the actual duties performed by those laborers and mechanics;
(C) Whether the taxpayer took steps to determine or review the applicable prevailing wage rate(s) for laborers and mechanics to ensure usage of correct rates by all contractors and subcontractors, such as through a quarterly, or more frequent, review of the prevailing wage rates;
(D) Whether the taxpayer promptly cured any failures to ensure that laborers and mechanics were paid wages at rates not less than the applicable prevailing rates;
(E) Whether the taxpayer has been required to make a penalty payment under paragraph (c)(1)(ii) of this section in previous years;
(F) Whether the taxpayer undertook (or engaged an independent third party to aid in conducting) a quarterly, or more frequent, review of wages paid to mechanics and laborers to ensure that wages at rates not less than the applicable prevailing wage rates were paid (including by reviewing payroll information of contractors and subcontractors or by requiring contractors and subcontractors to regularly provide payroll information to the taxpayer or a third party acting on behalf of the taxpayer);
(G) Whether the taxpayer included provisions in any contracts entered into with contractors that required the contractors and any subcontractors retained by the contractors to pay laborers and mechanics wages at rates not less than the prevailing wage rates and maintain records to ensure the taxpayer's compliance with recordkeeping requirements set forth in § 1.45-12;
(H) Whether the taxpayer posted in a prominent place at the qualified facility or otherwise provided written notice to laborers and mechanics during the construction, alteration, or repair of the qualified facility, the applicable wage rate(s) as determined by the U.S. Department of Labor for all classifications of work to be performed for the construction, alteration, or repair of the facility, that in order to be eligible to claim certain tax benefits, employers must ensure that laborers and mechanics are paid wages at rates not less than such wage rates, and instructions on how laborers and mechanics may contact the taxpayers' personnel departments or taxpayers' managers to report suspected failures to pay prevailing wages and/or suspected failures to classify workers in accordance with applicable wage determinations, employment tax violations, or violations of workplace standard laws without retaliation or adverse action;
(I) Whether laborers and mechanics were given the opportunity to acknowledge notice provided by the taxpayer, contractor, or subcontractor that in order to be eligible to claim certain tax benefits, taxpayers must ensure that laborers and mechanics employed by the taxpayer, contractor, or subcontractor in the construction of a qualified facility are paid wages at rates not less than prevailing wage rates;
(J) Whether 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 in accordance with the wage determination of workers, employment tax violations, or violations of workplace standard laws to appropriate personnel departments or managers without retaliation or adverse action, and whether the taxpayer investigated such reports by laborers and mechanics and had internal controls to prevent failures to pay prevailing wages and classify workers in accordance with the wage determination of workers, employment tax violations, and violations of workplace standard laws;
(K) Whether all laborers and mechanics were provided with a written notice of the rights conferred by the whistleblower provisions of the Taxpayer First Act in section 7623(d);
(L) Whether all laborers and mechanics were provided with paystubs (or access to individual payroll records) reflecting the amount they were paid per pay period (including the specific hourly rate and all deductions from wages);
(M) Whether the taxpayer investigated any complaints of retaliation or adverse action resulting from, reports of suspected failures to pay prevailing wages and/or classify workers in accordance with applicable wage determinations, employment tax violations, or violations of workplace standard laws and took appropriate actions to remedy any retaliation or adverse action and prevent it from reoccurring;
(N) Whether the taxpayer, contractor, or subcontractor contracted with contractors who, at the time the work was performed, was known by the taxpayer, contractor, or subcontractor to be debarred by a municipality, State, or the U.S. Department of Labor for violations related to the underpayment of local, State, or Federal prevailing wages; and
(O) Whether the taxpayer failed to maintain and preserve records in accordance with § 1.45-12 sufficient to establish compliance with the prevailing wage requirements for relevant tax years.
(iv) Examples. The provisions of this paragraph (c)(3) are illustrated by the following examples, which take into account certain facts and circumstances described in paragraph (c)(3)(iii) of this section, that are considered in applying the enhanced correction and penalty payment requirements in the case of intentional disregard. These examples do not take into account any possible application of the exception for wages paid before a determination by the U.S. Department of Labor under paragraph (c)(5) of this section, or the penalty waiver under paragraph (c)(6) of this section. In each example, assume that the taxpayer uses the calendar year as the taxpayer's taxable year.
(A) Example 1. Taxpayer D failed to satisfy the Prevailing Wage Requirements with respect to the construction of a qualified facility. Taxpayer D did not include contract language that requires the payment of prevailing wages in the contract executed with the contractor nor did it require similar contract provisions in any subcontracts. Taxpayer D did not post in a prominent place at the qualified facility or otherwise notify any laborers or mechanics that in order to claim certain tax benefits (the increased credit amount described in section 45(b)(6)(B)(iii)) taxpayers must ensure that laborers and mechanics are paid wages at rates not less than prevailing wage rates for construction of the qualified facility. Taxpayer D did not have a process for laborers and mechanics to report suspected failures to pay prevailing wages and/or suspected failures to classify workers in accordance with applicable wage determinations. Additionally, Taxpayer D did not have a procedure for the review of wages paid to laborers and mechanics to ensure that wages at rates not less than the applicable prevailing wage rate were paid, nor did Taxpayer D undertake any actual review of the wages paid to any laborers and mechanics employed in the construction of the qualified facility. Taxpayer D failed to maintain any records documenting wages paid to laborers and mechanics in connection with the construction of the facility. Considering all of the facts and circumstances, Taxpayer D's failure to satisfy the Prevailing Wage Requirements would be considered due to intentional disregard for purposes of this paragraph (c)(3) and Taxpayer D would be subject to the enhanced correction and penalty payments described in paragraph (c)(3)(i) of this section.
(B) Example 2. Taxpayer E failed to satisfy the Prevailing Wage Requirements with respect to the construction of a qualified facility. Taxpayer E included contract language that requires the payment of prevailing wages in the contract executed with the contractor and required similar language be included in all subcontracts. Taxpayer E posted in a prominent place at the qualified facility that in order to claim tax benefits (that is, the increased credit amount described in section 45(b)(6)(B)(iii)) employers must ensure that laborers and mechanics are paid wages at rates not less than prevailing wage rates for the construction of the qualified facility. Additionally, Taxpayer E created procedures for a quarterly review of the applicable classifications of laborers and mechanics according to the actual duties performed by those laborers and mechanics and the actual wages paid to laborers and mechanics. In cases in which reviews found any instance that a laborer or mechanic was paid wages at rates less than the applicable prevailing wage rates, Taxpayer E promptly cured the failure. Considering all of the facts and circumstances, Taxpayer E's failure to satisfy the Prevailing Wage Requirements would not be considered due to intentional disregard for purposes of this paragraph (c)(3) and Taxpayer E would not be subject to the enhanced correction and penalty payments described in paragraph (c)(3)(i) of this section. Taxpayer E would be subject to the normal correction and penalty payments described in paragraph (c)(1)(i) of this section.
(v) Rebuttable presumption of no intentional disregard. If a taxpayer makes the correction and penalty payments required by paragraphs (c)(1)(i) and (ii) of this section before receiving notice of an examination from the IRS with respect to a claim for the increased credit amount under section 45(b)(6), the taxpayer will be presumed not to have intentionally disregarded the Prevailing Wage Requirements in paragraph (a) of this section. The IRS may rebut this presumption based on the relevant facts and circumstances.
(4) Limitation on the availability of cure —(i) 180-day limit. In the case of a final determination by the IRS with respect to any failure by the taxpayer to satisfy the Prevailing Wage Requirements in paragraph (a) of this section, the cure provision in paragraph (c)(1) of this section does not apply unless the correction and penalty payments described in paragraphs (c)(1)(i) and (ii) of this section are made by the taxpayer on or before the date that is 180 days after the date of such determination.
(ii) Final determination. For purposes of paragraph (c)(4)(i) of this section, a final determination occurs on the date the IRS sends to the taxpayer a notice stating that the taxpayer has failed to satisfy the Prevailing Wage Requirements under paragraph (a) of this section.
(5) Exception for wages paid before a supplemental wage determination or additional classification and wage rate is issued by the U.S. Department of Labor Wage and Hour Division. If a taxpayer has requested a supplemental wage determination or an additional classification and wage rate from the Wage and Hour Division in accordance with paragraph (b)(3)(ii) of this section and the Wage and Hour Division makes a wage determination or issues an additional classification and wage rate determination after the construction, alteration, or repair of a qualified facility has started, the taxpayer will not be considered to have failed to meet the Prevailing Wage Requirements under paragraph (a) of this section with respect to wages paid to any mechanic or laborer whose wage rate was subject to the request and who was paid below the prevailing wage rate before the determination by the Wage and Hour Division if the taxpayer makes a payment within 30 days of the determination to each laborer or mechanic equal to the difference between the amount of wages paid to such laborer or mechanic before the determination and the amount of wages required to be paid to such laborer or mechanic pursuant to paragraph (a) of this section during such period.
(6) Waiver of the penalty —(i) Availability of waiver. The penalty payment required by paragraph (c)(1)(ii) of this section to cure a failure to satisfy the Prevailing Wage Requirements in paragraph (a) of this section is waived with respect to a laborer or mechanic employed in the construction, alteration, or repair of a qualified facility during a calendar year if the taxpayer makes the correction payment required by paragraph (c)(1)(i) of this section by the last day of the first month that follows the end of the calendar quarter in which the failure occurred, and:
(A) The laborer or mechanic is paid wages at rates less than the amount required to be paid under paragraph (b) of this section for not more than 10 percent of all pay periods of the calendar year (or part thereof) during which the laborer or mechanic was employed in the construction, alteration, or repair of the qualified facility; or
(B) The difference between the amount the laborer or mechanic was paid during the calendar year (or part thereof) and the amount required to be paid under paragraph (b) of this section is not greater than 5 percent of the amount required to be paid under paragraph (b) of this section.
(ii) Project labor agreements. The penalty payments required by paragraphs (c)(1)(ii) and (c)(3)(i)(B) of this section to cure a failure to satisfy the Prevailing Wage Requirements in paragraph (a) of this section do not apply with respect to a laborer or mechanic employed in the construction, alteration, or repair work of a qualified facility if the work is done pursuant to a pre-hire collective bargaining agreement with one or more labor organizations that establishes the terms and conditions of employment for a specific construction project (Qualifying Project Labor Agreement) and any correction payment owed to any laborer or mechanic is paid on or before the date on which the increased credit amount is claimed under section 45(b)(6). In order to be considered a Qualifying Project Labor Agreement, such agreement must at a minimum:
(A) Bind all contractors and subcontractors on the construction project through the inclusion of appropriate specifications in all relevant solicitation provisions and contract documents;
(B) Contain guarantees against strikes, lockouts, and similar job disruptions;
(C) Set forth effective, prompt, and mutually binding procedures for resolving labor disputes arising during the term of the project labor agreement;
(D) Contain provisions to pay wages at rates not less than the prevailing rates in accordance with subchapter IV of chapter 31 of title 40 of the United States Code;
(E) Contain provisions for referring and using qualified apprentices consistent with section 45(b)(8)(A) through (C) and guidance issued thereunder; and
(F) Be a collective bargaining agreement with one or more labor organizations (as defined in 29 U.S.C. 152(5)) of which building and construction employees are members, as described in 29 U.S.C. 158(f).
(iii) Transition Waiver. The penalty payment required by paragraph (c)(1)(ii) of this section to cure a failure to satisfy the Prevailing Wage Requirements in paragraph (a) of this section is waived with respect to a laborer or mechanic who performed work in the construction, alteration, or repair of a qualified facility on or after January 29, 2023, and prior to June 25, 2024, if the taxpayer relied upon Notice 2022-61, 2022-52 I.R.B. 560, or the Proposed Regulations (REG-100908-23) (88 FR 60018), corrected in 88 FR 73807 (Oct. 27, 2023), corrected in 89 FR 25550 (April 11, 2024), to determine when the activities of any laborer or mechanic became subject to the Prevailing Wage Requirements, and the taxpayer makes the correction payments required by paragraph (c)(1)(i) of this section with respect to such laborer and mechanics within 180 days of June 25, 2024.
(iv) Examples. The provisions of this paragraph (c)(6) are illustrated by the following examples, which do not take into account any possible application of the enhanced correction and penalty payment requirements in the case of intentional disregard under paragraph (c)(3) of this section or the exception for wages paid before a determination by the U.S. Department of Labor under paragraph (c)(5) of this section. In each example, assume that the taxpayer uses the calendar year as the taxpayer's taxable year.
(A) Example 1. Taxpayer F starts construction of a qualified facility on February 1, 2023. The facility is placed in service on October 10, 2023, and Taxpayer F claims the increased credit amount under section 45(b)(6)(B)(iii) on its 2023 tax return filed on April 15, 2024. Taxpayer F employs Laborer Z in the construction of the facility for a total of 36 weekly pay periods. Taxpayer F pays Laborer Z wages at the prevailing wage rate for all pay periods except for the pay periods ending on April 8, April 22, and May 20. Under the applicable prevailing wage rate, Laborer Z should have been paid a total of $35,000 in 2023, but was instead paid only $30,000. Taxpayer F ensures that all other laborers and mechanics employed in the construction, alteration, or repair of the facility are paid wages at the prevailing wage rate. Taxpayer F becomes aware of the failure on June 1, 2023. On June 19, 2023, Taxpayer F pays Laborer Z the correction payment required by paragraph (c)(1)(i) of this section. The penalty waiver applies to Taxpayer F. Although the difference between the amount Laborer Z was paid in 2023 and the amount required to be paid under the applicable prevailing wage rate was greater than five percent ($5,000/$35,000 = 14.29%), Laborer Z was paid below the prevailing wage rate for only three out of 36 pay periods, or 8.3% of the applicable pay periods. Furthermore, Taxpayer F made the correction payment before the last day of the first month that follows the end of the calendar quarter in which the failure occurred.
(B) Example 2. Taxpayer G starts construction of a qualified facility on February 1, 2024. The facility is placed in service on October 10, 2024, and Taxpayer G claims the increased credit under section 45(b)(6)(B)(iii) on its 2024 tax return filed on April 15, 2025. Taxpayer G hires Contractor M to assist in the construction, and Contractor M employs Laborer Y in the construction of the facility for a total of 36 pay periods. Contractor M pays Laborer Y wages at the prevailing wage rate for all pay periods except for the pay periods ending on February 24 and March 2 of 2024. Under the applicable prevailing wage rate, Laborer Y should have been paid a total of $50,000 in 2024, but was instead paid only $49,000. All other laborers and mechanics employed in the construction, alteration, or repair of the facility are paid wages at the prevailing wage rate. Taxpayer G learns on January 1, 2025, that Laborer Y was paid wages at rates that were less than the prevailing wage rates, and on January 19, 2025, Taxpayer G pays Laborer Y the correction payment required by paragraph (c)(1)(i) of this section. The penalty waiver does not apply to Taxpayer G. Laborer Y was paid wages at rates below the prevailing wage rate for two out of 36 pay periods, or 5.5% of the applicable pay periods, and the difference between the amount Laborer Y was paid in 2024 and the amount required to be paid under the applicable prevailing wage rate was $1,000, which is only 2% of the amount required to be paid under the applicable prevailing wage rate. However, because Taxpayer G did not make the correction payments until January 19, 2025, which was later than the last day of the first month that followed the end of the calendar quarter in which the failure occurred, Taxpayer G does not qualify for the penalty waiver. Taxpayer G must pay a penalty of $5,000 with respect to the failure.
(C) Example 3. Taxpayer H starts the construction of a qualified facility on April 8, 2024. The facility is placed in service on December 1, 2024, and Taxpayer H claims the increased credit amount under section 45(b)(6)(B)(iii) on its 2024 tax return filed on April 15, 2025. Taxpayer H employs Laborer X in the construction of the facility for a total of 34 pay periods. Due to a failure to classify workers in accordance with the wage determination, Taxpayer H pays Laborer X wages at rates below the prevailing wage rates for the first 12 pay periods. Under the applicable prevailing wage rate, Laborer X should have been paid $20,000 during those 12 pay periods, but was instead paid only $17,000. All other laborers and mechanics employed in the construction, alteration, or repair of the facility were paid wages at the prevailing wage rates. Taxpayer H becomes aware of the failure on July 15, 2024, and on July 30, 2024, Taxpayer H pays Laborer X the correction payments required by paragraph (c)(1)(i) of this section. For the 22 pay periods from July 1, 2024, through December 1, 2024, Taxpayer H pays Laborer X the correct prevailing wage rate in amounts that total $41,000. The penalty waiver applies to Taxpayer H. Taxpayer H made the correction payment on July 30, 2024, which was before the last day of the first month that followed the end of the quarter in which the failures occurred. Although Laborer X was paid wages at a rate below the prevailing wage rate for 35% (12 pay periods with underpayments/34 total pay periods) of the applicable pay periods, the difference between the total amount Laborer X was paid in 2024 and the amount required to be paid under the applicable prevailing wage rate was $3,000, which is only 4.9% of the total amount required to be paid to Laborer X under the applicable prevailing wage rate ($3,000/$61,000).
(D) Example 4. Taxpayer I begins construction of a qualified facility on August 29, 2024. The facility is placed in service on June 30, 2025, and Taxpayer I claims the increased credit amount under section 45(b)(6)(B)(iii) on its 2025 tax return. Taxpayer I employs Laborer W in the construction of the facility for a total of 25 weekly pay periods in 2025. Taxpayer I pays Laborer W wages at or above the prevailing wage rate for all pay periods except for the pay periods ending on April 12, May 10, and June 14. Under the applicable prevailing wage rate, Laborer W should have been paid $25,000 in 2025, but was instead paid only $20,000. Taxpayer I ensures that all other laborers and mechanics employed in the construction, alteration, or repair of the facility are paid at the prevailing wage rate. Taxpayer I has in place a pre-hire collective bargaining agreement, but the agreement does not contain a provision for referring and using qualified apprentices. Taxpayer I becomes aware of the failure to pay Laborer W at the prevailing wage rate on June 30, 2025, and on July 4, 2025, Taxpayer I pays Laborer W the correction payment required by paragraph (c)(1)(i) of this section. The penalty waiver does not apply to Taxpayer I. The difference between the amount Laborer W was paid in 2025 and the amount required to be paid under the applicable prevailing wage rate was $5,000, which is 20% of the amount required to be paid under the applicable prevailing wage rate. Laborer W was paid below the prevailing wage rate for three out of 25 pay periods, or 12% of the applicable pay periods. Taxpayer I does not have in place a Qualifying Project Labor Agreement because the pre-hire collective bargaining agreement does not contain a provision for referring and using qualified apprentices as required by paragraph (c)(6)(ii)(E) of this section.
(E) Example 5. Taxpayer J intends to construct a qualified facility and claim the increased credit amount under section 45(b)(6)(B)(iii). Taxpayer J executes a contract for the construction of the facility and engages in construction activities as defined in paragraph (d)(3) of this section starting August 1, 2023. Taxpayer J began construction as of September 1, 2023, pursuant to the Physical Work Test in Notice 2022-61. During the period of August 1 to September 1 of 2023, Taxpayer J paid all laborers and mechanics wages at rates below the applicable prevailing wage rates in reliance on Notice 2022-61 regarding when construction began for purposes of satisfying the requirements of section 45(b)(7). After September 1, 2023, Taxpayer J paid all laborers and mechanics wages at the prevailing wage rate for the appropriate classification for work performed on the facility. Within 180 days of June 25, 2024, Taxpayer J makes correction payments to all affected laborers and mechanics for the period of August 1, 2023, to September 1, 2023, equal to the amount described in paragraph (c)(1)(i) of this section. Pursuant to paragraph (c)(6)(iii) of this section, the penalty under paragraph (c)(1)(ii) of this section is waived.
(d) Definitions. Solely for purposes of this section, the following definitions apply:
(1) Apprentice. The term apprentice has the same meaning as qualified apprentice in § 1.45-8(g)(8).
(2) Bona fide fringe benefits. The term bona fide fringe benefits means fringe benefits described in 29 CFR part 5. Bona fide fringe benefits include medical or hospital care, pensions on retirement or death, compensation for injuries or illness resulting from occupational activity, or insurance to provide any of the foregoing; unemployment benefits; life insurance, disability insurance, sickness insurance, or accident insurance; vacation or holiday pay; defraying costs of apprenticeship or other similar programs; or other bona fide fringe benefits (each as described in 29 CFR part 5 and other U.S. Department of Labor guidance). Consistent with 29 CFR 5.29, bona fide fringe benefits do not include benefits required by other Federal, State, or local law.
(3) Construction, alteration, or repair. The term construction, alteration, or repair generally means those activities, described in 29 CFR 5.2 as being construction, prosecution, completion, or repair that are performed with respect to a qualified facility as defined under section 45. Construction, alteration, or repair does not include any activities that are excluded from the requirement to pay prevailing wages under the definitions described in 29 CFR 5.2. Repair work normally includes an activity that improves the facility, either by fixing something that is not functioning properly or by improving upon the facility's existing condition; involves the correction of individual problems or defects as separate and segregable incidents and is not continuous or recurring; or improves the facility's structural strength, stability, safety, capacity, efficiency, or usefulness. Construction, alteration, or repair does not include work that is ordinary and regular in nature that is designed to maintain and preserve existing functionalities of a facility after it is placed in service. Work designed to maintain and preserve functionality of a facility after it is placed in service includes basic maintenance such as regular inspections of the facility, regular cleaning and janitorial work, regular replacement of materials with limited lifespans such as filters and light bulbs, and the regular calibration of equipment. However, such work that occurs before the facility is placed in service may constitute construction for which prevailing wages must be paid in order to claim the increased credit amount. Maintenance generally includes work that is needed to keep the facility in its current condition so that it may continue to be used and work that does not improve the current condition or function of a facility. Maintenance is routinely scheduled and continuous or recurring. Ultimately, the determination of whether an activity can be categorized as construction, alteration, or repair is dependent on the facts and circumstances. This definition has no bearing on any other sections of the Code, including any determination of construction, alteration, repair, or maintenance under sections 162 or 263 of the Code, unless specified otherwise in the Code or in this chapter.
(4) Contractor. The term contractor means any person that enters into a contract directly with the taxpayer (or the taxpayer's designee, assignee, or agent) for the construction, alteration, or repair of a qualified facility.
(5) Employed. The term employed means performing the duties of a laborer or mechanic for the taxpayer, contractor, or subcontractor (as applicable), regardless of whether the individual would be characterized as an employee or an independent contractor for other Federal tax purposes.
(6) General wage determination. The term general wage determination means a wage determination issued by the U.S. Department of Labor and published on the approved website. A general wage determination provides the minimum hourly wage rates (both the basic hourly rate of pay and bona fide fringe benefit rates) that the U.S. Department of Labor has determined are prevailing for laborers and mechanics in specified types of construction in a given geographic area.
(7) Geographic area and locality. The terms geographic area and locality mean the county, independent city, or other civil subdivision of the State in which a qualified facility is located. The terms geographic area and locality also include areas located offshore of the United States and within the outer continental shelf of the United States and the U.S. territories. If construction, alteration, or repair work is performed in multiple counties, independent cities, or other civil subdivisions, the geographic area may include all counties, independent cities, or other civil subdivisions in which the work will be performed. The locality in which a facility is located is defined as the physical place or places where the facility will be placed in service and remain. The locality of the facility also includes secondary locations where a significant portion of the facility is constructed, altered, or repaired provided that such construction is for specific use at that facility and does not simply reflect the manufacture or construction of a product made available to the general public, and provided further that the site is either established specifically for, or dedicated exclusively for a specific period of time to, the construction, alteration, or repair of the facility. A significant portion means one or more entire portion(s) or module(s) of the facility, such as a completed room or structure, with minimal construction work remaining other than the installation and/or final assembly of the portions or modules at the place where the facility will be placed in service and remain. A significant portion does not include materials or prefabricated component parts delivered to the location of a facility. A specific period of time means a period of weeks, months, or more, and does not include circumstances in which a site at which multiple facilities are in progress is shifted exclusively to a single facility for a few hours or days in order to meet a deadline. The locality of the facility also includes any adjacent or virtually adjacent dedicated support sites, including job headquarters, tool yards, batch plants, borrow pits, and similar facilities of a taxpayer, contractor, or subcontractor that are established specifically for or dedicated exclusively to the construction, alteration, or repair of the facility, and adjacent or virtually adjacent to either a primary construction site or a secondary construction site.
(8) Laborer and mechanic —(i) In general. The terms laborer and mechanic mean those individuals whose duties are manual or physical in nature (including those individuals who use tools or who are performing the work of a trade). The terms laborer and mechanic include apprentices and helpers. The terms do not apply to individuals whose duties are primarily administrative, executive, or clerical, rather than manual. Persons employed in a bona fide executive, administrative, or professional capacity as defined in 29 CFR part 541 are not deemed to be laborers or mechanics. Working forepersons who devote more than 20 percent of their time during a workweek to laborer or mechanic duties, and who do not meet the criteria for exemption of 29 CFR part 541, are considered laborers and mechanics for the time spent conducting laborer and mechanic duties.
(ii) Examples —(A) Individual working in professional capacity. Taxpayer hires an architect (Architect) to design a qualified facility and general layout of the site including access roads and ancillary buildings to support the facility. Taxpayer engages a general contractor (Contractor) to construct the qualified facility based on the drafting plans of Architect. Contractor hires an electrical engineer (Engineer) to assist Architect and Contractor with design and placement of the electrical systems necessary to support the qualified facility. Engineer oversees and inspects construction of the electrical systems to ensure the systems conform to the facility's specifications and Architect's drafting plans. Architect and Engineer do not perform any actual duties of a laborer or mechanic during their employment with Taxpayer and Contractor. Architect and Engineer are working in a professional capacity as defined under 29 CFR part 541 and are exempt employees under the DBA. Architect and Engineer are not considered laborers and mechanics for the duration of their employment for purposes of this section and Taxpayer does not need to ensure they are paid wages at rates not less than the prevailing wage rates for purposes of claiming the increased credit amount under section 45(b)(6)(B)(iii).
(B) Working foreperson. A supervisory employee who is a working foreperson (Foreperson) spends 60% of the time during the workweek (24 hours of a 40 hour workweek) performing administrative functions such as preparing timecards, supervising work on the qualified facility and arranging for deliveries. Foreperson spends the remaining 40% (16 hours) of the time performing the duties of an electrician with respect to construction of a qualified facility. Because Foreperson devoted more than 20% of their time during the workweek to laborer or mechanic duties, Foreperson must be paid wages at rates not less than the electrician's applicable prevailing wage rate for the 16 hours spent doing the duties of an electrician for purposes of the Prevailing Wage Requirements.
(9) Subcontractor. The term subcontractor means any person that enters into a contract with a contractor for the construction, alteration, or repair of a qualified facility. The term subcontractor also includes any person that agrees to perform or be responsible for the performance of any part of a contract entered into between the taxpayer (or the taxpayer's designee, assignee, or agent) and a contractor (or between a contractor and another subcontractor) with respect to the construction, alteration, or repair of a qualified facility.
(10) Taxpayer. The term taxpayer means any taxpayer as defined in section 7701(a)(14), including applicable entities described in section 6417(d)(1)(A). In the case of a credit transferred under section 6418, the term taxpayer means the eligible taxpayer that determines the eligible credit to be transferred and makes a transfer election under section 6418 to transfer any specified credit portion (including 100 percent) of an eligible credit determined with respect to any eligible credit property of such eligible taxpayer for any taxable year.
(11) Type of construction. The type of construction is the general category of construction as established by the U.S. Department of Labor for the publication of general wage determinations as defined in 29 CFR 1.2.
(12) Wages. The term wages generally means wages as defined in 29 CFR 5.2. In general, wages means the basic hourly rate of pay; any contribution irrevocably made by a taxpayer, contractor, or subcontractor to a trustee or to a third person pursuant to a bona fide fringe benefit fund, plan, or program; and the rate of costs to the taxpayer, contractor, or subcontractor that may be reasonably anticipated in providing bona fide fringe benefits to laborers and mechanics pursuant to an enforceable commitment to carry out a financially responsible plan or program, provided the commitment was communicated in writing to the laborers and mechanics affected. Whether amounts are wages for prevailing wage purposes is not relevant in determining whether amounts are wages or compensation for other Federal tax purposes.
(e) Applicability date. This section applies to qualified facilities placed in service in taxable years ending after June 25, 2024, and the construction of which begins after June 25, 2024. Taxpayers may apply this section to qualified facilities placed in service in taxable years ending on or before June 25, 2024, and qualified facilities placed in service in taxable years ending after June 25, 2024, the construction of which begins before June 25, 2024, provided that taxpayers follow this section in its entirety and in a consistent manner.
§ 1.45-8   Apprenticeship requirements.
(a) Apprenticeship requirements —(1) In general. Except as provided in paragraphs (a)(2) and (f) of this section, a taxpayer claiming or transferring (under section 6418) the increased credit amount under section 45(b)(6)(B)(iii) with respect to any qualified facility must satisfy the requirements of section 45(b)(8) and this section with respect to the construction of such facility (Apprenticeship Requirements). The taxpayer is solely responsible for ensuring that the Apprenticeship Requirements are satisfied. See paragraph (g) of this section for definitions of terms used in this section.
(2) Transition relief. Taxpayers are excepted from the Apprenticeship Requirements with respect to any activities that would be considered construction, alteration, or repair of the qualified facility and that occurred prior to January 29, 2023.
(b) Labor hours requirement —(1) Percentage of total labor hours. A taxpayer claiming or transferring (under section 6418) the increased credit amount under section 45(b)(6) must ensure that qualified apprentices (hired by the taxpayer, contractor, or subcontractor) perform not less than the applicable percentage of the total labor hours of the construction, alteration, or repair work (including work performed by any contractor or subcontractor) with respect to any qualified facility prior to the facility being placed in service, subject to the apprentice-to-journeyworker ratio described in paragraph (c) of this section. The percentage of total labor hours is calculated on a per qualified facility basis, aggregating all hours worked by all laborers and mechanics (including the hours of qualified apprentices) during construction of the facility and dividing the total hours worked by all laborers and mechanics by the hours of the qualified apprentices.
(2) Applicable percentage. For purposes of paragraph (b)(1) of this section, and subject to paragraph (b)(3) of this section, the applicable percentage is—
(i) 10 percent in the case of a qualified facility, the construction of which begins before January 1, 2023;
(ii) 12.5 percent in the case of a qualified facility, the construction of which begins after December 31, 2022, and before January 1, 2024; and
(iii) 15 percent in the case of a qualified facility, the construction of which begins after December 31, 2023.
(3) Transition rule. Taxpayers may apply the rules set forth in Notice 2022-61, 2022-52 I.R.B. 560, or these regulations for determining when construction began for purposes of the applicable percentage of labor hours performed by qualified apprentices required under section 45(b)(8)(A) and paragraph (b)(2) of this section.
(c) Ratio requirement —(1) In general. The labor hours requirement under paragraph (b) of this section is subject to any applicable requirements for apprentice-to-journeyworker ratios of the U.S. Department of Labor or the applicable State apprenticeship agency.
(2) Ratio. The allowable ratio of apprentices to journeyworkers on the job site in any occupation and its corresponding classification on any day must comply with the applicable apprentice-to-journeyworker ratio of the registered apprenticeship program in accordance with 29 CFR part 29. If a taxpayer, contractor, or subcontractor is performing construction, alteration, or repair work on a qualified facility in a geographic area other than the geographic area in which an apprenticeship program is registered, the taxpayer, contractor, or subcontractor must comply with the apprentice-to-journeyworker ratios applicable within the geographic area in which the construction, alteration, or repair work is being performed. If there is no applicable ratio for the geographic area of the qualified facility, the ratio specified in the registered apprenticeship program standard must be observed.
(3) Failure to meet ratio requirements. For purposes of section 45(b)(8)(B) and paragraph (b) of this section, if on any day the ratio of apprentices to journeyworkers exceeds the ratio established in accordance with paragraph (c)(2) of this section, subject to the requirements of the registered apprenticeship program, the labor hours performed by any qualified apprentice in excess of the ratio may not be counted as hours performed by qualified apprentices for purposes of the labor hours requirement. The hours devoted to the performance of construction, alteration, or repair work by any qualified apprentice in excess of the ratio will be counted towards the total labor hours, but will not be counted as hours performed by qualified apprentices for purposes of the labor hours requirement under paragraph (b) of this section.
(d) Participation requirement. Each taxpayer, 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 work with respect to the construction, alteration, or repair of the qualified facility prior to the facility being placed in service. The participation requirement applies if a taxpayer, contractor, or subcontractor employs four or more individuals in the construction of the qualified facility over the entire course of the construction, regardless of whether they are employed at the same location or at the same time.
(e) Examples. The provisions of paragraphs (b) through (d) of this section are illustrated by the following examples. For purposes of the following examples, assume that each taxpayer has a calendar year taxable year.
(i) Example 1. Taxpayer A starts construction of a qualified facility on April 1, 2023. Accordingly, Taxpayer A must ensure that at least 12.5% of the total labor hours are performed by qualified apprentices. The facility is placed in service on April 1, 2025, and Taxpayer A claims the increased credit amount under section 45(b)(6)(B)(iii) on its 2025 tax return. A total of eight individuals performed construction, alteration, or repair work during the construction of the facility, all of whom were employed directly by Taxpayer A. Taxpayer A employed four journeyworkers and no qualified apprentices from April 1, 2023 through October 31, 2024. Taxpayer A hired four qualified apprentices and retained three journeyworkers to perform construction on the facility for the period of November 1, 2024 through March 31, 2025. The registered apprenticeship program from which Taxpayer A requested the apprentices required a ratio of one journeyworker for every apprentice. In the first year of construction, a total of 10,000 labor hours were performed on construction, alteration, or repair work of the facility, with each journeyworker working 2,500 hours. In the second year of construction, 7,000 labor hours were performed on construction, alteration, or repair work of the facility, with each qualified apprentice and journeyworker working 1,000 hours during this time. On each day of work during the second year of construction, the three journeyworkers oversaw the work of the four qualified apprentices. A total of 17,000 labor hours were spent on the construction, alteration, or repair work of the facility, requiring that 2,125 labor hours be performed by qualified apprentices. Only 3,000 labor hours performed by qualified apprentices count towards the labor hours requirement because the ratio requirement was only satisfied with respect to the work of three qualified apprentices. Taxpayer A satisfied the labor hours requirement under paragraph (b)(2) of this section because more than 12.5% (3,000 qualified apprentice hours/17,000 total labor hours = 17.6%) of the total labor hours were performed by qualified apprentices. Taxpayer A was also subject to the participation requirement because four or more individuals employed by Taxpayer A performed construction work on the facility. Taxpayer A satisfied the participation requirement because Taxpayer A hired at least one qualified apprentice to perform construction, alteration, or repair with respect to the facility.
(ii) Example 2. Taxpayer B intends to construct a qualified facility to claim the increased credit amount under section 45(b)(6)(B)(iii) and executes a contract for the construction of the facility. On December 31, 2023, Taxpayer B expends sufficient funds to meet the 5 Percent Safe Harbor for beginning of construction in reliance on Notice 2022-61. Construction activities as defined in paragraph (d)(3) of this section start on January 1, 2024. In reliance on Notice 2022-61, Taxpayer B employs qualified apprentices for 12.5% of the total construction hours to complete the qualified facility. Because Taxpayer B applies the 12.5% applicable percentage in reliance on Notice 2022-61 for construction beginning before January 1, 2024, but after December 31, 2022, Taxpayer B has satisfied the Labor Hours Requirement, assuming all other provisions of the Labor Hours Requirement are also satisfied.
(iii) Example 3. Taxpayer C starts construction of a qualified facility on April 1, 2023, and complies with the Labor Hours Requirement, the Ratio Requirement, and the Participation Requirement with respect to the construction of the facility before it is placed in service on April 1, 2025. Taxpayer C claims the increased credit amount under section 45(b)(6)(B)(iii) on its 2025 tax return. The qualified facility was repaired from September 1, 2025, through October 31, 2025. No qualified apprentices were employed for the repairs. Taxpayer C did not fail the Apprenticeship Requirements because the Apprenticeship Requirements do not apply after the qualified facility is placed in service.
(iv) Example 4. Taxpayer D starts construction of a qualified facility on April 1, 2023. Accordingly, Taxpayer D must ensure that at least 12.5% of the total labor hours are performed by qualified apprentices. The facility is placed in service on April 1, 2025, and Taxpayer D claims the increased credit amount under section 45(b)(6)(B)(iii) on its 2025 tax return. Taxpayer D employed 12 individuals to perform the construction, alteration, and repair work on the qualified facility. Taxpayer D is subject to the participation requirement. For the first year of construction, a total of 25,000 labor hours were performed on the construction, alteration, or repair of the facility, 3,000 of which were performed by qualified apprentices. For the second year of construction, an additional 25,000 labor hours were performed on the construction, alteration, or repair of the facility, 3,250 of which were performed by qualified apprentices. The ratio requirement was satisfied for all labor hours performed by qualified apprentices. Taxpayer D has satisfied the labor hours requirement because 12.5% (6,250 labor hours divided by 50,000 labor hours) of the total labor hours were performed by qualified apprentices.
(v) Example 5. Taxpayer E starts construction of a qualified facility on January 1, 2024. Accordingly, Taxpayer E must ensure that at least 15% of the total labor hours are performed by qualified apprentices. The facility is placed in service on June 1, 2026. Taxpayer E claims the increased credit amount under section 45(b)(6)(B)(iii) on its 2026 tax return. All individuals who performed the construction, alteration, or repair work were employed directly by Taxpayer E. A total of 50,000 labor hours were spent on the construction, alteration, or repair work of the facility, 7,000 of which were performed by qualified apprentices and the ratio requirement was met for all 7,000 labor hours. Qualified apprentices also spent 500 hours in classroom training at a location other than the location of the qualified facility in preparation for the performance of construction, alteration, or repair work at the qualified facility. Taxpayer E did not satisfy the labor hours requirement under paragraph (b)(2) of this section because less than 15% of the total labor hours were performed by qualified apprentices. The hours spent on classroom training at a location other than the location of the qualified facility in preparation for the construction, alteration, or repair of the facility are not considered labor hours performed by qualified apprentices.
(f) Exceptions to the apprenticeship requirements. If a taxpayer fails to satisfy the Apprenticeship Requirements in paragraph (a) of this section with respect to the construction, alteration, or repair of any qualified facility prior to the facility being placed in service, the taxpayer will nonetheless be deemed to have satisfied the Apprenticeship Requirements if the taxpayer has made a good faith effort to meet the Apprenticeship Requirements as described in paragraph (f)(1) of this section (Good Faith Effort Exception) or made the penalty payment provided in paragraph (f)(2) of this section (Apprenticeship Cure Provision) for any failures to which the Good Faith Effort Exception does not apply.
(1) Good faith effort exception —(i) In general. A taxpayer is deemed to have satisfied the Apprenticeship Requirements of this section with respect to a request for qualified apprentices if the taxpayer meets the following requirements:
(A) Request for qualified apprentices. The taxpayer, contractor, or subcontractor must submit a written request for qualified apprentices to at least one registered apprenticeship program that has a geographic area of operation that includes the location of the qualified facility; trains qualified apprentices in the occupation(s) needed to perform construction, alteration, or repair with respect to the facility; and has a usual and customary business practice of entering into agreements with employers for the placement of qualified apprentices in the occupation for which they are training, consistent with the standards and requirements set forth in 29 CFR parts 29 and 30, and any subsequent guidance issued by the Department of Labor. Such request must be in writing and sent electronically or by registered mail. The initial request to a registered apprenticeship program for qualified apprentices must be made no later than 45 days before the qualified apprentices are requested to start work. Any subsequent requests for qualified apprentices made to the same registered apprenticeship program after the initial request must be made no later than 14 days before the qualified apprentices are requested to start work. If there is no registered apprenticeship program that has a geographic area of operation that includes the location of the qualified facility; trains qualified apprentices in the occupation(s) needed to perform construction, alteration, or repair with respect to the facility; and has a usual and customary business practice of entering into agreements with employers for the placement of qualified apprentices in the occupation for which they are training, consistent with the standards and requirements set forth in 29 CFR parts 29 and 30, and any subsequent guidance issued by the Department of Labor, the taxpayer will be deemed to satisfy the Good Faith Effort Exception with respect to the qualified apprentices that the taxpayer, contractor, or subcontractor would have requested.
( 1 ) Content of valid request. The request of the taxpayer, contractor, or subcontractor must include the proposed dates of employment, occupation of qualified apprentices needed, location of the work to be performed, number of qualified apprentices needed, the number of labor hours expected to be performed by the qualified apprentices, and the name and contact information of the taxpayer, contractor, or subcontractor requesting employment of qualified apprentices from the registered apprenticeship program. Reasonable estimates of the foregoing information are permissible. The request must also state that the request for qualified apprentices is made with an intent to employ qualified apprentices in the occupation for which they are being trained and in accordance with the requirements and standards of the registered apprenticeship program and to employ qualified apprentices consistent with the expected number of hours and dates of employment specified in the request. If the employer of the requested qualified apprentices is not the same as the taxpayer, contractor, or subcontractor submitting the request for qualified apprentices, then the request must include the name of the employer.
( 2 ) Duration of request. If the taxpayer, contractor, or subcontractor submits a request in accordance with paragraph (f)(1)(i)(A) of this section and the request is denied or not responded to, the taxpayer will be deemed to have exercised a Good Faith Effort with respect to the request for the period described in the request but not exceeding 365 days (366 days in case of a leap year). For requests that are denied or not responded to and include a period of employment for qualified apprentices that exceeds 365 days (366 days in case of a leap year), the taxpayer, contractor, or subcontractor must submit one or more additional requests with respect to the period of such request in excess of 365 days (366 days in case of a leap year). The taxpayer will not be deemed to have exercised a Good Faith Effort beyond 365 days (366 days in case of a leap year) of a previously denied request unless the taxpayer submits an additional request. There is no limit on the number of requests a taxpayer, contractor, or subcontractor may submit to one or more registered apprenticeship programs for purposes of the Good Faith Effort Exception and the taxpayer, contractor, or subcontractor is not required to make subsequent requests to the same registered apprenticeship program in order to qualify for the Good Faith Effort Exception. The 365 day (366 days in case of a leap year) duration of requests for qualified apprentices also applies in circumstances in which there is no registered apprenticeship program with a geographic area of operation that includes the location of the facility at the time a taxpayer, contractor, or subcontractor attempts to requests qualified apprentices from a registered apprenticeship program.
(B) Denial of request. If a taxpayer, contractor, or subcontractor submits a request in accordance with paragraph (f)(1)(i)(A) of this section and the request is denied (including after an initial acceptance and before the scheduled qualified apprentice work starts), the taxpayer will be deemed to satisfy the requirements of section 45(b)(8)(A) through (C), and paragraphs (b) through (d) of this section, provided that such denial is not the result of a refusal by the taxpayer or any contractors or subcontractors engaged in the performance of construction, alteration, or repair work with respect to such qualified facility to comply with the established standards and requirements of the registered apprenticeship program. The denial of a request is only valid for purposes of establishing a Good Faith Effort with respect to the portion(s) of the request that were denied. In the case of a partial denial, a taxpayer, contractor, or subcontractor must accept the qualified apprentices offered in response to the request to satisfy the Good Faith Effort with respect to the portion of the request that was denied. If a request is partially denied, the qualified apprentice labor hours specified in the request that were denied that qualify for the Good Faith Effort Exception are considered to be labor hours performed by qualified apprentices. Subject to the requirements of paragraph (f)(1)(i)(A)( 2 ) of this section, the taxpayer, contractor, or subcontractor does not need to follow up with the registered apprenticeship program after the initial request or after the receipt of a non-substantive response. The date on which a registered apprenticeship program received a request for qualified apprentices is determined by the date the electronic request is sent to the registered apprenticeship program or the date of delivery shown on a receipt from the registered mail delivery.
(C) Response to a valid request. A response to a valid request for qualified apprentices is a substantive written reply to the request that agrees, in whole or in part, to the specific requirements in the taxpayer's, contractor's, or subcontractor's request. If the registered apprenticeship program fails to provide a response to a request submitted in accordance with paragraph (f)(1)(i)(A) of this section within five business days after the date on which such registered apprenticeship program received the taxpayer's (or its contractor or subcontractor) request, then such request is deemed to be denied.
(D) Employer sponsored apprenticeship programs. A taxpayer, contractor, or subcontractor that sponsors one or more internal registered apprenticeship programs and that is unable to employ a sufficient number of qualified apprentices through such programs to meet the Apprenticeship Requirements must submit a request for qualified apprentices to at least one registered apprenticeship program that it does not sponsor in order to satisfy the Good Faith Effort Exception.
(ii) Examples. The provisions of this paragraph (f)(1) are illustrated by the following examples.
(A) Example 1. Taxpayer F submits a request to a registered apprenticeship program by email. The registered apprenticeship program responds three days later indicating that it has qualified apprentices ready to start work, but the reply email from the registered apprenticeship program is automatically forwarded to Taxpayer F's spam or junk mail folder, and Taxpayer F does not see the email response. Taxpayer F would not qualify for the Good Faith Effort Exception with respect to this request because the registered apprenticeship program provided a substantive reply to the request that agreed to the specific requirements in Taxpayer F's request within five business days.
(B) Example 2. Contractor G submits a request for qualified apprentices from a registered apprenticeship program with an area of operation outside of the geographic area of the qualified facility. Contractor G's request is denied because the registered apprenticeship program does not operate in the geographic area where the qualified facility is located. Contractor G's request would not qualify for the Good Faith Effort Exception because the registered apprenticeship program does not have a geographic area of operation that includes the location of the qualified facility.
(C) Example 3. Contractor H submits a request for qualified apprentices to a registered apprenticeship program. Under its established standards and requirements, the registered apprenticeship program requires contractors to enter into an agreement to partner with that registered apprenticeship program. Contactor H refuses to enter into the agreement, and as a result, the registered apprenticeship program denies Contractor H's request for qualified apprentices. The requirement to enter into the agreement to partner with the registered apprenticeship program applies to all employers who request apprentices from the registered apprenticeship program. Neither the Department of Labor nor a recognized State apprenticeship agency has found the requirement to enter into such an agreement to be contrary to Department of Labor guidance regarding the administration of registered apprenticeship programs. Contractor H's request would not qualify for the Good Faith Effort Exception because Contractor H refused to comply with the established standards and requirements of the registered apprenticeship program.
(D) Example 4. Contractor I submits a request for qualified apprentices from a registered apprenticeship program on November 15, 2024. Contractor I's request states that it seeks to employ four qualified apprentices for the period starting on January 2, 2025, and ending June 30, 2025, for a total of 4,160 hours (1,040 hours × four qualified apprentices). On November 18, 2024, the registered apprenticeship program informs Contractor I that it can supply four qualified apprentices for the requested time period. On December 29, 2024, the registered apprenticeship program informs Contractor I that it is only able to supply two of the four qualified apprentices. Contractor I does not submit any additional requests for qualified apprentices from a registered apprenticeship program. Contractor I's request would qualify for the Good Faith Effort Exception for 2,080 hours (1,040 hours for each of the two requested qualified apprentices that were denied after the request was initially accepted), provided Contractor I accepted the two qualified apprentices that were offered for the requested period.
(E) Example 5. Contractor J submits a written request for qualified apprentices from a registered apprenticeship program on June 1, 2025. Contractor J's request states that it seeks to employ three qualified apprentices for a period starting September 1, 2025, and ending December 31, 2026. The registered apprenticeship program denies the request on June 2, 2025. Contractor J's request satisfies the Good Faith Effort Exception with respect to the three qualified apprentices that were denied for the period beginning September 1, 2025, and ending August 31, 2026. Contractor J's request does not satisfy the Good Faith Effort Exception with respect to the period beginning September 1, 2026, and ending December 31, 2026, because that is the portion of the denied request that exceeded 365 days (366 days in case of a leap year) and Contractor J did not submit an additional valid request for that period.
(2) Apprenticeship cure provision —(i) In general. A taxpayer that fails to satisfy the Apprenticeship Requirements in paragraph (a) of this section with respect to the construction, alteration, or repair of any qualified facility prior to the facility being placed in service, will be deemed to satisfy the Apprenticeship Requirements if the taxpayer pays the IRS a penalty equal to $50 multiplied by the total labor hours for which the requirements described in paragraph (b) or (d) of this section were not satisfied with respect to the construction, alteration, or repair work on such qualified facility.
(A) Total labor hours for which the labor hours requirement is not met. For failures to meet the percentage of the total labor hours requirement in paragraph (b)(1) of this section, the total labor hours for which the requirement was not satisfied is calculated as the difference between the total labor hours performed by qualified apprentices that would be required to meet the applicable percentage under paragraph (b)(2) of this section and the sum of the labor hours actually worked by all qualified apprentices consistent with the applicable ratio of apprentices to journeyworkers and the hours qualifying for the Good Faith Effort Exception.
(B) Total labor hours for which the participation requirement is not met. For failures to meet the participation requirement in paragraph (d) of this section, the total labor hours for which the requirement was not satisfied is calculated as the total labor hours of construction, alteration, or repair work with respect to the facility performed by all laborers or mechanics employed by the taxpayer, contractor, or subcontractor that failed to meet the participation requirement of the qualified facility divided by the number of laborers or mechanics employed by such taxpayer, contractor, or subcontractor that performed construction, alteration, or repair work on the facility.
(C) Penalty payment not required if taxpayer ineligible for increased credit amount under section 45 ( b )( 6 )( B )( iii ). If the taxpayer claims the increased credit amount under section 45(b)(6)(B)(iii) and does not satisfy the Apprenticeship Requirements for the claimed increased credit amount, then the obligation to make the penalty payment under paragraph (f)(2)(i) of this section applies. If the IRS determines that a taxpayer claiming the increased credit amount under section 45(b)(6)(B)(iii) failed to meet the Apprenticeship Requirements and the taxpayer does not make the penalty payment required under paragraph (f)(2)(i) of this section, then no penalty is assessed under paragraph (f)(2)(i) of this section, and the taxpayer is not eligible for the increased credit amount under section 45(b)(6)(B)(iii). Taxpayers that are not eligible to claim the increased credit amount may still be eligible to claim the base amount of the renewable electricity production credit under section 45(a) if they meet the requirements to claim the credit.
(D) Examples. The provisions of paragraph (f)(2)(i) of this section are illustrated by the following examples, which do not take into account any possible application of the exception for Good Faith Effort Exception under paragraph (f)(1) of this section, the enhanced penalty payment requirement in the case of intentional disregard under paragraph (f)(2)(ii) of this section, or the inapplicability of the penalty in the case of a Qualifying Project Labor Agreement under paragraph (f)(2)(v) of this section. In each example, assume that the taxpayer uses the calendar year as the taxpayer's taxable year.
( 1 ) Example 1. Taxpayer K starts construction of a qualified facility on April 1, 2023. Accordingly, Taxpayer K must ensure that at least 12.5% of the total labor hours are performed by qualified apprentices. The facility is placed in service on April 1, 2025, and Taxpayer K claims the increased credit amount under section 45(b)(6)(B)(iii) on its 2025 tax return. All individuals who performed the construction, alteration, or repair work were employed directly by Taxpayer K, including two qualified apprentices. Taxpayer K employed enough journeyworkers to satisfy the Ratio Requirement. A total of 50,000 labor hours were spent on the construction, alteration, or repair work of the facility, 6,000 of which were performed by qualified apprentices. Taxpayer K has satisfied the participation requirement because Taxpayer K has employed at least one qualified apprentice. Taxpayer K failed to satisfy the labor hours requirement under paragraph (b)(2) of this section because less than 12.5% of the total labor hours were performed by qualified apprentices. Qualified apprentices must have performed at least 6,250 labor hours (50,000 × 12.5%), so the total labor hours by which the labor hours requirement was not satisfied is 250 (6,250−6,000). To cure Taxpayer K's failure to meet the labor hours requirement, Taxpayer K must pay a penalty of $12,500 (250 × $50).
( 2 ) Example 2. Taxpayer L starts construction of a qualified facility on February 10, 2023. Accordingly, Taxpayer L must ensure that at least 12.5% of the total labor hours are performed by qualified apprentices. The facility is placed in service on February 10, 2026, and Taxpayer L claims the increased credit amount under section 45(b)(6)(B)(iii) on its 2026 tax return. Taxpayer L employs 10 individuals to perform construction, alteration, or repair work of the facility, two of whom are qualified apprentices. Taxpayer L employed enough journeyworkers to satisfy the Ratio Requirement. Taxpayer L also hires Contractor M, who employs five individuals to perform construction, alteration, or repair work of the facility, none of whom are qualified apprentices. A total of 50,000 labor hours were spent on the construction, alteration, or repair work of the facility, 6,500 of which were performed by qualified apprentices. Of the total 50,000 labor hours, 33,000 labor hours were performed by individuals employed by Taxpayer L and 17,000 labor hours were performed by individuals employed by Contractor M. Taxpayer L has satisfied the labor hours requirement under paragraph (b)(2) of this section because more than 12.5% of the total labor hours were performed by qualified apprentices. However, Taxpayer L failed to satisfy the participation requirement under paragraph (d) of this section because Contractor M employed five individuals but no qualified apprentices. The total labor hours for which the participation requirement was not satisfied is equal to the total labor hours performed by individuals employed by Contractor M (17,000) divided by the number of individuals employed by Contractor M (5) on the construction of the qualified facility, which is 3,400 hours (17,000/5). To cure the failure to meet the Apprenticeship Requirements, Taxpayer L must pay a penalty of $170,000 (3,400 × $50).
( 3 ) Example 3. Taxpayer N starts construction of a qualified facility on January 1, 2024. Accordingly, Taxpayer N must ensure that at least 15% of the total labor hours are performed by qualified apprentices. The facility is placed in service on January 1, 2025, and Taxpayer N claims the increased credit amount under section 45(b)(6)(B)(iii) on its 2025 tax return. Taxpayer N employs 15 individuals to perform construction, alteration, or repair work of the facility, none of whom is a qualified apprentice. Taxpayer N also hires Contractor O, who employs five individuals to perform construction, alteration, or repair work of the facility, one of whom is a qualified apprentice. At the time Taxpayer N claims the increased credit amount, a total of 20,000 labor hours were spent on the construction, alteration, or repair work of the facility, 1,000 of which were performed by the qualified apprentice. Of the 20,000 total labor hours, 15,000 labor hours were performed by individuals employed by Taxpayer N and 5,000 labor hours were performed by individuals employed by Contractor O. Taxpayer N failed to satisfy the labor hours requirement under paragraph (b)(2) of this section because less than 15% of the total labor hours were performed by qualified apprentices. Qualified apprentices must have performed at least 3,000 labor hours, so the total labor hours by which the labor hours requirement was not satisfied is 2,000. Taxpayer N also failed to satisfy the participation requirement under paragraph (d) of this section because Taxpayer N employed 15 individuals but no qualified apprentices. The total labor hours for which the participation requirement was not satisfied is 1,000, which is equal to the total labor hours performed by individuals employed by Taxpayer N (15,000) divided by the number of individuals employed by Taxpayer N (15), which is 1,000 (15,000/15). The total labor hours by which Taxpayer N failed to meet the labor hours and participation requirements is 3,000 (2,000 + 1,000). To cure Taxpayer N's failure to meet the Apprenticeship Requirements, Taxpayer N must pay a penalty of $150,000 (3,000 × $50).
( 4 ) Example 4. Taxpayer P starts construction of a qualified facility on April 1, 2023. Accordingly, Taxpayer P must ensure that at least 12.5% of the total labor hours are performed by qualified apprentices. The facility is placed in service on January 5, 2024, and Taxpayer P claims the increased credit amount under section 45(b)(6)(B)(iii) on its 2024 tax return. Taxpayer P hires Contractors Q, R, and S to perform the construction, alteration, and repair of the qualified facility. Contractor Q employs 10 journeyworkers who work 10,000 hours and one qualified apprentice who works 400 hours. Contractor R employs four journeyworkers who work 4,000 hours and five qualified apprentices who work 2,000 hours. Contractor S employs three journeyworkers who work 3,000 hours and one qualified apprentice who works 400 hours. The registered apprenticeship program for all of the qualified apprentices has prescribed a 1:1 apprentice-to-journeyworker ratio. For each day, all journeyworkers and qualified apprentices employed by the contractors are on the job site. The contractors have satisfied the participation requirement under paragraph (d) of this section because they each employed one or more qualified apprentices. The total labor hours are 19,800 hours, and the total hours worked by qualified apprentices are 2,800. However, Contractor R employed one qualified apprentice in excess of the apprentice-to-journeyworker ratio (five qualified apprentices: four journeyworkers) that was prescribed by the apprenticeship program. Because Contractor R employed one qualified apprentice in excess of the apprentice-to-journeyworker ratio on each day that Contractor R performed work on the facility, 400 of the qualified apprentice hours worked by Contractor R do not count towards the labor hour requirement. Thus, Taxpayer P has failed to meet the labor hours requirement under paragraph (b)(2) of this section because only 2,400 hours worked by qualified apprentices are counted for purposes of the labor hours requirement. The total labor hours by which Taxpayer P failed to meet the labor hours requirement is 75 (2,475 required hours (19,800 × 12.5%)−2,400 qualified apprentice hours worked). To cure Taxpayer P's failure to meet the Apprenticeship Requirements, Taxpayer P must pay a penalty of $3,750 (75 × $50).
(ii) Intentional disregard —(A) Application of section 45 ( b )( 8 )( D )( iii ). If the IRS determines that any failure to satisfy the Apprenticeship Requirements in paragraph (b) or (d) of this section is due to intentional disregard of those requirements, the amount of the penalty payment under paragraph (f)(2) of this section is increased to $500 multiplied by the total labor hours for which the requirements described in paragraph (b) or (d) of this section were not satisfied with respect to the construction, alteration, or repair work on such qualified facility.
(B) Meaning of intentional disregard. A failure to satisfy the Apprenticeship Requirements of paragraph (b) or (d) of this section is due to intentional disregard if it is knowing or willful.
(C) Facts and circumstances considered. The facts and circumstances that are considered in determining whether a failure to satisfy the Apprenticeship Requirements is due to intentional disregard include, but are not limited to—
( 1 ) Whether the failure was part of a pattern of conduct that includes repeated or systemic failures to ensure compliance with the Apprenticeship Requirements;
( 2 ) Whether the taxpayer took steps to determine or review the applicable percentage of labor hours required to be performed by qualified apprentices;
( 3 ) Whether the taxpayer sought to promptly cure any failures;
( 4 ) Whether the taxpayer has been required to make a penalty payment under paragraph (f)(2) of this section in previous years;
( 5 ) Whether the taxpayer included provisions in any contracts entered into with contractors that required the employment of qualified apprentices by the contractor and any subcontractors consistent with the labor hour requirement of section 45(b)(8)(A) and the participation requirement of section 45(b)(8)(C) and whether taxpayers regularly reviewed contractors' and subcontractors' use of qualified apprentices;
( 6 ) Whether the taxpayer required contractors and subcontractors to forward to the taxpayer requests to registered apprenticeship programs within five business days of when requests were made;
( 7 ) Whether the taxpayer made no attempt to comply with the Apprenticeship Requirements;
( 8 ) Whether the taxpayer developed and used a plan to utilize qualified apprentices in the construction, alteration, or repair of the qualified facility;
( 9 ) Whether the taxpayer, contractor, or subcontractor regularly followed up with registered apprenticeship programs regarding requests for qualified apprentices;
( 10 ) Whether the taxpayer, contractor, or subcontractor contacted the Department of Labor's Office of Apprenticeship or relevant State apprenticeship agency for assistance in locating a registered apprenticeship program;
( 11 ) Whether the taxpayer had in place procedures whereby individuals could report suspected failures to comply with the Apprenticeship Requirements, without retaliation or adverse action, whether taxpayer investigated such reports by individuals, and whether the taxpayer had internal controls to prevent the failures to comply with the Apprenticeship Requirements;
( 12 ) Whether the taxpayer investigated complaints of retaliation or adverse action resulting from reports of suspected failures to comply with the Apprenticeship Requirements, and took appropriate actions to remedy any retaliation or adverse action and prevent it from reoccurring; and
( 13 ) Whether taxpayer failed to maintain and preserve records sufficient to establish compliance with the Apprenticeship Requirements for relevant tax years.
(D) Examples. The provisions of paragraph (f)(2)(ii) of this section are illustrated by the following examples, which take into account certain facts and circumstances described in paragraph (f)(2)(ii)(C) of this section, that are considered in applying the enhanced penalty payment requirement in the case of intentional disregard. These examples do not take into account any possible application of the exception for Good Faith Effort Exception under paragraph (f)(1) of this section or the inapplicability of the penalty in the case of a Qualifying Project Labor Agreement under paragraph (f)(2)(v) of this section. In each example, assume that the taxpayer uses the calendar year as the taxpayer's taxable year.
( 1 ) Example 1. Taxpayer T failed to satisfy the labor hours requirement of section 45(b)(8)(A), the participation requirement of section 45(b)(8)(C), and the requirements described in paragraphs (b) and (d) of this section. Taxpayer T did not create a plan to utilize qualified apprentices in the construction, alteration, or repair of the qualified facility. Taxpayer T did not include contract provisions that require the hiring of qualified apprentices and the compliance with the labor hours requirement described in section 45(b)(8)(A) and the participation requirement described in section 45(b)(8)(C), nor did Taxpayer T require those contract provisions in any subcontracts. Neither Taxpayer T nor any contractors or subcontractors made any requests to a registered apprenticeship program for qualified apprentices. Taxpayer T also did not have procedures in place to audit whether contractors or subcontractors made a request to a registered apprenticeship program. Taxpayer T's failures to satisfy the labor hours requirement of section 45(b)(8)(A), the participation requirement of section 45(b)(8)(C), and the requirements described in paragraphs (b) and (d) of this section would be considered due to intentional disregard for purposes of paragraph (f)(2)(ii) of this section. After considering all of the facts and circumstances, Taxpayer T would be subject to the enhanced penalty payment described in paragraph (f)(2)(ii)(A) of this section.
( 2 ) Example 2. Taxpayer U failed to satisfy the labor hours requirement of section 45(b)(8)(A), the participation requirement of section 45(b)(8)(C), and the requirements described in paragraphs (b) and (d) of this section. Taxpayer U created a plan to utilize qualified apprentices in the construction, alteration, or repair of a qualified facility. Taxpayer U included contract provisions that required the hiring of qualified apprentices and the compliance with the labor hours requirement described in section 45(b)(8)(A) and the participation requirement described in section 45(b)(8)(C) and required those contract provisions in any subcontracts. Taxpayer U and all contractors and subcontractors of Taxpayer U requested relevant qualified apprentices from registered apprenticeship programs. Taxpayer U also created procedures to audit whether contractors or subcontractors made a request to a registered apprenticeship program and ensured that the registered apprenticeship programs were contacted in writing. In cases in which a registered apprenticeship program replied to a proper request described in paragraph (f)(1)(i)(A)( 1 ) of this section with a non-substantive response, Taxpayer U encouraged follow-ups to the registered apprenticeship program. Additionally, Taxpayer U contacted and encouraged contractors and subcontractors to contact the Department of Labor's Office of Apprenticeship and the State apprenticeship agency in cases in which Taxpayer U, or any contractors or subcontractors, experienced difficulty in locating a registered apprenticeship program. After considering all of the facts and circumstances, Taxpayer U's failure to satisfy the labor hours requirement of section 45(b)(8)(A), the participation requirement of section 45(b)(8)(C), and the requirements described in paragraphs (b) and (d) of this section would not be considered due to intentional disregard for purposes of paragraph (f)(2)(ii) of this section.
(E) Rebuttable presumption of no intentional disregard. If a taxpayer makes the penalty payment required by this paragraph (f)(2) before receiving notice of an examination from the IRS with respect to a claim for the increased credit amount under section 45(b)(6), the taxpayer will be presumed not to have intentionally disregarded the Apprenticeship Requirements in paragraphs (b) and (d) of this section. The IRS may rebut this presumption based on the relevant facts and circumstances.
(iii) Deficiency procedures to apply. The penalty payment required by this paragraph (f)(2) is subject to deficiency procedures of subchapter B of chapter 63 of the Code.
(iv) Penalty payments in the event of a transfer pursuant to section 6418. To the extent an eligible taxpayer, as defined in section 6418(f)(2), has determined an increased credit amount under section 45(b)(6) and transferred such increased credit amount as part of a specified credit portion, the obligation to make a penalty payment under paragraph (f)(2)(i) of this section remains with the eligible taxpayer. The obligation for an eligible taxpayer to satisfy the Apprenticeship Requirements becomes binding upon the earlier of the filing of the eligible taxpayer's return for the taxable year for which the specified credit portion is determined with respect to the eligible taxpayer, or the filing of the return of the transferee taxpayer for the year in which the specified credit portion is taken into account. If the IRS determines that the eligible taxpayer failed to meet the Apprenticeship Requirements and the eligible taxpayer does not then make the penalty payments provided in paragraph (f)(2)(i) of this section, then no penalty is assessed under paragraph (f)(2)(i) of this section, and the eligible taxpayer is not eligible for the increased credit amount determined under section 45(b)(6)(B)(iii). Section 6418 and the regulations under section 6418 control for determining the impact of an eligible taxpayer's failure to cure on any transferee taxpayer.
(v) Project labor agreements. The penalty payment required by this paragraph (f)(2) to cure a failure to satisfy the Apprenticeship Requirements in paragraphs (b) and (d) of this section does not apply with respect to the construction, alteration, or repair work of a qualified facility if the work is done pursuant to a Qualifying Project Labor Agreement as defined in § 1.45-7(c)(6)(ii).
(g) Definitions. Solely for purposes of this section, the following definitions apply:
(1) Construction, alteration, or repair. The term construction, alteration, or repair has the same meaning as in § 1.45-7(d)(3).
(2) Contractor. The term contractor has the same meaning as in § 1.45-7(d)(4).
(3) Employed. The term employed has the same meaning as in § 1.45-7(d)(5).
(4) Established standards and requirements. The term established standards and requirements means those standards of apprenticeship required by 29 CFR parts 29 and 30 for registered apprenticeship programs, as well as any additional requirements established by the registered apprenticeship program for the placement of apprentices and applicable to all employers participating in the registered apprenticeship program. Such requirements must not be found by the U.S. Department of Labor's Office of Apprenticeship or a recognized State apprenticeship agency to be contrary to Department of Labor guidance regarding the administration of registered apprenticeship programs.
(5) Geographic area. The term geographic area for purposes of determining the geographic area of operation of a registered apprenticeship program has the same meaning as the term geographic area and locality defined in § 1.45-7(d)(7).
(6) Journeyworker. The term journeyworker means an individual who has attained a level of skill, abilities, and competencies recognized within an industry as having mastered the skills and competencies required for the occupation. Use of the term may also refer to a mentor, technician, specialist, or other skilled individual who has documented sufficient skills and knowledge of an occupation, either through formal apprenticeship or through practical on-the-job experience and formal training.
(7) Labor hours. The term labor hours means the total number of hours devoted to the performance of construction, alteration, or repair work by any individual employed by the taxpayer or by any contractor or subcontractor. Labor hours do not include hours worked by foremen, superintendents, owners, or persons employed in bona fide executive, administrative, or professional capacities (as defined in 29 CFR part 541).
(8) Qualified apprentice. The term qualified apprentice means an individual who is employed by the taxpayer or by any contractor or subcontractor and who is participating in a registered apprenticeship program. An individual is participating in a registered apprenticeship program if, the individual has entered into a written agreement with a registered apprenticeship program containing the terms and conditions of the employment and training of the apprentice and has been registered as an apprentice with the U.S. Department of Labor's Office of Apprenticeship or a recognized State apprenticeship agency during the time period in which work is performed by the apprentice for the taxpayer, contractor, or subcontractor, or the individual is in the first 90 days of probationary employment as an apprentice in a registered apprenticeship program and the individual has been certified by the U.S. Department of Labor's Office of Apprenticeship or a recognized State apprenticeship agency as eligible for probationary employment as an apprentice.
(9) Registered apprenticeship program. A registered apprenticeship program means a program that has been registered by the U.S. Department of Labor's Office of Apprenticeship or a recognized State apprenticeship agency, pursuant to the National Apprenticeship Act and its implementing regulations for registered apprenticeship at 29 CFR parts 29 and 30, as meeting the basic standards and requirements of the Department of Labor for approval of such program for Federal purposes. Registration of a program is evidenced by a Certificate of Registration or other written indicia. Registered apprenticeship programs include those that taxpayers, contractors, or subcontractors sponsor, create, or partner with and include joint and non-joint programs (as those terms are used in 29 CFR part 29).
(10) State apprenticeship agency. The term State apprenticeship agency means an agency of a State government that has responsibility and accountability for apprenticeship within the State and that has been recognized and authorized by the U.S. Department of Labor's Office of Apprenticeship to register and oversee apprenticeship programs and agreements for Federal purposes.
(11) Subcontractor. The term subcontractor has the same meaning as in § 1.45-7(d)(10).
(12) Taxpayer. The term taxpayer has the same meaning as in § 1.45-7(d)(11).
(h) Applicability date. This section applies to qualified facilities placed in service in taxable years ending after June 25, 2024, and the construction of which begins after June 25, 2024. Taxpayers may apply this section to qualified facilities placed in service in taxable years ending on or before June 25, 2024, and qualified facilities placed in service in taxable years ending after June 25, 2024, the construction of which begins before June 25, 2024, provided that taxpayers follow this section in its entirety and in a consistent manner.
§§ 1.45-9-1.45.11   [Reserved]
§ 1.45-12   Recordkeeping and reporting.
(a) In general. The increased credit amount determined under section 45(b)(6) must be claimed in such form and manner as may be prescribed in IRS forms, instructions, publications, or guidance published in the Internal Revenue Bulletin. See § 601.601 of this chapter. Consistent with sections 45 and 6001 and § 1.6001-1(e), a taxpayer claiming or transferring (under section 6418) an increased credit amount under section 45(b)(6)(A) must maintain and preserve records sufficient to establish compliance with the requirements of sections 45(b)(6)(B), (b)(7), and (8), as applicable. In the case of any credit transferred under section 6418 reflecting an increased credit amount, the requirement to maintain and preserve sufficient records demonstrating compliance with the applicable prevailing wage and apprenticeship requirements remains with the eligible taxpayer that determined and transferred the credit. For definitions of terms used in this section, see § 1.45-7(d) with respect to the prevailing wage requirements, and § 1.45-8(g) with respect to the apprenticeship requirements.
(b) Recordkeeping for the prevailing wage and apprenticeship requirements. With respect to each qualified facility for which a taxpayer is claiming or transferring (under section 6418) a credit reflecting an increased credit amount under section 45(b)(6)(A)(iii), the taxpayer must maintain and preserve records sufficient to demonstrate compliance with the applicable prevailing wage and apprenticeship requirements in sections 45(b)(7) and (8) and §§ 1.45-7 and 1.45-8, respectively. At a minimum, those records include payroll records for each laborer and mechanic (including each qualified apprentice) employed by the taxpayer, contractor, or subcontractor in the construction, alteration, or repair of the qualified facility. If work is done pursuant to a Qualifying Project Labor Agreement as defined in § 1.45-7(c)(6)(ii), the taxpayer should also maintain and preserve records related to that Qualifying Project Labor Agreement.
(c) Recordkeeping for the prevailing wage requirements. In addition to payroll records otherwise maintained by the taxpayer, records sufficient to demonstrate compliance with the applicable prevailing wage requirements in section 45(b)(7) and § 1.45-7 may include Forms WH-347 completed fully and correctly with information for each laborer and mechanic (including each qualified apprentice) employed by the taxpayer, a contractor, or subcontractor with respect to each qualified facility. Records sufficient to demonstrate compliance with the applicable prevailing wage requirements in section 45(b)(7) and § 1.45-7 may also include the following other documents and records with respect to each qualified facility:
(1) Identifying information for each laborer and mechanic who worked on the construction, alteration, or repair of the qualified facility, including the name, the last four digits of a social security or tax identification number, address, telephone number, and email address;
(2) The location and type of construction of the qualified facility;
(3) The labor classification(s) the taxpayer applied to each laborer and mechanic for determining the prevailing wage rate and documentation supporting the applicable classification, including the applicable wage determination and copies of executed contracts for construction, alteration, or repair of the qualified facility with any contractor or subcontractor;
(4) The hourly rate(s) of wages paid (including rates of contributions or costs for bona fide fringe benefits or cash equivalents thereof) for each applicable labor classification described in paragraph (c)(3) of this section;
(5) Records to support any contribution irrevocably made on behalf of each laborer or mechanic to a trustee or other third person pursuant to a bona fide fringe benefit program, and the rate of costs that were reasonably anticipated in providing bona fide fringe benefits to laborers and mechanics pursuant to an enforceable commitment to carry out a plan or program described in 40 U.S.C. 3141(2)(B), including records demonstrating that the enforceable commitment was provided in writing to the laborers and mechanics affected;
(6) The total number of hours worked by each laborer and mechanic per pay period;
(7) The total wages paid to each laborer and mechanic for each pay period (including identifying any deductions from wages);
(8) Records to support wages paid to any qualified apprentices at less than the applicable prevailing wage rates, including records reflecting an individual's participation in a registered apprenticeship program and the applicable wage rates and apprentice- to-journeyworker ratios prescribed by the registered apprenticeship program;
(9) The amount and timing of any correction and penalty payments and documentation reflecting the calculation of the correction and penalty payments, including records to demonstrate eligibility for the penalty waiver in § 1.45-7(c)(6);
(10) Records to document any failures to pay prevailing wages and the actions taken to prevent, mitigate, or remedy the failure (for example, records demonstrating that the taxpayer (or an independent third party engaged by the taxpayer) regularly reviewed payroll practices, included requirements to pay prevailing wages in contracts with contractors, and posted prevailing wage rates in a prominent place on the job site); and
(11) Records related to any complaints received by the taxpayer, contractor, or subcontractor that the taxpayer, contractor, or subcontractor was paying wages less than the applicable prevailing wage rate for work performed by laborers and mechanics with respect to the qualified facility.
(d) Recordkeeping for the apprenticeship requirements. Records sufficient to demonstrate compliance with the applicable apprenticeship requirements in section 45(b)(8) and § 1.45-8 may include the following information with respect to each qualified facility:
(1) Any written requests for the employment of qualified apprentices from registered apprenticeship programs, including any contacts with the U.S. Department of Labor's Office of Apprenticeship or a State apprenticeship agency regarding requests for qualified apprentices from registered apprenticeship programs;
(2) Any agreements entered into with registered apprenticeship programs with respect to the construction, alteration, or repair of the facility;
(3) Documents reflecting the standards and requirements of all registered apprenticeship programs from which taxpayers, contractors, or subcontractors employed qualified apprentices with respect to the construction, alteration, or repair of the facility (including the applicable ratio requirement prescribed by each registered apprenticeship program);
(4) The total number of labor hours worked with respect to the construction, alteration, or repair of the qualified facility, including and identifying hours worked by each qualified apprentice;
(5) Records reflecting the daily ratio of apprentices to journeyworkers;
(6) Records demonstrating compliance with the Good Faith Effort Exception in § 1.45-8(f)(1) (including requests for qualified apprentices, correspondence with registered apprenticeship programs, and denials of requests);
(7) The amount and timing of any penalty payments and documentation reflecting the calculation of the penalty payments;
(8) Records to document any failures to satisfy the apprenticeship requirements under section 45(b)(8) and § 1.45-8 and the actions taken to prevent, mitigate, or remedy the failure; and
(9) Records related to any complaints received by the taxpayer, contractor, or subcontractor that the taxpayer, contractor, or subcontractor was not satisfying the apprenticeship requirements under section 45(b)(8) and § 1.45-8.
(e) Satisfaction of the recordkeeping requirements. Taxpayers may satisfy the recordkeeping requirements in this section as follows:
(1) Taxpayers may collect and physically retain relevant records from every contractor and subcontractor. The records may have personally identifiable information (PII) redacted to comply with applicable privacy laws. Unredacted information must be made available to the IRS upon request;
(2) Taxpayers, contractors, and subcontractors may provide relevant records to a third party vendor to physically retain on behalf of the taxpayer. The records may have PII redacted to comply with applicable privacy laws. Unredacted records must be made available to the IRS upon request; or
(3) Taxpayers, contractors, and subcontractors may each physically retain the relevant unredacted records for their own employees. Unredacted records must be made available to the IRS upon request.
(f) Applicability date. This section applies to qualified facilities placed in service in taxable years ending after June 25, 2024, and the construction of which begins after June 25, 2024. Taxpayers may apply this section to qualified facilities placed in service in taxable years ending on or before June 25, 2024, and qualified facilities placed in service in taxable years ending after June 25, 2024, the construction of which begins before June 25, 2024, provided that taxpayers follow this section in its entirety and in a consistent manner.
§ 1.45D-0   Table of contents.
This section lists the paragraphs contained in § 1.45D-1.
(a) Current year credit.
(b) Allowance of credit.
(1) In general.
(2) Credit allowance date.
(3) Applicable percentage.
(4) Amount paid at original issue.
(c) Qualified equity investment.
(1) In general.
(2) Equity investment.
(3) Equity investments made prior to allocation.
(i) In general.
(ii) Exceptions.
(A) Allocation applications submitted by August 29, 2002.
(B) Other allocation applications.
(iii) Failure to receive allocation.
(iv) Initial investment date.
(4) Limitations.
(i) In general.
(ii) Allocation limitation.
(5) Substantially all.
(i) In general.
(ii) Direct-tracing calculation.
(iii) Safe harbor calculation.
(iv) Time limit for making investments.
(v) Reduced substantially-all percentage.
(vi) Examples.
(6) Aggregation of equity investments.
(7) Subsequent purchasers.
(8) Non-real estate qualified equity investment.
(d) Qualified low-income community investments.
(1) In general.
(i) Investment in a qualified active low-income community business or a non-real estate qualified active low-income community business.
(ii) Purchase of certain loans from CDEs.
(A) In general.
(B) Certain loans made before CDE certification.
(C) Intermediary CDEs.
(D) Examples.
(iii) Financial counseling and other services.
(iv) Investments in other CDEs.
(A) In general.
(B) Examples.
(2) Payments of, or for, capital, equity or principal.
(i) In general.
(ii) Subsequent reinvestments.
(iii) Special rule for loans.
(iv) Example.
(3) Special rule for reserves.
(4) Qualified active low-income community business.
(i) In general.
(A) Gross-income requirement.
(B) Use of tangible property.
( 1 ) In general.
( 2 ) Example.
(C) Services performed.
(D) Collectibles.
(E) Nonqualified financial property.
( 1 ) In general.
( 2 ) Construction of real property.
(ii) Proprietorships.
(iii) Portions of business.
(A) In general.
(B) Examples.
(iv) Active conduct of a trade or business.
(A) Special rule.
(B) Example.
(5) Qualified business.
(i) In general.
(ii) Rental of real property.
(iii) Exclusions.
(A) Trades or businesses involving intangibles.
(B) Certain other trades or businesses.
(C) Farming.
(6) Qualifications.
(i) In general.
(ii) Control.
(A) In general.
(B) Definition of control.
(C) Disregard of control.
(7) Financial counseling and other services.
(8) Special rule for certain loans.
(i) In general.
(ii) Example.
(9) Targeted populations.
(i) Low-income persons.
(A) Definition.
( 1 ) In general.
( 2 ) Area median family income.
( 3 ) Individual's family income.
(B) Qualified active low-income community business requirements for low-income targeted populations.
( 1 ) In general.
( 2 ) Employee.
( 3 ) Owner.
( 4 ) Derived from.
( 5 ) Fair market value of sales, rentals, services, or other transactions.
(C) 120-percent-income restriction.
( 1 ) In general.
( 2 ) Population census tract location.
(D) Rental of real property for low-income targeted populations.
( 1 ) In general.
( 2 ) Special rule for entities whose sole business is the rental to others of real property.
(ii) Individuals who otherwise lack adequate access to loans or equity investments.
(A) In general.
(B) GO Zone Targeted Population.
(C) Qualified active low-income community business requirements for the GO Zone Targeted Population.
( 1 ) In general.
( 2 ) Location.
( i ) In general.
( ii ) Determination.
(D) 200-percent-income restriction.
( 1 ) In general.
( 2 ) Population census tract location.
(E) Rental of real property for the GO Zone Targeted Population.
(10) Non-real estate qualified active low-income community business.
(i) Definition.
(ii) Payments of, or for, capital, equity or principal with respect to a non-real estate qualified active low-income community business.
(A) In general.
(B) Seventh year of the 7-year credit period.
(C) Amounts received from a qualifying entity.
(D) Definition of qualifying entity.
(e) Recapture.
(1) In general.
(2) Recapture event.
(3) Redemption.
(i) Equity investment in a C corporation.
(ii) Equity investment in an S corporation.
(iii) Capital interest in a partnership.
(4) Bankruptcy.
(5) Waiver of requirement or extension of time.
(i) In general.
(ii) Manner for requesting a waiver or extension.
(iii) Terms and conditions.
(6) Cure period.
(7) Example.
(f) Basis reduction.
(1) In general.
(2) Adjustment in basis of interest in partnership or S corporation.
(g) Other rules.
(1) Anti-abuse.
(2) Reporting requirements.
(i) Notification by CDE to taxpayer.
(A) Allowance of new markets tax credit.
(B) Recapture event.
(ii) CDE reporting requirements to Secretary.
(iii) Manner of claiming new markets tax credit.
(iv) Reporting recapture tax.
(3) Other Federal tax benefits.
(i) In general.
(ii) Low-income housing credit.
(4) Bankruptcy of CDE.
(h) Effective/applicability dates.
(1) In general.
(2) Exception for certain provisions.
(3) Targeted populations.
(4) Investments in non-real estate businesses.