Washington Report: New Federal Labor Requirements for Construction Projects Claiming Clean Energy Tax Benefits

by Patty Power, ACPA Washington Advocate

Recently, an ACPA member contacted the National Office after being told about new federal apprenticeship hiring requirements being applied to three of their jobs in three different states. The apprenticeship requirements are triggered when four or more concrete pumpers work on a job where certain federal tax benefits apply. These apprentice hiring requirements present a serious challenge to concrete pumpers because there are no registered concrete pumper apprenticeship programs in place to provide the required apprentices. This is a classic Catch 22. Fortunately, there is an option.

In 2022, Congress enacted the Inflation Reduction Act (IRA), which provides specific tax benefits (see https://www.irs.gov/credits-and-deductions-under-the-inflation-reduction...) for construction projects that incorporate clean energy features. Further, the IRA provides that the clean energy tax benefit can be multiplied up to five times if prevailing wage and registered apprenticeship requirements are met.

The Internal Revenue Service (IRS) at the Treasury Department published its final rule implementing the Inflation Reduction Act (IRA) energy tax credits requirements. The IRS rule became e ective on August 26, 2024. The rule provides that the taxpayer claiming these multiplied credits or deductions is responsible for meeting all requirements, including hiring apprentices from a registered apprenticeship program if the employer, contractor or subcontractor has four or more employees on the job. According to the preamble of the rule, the “taxpayer is solely responsible for ensuring that the Apprenticeship Requirements are satisfied.”

The IRS does not apply the registered apprenticeship requirements to concrete pumpers; the IRS will review the taxpayer’s claim retroactively. The taxpayer will want to ensure that all employees, contractors and subcontractors meet the requirements throughout the life of the project to be able to claim the enhanced tax benefits. In the case of the ACPA member mentioned above, a third-party payroll compliance company is overseeing the application of the requirements and holding the ACPA member responsible for compliance in real time.

Because the taxpayer will seek to ensure that the IRS requirements are satisfied to receive the multiplied tax credits for their qualified facility, the concrete pumper (as the contractor or subcontractor) will have to satisfy the taxpayer or their representative, e.g., a third-party payroll compliance company operating on behalf of the taxpayer. The rule states that the taxpayer, not the employer, contractor or subcontractor, is responsible to “cure” a lack of compliance. This may encourage the taxpayer’s agent to be very strict in the application of these requirements. As such, it will be worth the concrete pumper’s effort to work closely with the taxpayer’s agent, providing strong arguments about how to interpret the IRS rules and guidance.

There are no registered apprenticeship programs for concrete pumpers. Concrete pumping companies cannot comply with these requirements. Fortunately, there is an option to allow the taxpayer to satisfy the apprenticeship requirement through the Good Faith Effort Exemption. The final rule provides that if there is no registered apprenticeship program available, taxpayers are deemed to satisfy the Good Faith Effort exemption. The Treasury Department explains:

Although the Treasury Department and the IRS expect this situation to be rare, the final regulations address the application of the Good Faith Effort Exception in the absence of a registered apprenticeship program with an area of operation that includes the location of the facility. The final regulations provide that if there is no registered apprenticeship program with a geographic area of operation that includes the location of the facility, taxpayers will be deemed to satisfy the Good Faith Effort Exception for the apprentices they (or the contractor or subcontractor) would have requested for that occupation.

Note that the final rule states that the exemption lasts for 365 days (except in a leap year; then 366 days).

ACPA recommends that its members share this information with the taxpayer or their agent when faced with the apprenticeship requirement. In the future, ACPA may explore getting a blanket Good Faith Effort Exemption for all concrete pumping companies, arguing that the unique nature of training concrete pumpers, the limited size of the industry, and the safety risks of this program that encourage under-trained apprentices to operate large, complicated machinery. ACPA may need to engage with the Department of Labor Apprenticeship Office for further clarification. IRS defers to DOL on apprenticeship program specifics.