A comprehensive guide to the five-point framework for establishing placed-in-service status for renewable energy projects.
The "placed-in-service" date is critical for renewable energy projects seeking tax credits. This date establishes when a facility becomes eligible for tax credits and begins the credit period. The IRS and tax courts have established a five-point framework to determine when a project is officially placed in service.
A renewable energy facility is considered placed in service when all five of the following criteria are met and properly documented:
This criterion requires evidence that the facility is physically complete and capable of functioning as designed. Key documentation includes:
The physical completion must be substantial enough that the facility can function for its intended purpose, even if minor work remains.
This criterion verifies that the facility has obtained all necessary regulatory approvals to operate. Required documentation includes:
All critical permits must be in place, though temporary or conditional permits may satisfy this requirement if they allow for operation.
This criterion establishes the legal framework for the facility's operation and revenue generation. Key documentation includes:
These documents ensure that the facility has the legal right to operate and sell its output.
This criterion verifies that the taxpayer claiming the credit has control over the facility. Critical documentation includes:
This documentation establishes that the taxpayer has taken control of the facility from the contractor or builder.
This criterion demonstrates that the facility is actually delivering electricity to the grid. Essential documentation includes:
This documentation confirms that the facility is capable of and has begun delivering electricity to the grid or end-user.
The placed-in-service date is generally the latest date on which all five criteria have been met. If one criterion is satisfied later than the others, that later date becomes the official placed-in-service date for tax credit purposes.
Certain project types and situations require special attention when determining placed-in-service status:
For projects being completed in phases, each phase that can operate independently can have its own placed-in-service date. Document each phase separately using the five-point framework, with special attention to demonstrating the operational independence of each phase.
When retrofitting or expanding existing facilities, clearly document which components are new and subject to new placed-in-service determinations versus existing equipment. Maintain detailed records showing the specific scope of the retrofit or expansion and how it functionally improves the facility.
For battery storage systems, additional documentation of charging/discharging capability and integration with generation or grid systems may be required. Pay special attention to documenting the complete system's functional readiness, including control systems and battery management systems.
When a project includes dedicated transmission infrastructure, document whether this infrastructure is part of the energy property or a separate asset with its own placed-in-service date. The determination depends on whether the transmission assets are integral to the facility's function or serve a separate purpose.
Establishing and documenting placed-in-service status requires a systematic approach. Deal Star provides powerful features that make this verification process seamless and reliable:
Collect and organize documentation throughout the construction and commissioning process, not just at completion. Create a documentation plan at project outset.
When possible, have independent engineers or consultants verify and certify key milestones to increase the credibility of your documentation.
Document the specific dates when each of the five criteria were met, with supporting evidence and a chronological record of key milestones.
Keep a master file with all relevant documentation organized by each of the five framework categories, with clear indexing and cross-references.
Identify and address any documentation gaps before claiming tax credits. Conduct pre-claim audits to ensure completeness.
Organize documentation with the expectation that it may be examined by the IRS during an audit. Ensure clear, consistent, and complete records.
For tax credit transfers under Section 6418, placed-in-service documentation plays a critical role:
Having robust documentation for all five criteria provides protection for both transferors and transferees in case of IRS examination.
Facility is physically complete and capable of functioning
All necessary regulatory approvals obtained
Legal framework for operation established
Taxpayer has control of the facility
Facility is delivering electricity to the grid
The placed-in-service date is a critical determination for tax credit eligibility and rates. Documentation should be thorough and contemporaneous to withstand potential IRS scrutiny.
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