Revenue Procedure 2021-14 provides guidance regarding elections and revocations  related to § 2303(e) of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).  Section 2303(e) of the CARES Act provides special rules for taxpayers with a net operating loss (NOL) for any taxable year beginning in 2018, 2019, or 2020, all or a portion of which consists of a “farming loss,” as defined by § 172(b)(1)(B)(ii) of the Internal Revenue Code (Code) (Farming Loss NOL). 

Revenue Procedure 2021-14 will be in IRB:  2021-29, dated July 19, 2021.

WASHINGTON — The Internal Revenue Service today upgraded a key online tool to enable families to quickly and easily update their bank account information so they can receive their monthly Child Tax Credit payment.

The bank account update feature was added to the Child Tax Credit Update Portal, available only on IRS.gov. Any updates made by Aug. 2 will apply to the Aug. 13 payment and all subsequent monthly payments for the rest of 2021.

Families will receive their July 15 payment by direct deposit in the bank account currently on file with the IRS. Those who are not enrolled for direct deposit will receive a check. The IRS encourages people without current bank account information to use the tool to update their information so they can get the payments sooner.

The IRS also urges people to be on the lookout for scams related to the Child Tax Credit. People who need to update their bank account information should go directly to the IRS.gov site and not click on links received by email, text or phone.

How to update direct deposit information

First, families should use the Child Tax Credit Update Portal to confirm their eligibility for the payments. If eligible, the tool will also indicate whether they are enrolled to receive their payments by direct deposit.

If so, it will list the full bank routing number and the last four digits of their account number. This is the account that will receive their July 15 payment, and if they don’t change the account, all future payments will go there as well.

Next, if they choose, they can change the bank account receiving the payment starting with the Aug. 13 payment. They can do that by updating the routing number and account number and indicating whether it is a savings or checking account. Note that only one account number is permitted for each recipient—that is, the entire payment must be direct deposited in only one account.

How to switch from paper check to direct deposit

If the Update Portal shows that a family is eligible to receive payments but not enrolled to receive direct deposits, they will receive a check each month. If they want to switch to receiving their payments by direct deposit, they can use the tool to add their bank account information. They do that by entering their bank routing number and account number and indicating whether it is a savings or checking account.

The IRS urges any family receiving checks to consider switching to direct deposit. With direct deposit, families can access their money more quickly. Direct deposit removes the time, worry and expense of cashing a check. In addition, direct deposit eliminates the chance of a lost, stolen or undelivered check.

Families can stop payments anytime

Even after payments begin, families can stop all future monthly payments if they choose. They do that by using the unenroll feature in the Child Tax Credit Update Portal. Eligible families who make this choice will still receive the rest of their Child Tax Credit as a lump sum when they file their 2021 federal income tax return next year.

To stop all payments starting in August and the rest of 2021, they must unenroll by Aug. 2, 2021.

For more information about the unenrollment process, including a schedule of deadlines for each monthly payment, see Topic J  of the Child Tax Credit FAQs on IRS.gov.

Who should unenroll?

Instead of receiving these advance payments, some families may prefer to wait until the end of the year and receive the entire credit as a refund when they file their 2021 return. The Child Tax Credit Update Portal enables these families to quickly and easily do that.

The unenroll feature can also be helpful to any family that no longer qualifies for the Child Tax Credit or believes they will not qualify when they file their 2021 return. This could happen if, for example:

What is the Child Tax Credit Update Portal?

The Child Tax Credit Update Portal is a secure, password-protected tool, available to any eligible family with internet access and a smart phone or computer. It is designed to enable them to manage their Child Tax Credit accounts.  Right now, this includes updating their bank account information with the IRS or unenrolling from monthly payments. Soon, it will allow people to check on the status of their payments. Later this year, the tool will also enable them to make other status updates and be available in Spanish.

To access the Child Tax Credit Update Portal, a person must first verify their identity. If a person has an existing IRS username or an ID.me account with a verified identity, they can use those accounts to easily sign in. People without an existing account will be asked to verify their identity with a form of photo identification using ID.me, a trusted third party for the IRS. Identity verification is an important safeguard and will protect the user’s account from identity theft.

Anyone who lacks internet access or otherwise cannot use the online tool may unenroll by contacting the IRS at the phone number included in the outreach letter they received from the IRS.

Who is getting a monthly payment?

In general, monthly payments will go to eligible families who:

An eligible family who took any of these steps does not need to do anything else to get their payments.

Normally, the IRS will calculate the advance payment based on the 2020 income tax return. If that return is not available, either because it has not yet been filed or it has not yet been processed, the IRS is instead determining the payment using the 2019 tax return.

Eligible families will receive advance payments, either by direct deposit or check. Each payment will be up to $300 per month for each child under age 6 and up to $250 per month for each child ages 6 through 17. The IRS will issue advance Child Tax Credit payments on these dates: July 15, Aug. 13, Sept. 15, Oct. 15, Nov. 15 and Dec. 15.

Tax returns processed by June 28 will be reflected in the first batch of monthly payments scheduled for July 15.

Taxpayers will receive several letters

Taxpayers will also receive several letters related to the Child Tax Credit. In the next few weeks, letters are going to eligible families who filed either a 2019 or 2020 federal income tax return or who used the Non-Filers tool on IRS.gov to register for an Economic Impact Payment. The letters will confirm their eligibility, the amount of payments they’ll receive and that the payments begin July 15. Families who receive these letters do not need to take any further action. The personalized letters follow up on the Advance Child Tax Credit Outreach Letter, sent in early- and mid-June, to every family who appeared to qualify for the advance payments.

Child Tax Credit 2021

The IRS has created a special Advance Child Tax Credit 2021 page, designed to provide the most up-to-date information about the credit and the advance payments. It’s at IRS.gov/childtaxcredit2021.

Among other things, it provides direct links to the Child Tax Credit Update Portal, as well as two other online tools −the Non-filer Sign-up Tool and the Child Tax Credit Eligibility Assistant, a set of frequently asked questions and other useful resources.

Child Tax Credit changes

The American Rescue Plan raised the maximum Child Tax Credit in 2021 to $3,600 for children under the age of 6 and to $3,000 per child for children ages 6 through 17. Before 2021, the credit was worth up to $2,000 per eligible child.

The new maximum credit is available to taxpayers with a modified adjusted gross income (AGI) of:

For most people, modified AGI is the amount shown on Line 11 of their 2020 Form 1040 or 1040-SR. Above these income thresholds, the extra amount above the original $2,000 credit — either $1,000 or $1,600 per child — is reduced by $50 for every $1,000 in modified AGI. In addition, the credit is fully refundable for 2021. This means that eligible families can get it, even if they owe no federal income tax. Before this year, the refundable portion was limited to $1,400 per child.

For the most up-to-date information on the Child Tax Credit and advance payments, visit Advance Child Tax Credit Payments in 2021.

WASHINGTON – The Internal Revenue Service today extended the tax relief provided in Notice 2020-46 for calendar year 2021 for employers whose employees forgo sick, vacation or personal leave because of the COVID-19 pandemic.

Notice 2021-42 provides that cash payments employers make to charitable organizations that provide relief to victims of the COVID-19 pandemic in exchange for sick, vacation or personal leave which their employees forgo will not be treated as compensation. Similarly, the employees will not be treated as receiving the value of the leave as income and cannot claim a deduction for the leave that they donated to their employer.

Employers, however, may deduct these cash payments as a business expense or as a charitable contribution deduction if the employer otherwise meets the respective requirements of either section.

Notice 2020-46 and Notice 2021-42 provide further details for employers with leave-based donation programs

Additional information about tax relief for those affected by the COVID-19 pandemic can be found on IRS.gov.

Notice 2021-42 extends the federal income and employment tax treatment provided in Notice 2020-46, 2020-27 I.R.B. 7, to cash payments made to charitable organizations described in section 170(c) of the Code (section 170(c) organizations) after December 31, 2020, and before January 1, 2022, that otherwise would be described in Notice 2020-46.  Notice 2020-46 provided guidance under the Internal Revenue Code (Code) on the federal income and employment tax treatment to employers and their employees of cash payments made before January 1, 2021, for the relief of victims of the COVID-19 pandemic in the affected geographic areas under employer sponsored leave-based donation programs.  Under leave-based donation programs, employees can elect to forgo vacation, sick, or personal leave in exchange for cash payments made by their employers to section 170(c) organizations.

Notice 2021-42 will be in IRB:  2021-29, dated July 19, 2021.

Agency reminds seniors and immigrants to watch out for predators

WASHINGTON – The Internal Revenue Service today continued its “Dirty Dozen” tax scams with a warning for people to watch out for predators using tax-related schemes ranging from fake charities to scams targeting seniors and immigrants.

The IRS continues to see a group of ruses by dishonest people who trick others into doing something illegal or which ultimately causes them harm. Predators encourage otherwise honest people to do things they don’t realize are illegal or prey on their good will to take something from them.

Several schemes involve fraudsters targeting groups like seniors or immigrants, posing as fake charities impersonating IRS authorities, charging excessive fees for Offers in Compromise, conducting unemployment insurance fraud and unscrupulously preparing tax returns.

Here are five of this year’s “Dirty Dozen” scams.

Fake charities

The IRS advises taxpayers to be on the lookout for scammers who set up fake organizations to take advantage of the public’s generosity. They especially take advantage of tragedies and disasters, such as the COVID-19 pandemic.

Scams requesting donations for disaster relief efforts are especially common on the phone. Taxpayers should always check out a charity before they donate, and they should not feel pressured to give immediately.

Taxpayers who give money or goods to a charity may be able to claim a deduction on their federal tax return by reducing the amount of their taxable income. But taxpayers should remember that to receive a deduction, taxpayers must donate to a qualified charity. To check the status of a charity, use the IRS Select Check tool. (It’s also important for taxpayers to remember that they can’t deduct gifts to individuals or to political organizations and candidates.)

Here are some tips to remember about fake charity scams:

For more information about fake charities see the information on fake charity scams on the Federal Trade Commission web site.

Immigrant/senior fraud

IRS impersonators and other scammers are known to target groups with limited English proficiency as well as senior citizens. These scams are often threatening in nature.

While it has diminished some recently, the IRS impersonation scam remains a common scam. This is where a taxpayer receives a telephone call threatening jail time, deportation or revocation of a driver's license from someone claiming to be with the IRS. Taxpayers who are recent immigrants often are the most vulnerable and should ignore these threats and not engage the scammers.

The IRS reminds taxpayers that the first contact with the IRS will usually be through mail, not over the phone. Legitimate IRS employees will not threaten to revoke licenses or have a person deported. These are scare tactics.

As phone scams pose a major threat to people with limited access to information, including individuals not entirely comfortable with the English language, the IRS has added new features to help those who are more comfortable in a language other than English. The Schedule LEP allows a taxpayer to select in which language they wish to communicate. Once they complete and submit the schedule, they will receive future communications in that selected language preference.

Additionally, the IRS is providing tax information, forms and publications in many languages other than English. IRS Publication 17, Your Federal Income Tax, is now available in Spanish, Chinese (simplified and traditional), Vietnamese, Korean and Russian.

Seniors beware

Senior citizens and those who care about them need to be on alert for tax scams targeting older Americans. The IRS recognizes the pervasiveness of fraud targeting older Americans, along with the Department of Justice and FBI, the Federal Trade Commission and the Consumer Financial Protection Bureau (CFPB), among others.

In an effort to make filing taxes easier for seniors, the IRS reminds seniors born before Jan. 2, 1956 that the IRS has re-designed the Form 1040 and its instructions, and that they can use the Form 1040SR and related instructions.

The IRS reminds seniors that the best source for information about their federal taxes is IRS.gov.

Offer in Compromise ‘mills’

Offer in Compromise mills contort the IRS program into something it’s not – misleading people with no chance of meeting the requirements while charging excessive fees, often thousands of dollars.

“We’re increasingly concerned that people having trouble paying their taxes are being duped into misleading claims about settling their tax debts for ‘pennies on the dollar’,” said IRS Commissioner Chuck Rettig. “The IRS urges people to take a few minutes to review information on IRS.gov to see if they might be a good candidate for the program – and avoiding costly promoters who advertise on radio and television.”

The IRS reminds taxpayers to beware of promoters claiming their services are needed to settle with the IRS, that their tax debts can be settled for “pennies on the dollar” or that there is a limited window of time to resolve tax debts through the Offer in Compromise (OIC) program.

An “offer,” or OIC, is an agreement between a taxpayer and the IRS that resolves the taxpayer's tax debt. The IRS has the authority to settle, or "compromise," federal tax liabilities by accepting less than full payment under certain circumstances. However, some promoters are inappropriately advising indebted taxpayers to file an OIC application with the IRS, even though the promoters know the person won’t qualify. This costs honest taxpayers money and time.

Taxpayers should be especially wary of promoters who claim they can obtain larger offer settlements than others or who make misleading promises that the IRS will accept an offer for a small percentage. Companies advertising on TV or radio frequently can’t do anything for taxpayers that they can’t do for themselves by contacting the IRS directly.

Taxpayers can go to IRS.gov and review the Offer in Compromise Pre-Qualifier Tool to see if they qualify for an OIC. The IRS reminds taxpayers that under the First Time Penalty Abatement policy, taxpayers can go directly to the IRS for administrative relief from a penalty that would otherwise be added to their tax debt.

Unscrupulous tax return preparers

Although most tax preparers are ethical and trustworthy, taxpayers should be wary of preparers who won’t sign the tax returns they prepare, often referred to as ghost preparers. For e-filed returns, the “ghost” will prepare the return, but refuse to digitally sign as the paid preparer.

By law, anyone who is paid to prepare, or assists in preparing federal tax returns, must have a valid Preparer Tax Identification Number (PTIN). Paid preparers must sign and include their PTIN on the return. Not signing a return is a red flag that the paid preparer may be looking to make a quick profit by promising a big refund or charging fees based on the size of the refund.

Unscrupulous tax return preparers may also:

It's important for taxpayers to choose their tax return preparer wisely. The Choosing a Tax Professional page on IRS.gov has information about tax preparer credentials and qualifications. The IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications can help identify many preparers by type of credential or qualification.

Taxpayers should also remember that they are legally responsible for what is on their tax return even if it is prepared by someone else. Consumers can help protect themselves by choosing a reputable tax preparer.

Unemployment insurance fraud

Unemployment fraud often involves individuals acting in coordination with or against employers and financial institutions to get state and local assistance to which they are not entitled. These scams can pose problems that can adversely affect taxpayers in the long run.

States, employers and financial institutions need to be aware of the following scams related to unemployment insurance:

Below is a short list of financial red flag indicators of unemployment fraud:

WASHINGTON — The Treasury and the IRS released today early draft instructions for the Schedules K-2 and K-3 for Forms 1065, 1120-S, and 8865 for tax year 2021 (filing season 2022).  The early release drafts of the instructions provide a preview of the instructions before final versions are released.  The new Schedules K-2 and K-3 were released on June 3 and 4, 2021.

The redesigned forms and instructions give useful guidance to partnerships, S corporations and U.S persons who are required to file Form 8865 with respect to controlled foreign partnerships on how to provide international tax information. The updated forms apply to any persons required to file Form 1065, 1120-S or 8865, but only if the entity for which the form is being filed has items of international tax relevance (generally foreign activities or foreign partners).

The changes do not affect partnerships and S corporations with no items of international tax relevance.

The Treasury Department and the IRS released prior drafts and instructions of Schedules K-2 and K-3 for the Form 1065 in July 2020 and engaged with stakeholders to solicit input on the changes. The final instructions respond to comments received with respect to the draft July 2020 instructions.  For example, the final instructions:

Recognizing the transitional challenges with the adoption of Schedules K-2 and K-3 by affected pass-through entities and their partners and shareholders, the Treasury Department and the IRS issued Notice 2021-39 on June 30, 2021. The Notice provides certain penalty relief for the 2021 tax year.

Notice 21-39 provides transition penalty relief for taxable years that begin in 2021 with respect to new Schedules K-2 and K-3 required for Forms 1065, U.S. Return of Partnership Income, 1120-S, U.S. Income Tax Return for an S Corporation, and 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships.

Notice 21-39 will appear in IRB 2021-27, dated July 6, 2021.

WASHINGTON — National Taxpayer Advocate Erin M. Collins today released her statutorily mandated mid-year report to Congress. The report presents an assessment of the 2021 filing season, identifies key objectives the Taxpayer Advocate Service (TAS) will pursue during the upcoming fiscal year, and contains the IRS’s responses to each of the 73 administrative recommendations the Advocate made in her 2020 Annual Report to Congress.

The Advocate’s report emphasizes that the difficulties the IRS faced in performing its traditional work due to the COVID-19 pandemic and the added responsibilities it was assigned to make three rounds of stimulus payments combined to create significant challenges for taxpayers.

“This past year and the 2021 filing season conjure up every possible cliché for taxpayers, tax professionals, the IRS, and its employees,” Collins wrote. “It was a perfect storm; it was the best of times and the worst of times; patience is a virtue; with experience comes wisdom and with wisdom comes experience; out of the ashes we rise; and we experienced historical highs and lows.”

The IRS Timely Processed Most Tax Returns and Timely Issued Most Stimulus Payments

During the 2021 tax filing season, the IRS processed 136 million individual income tax returns and issued 96 million refunds totaling about $270 billion. That matches up closely to the results of the last typical filing season in 2019. In addition to its traditional work, the IRS was directed by Congress to issue three rounds of stimulus payments over the past 15 months and has made about 475 million payments worth $807 billion to mitigate the impact of the pandemic on U.S. families and businesses. 

“The IRS and its employees deserve tremendous credit for what they have accomplished under very difficult circumstances,” Collins wrote, “but there is always room for improvement.”

The IRS Finished the Filing Season with Over 35 Million Tax Returns Awaiting Manual Reviews

Although most taxpayers successfully filed their returns and received their refunds, a historically high number did not. At the conclusion of the filing season, the IRS faced a backlog of over 35 million individual and business income tax returns that require manual processing – meaning that employee involvement is generally needed before a return can advance to the next stage in the processing pipeline.  The backlog includes about 16.8 million paper tax returns waiting to be processed; about 15.8 million returns suspended during processing that require further review; and about 2.7 million amended returns awaiting processing. The backlog resulted largely from the pandemic-related evacuation order that restricted employee access to IRS facilities.

Processing backlogs matter greatly, the report says, because most taxpayers overpay their tax through wage withholding or estimated tax payments and are entitled to receive refunds when they file their returns. The government also uses the tax system to distribute financial benefits. So far for tax year 2020, in addition to refunding overpayments of tax, the IRS has issued about 20 million refunds that include Earned Income Tax Credits worth up to $6,660 and about 15 million refunds that include Additional Child Tax Credits worth up to $1,400 per qualifying child. This year, over eight million taxpayers also may be eligible to receive Recovery Rebate Credits.

“For taxpayers who can afford to wait, the best advice is to be patient and give the IRS time to work through its processing backlog,” Collins wrote. “But particularly for low-income taxpayers and small businesses operating on the margin, refund delays can impose significant financial hardships.”

The IRS Received a Record Volume of Telephone Calls, and Only 7 Percent of Callers Reached a Telephone Assistor on the Accounts Management Lines

When a taxpayer needs general information or is responding to an audit or collection notice, the IRS’s toll-free lines are often the taxpayer’s first or second option.  During the 2021 filing season, the IRS received 167 million telephone calls – over four times as many calls as during the 2019 filing season. IRS employees could not keep pace with this massive volume of calls, resulting in the poorest service ever. 

The IRS reported a “Level of Service” on its Accounts Management telephone lines of 15 percent, with only seven percent of taxpayer calls reaching a telephone assistor. On the “1040” line, the most frequently called IRS toll-free number, taxpayers placed about 85 million calls, and only three percent (i.e., three out of 100) reached a telephone assistor.

“When so few callers can get through to a telephone assistor, problems remain unsolved and taxpayer frustration mounts,” Collins wrote.

The IRS Can Apply Lessons Learned from the Past Year to Improve Its Operations in the Future

Over the long run, the report says the lessons learned from the pandemic can be useful in helping to identify or reprioritize needs for improved tax administration and taxpayer service. 

Collins wrote: “The pandemic exposed weaknesses and vulnerabilities that must be strengthened; it forced the IRS to experiment with new approaches to old problems; it led to a renewed awareness of the impact of cuts to the IRS’s budget over the past decade and the IRS’s need for additional funding; and it is causing the IRS and congressional overseers to collaborate on steps to improve the IRS’s performance going forward to provide taxpayers with the service they deserve.”

The report recommends the IRS take these proactive steps to improve service and communication with taxpayers:

TAS has recommended the IRS evaluate the feasibility of expanding the use of these technologies to as many taxpayer-facing functions as possible without removing the in-person options for taxpayers. Videoconferencing should continue to be expanded and offered as an option to taxpayers because it can help fill current or future voids in face-to-face service at Taxpayer Assistance Centers (TACs) and in working with revenue agents or revenue officers. It can also be a useful tool to supplement correspondence audits, where conversing face-to-face may facilitate a better understanding of the taxpayer’s return. In addition, taxpayers who are geographically remote from a TAC and taxpayers with mobility or transportation challenges find videoconferencing technology more helpful and economical than traveling for an in-person conference. 

IRS Responses to National Taxpayer Advocate Administrative Recommendations

The National Taxpayer Advocate is required by statute to submit a year-end report to Congress that, among other things, makes administrative recommendations to resolve taxpayer problems.  Section 7803(c)(3) of the Internal Revenue Code authorizes the National Taxpayer Advocate to submit administrative recommendations to the Commissioner and requires the IRS to respond within three months. Under this authority, the National Taxpayer Advocate annually transmits to the Commissioner all administrative recommendations proposed in her year-end report for response.

The National Taxpayer Advocate made 73 administrative recommendations in her 2020 year-end report and then submitted them to the Commissioner for response. The IRS has agreed to implement 48 (or 66 percent) of the recommendations in full or in part.

The IRS’s responses are published in an appendix to the report.

* * * * * * *

The National Taxpayer Advocate is required by statute to submit two annual reports to the House Committee on Ways and Means and the Senate Committee on Finance. The statute requires these reports to be submitted directly to the Committees without any prior review or comment from the Commissioner of Internal Revenue, the Secretary of the Treasury, the IRS Oversight Board, any other officer or employee of the Department of the Treasury, or the Office of Management and Budget. The first report must identify the objectives of the Office of the Taxpayer Advocate for the fiscal year beginning in that calendar year. The second report must include a discussion of the ten most serious problems encountered by taxpayers, identify the ten tax issues most frequently litigated in the courts, and make administrative and legislative recommendations to resolve taxpayer problems.

The National Taxpayer Advocate blogs about key issues in tax administration. Click here to subscribe.  Past blogs from the National Taxpayer Advocate can be found here.

About the Taxpayer Advocate Service

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that helps taxpayers and protects taxpayer rights. Your local taxpayer advocate’s number is in your local directory and at https://www.taxpayeradvocate.irs.gov/contact-us. You can also call TAS toll-free at 877-777-4778.  TAS can help if you need assistance in resolving an IRS problem, if your problem is causing financial difficulty, or if you believe an IRS system or procedure isn’t working as it should. Our service is free. For more information about TAS and your rights under the Taxpayer Bill of Rights, go to https://www.taxpayeradvocate.irs.gov/. You can get updates on tax topics at facebook.com/YourVoiceAtIRS, Twitter.com/YourVoiceatIRS, and YouTube.com/TASNTA.

WASHINGTON — The Department of the Treasury and the Internal Revenue Service today issued guidance for taxpayers developing renewable energy projects to address delays related to the COVID-19 pandemic. 

In prior IRS notices, the Treasury Department and the IRS established the Continuity Safe Harbor that allows an eligible renewable energy project to be deemed to satisfy the continuity requirement for taking the production tax credit and the investment tax credit (Continuity Safe Harbor) if the taxpayer places the project in service within a certain period that starts in the taxable year in which construction of the project began. 

The Treasury Department and the IRS recognize that the COVID-19 pandemic continues to cause delays in the development of certain projects eligible for the production tax credit and the investment tax credit. As a result, many taxpayers may not place projects in service in time to meet the Continuity Safe Harbor, which may significantly impact project financing and development. Today’s guidance provides relief to taxpayers impacted by project delays related to the pandemic by allowing additional time to satisfy the Continuity Safe Harbor. It also adds flexibility for taxpayers to satisfy the continuity requirement outside of the safe harbor.

As provided in IRS guidance, a taxpayer has two methods to demonstrate the taxpayer has begun construction of a project, the Physical Work Test and the Five Percent Safe Harbor. After a taxpayer begins construction of a project, the taxpayer must also make continuous progress toward completion to satisfy beginning of construction requirements. Under the Physical Work Test, a taxpayer uses the Continuous Construction Test to demonstrate continuous progress whereas under the Five Percent Safe Harbor, a taxpayer uses the Continuous Efforts Test.

The guidance issued today in Notice 2021-41 provides that the period of the Continuity Safe Harbor provided and extended by prior IRS notices is further extended for projects for which construction began in 2016 through 2020:

Notice 2021-41 also clarifies that if the Continuity Safe Harbor does not apply, the continuity requirement is satisfied if the taxpayer demonstrates satisfaction of either the Continuous Construction or the Continuous Efforts Tests, regardless of the method that the taxpayer used to begin construction.

Additional information about tax relief for businesses affected by the COVID-19 pandemic can be found on IRS.gov.

Notice 2021-41 clarifies and modifies the prior Internal Revenue Service notices addressing the beginning of construction requirement for both the production tax credit for qualified facilities under § 45 and the investment tax credit for energy property under § 48. In response to the Coronavirus Disease 2019 (COVID-19) pandemic, this notice provides that the safe harbor originally provided in section 3.02 of Notice 2013-60 and in section 6.05 of Notice 2018-59 and extended in prior IRS notices (Continuity Safe Harbor) is further extended for property the construction of which began in 2016 through 2020. This notice also provides a clarification of the methods that taxpayers may use to satisfy the Continuity Requirement (as provided in prior IRS notices and defined in section 2 of this notice) to satisfy the beginning of construction requirements under §§ 45 and 48.

Notice 2021-41 will be in IRB:  2021-29, dated 7/19/2021.