The PWA requirements are crucial for taxpayers and developers planning to claim clean energy credits under the IRA. Under the nine tax credits, some have only prevailing wage requirements, some have both prevailing wage and apprenticeship requirements, and some have none. For those required to meet the PWA requirements, certain documentation is important.
Let’s explore all the essential documentation taxpayers must have to effectively meet PWA requirements.
Documents for Wage Determination
To ensure compliance with wage standards, taxpayers are required to keep detailed and traceable records for all laborers and mechanics working on the job. These records form the basis for the determination of wage classifications, fringe benefits, and any adjustments or penalty payments.
- Identifying information for each laborer or mechanic.
- Project location and the specific type of construction performed.
- Labor classification for each laborer/mechanic according to wage determinations.
- Hourly wage rates paid, including all fringe benefits.
- Details of contributions to approved fringe benefit programs.
- Total number of hours worked per pay period for each individual.
- Total wages paid to each laborer or mechanic per pay period.
- Records supporting payment of apprentice wages at rates below the prevailing wage, where applicable.
- Documentation of any corrections, including the amount, timing, and calculation of correction or penalty payments.
- Evidence of any failures to meet prevailing wage obligations and measures taken to prevent, mitigate, and remedy these failures.
- Records related to complaints alleging non-compliance with prevailing wage requirements.
Documents for Apprenticeship Determination
Given the complex nature of tracking apprentice hours, advance coordination among taxpayers, contractors, subcontractors, and consultants is essential. Establishing an open system for reporting and monitoring apprentice participation can promote greater compliance and reduce the chances of penalty.
Essential apprenticeship documentation includes:
- Written requests for the employment of apprentices.
- Copies of agreements with registered apprenticeship programs relevant to the facility.
- Documentation of the applicable apprentice-to-journeyworker ratio prescribed by all participating apprenticeship programs.
- Total labor hours worked by each qualified apprentice.
- Daily records confirming compliance with the apprentice-to-journeyworker ratio.
- Good-faith effort exception documentation, including any denials or communications.
- Records detailing the amount, timing, and calculation of penalty payments for noncompliance.
- Evidence of any failures to meet apprenticeship requirements and corresponding corrective actions.
- Records related to complaints received regarding unmet apprenticeship obligations.
Recent Changes to Recordkeeping Rules
On June 18, 2024, the IRS published its Final Regulations governing the Inflation Reduction Act’s prevailing wage and apprenticeship framework. These updates are consistent with previous guidance. However, they introduced several notable clarifications that directly affect recordkeeping expectations under PWA requirements.
Additional Required Records
Under Section 45(b)(7) and §1.45-7, the Final Regulations now require the following additional documents:
- Form WH-347 (the standard U.S. Department of Labor payroll form).
- Records documenting any failures to pay prevailing wages and actions taken to prevent, mitigate, or correct such failures.
- Records of complaints received by taxpayers, contractors, or subcontractors regarding underpayment of wages to laborers and mechanics.
Similarly, under Section 45(b)(8) and §1.45-8, the Final Regulations specify additional documentation for apprenticeship compliance:
- Records demonstrating adherence to the Good Faith Exception in §1.45-8(f)(1).
- Documentation of penalty payment amounts, timing, and calculation.
- Records showing failures to satisfy apprenticeship requirements and subsequent corrective measures.
- Documentation of complaints related to noncompliance with apprenticeship standards.
Acceptable Record Retention Methods
The updated rules in §1.45-12(e)(1) outline three valid approaches for retaining required documentation:
- Direct Retention: Taxpayers may collect and physically retain relevant records from every contractor and subcontractor.
- Third-party Retention: Taxpayers may authorize a third-party vendor to maintain physical custody of records on their behalf.
- Individual Retention: Taxpayers, contractors, and subcontractors may each retain unredacted records for their own employees.
Best Practices for Documentation Management
Proper management of documentation reduces the risk of non-compliance and speeds up the verification process for claiming or defending IRA tax credits. Keep the following practices in mind for documentation management.
- Create a centralized record plan in the beginning, including wage and apprenticeship records.
- Install secure electronic storage with access controls and sound backups to safeguard against loss.
- Schedule regular internal audits to check accuracy among all project parties.
- Keep records longer than the recapture period, as IRS audits can occur years later when credit claims have been filed.
Conclusion
A well-planned and structured documentation system plays a more significant role than it might seem in ensuring compliance with PWA requirements. It is best to create a documentation framework as early as possible. Maintaining transparency across contractors and subcontractors and following best practices for record retention are also a must.
