Treasury Issues Proposed Regulations for IRA Labor Requirements

As background, the IRA created a revised credit structure for many of the aforementioned clean energy tax credits whereby taxpayers would generally only be eligible for the “increased” credit amount with respect to a project or facility (generally equal to five times the otherwise available credit) if (i) the Labor Requirements were satisfied, (ii) the project or facility has a maximum net output of less than one MW (ac), or (iii) construction of the project or facility began prior to January 29, 2023 (the “BOC Exception”).² The Proposed Regulations (REG-100908-23) generally follow and expand on guidance previously issued under Notice 2022-61 (the “Notice”). Our prior coverage of the Notice can be found [here] and our prior coverage of the IRA can be found [here] and [here] and further coverage and details can be found [here].

The Proposed Regulations only apply to facilities, property, projects, or equipment (collectively referred to hereafter as “facilities”) that begin construction after the date the Proposed Regulations are published as final regulations in the Federal Register (the “Effective Date”) and Sections 3 and 4 of the Notice would be obsoleted for these facilities. However, taxpayers may rely on the Proposed Regulations for projects beginning construction on or after January 29, 2023 through the Effective Date, provided that, beginning on October 29, 2023, they apply them in their entirety and in a consistent manner.

The Proposed Regulations attempt to balance the IRA labor policy objectives — namely, payment of good, living wages and training a domestic workforce — with the primary goal of moving to a cleaner energy landscape by providing taxpayers with (i) more specific guidance than was included in the Notice and (ii) certain relief mechanisms for foot faults. While there are areas where additional clarity is needed and rules that will undoubtedly create taxpayer challenges, the Proposed Regulations generally seem to be a step in the right direction as taxpayers, contractors, and subcontractors work to adapt to the new credit structure. Of course, as with other IRA guidance, the workability of these rules will be tested in the coming weeks and months.

Although we have provided a fairly fulsome summary of the Proposed Regulations below, certain highlights of the Proposed Regulations include:

• Confirming that taxpayers claiming increased credit rate by satisfying the Labor Requirements are solely responsible for satisfaction of such requirements (including by maintaining sufficient records) and are responsible for any correction or penalty payments for any failures to satisfy the Labor Requirements;
• Relying heavily on the Davis-Bacon Act (“DBA”)³ for certain definitions and requirements relating to the prevailing wage requirements but diverting from it when the DBA would not “advance sound tax administration”;
• Although contrary to the language of Section 45(b)(8), imposing the obligation to satisfy the apprenticeship requirements for “alteration” and “repair” after a facility is placed in service;
• Providing additional clarity on when the “Good Faith Effort Exception” to the apprenticeship requirements will be available;
• Establishing relief mechanisms from the obligation to make penalty payments in certain scenarios, including when timely correction payments are made to laborers and mechanics and when a project is covered by a project labor agreement (“PLA”) that meets specific standards;

• Providing additional clarity on the records taxpayers are required to maintain and preserve to demonstrate satisfaction of the Labor Requirements, regardless of whether the laborers and mechanics are employed by the taxpayer, contractor, or subcontractor and regardless of whether the credit is transferred; and

• Providing certain credit-specific rules with respect to Sections 45Q, 45V, 45Z, 45U, and 45L (including clarifying that the apprenticeship requirements do not apply to construction of a 45Z facility which is placed in service before January 1, 2025) and other notable provisions summarized at the end of this alert.

Prevailing Wage Requirements

• Application. The prevailing wage requirements apply to laborers and mechanics “employed” by the taxpayer, any contractor, or any subcontractor. The Proposed Regulations take a broad view of this term and provide that “employed” means performing the duties of a laborer or mechanic for the applicable person, regardless of whether the laborer or mechanic would be considered an employee or independent contractor of such person for other U.S. federal income tax purposes.
  • Laborers and mechanics are those individuals whose duties are manual or physical in nature, and the terms explicitly include apprentices and helpers.
  • Laborers and mechanics must be paid at the time and in the manner consistent with regular payroll practices of the taxpayer, contractor, or subcontractor, as applicable.⁴

• General Wage Determinations. The Proposed Regulations confirm that taxpayers may rely on the general wage determinations published on sam.gov, which provides the minimum hourly wage rates (both the basic hourly rate and fringe benefit rate) for laborers and mechanics in specified types of work in a given geographic area. The preamble states that taxpayers, contractors, and subcontractors should use the “general” category of construction as established by the DOL and contemplates that construction, alteration, or repair of most facilities will likely fit within the building or heavy construction categories.⁵
  • Geographic Area. The “geographic area” is the county, independent city, or other civil subdivision of the state in which the facility is located.
    • The locality of the facility also includes (i) any secondary construction site(s), where a significant portion of the facility is constructed, altered, or repaired if such site is either established specifically for, or is dedicated exclusively for a specific period of time (at least a period of weeks) to the construction, alteration, or repair of the facility and (ii) any nearby support sites that are established specifically for, or dedicated exclusively to, the construction, alteration, or repair of the facility (either at a primary or secondary construction site).⁶
      • When the construction, alteration, or repair of a facility occurs in more than one geographic area, the taxpayer, contractor, or subcontractor must pay the applicable wage determination for the work performed in each geographic area.
    • If a facility spans two or more adjacent geographic areas, a taxpayer may satisfy the prevailing wage requirements by paying the highest rate or by requesting a supplemental wage determination specific to such area (discussed below).
    • For offshore facilities, in lieu of requesting a supplemental wage determination, the closest “geographic area” may be used to determine the general wage determination.
  • Timing of Wage Determinations. The IRA provides that applicable prevailing wage rates are those in effect at the time the applicable work on the facility begins, and generally remains valid for the duration of the work performed by the taxpayer, contractor, or subcontractor. Notably, this requirement differs from the guidance previously issued by the Department of Labor that would have allowed taxpayers to rely on the wage determination applicable at the time of execution of the relevant contract.
    • The Proposed Regulations also require new wage determinations when a contract is changed for an additional scope of work, or upon an extension of time (including by exercise of an existing option to extend the term of contract).

• Supplemental Wage Determinations. The process of requesting a supplemental wage determination or a prevailing wage rate for an additional classification is generally consistent with the process described in the Notice.
  • The preamble to the Proposed Regulations notes that (1) a request for a prevailing wage rate for an additional classification would only be appropriate when the work to be performed by the classification is not performed by a classification in the applicable general wage determination and the classification is used in the area by the construction industry and (2) a request for a prevailing wage rate for additional classification will not be permitted to split, subdivide, or otherwise avoid application of classifications already listed in a general wage determination.
  • Requests for a wage determination should be requested no more than 90 days prior to the beginning of the construction, alteration, or repair of the facility and must include specific information, including: a description of the type of work; the geographic area of the facility; the start date for the applicable work; the labor classification(s) needed for performance of the work for which wage rates are not available; pertinent wage payment information available with respect to the classifications; and any other information the DOL should consider. A taxpayer may seek reconsideration and review of a general wage determination.
  • Taxpayers will not fail to satisfy the prevailing wage requirements for laborers or mechanics who are paid wages below the prevailing wage rate while the taxpayer is awaiting a timely submitted supplemental wage determination so long as a correction payment is made within 30 days of the determination.
• Payment of Apprentices. Apprentices who are participating in a registered apprenticeship program may, if certain conditions are met, be paid wages that are less than the prevailing wage rate but may not be paid less than the rate specified by the registered apprenticeship program.
  • However, prevailing wage rates must be paid to apprentices (i) working in a classification that is not in an occupation that is part of the registered apprenticeship program, (ii) not in a registered apprenticeship program, or (iii) employed in excess of applicable ratios permitted by the registered apprenticeship program.
• Construction, Alteration, or Repair. The prevailing wage requirements apply to “construction, alteration or repair” at the location of the facility and includes (i) the constructing, altering, remodeling, installing of items fabricated offsite, and (ii) onsite painting and decorating, and manufacturing or furnishing of materials, articles, and supplies or equipment.
  • Construction, alteration, or repair does not include maintenance.
    • “Maintenance” is work that is ordinary and regular in nature and designed to maintain and preserve existing functionalities of a facility after it is placed in service — including inspections of the facility, cleaning and janitorial work, replacing materials with limited lifespans (e.g., filters and light bulbs), and calibration of equipment.
    • Maintenance does not include work that improves a facility, adapts it for a different use, or restores functionality as a result of inoperability.
  • Under these definitions, certain warranty work and work performed under operations and maintenance contracts may be swept into the prevailing wage requirements because this work could go beyond mere preservation or “restore functionality as a result of inoperability.” As a result, taxpayers should consider the application of the Labor Requirements when negotiating warranties and their operations and maintenance contracts.
• Prevailing Wage Cure Provisions. If a laborer or mechanic is paid wages at a rate below the required prevailing wage rate, the taxpayer may cure such deficiency if it makes a correction payment to the laborer or mechanic and pays a penalty to Treasury.
  • Cure and Penalty Payments. The amount of the correction payment is the difference between the amount actually paid to the laborer or mechanic and the amount of wages required to have been paid in order to meet the prevailing wage requirements, with interest. In addition, the amount of the penalty is $5,000 for each laborer and mechanic who was not paid prevailing wages.
  • Timing of Application. The Proposed Regulations provide the taxpayer the ability to fix errors prior to its tax return being filed. However, correction payments to laborers and mechanics must include interest accruing from the underpayment date (i.e., the date when the regular payment of prevailing wages were not paid).
    • Once the IRS has made a determination of failure to satisfy the prevailing wage requirements, correction and penalty payments must be made within 180 days.
    • Deficiency procedures do not apply with respect to the assessment or collection of the penalty.
  • Intentional Disregard. If it is determined that prevailing wages were not paid as a result of “intentional disregard,” the correction payment, as discussed above, is multiplied by three, and the penalty increases to $10,000 per laborer or mechanic. The Proposed Regulations provide that “intentional disregard” includes a knowing or willful failure, which is based on the facts and circumstances.⁷
    • To encourage taxpayers to take corrective actions when failures are discovered, there is a rebuttable presumption against a finding of intentional disregard if a taxpayer makes the correction and penalty payments before receiving a notice of a tax return examination.
    • A taxpayer’s documentation needs to establish any failure and document actions taken to prevent, mitigate, and remedy the failure to avoid a finding of intentional disregard.
  • General Waiver of Penalty. To incentivize prompt self-correction of any failure to pay prevailing wage rates, the penalty payment otherwise due will be waived if (i) the taxpayer makes the required correction payment by the earlier of (a) 30 days after the taxpayer became aware of the error or (b) the date on which the tax return claiming the increased credit is filed, and (ii) either (a) the laborer or mechanic is paid below the prevailing wage rate for not more than 10% of all pay periods during the calendar year (or part thereof) during which the laborer or mechanic worked on the construction, alteration or repair or (b) the difference between the amount the laborer or mechanic was paid and the amount required to be paid for the calendar year is not greater than 2.5%, and (iii) the taxpayer’s documentation establishes when the failure occurred and includes proof of the corrected payment.
  • PLA Penalty Wavier. The Proposed Regulations also provide that the penalty payment would not apply with respect to a laborer or mechanic employed under a “qualifying PLA” and provided that any correction payment (including interest) is paid on or before the date a tax return is filed claiming an increased credit amount.
    • Under the Proposed Regulations, a “qualifying PLA” must meet the following requirements: (i) bind all contractors and subcontractors on the construction project through the inclusion of appropriate specifications in all relevant solicitation provisions and contract documents; (ii) contain guarantees against strikes, lockouts, and similar job disruptions; (iii) set forth effective, prompt, and mutually binding procedures for resolving labor disputes arising during the term of the PLA; (iv) contain provisions to pay prevailing wages; (v) contain provisions for referring and using qualified apprentices consistent with the apprenticeship requirements under the IRA; and (vi) be a collective bargaining agreement with one or more labor organizations of which building and construction employees are members.
  • Inability to Locate Laborer or Mechanic. Taxpayers are required to make a correction payment even if the laborer or mechanic cannot be located. Taxpayers must follow the state-specific rules regarding locating laborers or mechanics, information reporting obligations to relevant agencies, and remitting unclaimed wage amounts to the state as unclaimed property after the applicable holding period.
• Recordkeeping for the Prevailing Wage Requirements.
  • Payroll Reporting. The Proposed Regulations did not adopt the substance of the Copeland Act⁸ (which would have required the reporting of payroll records to the IRS on a weekly basis in advance of claiming the increased credit) because the requirement to pay prevailing wages is binding only when the tax return claiming the increased credit is filed.
  • Documentation to Maintain for Prevailing Wage Requirements. The Proposed Regulations require that certain documentation should be maintained including: location and type of qualified facility; applicable wage determinations for the type of construction and location of the facility; wages paid (including correction payments) and hours worked for each of the laborer or mechanic classifications engaged in the construction, alteration or repair of the facility; the number of workers who received correction payments; the wages paid and hours worked by qualified apprentices for each of the laborer or mechanic classifications engaged in the construction, alteration or repair of the facility by any laborer or mechanic employed by the taxpayer or any contractor or subcontractor; and the total credit claimed.

Apprenticeship Requirements

• Qualified Apprenticeship Programs. The Proposed Regulations confirm that a registered apprenticeship program is a program that has been registered, by either the DOL’s Office of Apprenticeship or a recognized “State Apprenticeship agency,” as meeting basic standards and requirements of the DOL for approval of such program.
  • Pre-apprenticeship programs do not qualify as registered apprenticeship programs and any hours worked by individuals as part of a pre-apprenticeship program would not count towards the labor hour requirement, and thus, such individuals would be required to be paid prevailing wages for any work.
• Scope of Apprenticeship Requirements. The Proposed Regulations identify three separate apprenticeship requirements that must be met: (1) the labor hours requirement; (2) the ratio requirement; and (3) the participation requirement.
  • Labor Hours Requirement. The labor hours requirement specifies that the “applicable percentage” of total labor hours of the construction, alteration, or repair work on any qualified facility must be performed by apprentices. The applicable percentage is 12.5% for facilities that begin construction after January 29, 2023 and before January 1, 2024. Thereafter, the applicable percentage is 15%.
  • Ratio Requirement. Under the ratio requirement, the ratio of apprentices to journeyworkers on the job site in any occupation and its corresponding classification on any day must conform to the applicable apprentice-to-journeyworker ratio of the registered apprenticeship program. If the ratio requirement is not satisfied, the labor hours performed by any qualified apprentice in excess of the ratio may not be counted for purposes of the labor hours requirement, and as a result, such excess apprentices will be required to be paid prevailing wages for any work.⁹
  • Participation Requirement. The participation requirement provides that each taxpayer, contractor, or subcontractor who employs four or more individuals to perform work with respect to the facility must employ one or more qualified apprentices to perform such work. The participation requirement is not a daily requirement.¹⁰
• Good Faith Effort Exception. A taxpayer is deemed to have satisfied the apprenticeship requirements if it meets the good faith effort exception.
  • Request for Apprentices. To satisfy the good faith effort exception, the taxpayer, contractor or subcontractor, as applicable, must submit a written request to at least one registered apprenticeship program that (i) has a geographic area of operation that includes the location of the facility (or to a program that can reasonably be expected to provide apprentices to the location of the facility), (ii) trains apprentices in the occupation(s) needed for such work, and (iii) has a business practice of entering into agreements with employers for the placement of apprentices in the occupation for which they are training. The request for an apprentice must be made by the employing entity, i.e., the project developer or tax equity investor cannot make the request on behalf of the contractor or subcontractor.
    • Note that it is not clear how these request requirements can be satisfied if there is not a program within the relevant geographic area (or that could be reasonably expected to provide apprentices to the location).¹¹
  • Content of Request. The apprentice request must include: (i) the proposed dates of employment; (ii) the occupation of apprentices needed; (iii) the location of the work; (iv) the number of apprentices needed; (v) the expected number of labor hours to be performed by the apprentices; and (vi) the name and contact information of the taxpayer, contractor, or subcontractor requesting employment of apprentices.
    • The request must also state that it is being made with an intent to employ apprentices in the occupation for which they are being trained and in accordance with the requirements and standards of the registered apprenticeship program.
  • Denial of Request or Failure to Respond. If an apprentice request is made in accordance with the requirements and it is denied or not responded to, the taxpayer will be deemed to have exercised a Good Faith Effort for a period of 120 days from the date of the request. As a result, if a request is fully or partially denied or not responded to, a new request must be made every 120 days. The Proposed Regulations provide numerous examples that depict these rules.
    • A denial of a request does not result in satisfaction of the Good Faith Effort Exception if the denial is due to (i) a refusal by the taxpayer, contractor, or subcontractor to comply with the established standards and requirements of the apprenticeship program; (ii) a request directed to a registered apprenticeship program outside the geographic area of the qualified facility and the registered apprenticeship program could not be reasonably expected to provide apprentices to the location of the facility; or (iii) the registered apprenticeship program does not actually train apprentices in the occupation(s) needed.
    • If the registered apprenticeship program fails to respond within five business days after the date on which the request was received, such request is deemed to be denied. However, an acknowledgement (whether in writing or otherwise) confirming receipt of the request is considered a sufficient response and will not result in the request being considered denied. The Proposed Regulations do not provide a time period in which an apprenticeship program must indicate if it can provide the requested apprentices following such acknowledgment of receipt.
  • Potential Expansion of Exception. The Treasury Department has specifically requested comments on (i) whether and how the good faith effort exception might take into account a situation where a taxpayer contacts the DOL’s Office of Apprenticeship or the appropriate state apprenticeship agency regarding their apprenticeship request, in addition to contacting a specific registered apprenticeship program or programs; and (ii) the role of collective bargaining agreements, PLAs, and other agreements to satisfy the request for apprentices under the Good Faith Effort Exception.
• Apprenticeship Cure Provisions. A taxpayer may be deemed to have satisfied the apprenticeship requirements if it pays the IRS a penalty equal to $50 multiplied by the total labor hours for which the apprenticeship requirements are not satisfied.
  • Timing of Application. The Proposed Regulations provide that, although the apprenticeship requirements apply from the beginning of construction, the penalty payments are not binding until the tax return is filed claiming the increased credit amount. As a result, a taxpayer has some ability to fix errors prior to the tax return being filed.
    • Unlike the penalty payment provisions with respect to the prevailing wage requirements, the Proposed Regulations do not include a requirement that once the IRS has made a determination of failure to satisfy the apprenticeship requirements, penalty payments must be made within 180 days, but deficiency procedures do apply with respect to the assessment or collection of the penalty.
  • Intentional Disregard. If it is determined that the apprenticeship requirements were not satisfied as a result of “intentional disregard,” the penalty increases to $500 per labor hour. The Proposed Regulations provide that “intentional disregard” includes a knowing or willful failure and is based on the facts and circumstances.¹²
    • Similar to the prevailing wage requirements, to encourage taxpayers to take corrective actions when failures are discovered, there is a rebuttable presumption against a finding of intentional disregard if a taxpayer makes the penalty payments before receiving a notice of an examination with respect to the tax return in which the taxpayer claimed the increased credit.
  • PLA Penalty Wavier. The Proposed Regulations also provide that the penalty payment does not apply with respect to work on a facility performed pursuant to a “qualifying project labor agreement” (applying the same definition as discussed above in the prevailing wage requirements).
• Recordkeeping for the Apprenticeship Requirements.
  • Documentation to Maintain for Apprenticeship Requirements. The Proposed Regulations provide that certain documentation should be maintained by taxpayers to support their satisfaction of the apprenticeship requirements, including the following information for each facility: (i) any written requests for the employment of apprentices from registered apprenticeship programs, including any contacts with the DOL’s Office of Apprenticeship or a state apprenticeship agency regarding requests for apprentices from registered apprenticeship programs; (ii) any agreements entered into with registered apprenticeship programs with respect to the applicable work on the facility; (iii) documents reflecting the standards and requirements of any registered apprenticeship program (including the applicable ratio requirement prescribed by each registered apprenticeship program) from which the apprentice is employed; (iv) the total number of labor hours worked by the apprentice; and (v) records reflecting the daily ratio of apprentices to journeyworkers.

Credit Specifics

While much of the Proposed Regulations apply the Labor Requirements equally to all relevant credit sections, there are certain specific provisions and nuances. While we have not summarized each specific requirement, notable credit-specific provisions are described below.

• Carbon Oxide Sequestration Credit (Section 45Q)
  • Application of BOC Exception. The Proposed Regulations clarify that the BOC Exception always applies to the qualified facility and the carbon capture equipment separately for purposes of the application of the Labor Requirements:
    • If both the qualified facility and carbon capture equipment begin construction prior to January 29, 2023, then both the qualified facility and carbon capture equipment meet the BOC Exception.
    • If the qualified facility begins construction prior to January 29, 2023, and carbon capture equipment begins construction on or after January 29, 2023, then the carbon capture equipment does not satisfy the BOC exception and must meet the Labor Requirements to qualify for the increased credit amount.
    • If both the qualified facility and carbon capture equipment begin construction on or after January 29, 2023, then both must meet the Labor Requirements to qualify for the increased credit amount.
  • Clean Hydrogen Production Credit (Section 45V)
    • To receive the higher credit amount under section 45V, even if the BOC Exception is met, taxpayers must still comply with prevailing wage requirements for alterations or repairs that occur after January 29, 2023.
  • Clean Fuel Production Credit (Section 45Z)
    • Qualified Section 45Z facilities that are placed in service prior to January 1, 2025 are deemed to comply with Labor Requirements for the construction of the facility, but must comply with Labor Requirements (including payment of prevailing wages and utilization of apprentices) with respect to any alterations or repairs to the facility beginning after December 31, 2024.
    • Qualified facilities that begin construction on or after January 29, 2023, but are not placed in service before December 31, 2024, must comply with Labor Requirements for construction, alteration, and repair.
  • Zero-emission nuclear power production credit (Section 45U)
    • The Proposed Regulations clarify that the prevailing wage requirements apply to any alteration or repair to the facility, but the apprenticeship requirements do not apply.
  • New Energy Efficient Home Credit (Section 45L)
    • The Proposed Regulations clarify that the prevailing wage requirements apply to any construction, alteration or repair to the facility, but the apprenticeship requirements do not apply.

¹ Unlike the other sections, section 179D provides a deduction, not a credit.

² For section 179D, the BOC Exception includes property the installation of which began prior to January 29, 2023.

³ The DBA (40 U.S.C. 3141 et. seq.) was enacted in 1931 and requires the payment of minimum prevailing wages (determined by the Department of Labor (“DOL”)) to laborers and mechanics working on federally funded or assisted contracts in excess of $2,000 for the construction, alteration, or repair of public buildings and public works.

⁴ Laborers and mechanics do not need to be paid on a weekly basis, as is required of government contractors covered by the DBA and related acts.

⁵ Each of the construction categories includes multiple occupations and an occupation may appear in multiple categories; for example, the wage determination for both the “heavy” and “building” construction categories may include occupations such as stone mason, form worker, electrician, and power equipment loader.

⁶ Taxpayers who have a manufacturing facility dedicated to work on their project for more than a few days should evaluate whether such facility would be considered a secondary site.

⁷ The Proposed Regulations provide that the facts and circumstances to consider include (i) whether the failure was part of a pattern of conduct; (ii) whether the taxpayer failed to take steps to determine the applicable classifications, whether the taxpayer failed to take steps to determine the applicable prevailing wage rate; (iii) whether the taxpayer promptly cured any failures to ensure that laborers and mechanics were not paid below prevailing wage rates; (iv) whether the taxpayer has been required to make a penalty payment in previous years; (v) whether the taxpayer undertook a quarterly, or more frequent, review of wages paid to ensure they were not below the prevailing wage rate; (vi) whether the taxpayer included provisions in any contracts entered into with contractors that laborers and mechanics were required to be paid prevailing wage rates and maintain records to ensure compliance with the same; (vii) whether the taxpayer posted in a prominent place at the facility or otherwise provided written notice to laborers or mechanics during the construction, alteration or repair, the applicable wage rate determined by the DOL for all classifications, and that employers must ensure that laborers and mechanics are paid wages at rates not less than the prevailing wage rate; and (viii) whether the taxpayer had procedures in place where laborers or mechanics could report suspected failures of wage rates or classifications without retaliation or adverse action.

⁸ The Copeland Act (P. L. 73-324 (40 U.S.C. 3145)), was enacted in 1934 to add a requirement that contractors working on contracts covered by the DBA submit weekly certified payroll records to the contracting agency for work performed on the contract.

⁹ The ratio provided by the apprenticeship program sets a minimum number of journeyworkers for each apprentice on a job site in a given day, but it does not limit the number of journeyworkers.

¹⁰ The Proposed Regulations provide that for purposes of calculating a penalty with respect to the participation requirement, a calculation of labor hours that should have been apprentice hours had the participation requirement been met would be subject to the applicable penalty. The participation requirement determines whether any employer working on the facility is required to hire apprentices.  If such employer only employs three (or fewer) persons to work on the facility, such employer is “exempt” as the ratio requirement is irrelevant.  However, if the employer employs four or more persons to work on the facility, the employer must meet the ratio requirement for the labor hours worked by the apprentices employed by such employer to count towards the labor hours requirement.  In any circumstance, the project must meet the labor hours requirement (i.e., the taxpayer, contractor, or subcontractor cannot hire many small employers to get out of the rules entirely). 

¹¹ Unless modifications are made to the Proposed Regulations before they are finalized, parties that find themselves in this situation will be incentivized to engage contractors and subcontractors that have their own apprenticeship programs and/or the applicable party may need to consider creating their own apprenticeship program.

¹² Such facts and circumstances include (i) whether the failure was part of a pattern of conduct; (ii) whether the taxpayer failed to take steps to determine the applicable percentage of labor hours required to be performed by qualified apprentices; (iii) whether the taxpayer sought to promptly cure any failures; (iv) whether the taxpayer has been required to make a penalty payment with respect to the apprenticeship requirements in previous years; (v) whether the taxpayer included provisions in any contracts entered into with contractors that required the employment of apprentices by the contractor and any subcontractors consistent with the labor hours requirement and the participation requirement; and (vi) whether the taxpayer made no attempt to comply with the apprenticeship requirements.