§ 1.45-7. Prevailing wage requirements.

¶(1) In general. Except as provided in paragraphs (a)(2), (3), and (c) of this section, a taxpayer claiming or transferring (under section 6418) the increased credit amount under section 45(b)(6)(B)(iii) with respect to any qualified facility must satisfy the requirements of section 45(b)(7) and this section by ensuring that all laborers and mechanics employed by the taxpayer or any contractor or subcontractor in the construction of such facility, and with respect to any taxable year, for any portion of such taxable year that is within the 10-year period beginning on the date the qualified facility was placed in service, the alteration or repair of such facility, are paid wages at rates not less than the prevailing rates for construction, alteration, or repair of a similar character in the locality in which such facility is located (Prevailing Wage Requirements). If alteration or repair of a qualified facility occurs during any portion of such taxable year(s) within the 10-year period after the qualified facility was placed in service, the Prevailing Wage Requirements apply with respect to such taxable year(s) in which that alteration or repair occurs. If no alteration or repair work occurs during the taxable year(s) with respect to the qualified facility after the facility is placed in service, the taxpayer is deemed to satisfy the Prevailing Wage Requirements with respect to such taxable year. Prevailing rates are those rates most recently determined by the Secretary of Labor in accordance with 40 U.S.C. chapter 31, subchapter IV (Davis-Bacon Act), and as set forth in paragraph (b) of this section. See paragraph (d) of this section for definitions of terms used in this section.

¶(2) Transition relief. Taxpayers are excepted from the Prevailing Wage Requirements with respect to any activities that would be considered construction, alteration, or repair of the qualified facility and that occurred prior to January 29, 2023.

¶(3) Relief for Indian Tribal governments. An Indian Tribal government, as defined in section 30D(g)(9), and including any subdivision, agency, or instrumentality of the Indian Tribal government, is excepted from the Prevailing Wage Requirements with respect to laborers and mechanics that are employees, within the meaning of section 3121(d)(2), of the Indian Tribal government. This paragraph (a)(3) also applies to a qualified facility that is subject to joint ownership arrangements that involve an Indian Tribal government, including any subdivision, agency, or instrumentality of the Indian Tribal government. However, any activity that would be considered construction, alteration, or repair of the qualified facility that is not performed by Indian Tribal government employees (within the meaning of section 3121(d)(2)), but that is instead performed by or through a contractor or subcontractor, is subject to the Prevailing Wage Requirements described in this paragraph (a).

¶(1) In general. A taxpayer satisfies the Prevailing Wage Requirements with respect to a qualified facility, if the taxpayer ensures that laborers and mechanics employed by the taxpayer or any contractor or subcontractor in the construction, alteration, or repair of the facility are paid wages at rates not less than those set forth in the applicable wage determination issued by the Secretary of Labor pursuant to 40 U.S.C. 3142, 29 CFR part 1, and other implementing guidance for the specified type of construction in the geographic area where that facility is located. If the construction, alteration, or repair of a facility occurs in more than one geographic area, the taxpayer, contractor, or subcontractor must use the applicable wage determination for the work performed in each geographic area. Subject to the requirements of this section, the applicable wage determination is a general wage determination described in paragraph (b)(2) of this section (including any additional classifications and wage rates described in paragraph (b)(3) of this section), or a supplemental wage determination described in paragraph (b)(3) of this section.

¶(2) General wage determinations—

¶(3) Supplemental wage determinations and additional classifications and rates—

¶(4) Reconsideration and review. A taxpayer, contractor, or subcontractor may seek reconsideration and review by the Administrator of the Wage and Hour Division of a general wage determination, or a determination issued with respect to a request for a supplemental wage determination or additional classification and wage rate in accordance with the procedures set forth in 29 CFR 1.8 and 5.13 and any subsequent guidance issued by the U.S. Department of Labor. A taxpayer, contractor, or subcontractor may appeal the decision of the Administrator of the Wage and Hour Division to the U.S. Department of Labor's Administrative Review Board in accordance with the procedures set forth in 29 CFR part 7 and any subsequent guidance issued by the U.S. Department of Labor. Questions regarding wage determinations and rates may be referred to the Administrator of the Wage and Hour Division.

¶(5) Timing of wage determination. The applicable prevailing wage rates on a general wage determination are those in effect at the time a contract for the construction, alteration, or repair of the qualified facility is executed by the taxpayer (or the taxpayer's designee, assignee, or agent) and a contractor. After the qualified facility is placed in service, the applicable prevailing wage rates on a general wage determination for the alteration or repair of a qualified facility are those in effect at the time the contract for the alteration or repair work is executed by the taxpayer (or the taxpayer's designee, assignee, or agent) and a contractor. The applicable prevailing wage rates on a general wage determination at the time such contract is executed apply to all subcontractors of that contractor. If a taxpayer (or the taxpayer's designee, assignee, or agent) executes separate contracts with more than one contractor with respect to the construction, alteration, or repair of the qualified facility, then, for each such contract, the applicable prevailing wage rates with respect to any work performed by the contractor (and all subcontractors of the contractor) are determined at the time the contract is executed by the taxpayer (or the taxpayer's designee, assignee, or agent). If no contract exists with respect to the construction, alteration, or repair of the qualified facility (or if the date of execution of the relevant contract cannot be reasonably determined), the applicable prevailing wage rates on a general wage determination are those in effect at the time the construction, alteration, or repair work starts. The applicable prevailing wage rates of a general wage determination generally remain valid for the duration of the work performed with respect to the construction, alteration, or repair of the qualified facility by the taxpayer, contractor, or subcontractor. A new general wage determination is required to be used if the contract between the taxpayer (or the taxpayer's designee, assignee, or agent) and the contractor for work on a facility is modified to include additional substantial construction, alteration, or repair work not within the scope of work of the original contract, or to require work to be performed for an additional time period not originally obligated, including if an option to extend the term of a contract for the construction, alteration, or repair is exercised. A new general wage determination is not required if the contractor is simply given additional time to complete its original commitment or if the additional construction, alteration, and/or repair work in the modification of the contract is merely incidental. In circumstances in which a new general wage determination is required, the applicable prevailing wage rates on a general wage determination are those in effect at the time the additional substantial work is agreed to or at the time when an option to extend the term of the contract is executed. If a taxpayer enters into a contract for alteration or repair work over an indefinite period of time that is not tied to the completion of any specific work, the applicable prevailing wage rates must be updated on an annual basis on the anniversary date of such contract. General wage determinations published on the U.S. Department of Labor approved website contain no expiration date and remain valid until revised, superseded, or canceled. Any supplemental wage determination issued under paragraph (b)(3) of this section applies without expiration from the time the taxpayer incorporates the supplemental wage determination into the contract provided that the supplemental wage determination is incorporated into the contract within 180 days of issuance of the supplemental wage determination. If there is no contract, any supplemental wage determination issued under paragraph (b)(3) of this section applies without expiration from the time construction, alteration, or repair starts provided the construction, alteration, or repair starts within 180 days of issuance of the supplemental determination. Any additional classification and wage rate issued under paragraph (b)(3) of this section applies without expiration from the earlier of the date of issuance or the first day in which work in the additional classification was performed. If a supplemental wage determination or additional classification and wage rate is issued after construction, alteration, or repair of the facility has started, the applicable prevailing rates apply retroactively to the date construction started.

¶(6) Payment of wages. All laborers and mechanics working on a qualified facility must be paid in the time and manner consistent with the regular payroll practices of the taxpayer, contractor, or subcontractor, as applicable. The payment of wages must be made without subsequent deduction or rebate on any account (except such payroll deductions as are required by the law or permitted by regulations issued by the Secretary of Labor), and must consist of the full amount of wages (including bona fide fringe benefits or cash equivalents thereof) due at the time of payment computed at rates not less than those contained in the applicable wage determination of the Secretary of Labor. A taxpayer may discharge its wage obligations for the payment of wages by paying the full amount in cash, by making payments to a bona fide fringe benefit provider or incurring costs for bona fide fringe benefits, or by a combination thereof. The taxpayer is solely responsible for ensuring that laborers and mechanics are paid wages not less than the prevailing rate whether employed directly by the taxpayer, a contractor, or a subcontractor in the construction, alteration, or repair of the qualified facility for purposes of claiming the increased credit amount under section 45(b)(6)(B)(iii). The rules set forth in 29 CFR 5.25 through 5.33, and any subsequent guidance issued by the U.S. Department of Labor apply with respect to costs for bona fide fringe benefits that may be credited for purposes of the payment of wages.

¶(7) Apprentices—

¶(1) In general. If a taxpayer fails to ensure that all laborers and mechanics employed by the taxpayer or any contractor or subcontractor in the construction, alteration, or repair of a qualified facility are paid wages at rates not less than those set forth in the applicable wage determination(s), such taxpayer will be deemed to have satisfied the Prevailing Wage Requirements with respect to such facility for any year if the taxpayer makes the correction and penalty payments provided in paragraphs (c)(1)(i) and (ii) of this section.

¶(2) Deficiency procedures not to apply. The penalty payment required by paragraph (c)(1)(ii) of this section may be assessed and collected without regard to the deficiency procedures provided by subchapter B of chapter 63 of the Code. Any determination by the IRS disallowing a claim for the increased credit amount under section 45(b)(6) will be subject to the deficiency procedures of subchapter B of chapter 63.

¶(3) Intentional disregard—

¶(4) Limitation on the availability of cure—

¶(5) Exception for wages paid before a supplemental wage determination or additional classification and wage rate is issued by the U.S. Department of Labor Wage and Hour Division. If a taxpayer has requested a supplemental wage determination or an additional classification and wage rate from the Wage and Hour Division in accordance with paragraph (b)(3)(ii) of this section and the Wage and Hour Division makes a wage determination or issues an additional classification and wage rate determination after the construction, alteration, or repair of a qualified facility has started, the taxpayer will not be considered to have failed to meet the Prevailing Wage Requirements under paragraph (a) of this section with respect to wages paid to any mechanic or laborer whose wage rate was subject to the request and who was paid below the prevailing wage rate before the determination by the Wage and Hour Division if the taxpayer makes a payment within 30 days of the determination to each laborer or mechanic equal to the difference between the amount of wages paid to such laborer or mechanic before the determination and the amount of wages required to be paid to such laborer or mechanic pursuant to paragraph (a) of this section during such period.

¶(6) Waiver of the penalty—

¶(1) Apprentice. The term apprentice has the same meaning as qualified apprentice in § 1.45-8(g)(8).

¶(2) Bona fide fringe benefits. The term bona fide fringe benefits means fringe benefits described in 29 CFR part 5. Bona fide fringe benefits include medical or hospital care, pensions on retirement or death, compensation for injuries or illness resulting from occupational activity, or insurance to provide any of the foregoing; unemployment benefits; life insurance, disability insurance, sickness insurance, or accident insurance; vacation or holiday pay; defraying costs of apprenticeship or other similar programs; or other bona fide fringe benefits (each as described in 29 CFR part 5 and other U.S. Department of Labor guidance). Consistent with 29 CFR 5.29, bona fide fringe benefits do not include benefits required by other Federal, State, or local law.

¶(3) Construction, alteration, or repair. The term construction, alteration, or repair generally means those activities, described in 29 CFR 5.2 as being construction, prosecution, completion, or repair that are performed with respect to a qualified facility as defined under section 45. Construction, alteration, or repair does not include any activities that are excluded from the requirement to pay prevailing wages under the definitions described in 29 CFR 5.2. Repair work normally includes an activity that improves the facility, either by fixing something that is not functioning properly or by improving upon the facility's existing condition; involves the correction of individual problems or defects as separate and segregable incidents and is not continuous or recurring; or improves the facility's structural strength, stability, safety, capacity, efficiency, or usefulness. Construction, alteration, or repair does not include work that is ordinary and regular in nature that is designed to maintain and preserve existing functionalities of a facility after it is placed in service. Work designed to maintain and preserve functionality of a facility after it is placed in service includes basic maintenance such as regular inspections of the facility, regular cleaning and janitorial work, regular replacement of materials with limited lifespans such as filters and light bulbs, and the regular calibration of equipment. However, such work that occurs before the facility is placed in service may constitute construction for which prevailing wages must be paid in order to claim the increased credit amount. Maintenance generally includes work that is needed to keep the facility in its current condition so that it may continue to be used and work that does not improve the current condition or function of a facility. Maintenance is routinely scheduled and continuous or recurring. Ultimately, the determination of whether an activity can be categorized as construction, alteration, or repair is dependent on the facts and circumstances. This definition has no bearing on any other sections of the Code, including any determination of construction, alteration, repair, or maintenance under sections 162 or 263 of the Code, unless specified otherwise in the Code or in this chapter.

¶(4) Contractor. The term contractor means any person that enters into a contract directly with the taxpayer (or the taxpayer's designee, assignee, or agent) for the construction, alteration, or repair of a qualified facility.

¶(5) Employed. The term employed means performing the duties of a laborer or mechanic for the taxpayer, contractor, or subcontractor (as applicable), regardless of whether the individual would be characterized as an employee or an independent contractor for other Federal tax purposes.

¶(6) General wage determination. The term general wage determination means a wage determination issued by the U.S. Department of Labor and published on the approved website. A general wage determination provides the minimum hourly wage rates (both the basic hourly rate of pay and bona fide fringe benefit rates) that the U.S. Department of Labor has determined are prevailing for laborers and mechanics in specified types of construction in a given geographic area.

¶(7) Geographic area and locality. The terms geographic area and locality mean the county, independent city, or other civil subdivision of the State in which a qualified facility is located. The terms geographic area and locality also include areas located offshore of the United States and within the outer continental shelf of the United States and the U.S. territories. If construction, alteration, or repair work is performed in multiple counties, independent cities, or other civil subdivisions, the geographic area may include all counties, independent cities, or other civil subdivisions in which the work will be performed. The locality in which a facility is located is defined as the physical place or places where the facility will be placed in service and remain. The locality of the facility also includes secondary locations where a significant portion of the facility is constructed, altered, or repaired provided that such construction is for specific use at that facility and does not simply reflect the manufacture or construction of a product made available to the general public, and provided further that the site is either established specifically for, or dedicated exclusively for a specific period of time to, the construction, alteration, or repair of the facility. A significant portion means one or more entire portion(s) or module(s) of the facility, such as a completed room or structure, with minimal construction work remaining other than the installation and/or final assembly of the portions or modules at the place where the facility will be placed in service and remain. A significant portion does not include materials or prefabricated component parts delivered to the location of a facility. A specific period of time means a period of weeks, months, or more, and does not include circumstances in which a site at which multiple facilities are in progress is shifted exclusively to a single facility for a few hours or days in order to meet a deadline. The locality of the facility also includes any adjacent or virtually adjacent dedicated support sites, including job headquarters, tool yards, batch plants, borrow pits, and similar facilities of a taxpayer, contractor, or subcontractor that are established specifically for or dedicated exclusively to the construction, alteration, or repair of the facility, and adjacent or virtually adjacent to either a primary construction site or a secondary construction site.

¶(8) Laborer and mechanic—

¶(9) Subcontractor. The term subcontractor means any person that enters into a contract with a contractor for the construction, alteration, or repair of a qualified facility. The term subcontractor also includes any person that agrees to perform or be responsible for the performance of any part of a contract entered into between the taxpayer (or the taxpayer's designee, assignee, or agent) and a contractor (or between a contractor and another subcontractor) with respect to the construction, alteration, or repair of a qualified facility.

¶(10) Taxpayer. The term taxpayer means any taxpayer as defined in section 7701(a)(14), including applicable entities described in section 6417(d)(1)(A). In the case of a credit transferred under section 6418, the term taxpayer means the eligible taxpayer that determines the eligible credit to be transferred and makes a transfer election under section 6418 to transfer any specified credit portion (including 100 percent) of an eligible credit determined with respect to any eligible credit property of such eligible taxpayer for any taxable year.

¶(11) Type of construction. The type of construction is the general category of construction as established by the U.S. Department of Labor for the publication of general wage determinations as defined in 29 CFR 1.2.

¶(12) Wages. The term wages generally means wages as defined in 29 CFR 5.2. In general, wages means the basic hourly rate of pay; any contribution irrevocably made by a taxpayer, contractor, or subcontractor to a trustee or to a third person pursuant to a bona fide fringe benefit fund, plan, or program; and the rate of costs to the taxpayer, contractor, or subcontractor that may be reasonably anticipated in providing bona fide fringe benefits to laborers and mechanics pursuant to an enforceable commitment to carry out a financially responsible plan or program, provided the commitment was communicated in writing to the laborers and mechanics affected. Whether amounts are wages for prevailing wage purposes is not relevant in determining whether amounts are wages or compensation for other Federal tax purposes.