Article

A municipality’s guide to prevailing wage and apprenticeship compliance

June 24, 2024 · Authored by Doug Baldessari, Laura Cataldo

The Inflation Reduction Act (IRA) of 2022 created revolutionary, first-of-its-kind opportunities for non-taxable and tax-exempt entities to take advantage of direct payment provisions from the Internal Revenue Service (IRS), in lieu of tax credits or energy incentives. States, local governments, Tribes, territories, non-profits and other entities can leverage the IRA and invest in more substantial clean energy projects to enhance their communities and advance environmental justice.

Non-taxable entities can substantially increase their direct payment amounts by meeting specific bonus criteria, such as adhering to prevailing wage and apprenticeship (PW&A) standards. Compliance with the PW&A standards and other bonus credits, including the energy community tax credit bonus, can multiply the base incentives by up to five times.

To receive a direct payment and the five times multiplier, a project will need to regularly evaluate compliance and endure stringent record-keeping requirements for extended periods of time. However, achieving and maintaining this compliance involves rigorous evaluation and extensive record-keeping, which can be complex and challenging to substantiate. Taxable entities that fail to comply face significant risks and potential penalties, jeopardizing their total credit or direct payment. Local governments and other tax-exempt entities can face signatory risk and substantial penalties.