by Gale Chan, Martha Groves Pugh and Philip Tingle
Last week, we reported that the Internal Revenue Service (IRS) issued Notice 2013-29 (Notice) to to provide guidance on eligibility for the production tax credit (PTC) and investment tax credit (ITC). On April 25, 2013, the Internal Revenue Service (IRS) updated the Notice. Under the IRS’s additional guidance, a binding contract that has a liquidated damages provision that limits damages to at least 5 percent of the total contract price will not be treated as limiting damages to a specified amount.
When the Notice was first issued on April 15, 2013, it provided that a contract is binding only if the contract did not limit damages to a specified amount, including the use of a liquidated damages provision. This language differed from the treatment of a binding contract under the guidance issued by the Department of Treasury with respect to the grant program under section 1603 of the American Recovery and Reinvestment Act of 2009 because the Section 1603 Grant program, like the bonus depreciation regulations, provided that a liquidated damages provision that limited damages to an amount that was equal to at least 5 percent of the total contract price would not be treated as limiting damages in a contract to a specified amount. As updated, the Notice is now in line with the definition of binding contract under the guidance issued with respect to the Section 1603 Grant as well as the IRS’s own regulations regarding a binding contract in the bonus depreciation regulations.