Sec. 1.45-8 Apprenticeship requirements.

(1) Content of valid request. The request of the taxpayer, contractor, or subcontractor must include the proposed dates of employment, occupation of qualified apprentices needed, location of the work to be performed, number of qualified apprentices needed, the number of labor hours expected to be performed by the qualified apprentices, and the name and contact information of the taxpayer, contractor, or subcontractor requesting employment of qualified apprentices from the registered apprenticeship program. Reasonable estimates of the foregoing information are permissible. The request must also state that the request for qualified apprentices is made with an intent to employ qualified apprentices in the occupation for which they are being trained and in accordance with the requirements and standards of the registered apprenticeship program and to employ qualified apprentices consistent with the expected number of hours and dates of employment specified in the request. If the employer of the requested qualified apprentices is not the same as the taxpayer, contractor, or subcontractor submitting the request for qualified apprentices, then the request must include the name of the employer.

(2) Duration of request. If the taxpayer, contractor, or subcontractor submits a request in accordance with paragraph (f)(1)(i)(A) of this section and the request is denied or not responded to, the taxpayer will be deemed to have exercised a Good Faith Effort with respect to the request for the period described in the request but not exceeding 365 days (366 days in case of a leap year). For requests that are denied or not responded to and include a period of employment for qualified apprentices that exceeds 365 days (366 days in case of a leap year), the taxpayer, contractor, or subcontractor must submit one or more additional requests with respect to the period of such request in excess of 365 days (366 days in case of a leap year). The taxpayer will not be deemed to have exercised a Good Faith Effort beyond 365 days (366 days in case of a leap year) of a previously denied request unless the taxpayer submits an additional request. There is no limit on the number of requests a taxpayer, contractor, or subcontractor may submit to one or more registered apprenticeship programs for purposes of the Good Faith Effort Exception and the taxpayer, contractor, or subcontractor is not required to make subsequent requests to the same registered apprenticeship program in order to qualify for the Good Faith Effort Exception. The 365 day (366 days in case of a leap year) duration of requests for qualified apprentices also applies in circumstances in which there is no registered apprenticeship program with a geographic area of operation that includes the location of the facility at the time a taxpayer, contractor, or subcontractor attempts to requests qualified apprentices from a registered apprenticeship program.

(1) Example 1. Taxpayer K starts construction of a qualified facility on April 1, 2023. Accordingly, Taxpayer K must ensure that at least 12.5% of the total labor hours are performed by qualified apprentices. The facility is placed in service on April 1, 2025, and Taxpayer K claims the increased credit amount under section 45(b)(6)(B)(iii) on its 2025 tax return. All individuals who performed the construction, alteration, or repair work were employed directly by Taxpayer K, including two qualified apprentices. Taxpayer K employed enough journeyworkers to satisfy the Ratio Requirement. A total of 50,000 labor hours were spent on the construction, alteration, or repair work of the facility, 6,000 of which were performed by qualified apprentices. Taxpayer K has satisfied the participation requirement because Taxpayer K has employed at least one qualified apprentice. Taxpayer K failed to satisfy the labor hours requirement under paragraph (b)(2) of this section because less than 12.5% of the total labor hours were performed by qualified apprentices. Qualified apprentices must have performed at least 6,250 labor hours (50,000 x 12.5%), so the total labor hours by which the labor hours requirement was not satisfied is 250 (6,250-6,000). To cure Taxpayer K’s failure to meet the labor hours requirement, Taxpayer K must pay a penalty of $12,500 (250 x $50).

(2) Example 2. Taxpayer L starts construction of a qualified facility on February 10, 2023. Accordingly, Taxpayer L must ensure that at least 12.5% of the total labor hours are performed by qualified apprentices. The facility is placed in service on February 10, 2026, and Taxpayer L claims the increased credit amount under section 45(b)(6)(B)(iii) on its 2026 tax return. Taxpayer L employs 10 individuals to perform construction, alteration, or repair work of the facility, two of whom are qualified apprentices. Taxpayer L employed enough journeyworkers to satisfy the Ratio Requirement. Taxpayer L also hires Contractor M, who employs five individuals to perform construction, alteration, or repair work of the facility, none of whom are qualified apprentices. A total of 50,000 labor hours were spent on the construction, alteration, or repair work of the facility, 6,500 of which were performed by qualified apprentices. Of the total 50,000 labor hours, 33,000 labor hours were performed by individuals employed by Taxpayer L and 17,000 labor hours were performed by individuals employed by Contractor M. Taxpayer L has satisfied the labor hours requirement under paragraph (b)(2) of this section because more than 12.5% of the total labor hours were performed by qualified apprentices. However, Taxpayer L failed to satisfy the participation requirement under paragraph (d) of this section because Contractor M employed five individuals but no qualified apprentices. The total labor hours for which the participation requirement was not satisfied is equal to the total labor hours performed by individuals employed by Contractor M (17,000) divided by the number of individuals employed by Contractor M (5) on the construction of the qualified facility, which is 3,400 hours (17,000/5). To cure the failure to meet the Apprenticeship Requirements, Taxpayer L must pay a penalty of $170,000 (3,400 x $50).

(3) Example 3. Taxpayer N starts construction of a qualified facility on January 1, 2024. Accordingly, Taxpayer N must ensure that at least 15% of the total labor hours are performed by qualified apprentices. The facility is placed in service on January 1, 2025, and Taxpayer N claims the increased credit amount under section 45(b)(6)(B)(iii) on its 2025 tax return. Taxpayer N employs 15 individuals to perform construction, alteration, or repair work of the facility, none of whom is a qualified apprentice. Taxpayer N also hires Contractor O, who employs five individuals to perform construction, alteration, or repair work of the facility, one of whom is a qualified apprentice. At the time Taxpayer N claims the increased credit amount, a total of 20,000 labor hours were spent on the construction, alteration, or repair work of the facility, 1,000 of which were performed by the qualified apprentice. Of the 20,000 total labor hours, 15,000 labor hours were performed by individuals employed by Taxpayer N and 5,000 labor hours were performed by individuals employed by Contractor O. Taxpayer N failed to satisfy the labor hours requirement under paragraph (b)(2) of this section because less than 15% of the total labor hours were performed by qualified apprentices. Qualified apprentices must have performed at least 3,000 labor hours, so the total labor hours by which the labor hours requirement was not satisfied is 2,000. Taxpayer N also failed to satisfy the participation requirement under paragraph (d) of this section because Taxpayer N employed 15 individuals but no qualified apprentices. The total labor hours for which the participation requirement was not satisfied is 1,000, which is equal to the total labor hours performed by individuals employed by Taxpayer N (15,000) divided by the number of individuals employed by Taxpayer N (15), which is 1,000 (15,000/15). The total labor hours by which Taxpayer N failed to meet the labor hours and participation requirements is 3,000 (2,000 + 1,000). To cure Taxpayer N’s failure to meet the Apprenticeship Requirements, Taxpayer N must pay a penalty of $150,000 (3,000 x $50).

(4) Example 4. Taxpayer P starts construction of a qualified facility on April 1, 2023. Accordingly, Taxpayer P must ensure that at least 12.5% of the total labor hours are performed by qualified apprentices. The facility is placed in service on January 5, 2024, and Taxpayer P claims the increased credit amount under section 45(b)(6)(B)(iii) on its 2024 tax return. Taxpayer P hires Contractors Q, R, and S to perform the construction, alteration, and repair of the qualified facility. Contractor Q employs 10 journeyworkers who work 10,000 hours and one qualified apprentice who works 400 hours. Contractor R employs four journeyworkers who work 4,000 hours and five qualified apprentices who work 2,000 hours. Contractor S employs three journeyworkers who work 3,000 hours and one qualified apprentice who works 400 hours. The registered apprenticeship program for all of the qualified apprentices has prescribed a 1:1 apprentice-to-journeyworker ratio. For each day, all journeyworkers and qualified apprentices employed by the contractors are on the job site. The contractors have satisfied the participation requirement under paragraph (d) of this section because they each employed one or more qualified apprentices. The total labor hours are 19,800 hours, and the total hours worked by qualified apprentices are 2,800. However, Contractor R employed one qualified apprentice in excess of the apprentice-to-journeyworker ratio (five qualified apprentices: four journeyworkers) that was prescribed by the apprenticeship program. Because Contractor R employed one qualified apprentice in excess of the apprentice-to-journeyworker ratio on each day that Contractor R performed work on the facility, 400 of the qualified apprentice hours worked by Contractor R do not count towards the labor hour requirement. Thus, Taxpayer P has failed to meet the labor hours requirement under paragraph (b)(2) of this section because only 2,400 hours worked by qualified apprentices are counted for purposes of the labor hours requirement. The total labor hours by which Taxpayer P failed to meet the labor hours requirement is 75 (2,475 required hours (19,800 x 12.5%) – 2,400 qualified apprentice hours worked). To cure Taxpayer P’s failure to meet the Apprenticeship Requirements, Taxpayer P must pay a penalty of $3,750 (75 x $50).

(1) Whether the failure was part of a pattern of conduct that includes repeated or systemic failures to ensure compliance with the Apprenticeship Requirements;

(2) Whether the taxpayer took steps to determine or review the applicable percentage of labor hours required to be performed by qualified apprentices;

(3) Whether the taxpayer sought to promptly cure any failures;

(4) Whether the taxpayer has been required to make a penalty payment under paragraph (f)(2) of this section in previous years;

(5) Whether the taxpayer included provisions in any contracts entered into with contractors that required the employment of qualified apprentices by the contractor and any subcontractors consistent with the labor hour requirement of section 45(b)(8)(A) and the participation requirement of section 45(b)(8)(C) and whether taxpayers regularly reviewed contractors’ and subcontractors’ use of qualified apprentices;

(6) Whether the taxpayer required contractors and subcontractors to forward to the taxpayer requests to registered apprenticeship programs within five business days of when requests were made;

(7) Whether the taxpayer made no attempt to comply with the Apprenticeship Requirements;

(8) Whether the taxpayer developed and used a plan to utilize qualified apprentices in the construction, alteration, or repair of the qualified facility;

(9) Whether the taxpayer, contractor, or subcontractor regularly followed up with registered apprenticeship programs regarding requests for qualified apprentices;

(10) Whether the taxpayer, contractor, or subcontractor contacted the Department of Labor’s Office of Apprenticeship or relevant State apprenticeship agency for assistance in locating a registered apprenticeship program;

(11) Whether the taxpayer had in place procedures whereby individuals could report suspected failures to comply with the Apprenticeship Requirements, without retaliation or adverse action, whether taxpayer investigated such reports by individuals, and whether the taxpayer had internal controls to prevent the failures to comply with the Apprenticeship Requirements;

(12) Whether the taxpayer investigated complaints of retaliation or adverse action resulting from reports of suspected failures to comply with the Apprenticeship Requirements, and took appropriate actions to remedy any retaliation or adverse action and prevent it from reoccurring; and

(13) Whether taxpayer failed to maintain and preserve records sufficient to establish compliance with the Apprenticeship Requirements for relevant tax years.

(1) Example 1. Taxpayer T failed to satisfy the labor hours requirement of section 45(b)(8)(A), the participation requirement of section 45(b)(8)(C), and the requirements described in paragraphs (b) and (d) of this section. Taxpayer T did not create a plan to utilize qualified apprentices in the construction, alteration, or repair of the qualified facility. Taxpayer T did not include contract provisions that require the hiring of qualified apprentices and the compliance with the labor hours requirement described in section 45(b)(8)(A) and the participation requirement described in section 45(b)(8)(C), nor did Taxpayer T require those contract provisions in any subcontracts. Neither Taxpayer T nor any contractors or subcontractors made any requests to a registered apprenticeship program for qualified apprentices. Taxpayer T also did not have procedures in place to audit whether contractors or subcontractors made a request to a registered apprenticeship program. Taxpayer T’s failures to satisfy the labor hours requirement of section 45(b)(8)(A), the participation requirement of section 45(b)(8)(C), and the requirements described in paragraphs (b) and (d) of this section would be considered due to intentional disregard for purposes of paragraph (f)(2)(ii) of this section. After considering all of the facts and circumstances, Taxpayer T would be subject to the enhanced penalty payment described in paragraph (f)(2)(ii)(A) of this section.

(2) Example 2. Taxpayer U failed to satisfy the labor hours requirement of section 45(b)(8)(A), the participation requirement of section 45(b)(8)(C), and the requirements described in paragraphs (b) and (d) of this section. Taxpayer U created a plan to utilize qualified apprentices in the construction, alteration, or repair of a qualified facility. Taxpayer U included contract provisions that required the hiring of qualified apprentices and the compliance with the labor hours requirement described in section 45(b)(8)(A) and the participation requirement described in section 45(b)(8)(C) and required those contract provisions in any subcontracts. Taxpayer U and all contractors and subcontractors of Taxpayer U requested relevant qualified apprentices from registered apprenticeship programs. Taxpayer U also created procedures to audit whether contractors or subcontractors made a request to a registered apprenticeship program and ensured that the registered apprenticeship programs were contacted in writing. In cases in which a registered apprenticeship program replied to a proper request described in paragraph (f)(1)(i)(A)(1) of this section with a non-substantive response, Taxpayer U encouraged follow-ups to the registered apprenticeship program. Additionally, Taxpayer U contacted and encouraged contractors and subcontractors to contact the Department of Labor’s Office of Apprenticeship and the State apprenticeship agency in cases in which Taxpayer U, or any contractors or subcontractors, experienced difficulty in locating a registered apprenticeship program. After considering all of the facts and circumstances, Taxpayer U’s failure to satisfy the labor hours requirement of section 45(b)(8)(A), the participation requirement of section 45(b)(8)(C), and the requirements described in paragraphs (b) and (d) of this section would not be considered due to intentional disregard for purposes of paragraph (f)(2)(ii) of this section.