Placed-in-service (PIS) risk is the risk that the Internal Revenue Service (IRS) determines a clean energy project's PIS date differs from what the buyer or investor expected at the time of their tax credit transaction, changing the characteristics of the project’s generated tax credit.
This installment of Crux's series on underwriting risks discusses PIS risk: what it is, how it arises, and how tax credit buyers and investors apply standardized due diligence to mitigate risk and transact with confidence.
For more information on other types of tax credit transaction risks, see our overview “Tax credit transaction risks: An introduction for corporate taxpayers” and our additional articles on recapture risk, basis risk, and eligibility risk.
Key takeaways
A project's placed-in-service date is the moment a project transitions from a construction project to an operating asset for federal tax purposes. A facility is “placed in service” on the earlier of:
In practice, this means that on this date, a project is ready and available for its intended function, such as generating electricity or producing fuel.
The IRS considers multiple factors to determine when a power project is placed in service, including:
The placed-in-service date determines many crucial elements of a tax credit, such as the tax year in which it can be applied, its recapture window, and its compliance requirements. A change in the placed-in-service date can cause a mismatch between the tax credit the buyer or investor claims on their taxes and how the IRS treats that tax credit. That mismatch can affect the tax credit's value, its eligibility, or the tax year it can be applied against — and expose the buyer or investor to interest and penalties on any resulting underpayment of tax. This potential change is placed-in-service risk.
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Placed-in-service risk manifests differently depending on whether the project generating the tax credit has already been placed in service.
For tax credit transactions from projects that claim to have already reached PIS, PIS risk centers on whether the entity generating the tax credit accurately determined its PIS date and that date holds up under IRS scrutiny. For these projects, gaps or inconsistencies in documentation supporting the asserted date, such as incomplete commissioning reports, conflicting dates across project records and tax filings, and late-issued permits, can create risk that the IRS disputes the project’s placed-in-service date.
For tax credit transactions from projects that have not yet reached PIS, the risk centers on whether the project will be placed in service on the projected date. For these projects, schedule slippage caused by factors such as interconnection queue delays, equipment availability, severe weather, or labor shortages can all push PIS past the date a buyer or investor assumed at the time of the transaction.
In both scenarios, a change to the PIS date can result in delivery of a different tax credit than that agreed upon in a transaction and an incorrect return for the tax credit buyer or investor. As a result, tax credit buyers and investors have developed thorough evaluation and mitigation processes to protect their financial positions.
Placed-in-service risk exists for both investment tax credits (ITCs) and production tax credits (PTCs) but varies slightly for each:
Placed-in-service dates can determine what regulatory regimes and eligibility rules apply to a particular tax credit, introducing eligibility risk if they are miscalculated. The One Big Beautiful Bill (OBBB) introduced several new rules that use beginning-of-construction (BOC) and PIS dates to determine which compliance requirements or safe harbors apply to particular projects. For example, the OBBB shortened the tax credit phase-out for solar and wind projects: projects that did not begin construction before July 5, 2026 must now be placed in service by December 31, 2027 to qualify for the §48E ITC or §45Y PTC.
A change to the PIS date could also impose unexpected foreign entity of concern (FEOC) compliance requirements or eligibility concerns that could disqualify the tax credit. Market participants factor this element of PIS risk into their due diligence and deal terms. For more information on how market participants are responding to regulatory provisions introduced in the OBBB, please see our blog: “Prohibited foreign entities: How market participants are navigating compliance in an evolving regulatory landscape”.
Because placed-in-service discrepancies can have such material consequences on tax credit buyers and investors, the market has developed well-established tools to manage PIS risk.
Buyers, investors, and their advisors conduct careful diligence to confirm the accuracy of the PIS date when transacting.
For projects not yet placed in service, buyers, investors, and their advisors often focus on assessing the credibility of the projected placed-in-service date through:
For projects that have already been placed in service, buyers, investors, and their advisors review the record supporting the asserted placed-in-service date, including:
Buyers and investors typically negotiate indemnification provisions requiring the developer or manufacturer to make them whole if the IRS disallows or reduces the tax credit due to an incorrect placed-in-service determination. These indemnities are often wrapped into the broader qualification and eligibility indemnity package.
For transactions involving projects that have not yet reached placed-in-service, buyers and investors negotiate contractual structures that absorb PIS timing risk. These structures shift the consequences of a missed or delayed placed-in-service date back onto the seller, giving the buyer protection in the event the project does not reach placed-in-service as projected.
Many buyers and investors procure tax credit insurance to protect against PIS-related losses. Policy terms are bespoke, and buyers should pay close attention to how covered tax treatment, knowledge qualifiers, and exclusions are drafted and how the policy interacts with the seller's indemnity under the tax credit transfer agreement.
For more information on tax credit insurance, see Crux's comprehensive Guide to the Tax Credit Insurance Market.
PIS risk is inherent in most clean energy tax credit transactions, but the market has well-established tools — including thorough documentation diligence, robust contractual protections, and tax credit insurance — to manage it effectively. Crux's team of finance, tax, and energy experts guides buyers and investors through PIS-related diligence, helping them underwrite and mitigate risk and connecting them with trusted legal, accounting, and insurance partners when needed.
Contact us to learn more about how Crux can support your tax credit investment strategy.
