Why the Placed-in-Service Date Isn't as Fixed as It Sounds
The IRS applies a five-factor test to determine when a project is placed in service, looking at whether the facility has received required licenses and permits, whether critical equipment has been installed, whether the facility has undergone testing, whether it's synchronized to the grid, and whether daily operations have actually begun. None of these factors turns on a single, easily predictable event. Interconnection delays, permitting backlogs, and equipment commissioning timelines can each push a facility's in-service date past year-end without any change to the underlying project economics. This is a distinct question from the construction-start determination we covered in The July 4, 2026 Construction Deadline: What "Beginning Construction" Actually Has to Look Like This Time, but the two dates are related in practice: a project that starts construction late has less schedule buffer left before it needs to hit its placed-in-service target.
For a buyer, this matters enormously. Credits generated by a facility placed in service in 2026 apply against 2026 tax liability. If the date slips into 2027, the buyer can't use those credits against the tax year they planned for, which changes the value of the deal even though nothing about the project itself has gone wrong.
How the Two-Tiered Structure Actually Works
Rather than walking away from deals with in-service timing risk, buyers are pricing that risk directly into the agreement. The structure is straightforward: one price applies if the project is placed in service on schedule, and a second, lower price applies if the date slips into the following tax year. Market pricing on that discount has settled into a fairly consistent range, commonly 1.5 to 3 cents per dollar of credit. It's not a penalty in the punitive sense. It reflects the buyer's real cost of losing a year of use on the tax benefit and having to carry or reallocate that value differently than originally planned. This kind of contingent term is exactly the sort of detail that gets negotiated in the diligence window we walked through in Inside a $50 Million Tax Credit Transaction: What Happens Between the NDA and the Closing Table, not at the initial term sheet stage.
Why This Has Become the Default Rather Than the Exception
A few years ago, this kind of contingent pricing was a bespoke term negotiated on riskier projects. It's now showing up as a standard clause across a much broader range of deals, largely because buyers have accumulated enough transaction history to know how often slippage actually happens, even on well-run projects. It's part of a broader trend of buyers pricing structural risk explicitly into deal terms rather than accepting it on faith, similar to how basis treatment gets negotiated in Why Step-Up in Basis Disappears the Moment You Transfer a Credit Under Section 6418. In both cases, a risk that used to sit quietly in the background of a transaction is now a line item buyers negotiate directly.
What This Means for Sellers Structuring a Deal
For developers, the practical response isn't to fight the two-tiered structure, it's to manage the underlying schedule risk directly. That means building interconnection and commissioning timelines with real buffer, not optimistic best-case assumptions, and communicating early with buyers if a delay becomes likely rather than surprising them close to year-end. It also means understanding that the discount applied for a slipped date is now priced fairly consistently across the market, which gives sellers a clear benchmark for what's reasonable in a term sheet and what isn't. A seller with a strong, well-documented construction and commissioning timeline is in a much better position to negotiate a narrower discount, or to avoid the tiered structure altogether, than one asking a buyer to simply take the timing risk on faith.