Tax term for the moment a qualifying renewable property becomes eligible for federal tax benefits, such as the production tax credit, the investment tax credit, or depreciation. Under applicable tax regulations, a property is placed in service when placed in a condition or state of readiness and availability for a specifically assigned function, whether in a trade or business, in the production of income, in a tax-exempt activity, or in a personal activity (26 C.F.R. § 1.46-3(d)(1)(ii)).

Developing a renewable energy power plant is a complicated and time consuming process involving many steps (see Practice Notes, Wind Energy Project Development Issues: Preliminary Considerations and Solar Energy Project Development Issues: Preliminary Considerations). Moreover, a renewable energy project may be operated on a provisional basis (to conduct tests or confirm requirements) or in stages. It may be difficult, therefore, to determine when a project has been placed in service in order to a federal tax incentive.

To make this determination, the IRS and various courts generally consider the following five factors, none of which are controlling:

(Rev. Rul. 84-85, 1984-1 C.B. 10.)

For more information, see Practice Note, Sources of Available Project Financing: Tax Equity.