Energy Tax Credits: Recent IRS Guidance, Energy Communities, Low-Income Communities, Domestic Content, and Section 48C

Description

The IRA created many new tax incentives to enhance the development of clean energy projects. Noteworthy changes include bonus tax credits for projects built with U.S. domestic content, located in energy communities or low-income communities, tax credit monetization opportunities using "direct" pay and transferability, and a significant refresh and expansion of Section 48C advanced energy project tax credit allocations.

The Treasury and the IRS issued Notice 2023-29, modified and clarified by Notice 2024-30, providing guidance on the up to 10 percent additional investment tax credit (ITC) or production tax credit (PTC) for a qualifying facility, project, or storage technology located in an energy community (the Energy Community Bonus Credit). It is crucial to understand what constitutes an energy community under each of the three possible categories: (1) the brownfield site category; (2) the statistical area category; or (3) the coal mine or coal-generating unit closure category. The panel will also explain the complicated process set forth in Notice 2023-38, published May 12, 2023, for establishing satisfaction of the domestic content requirements for a 10 percent additional ITC or PTC's, and supplemental guidance in Notice 2024-9 for applicable entities making a direct payment election under Section 6417.

Another development is the publication of final Treasury Regulations related to the significant low-income community bonus credits of a 10 or 20 percent additional Section 48 ITC for qualified solar and wind facilities located within specified low-income communities or on Indian land, that are part of affordable residential housing program, or directly benefit specified low-income areas (the Low-Income Bonus Credit). In October 2023, Treasury and the IRS released the details of the process and related rules for this applied-for credit under the 2023 Program in Revenue Procedure 2023-27, and recently issued Revenue Procedure 2024-17 with updates and clarifications for the 2024 Program, including some changes to how the 1.8 GW capacity limitation is allotted amount four categories of projects, as well as final Treasury Regulations. The allocation process requires attestation of compliance with certain geographic, ownership, and user details to receive priority consideration for capacity allocations for an increased ITC, which will be important for 2024 applications given that there were over 46,000 applicants during the first 30-days of the 2023 application cycle. Our panel will describe the guidance and requirements under Section 48(e) to assist with navigating the complex process to obtain the Low-Income Bonus Credit. The IRA revived and expanded the applied-for 30 percent tax credit for investments in a "qualified advanced energy project" under Section 48C. The panel will discuss which projects are potentially eligible for the Section 48C tax credit, guidance under Notices 2023-18 and 2023-44, the first round of allocations, applying for an allocation of the Section 48C tax credit in the second round set to open in 2024, and other key items.

Listen as our panel discusses the plethora of new proposed and temporary Treasury Regulations, Notices and Revenue Procedures published since the enactment of the IRA to explain eligibility requirements such prevailing wage and apprenticeship, which projects are eligible under Section 48C and how to qualify for the energy tax credit adders, and the procedures to follow for electing direct pay or selling regarding energy tax credits.