IRS updates guidance on energy community credit bonus

In brief

What happened?

The IRS and Treasury on March 22 issued Notice 2024-30, which updates interim guidance in Notice 2023-29 and Notice 2023-47 on the credit bonus for locating an energy project in an energy community. The IRS also updated FAQs that provide general information on energy communities.

Why is it relevant?

The energy community credit bonus is available for the Section 45, 45Y, 48, and 48E tax credits. The bonus generally increases the base credits under these provisions by 10% (2% under Sections 48 and 48E if certain wage and apprenticeship requirements are not met). Notice 2024-30 expands the interim rules in Notice 2023-29 and Notice 2023-47 for determining if a project is located in an energy community and provides that taxpayers may rely on the rules described in the three notices for tax years ending after April 4, 2023.

Action to consider:

Taxpayers that located an energy project in an area with employment in industries with NAICS codes 2212 or 23712, or that include offshore energy generation units, and previously had concluded that the project was not in an energy community, may wish to reconsider if the project is located in an energy community under the expanded guidance and eligible for the credit bonus.

For a more detailed discussion of the energy community credit bonus, see the PwC Insight IRS provides preliminary guidance on energy community bonus credit.

Guidance

Notice 2024-30 expands two provisions in Notice 2023-29 for determining if a project is located in an energy community.

NAICS codes used to determine fossil fuel employment in a statistical area

Notice 2023-29 provided that whether an energy project is located in an MSA or non-MSA that meets the fossil fuel employment test is based on the number of people employed in industries with certain NAICS codes, as published by the Census Bureau, divided by the total number of people employed in that area. Notice 2023-29 specified the relevant NAICS codes and listed in Appendix B the MSAs and non-MSAs that meet the fossil fuel employment test. Appendix 1 of Notice 2023-47 supplemented the list of areas meeting this requirement.

Notice 2024-30 adds two qualifying NAICS codes to the codes identified in Notice 2023-29 and identifies in Appendix 1 additional areas meeting the fossil fuel employment test. 

Appendix 2 of Notice 2023-47 identified MSAs and non-MSAs that meet both the fossil fuel employment test and have an unemployment rate at or above the national average for calendar year 2022. Appendix 2 of Notice 2024-30 lists additional MSAs and non-MSAs that meet these tests after including the two additional NAICS codes.

Observation: Notice 2023-29 Appendix B, Notice 2023-47 Appendix 1, and Notice 2024-30 Appendix 1 must be read together to obtain a complete list of areas meeting the fossil fuel employment test. Notice 2023-47 Appendix 2 and Notice 2024-30 Appendix 2 must be read together to obtain a complete list of areas that meet the fossil fuel employment test and have an unemployment rate at or above the national average for calendar year 2022. Notices 2023-29 and 2023-47 advise that the IRS and Treasury intend to update these lists annually each May.

Nameplate capacity test for offshore units

Notice 2023-29 provided that a taxpayer may determine if a project is located in an energy community under a nameplate capacity test for projects that have nameplate capacity. A project with offshore energy generation units that has nameplate capacity but has no energy-generating units in a census tract, MSA, or non-MSA would apply this test by attributing all of the project’s nameplate capacity to the land-based equipment that conditions the energy generated and is closest to the point of interconnection.

Notice 2024-30 revises this rule to provide that the land-based power-conditioning equipment is not required to be the closest to the point of interconnection. The notice also adds a second category of attribution property, providing that the nameplate capacity of a project with offshore units may be attributed to energy community project supervisory control and data acquisition equipment located in an energy community project port. The notice defines “supervisory control and data acquisition equipment” as property that is (1) owned by the taxpayer that owns the project and (2) used to remotely monitor and control the project’s operations. An “energy project port” is a port (1) used to facilitate maritime operations necessary for the installation or operation and maintenance of the energy community project, (2) with a significant long-term relationship with the project, (3) where staff working for the taxpayer is based and performs functions essential to the project’s operations.