February 2023
The Treasury Department and the IRS on February 10 released guidance regarding the Inflation Reduction Act (IRA) provision to establish a program to allocate credits for qualified investments in eligible qualifying advanced energy projects (the Section 48C(e) program).
Notice 2023-18 establishes the program under Section 48C(e) to allocate $10 billion in credits ($4 billion of which may be allocated only to projects located in certain energy communities census tracts). The Notice also provides initial program guidance.
Treasury and the IRS anticipate allocating $4 billion of Section 48C credits in the first allocation round (Round 1), with approximately $1.6 billion of these credits to be allocated to projects located in certain “energy communities.” The remaining credits are expected to be allocated in future rounds. The Notice also provides the general rules for determining the Section 48C credit, definitions of qualifying advanced energy projects, and the procedures for allocating the credits.
Treasury and the IRS plan to issue additional guidance by May 31, 2023, to provide more details regarding information applicants must submit to request a credit allocation.
Round 1 will begin on May 31. To be considered for a credit allocation in that round, taxpayers must submit concept papers to the Department of Energy (DOE) by July 31, 2023. Following submission of concept papers, DOE will rank the submissions and encourage or discourage each taxpayer from submitting a joint application for DOE recommendation and for Section 48C(e) certification (the Section 48C(e) application). The deadline for Section 48C(e) applications will be provided in the additional guidance expected by May 31.
Observation: According to the Notice, applications will be considered as submitted on the last day of the applicable period, perhaps indicating that there would not be any advantage to submitting applications before the deadline.
Action item: Taxpayers considering submission of a concept paper to DOE with respect to a Round 1 allocation request should review the Notice and begin work on their concept papers based on the guidance provided in the Notice. Taxpayers also should register on the submission website. Registration does not have to wait until the submission is ready, and submissions will not be accepted until the taxpayer is registered.
The Section 48C credit was enacted by Section 1302(b) of the American Recovery and Reinvestment Act of 2009 (ARRA), to provide an allocated credit for qualified investments in “qualifying advanced energy projects.” IRA amended Section 48C by adding Section 48C(e) to the Code to extend the Section 48C credit and to provide an additional credit allocation of $10 billion. IRA also modified the definition of a qualifying advanced energy project. The IRA amendments to Section 48C took effect on January 1, 2023.
Section 48C(a) provides that the Section 48C credit for any tax year is an amount equal to a certain percentage of the “qualified investment” for such year with respect to any qualifying advanced energy project of the taxpayer. The Section 48C credit generally is allowed in the tax year in which the eligible property is placed in service.
For purposes of Section 48C credit allocations under the Section 48C(e) program, Section 48C(e)(4)(A) provides a base credit rate of 6% of the qualified investment. Any project that satisfies the Section 48C(e)(5)(A) and (6) prevailing wage and apprenticeship requirements is eligible for an alternative rate of 30% of the qualified investment. (For guidance on the prevailing wage and apprenticeship requirements, see Notice 2022-61 and PwC Tax Insight, Wage and apprenticeship guidance issued for energy bonus credits, December 9, 2022.)
The qualified investment for any tax year is the basis of eligible property that is placed in service by the taxpayer during such year and is part of a qualifying advanced energy project. The amount treated as the qualified investment for all tax years with respect to any qualified advanced energy project must not exceed the amount designated by Treasury as eligible for the Section 48C credit.
The total amount of Section 48C credits that may be allocated under the Section 48C(e) program may not exceed $10 billion, of which not greater than $6 billion may be allocated to qualified investments that are not located within census tracts that:
Under the Notice, each applicant for certification has two years from the date of acceptance by Treasury of the Section 48C(e) application during which to provide Treasury with evidence that the requirements of the certification have been met. An applicant that receives a certification has two years from the date of issuance of the certification to place the project in service and to notify Treasury that the project has been placed in service.
If the project is not placed in service within the two-year period, the certification no longer will be valid. If any certification is revoked, the total amount of the credits that may be allocated under Section 48C(e)(2) is increased by the amount of Section 48C credits with respect to such revoked certification. Further, if Treasury determines that a project for which a certification was granted has been placed in service at a location that is materially different than the location specified in the application for the project, the certification no longer will be valid.
The Notice includes several definitions that apply solely for purposes of the Section 48C(e) program, including the following. (Appendix A of the Notice includes additional detail regarding these definitions.)
A “qualifying advanced energy project” means a project that:
Treasury must certify that part or all of the qualified investment in the qualifying advanced energy project is eligible for a Section 48C credit. Finally, the project may not include any portion of a project for the production of any property that is used in the refining or blending of any transportation fuels (other than renewable fuels).
“Specified advanced energy property” means any of the following:
“Eligible property” is defined as property that (1) is necessary for the production or recycling of specified advanced energy property, re-equipping, expanding, or establishing certain manufacturing or industrial facilities and (2) is tangible personal property or other tangible property (not including a building or its structural components) that is used as an integral part of the qualifying advanced energy project; if (3) depreciation (or amortization in lieu of depreciation) is allowable with respect to the property.
Section 4 of the Notice explains how taxpayers can meet the prevailing wage and apprenticeship requirements for a tax year and thereby be eligible to claim a credit equal to 30% of the taxpayer’s qualified investment for such year with respect to any qualified energy project instead of the base 6% credit. (For guidance on the prevailing wage and apprenticeship requirements, see Notice 2022-61 and PwC Tax Insight, Wage and apprenticeship guidance issued for energy bonus credits, December 9, 2022.)
The remainder of the Notice describes the mechanics of the Section 48C(e) program, including a detailed step-by-step timeline of the program, the broad criteria under which projects will be evaluated, and the information and documentation required in Section 48C(e) applications submitted by taxpayers. Appendix B of the Notice provides additional details regarding the application process and the application evaluation information.
Applications for DOE recommendation will be evaluated based on technical review criteria to be described in the forthcoming Section 48C(e) program guidance. These criteria will include selection criteria described in Section 48C(d)(3) and additional criteria that further the goals of the program.
In addition to technical review criteria, DOE may consider one or more policy factors in determining which applications for DOE recommendation submitted during Round 1 of the Section 48C(e) program to recommend to the IRS for certification. More specifically, according to the Notice, “DOE may consider whether proposed projects address specific gaps, vulnerabilities, or risks in the domestic production of clean energy products. The additional § 48C(e) program guidance will indicate specific priority technologies that would address these gaps, vulnerabilities, and risks to relevant domestic supply chains.”
Observation: Although offering insight into the application process and selection criteria, the Notice does not provide details about what should be included in the concept paper as well other essential information, such as the technical review criteria to be included in the final application. Thus, although taxpayers can begin assembling information for their concept papers/applications, finalization of robust submissions would seem to require issuance of guidance.
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