IRS provides guidance on domestic content bonus energy credit

May 2023

In brief

The Inflation Reduction Act of 2022 extended and expanded a number of tax credits to encourage production of clean energy. As additional incentive, some clean energy credits provide for bonus credits that increase a base credit rate by a percentage for complying with certain social policy-related requirements. On May 12, the IRS and Treasury issued Notice 2023-38, which provides interim guidance in advance of proposed regulations on the “domestic content” bonus credit. The domestic content bonus credit applies to qualified facilities under Section 45 or Section 45Y, energy projects under Section 48, and qualified facilities and energy storage technologies under Section 48E (collectively, applicable projects).

Notice 2023-38 advises that taxpayers may rely on the interim guidance for applicable projects for which construction begins no later than 90 days after proposed regulations are published in the Federal Register. The IRS and Treasury anticipate that the regulations will be proposed to apply to tax years ending after May 12, 2023, the date of publication of the notice.

For consideration:  To determine domestic content qualification, Notice 2023-38 outlines a process to assess products, components, and subcomponents used in the construction of clean energy production facilities or property. The need to track detail related to material sourcing and manufacturing for each of these items will impact information needed from contractors and suppliers and potentially how taxpayers retain cost and construction-in-progress information.

In detail


To qualify for the domestic content bonus credit, a taxpayer must certify that any steel, iron, or manufactured product that is a component of an applicable project was produced in the United States, as determined under Department of Transportation regulations. The bonus amount is an additional 10% of the basic credit. However, for the Section 48 and 48E credits, the bonus is 10% only if a taxpayer satisfies certain wage and apprenticeship requirements, and otherwise is 2%. For additional information on the wage and apprenticeship bonus credit, see the PwC Insight IRS issues wage and apprenticeship guidance for clean energy bonus credits.

The Department of Transportation regulations provide that steel or iron is produced in the United States only if all steel and iron manufacturing processes take place in the United States, except metallurgical processes involving refinement of steel additives.

Manufactured products are treated as produced in the United States if at least an adjusted percentage of the total costs of all manufactured products are mined, produced, or manufactured in the United States. Under Sections 45, 48, and 48E, the adjusted percentage is 20% for offshore wind facilities and 40% for other applicable projects. For Section 45Y, the adjusted percentage for offshore wind facilities is 20% if construction of a project begins before 2025 and increases annually up to 55% for projects beginning construction after 2027, and ranges from 40% to 55% for other applicable projects.



Notice 2023-38 adopts the term “applicable project component” to mean any article, material, or supply, which may be iron, steel, or a manufactured product, that is directly incorporated into an applicable project.

A “manufactured product” is an item produced as a result of the manufacturing process. A “manufactured product component” is an article, material, or supply, whether or not manufactured, that is directly incorporated into a manufactured product. The “manufacturing process” is the application of processes to alter the form or function of materials or elements of a product and produce an item functionally different than what would result from mere assembly.

“Mining” includes the extraction of ores or minerals from the ground or from mining waste.

The “United States” includes the District of Columbia and territories.

Application of domestic content requirement

For steel and iron, Notice 2023-38 clarifies that the domestic content requirement applies to structural construction materials that are made primarily of steel or iron. The requirement does not apply to steel or iron used in manufactured product components or subcomponents, including items such as nuts, bolts, screws, washers, cabinets, covers, shelves, clamps, fittings, sleeves, adapters, tie wire, spacers, and door hinges.

Notice 2023-38 provides that a manufactured product is produced in the United States if (1) all manufacturing processes take place in the United States and (2) all of the manufactured product components are manufactured in the United States. The manufacturing origin of subcomponents does not independently have to satisfy the domestic content requirement.

Whether the required adjusted percentage of an applicable project’s manufactured products are produced in the United States is determined by dividing the “domestic manufactured products and components cost” by the “total manufactured products cost.”

The domestic manufactured products and components cost includes the cost of (1) US-manufactured products that are applicable project components and (2) US-manufactured components of a manufactured product that as a whole does not meet the US-manufacture requirement. The total manufactured products cost is the sum of the costs of all manufactured products that are applicable project components.

“Cost” includes only direct labor and material costs (within the meaning of the Section 263A regulations) paid or incurred by the manufacturer of the US-manufactured product or component or by a non-US manufacturer to produce or acquire the US component. Other costs that may be capitalized to the basis of the property, for example indirect costs subject to Section 263A UNICAP principles, are excluded. Direct costs, including direct labor costs, of incorporating the applicable project components into the applicable project also are excluded.

Observation:  The assessment of domestic content qualification is made at the manufactured product level if all of the manufacturing processes occur in the United States and all of the manufactured components are manufactured in the United States. In that case, not only are the costs of the components included in the numerator of the adjusted percentage, but also the direct costs associated with combining those components into a manufactured product. In contrast, if only some of the manufactured components are manufactured in the United States, only the direct costs of the US-manufactured components are included in the numerator.

Safe harbor for classifying applicable project components

Notice 2023-38 includes a table identifying certain applicable project components found in photovoltaic systems, wind facilities, and battery energy storage technologies. The table classifies these components as steel/iron components (e.g., wind facility towers) or manufactured product components (e.g., wind turbines), subject to the respective requirements for each type of component. The IRS will accept these classifications.

Observation:  Although the safe harbor does not list all technologies that may qualify for a Section 45, 45Y, 48 or 48E credit, it provides clarity that the 100% domestic content requirement for steel and iron applies to structural steel, beams, columns, and foundational elements. However, steel or iron that is a component of a manufactured product (nuts, bolts, etc.) is subject to the adjusted percentage requirements for manufactured components and not the 100% domestic content rule.

Retrofitted property

Under Notice 2023-38, an applicable project that incorporates some used property may qualify as originally placed in service, and as potentially eligible for a domestic content bonus credit, if the fair market value of the used property is not more than 20% of the applicable project's total value. Total value is calculated by adding the cost of the new property to the value of the used property. New property costs include all costs properly included in the depreciable basis of the property.

Certification procedures

Notice 2023-38 requires a taxpayer to submit a statement to the IRS for each applicable project for which the taxpayer claims the domestic content bonus credit. The statement must include certain specified information and certify that the steel/iron and manufactured product components were produced in the United States. The taxpayer must certify that the project meets the domestic content requirement as of the date placed in service.

The statement is attached to Form 8835, Renewable Electricity Product Credit; Form 3468, Investment Credit; or other applicable form filed with the taxpayer’s federal income tax return for the first tax year the taxpayer reports a domestic content bonus credit for the project. The taxpayer attaches a copy of the initial statement to the taxpayer’s income tax return for each subsequent tax year in which the taxpayer claims a domestic content bonus credit under Section 45 or Section 45Y for that project.

Contact us

Ed Geils

Ed Geils

Global and US Tax Knowledge Management Leader, PwC US

Follow us