February 16, 2023
IRS and Treasury outline application process and other requirements for claiming IRC Section 48C credits for qualifying advanced energy projects
In Notice 2023-18, the IRS and Treasury provided initial guidance establishing the IRC Section 48C(e) program, which will eventually allocate $10 billion of credits for investments in eligible qualifying advanced energy projects, of which at least $4 billion will be for projects located in certain energy communities. The first round of allocations will be approximately $4 billion, with at least $1.6 billion going to those communities.
According to the Notice, the "goal of the [IRC Section] 48C(e) program is to expand U.S. manufacturing capacity and quality jobs for clean energy technologies (including production and recycling), to reduce greenhouse gas emissions in the U.S. industrial sector, and to secure domestic supply chains for critical materials (including specified critical minerals) that serve as inputs for clean energy technology production."
The IRS said more guidance would be released by May 31, 2023, which is when the first round of applications is expected to open. Taxpayers must submit a concept paper on their project to the Department of Energy (DOE) by July 31, 2023, to be eligible to submit a full application.
The IRS also released guidance on the Low-Income Communities Bonus Credit Program, which increases the investment tax credits under IRC Section 48(e) for certain solar and wind facilities placed in service in low-income communities (see Tax Alert 2023-0333).
IRC Section 48C, which was extended by the Inflation Reduction Act (IRA), provides an investment tax credit for advanced energy projects. The IRC Section 48C credit has a base amount of 6% (which can go up to 30%, assuming the prevailing wage and apprenticeship requirements are met (see Tax Alert 2022-1832)). The Notice defines an advanced energy project as one that:
The Treasury Secretary must certify that part or all of the qualified investment in the project is eligible for the credit. Additionally, the project cannot include producing any property used in refining or blending transportation fuels (other than renewable fuels).
The Notice also defines specified advanced energy property, which is what must be manufactured by the project (such as components used in a renewable energy facility), as any of the following:
Guidance explains application and project certification process
The first round of applications will begin on May 31, 2023, and consist of $4 billion of qualifying advanced energy project credits with at least $1.6 billion allocated to projects located in certain energy communities. These communities are defined as those in or adjoining a census tract in which (1) a coal mine has closed after December 31, 1999, or (2) a coal-fired electric generating unit has been retired after December 31, 2009.
The application process begins with submitting a concept paper to the DOE. After reviewing the concept paper, the DOE will send applicants a letter encouraging or discouraging them from moving onto the next stage, which consists of submitting a full application to the DOE.
Taxpayers have up to two years after receiving the allocation letters to confirm they have met the certification requirements, after which the IRS will certify the project. Taxpayers that place a qualifying project in service within two years of certification and notify the DOE may claim the IRC Section 48C credit on their income tax return for the tax year in which the project was placed in service (subject to certain exceptions for qualified progress expenditures). Taxpayers that do not place the project in service within two years or notify the DOE will forfeit their allocation. Forfeited allocations will likely be made available in future rounds of funding.
To be considered for an allocation in the first round, taxpayers must complete the first step of the process (submitting concept papers to the DOE) by July 31, 2023.
The Notice includes Appendices with (1) a list of qualified advanced energy projects and (2) a description of the DOE application process.
While more guidance is coming, the Notice clarifies the types of investments and energy property that might be eligible for an IRC Section 48C allocation, which should allow companies looking to secure these allocations to begin reviewing their investments for eligibility. Additionally, the Notice provides much needed clarity on the general process from application through award and compliance, the majority of which will be handled by the DOE. There appears to be an emphasis on projects/investments in certain energy communities, so projects in these communities may be well-positioned to receive an allocation.
Foreign investments could be subject to additional scrutiny, as the DOE may evaluate whether an applicant has a connection with a foreign country of risk that could create additional risks for the project.
The initial guidance provides that the DOE may prioritize projects that are not eligible for support under other DOE programs, and those that are receiving support from other programs must justify the need for, and benefits of, assistance under multiple programs.
Future guidance is expected to provide more detail on the full application process, including required documents and information, scoring criteria and timeline for awards.
Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor