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June 7, 2023

Proposed regulations outline new approach to selection process for Low-Income Communities Bonus Credit Program

  • In proposed regulations, the Treasury and IRS outline how to qualify for the Low-Income Communities Bonus Credit Program (program).
  • The proposed regulations follow Notice 2023-17 in many of the requirements but adjust the selection process to establish an initial application window followed with a rolling application window, as well as additional selection criteria.

In proposed regulations (REG-110412-23), the IRS and Treasury Department give more details on the Low-Income Communities Bonus Credit Program (program), which increases the investment tax credits (ITCs) under IRC Section 48(e) for certain solar and wind facilities placed in service in low-income communities. The proposed regulations take a "new approach" to Notice 2023-17's selection process for allocating portions of the annual capacity limitation for qualified facilities, which allows the increased credits (see Tax Alert 2023-0333).

IRS said it will provide a "comprehensive set of procedures and rules for applicants" for applications for the 2023 capacity limitation later on this year.

The IRS asks that comments on the collection requirements and attestations be submitted by June 30, 2023.


The Inflation Reduction Act (IRA) changed the way that ITCs are calculated by creating a base and bonus ITC system with potential "adders" (see Tax Alert 2022-1236). Taxpayers can automatically receive an ITC rate of up to 50% if certain requirements are met. Under IRC Section 48(e), taxpayers can receive an additional 10-20% in ITCs through the application process for certain solar and wind facilities with a net output of less than five megawatts placed in service in connection with low-income communities.

In Notice 2023-17, the IRS established the Low-Income Communities Bonus Credit Program (program), which allocates a portion of the annual capacity limitation to taxpayers, allowing them to receive the increased ITCs. Notice 2023-17 gave initial information on the program, application process and criteria for receiving an allocation.

Notice 2023-17 specified that a total annual capacity limitation of 1.8 gigawatts of direct current capacity will be allocated for calendar years 2023 and 2024. To qualify, an individual project cannot exceed five megawatts. In determining how to allocate capacity limitation within certain categories of facilities, the program may also consider criteria such as whether the facility is owned or developed by a community-based organization, provides substantial benefits to a low-income community and has a higher degree of commercial readiness.

Proposed regulations


The proposed rules would clarify several definitions, including (1) energy storage, (2) financial benefits for qualified low-income residential building projects and qualified low-income economic benefit projects and (3) how to establish a facility's location.

The proposed rules would also treat "multiple facilities or energy properties of the same type (solar or wind) that are operated as part of a single project" and have a maximum net output of less than five megawatts as a single facility.

Selection process

The IRS said the proposed regulations have a "new approach" to the application process that will make sure the allocations are awarded to facilities that "advance" the program goals and "facilitate" the allocation process.

Under this new approach, there would first be an initial application window in which applications received by a certain time and date would be evaluated together, and then a rolling application process if capacity limitation were not fully allocated during the initial application window.

During the initial application window, the IRS would give priority to applications for facilities that meet at least one of the two new selection criteria. If there were more applications then capacity limitation, then the IRS would prioritize facilities that meet both criteria. Allocation decisions cannot be appealed administratively.

The two new selection criteria are:

  • Ownership: The facility is owned by a tribal enterprise, Alaska Native Corporation, renewable energy cooperative, qualified renewable energy company meeting certain characteristics, or qualified tax-exempt entity.
  • Geographic: The facility is placed in service in a persistent poverty County or census tract that is designated in the Climate and Economic Justice Screening Tool (CEJST) as disadvantaged.


Notice 2023-17 specified that the annual capacity limitation will be divided among four categories:

  • Category 1: Facilities located in a low-income community as defined in IRC Section 45D(e)(1) (700 megawatts)
  • Category 2: Facilities located on Indian land (200 megawatts)
  • Category 3: Facilities that are part of a qualified low-income residential building project (200 megawatts)
  • Category 4: Facilities that are part of a qualified low-income economic benefit project (700 megawatts)

The IRS said in the Preamble to the proposed rules that it expects the largest number of applications will be under Category 1 for small rooftop residential solar facilities. The IRS proposes to subdivide the 700-megawatt capacity limitation reservation for Category 1 allocation by reserving 560 megawatts for eligible residential behind-the-meter (BTM) facilities, which would include rooftop residential solar facilities, and the remaining 140 megawatts of Capacity Limitation for applicants with front-of-the-meter (FTM) facilities and non-residential BTM facilities.


Facilities that receive a capacity limitation must report to the Department of Energy that the facility has been placed in service and submit additional documentation of attestations at that time.

Applicants have four years after the date of an allocation of capacity limitation to put a property into service. If the facility is disqualified before or upon being placed in service, it will not qualify for the allocation, and the increased credits will be recaptured.


The IRS and Treasury have indicated that the changes resulted from the comments received in response to IRS Notice 2023-17. These changes will benefit some taxpayers and be a significant detriment to others. Given that the program is likely to be oversubscribed, it is possible that projects that do not meet at least one of the two selection criteria will not receive an allocation. While the new process will help avoid a "first come first served" approach and a rush to file as soon as possible, it is unclear if any allocation will be available after the initial application window.


Contact Information
For additional information concerning this Alert, please contact:
National Tax
   • Greg Matlock, Americas Energy Transition and Renewable Energy Leader (
   • Dorian Hunt (
Tax Credit Investment Advisory Services
   • Michael Bernier (
Credits and incentives and sustainability
   • Paul Naumoff (
   • Akshay Honnatti (
   • David Camerucci (

Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor