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On September 27, 2023, the IRS, Treasury Department and Department of Energy (DOE) announced that taxpayers can begin applying for allocations of the annual capacity limitation under the Low-Income Communities Bonus Credit Program (program) beginning on October 19, 2023, at 9 a.m. EST. The program increases the investment tax credits (ITCs) under IRC Section 48(e) for certain solar and wind facilities placed in service in low-income communities.

Background

The IRS established the program in Notice 2023-17, specifying 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 (see Tax Alert 2023-0333).

In June 2023, the Treasury and IRS proposed regulations with more details on the program and the selection process (See Tax Alert 2023-1018). Under this process, there is an initial application window in which applications received by a certain time and date are evaluated together, and then a rolling application process if capacity limitation is not fully allocated during the initial application window.

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

Window is open

The application window will open at 9 a.m. EST on October 19, 2023. In addition, Treasury and the DOE will be launching a program help desk and make available online a webinar on the submission process. In addition, submission materials will be posted on the DOE website for the program in the coming weeks.

Applications for the 2023 program are expected to be accepted through early 2024, depending on the availability of capacity. If oversubscription occurs in any category, Treasury and the IRS may reallocate capacity between categories. Unclaimed capacity will roll over into the 2024 program year, when another base 1.8 gigawatts of capacity will be available.

Implications

While the IRS has decided to use a batch approach to collect applications within a given window, it has not announced when the window will close. As such, taxpayers may find it advantageous to submit applications early in the window and not wait until the last minute.

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