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May 22, 2024

IRS creates new elective safe harbor using default percentages for determining domestic content bonus for energy credits for certain applicable project components

  • Notice 2024-41 gives taxpayers an option to use default percentages to determine whether energy projects are using the qualifying amount of domestically produced components that qualify the projects for the domestic content bonus.
  • This new safe harbor will make it easier for taxpayers with solar, wind and battery storage projects to comply with the requirements by eliminating the need for detailed cost breakdowns from manufacturers.

In Notice 2024-41, the IRS has updated the guidance on how taxpayers can qualify for the domestic content bonus for credits under IRC Sections 45, 45Y, 48 and 48E for qualified facilities, energy projects and energy storage technology. Notice 2024-41 creates a new elective safe harbor that lists applicable project components and the "domestic cost percentage" for these components in determining a project's eligibility to qualify for the bonus under the safe harbor election.


The Inflation Reduction Act (IRA) added a domestic content bonus to certain energy credits that allows taxpayers to increase their tax credits by 10%, so long as they meet the requirements related to the applicable percentage of the total cost of components that are mined, produced or manufactured in the United States (see Tax Alert 2022-1236).

The domestic content bonus applies to credits for:

  • Qualified facilities under IRC Sections 45 or 45Y
  • Energy projects under IRC Section 48
  • Qualified investments in qualified facilities or energy storage technology under IRC Section 48E

For energy projects to comply with the new domestic content bonus requirements (applicable projects), steel and iron used in the applicable project in a structural nature must be completely manufactured in the United States except "metallurgical processes involving refinement of steel additives." This requirement does not apply to steel or iron used in manufactured product components or subcomponents of manufactured product components. For example, items such as nuts, bolts, screws, washers, cabinets, covers, shelves, clamps, fittings, sleeves, adapters, tie wire, spacers, door hinges, and similar items that are made primarily of steel or iron but are not structural in function.

For manufactured products that are components of the applicable project, 40% of the total cost of the product must comply with the new requirements (20% for offshore wind facilities). The percentage is gradually raised to 55% for projects that begin after 2026 (55% after 2027 for offshore wind facilities). A manufactured product is produced in the United States if all the manufacturing processes take place in the United States and all the product components are deemed to be of US origin.

In May 2023, the IRS released Notice 2023-38, which previewed the proposed regulations it intends to release on how taxpayers can qualify for the domestic content bonus and included instructions on how to determine if the materials used in the projects meet the requirements, as well as recordkeeping and certification methods (see Tax Alert 2023-0908).

Under Notice 2023-38, manufactured products must comply with the adjusted percentage rule to qualify as produced in the United States. Under this rule, the percentage is determined by dividing the "domestic manufactured products and components cost" by the "total manufactured products cost," which results in the "domestic cost percentage." Only the direct material and labor costs, as defined in IRC Section 263A, are included in the"domestic manufactured products and components cost."

Modifications to existing safe harbor

Notice 2023-38 established a safe harbor regarding the classification for certain components that may be found in applicable projects. These components, which, under the safe harbor, are categorized for further evaluation for compliance for the domestic content bonus, may be found in (1) utility-scale photovoltaic (PV) systems, (2) land-based wind facilities, (3) offshore wind facilities and (4) battery energy storage technologies. Notice 2023-38 listed these components in Table 2 and specified whether they qualify as iron, steel or manufactured components.

Notice 2024-41 modified Table 2 to (1) add hydropower and pumped hydropower storage facilities as an applicable project and (2) redesignate the "utility scale photovoltaic system" applicable project as the "ground-mount and rooftop photovoltaic system." Notice 2024-41 also includes certain manufactured product components with respect to previously listed applicable projects.

New elective safe harbor

Notice 2024-41 creates a new elective safe harbor for classifying applicable project components and calculating the domestic cost percentage in an applicable project. Taxpayers may use the new elective safe harbor in lieu of the adjusted percentage rule in Notice 2023-38 as long as they comply with the other requirements in Notice 2023-38. The election must be clearly stated in the Domestic Content Certification Statement attached to relevant tax forms.

The elective safe harbor is in Table 1 of Notice 2024-41, which lists the manufactured products and manufactured product components with the relative percentage contributable to the domestic cost percentage under the safe harbor. Taxpayers that use the new elective safe harbor must apply in its entirety the section of Table 1 that is specific to the applicable project for which the taxpayer makes the election.

Taxpayers can also use Table 1 to determine the domestic cost percentage by referring to the applicable project and adding up the assigned cost percentages for each listed US manufactured product and US component. In addition, taxpayers must treat any listed but unused components as zero in the calculations.

For manufactured product or components from both foreign and domestic sources (mixed source items), taxpayers may use the new safe harbor to determine a single assigned cost percentage for each separate type of mixed source item in the applicable project. For mixed source items that have a nameplate capacity, Notice 2024-41 supplies a formula for determining the assigned cost percentage attributable to each type of mixed source item.

Request for comments

The IRS requested comments on the new elective safe harbor for future updates. The IRS specifically asked for comments on whether:

  • There are any other technologies, or technology subsets, that should be addressed by Table 1, what criteria should be used for new additions and how often they should be updated
  • The nameplate capacity allocation approach for calculating domestic content for a mix of foreign and domestic manufactured product components should be clarified, either for current technologies or future technologies and how the assigned cost percentages should be allocated to applicable project components with a mix of foreign and domestic manufactured product components.

Written comments should be submitted by July 15, 2024, but comments submitted after this date will be considered if it will not delay the issuance of future guidance.


To date, many developers have struggled to benefit from the domestic content bonus as the information was hard to obtain with many manufacturers unwilling to share the required information. The new elective safe harbor is very helpful in eliminating some of the burdensome compliance efforts in gathering sensitive cost data from suppliers. This safe harbor adds a welcome simplification and a degree of certainty in the domestic content calculations. The easier compliance requirements should allow developers and other stakeholders (tax equity investors, tax credit purchasers, project lenders, etc.) to be more comfortable with a project's qualifications. This guidance, however, only applies to wind, solar and battery technologies, leaving other technologies with the highly burdensome process.

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Contact Information

For additional information concerning this Alert, please contact:

National Tax

Americas Power & Utilities Tax Group

Tax Credit Investment Advisory Services

Credits and incentives and sustainability

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