In Notice 2025-31 (Notice), the IRS modifies earlier guidance on defining "energy communities" for purposes of the increased production tax credits (PTCs) under IRC Sections 45 and 45Y and investment tax credits (ITCs) under IRC Sections 48 and 48E. The guidelines are used to determine if project areas qualify as statistical areas or coal closure census tracts.

Background

In 2023, the IRS outlined in Notice 2023-29 what it intends to include in proposed rules on energy communities and how taxpayers with qualifying projects located in these communities could get up to a 10% increase in bonus credits (see Tax Alert 2023-0675). Notice 2023-29 defined the energy communities to include brownfields, statistical areas, and coal closure tracts and gave specific requirements for each. Notices 2023-45, 2023-47 and Notice 2024-30 clarified these requirements (see Tax Alerts 2023-0675, 2023-1083 and 2024-0691). For more information on energy communities, see the IRS webpage).

Updates

Notice 2025-31 updates the IRS guidelines on how to determine if project areas qualify as statistical areas or coal closure census tracts. The notice provides five new Appendices that:

• Update Statistical Area Category eligibility
• List additional counties that satisfy the Fossil Fuel Employment threshold
• List counties that satisfy both the Fossil Fuel Employment and the unemployment rate criteria for energy community eligibility
• List additional census tracts that satisfy the Coal Closure Category for energy community eligibility

Taxpayers can rely on this notice until proposed rules are issued or the credit is repealed (see Tax Alert 2025-1331 for details on possible legislation). Depending on the final legislation, IRC Sections 45Y and 48E could expire (or phase down and then expire), subject to some transition period in which taxpayers must begin construction.

Implications

Many taxpayers have been eagerly awaiting the updated data to see if their projects would qualify for the energy community bonus, as such status is not "locked in" until the beginning-of-construction requirements have been met for the facility. Regardless of the outcome of proposed legislation that would repeal the IRC Section 45Y and 48E credits, these criteria are relevant for projects at least in the short term as some projects will start construction before the legislation passes or during any possible transition period.