On April 4, the U.S. Internal Revenue Service released additional guidance on the Inflation Reduction Act’s energy communities program bonus tax credits, which are in effect in advance of forthcoming proposed regulations that will implement the credits for all taxable years ending after April 4, 2023.
The ABC-opposed Inflation Reduction Act was signed into law on Aug. 16, 2022, and provides over $270 billion in tax credits for the construction of solar, wind, hydrogen, carbon sequestration, electric vehicle charging stations and other clean energy projects.
The April 4 IRS guidance specific to the energy communities program bonus tax credit states that taxpayers that meet the requirements may have the clean energy Investment Tax Credit or Production Tax Credit increased by a maximum of 10%. For the Production Tax Credit, prevailing wage, apprenticeship and other requirements must be met to receive the full 10% bonus, otherwise the increase will be limited to 2%. To be eligible, a project must be sited in a location that falls under one of the following categories:
- A brownfield site, as defined by the Comprehensive Environmental Response, Compensation and Liability Act
- A Metropolitan Statistical Area or Non-Metropolitan Statistical Area that has or previously had .17% or greater employment in fossil fuel industries or 25% or greater local tax revenues from fossil fuel industries, where the unemployment rate is now at or above the prior year’s national average
- Census tracts in which a coal mine closed after 1999 or a coal-fired electric plant closed after 2009 and adjoining census tracts
The guidance states that the U.S Department of Treasury and the IRS intend to provide a listing of MSAs and non-MSAs that qualify as energy communities under the second category once 2022 unemployment data becomes available. Treasury has also provided a mapping tool for identifying energy communities, which will be updated to reflect this data in May.
Taxpayers may also receive another 10% tax credit increase for meeting domestic content requirements. All steel and iron on a project must be 100% produced in the United States to meet this requirement. Additionally, between 40% to 55%, depending on project type and the year construction begins, of the total cost of other components and subcomponents used on the project must be attributable to components that are mined, produced or manufactured in the United States in order to receive this bonus. The IRS previously requested comments on these requirements and additional guidance on these requirements is expected soon. ABC provided feedback regarding supply chain issues and cost increases that may be caused by these domestic content requirements in comments to Treasury and the IRS.
On March 22, IRS Assistant Secretary for Tax Policy Lily Batchelder provided a status update on IRS guidance and regulations for a number of tax credit programs contained in the IRA, such as the clean vehicle credit, the energy communities program, the domestic content program, direct pay and transferability and the prevailing wage and apprenticeship requirements needed to receive full credits.
ABC also weighed in extensively in the previously mentioned comments on prevailing wage and government-registered apprenticeship requirements that must be met to unlock bonus tax credits five times more than the baseline 6% Production Tax Credit and Investment Tax Credits. Treasury and the IRS issued initial guidance regarding these requirements on Nov. 30, 2022, and they are now in effect for projects that began on or after Jan. 30, 2023.
For more information and resources on compliance with the IRA’s requirements, please visit ABC’s new website, abc.org/ira. If you have questions that are not answered on the website or in Treasury/IRS guidance, ABC is here to help. Please email [email protected] and ABC subject matter experts will work to answer your question or reach out to Treasury/IRA for clarification.