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IRA Update: Section 45X & Section 48C

A domestic manufacturer of components for a solar energy facility may be eligible for the recently established Advanced Manufacturing Production Credit under Section 45X (Section 45X PTC) or the recently expanded Advanced Energy Project Investment Tax Credit under Section 48C[1] (Section 48C ITC). As eligible projects cannot claim both the Section 45X PTC and the Section 48C ITC, a qualifying manufacturer needs to determine which credit provides the most optimal economic benefits given such manufacturer’s particular circumstances. As discussed further below, the determination involves consideration and balance of a variety of factors (as opposed to being merely a mathematical calculation) because the Section 45X PTC and the Section 48C ITC operate differently. The Section 45X PTC is an ongoing annual credit that an eligible manufacturer claims based on its sales of certain domestically produced components or critical minerals. In contrast, the Section 48C ITC provides a one-time up front credit based on a taxpayer’s capital investment in a “qualifying advanced energy project.” A manufacturer that claims the Section 48C ITC on its investment in a manufacturing facility will not also be able to claim Section 45X PTCs with respect to sales of solar components manufactured in that facility.

Section 45X Advanced Manufacturing Production Tax Credit (Section 45X PTC)

The Section 45X PTC is a new tax credit added by the Inflation Reduction Act of 2022 (IRA) to support the development of a domestic supply chain for renewable energy facilities and energy storage technology as part of the transition to decarbonized energy sources. The Section 45X PTC is a per-unit tax credit available to U.S. manufacturers of specified components of solar and wind energy facilities and energy technology[2] with respect to their annual sales of any such components that they produced in the United States and sold to an unrelated party in the ordinary course of business.[3]

The rate of the credit varies by eligible component and is multiplied by the number of units produced by the taxpayer and sold during the applicable year. The amount of credit available for eligible solar components is determined as follows:

Solar Energy Component

Credit Amount
Thin-film photovoltaic cells
4 cents per direct current watt capacity
Crystalline photovoltaic cells
4 cents per direct current watt capacity
Photovoltaic wafers
$12 per square meter
Solar grade polysilicon
$3 per kilogram
Polymeric backsheet
40 cents per square meter
Solar Module
7 cents per direct current watt capacity
Torque tube
87 cents per kilogram
Structural fastener
$2.28 per kilogram

The credit applies to components produced and sold after December 31, 2022. The credit will begin to phase out in 2030 and will not be available for components sold after 2032. For eligible components sold after December 31, 2029, the amount of credit will be equal to the original credit amount multiplied by the following phase-out percentages:

Calendar Year Sold

75 percent
50 percent
25 percent
After 2032
100 percent (Credit is eliminated)

Components produced at a facility that received a Section 48C ITC after August 2022 are not eligible to receive Section 45X PTC’s.

Section 48C Advanced Energy Project Investment Tax Credit (Section 48C ITC)

The Section 48C ITC, which was originally added by the American Recovery and Reinvestment Act of 2009 (the 2009 Act), has been expanded by the IRA to further foster investment and U.S. job creation in clean energy manufacturing. The original Section 48C ITC was capped at $2.6 billion. The IRA has significantly increased the Section 48C ITC investment by setting the cap at $10 billion, provided, that at least $4 billion must be allocated to “qualified advanced energy projects” located in census tracts that are designated by the IRA as an “energy community” (and that have not been allocated a Section 48C ITC prior to the enactment of the IRA).

Under the expanded Section 48C ITC, the IRA will award tax credits of up to 30% for a manufacturer’s qualified investment in a qualifying advanced energy project provided that the prevailing wage and apprenticeship requirements (discussed below) have been satisfied (or for projects not subject to such requirements). If such requirements are not satisfied, the Section 48C ITC is equal to 6% of the qualified investment.

Qualifying advanced energy projects generally refers to three different types of potentially qualifying projects:

  1. projects to re-equip, expand or establish an industrial or manufacturing facility for the production or recycling of advanced energy components such as property designed to produce energy from solar, hydro, wind, geothermal deposits or other renewable sources (e.g., solar modules, inverters, and batteries);
  2. projects that re-equip an industrial or manufacturing facility with equipment designated to reduce greenhouse gas emissions by at least 20%; and
  3. (iii) projects that re-equip, expand or establish an industrial facility for the processing, refining or recycling of critical minerals.

Unlike the Section 45X PTC, which is a per-unit tax credit based on eligible units produced, the Section 48C ITC is a one-time credit equal to the applicable percentage (generally 30% for projects that satisfy the prevailing wage and apprenticeship requirements) of a taxpayer’s eligible capital investment in a qualifying advanced energy project, with such credit being taken in the year the project is placed in service. The credit can be claimed against a taxpayer’s federal corporate income taxes.

Also unlike the Section 45X PTC, in order to qualify for the Section 48C ITC, taxpayers must submit an application to the Department of Energy (DOE), which will make its recommendation to the IRS, and the IRS will ultimately make a decision regarding whether the applicant will receive a portion of the available Section 48C ITC funding. On February 3, 2023, the IRS released initial guidance for the Section 48C ITC program (Notice 2023-18), providing important information about the application and certification process. The IRS anticipates providing at least two allocation rounds with total aggregate allocations from both rounds equaling $10 billion. As noted above, at least $4 billion must be allocated to projects located in a census tract (or adjoining tract) designated by the IRA as an “energy community,” meaning that the tract either had a coal mine close after 1999, or had a coal-fired electric generating unit retired after 2009, and, in each case, where such projects were not allocated a Section 48C ITC under the 2009 Act.

The first round of allocations will consist of $4 billion in funding, with approximately $1.6 billion -- or 40% -- of that amount allocated to projects located in the coal census tracts. The IRS has not yet announced a timeline for the second allocation round.

In order for property to be “eligible property” for purposes of the Section 48C ITC, such property must be depreciable tangible property used as an integral part of the qualifying advanced energy project. Eligible property does not include any buildings or structural components. Moreover, the Section 48C ITC is not a “stackable” credit, meaning that an investment in an otherwise qualifying project will not be eligible for a Section 48C ITC allocation if such investment has already benefited from other available tax credits.

Prevailing Wage and Apprenticeship Requirements

Awardees are only eligible for the full 30% credit if they satisfy the prevailing wage and apprenticeship requirements for any labor associated with re-equipping, expanding, or establishing the manufacturing facility. The Section 48C ITC available for projects that do not meet the labor requirements are reduced by 80% and, as a result, are only eligible for a 6% tax credit. Although there was a temporary period of time wherethese requirements did not need to be satisfied, based on initial guidance from the IRS released on November 30, 2022 (Notice 2022-61), the prevailing wage and apprenticeship requirements apply to projects that begin construction on or after January 29, 2023.

To satisfy the prevailing wage requirement, contractors and subcontractors must pay all laborers and mechanics who work on a project throughout its construction phase wages no less than the prevailing local wages (determined by the Department of Labor) for constructing, altering, or repairing the facility. The prevailing wages generally are available through Department of Labor publications, but taxpayers can reach out to the Department of Labor for an applicable prevailing wage rate for the location of the project and job description.

To satisfy the apprenticeship requirements, qualified apprentices must perform a specified minimum percentage of the total labor hours spent by the contractor or subcontractor in constructing, repairing, or altering the facility. A qualified apprentice is an employee that participates in a “registered apprenticeship program,”as defined under Section 3131(e)(3)(B). The specified minimum percentages are (i) 10% for projects that start construction before 2023, (ii) 12.5% for projects that start construction before 2024, and (iii) 15% for projects that start construction after 2024.

Monetization Options

The IRA added new Sections 6417 and 6418, which provide opportunities for a manufacturer of solar components to monetize the value of Section 45X PTCs or the Section 48C ITC without entering into complicated tax equity financing transactions. Specifically, (i) Section 6417 provides an option to treat the value of certain tax credits as a payment of tax equal to the value of the credit and then receive a cash payment in the subsequent year equal to such payment as a tax refund (Direct Pay), and (ii) Section 6418 permits transfers of tax credits for cash. For the most part, Direct Pay is only available to U.S. tax-exempt organizations, certain governmental entities, the Tennessee Valley Authority and certain rural electricity cooperatives (Applicable Entities). However, as described below, there is a limited Direct Pay election available to U.S. taxpayers other than tax-exempt organizationss with respect to Section 45X PTCs. The monetization options are as follows:

  • Direct Pay Election: A U.S. manufacturer can elect Direct Pay, as described above, with respect to Section 45X PTCs for the first five years during which the manufacturer is eligible for the credit. The limited Direct Pay election for U.S. taxpayers other than Applicable Entities does not apply to the Section 48C ITC.
  • Transfers of Tax Credits: A U.S. manufacturer (that is not tax-exempt) can also elect to transfer all or a portion of the Section 48C ITC or its Section 45X PTCs for a given year to an unrelated eligible taxpayer in exchange for cash. The cash payments are not subject to tax.

Guidance providing some much needed clarity on the Direct Pay and credit transfer monetization options has been slow to materialize, but such guidance is anticipated to be issued by the IRS and Treasury by the end of Summer 2023. 


Federal Tax Credits for Solar Manufacturers | Department of Energy

IRS establishes Section 48C advanced energy program

IRA Tax Credit Opportunities for Clean Energy Technology Companies

Advanced Manufacturing Production Credit Supports Production of Renewable Energy Technology

IRA Tax Credits for Renewable Energy Component Manufacturers | Foley & Lardner LLP 

[1] Capitalized references to “Section” refer to the applicable section of the Internal Revenue Code of 1986, as amended (the “Code”).
[2] Section 45X also applies to certain domestically produced critical minerals, which are outside the scope of this discussion.
[3] There is an election to treat a sale to an unrelated party as a sale to a related party.However, further guidance is needed from Treasury and the IRS on the substantive meaning of the terms used, procedural requirements, and any applicable eligibility limitations.


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Gregg M. Benson is a Member at Mintz with a multifaceted tax law practice. He advises US and international clients, including companies and individuals, on a wide range of tax issues related to transactions, estate tax planning, and renewable energy projects.