Last Call: Public Comments on Inflation Reduction Act Clean Energy Tax Incentives Are Requested By November 4

45(e)(13)

The IRA permits electricity produced by a taxpayer from qualified renewable sources to qualify for the Production Tax Credit (PTC) if it is used by the taxpayer to produce qualified clean hydrogen at a qualified clean hydrogen facility, provided such production and use is verified by an unrelated person.

• What industry standards should be considered in establishing the verification guidelines?
• Does the definition of “unrelated person” need to be clarified or have a different meaning than for other purposes under Section 45?

45(c)(10)(A)(v)

The IRA modified the definition of marine and hydrokinetic energy to include pressurized water used in a pipeline (or similar man-made conveyance) operated for the distribution of water for agricultural, municipal, or industrial consumption and not primarily for the generation.

• Is guidance needed to define these facilities and, if so, how should they be defined?

45(b)(3), 48(a)(4), 45Y(g)(8), 48E(d)(2)

The IRA limits the amount that the Investment Tax Credit (ITC) and PTC (including the new zero-emissions credits effective after 2024) and several other tax credits are reduced when qualified property is financed with tax-exempt bond (generally the maximum reduction is 15%), whereas previously the reduction could be as high as 100% based on the portion of the qualified property financed with tax-exempt bonds. Under the new rules, the credit reduction is calculated in accordance with Section 45(b)(3) (or rules similar thereto).

• What additional guidance would be helpful in determining how to calculate the reduction?

48(a)(3)(A)

The IRA expanded the definition of energy property eligible for the existing ITC to include electrochromic glass, energy storage technology, qualified biogas property, and microgrid controllers.

• What considerations should be made by Treasury and the IRS in determining what types of technologies and components of those technologies should be included in each new type of energy property?

48(a)(8)

The IRA provides that for certain energy property amounts paid or incurred for qualified interconnection property may be included in basis for purposes of the ITC. Among other requirements, the maximum net output of the energy property being interconnected to the utility cannot exceed 5 MW (AC) and the expenses must be incurred for an addition, modification, or upgrade to the utility’s transmission or distribution system that is necessary to accommodate interconnection of the project.

• What types of additions, modifications, or upgrades to the transmission or distribution system are required for the purpose of accommodating interconnection?
• Is guidance needed to define energy property that has a maximum net output not greater than 5 MW (AC)?
• What type of documentation, in addition to interconnection agreements and cost certification reports, is readily available for a taxpayer to demonstrate that they have paid or incurred interconnection costs?

45U

The IRA provides for a new PTC under Section 45U for electricity produced from qualified zero-emissions nuclear power facilities. The amount of the credit is reduced by a “reduction amount” that is calculated, in part, based on the gross receipts from the electricity produced by the facility, which include amounts received by the facility from a “zero-emission credit program,” unless an exclusion applies.

• Is guidance needed to clarify the meaning of the term "gross receipts"?
• What factors should be considered in determining whether a payment is from a zero-emission credit program and, if so, whether an exception applies?

45Y

The IRA enacted a new PTC under Section 45Y for electricity generating projects placed in service after 2024. The new PTC is technology neutral and applies to electricity produced at a zero-emissions facility and either (i) sold by the taxpayer to an unrelated person, or (ii) sold, consumed or stored by the taxpayer,in the case of a qualified facility equipped with a metering device owned and operated by an unrelated person.

• Is guidance needed to determine whether electricity is considered sold to an unrelated person, or the taxable year in which electricity is considered used by the taxpayer?
• Is guidance needed to determine whether a facility is considered equipped with a metering device owned and operated by an unrelated person?

45Y(b)(2)

The Secretary is required to publish annual greenhouse gas (GHG) emissions rates for types or categories of facilities. For facilities where no emissions rate has been established, the facility may petition the Secretary for a determination.

• What factors should Treasury and the IRS consider in publishing a table with the annual GHG emission rates for different categories of facilities, including considerations around scope?
• What procedures should be made available for filing a petition for an emissions rate determination by the Secretary and what factors should be considered in the determination?

48E

The IRA enacted a new ITC under Section 48E for electricity generating projects placed in service after 2024. The new ITC is technology neutral and applies to investments in electricity generating facilities with GHG emissions rates that do not exceed zero. Taxpayers can take either the PTC under 45Y or 48E. Section 48E uses the same emissions standards as under Section 45Y.

• What industry mechanisms currently exist for a taxpayer to demonstrate eligibility for the credit?
• The questions above regarding GHG emissions rates under Section 45Y will be relevant to Section 48E because Section 48E(b)(3) incorporates the special GHG accounting rules provided in Section 45Y(b)(2).

48(e) & 48E(h)

The IRA provides an additional 10-20% ITC for certain qualifying electricity generating facilities that (i) have a maximum net output less than 5 MW (AC); and (ii) are either (A) located in a qualified low income community or on tribal land (10%), or (B) part of a low-income residential building project or low-income economic benefit project (20%).

• What mechanisms exist or need to be designed for a taxpayer to establish that a project is located in a qualifying low income community or on tribal land, or is part of a qualifying low-income residential building project or low-income economic benefit project.
• What guidance is needed with respect to recapture of the additional credit if the project ceases to qualify?

48(e)(1) & (2), 48E(h)(1)

The 10-20% bonus ITC under Section 48(e) is only available for qualified solar and wind projects that receive allocations of solar and wind environmental justice capacity limitations pursuant to a new program required to be established by the Secretary within 180 days of the IRA enactment. The 10-20% bonus ITC under Section 48E(h) is only available to qualified projects that receive allocations of environmental justice capacity limitations under a different new program required to be established by January 1, 2025.

• What considerations should be taken into account with respect to guidance on the application process for environmental justice capacity limitations?
• What level of project completion, if any, should be required at the time of application for such capacity limitations or when the capacity limitations are allocated?

6417

An “applicable entity” (or, for certain tax credits, a taxpayer that elects to be treated as an applicable entity) can elect under new Section 6417 to be treated as making a payment against federal income taxes equal to the amount of such credit, and will receive tax refund of the amount treated as a tax payment to the extent no tax is owed (so called, “Direct Pay”).

• What guidance is needed to determine the amount treated as a payment against taxes or clarify the application of any other Code provision to make this determination?
• What, if any, guidance is needed to clarify the application of any Code provision other than Section 6417 to the applicable entity or taxpayer making the election for Direct Pay?
• What types of structures are expected to be used by applicable entities or taxpayers that elect Direct Pay?

6417(d)(1)(A)

Generally, an applicable entity means (i) any organization exempt from tax imposed by subtitle A, (ii) any State or political subdivision thereof; (iii) the Tennessee Valley Authority; (iv) an Indian tribal government; (v) any Alaska Native Corporation; or (vi) any rural electricity cooperative.

• What guidance is needed to clarify which entities are applicable entities under Section 6417(d)(1)(A)? Are there specific issues that Treasury and the IRS should address for applicable entities that are subject to non-tax legal requirements or other rules that may affect such entities' ability to elect Direct Pay?

6417(d)(1)(B), (C) & (D)

In the case of the clean hydrogen production credit (Section 45V), the advanced manufactured credit (Section 45X) and the CCS credit (Section 45Q), other taxpayers can elect to be treated as an “applicable entity” and make the election.

• What guidance is needed to clarify which taxpayers may elect to be treated as applicable entities and elect Direct Pay?

6417(c)

Special rules apply in the case of Direct Pay elections with respect to property held directly by partnerships or S corporations, including that the election is made by the partnership or S corporation and cannot be made by a member or shareholder, and that the refund payment is made by the IRS to the entity before determining the distributive shares of partners or shareholders.

• What issues could arise in the case of a Direct Pay election by a partnership or S corporation and what guidance is needed for such issues?
• Is guidance needed to clarify the treatment of a payment made by the IRS to the electing partnership or S corporation?

6417(d)(3)(A)

In general, the election is to be made at such time and manner as the IRS provides. However, Section 6417 also includes several specific rules regarding the effect of elections with respect to certain tax credits and that the election cannot be made later than (I) in the case of any government, or political subdivision for which no return is required under Section 6011 or Section 6033(a), the date determined by the IRS, or (II) in any other case, the due date (including extensions of time) for the tax return for the taxable year for which the election is made, but not earlier than 180 days after August 16, 2022.

• What guidance is needed and what factors should be considered by Treasury and the IRS in determining the time and manner for a tax-exempt entity to makes the election?
• What factors should the IRS and Treasury consider in determining the due date for the election or when the applicable credit is treated as a payment against taxes in the case of governments and political subdivisions that are not required to file tax returns?

6417(d)(5)&(6)

Section 6417 includes recapture rules, a 20% penalty when there is an “excessive payment,” and a reasonable cause exception to the penalty.

• What documentation or information should be required to prevent fraud, improper payments or excessive payments and when should it be required?
• What guidance is needed with respect to recapture, the excessive payment penalty or the reasonable cause exception?

6418

The IRA adds Section 6418, which permits an eligible taxpayer (any taxpayer who is not described as an applicable entity under Section 6417) to make an election to sell all or any portion of certain tax credits to an unrelated person for cash, in which case the transferee identified in the election is treated as the taxpayer with respect to such tax credit and the credit is taken into account in the first taxable year of the transferee ending with, or after, the taxable year of the transferor taxpayer with respect to which the credit was determined.

• What clarification is needed on a transferee taxpayer’s eligibility to claim the credit?
• What guidance is needed to clarify the application of any other Code provision to determine the amount of the credit transferred?
• What guidance is needed with respect to the application of any other Code provision on the transferee taxpayer?

6418(c)

Special rules apply under Section 6418 in the case of credit transfer elections with respect to property held directly by partnerships or S corporations, including that the election must be made by the partnership or S corporation and not by a member or shareholder.

• Where a credit transfer election is made by a partnership or S corporation what guidance is needed and what factors should Treasury and the IRS consider in determining the time and manner of the transfer election?

6418(g)

Section 6418 includes recapture rules, a 20% penalty if there is an “excessive credit transfer,” and a reasonable cause exception to the penalty.

• What guidance is needed to clarify the application of credit recapture, basis adjustment, and eligibility rules if the qualified property is considered used by a tax-exempt entity under Section 50(b)(3)?
• What factors should be considered by Treasury and the IRS in determining the form and manner for the credit transferor to notify the transferee of a recapture event?
• What should Treasury and the IRS consider in establishing documentation requirements to prevent fraud and excessive credit transfers?
• What guidance is needed with respect to recapture, the excessive credit transfer penalty or the reasonable cause exception to the penalty?

45(b)(7) & 48(a)(10)

[Similar provisions in 30C, 45Q, 45L, 45U, 45V, 45Y, 45Z, 48C, 48E & 179D]

The IRA added a new two-tier rate structure for the PTC, ITC and several other tax credits, which provides a low base rate and a maximum rate that is 5 times higher if prevailing wage and apprenticeship requirements are satisfied or an exception applies.

Under the prevailing wage requirement, the taxpayer must ensure that all laborers and mechanics employed by the taxpayer or any contractor or subcontractor in the construction, repair or alteration of the applicable facility are paid wages at rates at least equal to those set by the Secretary of Labor under the Davis-Bacon Act for similar construction, alteration, or repair work in the locality.

• Is guidance needed to clarify how to apply the Davis-Bacon prevailing wage requirements?
• What should Treasury and the IRS consider in developing rules for taxpayers to correct a deficiency for failure to satisfy prevailing wage requirements?
• What documentation or substantiation should be required to show compliance with prevailing wage requirements?

45(b)(8) & 48(a)(11)

[Similar provisions in 30C, 45Q, 45V, 45Y, 45Z, 48C, 48E & 179D]

To satisfy the apprenticeship requirement, the taxpayer must ensure that not less than the applicable percentage (generally 15% if construction starts after 2023) of the total labor hours of the construction, alteration, or repair work performed by any contractor or subcontractor is performed by an employee who participates in a registered apprenticeship program.

• What factors should Treasury and the IRS use to determine the appropriate duration of employment for purposes of the apprenticeship requirement?
• What documentation or substantiation do taxpayers maintain or could they create to demonstrate compliance with the apprenticeship requirement?

45(b)(8)(D)(ii) & 48(a)(11)

[Similar provisions in 30C, 45Q, 45V, 45Y, 45Z, 48C, 48E & 179D]

Taxpayers that have made a good faith effort to comply with the apprenticeship requirement are deemed to have complied with the requirement. Taxpayers can qualify for the good faith effort exception if they have requested qualified apprentices from a registered apprenticeship program and the request is either denied or the program fails to respond within 5 business days.

• What documentation or substantiation do taxpayers maintain or could they create to demonstrate compliance with the good faith exception?

45(b)(6)(A), 48(a)(9)(A),

45Y(a)(2)(B), 48E(a)(2)(A)

The maximum PTC under Sections 45 and 45Y and the maximum ITC under Sections 48 and 48E is available without satisfying the prevailing wage and apprenticeship requirements in the case of qualifying projects that start construction within 59 days of the date the IRS releases Treasury Regulations or that have a maximum net output of less than 1MW (AC) electrical or thermal energy.

• Is clarification needed on how to determine whether a facility’s maximum net output is less than 1 megawatt?

45(b)(9), 45Y(g)(11),

48(a)(12), 48E(a)(3)(B)

The IRA added a domestic content bonus credit, which increases the amount of the PTC under Sections 45 and 45Y by 2% or 10% or adds an additional 2% or 10% ITC under Sections 48 and 48E (in each case, depending on satisfaction of the wage and apprenticeship requirements or an applicable exception) if the taxpayer certifies that any steel, iron, or manufactured product that is a component of the applicable facility (upon completion of construction) was produced in the United States (as determined under 49 C.F.R. 661).

• What regulations, if any, under 49 C.F.R. 661 should apply in determining whether production occurred in the United States?
• Should "completion of construction" be considered to occur on the date the facility is considered placed in service for federal income tax purposes or should it be determined using different factors?
• What records or documentation do taxpayers maintain or could they create to substantiate satisfaction of the domestic content requirements?
• Is clarification needed to determine whether the percentage of products manufactured in the United States meets the required threshold as compared to all manufactured products in completed facilities deemed to be produced in the United States?

45(b)(10), 48(a)(13), 45Y(g)(12), 48E(d)(5)

If the PTC or ITC is claimed as a direct payment under Section 6417 and the domestic content requirement is not satisfied, the amount of credit treated as a direct payment is subject to a graduated phase-out (90% if construction starts in 2024, 80% if construction starts in 2025 and 0% thereafter), except for facilities with a maximum net output less than 1 MW (AC). An exception to the phase-out is available if either the inclusion of steel, iron, or manufactured products that are produced in the United States increases the overall costs of construction by more than 25 % or the relevant steel, iron, or manufactured products are not produced in the United States in sufficient and reasonably available quantities or of a satisfactory quality.

• What guidance or clarifications are needed to determine whether the amount of the applicable tax credit treated as a payment against taxes under Section 6417 is required to be reduced under the phase-out?
• What guidance or clarifications are needed with respect to determining satisfaction of one of the exceptions?

45(b)(11)(A), 45Y(g)(7), 48(a)(14), 48E(a)(3)(A)

The IRA added an energy community bonus credit, which provides a 2% or 10% increase to the applicable PTC under Sections 45 and 45Y, or an additional 2% or 10% ITC under Sections 48 and 48E for qualified facilities located in either (1) a brownfield site, (2) an area that has (or had, at any time after December 31, 2009) at least 0.17 % direct employment in, or at least 25 % of its local tax revenues related to the coal, oil, or natural gas industries, and an the unemployment rate not less than the national average unemployment rate for the previous year (as determined by the Secretary), or (3) a census tract (i) in which a coal mine closed after December 31, 1999 or a coal-fired electric generating unit was retired after December 31, 2009; or (ii) that is directly adjoining to any census tract described in (i).

The definition of an energy community for the purposes of the ITC is slightly different.

• What timing considerations are relevant for determining whether a qualified facility is “located in” an energy community?
• What sources of information should the IRS apply in determining satisfaction of the relevant standards for each type of energy community?
• What tax revenues should be included, or other factors should be considered relevant, in determining how much local tax revenue is related to the coal, oil, or natural gas industries?
• What past or possible future changes in the nature of the applicable geographical area in each category should be considered, and why?

30D

The IRA made significant changes to the credit available to purchasers of new qualified clean vehicles for consumer use, including that, to qualify for $3,750 of the maximum $7,500 tax credit, a certain percentage of the value of the critical minerals contained in the vehicle’s battery must be extracted or processed in the United States or a country with which the United States has a free trade agreement (FTA) or recycled in North America.

• What factors and definitions should be considered to determine whether the critical minerals were extracted or processed in the United States or a country with which the United States has an FTA, or recycled in North America?
• Are clarifications needed to determine what percentage of the total value of the critical minerals contained in the vehicle’s battery is attributable to critical minerals produced or extracted in the United States or a country with which the United States has an FTA or recycled in North America?

30D(b)

In order to qualify for the other $3,750 of the maximum $7,500 credit, a certain percentage of the components of the vehicle’s battery must be assembled or manufactured in North America.

• What factors and definitions should be considered to determine whether the battery components were manufactured or assembled in North America?
• Are clarifications needed to determine what percentage of the total value of the battery components is attributable to components manufactured or assembled in North America?

30D(d)(7)

The credit is generally not available with respect to a clean vehicle if the critical minerals in the battery were extracted, processed, or recycled by a “foreign entity of concern” or if the battery components were manufactured by a foreign entity of concern.

• What guidance is needed to clarify the definition of “foreign entity of concern”?
• What existing resources are available to assist qualified manufacturers in verifying that their vehicles are not subject to this exclusion?

30D(g)

The IRA modified the clean vehicle credit to permit taxpayers to elect to transfer the credit to registered dealers for vehicles placed in service after 2023.

• What factors should Treasury and the IRS consider in establishing the requirements for making the election?
• Can non-individual taxpayers make an election?
• What guidance is needed to determine who is a licensed dealer for purposes of the credit transfer election?

25E

The IRA added this new credit for the purchase of previously owned clean vehicles for qualified buyers. There are eligibility limits as to the maximum purchase price and taxpayer income. The credit is equal to the lesser of (1) $4,000, or (2) 30 % of the vehicle’s purchase price.

• What, if any, guidance is needed to address how a taxpayer can verify that a vehicle qualifies as a “previously-owned clean vehicle” as defined in Section 25E(c)(1)?

25E(f)

Consumers can elect to transfer the Section 25E credit under rules similar to those under Section 30D with respect to vehicles acquired after 2023.

• What modifications, if any, should be made to the credit transfer rules under Section 30D(g) when applying them to the Section 25E credit?

45X(a)(1), (a)(2), (b) & (c)

The IRA added this new Advanced Manufacturing Production credit for certain critical minerals and eligible components produced by a taxpayer in the United States and sold by such taxpayer to an unrelated person. Eligible components are components utilized in the construction of wind and solar facilities and energy storage technology.

• What clarifications are needed regarding the definition of an “eligible component”?
• How should the amount of the credit be calculated for components that could be used in systems of varying capacities?
• How should eligibility for the applicable credit amount be demonstrated?
• What should the requirements be for establishing and certifying that a “related offshore wind vessel” is used for offshore wind development and how should situations where it is uncertain how much a vessel will be used for offshore wind be addressed?

45X(d)(4)

Generally the taxpayer must sell the critical minerals or eligible components to an unrelated person to be eligible for the Section 45X credit. A person is treated as selling an eligible component to an unrelated person if such eligible component is integrated, incorporated, or assembled into another eligible component, which is sold to an unrelated person.

• How should Treasury and the IRS determine when an eligible component is “integrated, incorporated, or assembled” into another eligible component?

45X(a)(3)(B)

However, the taxpayer may make an election to treat the sale of components to a related person as made to an unrelated person.

• What factors should Treasury and the IRS consider in determining the conditions for such election?
• What, if any, clarification is needed as to the meanings of the terms “unrelated person” and “related person”?

48C

The IRA expanded the scope of the credit for capital investments in a Qualifying Advanced Energy Project by, inter alia, revising the definition of a qualifying advanced energy project to mean a project which (1) re-equips, expands, or establishes an industrial or manufacturing facility for the production or recycling of one of nine types of clean energy property (related to clean energy); (2) re-equips an industrial or manufacturing facility with equipment that reduces GHG emissions by at least 20 % using certain technologies; or (3) re-equips, expands or establishes an industrial facility for processing, refining or recycling of critical materials.

• How should a qualifying advanced energy project substantiate its eligibility based on any of the available criteria, but particularly the criteria provided by Section 13501 of the IRA?
• Is guidance needed in order for the credit to be available to facilities currently producing industrial materials for use in the construction or alteration of buildings and infrastructure projects that can be retrofitted to produce materials with lower levels of embodied GHG emissions?
• What guidance is needed to define (i) “equipment designed to refine, electrolyze, or blend any fuel, chemical, or product which is renewable, or low carbon and low emission,” (ii) “energy efficiency,” or (iii) “reduction in waste from industrial processes”?
• What guidance is needed to determine the percentage reduction in GHG emissions and are there any existing guidelines or practices that could be used to demonstrate emissions reductions?

48C

The IRA also provides that certification of qualification for the Section 48C credit will be under a new program established by the IRA, beginning January 1, 2023.

• What should Treasury and the IRS consider in determining the selection criteria for certification and to what extent should they use the existing guidelines in Notice 2009-72, 2009-37 I.R.B. 325 and Notice 2013-12, 2013-10 I.R.B. 543?