On May 31, 2023, the Department of Treasury (“Treasury”) and the Internal Revenue Service (“IRS”) released Notice 2023-44 (“Notice”) to provide additional guidance on Section 48C, a revised and expanded allocation-based investment tax credit for qualified investments in eligible qualifying advanced energy projects (the “Section 48C Credit”). The Notice modifies and clarifies Notice 2023-18, which was released on February 13, 2023 and provided detailed mechanical guidance on applying for allocations of the Section 48C Credit (see Mintz’s previous coverage of Notice 2023-18).
The Inflation Reduction Act (“IRA”), which was signed into law on August 16, 2022, included amendments to Section 48C to further incentivize the deployment of clean energy projects, the creation of energy-related jobs, and the improvement of energy security. The IRA modified the Section 48C Credit by allowing Treasury to allocate up to $10 billion to qualified investments in qualifying advanced energy projects, 40% of which is earmarked for facilities located in certain energy communities (Section 48C Energy Communities Census Tracts). For qualifying investments in a taxable year, the credit is 30%. However, it is reduced to 6% if certain prevailing wage and apprenticeship requirements are not satisfied. Taxpayers must adhere to the application process to be allocated and claim the Section 48C Credit.
Application Process and Timeline
Pursuant to the Notice, in order to be considered for an allocation of Section 48C Credits for the first round of funding (“Round 1”), which will allocate $4 billion of the Section 48C Credits (of which $1.6 billion will be allocated to facilities in certain energy communities), taxpayers must first submit concept papers to the IRS through the online eXCHANGE portal. The eXCHANGE portal will open no later than June 30, 2023, and concept papers must be submitted before 12:00 PM noon EST on July 31, 2023. The Department of Energy ("DOE") will respond to concept paper submissions with letters encouraging or discouraging a Section 48C(e) application. While a discouragement letter may indicate that the DOE is unlikely to recommend the project based on the information in the concept paper, taxpayers may submit a Section 48C(e) application even after receiving a letter of discouragement. The DOE will begin the acceptance process for an application seven days after the letter’s date.
If a taxpayer chooses to proceed, it must submit a Section 48C(e) application through the eXCHANGE portal no later than 45 days after the DOE begins the acceptance process. The application will then be assessed for eligibility and threshold requirements before undergoing a technical review for four key criteria (commercial viability, greenhouse gas (“GHG”) emissions impacts, strengthening US supply chains and domestic manufacturing for a net-zero economy, and workforce and community engagement) and ranking alongside the other applications, in each case, by the DOE. The DOE will then provide a recommendation of acceptance or denial to the IRS, which will accept or reject the application based on the DOE’s recommendation and ranking. The IRS will make all Round 1 allocation decisions by March 31, 2024.
The IRS will send allocation letters with the allocated amount of Section 48C Credits to accepted applicants (“Allocation Letters”). Taxpayers must notify the DOE that certification requirements have been met via submission through the eXCHANGE portal within two years of receiving an Allocation Letter. The IRS will then certify the Section 48C facility by sending certification letters (“Certification Letters”). Within two years of receiving a Certification Letter, the taxpayer must notify the DOE via the eXCHANGE portal that the Section 48C facility has been placed in service. If the taxpayer fails to place the Section 48C facility in service and notify the DOE within two years, they forfeit the allocated Section 48C Credit.
Importantly, the Notice clarifies that Section 48C Credits cannot be awarded retroactively. To be eligible, projects must be placed in service after receiving the Section 48C Credit.
In determining which qualifying advanced energy projects to certify, the Treasury and the DOE will consider the following criteria:
- Domestic job creation during the credit period;
- Net impact in avoiding or reducing air pollutants or anthropogenic GHG emissions;
- Greatest potential for technological innovation and commercial deployment;
- Levelized cost of generated or stored energy, or of measured reduction in energy or GHG emissions based on the full supply chain; and
- Shortest project time from certification to completion.
The Notice has further refined these criteria into four key technical review criteria, as noted above and described below, that will be analyzed and evaluated for purposes of the Treasury and the DOE making their allocation determinations:
- Commercial viability: The DOE will consider the project’s schedule and time from certification to completion, including the project’s readiness to proceed based on firmness of site selection and progress towards securing necessary permits, contracts, reviews, and agreements.
- GHG emissions impacts: The DOE will consider how the project plans to align with the national target of net-zero emissions by 2050 based on both direct and indirect emissions over the facility’s lifetime.
- Strengthening US supply chains and domestic manufacturing for a net-zero economy: The DOE will consider the extent to which a project would increase the availability of critical materials for clean energy products through domestic production or recycling, how much the project would address a critical supply chain need, and how much the project would support and encourage follow-on supply chain investments in the region.
- Workforce and community engagement: The DOE will consider the number and quality of domestic jobs the project would create, the extent of efforts to engage community and labor stakeholders, and local economic benefits stemming from the project, including how the project may support transition opportunities for workers in coal, traditional energy, and automotive sectors into clean energy jobs.
Interaction of Section 45X and Section 48C
Section 45X, which provides a credit for the production of certain “eligible components” of renewable energy equipment such as solar panels and critical minerals, excludes from the definition of “eligible component” any property that is produced at a facility if the basis of any part of the facility is taken into account for purposes of the Section 48C Credit after August 16, 2022. The Notice clarifies that Section 48C and Section 45X credits are mutually exclusive for any facility. Therefore, taxpayers must decide which credit to pursue. However, the Notice clarifies through an example that where a manufacturing site contains separate independently functioning production units, and the taxpayer receives a Section 48C Credit for one unit but not the other, the non-Section 48C unit can still produce Section 45X eligible components (even if it is utilizing items produced by the Section 48C unit). As such, it is possible for a Section 48C facility and a Section 45X facility to be housed in the same manufacturing site.
Section 48C(e) Energy Communities Census Tracts
The Notice also provides information about Section 48C(e) Energy Communities Census Tracts, which must receive at least $4 billion of the $10 billion that can be allocated under the Section 48C(e) program. Whether a project is located in an Energy Communities Census Tract will be determined at the time the DOE provides Section 48C recommendations to the IRS. To be treated as located within an Energy Community, a facility must have over 50% of its square footage in the census tract. Interested parties can determine whether a facility is located in an Energy Community by referring to Appendix C of the Notice or by using the map available at www.energy.gov/infrastructure/48C.
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We will continue to provide updates concerning the implementation of the new tax incentives included in the IRA. For further information or assistance regarding this Notice and how to take advantage of the new clean energy tax incentives, please contact one of the authors or your Mintz relationship attorney.
 All references to "Section" are to the Internal Revenue Code of 1986, as amended, unless otherwise indicated.