The Department of the Treasury and the Internal Revenue Service in late December issued a notice that provides transitional procedures for applicable entities to claim exceptions to the domestic content requirements for claiming elective payment energy tax credits in 2024.
Under the Inflation Reduction Act, the value of energy credits eligible for elective payment is phased out for projects failing to meet domestic content requirements.
For projects construction of which begin in 2024, applicable credits are reduced by 10 percent; for projects construction of which begins in 2025, applicable credits are reduced by 15 percent; and for projects construction of which begins after 2025, applicable credits are reduced 100 percent.
The phaseouts for elective payment and the statutory exception apply to the following credits:
- Renewable Electricity Production Credit
- Clean Electricity Production Credit;
- Energy Credit; and
- Clean Electricity Investment Credit.
Domestic content is generally defined as steel, iron or manufactured products that are manufactured or produced in the United States.
There are three statutory exceptions to the phaseout:
- If a project is less than 1 megawatt in capacity;
- If meeting the domestic content requirement would increase project costs by 25 percent or more (Increased Cost Exception); or
- If the content needed to meet the domestic content requirement are not available in sufficient quantity or quality (Non-Availability Exception).
Treasury and the IRS have not provided any guidance as to how these exceptions will be implemented and, so along with seeking comments on how these exceptions should be implemented, they provided transitional guidance for 2024.
Specifically, an entity may make an attestation under threat of perjury that is has reviewed the requirements for the Increased Cost Exception and the Non-Availability Exception and has “made a good faith determination that the qualified facility, energy project, or qualified investment with respect to a qualified facility or energy storage technology, as applicable, qualifies for either the Increased Cost Exception or the Non-Availability Exception, or both.”
The notice provides no further guidance as to how an entity should determine whether it meets either the Increased Cost Exception or Non-Availability Exception. The guidance also provides no further insights as to how an entity can prove it has acted “in good faith” although, generally, such determinations are made on a facts and circumstances basis.
As part of the notice, Treasury and the IRS are also seeking comments to be filed by February 16, 2024, on the process for claiming an exception to these requirements. In addition to general comments, the Treasury Department and IRS request comments that address the number of qualified facilities that are expected to be affected by the phaseouts for elective payment, factors in defining overall costs of construction, and documentation and substantiation requirements.
Written comments should be submitted by February 26, 2024. The subject line for the comments should include a reference to Notice 2024-09. Comments may be submitted electronically via the Federal eRulemaking Portal (type IRS-2023-0062 in the search field on the regulations.gov homepage to find this notice and submit comments).
Alternatively, comments may be submitted by mail to: Internal Revenue Service, CC:PA:LPD:PR (Notice 2024-09), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.
More information about clean energy guidance can be found on the IRS Inflation Reduction Act of 2022 webpage.