Inflation Reduction Act Update: Additional Guidance For The Qualifying Advanced Energy Project Credit 48C(e)
If your company is seeking to invest in energy communities eligible for tax credits under the Qualifying Advanced Energy Project Credit (Section 48C(e)), we highly recommend exploring the latest map layer available in AO Prospect. This map layer allows you to efficiently identify and target these specific areas for your solar developments.
The IRS and the US Department of Treasury have released additional guidance, including:
48C Energy Communities Census Tract Locations
Allocation of $4 billion in credits
Introduction of the DOE eXCHANGE portal
Section 48C and 45X “facility” definitions
Placed in service requirement
Submittal process for concept papers and joint applications
Selection criteria used to evaluate whether a project merits a DOE recommendation
Notification process for significant change in plans
Disclosure of certain information
The comprehensive update includes 100 pages of Appendices. Reference Appendix A for examples of eligible and ineligible projects and see Appendix B for a list of priority areas, including (but not limited to) solar, wind, and hydrogen. Here are the highlights:
1) §48C Energy Communities Census Tract Locations
The DOE and NETL have published a new map displaying census tracts that are considered energy communities for the purposes of the §48C tax credit. To be considered, a project must be located in a census tract that satisfies the relevant requirements of an energy community as noted in §48C and has not received funding in a prior round of 48C.
You’ll find this data already integrated into AO under the Energy Communities (IRA) header.
💡Pro-Tip: Limit your parcel searches to these tracts by copying a tract to your project map. From there, click on the copied feature. In the pop-up, click on See Actions > Parcel Search.
2) Allocation of Credits and Key Program Dates
The current guidance covers Round 1 of at least two rounds of funding. 4B in total with 1.6B to be allocated to projects located in §48C(e) Energy Communities Census Tracts.
The IRS will make all Round 1 allocation decisions by March 31, 2024.
Caveats:
Depending on applications received, the IRS/Treasury may not allocate exactly 40% of the total credits allocated in Round 1 to 48C(e) Energy Communities
To be considered:
Submit concept paper to IRS through the eXCHANGE portal
DOE will provide a letter encouraging or discouraging submission of a 48C application
Applicants can still apply if they receive a discouragement letter.
7 days after the date of the DOE letter, DOE will begin the acceptance process for the application
The 48C application MUST be submitted no later than 45 days after DOE begins the acceptance process for the 48C application.
Key Program Dates
3) Introduction of the DOE eXCHANGE portal
Submissions will begin on June 30th, 2023. Interested applicants may download relevant materials prior to this date.
4) § 48C and § 45X “facility” definitions
§48C
Eligible property makes up the qualified investment that is part of the 48C facility.
Eligible property means any property that -
(1) is necessary for production/recycling of property (48C(c)(1)(A)(i)), re-equipping an industrial or manufacturing facility (48C(c)(1)(A)(ii)), or re-equipping, expanding, or establishing an industrial facility (48C(c)(1)(A)(iii)),
(2) is tangible personal property, or other tangible property (not incl. Buildings or structural components), but only if such property is used as an integral part of the qualified investment credit facility,
(3) With respect to which depreciation (or amortization in lieu of depreciation) is allowable.
§45X Facility
For purposes of the §38 general business credit, the advanced manufacturing production credit under 45X for any taxable year is an amount equal to the sum of the credit amounts determined under 45X(b) with respect to each eligible component that is produced by the taxpayer and, during the taxable year, sold by the taxpayer to an unrelated person.
§ 45X(c)(1)(B) provides that “eligible component” doesn’t include any property which is produced at a facility if:
The basis of any property which is part of such a facility is taken into account for purposes of the credit allowed under 48C after August 16, 2022.
The 45X credit treats all tangible property that compromises an independently functioning production until that produces 1 or more eligible components will be treated as a single facility.
Additional definitions for “production unit” are forthcoming in future guidance.
See the Guidance (pgs 6-7) for an example scenario of how these two facility types interact.
5) Placed in Service Requirement
An eligible property is placed in service in the EARLIER of the following taxable years:
the period for depreciation with respect to the eligible property begins;
The eligible property is placed in a condition or state of readiness and availability for a specifically assigned function - whether in a trade or business or in the production of income.
❗NO § 48C(e) allocation if placed in service PRIOR to allocation award.
6) Concept Papers and 48C(e) Applications
Applicants MUST use the eXCHANGE portal to submit:
Concept paper for DOE consideration
§ 48C(e) application
If the application doesn’t propose a qualifying project OR fails to include all required information, the DOE may decline the application or request a resubmittal of the application with the missing information.
If the DOE doesn’t provide a recommendation to the IRS, the IRS will not consider the application.
If the DOE sends a letter of discouragement to the applicant in response to the concept paper, an applicant can still submit an application, but applicants should note:
The concept paper and application review process are similar in their methodology and rigor.
If the IRS denies an application, applicants can request a debriefing with the DOE.
7) Selection criteria used to evaluate whether a project merits a DOE recommendation
In general, selection criteria include:
Greatest domestic job creation (direct and indirect) during the credit period
Greatest net impact in avoiding/reducing air pollutants/greenhouse gasses
Greatest potential for tech innovation and commercial deployment
Lowest levelized cost of generated or stored energy, or of measured reduction in energy consumption or greenhouse gas emissions (full supply chain)
Shortest project time from certification to completion
The four technical review criteria includes:
Commercial viability
Greenhouse gas emissions impact
US Supply Chain and Domestic Manufacturing strengthening (net-zero economy)
Workforce and community engagement
Applicants will be assessed on their chosen category and project types, listed below in brief:
Clean Energy Manufacturing and Recycling
9 eligible project types
Critical Materials Processing, Refining and Recycling
4 eligible project types
Industrial GHG Emissions Reduction (by at least 20%)
1 eligible project type
Critical materials list: https://www.energy.gov/cmm/critical-minerals-materials-program
USGS 2022 Final List of Critical Materials: 87 FR 10381
Appendix A provides illustrative examples of eligible and ineligible projects.
8) Significant Change in Plans
If a project has a significant change in plan, the taxpayer must notify the DOE/IRS in a letter uploaded to the eXCHANGE portal.
What constitutes a “significant change”?
A reasonable taxpayer would conclude the change might have negatively influenced the DOE in its recommendation/ranking or the IRS in its issuance of the Allocation letter had that information has been presented at the time of application.
Disclosure of certain information
In compliance with the law, the IRS will publish the identity of the applicant and the number of allocated credits.
The taxpayer can opt-in/opt out of the disclosure of additional information not required by law (i.e. project location and brief description) via the eXCHANGE portal when they receive notification of their allocation. *This choice does not impact the allocation of credits.
Resources
1) Questions on how to leverage this layer in AO?
Reach out to support@andersonopt.com for more tips on getting the most from this layer.
2) Questions about the registration process or submitting the application via the portal?
Email InfrastructureExchangeSupport@hq.doe.gov for help.
3) Questions about the non-tax aspects of the notice?
Submit to the Department of Energy at 48CQuestions@hq.doe.gov.
The DOE and Treasury hosted a virtual informational webinar on June 27, 2023. Additional information and resources can be found HERE.
