Unlocking New Opportunities: IRS Expands 'Energy Communities' for Solar Development with Latest Guidance
In a move to bolster renewable energy initiatives, the IRS has recently issued groundbreaking guidance, outlined in Notice 2024-30. This guidance marks a significant expansion of what constitutes MSA/non-MSA "Energy Communities," primarily through modifications to the NAICS codes considered for the Fossil Fuel Employment (FFE) threshold.
Understanding Energy Communities
To be currently recognized as an "Energy Community" under the Inflation Reduction Act, both MSAs and non-MSAs must meet specific criteria:
For at least one year since 2009, direct employment related to coal, oil, or natural gas that amounts to 0.17% or greater (the fossil fuel employment (FFE) threshold); AND
Have an unemployment rate for 2022 that is equal to or greater than the national average unemployment rate for 2022.
In other words, MSAs and non-MSAs that meet both requirements above are energy communities as of January 1, 2023 and will maintain that status until the unemployment rates for 2023 become available (~May 2024) and a new list of energy communities is provided.
What's Changed?
The recent IRS guidance brings about a crucial change by including two new NAICS codes within the FFE threshold:
2212 - Natural Gas Distribution
23712 - Oil & Gas Pipeline & Related Structures Construction
Implications and Opportunities
This expansion opens doors to new possibilities. The number of counties eligible to be considered energy communities has grown, promising broader access to renewable energy tax incentives and support.
Key Takeaways
The guidance comes with two appendices:
Appendix 1: This list identifies additional MSAs and non-MSAs meeting the Fossil Fuel Employment Threshold, incorporating the newly added NAICS codes. Counties listed here are not currently designated as energy communities, pending the release of unemployment rate data in May 2024.
Appendix 2: This list identifies MSAs and non-MSAs that qualify as energy communities for the year 2023 based on the addition of the two new NAICS codes. These counties meet both the Fossil Fuel Employment threshold and the unemployment rate requirement for the previous calendar year.
Important Dates
Effective Date: January 1, 2023 (continuing until the list is updated based on unemployment rates for the calendar year 2023).
Applicability Date: Taxpayers can rely on the modified rules outlined in Notice 2024-30 for taxable years ending after April 4, 2023, until proposed regulations are published.
Map Layers in AO
The Department of Energy's map layer currently displays MSAs and non-MSAs that qualify as energy communities for the year 2023, excluding counties listed in both Appendices. Updates in AO will be made promptly as the DOE/NETL source data is refreshed.
This IRS guidance signals a significant shift in support for renewable energy endeavors, amplifying opportunities for communities nationwide.
Stay tuned for further developments as we continue to navigate this evolving landscape.