The IRS recently released Notice 2023-44 (Notice), which provides further guidance on the application for, and award of, $10 billion in Inflation Reduction Act (IRA) credits under Internal Revenue Code (IRC) section 48C, earmarked for qualified investments in eligible qualifying advanced energy projects.
IRC section 48C, which provides for a competitive allocation of investment tax credits for qualified investments in qualifying advanced energy projects, pre-dates the IRA. The act provided for $10 billion in new credits available starting in 2023 and charged the Treasury Department with establishing a program covering the application and credit-award processes. At least $4 billion of the credits is designated for projects located in energy communities. A qualifying advanced energy project (QAEP) eligible for an allocation is one that, in general, reequips, expands or establishes a manufacturing facility in one of three generally prescribed ways: production of renewable energy components, reduction of greenhouse gas emissions by 20% for industrial or manufacturing facilities, and the processing, refining or recycling of critical materials. The credit allocation program was established by IRS Notice 2023-18. The Treasury and IRS anticipate that the allocations take place over at least two rounds. The first of which (up to $4 billion, with $1.6 billion expected to be allocated to projects located in energy communities) is covered by the Notice. For additional information, see our previous tax article.
Submitting concept papers through the eXCHANGE portal
Prior to submitting an application for a section 48C credit allocation, a taxpayer must submit before noon ET on July 31, 2023, a concept paper to the eXCHANGE portal housed by the DOE, which will open no later than June 30, 2023. Broadly, the concept paper should outline to the DOE the proposed QAEPs:
The DOE will review the taxpayer’s concept paper for the above and issue in response either a letter of encouragement or a letter of discouragement, recommending whether the taxpayer should pursue applying for the credit based on the project’s merit. The taxpayer then decides whether to apply (also through the portal), which they are free to do regardless of how they are advised by the DOE. Application form and concept paper templates are available on the DOE’s website. More details regarding the submission of the concept papers and the credit allocation application process are included in Appendix B of the Notice.
Credit allocation application process
The DOE will review and rank the credit allocation applications submitted to the portal, then make a recommendation to the IRS whether it should accept the application and award an allocation of the credit. The review will analyze whether the project proposal meets the technical requirements to qualify as a QAEP and how it meets the four parameters as identified in the section above. From there, projects will be evaluated regarding:
Based on all the above, the DOE will rank all credit applications and recommend the IRS accept or reject them. Upon making its decision, the IRS will issue the taxpayer a letter of acceptance or denial. Projects placed in service prior to receiving an allocation are ineligible for such an allocation. Once an allocation is received, the taxpayer must notify the DOE via the portal that certain certifications have been met by the project within two years. In response, the IRS certifies the facility and, upon receipt of that certification, the taxpayer has another two years to place the QAEP in service.
Interactions between sections 48C and 45X
The IRA prohibits the credits (that under 45X being for advanced manufacturing production) under these respective IRC sections from being claimed on the same facility. The Notice defines facility for this purpose by breaking it down into further units of property, thus allowing a facility to claim both credits on different components of property, so long as those components operate independently.
No less than 40% of the total section 48C credits allocated by the IRS are designated for facilities in census tracts located in an energy community, which did not have a project that received a certification and allocation of credits under section 48C prior to enactment of the IRA. An energy community is a:
The Notice’s Appendix C includes a list of energy communities for this purpose. Additionally, a map assembled by the DOE can be found here.
Baker Tilly section 48C tax credit solutions site
Baker Tilly has established a section 48C tax credit solutions website that can be found here, which includes additional information and a link to a Baker Tilly portal. The portal is designed to help accumulate and organize information for the submission of concept papers and section 48C credit applications.
For more information on this topic, or to learn how a Baker Tilly specialist can help, contact our team.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.