Further guidance released on qualifying advanced energy tax project credit allocation program

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 investments qualifying for advanced energy project tax credits.

Key takeaways

• By June 30, 2023, the Department of Energy (DOE) will open the “eXCHANGE portal”, through which taxpayers will submit a concept paper outlining their proposed advanced energy projects. Submissions must be made prior to noon ET on July 31, 2023.
• The Notice provides additional definitions and guidance on portal submissions, and credit application and acceptance processes and criteria, expanding on guidance originally provided by Notice 2023-18.
• Projects placed in service prior to receiving an allocation are ineligible for such an allocation.
• The Notice additionally provides helpful clarity on the interaction between the sections 48C and 45X credits (the latter being for advanced manufacturing production), and the prohibition against claiming both credits on the same eligible facility.

Background

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