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 tax article.

The Notice

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:

1. Commercial viability,
2. Greenhouse gas emissions impacts,
3. Impact on the strength of the U.S. supply chains and domestic manufacturing, and
4. Workforce and community engagement.

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:

1. How they provide the greatest domestic job creation,
2. How they provide the greatest net impact in avoiding or reducing air pollutants or greenhouse gas emissions,
3. What its potential is for technological innovation and commercial deployment,
4. How low is its levelized cost of generated or stored energy, or of measured reduction in energy consumption or greenhouse gas emission, and
5. How fast is the project time from certification to completion.

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.

Energy community

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:

1. Brownfield site,
2. “Statistical area” that has an unemployment rate at or above the national average for the previous year, and 0.17% or greater direct employment, or 25% or greater tax revenues, related to the extraction, processing, transport or storage of: coal, oil or natural gas, or
3. Census tract in which a coal mine closed after 1999 or a coal-fired electric generating unit has been retired after 2009 (directly adjoining census tracts also qualify).

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.