Article
IRS issues guidance on domestic content bonus credit
May 22, 2023 · Authored by Irina Antonache, Matt Kaden, Adam DeZego, Rob O'Neill
The IRS published Notice 2023-38 on May 12, 2023, announcing their intent to issue regulations with requirements that taxpayers and applicable entities must satisfy to qualify for the domestic content bonus credit. The domestic content bonus credit was enacted as part of the Inflation Reduction Act and is applicable under Internal Revenue Code (IRC) Section 45 for the production tax credit (PTC) and IRC Section 48 for the investment tax credit (ITC).
The regulations suggested in Notice 2023-38 would also apply to IRC Sections 45Y and 48E for technology-neutral clean energy projects placed in service after Dec. 31, 2024.
Below is more information on the requirements for the domestic content bonus credit.
Bonus credit
The Inflation Reduction Act provides a bonus credit for projects meeting the domestic content requirements equal to 10 percentage points of the amount of clean energy related PTCs generated under IRC Sections 45 and 45Y. For example, in 2023, a project meeting prevailing wage and apprenticeship requirements would qualify for a PTC of $27.50 per megawatt-hour (MWh), and it would increase to $30.25 per MWh if the domestic content requirements are met.
For certain clean energy ITCs under IRC Sections 48 and 48E that meet the domestic content requirements, the ITC is increased by 2% of eligible costs if the prevailing wage and apprenticeship requirements aren’t met, and 10% if they are. For example, the ITC would increase from 30% to 40% if the prevailing wage and apprenticeship requirements are met.
The forthcoming regulations are intended to apply to taxable years ending after May 12, 2023, but taxpayers may rely on the notice for projects that begin construction up to 90 days after the publication date of the future proposed regulations.
Satisfying the domestic content requirement
IRC Sections 45 and 45Y — which are incorporated by reference in IRC Sections 48 and 48E — provide that to satisfy the domestic content requirement, a taxpayer or applicable entity must certify that any steel, iron, or manufactured product that’s a component of the project was produced in the United States under the Buy America requirements administered by the Federal Transit Administration (FTA).
Final regulations released for the IRA section 45X tax credit
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.