Article
IRS simplifies IRA domestic content requirements for renewable energy projects
Notice 2024-41 introduces predefined cost percentages and expands safe harbor provisions
June 4, 2024 · Authored by Robert Moczulewski, Jiyoon Choi, Talwinder Kang
On May 16, 2024, the IRS issued Notice 2024-41, which significantly simplifies the calculations to determine if solar, onshore wind and battery projects qualify for a 2% or 10% bonus tax credit for using enough domestic content under the Internal Revenue Code sections 45, 45Y, 48 and 48E. This notice modifies the existing safe harbor provisions in Notice 2023-38.
What’s changed?
Notice 2024-41 expands the previously announced safe harbor to include hydropower and pumped hydropower storage facilities, clarifying the categorization of project components as either steel and iron or manufactured products. It also introduces a New Elective Safe Harbor that allows developers to use a table of percentages for various project components made in the U.S., simplifying the process of determining compliance with IRA domestic content requirements.
Previously, developers needed detailed cost information from manufacturers to calculate the domestic content percentage for Manufactured Products. This information included wages, payroll taxes and the costs of parts supplied directly to the factory, which manufacturers were often reluctant to disclose. The New Elective Safe Harbor eliminates these requirements by providing predefined cost percentages for different components, making it easier for developers to qualify for the bonus credit.
The Notice does not yet simplify calculations for offshore wind, geothermal or other types of projects. However, the Treasury plans to add these sectors to the safe harbor table and issue proposed rules for projects owned by state and local governments, Tribes, rural electric cooperatives or the Tennessee Valley Authority. These projects, which can apply for direct cash payments instead of tax credits, must meet the domestic content requirements unless U.S.-made equipment would increase project costs by more than 25% or is unavailable in sufficient quantities or quality.
The Inflation Reduction Act of 2022 allows a 2% or 10% bonus tax credit for using a certain portion of domestically produced components (the domestic content bonus credit). Developers must categorize materials as either structural steel and iron or Manufactured Products. Structural steel or iron must be 100% U.S.-made, while Manufactured Products must satisfy a 40%-55% U.S.-made requirement.
