Section 48C: the $10 billion in investment tax credits every manufacturer should know about

Update April 2024: This past weekend 48C allocation was awarded to the first wave of applicants. Companies that receive allocation will need to evaluate compliance to limit credit recapture. Baker Tilly can help ensure your project complies through our compliance portal to deliver a seamless experience for you and your contractors to understand and address any PW&A issues as they arise. We’re also here to help those who didn’t receive an allocation with applying for the round two application.

Unlike many of the tax credits in the Inflation Reduction Act of 2022, section 48C Advanced Energy Credit (AEC) is a competitive tax credit program that requires manufacturers apply in order to receive an allocation. Program guidance released on Feb. 13, 2023 announced that manufacturers seeking this credit will be required to submit a concept paper describing their project. The first $4 billion in allocations was awarded to applicants on March 29, 2024. The remaining $6 billion of funds will be issued at a later date.

What is it?

The Inflation Reduction Act of 2022 extended credits first offered through the American Recovery and Reinvestment Act of 2009, which was previously known as the Advanced Manufacturing Tax Credit (AMTC). The prior AMTC issued a 30% tax credit that was valued at $2.3 billion and was largely oversubscribed by manufacturers' applications.

The current credit, Section 48C Advanced Energy Credit, includes $10 billion in new 30% investment tax credits, and also broadens what is deemed to be eligible energy property a company can invest in to earn the credit. The credit value is 30% of the project capital investment that is deemed to be eligible energy property. Examples include projects which re-equip, expand or establish a manufacturing facility in one of the following ways:

1. A project which re-equips, expands or establishes a manufacturing facility for production or recycling of property used to produce energy from certain energy areas, or designed to beneficially capture, remove, use, or sequester carbon oxide emissions.
2. A project which re-equips, expands or establishes a manufacturing facility for production or recycling of property used to produce certain energy products types used to conserve, store, energy
3. A project to produce equipment designed to refine or blend any fuel, chemical or product which is renewable or low carbon/low emission
4. A project which re-equips, expands, or establishes an industrial facility for the processing, refining, or recycling of certain critical materials (as defined by the Energy Act of 2020).
5. Facility manufacturing other advanced energy property designed to reduce greenhouse gas emissions including specialized components and equipment for nuclear power reactors or as may be determined by the Secretary
6. Existing facility which re equips with equipment designed to reduce greenhouse gas emissions by at least 20%+

In addition, the credit covers infrastructure related to grid modernization, carbon capture, EV production and energy storage. Manufacturers in or adjacent to legacy Energy Communities have been allocated 40% of the AEC ($4 billion) that was set aside for new clean technology manufacturing facilities in these designated areas. To learn more about if your existing or proposed site falls in an energy community, or if you need assistance with site selection to locate a site in an Energy Community please contact us.

Why does it matter?

The tax credits awarded through section 48C are significant. Manufacturers can seek up to 30% of the total amount invested in facilities that build or recycle renewable energy components.

Many manufacturers may be eligible to apply for the credit as part of a current or planned project, but manufacturers need to start working now to assess eligibility and prepare application materials. When these credits were introduced in 2009, applications exceeded the available funding by more than three to one.

Next steps

Since section 48C is a competitive tax credit program, manufacturers need to apply and receive certification from the IRS for the investment tax credit allocation for their projects. This means it is vital to start assessing eligibility and preparing to apply now. To get started:

• Contact Baker Tilly’s Inflation Reduction Act team to learn more about section 48C and how it may impact your business
• Start assessing overall project eligibility to apply for the tax credit
• Prepare your application to submit for an allocation of section 48C AEC
• Assess eligibility of other tax credits within the Inflation Reduction Act and learn how they affect your facility or your customers purchasing any of your products to use for energy projects

How can Baker Tilly help

Since 2009, Baker Tilly has helped manufacturers earn millions in tax credits through prior energy and economic development tax credit programs. Our primary role in helping clients serves five main areas:

• Determining the project type and eligibility
• Preserving the tax credit through coordinating with vendors working on your project
• Maximizing the tax credit earned by identifying eligible costs for submittal
• Ensuring compliance during construction and reporting periods post construction
• Documenting project costs to claim the tax credit on your federal tax return

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.