Article

Treasury issues environmental justice bonus credit allocation guidance

March 1, 2023 · Authored by Joel M. Laubenstein

On Feb. 13, 2023, the IRS and Departments of Treasury and Energy released Notice 2023-17, which provides guidance on the energy credit allocation programs under §48(e). Section 48(e) covers the “bonus credit percentage” allocations of environmental justice solar and wind capacity limitations.

Taxpayers can receive a “bonus” amount of the Inflation Reduction Act (IRA) investment tax credit under §48, in connection with qualified solar and wind facilities that are either placed in service in a low-income community or meet other specifications. Qualified solar and wind facilities are those that:

• Generate electricity solely from a wind facility, solar energy property or small wind energy property,
• Have a maximum net output of less than 5 megawatts, and
• Are described in one of the following four categories, as being:
  1.  Located in a low-income community,
  2.  Located on Indian land,
  3.  Part of a qualified low-income residential building project, or
  4.  Part of a qualified low-income economic benefit project.

The energy percentage multiplier for determining the amount of credit under §48 will be increased up to 10 percentage points if the facility is described in category 1 or 2, but not 3 or 4. The percentage will increase up to 20 points if the facility is described in category 3 or 4.

Per §48(e)(4), the Department of Treasury is authorized to allocate to these facilities access to these bonus credits based on a per-year “annual capacity limitation.” Notice 2023-17 carries out the directive of §48(e)(4) for Treasury to establish a program to allocate the 1,800 MW or 1.8 gigawatts capacity limitation amongst the four different categories of qualifying facilities and provide for an efficient allocation process. The allocation of the capacity limitation for each facility category for 2023 is as follows:

1. Located in a low-income community: 700 megawatts,