The IRS has updated previously issued guidance for determining what constitutes an energy community for the energy production and investment tax credits. The IRS intends to include this guidance in forthcoming proposed regs. (IR 2023-118, 6/15/2023; Notice 2023-45, 2023-29 IRB; Notice 2023-47, 2023-29 IRB)
Background.
In April 2023, the IRS issued Notice 2023-29, which describes how to determine what constitutes an energy community for the energy production and investment credits under Code Sec. 45, Code Sec. 45Y, Code Sec. 48, and Code Sec. 48E.
Notice 2023-29 was later amended to clarify that the guidance in that Notice applies to taxpayers that begin construction of an energy property in an energy community. The rule would provide that a location that is an energy community as of the BOC date, would continue to be an energy community for the duration of the credit period or the placed-in-service date for that project. See IRS Releases Eligibility Requirement for Energy Communities for Bonus Credit Program (04/05/2023).
Clarifying guidance.
Notice 2023-45 clarifies that the rules in Notice 2023-29, Sec. 4, would apply to taxpayers that begin construction of an energy property in an energy community on or after January 1, 2023. This Notice also adds an additional clarification pertaining to the brownfield site safe harbor in Notice 2023-29, Sec. 5.02. This clarification requires the Phase I assessment of projects with a nameplate capacity not greater than 5 megawatts of alternating current to identify the presence or potential presence on the site of a hazardous substance or pollutant or contaminant.
Energy community bonus credit.
In Notice 2023-47, the IRS provides lists of information to help taxpayers determine whether they qualify for the energy community bonus credit under the Statistical Area or the Coal Closure Categories that are described in Notice 2023-29. These lists are provided in the appendices of Notice 2023-47. Appendices 1 and 2 pertain to the Statistical Area Category. Appendix 3 covers the Coal Closure Category.
Additional info in FAQs.
The IRS has also posted frequently asked questions (FAQs) on the bonus credit for energy communities. The FAQs provide detail on how areas may qualify as an energy community, how to determine whether a project is in an energy community and where brownfield sites are located.
For more information about energy communities, see Checkpoint’s Federal Tax Coordinator ¶L-17769.1.
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