Treasury: Expect More Clean Energy Tax Credit Guidance Before End of Biden’s Term

The Treasury Department and IRS are on track to finalize a suite of regs implementing various clean energy tax provisions of the Inflation Reduction Act (P.L. 117-169) before President Joe Biden departs the White House, according to a Treasury official.

Speaking with reporters October 1, Aviva Aron-Dine, who leads the Treasury Office of Tax Policy, said the mammoth task of crafting formal rules on tax breaks for businesses that install or invest in certain clean energy projects is entering its fourth phase. Aron-Dine said Treasury is “doubling down on our commitment to provide the rules of the road and certainty needed to realize the full benefits” of the 2022 tax law.

“By the end of this Administration, we anticipate finalizing regulations on a number of key provisions that are especially central to the IRA’s climate and economic goals,” she announced.

This includes the so-called technology-neutral provisions: the Code Sec. 45Y Clean Energy Production Credit and the Code Sec. 48E Clean Energy Investment Credit. The IRS issued proposed regs in late May on both credits that largely cover definitions, how the credits are calculated, and eligible property. In August, commenters offered multiple perspectives to the IRS at a two-day public rulemaking hearing on how final regs should be modified to address the treatment of retrofits to existing qualifying facilities.

Chiefly, several stakeholders sought revisions to the application of the “80/20” rule, which generally provides that a facility is considered as originally placed in service if the fair market value of used components active in the facility does not exceed 20% of the total fair market value of the whole facility.

“Final rules will provide additional certainty for the technologies identified as zero-emissions in the proposed rules and will chart a path for additional zero-emissions technologies to qualify,” Aron-Dine said. She clarified, though, that after reviewing public feedback, Treasury decided it intends to first finalize rules on the “legacy” Investment Tax Credit under Section 48 “since it will continue to be an option for qualifying projects that began construction before the end of this year,” with some exceptions. The tech-neutral rules will follow forthcoming guidance that provides “further certainty for investments, including for qualified biogas property and other types of eligible property,” she explained.

Final regs on the Code Sec. 45V Clean Hydrogen Production Credit, another major Inflation Reduction Act provision the tax community has followed Treasury’s work on, are expected to come before the end of the year, according to Aron-Dine. The credit is based on the amount of qualified clean hydrogen produced by a taxpayer at a qualified clean hydrogen production facility. Proposed regs were issued last December to clear up technical aspects of the credit, such as how taxpayers track greenhouse gas emissions from the hydrogen production process, which impacts which of the different credit tiers a taxpayer qualifies for.

The response to the proposed regs was particularly chirpy. During the public comment period, the IRS received over 30,000 comments and heard testimony from nearly 100 presenters during a multi-day hearing in March. Later in May, Senator Bob Casey (D-PA), wrote in a letter to President Biden that final Section 45V rules should welcome feedback from different industries on how credits are awarded.

Specifically, Casey asked that more consideration be given to hydrogen produced via coal mine methane, nuclear power, and natural gas. Days later in early June, Treasury Secretary Janet Yellen heard concerns from lawmakers on the Senate Appropriations Financial Services and General Government Subcommittee about “major roadblocks” created by the rules as currently proposed, as described by Senator Patty Murray (D-WA).

Aron-Dine said Treasury is “working to include appropriate adjustments and additional flexibilities to help grow the industry and move projects forward, while adhering to the law’s emissions standards, including the requirement to consider indirect emissions.”

Other provisions also set to see finalized rules include the Code Sec. 45X Advanced Manufacturing Production Credit, the Code Sec. 48(e) Low-Income Communities Bonus Credit Program, and Code Sec. 761 rules for electing out of partnership tax status for the purpose of opting into elective pay, which allows eligible taxpayers to receive certain clean energy credits in the form of direct payments.

Aron-Dine closed by reiterating the importance of IRS funding to these guidance projects and the administrative tools developed to deliver benefits to taxpayers, like the Energy Credits Online portal.

“The IRS is tasked with developing, administering, and enforcing tax guidance, including for the IRA’s clean energy tax incentives — and all of those responsibilities take resources,” said Aron-Dine. “Maintaining IRS resources in the years to come will be critical to continuing the climate and economic progress that we have made to date.”

For more information on the Clean Energy Production Credit, see Checkpoint’s Federal Tax Coordinator ¶ L-17541. For the Clean Energy Investment Credit, see ¶ L-17971. For the Clean Hydrogen Production Credit, see ¶ L-18500.