The Treasury Department and IRS have proposed requirements for facilities to participate in the Clean Electricity Low-Income Communities Bonus Credit Program ahead of the program’s scheduled 2025 opening. (Preamble to Prop Reg REG-108920-24, 8/30/2024)
The Clean Electricity Low-Income Communities Bonus Credit Program, established by the Inflation Reduction Act (P.L. 117-169) under Code Sec. 48E(h) with a January 1, 2025, implementation deadline, is intended to spur clean energy investment in low-income communities and on Indian lands. Treasury explains in a press release that the program builds on the Low-Income Communities Bonus Credit Program under Code Sec. 48(e) by supporting additional clean energy technologies, such as hydropower and geothermal.
Under Code Sec. 48E, a clean electricity investment credit is available to certain facilities and can be calculated by multiplying the qualified investment in a facility in a tax year by an applicable percentage. Code Sec. 48E(h) sets forth increased applicable percentages for facilities that are allocated an environmental justice capacity limitation.
To obtain the Clean Electricity Low-Income Communities Bonus Credit, facilities must have a maximum net output of less than five megawatts, may not be fuel combustion or gasification facilities, and must be in or part of certain communities. For qualified facilities located in a low-income community (as described under Code Sec. 45D(e)) or on Indian land, the applicable percentage is increased by 10 percentage points. For facilities that are part of a qualified low-income residential building project or a qualified low-income economic benefit project, the applicable percentage is increased by 20 percentage points.
Code Sec. 48E(h) also requires Treasury to establish a program to allocate environmental justice capacity limitation to facilities seeking the Clean Electricity Low-Income Communities Bonus Credit. Under Code Sec. 48E(h)(4)(C), the total annual capacity limitation to be allocated is 1.8 gigawatts of direct current capacity per calendar year beginning on January 1, 2025.
The proposed rules set forth definitions and requirements for facilities seeking to apply for an allocation of capacity limitation.
Facility categories.
The rules clarify that there are four categories of applicable facilities, based on where the facility is located or whether it is part of a housing program or low-income economic benefit project. The rules provide that capacity limitation will be divided across the four facility categories based on factors including the anticipated number of applications for each category and the amount of capacity limitation that needs to be reserved for each category to encourage market participation. Treasury and the IRS intend to announce how allocations will be made across the four facility categories in guidance to be published in the Internal Revenue Bulletin.
Additional selection criteria.
The rules also set forth additional selection criteria based on facility ownership and geography. Per the rules, procedures for use of this criteria to make allocations will be described in guidance to be published in the Internal Revenue Bulletin.
Existing facilities excluded.
In addition, the rules provide that facilities placed into service prior to being awarded a capacity limitation allocation will not be eligible to receive an allocation. According to Treasury and the IRS, because the program’s goal is to increase adoption of and access to renewable energy facilities in communities with environmental justice concerns, awarding an allocation to facilities that are already in place “would be inconsistent with this goal.”
Other definitions and reporting requirements.
The rules clarify the definitions of “eligible property,” location requirements, and financial benefit requirements. In addition, the rules specify that whether a facility meets the “less than five megawatts requirement,” will be based on the nameplate capacity of the applicable facility. The rules also establish reporting requirements for facilities that receive a capacity limit allocation.
U.S. Deputy Secretary of the Treasury Wally Adeyemo said that “[i]ncentives to develop clean power in communities that have been overlooked and left out for too long will drive investment and create opportunity, helping ensure that the growth of the clean energy economy benefits all Americans.”
U.S. Deputy Energy Secretary David M. Turk explained that “expanding the current program to include additional types of clean technologies” will allow for “a more equitable energy transition.”
Hearings and comment submission.
A Tribal consultation is scheduled for September 27, 2024, and a public hearing is scheduled for October 17, 2024. Comments are due September 30, 2024, and can be submitted via the Federal eRulemaking Portal at www.regulations.gov.
For more on the clean electricity investment credit for facilities placed into service in connection with low-income communities, see Checkpoint’s Federal Tax Coordinator ¶ L-17974.
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