Section 45Y Clean Electricity Production Credit and Section 48E Clean Electricity Investment Credit

DEPARTMENT OF THE TREASURY <SUBAGY>Internal Revenue Service</SUBAGY> <CFR>26 CFR Part 1</CFR> <DEPDOC>[REG-119283-23]</DEPDOC> <RIN>RIN 1545-BR17</RIN> <SUBJECT>Section 45Y Clean Electricity Production Credit and Section 48E Clean Electricity Investment Credit</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Internal Revenue Service (IRS), Treasury. <HD SOURCE="HED">ACTION:</HD> Notice of proposed rulemaking and notice of public hearing. <SUM> <HD SOURCE="HED">SUMMARY:</HD> This document contains proposed regulations relating to the clean electricity production credit and the clean electricity investment credit established by the Inflation Reduction Act of 2022. The proposed regulations would provide rules for: determining greenhouse gas emissions rates resulting from the production of electricity; petitioning for provisional emissions rates; and determining eligibility for these credits in various circumstances. The proposed regulations would affect all taxpayers who produce clean electricity and claim the clean electricity production credit with respect to a facility or the clean electricity investment credit with respect to a facility or energy storage technology, as applicable, that is placed in service after 2024. This document also provides notice of a public hearing on the proposed regulations. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Written or electronic comments must be received by August 2, 2024. The public hearing on these proposed regulations is scheduled to be held on August 12, 2024, at 10 a.m. (ET) and August 13, 2024, at 10 a.m. (ET). On August 13, 2024, the public hearing will be held by telephone only. Requests to speak and outlines of topics to be discussed at the public hearing must be received by August 2, 2024. If no outlines are received by August 2, 2024, the public hearing will be cancelled. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> Commenters are strongly encouraged to submit public comments electronically via the Federal eRulemaking Portal at <E T="03">https://www.regulations.gov</E> (indicate IRS and REG-119283-23) by following the online instructions for submitting comments. Once submitted to the Federal eRulemaking Portal, comments cannot be edited or withdrawn. The Department of the Treasury (Treasury Department) and the IRS will publish for public availability any comments submitted to the IRS's public docket. Send paper submissions to: CC:PA:01:PR (REG-119283-23), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Concerning these proposed regulations, the Office of Chief Counsel (Passthroughs and Special Industries) at (202) 317-6853 (not a toll-free number); concerning submissions of comments or the public hearing, Vivian Hayes at (202) 317-6901 (not a toll-free number) or by email to <E T="03">publichearings@irs.gov</E> (preferred). </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Background</HD> This notice of proposed rulemaking contains proposed amendments to the Income Tax Regulations (26 CFR part 1) to implement sections 45Y and 48E of the Internal Revenue Code (Code), which generally replace sections 45 and 48 of the Code with respect to qualified facilities, and for section 48E, with respect to energy storage technology, that is placed in service after December 31, 2024. The renewable electricity production credit determined under section 45 of the Code (section 45 credit) is generally available for qualified facilities described in section 45(d), which provides that the construction of the qualified facilities must begin before January 1, 2025. Similarly, other than for geothermal heat pump equipment (described in section 48(a)(3)(vii)  <SU>1</SU> <FTREF/> ), the energy credit determined under section 48 of the Code (section 48 credit), which is an investment credit under section 46 of the Code, is generally available for energy property the construction of which begins before January 1, 2025. Therefore, as long as construction begins on the relevant qualified facility or energy property before January 1, 2025, a taxpayer may be able to claim a section 45 credit or section 48 credit, respectively, even if the taxpayer places the qualified facility or energy property in service after December 31, 2024. <FTNT> <SU>1</SU>  Section 48(a)(3)(vii) includes as energy property equipment that uses the ground or ground water as a thermal energy source to heat a structure or as a thermal energy sink to cool a structure (geothermal heat pump property), but only with respect to property the construction of which begins before January 1, 2035. </FTNT> Sections 45Y and 48E were added to the Code, respectively, by sections 13701(a) and 13702(a) of Public Law 117-169, 136 Stat. 1818, 1982 (August 16, 2022), commonly referred to as the Inflation Reduction Act of 2022 (IRA). Section 13701(c) of the IRA provides that the clean electricity production credit determined under section 45Y (section 45Y credit) applies to facilities placed in service after December 31, 2024. Similarly, section 13702(c) of the IRA provides that the clean electricity investment credit determined under section 48E (section 48E credit) applies to property placed in service after December 31, 2024. Thus, in some cases, if a taxpayer places in service a qualified facility or energy property after 2024, the construction of which begins before 2025, the qualified facility or energy property may be eligible for more than one of the credits determined under section 45, 45Y, 48, or 48E, although a taxpayer can only claim one of these credits with respect to such qualified facility or energy property. Accordingly, a taxpayer must choose which one of these credits to claim with respect to such qualified facility or energy property. Once the taxpayer has claimed one of these credits with respect to a qualified facility or an energy property, the taxpayer cannot claim any other of these credits with respect to the same qualified facility or energy property. <HD SOURCE="HD1">I. Overview of Section 45Y</HD> Section 45Y(a)(1) provides that for purposes of the general business credit under section 38 of the Code, the section 45Y credit for any taxable year is an amount equal to the product of the kilowatt hours (kWh) of eligible electricity produced by the taxpayer at a qualified facility, multiplied by the applicable amount with respect to such qualified facility. For this purpose, eligible electricity is electricity that is either (1) sold by the taxpayer to an unrelated person during the taxable year or (2) in the case of a qualified facility that is equipped with a metering device that is owned and operated by an unrelated person, sold, consumed, or stored by the taxpayer during the taxable year. <HD SOURCE="HD2">A. Amount of Credit</HD> For purposes of the applicable amount used in calculating the section 45Y credit, section 45Y(a)(2) provides a base amount and a higher alternative amount. Section 45Y(a)(2)(A) provides that the applicable amount will be the base amount of 0.3 cents in the case of a qualified facility that does not satisfy the requirements for the higher alternative amount. Section 45Y(a)(2)(B) provides that the alternative amount of 1.5 cents applies in the case of any qualified facility (1) with a maximum net output of less than 1 megawatt (as measured in alternating current), (2) the construction of which begins prior to the date that is 60 days after the Secretary of the Treasury or her delegate (Secretary) publishes guidance on the requirements of section 45Y(g)(9) (wage requirements) and section 45Y(g)(10) (apprenticeship requirements), <SU>2</SU> <FTREF/> or (3) that satisfies section 45Y(g)(9) and, with respect to the construction of such facility, satisfies section 45Y(g)(10). <FTNT> <SU>2</SU>  To meet this requirement, the construction of the qualified facility must begin prior to January 29, 2023. See proposed § 1.45Y-3 as proposed in the notice of proposed rulemaking (REG-100908-23) published in the <E T="04">Federal Register</E> (88 FR 60018) on August 30, 2023, and corrected at 88 FR 73807 on October 27, 2023. </FTNT> Section 45Y(c)(1) provides for an inflation adjustment for both the base and alternative amounts. Section 45Y(c)(1) provides that in the case of a calendar year beginning after 2024, the 0.3 cent amount in section 45Y(a)(2)(A) and the 1.5 cent amount in section 45Y(a)(2)(B) will each be adjusted by multiplying such amount by the inflation adjustment factor for the calendar year in which the sale, consumption, or storage of the electricity occurs. Section 45Y(c)(1) also addresses the rounding rules to be applied to this computation. Section 45Y(c)(2) provides that the Secretary will, not later than April 1 of each calendar year, determine and publish in the <E T="04">Federal Register</E> the inflation adjustment factor for such calendar year in accordance with section 45Y(c). Section 45Y(g)(7) provides for an increase in the section 45Y credit amount for any qualified facility located in an energy community, and section 45Y(g)(11) provides for an increase in the section 45Y credit amount if the domestic content bonus requirement is satisfied. Section 45Y(g)(7) provides that in the case of any qualified facility that is located in an energy community (as defined in section 45(b)(11)(B)), for purposes of determining the amount of the credit under section 45Y(a) with respect to any electricity produced by the taxpayer at such facility during the taxable year, the applicable amount under section 45Y(a)(2) will be increased by an amount equal to 10 percent of the amount otherwise in effect under such paragraph. Section 45Y(g)(11) provides that in the case of any qualified facility that satisfies the domestic content bonus ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 421k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━