Guidance on Clean Electricity Low-Income Communities Bonus Credit Amount Program

<RULE> DEPARTMENT OF THE TREASURY <SUBAGY>Internal Revenue Service</SUBAGY> <CFR>26 CFR Part 1</CFR> <DEPDOC>[TD 10025]</DEPDOC> <RIN>RIN 1545-BR26</RIN> <SUBJECT>Guidance on Clean Electricity Low-Income Communities Bonus Credit Amount Program</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Internal Revenue Service (IRS), Treasury. <HD SOURCE="HED">ACTION:</HD> Final regulations. <SUM> <HD SOURCE="HED">SUMMARY:</HD> This document contains final regulations concerning the program to allocate clean electricity low-income communities bonus credit amounts established pursuant to the Inflation Reduction Act of 2022 for calendar years 2025 and succeeding years. Applicants investing in certain clean electricity generation facilities that produce electricity without combustion and gasification may apply for an allocation of capacity limitation to increase the amount of the clean electricity investment credit for the taxable year in which the facility is placed in service. This document provides definitions and requirements that are applicable for the program. The final regulations affect taxpayers seeking allocations of capacity limitation to claim an increased clean electricity investment credit. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> These regulations are effective on January 13, 2025. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Concerning these final regulations, Whitney Brady, IRS Office of Associate Chief Counsel (Passthroughs & Special Industries) at (202) 317-6853 (not a toll-free number). </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Authority</HD> This document amends the Income Tax Regulations (26 CFR part 1) by adding regulations authorized to be issued by the Secretary of the Treasury or her delegate (Secretary) under sections 48E(i) and 7805(a) of the Internal Revenue Code (Code) regarding the application of section 48E(h) of the Code (final regulations). Section 48E(i) provides an express delegation of authority to the Secretary to provide guidance regarding the implementation of section 48E, stating, “[n]ot later than January 1, 2025, the Secretary shall issue guidance regarding implementation of this section.” The final regulations are also issued under the express delegation of authority under section 7805(a), which provides that “the Secretary shall prescribe all needful rules and regulations for the enforcement of [the Code], including all rules and regulations as may be necessary by reason of any alteration of law in relation to internal revenue.” <HD SOURCE="HD1">Background</HD> <HD SOURCE="HD1">I. Overview</HD> Section 13702 of Public Law 117-169, 136 Stat. 1818, 1921 (August 16, 2022), commonly known as the Inflation Reduction Act of 2022 (IRA), added new section 48E(h) to the Code to authorize the Secretary to establish a program for calendar years 2025 and succeeding years to award allocations of capacity limitation (Capacity Limitation) that increase the amount of the new clean electricity investment credit determined under section 48E(a) (section 48E credit) with respect to eligible property that is part of an applicable facility. This document contains final definitions and rules relating to the allocation of Capacity Limitation for calendar year 2025 and succeeding years, requirements related to claiming the increase under section 48E(h), and recapture provisions. <HD SOURCE="HD1">II. Increase to Section 48E Credit</HD> The amount of section 48E credit for a taxable year generally is calculated by multiplying the qualified investment for such taxable year with respect to any qualified facility placed in service during that taxable year by the applicable percentage (as defined in section 48E(a)(2)). If an applicable facility is awarded an allocation of Capacity Limitation, section 48E(h) increases the amount of the section 48E credit with respect to the applicable facility by increasing the applicable percentage used to calculate the amount of the section 48E credit (section 48E(h) Increase). The term <E T="03">applicable facility</E> is defined in section 48E(h)(2) to mean any qualified facility that (i) is not described in section 45Y(b)(2)(B) of the Code (relating to combustion and gasification facilities); (ii) has a maximum net output of less than five megawatts (MW) (as measured in alternating current (AC)); and (iii) is described in at least one of four categories in section 48E(h)(2)(A)(iii) (as further described in part III of this Background). <HD SOURCE="HD1">III. Clean Electricity Low-Income Communities Bonus Credit Amount Program</HD> <HD SOURCE="HD2">A. In General</HD> Section 48E(h)(4)(A) directs the Secretary to establish a program, not later than January 1, 2025, to allocate amounts of Capacity Limitation to applicable facilities. Section 48E(h)(4) also provides that in establishing a program the Secretary establish procedures for an efficient allocation process. Section 48E(h)(4) contemplates the collection and review of applications to consider facilities for an allocation. <HD SOURCE="HD2">B. Facility Categories and Increase Amount</HD> Depending on the category of the facility, an allocation of Capacity Limitation may result in a section 48E(h) Increase equal to either 10 percentage points or 20 percentage points. Section 48E(h)(1)(A)(i) provides for a section 48E(h) Increase of 10 percentage points for eligible property that is located in a low-income community, as defined in section 45D(e) of the Code (Category 1 facility), or on Indian land, as defined in section 2601(2) of the Energy Policy Act of 1992 (25 U.S.C. 3501(2)) (Category 2 facility). Section 48E(h)(1)(A)(ii) provides for a section 48E(h) Increase of 20 percentage points for eligible property that is part of a qualified low-income residential building project (Category 3 facility) or a qualified low-income economic benefit project (Category 4 facility). <HD SOURCE="HD2">C. Capacity Limitation</HD> Under section 48E(h)(4)(C), the total annual Capacity Limitation that may be allocated is 1.8 gigawatts of direct current capacity for each of the calendar years during the period beginning on January 1, 2025, and ending on December 31 of the applicable year (as defined in section 45Y(d)(3)), and zero thereafter. Under section 48E(h)(4)(D)(i), if the annual Capacity Limitation for any calendar year exceeds the aggregate amount allocated for such year, the excess is carried forward to the next year. No amount of Capacity Limitation may be carried to any calendar year after the third calendar year following the applicable year (as defined in section 45Y(d)(3)). Under section 48E(h)(4)(D)(ii), if the annual Capacity Limitation for calendar year 2024 under section 48(e)(4)(D) of the Code exceeds the aggregate amount allocated for such year, the excess amount may be carried over and applied to the annual Capacity Limitation under section 48E(h) for calendar year 2025. The annual Capacity Limitation for calendar year 2025 shall be increased by the amount of such excess. <HD SOURCE="HD2">D. Allocation Amount</HD> Section 48E(h)(1)(B) provides that any section 48E(h) Increase for any taxable year with respect to all eligible property that is part of a facility shall not exceed the amount which bears the same ratio to the amount of such increase as the amount of the Capacity Limitation allocated to such facility bears to the total megawatt nameplate capacity of such facility, as measured in direct current. Therefore, if an allocation is made to a particular applicable facility, the Capacity Limitation amount allocated is based on the nameplate capacity of that applicable facility. <HD SOURCE="HD2">E. Claiming the Section 48E(h) Increase</HD> Taxpayers that own an applicable facility which received an allocation may claim the section 48E(h) Increase once the applicable facility has been placed in service, as part of its claim for the section 48E credit. For a taxpayer to claim the section 48E(h) Increase for any property which is part of the applicable facility, section 48E(h)(4)(E)(i) requires that the eligible property be placed in service within 4 years after the date of allocation. <HD SOURCE="HD1">IV. Notice of Proposed Rulemaking</HD> On September 3, 2024, the Department of the Treasury (Treasury Department) and the IRS published in the <E T="04">Federal Register</E> (89 FR 71193) a notice of proposed rulemaking (REG-108920-24, 2024-38 I.R.B. 607), corrected in 89 FR 77467 on September 23, 2024, under section 48E(h) (Proposed Regulations) relating to the Program. Comments were requested in response to the Proposed Regulations by October 3, 2024, and a public hearing on the Proposed Regulations was held on October 17, 2024. On September 27, 2024, the Treasury Department held a consultation with Tribal leaders on the Proposed Regulations. The areas of comment and the revisions to the Proposed Regulations are discussed in the following Summary of Comments and Explanation of Revisions section of this preamble. Other minor, editorial, and clarifying revisions made to the Proposed Regulations as adopted in these final regulations are not discussed in the Summary of Comments and Explanation of Revisions section of this preamble. <HD SOURCE="HD1">V. Additional Guidance</HD> As announced in the Proposed Regulations, the Treasury Department and the IRS are also providing procedural guidance applicable to the Program opening in calendar year 2025 and future Program years which will be provided in guidance published in the Internal Revenue Bulletin. These procedural rules provide guidance necessary to implement the Program, including, in relevant part, information an applicant must submit, the application review process, and the manner of obtaining an allocation. Many of the procedural aspects of the Program will be similar to the Low-Income Communities Bonus ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 225k characters. 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