IRS updates guidance on environmental justice solar and wind capacity limitation

Executive summary

Additional guidance on low-income communities bonus credit program

Taxpayers investing in certain solar and wind facilities may apply for an allocation of Capacity Limitation to increase the amount of an energy investment credit in the year the facility is placed in service. Treasury and IRS released for publication on Aug. 10, 2023, final regulations and a revenue procedure finalizing the rules and application process for applicants investing in certain solar and wind powered electricity generation facilities. 

IRS updates guidance on environmental justice solar and wind capacity limitation

New guidance

The low-income communities bonus credit program (program or section 48(e) program) is an application-based program that may increase energy credits by either 10 or 20 percentage points. The increased credit is only available to taxpayers that place certain solar or wind property in service in low-income communities and are awarded a capacity limitation allocation under the program’s rules.

Recently, Treasury and IRS released for publication in the Federal Register final regulations providing additional guidance on the program under section 48(e). The new guidance details the program’s rules and application process even though the application portal is not yet ready for use. The regulations provide key definitions, and requirements that must be met in order to qualify for the program. The regulations also

  1. provide recapture rules specific to the program,
  2. define energy storage technology installed in connection with the solar or wind facility,
  3. define financial benefits for the two applicable project categories and
  4. define and describe the additional selection criteria for potential applicants.

The regulations apply to tax years ending on or after Oct. 14, 2023.

In addition to the final regulations, IRS and Treasury also released an advanced version of Rev. Proc. 2023-27. The revenue procedure provides guidance necessary to implement the program, such as the information an applicant must submit, the application review process, and the manner of obtaining an allocation under the program. The revenue procedure also advises potential applications of the program to register and apply through a portal created by the Department of Energy (DOE). The application process for the program is set to open in the fall, and awards will commence by the end of the year.

Prior guidance

Our previous alert covers the establishment of the section 48(e) program through Notice 2023-17, issued on Feb. 13, 2023. Later, on June 1, 2023, Treasury and the IRS published a notice of proposed rulemaking that essentially supplemented the initial guidance. RSM US LLP also covered the notice of proposed rulemaking in a previous alert.

Washington National Tax takeaways

With the issuance of the final regulations and the revenue procedure, it is imperative that taxpayers pursuing wind and solar projects in an eligible low-income community, carefully consider all of the guidance released in efforts to qualify for the program. Applications will be submitted through the DOE portal that is expected to be launched in fall 2023. Interested taxpayers should review the program requirements in anticipation of submitting applications within a short timeframe at the end of the year. Solar and wind projects may not be placed in service prior to receiving a capacity limitation allocation if the enhanced credit is to be claimed. That said, timing for solar and wind projects and the program application are of increased importance.

For more information, please consult with your tax advisor.

Let’s Talk!

Call us at (325) 677-6251 or fill out the form below and we’ll contact you to discuss your specific situation.

  • Topic Name:
  • Should be Empty:

This article was written by Deborah Gordon, Christian Wood, Brent Sabot, Eugene Boakye and originally appeared on 2023-09-15.
2022 RSM US LLP. All rights reserved.

The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.