Understanding the IRS energy credit updates

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The Internal Revenue Service (IRS) has recently issued Notice 2024-30, bringing significant modifications to the Energy Community Tax Credit Bonus amounts under the Inflation Reduction Act of 2022.

This development brings significant opportunities for taxpayers to claim increased credit amounts or rates if they meet certain requirements pertaining to energy communities.

The notice provides valuable insights into the requirements for qualifying facilities, energy projects, and energy storage technologies to receive increased credit amounts or rates as part of the energy community provisions.

Key highlights of the update include:

1. Expanded definition of energy communities

• • The IRS has expanded the definition of energy communities:
    • • Brownfield sites
      • Metropolitan Statistical Areas (MSAs) and non-MSAs based on unemployment rates
      • Census tracts where a coal mine closed after 1999 or a coal-fired electric generating unit was retired after 2009
  • Now, energy communities include not only brownfield sites but also certain metropolitan statistical areas (MSAs) and non-MSAs based on unemployment rates.
  • Additionally, census tracts where a coal mine closed after 1999 or a coal-fired electric generating unit was retired after 2009 are also considered energy communities. This expansion broadens the scope of eligible projects and provides taxpayers with more opportunities to benefit from the bonus credit program.

2. Increased credit amounts or rates

• • Taxpayers who meet the requirements of the energy community provisions can now enjoy even greater benefits. The guidance clarifies that developers can receive a bonus of up to 10 percentage points on top of the Investment Tax Credit (ITC) and an increase of 10% for the Production Tax Credit (PTC).
  • This bonus is available to developers locating projects in historical energy communities. By leveraging these increased credit amounts or rates, taxpayers can drive investments in clean energy projects and facilities, creating jobs and lowering energy costs.

3. Nameplate Capacity Attribution Rule

• • The IRS has expanded the Nameplate Capacity Attribution Rule, which is great news for taxpayers with energy projects that have offshore energy generation units.
  • Under this rule, if none of the energy-generating units are located in a census tract, MSA, or non-MSA, taxpayers can attribute the nameplate capacity of their project to either the land-based power conditioning equipment or the EC Project supervisory control and data acquisition (SCADA) equipment located in an EC Project Port.
  • This flexibility allows taxpayers to meet the energy community requirements and claim the bonus credits more effectively.

4. Fossil fuel employment rate determination

• • Determining whether an MSA or non-MSA qualifies as an energy community based on Fossil Fuel Employment is now more precise. The IRS has added two 2017 NAICS industry codes to the list for determining the Fossil Fuel Employment rate: Pipeline Transportation of Crude Oil (4861) and Pipeline Transportation of Natural Gas (4862).
  • By including these codes, the IRS ensures that the assessment of Fossil Fuel Employment is comprehensive and accurate. Tax professionals should pay close attention to these additional codes when evaluating the eligibility of an energy community, as it can significantly impact the credit opportunities for their clients.

5. Updated lists of energy communities

• • To assist tax professionals in identifying eligible energy communities, the IRS has provided updated lists of MSAs and non-MSAs that meet the Fossil Fuel Employment threshold and qualify as energy communities. These lists are essential resources for tax professionals to determine the eligibility of their clients’ projects accurately.
  • By referring to these updated lists, tax professionals can ensure that their clients maximize the benefits available under the bonus credit program. Staying informed and up-to-date with these lists is crucial for tax professionals to provide accurate advice and guidance to their clients.

Harnessing the power of the Energy Community Tax Bonus Credits

The IRS’s additional guidance for energy communities and the bonus credit program presents tax professionals with exciting opportunities to help their clients claim increased credit amounts or rates.

Tax professionals can handle the challenges of these provisions better by learning the broader meaning of energy communities, the higher credit amounts or rates, the Nameplate Capacity Attribution Rule, the Fossil Fuel Employment rate calculation, and the revised lists of energy communities.

By staying informed and leveraging these opportunities, tax professionals can provide valuable guidance to their clients and ensure they receive the maximum benefits available under the Inflation Reduction Act.