The world of federal taxation is not immune to the tug of war in U.S. politics and many businesses have questions around the future of certain legislative developments, including clean energy incentives. The past few administrations have passed laws that impacted basic tax rate changes, from the Tax Cuts and Jobs Act (TCJA) of 2017 to the Inflation Reduction Act (IRA) of 2022.
As we face another election year, we explore the potential fate of the IRA and the overall impact of clean energy incentives on your business.
Stability in Clean Energy Tax Incentives Amidst Political Uncertainty
While no one can predict the outcome of the election, it seems highly unlikely that drastic changes will be made to the current clean energy tax credits and incentives. In just two years, more than 100,000 new clean energy jobs were created as a result of clean energy investments spurred by incentives and credits provided in the IRA1.
The states with the largest number of those new jobs include Arizona, Georgia, Kansas and Tennessee2. The locations of these investments range from small towns to large cities and the total estimate of dollars invested is nearly $100 billion. For the foreseeable future, these clean energy tax credits and incentives are here to stay.
Recent Energy Tax Credits and Incentives Updates
The summer of 2024 saw new developments in the federal energy tax credit space, which highlights the exponential growth in this area. The renewable energy credit sector has had an exciting year, with continued updates and opportunities found under the Inflation Reduction Act. There has been drastic growth in:
- Federal tax liability arbitrage in transferability transactions
- Elective pay registrations at the tax-exempt level, from not-for-profits and charities to cities and counties
- Applications for manufacturing incentives
- Accelerated depreciation deductions related to energy efficiency investments in real estate investments
The sheer volume of Internal Revenue Service (IRS) notices concerning energy tax credits underscores their critical importance. These tax credits are pivotal in promoting clean energy initiatives and economic growth. Despite the political uncertainties of election years, the enduring nature of these incentives is evident.
This stability is vital for businesses planning long-term investments in clean energy. The recent IRS updates and regulations reflect a commitment to these incentives, regardless of election outcomes. They signal a robust framework that supports clean energy's role in the economy, ensuring these credits remain a cornerstone of federal tax policy.
Key Developments
May 22, 2024: Notice 2024-36 – IRS Provides Guidance Regarding the 2024 Allocation Round of Qualifying Advanced Energy Project Credit Program Under Section 48C
The IRS issued a notice announcing the second and final round of Section 48C credit allocations starting with the opening of concept paper submissions. Round two increased the available funding to $6 billion and, as later discussed, saw a host of new submissions for available credit. While the Section 48C opportunity is closing for taxpayers who did not submit, there are alternative incentives still available and possibilities to unlock significant benefit.
May 29, 2024: IR-2024-150 – IRS Issues Proposed Regulations for Owners of Qualified Clean Electricity Facilities and Energy Storage Technologies
An entirely new regime for investment and production tax credits is coming in 2025, based on the idea of being carbon net zero but technology neutral. In particular, the IRS looked to establish rules regarding the determination and recordkeeping of greenhouse gas (GHG) emissions rates. Taxpayers interested in these new credits should pay close to attention to these rules and eventual modifications and clarifications as they arise.
June 7, 2024: Notice 2024-48 – Department of Treasury Publishes Energy Community Bonus Credit Amounts or Rates Annual Statistical Area Category Update and Coal Closure Category Update
The Department of the Treasury issued a notice publishing information taxpayers can use to better determine whether they meet the requirements for qualifying for the Energy Community Bonus Tax Credit. The notice contains appendices for both the Statistical Area Category and the Coal Closure Category. An FAQ for energy communities was simultaneously released by the IRS on its website.
June 7, 2024: Rev. Proc. 2024-26 – Department of Treasury and IRS Update Procedures for Qualified Manufacturers, Dealers and Sellers of Certain Qualified Clean Vehicles Under the IRA
An update to previously existing policies, this revenue procedure contained new guidance for qualified manufacturers submitting information on new clean vehicles. The updated revenue procedure ensures vehicles satisfy the requirements of Section 30D and maintain eligibility for qualified clean vehicle credits.
June 18, 2024: T.D. 9998 – IRS Issues Increased Amounts of Credit or Deduction for Satisfying Certain Prevailing Wage and Registered Apprenticeship Requirements
The IRS issued final regulations on the prevailing wage and apprenticeship requirements that attach themselves to a host of provisions in the IRA. The final regulations largely reflected early guidance provided by the Treasury. However, there were some modifications.
For example, the proposed regulations were changed by confirming that the apprenticeship requirements apply to construction of a facility. They do not apply to alteration or repair work after the facility has been placed in service.
If apprentices are used, they must be paid at a rate determined by the relevant registered apprenticeship program. Otherwise, the minimum rate of pay is at the applicable labor classification. The prevailing wage and apprenticeship requirements provide immense benefit but can also be difficult to understand and properly apply.
July 3, 2024: IR-2024-182 – IRS Warns of New Scam Targeting Clean Energy Tax Credits
The IRS has identified instances where some tax return preparers misrepresent the rules for claiming clean energy credits under the IRA. In particular, some preparers are using transferability provisions to offset income tax from sources that are not eligible.
When used correctly, these provisions can be powerful tools for monetizing credits or alleviating federal tax liability. This further highlights the need to seek guidance from trusted advisors with deep expertise on the IRA and clean energy tax incentives.
July 24, 2024: Notice 2024-60 – IRS Updates Required Procedures to Claim a Section 45Q Credit for Utilization of Carbon Oxide
To claim a credit under the new provisions of Section 45Q, a taxpayer must provide a written report known as a lifecycle analysis. The IRS issued Notice 2024-60, which provides procedures on how to submit that report for IRS approval prior to determining a credit.
Section 45Q Credit for Utilization of Carbon Oxide is one of the more powerful, updated credits found in the IRA, but it is also one of the more technically calculated credits. The new notice provides much-needed guidance on certain aspects of claiming this energy tax credit.
August 7, 2024: IR-2024-202 – Department of Treasury and IRS Release IRA Clean Energy Statistics for Residential Credits
Statistics were made available that provided insight into the current volume of residential credits being claimed under the IRA, confirming the clean energy market is in rapid expansion. Of note, the value of claimed Residential Clean Energy Credits, including solar and battery, in 2023 totaled $6.3 billion.
August 14, 2024: IR-2024-210 – IRS Encourages Organizations Planning to Claim Elective Pay to Complete Pre-Filing Registration Now for 2023 Tax Year
The IRS issued a news release strongly encouraging qualifying entities to complete their pre-filing registration process for qualifying energy projects placed into service in the 2023 tax year. This registration is a required part of filing for elective pay.
The IRS recommends that taxpayers submit the pre-filing registration at least 120 days prior to when the organization or entity plans to file its tax return. This allows time for IRS review, and for the taxpayer to respond if the IRS requires additional information before issuing the registration numbers.
August 29, 2024: IR-2024-228 – Treasury, IRS and DOE Announce Full Applications Open for Qualifying Advanced Energy Project Tax Credit
The IRS announced it had received more than 800 project proposal concept papers in the second round of funding for the Section 48C Qualifying Advanced Energy Project Tax Credit Program. It simultaneously opened full applications for taxpayers and notified applicants of their potential encouragement to apply.
Of the 800 total papers received, the IRS provided encouragement to more than 450 projects. Applicants, regardless of whether they received an encouragement letter, may now submit a full application on the portal. Applications are due by Friday, October 18, 2024.
Your Guide Forward
Cherry Bekaert offers unparalleled guidance for organizations seeking help navigating the complex tax credits and incentives environment. With deep knowledge of the IRA and clean energy tax incentives, Cherry Bekaert works with clients to confidently maximize on these opportunities. Our team’s advice helps mitigates risks, from understanding prevailing wage requirements to leveraging advanced energy project credits. We stay up to date on these developments so that we can be your guide forward. Our professionals are ready to serve as your experienced advisors to help maximize benefits in the exciting world of clean energy.
1 "100,000 Clean Energy Manufacturing Jobs Announced Since IRA; Companies Add 1,500 New Jobs in April," E2, May 7, 2024, https://e2.org/releases/100000-clean-energy-manufacturing-jobs-announced-since-ira-companies-add-1500-new-jobs-in-april.
2 "DOE Report Shows Clean Energy Jobs Grew at More Than Twice the Rate of Overall U.S. Employment," Department of Energy, August 28, 2024, https://www.energy.gov/articles/doe-report-shows-clean-energy-jobs-grew-more-twice-rate-overall-us-employment.
