Proposed Rule2023-11718
Additional Guidance on Low-Income Communities Bonus Credit Program
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
June 1, 2023
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document contains proposed rules concerning the low- income communities bonus energy investment credit program established pursuant to the Inflation Reduction Act of 2022. Applicants investing in certain solar and wind powered-electricity generation facilities may apply for an allocation of environmental justice solar and wind capacity limitation to increase the amount of an energy investment credit for the taxable year in which the facility is placed in service. This document describes proposed definitions and requirements that would be applicable for the program allocating the calendar year 2023 capacity limitation, which also would inform guidance applicable for future program years. The proposed rules would affect applicants seeking allocations of environmental justice solar and wind capacity limitation.
Full Text
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<title>Federal Register, Volume 88 Issue 105 (Thursday, June 1, 2023)</title>
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[Federal Register Volume 88, Number 105 (Thursday, June 1, 2023)]
[Proposed Rules]
[Pages 35791-35802]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-11718]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Chapter I
[REG-110412-23]
RIN 1545-BQ81
Additional Guidance on Low-Income Communities Bonus Credit
Program
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document contains proposed rules concerning the low-
income communities bonus energy investment credit program established
pursuant to the Inflation Reduction Act of 2022. Applicants investing
in certain solar and wind powered-electricity generation facilities may
apply for an allocation of environmental justice solar and wind
capacity limitation to increase the amount of an energy investment
credit for the taxable year in which the facility is placed in service.
This document describes proposed definitions and requirements that
would be applicable for the program allocating the calendar year 2023
capacity limitation, which also would inform guidance applicable for
future program years. The proposed rules would affect applicants
seeking allocations of environmental justice solar and wind capacity
limitation.
DATES: Written or electronic comments must be received by June 30,
2023.
ADDRESSES: Stakeholders are strongly encouraged to submit public
comments electronically. Submit electronic submissions via the Federal
eRulemaking Portal at <a href="https://www.regulations.gov">https://www.regulations.gov</a> (indicate IRS and
REG-110412-23) 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, whether electronically or on paper, to the IRS's
public docket. Send paper submissions to: CC:PA:LPD:PR (REG-110412-23),
Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin
Station, Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed rules, Office
of Associate Chief Counsel (Passthroughs & Special Industries) at (202)
317-6853 (not a toll-free number); concerning submissions of written
comments,
[[Page 35792]]
Vivian Hayes at (202) 317-5306 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
I. Overview
Section 13103 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 48(e) to the Internal Revenue Code (Code) to increase
the amount of the energy investment credit determined under section
48(a) (section 48 credit) with respect to eligible property that is
part of a qualified solar and wind facility that is awarded an
allocation of environmental justice solar and wind capacity limitation
(Capacity Limitation). This document contains proposed definitions and
rules relating to the allocation of Capacity Limitation for calendar
year 2023 (2023 Capacity Limitation).
The amount of the energy investment credit determined under the
section 48 credit for a taxable year is generally calculated by
multiplying the basis of each energy property placed in service during
that taxable year by the energy percentage (as defined in section
48(a)(2)). Section 48(e) increases the section 48 credit by increasing
the energy percentage used to calculate the amount of the section 48
credit (section 48(e) Increase) in the case of qualified solar and wind
facilities that receive an allocation of Capacity Limitation. The term
``qualified solar and wind facility'' is defined in section 48(e)(2) to
mean any facility that (i) generates electricity solely from a wind
facility, solar energy property, or small wind energy property; (ii)
has a maximum net output of less than 5 megawatts (as measured in
alternating current); and (iii) is described in at least one of four
categories in section 48(e)(2)(A)(iii) (and in part II of this
Background).
As described in part III of this Background, section 48(e)(4)(A)
directs the Secretary of the Treasury or her delegate (Secretary) to
``provide procedures to allow for an efficient allocation'' of Capacity
Limitation to qualified solar and wind facilities. Later this year, the
Treasury Department and the IRS expect to issue details for the program
applicable for the calendar year 2023 Capacity Limitation, covering a
comprehensive set of procedures and rules for applicants. The majority
of the information regarding the program's details will be procedural
rules. Some of the information that the Treasury Department and the IRS
intend to include, however, will provide more substantive details that
cover threshold definitions and requirements that must be established
to make allocations efficiently and effectively. Those aspects of the
program's details are the subject of this notice of proposed
rulemaking. The Treasury Department and the IRS expect that final
guidance will be reflected in regulations.
II. Four Categories of Qualified Solar and Wind Facilities
Depending on the category of the facility, an allocation of
Capacity Limitation may result in a section 48(e) Increase equal to
either 10 percentage points or 20 percentage points. Section
48(e)(1)(A)(i) provides for a section 48(e) Increase of 10 percentage
points for eligible property that is located in a low-income community,
as defined in section 45D(e) (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 48(e)(1)(A)(ii) provides
for a section 48(e) 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). Under section 48(e)(1)(A)(i), a
Category 1 or Category 2 facility that also qualifies as a Category 3
or Category 4 facility is considered a Category 3 facility or Category
4 facility (as applicable).
Section 48(e)(2)(B) provides that a facility will be treated as
part of a qualified low-income residential building project if such
facility is installed on a residential rental building which
participates in a covered housing program (as defined in Sec. 41411(a)
of the Violence Against Women Act of 1994 (34 U.S.C. 12491(a)(3)), a
housing assistance program administered by the Department of
Agriculture under title V of the Housing Act of 1949, a housing program
administered by a tribally designated housing entity (as defined in
Sec. 4(22) of the Native American Housing Assistance and Self-
Determination Act of 1996 (25 U.S.C. 4103(22)), or such other
affordable housing programs as the Secretary may provide, and (ii) the
financial benefits of the electricity produced by such facility are
allocated equitably among the occupants of the dwelling units of such
building.
Section 48(e)(2)(C) provides that a facility will be treated as
part of a qualified low-income economic benefit project if at least 50
percent of the financial benefits of the electricity produced by such
facility are provided to households with income of less than 200
percent of the poverty line (as defined in section 36B(d)(3)(A) of the
Code) applicable to a family of the size involved, or less than 80
percent of area median gross income (as determined under section
142(d)(2)(B) of the Code).
For a qualified low-income residential building project and a
qualified low-income economic benefit project, section 48(e)(2)(D)
provides that electricity acquired at a below-market rate will be
considered a financial benefit.
III. Overview of Low-Income Communities Bonus Credit Program
Section 48(e)(4) directs the Secretary to establish a program,
within 180 days of enactment of the IRA, to allocate amounts of
Capacity Limitation to qualified solar and wind facilities. Notice
2023-17, 2023-10 I.R.B. 505, established the program under section
48(e) to allow amounts of Capacity Limitation to be allocated to
qualified solar and wind facilities eligible for the section 48 credit
(Low-Income Communities Bonus Credit Program).\1\ Under section
48(e)(4)(C), the total annual Capacity Limitation that may be allocated
under the Low-Income Communities Bonus Credit Program is 1.8 gigawatts
of direct current capacity for each of the calendar years 2023 and
2024. Under section 48(e)(4)(D), 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, but not beyond calendar
year 2024.\2\
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\1\ Notice 2023-17 describes several other definitions and
requirements related to the Low-Income Communities Bonus Credit
Program.
\2\ Section 13702(a) of the IRA also enacted section 48E(h),
which generally provides for a program similar to the Low-Income
Communities Bonus Credit Program for calendar years after 2024.
Section 48E(i) directs the Secretary to issue guidance regarding the
implementation of section 48E not later than January 1, 2025. Any
excess Capacity Limitation from calendar year 2024 may be carried
forward and applied to the Capacity Limitation for calendar year
2025 under new section 48E(h)(4)(D)(ii). The Treasury Department and
the IRS anticipate that operation of the Low-Income Communities
Bonus Credit Program will inform the operation of the section 48E(h)
program generally, as described in future guidance.
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Consistent with Notice 2023-17, the Treasury Department and the IRS
propose to reserve a portion of the total annual Capacity Limitation of
1.8 gigawatts of direct current capacity for each facility category for
calendar year 2023 as follows:
[[Page 35793]]
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Category 1: Located in a Low-Income 700 megawatts.
Community.
Category 2: Located on Indian Land.. 200 megawatts.
Category 3: Qualified Low-Income 200 megawatts.
Residential Building Project.
Category 4: Qualified Low-Income 700 megawatts.
Economic Benefit Project.
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The proposed rules in this document would supplement the guidance
provided in Notice 2023-17 to outline the specific application
procedures, additional allocation criteria, and applicable definitions,
among other information, necessary to submit an application to request
an allocation of the Capacity Limitation for calendar year 2023 under
the Low-Income Communities Bonus Credit Program. The Treasury
Department and the IRS request comments on these proposed definitions
and requirements. The Treasury Department and the IRS also request
comment on whether these proposed definitions and requirements should
apply for purposes of the Low-Income Communities Bonus Credit Program
for calendar year 2024 and the program to be established under section
48E(h) for calendar year 2025 and future years. The Treasury Department
and the IRS anticipate further evaluating the program for 2023 to
determine what further guidance may be helpful or necessary in the
future.
Explanation of Proposed Rules
The proposed rules relate to specific definitions and requirements
regarding the following topics: (1) the definition of facility based on
single project factors; (2) the definition of ``in connection with'' to
demonstrate what it means for energy storage technology to be
considered part of eligible property of the qualified facility; (3)
definitions of the terms ``financial benefit'' and ``electricity
acquired at a below market rate'' under section 48(e)(2)(D), as well as
a manner to apply such definitions, appropriately, to Category 3
facilities that are part of qualified low-income residential building
projects and Category 4 facilities that are part of qualified economic
benefit projects; (4) the definition of ``located in'' for relevant
geographic criteria; (5) a rule for facilities placed in service prior
to an allocation award; (6) reservations of Capacity Limitation
allocation for applicant facilities that meet certain Additional
Selection Criteria; (7) sub-reservations of Capacity Limitation
allocation for facilities built in a low-income community; (8)
application materials demonstrating facility viability in order to
allow for an efficient allocation process; (9) documentation and
attestations to be submitted when a facility is placed in service; and
(10) post-allocation compliance including disqualification and
recapture of section 48(e) Increases.
I. Proposed Definitions and Requirements
A. Definition of Facility
The term ``qualified solar and wind facility'' is defined in
section 48(e)(2)(A) to mean any facility that (i) generates electricity
solely from a wind facility, solar energy property, or small wind
energy property; (ii) has a maximum net output of less than 5 megawatts
(as measured in alternating current); and (iii) is described in at
least one of the four categories described in section 48(e)(2)(A)(iii)
(Category 1, 2, 3, or 4). The Treasury Department and the IRS are
concerned that some applicants may attempt to circumvent the less than
5-megawatt output limitation provided in section 48(e)(2)(A)(ii) by
artificially dividing larger projects into multiple facilities. To
prevent applicants from dividing larger projects that should be
regarded as a single facility under section 48(e)(2)(A), solely for the
purpose of the Low-Income Communities Bonus Credit Program, the
Treasury Department and the IRS propose to aggregate into a single
``qualified solar and wind facility'' multiple facilities or energy
properties of the same type (solar or wind) that are operated as part
of a single project consistent with the single-project factors provided
in section 7.01(2)(a) of Notice 2018-59, 2018-28 I.R.B. 196 or section
4.04(2) of Notice 2013-29, 2013-20 I.R.B. 1085, as applicable.
Therefore, the Treasury Department and the IRS propose to define a
single qualified solar or wind facility as any facility that (i)
generates electricity solely from a wind facility, solar energy
property, or small wind energy property; (ii) that has a maximum net
output of less than 5 megawatts (as measured in alternating current);
and (iii) that is described in at least one of the four categories
described in section 48(e)(2)(A)(iii) (Category 1, 2, 3, or 4). In
addition, for purposes of determining allocations, administering the
program fairly, and avoiding abuse, the Treasury Department and the IRS
propose that multiple solar or wind energy properties or facilities
that are operated as part of a single project would be aggregated and
treated as a single facility. Whether multiple facilities or energy
properties are operated as part of a single project would depend on the
relevant facts and circumstances and would be evaluated based on the
factors provided in section 7.01(2)(a) of Notice 2018-59 or section
4.04(2) of Notice 2013-29, as applicable.
B. Energy Storage Technology Installed in Connection With Solar and
Wind Facility
Section 48(e)(3) defines ``eligible property'' to mean energy
property that (i) is part of a wind facility described in section
45(d)(1) for which an election to treat the facility as energy property
was made under section 48(a)(5) (wind facility), or (ii) is solar
energy property described in section 48(a)(3)(A)(i) (solar energy
property) or qualified small wind energy property described in section
48(a)(3)(A)(vi) (small wind energy property), including energy storage
technology (as described in section 48(a)(3)(A)(ix)) ``installed in
connection with'' such qualifying energy property. The Treasury
Department and the IRS propose to define ``installed in connection
with'' for energy storage technology to demonstrate what is required
for such energy storage technology to be considered eligible property
under section 48(e)(3).
Under the proposed definition energy storage technology would be
``installed in connection with'' other eligible property if both (1)
the energy storage technology and other eligible property are
considered part of a single qualified solar and wind facility because
the energy storage technology and other eligible property are owned by
a single legal entity, located on the same or contiguous pieces of
land, have a common interconnection point, and are described in one or
more common environmental or other regulatory permits; and (2) the
energy storage technology is charged no less than 50 percent by the
other eligible property. The Treasury Department and the IRS also
propose to add a safe harbor, which would deem the energy storage
technology to be charged at least 50 percent by the facility if the
power rating of the energy storage technology is less than 2 times the
capacity rating of the connected wind facility (in kW alternating
current) or solar facility (in kW direct current).
[[Page 35794]]
C. Financial Benefits for Category 3 and Category 4 Allocations
Section 48(e)(2)(D) provides that ``electricity acquired at a below
market rate'' will not fail to be taken into account as a financial
benefit. To clarify this language, the Treasury Department and the IRS
propose definitions of the terms ``financial benefit'' and
``electricity acquired at a below market rate'' under section
48(e)(2)(D), as well as a manner to apply such definitions,
appropriately, to qualified low-income residential building projects
(section 48(e)(2)(B)) and qualified economic benefit projects (section
48(e)(2)(C)). The definitions and requirements would be different for
an allocation in Category 3 (section 48(e)(2)(B)) and Category 4
(section 48(e)(2)(C)).
1. Financial Benefits for Qualified Low-Income Residential Building
Projects
For a facility to be treated as part of a qualified low-income
residential building project, section 48(e)(2)(B)(ii) provides that the
financial benefits of the electricity produced by such facility must be
allocated equitably among the occupants of the dwelling units of a
residential rental building that participates in a covered housing
program or other affordable housing program (qualified residential
property). The Treasury Department and the IRS propose to reserve
allocations under this category exclusively for applicants that would
apply the financial benefits requirement under Category 3 in the
following manner.
The Treasury Department and the IRS propose that financial benefit
can be demonstrated through net energy savings as defined below. At
least 50 percent of the financial value of net energy savings would be
required to be equitably passed on to building occupants. This
requirement would recognize that not all the financial value of the net
energy savings can be passed on to building occupants because a certain
percentage can be assumed to be dedicated to lowering the operational
costs of energy consumption for common areas, which benefits all
building occupants. The Treasury Department and the IRS propose to
reserve allocations under this category exclusively for applicants that
would equitably pass on net energy savings by distributing equal shares
among the qualified residential property's units that are designated as
low-income under the covered housing program, or by distributing
proportional shares based on each dwelling unit's electricity usage.
This proposal accounts for the specific nature of facilities
serving low-income residential buildings and facility ownership, as the
facility may be third party owned or commonly owned with the building.
a. Facility and Qualified Residential Property Have Same Ownership
In scenarios where the facility and the qualified residential
property have the same ownership, the Treasury Department and the IRS
propose to define the financial value of net energy savings as the
financial value equal to the greater of: (1) 25 percent of the gross
financial value of the annual energy produced or (2) the gross
financial value of the annual energy produced minus the annual costs to
operate the facility. Gross financial value of the annual energy
produced is calculated as the sum of (a) the total self-consumed
kilowatt-hours produced by the qualified solar and wind facility
multiplied by the applicable building's metered price of electricity
and (b) the total exported kilowatt-hours produced by the qualified
solar and wind facility multiplied by the applicable building's
volumetric export compensation rate for solar and wind kilowatt-hours.
The annual operating costs are calculated as the sum of annual debt
service, maintenance, replacement reserve, and other costs associated
with maintaining and operating the qualified solar and wind facility.
If the facility and building are commonly owned, a signed benefits
sharing agreement between the building owner and the tenants would be
required. The Treasury Department and the IRS request comments on how
to adjust definitions of gross financial value to account for scenarios
in which building occupants are compensating the facility owner for
energy services.
b. Facility and Qualified Residential Property Have Different Ownership
In scenarios where the facility and the qualified residential
property have different ownership and the facility owner enters into a
power purchase agreement or other contract for energy services with the
qualified residential property owner, the Treasury Department and the
IRS propose to define net energy savings as equal to the greater of:
(1) 50 percent of the financial value of the annual energy produced by
the facility which accrues to the owner of the qualified residential
property in the form of utility bill credit and/or cash payments for
net excess generation or (2) the financial value of the annual energy
produced by the facility which accrues to the owner of the qualified
residential property in the form of utility bill credit and/or cash
payments for net excess generation minus any payments made by the
building owner to the facility owner for energy services associated
with the facility in a given year. In these scenarios, the facility
owner must enter into an agreement with the building owner for the
building owner to distribute the savings to residents.
The Treasury Department and the IRS request comments on how to
adjust definitions of gross financial value to account for scenarios in
which building occupants are compensating the facility owner for energy
services.
c. Impact of Metering on Delivery of Financial Benefits
Regardless of ownership, residential buildings may have master-
metered or sub-metered utilities. The financial benefits of the
electricity produced by the facility cannot be distributed to residents
in master-metered buildings in the same manner as in sub-metered
buildings and is often administratively infeasible in certain sub-
metered buildings. Therefore, the Treasury Department and the IRS
propose that for sub-metered buildings, the tenants must receive the
financial value associated with utility bill savings in the form of a
credit on their utility bills. The U.S. Department of Housing and Urban
Development (HUD) has issued guidance for residents of sub-metered HUD-
assisted housing that participate in community solar, providing an
analysis of how community solar credits may affect utility allowance
and annual income for rent calculations.\3\ The Treasury Department and
the IRS propose that applicants follow the HUD guidance and future HUD
guidance on this issue to ensure that tenants' utility allowances and
annual income for rent calculations are not negatively impacted.
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\3\ U.S. Department of Housing and Urban Development, Treatment
of Community Solar Credits on Tenant Utility Bills (July 2020): MF
Memo re Community Solar Credits July 14 Draft (<a href="http://hud.gov">hud.gov</a>).
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The Treasury Department and the IRS are aware that in some States
or jurisdictions it may not be administratively, or legally, possible
to apply utility bill savings on residents' electricity bills. The
Treasury Department and the IRS request comments on this issue and how
financial benefits, such as services and building improvements, can be
provided to residents in such residential buildings.
For master-metered buildings, the Treasury Department and the IRS
[[Page 35795]]
propose that because residents do not have individually metered
utilities and do not receive utility bills, the building owner must
pass on the savings through other means, such as by providing certain
benefits to the building residents beyond those provided prior to the
qualified solar and wind facility being placed in service. HUD has
issued guidance for how residents of mastered-metered HUD-assisted
housing can benefit from owners' sharing financial benefits accrued
from an investment in solar energy generation.\4\ The Treasury
Department and the IRS propose that applicants follow the HUD guidance
and future HUD guidance on this issue to ensure that tenants' utility
allowances and annual income for rent calculations are not negatively
impacted.
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\4\ U.S. Department of Housing and Urban Development, Treatment
of Solar Benefits in Mastered-metered Buildings (May 2023),
MF_Memo_re_Community_Solar_Credits_in_MM_Buildings.pdf (<a href="http://hud.gov">hud.gov</a>).
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2. Financial Benefits in Qualified Low-Income Economic Benefit Projects
For a facility to be treated as part of a qualified low-income
economic benefit project, section 48(e)(2)(C) requires that at least 50
percent of the financial benefits of the electricity produced by the
facility be provided to qualifying low-income households. To satisfy
this standard, the Treasury Department and the IRS propose to require
that the facility serves multiple households and at least 50 percent of
the facility's total output is distributed to qualifying low-income
households under section 48(e)(2)(C)(i) or (ii). In addition, to
further the overall goals of the program, the Treasury Department and
the IRS propose to reserve allocations under this category exclusively
for applicants that would provide at least a 20-percent bill credit
discount rate for all such low-income households. The Treasury
Department and the IRS propose defining a ``bill credit discount rate''
as the difference between the financial benefit distributed to the low-
income household (including utility bill credits, reductions in the
low-income household's electricity rate, or other monetary benefits
accrued by the household) and the cost of participating in the program
(including subscription payments for renewable energy and any other
fees or charges), expressed as a percentage of the financial benefit
distributed to the low-income household. The bill credit discount rate
can be calculated by starting with the financial benefit distributed to
the low-income household, subtracting all payments made by the low-
income customer to the facility owner and any related third parties as
a condition of receiving that financial benefit, then dividing that
difference by the financial benefit distributed to the low-income
household.
To ensure these requirements are met, verification of households'
qualifying low-income status is required. Applicants are responsible
for proof-of-income verification and would be required to submit
documentation upon placing the qualified solar and wind facility in
service that identifies each qualifying low-income household, the
output allocated to each qualifying low-income household in kW, and the
method of income verification utilized.
Applicants may use category eligibility or other income
verification methods to qualify low-income households. Categorical
eligibility consists of obtaining proof of household participation in a
needs-based Federal,\5\ State, Tribal, or utility program with income
limits at or below the qualifying income level for the specific
facility (qualifying program). State agencies (for example, state
community solar/wind program administrators) can also provide
verification of low-income status if the State program's income limits
are at or below the qualifying income level for the qualified solar and
wind facility. If a household is not enrolled in a qualifying program,
additional income verification methods can be used such as: paystubs,
tax returns, or income verification through crediting agencies and
commercial data sources. Eligibility based on the applicant (or
contractors or subcontractors) collecting self-attestations is not
permissible.
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\5\ Federal programs may include, but are not limited to:
Medicaid, Low-Income Home Energy Assistance Program (LIHEAP),
Weatherization Assistance Program (WAP), Supplemental Nutrition
Assistance Program (SNAP), Section 8 Project-Based Rental
Assistance, and the Housing Choice Voucher Program.
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D. Location
A qualified solar and wind facility is treated as ``located in a
low-income community'' or ``on Indian Land'' under section
48(e)(2)(A)(iii)(I) or located in a geographic area under the
Additional Selection Criteria (see part II.C) if the facility satisfies
the nameplate capacity test (Nameplate Capacity Test).
Under the Nameplate Capacity Test, a facility that has nameplate
capacity (for example, wind and solar facilities) is considered located
in or on the relevant geographic area if 50 percent or more of the
facility's nameplate capacity is in a qualifying area. A facility's
nameplate capacity percentage is determined by dividing the nameplate
capacity of the facility's energy-generating units that are located in
the qualifying area by the total nameplate capacity of all the energy-
generating units of the facility.
Nameplate capacity for an electricity generating unit means the
maximum electricity generating output that the unit is capable of
producing on a steady state basis and during continuous operation under
standard conditions, as measured by the manufacturer and consistent
with the definition provided in 40 CFR 96.202. Energy-generating units
that generate direct current (DC) power before converting to
alternating current (AC) (for example, solar photovoltaic) should use
the nameplate capacity in DC, otherwise the nameplate capacity in AC
should be used (for example, wind facilities). Where applicable, the
International Standard Organization (ISO) conditions are used to
measure the maximum electricity generating output or usable energy
capacity. The nameplate capacity of any energy storage technology
installed in connection with the qualified solar and wind facility does
not affect the assessment of the Nameplate Capacity Test.
II. Proposed Program Requirements and Structure
A. Placed in Service Prior to Allocation Award
As stated in section 4.05 of Notice 2023-17, the Treasury
Department and the IRS propose that facilities placed in service prior
to being awarded an allocation of Capacity Limitation would not be
eligible to receive an allocation. As described in Notice 2023-17, one
of the broad goals of the Low-Income Communities Bonus Credit Program
is to increase adoption of and access to renewable energy facilities in
low-income and other communities with environmental justice concerns.
Facilities that were placed in service prior to the allocation process
do not increase adoption of and access to renewable energy facilities
as compared to the absence of the Low-Income Communities Bonus Credit
Program. Further, section 48(e)(4)(E)(i) provides that a facility must
be placed in service within four years of receiving an allocation of
Capacity Limitation, supporting allocations to new facilities that have
not yet been placed in service. Accordingly, the Treasury Department
and the IRS continue to propose that facilities placed in service prior
to being awarded an allocation of Capacity Limitation would not be
eligible to receive an allocation.
[[Page 35796]]
B. Selection Process
Under section 48(e)(4)(C), the total annual Capacity Limitation is
1.8 gigawatts of direct current capacity for the calendar year 2023
program. Section 4.02 of Notice 2023-17 specified how the annual
Capacity Limitation would be allocated across the four facility
categories in 2023: Located in a Low-Income Community (Category 1),
Located on Indian Land (Category 2), Qualified Low-Income Residential
Building Project (Category 3), and Qualified Low-Income Economic
Benefit Project (Category 4). Section 4.07 of Notice 2023-17 provided
that applications would be accepted in a phased approach for calendar
year 2023, during 60-day application windows. Based on public feedback
in response to Notice 2023-17 and an updated assessment of operational
capabilities set up to administer the program, a new approach is
proposed.
The Treasury Department and the IRS anticipate that the number of
eligible applicants seeking an allocation may exceed the total Capacity
Limitation allocation available to be allocated. The Treasury
Department and the IRS are designing an application process that both
ensures that allocations are awarded to facilities that advance the
program goals previously stated in Notice 2023-17 and facilitates an
efficient allocation process.
Accordingly, the Treasury Department and the IRS propose an
approach that includes an initial application window in which
applications received by a certain time and date would be evaluated
together, followed with a rolling application process if Capacity
Limitation is not fully allocated after the initial application window
closes. Facilities that meet at least one of the two categories of
specified ownership and geographic criteria (Additional Selection
Criteria) would receive priority for an allocation within each facility
category described in section 48(e)(2)(A)(iii). The Treasury Department
and the IRS propose that at least 50 percent of the total Capacity
Limitation in each facility category would be reserved for facilities
meeting Additional Selection Criteria in the following fashion.
In evaluating applications received during the initial application
window, priority would be given to eligible applications for facilities
meeting at least one of the two Additional Selection Criteria. If the
eligible applications for Capacity Limitation for facilities that meet
at least one of the two Additional Selection Criteria categories exceed
the Capacity Limitation for a category, facilities meeting both of the
Additional Selection Criteria categories would be prioritized for an
allocation. A lottery system may be used in oversubscribed categories
to decide among similarly situated applications (for example,
facilities that meet both of the Additional Selection Criteria
categories, facilities that meet only one of the two Additional
Selection Criteria categories, facilities that do not meet either of
the Additional Selection Criteria categories). An applicant could not
administratively appeal the Capacity Limitation allocation decisions
made under the Low-Income Communities Bonus Credit Program.
If eligible applications for facilities that meet at least one of
the two Additional Selection Criteria categories received during the
initial application window total less than 50 percent of the Capacity
Limitation for a category, additional Capacity Limitation would be
reserved during the rolling application period such that 50 percent of
the total Capacity Limitation in the category would be reserved for
these facilities.
The Treasury Department and the IRS would retain the discretion to
reallocate Capacity Limitation across categories and sub-categories in
order to maximize allocation in the event one category or sub-category
is oversubscribed and another has excess capacity.
C. Additional Selection Criteria
The Treasury Department and the IRS propose that the two Additional
Selection Criteria are Ownership Criteria and Geographic Criteria.
1. Ownership Criteria
The Ownership Criteria category is based on characteristics of the
applicant that owns the qualified solar and wind facility. A qualified
solar and wind facility would meet the Ownership Criteria if it is
owned by a Tribal Enterprise, an Alaska Native Corporation, a renewable
energy cooperative, a qualified renewable energy company meeting
certain characteristics, or a qualified tax-exempt entity. If an
applicant wholly owns an entity that is the owner of a qualified solar
and wind facility, and the entity is disregarded as separate from its
owner for Federal income tax purposes (disregarded entity), the
applicant, and not the disregarded entity, is treated as the owner of
the qualified solar and wind facility for purposes of the Ownership
Criteria.
a. Tribal Enterprise
A ``Tribal Enterprise'' for purposes of the Ownership Criteria is
an entity that is (1) an Indian Tribal government (as defined in
section 30D(g)(9) of the Code) that owns at least a 51 percent interest
in, either directly or indirectly (through a wholly owned corporation
created under its Tribal laws or through a section 3 or section 17
Corporation),\6\ and (2) the Indian Tribal government has the power to
appoint and remove a majority (more than 50 percent) of the individuals
serving on the entity's board of directors or equivalent governing
board.
---------------------------------------------------------------------------
\6\ A ``section 17 corporation'' is a corporation incorporated
under the authority of section 17 of the Indian Reorganization Act
of 1934, 25 U.S.C. 5124. A ``section 3 corporation'' is a
corporation that is incorporated under the authority of section 3 of
the Oklahoma Indian Welfare Act, 25 U.S.C. 5203.
---------------------------------------------------------------------------
b. Alaska Native Corporation
An ``Alaska Native corporation'' for purposes of the Ownership
Criteria is defined in section 3 of the Alaska Native Claims Settlement
Act, 43 U.S.C. 1602(m).
c. Renewable Energy Cooperative
A ``renewable energy cooperative'' for purposes of the Ownership
Criteria is an entity that develops qualified solar and/or wind
facilities and owns at least 51 percent of a facility and is either (1)
a consumer or purchasing cooperative controlled by its members who are
low-income households (as defined in section 48(e)(2)(C)) with each
member having an equal voting right, or (2) a worker cooperative
controlled by its worker-members with each member having an equal
voting right.
d. Qualified Renewable Energy Company
A ``qualified renewable energy company'' for purposes of the
Ownership Criteria would be an entity that serves low-income
communities and provides pathways for the adoption of clean energy by
low-income households. In addition to its general business purpose, the
Treasury Department and the IRS are considering the following
requirements that a qualified renewable energy company would need to
satisfy:
(1) At least 51 percent of the entity's equity interests are owned
and controlled by (a) one or more individuals, (b) a Community
Development Corporation (as defined in 13 CFR 124.3), (c) an
agricultural or horticultural cooperative (as defined in section
199A(g)(4)(A) of the Code), (d) an Indian Tribal government (as defined
in section 30D(g)(9)), (e) an Alaska Native corporation (as defined in
section 3 of the Alaska Native Claims
[[Page 35797]]
Settlement Act, 43 U.S.C. 1602(m)), or (f) a Native Hawaiian
organization (as defined in 13 CFR 124.3);
(2) After applying the controlled group rules under section 52(a)
of the Code, has less than 10 full-time equivalent employees (as
determined under section 4980H(c)(2)(E) and (c)(4) of the Code) and
less than $5 million in annual gross receipts in the previous calendar
year;
(3) First installed or operated a qualified solar and wind facility
as defined in section 48(e)(2)(A) two or more years prior to the date
of application; and
(4) Has installed and/or operated qualified solar and wind
facilities as defined in section 48(e)(2)(A) with at least 100 kW of
cumulative nameplate capacity located in one or more Low-Income
Communities as defined in section 48(e)(2)(A)(iii)(I).
The Treasury Department and the IRS specifically request comments
on these proposed elements for determining whether a business is a
qualified renewable energy company. The Treasury Department and the IRS
also request comments on an administrable rule to ensure that qualified
renewable energy companies are employing workers in the Low-Income
Communities.
e. Qualified Tax-Exempt Entity
A ``qualified tax-exempt entity'' for purposes of the Ownership
Criteria is:
(1) An organization exempt from the tax imposed by subtitle A of
the Code by reason of being described in section 501(c)(3) or section
501(d);
(2) Any State, the District of Columbia, or political subdivision
thereof, any territory of the United States, or any agency or
instrumentality of any of the foregoing;
(3) An Indian Tribal government (as defined in section 30D(g)(9)),
political subdivision thereof, or any agency or instrumentality of any
of the foregoing; or
(4) Any corporation described in section 501(c)(12) operating on a
cooperative basis which is engaged in furnishing electric energy to
persons in rural areas.
2. Geographic Criteria
The Geographic Criteria category is based on where the facility
will be placed in service. To meet the Geographic Criteria, a facility
would need to be located in a Persistent Poverty County (PPC) \7\ or in
a census tract that is designated in the Climate and Economic Justice
Screening Tool (CEJST) as disadvantaged based on whether the tract is
either (a) greater than or equal to the 90th percentile for energy
burden and is greater than or equal to the 65th percentile for low
income, or (b) greater than or equal to the 90th percentile for
PM<INF>2.5</INF> exposure and is greater than or equal to the 65th
percentile for low income.\8\ The Treasury Department and the IRS
propose that applicants who meet the Geographic Criteria at the time of
application are considered to continue to meet the Geographic Criteria
for the duration of the recapture period, unless the location of the
facility changes.
---------------------------------------------------------------------------
\7\ <a href="https://www.ers.usda.gov/data-products/county-typology-codes/">https://www.ers.usda.gov/data-products/county-typology-codes/</a>.
\8\ <a href="https://screeningtool.geoplatform.gov/en/#3/33.47/-97.5">https://screeningtool.geoplatform.gov/en/#3/33.47/-97.5</a>. The
CEJST website provides further detail on the terms used in
identifying census tracts for the Energy category. ``Energy cost''
is defined as ``Average household annual energy cost in dollars
divided by the average household income.'' PM<INF>2.5</INF> is
defined as ``Fine inhalable particles with 2.5 or smaller micrometer
diameters. The percentile is the weight of the particles per cubic
meter.'' ``Low income'' is defined as ``Percent of a census tract's
population in households where household income is at or below 200%
of the Federal poverty level, not including students enrolled in
higher education.'' See Methodology & data--Climate & Economic
Justice Screening Tool (<a href="http://geoplatform.gov">geoplatform.gov</a>.)
---------------------------------------------------------------------------
A PPC is generally defined as any county where 20 percent or more
of residents have experienced high rates of poverty over the past 30
years. For the purposes of the Low-Income Communities Bonus Credit
Program, the Treasury Department and the IRS propose the PPC measure
adopted by the U.S. Department of Agriculture to make this
determination. The most recent measure, which would apply for the 2023
program year, incorporates poverty estimates from the 1980, 1990, 2000
censuses, and 2007-11 American Community Survey 5-year average.
D. Sub-Reservations of Allocation for Facilities Located in a Low-
Income Community
Notice 2023-17 provided that 700 megawatts of 2023 calendar year
Capacity Limitation would be reserved for Category 1. The Treasury
Department and the IRS anticipate that Category 1 will receive the
largest number of applications, and that most applications will be for
small rooftop residential solar facilities. Therefore, the Treasury
Department and the IRS propose to subdivide the 700 MW Capacity
Limitation reservation for facilities seeking a Category 1 allocation
with 560 megawatts reserved specifically for eligible residential
behind the meter (BTM) facilities, including rooftop solar. The sub-
reservation of a substantial portion of the allocation in Category 1
for eligible residential BTM facilities would help ensure that
allocations are predominantly awarded to facilities serving residences
and consumers, rather than facilities serving businesses. The remaining
140 megawatts of Capacity Limitation would be available for applicants
with front of the meter (FTM) facilities as well as non-residential BTM
facilities.
The Treasury Department and the IRS propose to define an eligible
residential BTM facility as single-family or multi-family residential
qualified solar and wind facility that does not meet the requirements
for Category 3 and is BTM. A qualified wind and solar facility is BTM
if: (1) it is connected with an electrical connection between the
facility and the panelboard or sub-panelboard of the site where the
facility is located, (2) it is to be connected on the customer side of
a utility service meter before it connects to a distribution or
transmission system (that is, before it connects to the electricity
grid), and (3) its primary purpose is to provide electricity to the
utility customer of the site where the facility is located. This also
includes systems not connected to a grid and that may not have a
utility service meter, and whose primary purpose is to serve the
electricity demand of the owner of the site where the system is
located.
The Treasury Department and the IRS propose to define a FTM
facility. A facility is FTM if it is directly connected to a grid and
its sole purpose is to provide electricity to one or more offsite
locations via such grid; alternatively, FTM is defined as a facility
that is not BTM.
E. Application Materials
Section 48(e)(4)(A) directs the Secretary to provide procedures to
allow for an efficient allocation process. Additionally, section
48(e)(4)(E)(i) requires that facilities allocated an amount of Capacity
Limitation be placed in service within four years of the date of
allocation. To promote efficient allocation, and to better ensure that
allocations will be awarded to facilities that are sufficiently viable
and well defined to allow for a review for an allocation, and
sufficiently advanced such that they are likely to meet the four-year
placed-in-service deadline, the Treasury Department and the IRS propose
to require applicants to submit certain documentation and attestations
when applying for an allocation. Some requirements differ for FTM and
BTM facilities and other requirements differ by Category and Additional
Selection Criteria.
[[Page 35798]]
Under this proposed approach, applicants would be required to
submit the following:
1. Documentation and Attestations To Be Submitted for All Facilities
----------------------------------------------------------------------------------------------------------------
FTM BTM <=1 MW AC BTM >1 MW AC
----------------------------------------------------------------------------------------------------------------
Proposed Document Requirement
----------------------------------------------------------------------------------------------------------------
An executed contract to purchase the No..................... Yes.................... Yes.
facility, an executed contract to
lease the facility, or an executed
power purchase agreement for the
facility.
A copy of the final executed Yes.................... No..................... Yes.
interconnection agreement, if
applicable \9\.
----------------------------------------------------------------------------------------------------------------
Proposed Attestation Requirement
----------------------------------------------------------------------------------------------------------------
The applicant has site control Yes.................... No..................... No.
through ownership, an executed lease
contract, site access agreement or
similar agreement between the
property owner and the applicant.
The facility has obtained all Yes.................... Yes.................... Yes.
applicable Federal, State, Tribal,
and local non-ministerial permits,
or that the facility is not required
to obtain such permits.
The applicant is in compliance with Yes.................... Yes.................... Yes.
all Federal, State, and Tribal laws,
including consumer protection laws
(as applicable).
The applicant has appropriately sized No..................... Yes.................... Yes.
the facility (to meet no more than
110% of historical customer load).
The applicant has appropriately sized Yes.................... No..................... No.
the customer's facility output share
and has based facility output share
on historical customer load.
The applicant has inspected Yes.................... Yes.................... Yes.
installation sites for suitability
(for example, roofs).
----------------------------------------------------------------------------------------------------------------
2. Documentation and Attestations To Be Submitted for Certain
Facilities Depending on Category and Additional Selection Criteria
----------------------------------------------------------------------------------------------------------------
Category 1 Category 2 Category 3 Category 4
----------------------------------------------------------------------------------------------------------------
Proposed Document Requirement
----------------------------------------------------------------------------------------------------------------
Documentation demonstrating No................ No................ Yes............... No.
property will be installed on
an eligible residential
building.
Plans to ensure tenants receive No................ No................ Yes............... No.
required financial benefits.
If applying under Additional Yes............... Yes............... Yes............... Yes.
Selection Criteria:
Documentation demonstrating
applicant meets Ownership
Criteria.
----------------------------------------------------------------------------------------------------------------
Proposed Attestation Requirement
----------------------------------------------------------------------------------------------------------------
Facility location is eligible Yes............... Yes............... No................ No.
\10\.
Consumer disclosures informing Yes............... Yes............... Yes (provided to Yes.
customers of their legal rights tenants).
and protections have been
provided to customers that have
signed up and will be provided
to future customers.
The applicant will ensure at No................ No................ No................ Yes.
least 50% of the financial
benefits will be provided to
qualified households at 20%
bill credit discount rate.
If applying under additional Yes............... No................ Yes............... Yes.
Selection Criteria: Facility
location is eligible based on
PPC/CEJST.
----------------------------------------------------------------------------------------------------------------
F. Documentation and Attestations To Be Submitted When Placed in
Service
The Treasury Department and the IRS also propose to require
facilities that received a Capacity Limitation allocation to report to
the Department of Energy (DOE) that the facility has been placed in
service, and to submit additional documentation or complete additional
attestations with this reporting. At the time of application,
applicants would not necessarily be able to demonstrate compliance with
certain eligibility requirements, as the facility would not yet be
operating at that time. Requiring placed in service reporting would
allow for final verification that the facilities that were awarded a
Capacity Limitation Allocation have met certain eligibility
requirements under the Low-Income Communities Bonus Credit Program.
---------------------------------------------------------------------------
\9\ If an interconnection agreement is not applicable to the
facility (for example, due to utility ownership), this requirement
is satisfied by a final written decision from a Public Utility
Commission, cooperative board, or other governing body with
sufficient authority that financially authorizes the facility. If
the facility is located in a market where the interconnection
agreement cannot be signed prior to construction of the facility or
interconnection facilities, this requirement is satisfied by a
signed conditional approval letter from the jurisdictional utility
and an affidavit from a senior corporate officer of the applicant
(or someone with authority to bind the applicant) stating that an
interconnection agreement cannot be executed until after
construction of the facility.
\10\ Facility location would be reviewed using latitude and
longitude coordinates when possible.
---------------------------------------------------------------------------
The applicant-owner would submit documentation or sign an
attestation for the following:
[[Page 35799]]
------------------------------------------------------------------------
Category
------------------------------------------------------------------------
Proposed Attestation Requirement
------------------------------------------------------------------------
Confirmation of material ownership and/or All.
facility changes from application or that
there has been no change from the
application.
------------------------------------------------------------------------
Proposed Document Requirement
------------------------------------------------------------------------
Permission to Operate (PTO) letter (or All.
commissioning report verifying for off-grid
facilities) that the facility has been
placed in service and the location of the
facility being placed in service.
Final, Professional Engineer (PE) stamped as- All.
built design plan, PTO letter with nameplate
capacity listed, or other documentation from
an unrelated party verifying as-built
nameplate capacity.
Benefits Sharing Agreement for qualified 3.
residential building projects between
building owner and tenants (including for
facilities that are third party owned,
additional sharing agreement between the
facility owner and the building owner).
Final list of households or other entities 4.
served with name, address, subscription
share, and income status of qualifying low-
income households served, and the income
verification method used.
Spreadsheet demonstrating the expected 4.
financial benefit to low-income subscribers
to demonstrate the 20% bill credit discount
rate.
------------------------------------------------------------------------
G. Post-Allocation Compliance
1. Disqualification After Receiving an Allocation
The Treasury Department and the IRS recognize that because, under
section 48(e)(4)(E)(i), an applicant has four years after the date of
an allocation of Capacity Limitation to place eligible property in
service, circumstances may change prior to the property being placed in
service such that a facility is no longer eligible for the allocation
it received. In addition, to promote an efficient allocation process
consistent with section 48(e)(4)(A), the Treasury Department and the
IRS want to discourage material changes in project plans, such as
significant reductions in facility size that tie up Capacity Limitation
that could otherwise be awarded to other qualified facilities.
Accordingly, the Treasury Department and the IRS propose that a
facility that was awarded a Capacity Limitation allocation is
disqualified from receiving that allocation if prior to or upon the
facility being placed in service: (1) the location where the facility
will be placed in service changes; (2) the nameplate capacity of the
facility increases such that it exceeds the less than 5-megawatt
alternating current output limitation provided in section
48(e)(2)(A)(ii) or decreases by the greater of 2 kW or 25 percent of
the Capacity Limitation awarded in the allocation; (3) the facility
cannot satisfy the financial benefits requirements under section
48(e)(2)(B)(ii) as planned (if applicable) or cannot satisfy the
financial benefits requirements under section 48(e)(2)(C) as planned
(if applicable); (4) the eligible property which is part of the
facility that received the Capacity Limitation allocation is not placed
in service within four years after the date the applicant was notified
of the allocation of Capacity Limitation to the facility; or (5) the
facility received a Capacity Limitation allocation based, in part, on
meeting the Ownership Criteria and ownership of the facility changes
prior to the facility being placed in service such that the Ownership
criteria is no longer satisfied, unless a) the original applicant
retains an ownership interest in the entity that owns the facility and
b) the successor owner attests that after the five year recapture
period, the original applicant that met the Ownership Criteria will
become the owner of the facility or that this original applicant will
have the right of first refusal.
2. Recapture of Section 48(e) Increase
Section 48(e)(5) requires the Secretary, by regulations or other
guidance, to provide rules for recapturing the benefit of any section
48(e) Increase with respect to any property which ceases to be property
eligible for such section 48(e) Increase (but which does not cease to
be investment credit property within the meaning of section 50(a)). The
period and percentage of such recapture is determined under rules
similar to the rules of section 50(a). To the extent provided by the
Secretary, such recapture may not apply with respect to any property
if, within 12 months after the date the applicant becomes aware (or
reasonably should have become aware) of such property ceasing to be
property eligible for such section 48(e) Increase, the eligibility of
such property for such section 48(e) Increase is restored. Such
restoration of a section 48(e) Increase is not available more than once
with respect to any facility.
The Treasury Department and the IRS propose that the following
circumstances result in a recapture event if the property ceases to be
eligible for the increased credit under section 48(e): (1) property
described in section 48(e)(2)(A)(iii)(II) fails to provide financial
benefits over the 5-year period after its original placed-in-service
date; (2) property described under section 48(e)(2)(B) ceases to
allocate the financial benefits equitably among the occupants of the
dwelling units, such as not passing on to residents the required net
energy savings of the electricity; (3) property described under section
48(e)(2)(C) ceases to provide at least 50 percent of the financial
benefits of the electricity produced to qualifying households as
described under section 48(e)(2)(C)(i) or (ii), or fails to provide
those households the required minimum 20 percent bill credit discount
rate; (4) for property described under section 48(e)(2)(B), the
residential rental building the facility is a part of ceases to
participate in a covered housing program or any other housing program
described in section 48(e)(2)(B)(i), if applicable; and (5) a facility
increases its output such that the facility's output is 5 MW AC or
greater, unless the applicant can prove that the output increase is not
attributable to the original facility but rather is output associated
with a new facility under the 80/20 Rule (the cost of the new property
plus the value of the used property). See Rev. Rul. 94-31, 1994-1 C.B.
16.
Proposed Applicability Date
These proposed rules are proposed to apply to taxable years ending
on or after the date that final rules adopting these proposed rules are
published in the Federal Register.
Special Analyses
I. Regulatory Planning and Review--Economic Analysis
Executive Orders 13563 and 12866 direct agencies to assess costs
and benefits of available regulatory alternatives and, if regulation is
necessary, to select regulatory
[[Page 35800]]
approaches that maximize net benefits (including potential economic,
environmental, public health and safety effects, distributive impacts,
and equity). Executive Order 13563 emphasizes the importance of
quantifying both costs and benefits, of reducing costs, of harmonizing
rules, and of promoting flexibility.
These proposed rules have been designated by the Office of
Management and Budget's Office of Information and Regulatory Affairs
(OIRA) as subject to review under Executive Order 12866 pursuant to the
Memorandum of Agreement (April 11, 2018) between the Treasury
Department and the Office of Management and Budget (OMB) regarding
review of tax rules. OIRA has determined that the proposed rulemaking
is significant and subject to review under Executive Order 12866 and
section 1(b) of the Memorandum of Agreement. Accordingly, the proposed
rules have been reviewed by OMB.
II. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA)
requires that a Federal agency obtain the approval of OMB before
collecting information from the public, whether such collection of
information is mandatory, voluntary, or required to obtain or retain a
benefit. The collections of information in these proposed regulations
contain reporting and recordkeeping requirements that are required to
obtain the section 48(e) Increase. This information in the collections
of information would generally be used by the IRS and DOE for tax
compliance purposes and by taxpayers to facilitate proper reporting and
compliance. A Federal agency may not conduct or sponsor, and a person
is not required to respond to, a collection of information unless the
collection of information displays a valid control number.
The recordkeeping requirements mentioned within this proposed
regulation are considered general tax records under Section 1.6001-
1(e). These records are required for IRS to validate that taxpayers
have met the regulatory requirements and are entitled to receive
section 48(e) Increase. For PRA purposes, general tax records are
already approved by OMB under 1545-0123 for business filers, 1545-0074
for individual filers, and 1545-0047 for tax-exempt organizations.
The proposed regulation also mentions reporting requirements
related to providing attestations and supporting documentation for
initial application, supplemental documentation for specific
facilities, and to confirm a facility is placed in service as detailed
in this NPRM. These attestations and documentation would allow IRS to
allocate Capacity Limitation and ensure taxpayers keep and maintain
compliance for the credits. To assist with the collections of
information, the DOE will provide certain administration services for
the Low-Income Communities Bonus Credit Program. Among other things,
the DOE will establish a website portal to review the applications for
eligibility criteria and will provide recommendations to the IRS
regarding the selection of applications for an allocation of Capacity
Limitation. These collection requirements will be submitted to the
Office of Management and Budget (OMB) under 1545-NEW for review and
approval in accordance with 5 CFR 1320.11. The likely respondents are
business filers, individual filers, and tax-exempt organization filers.
A summary of paperwork burden estimates for the application and
attestations is as follows:
Estimated number of respondents: 70,000.
Estimated burden per response: 60 minutes.
Estimated frequency of response: 1 for initial applications, 1 for
follow-up documentation, and 1 for projects placed in service.
Estimated total burden hours: 210,000 burden hours.
IRS will be soliciting feedback on the collection requirements for
the application and attestations. Commenters are strongly encouraged to
submit public comments electronically. Written comments and
recommendations for the proposed information collection should be sent
to <a href="http://www.reginfo.gov/public/do/PRAMain">www.reginfo.gov/public/do/PRAMain</a>, with copies to the Internal
Revenue Service. Find this particular information collection by
selecting ``Currently under Review--Open for Public Comments'' then by
using the search function. Submit electronic submissions for the
proposed information collection to the IRS via email at
<a href="/cdn-cgi/l/email-protection#8efefcefa0ede1e3e3ebe0fafdcee7fcfda0e9e1f8"><span class="__cf_email__" data-cfemail="e3939182cd808c8e8e868d9790a38a9190cd848c95">[email protected]</span></a> (indicate REG-110412-23 on the Subject line).
Comments on the collection of information should be received June 30,
2023. Comments are specifically requested concerning:
Whether the proposed collection of information is necessary for the
proper performance of the functions of the IRS, including whether the
information will have practical utility. The accuracy of the estimated
burden associated with the proposed collection of information. How the
quality, utility, and clarity of the information to be collected may be
enhanced. How the burden of complying with the proposed collection of
information may be minimized, including through the application of
automated collection techniques or other forms of information
technology; and estimates of capital or start-up costs and costs of
operation, maintenance, and purchase of services to provide
information.
III. Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to Federal rules that are subject to
the notice and comment requirements of section 553(b) of the
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely
to have a significant economic impact on a substantial number of small
entities. Unless an agency determines that a proposal is not likely to
have a significant economic impact on a substantial number of small
entities, section 603 of the RFA requires the agency to present an
initial regulatory flexibility analysis (IRFA) of the proposed rule.
The Treasury Department and the IRS have not determined whether the
proposed rule would likely have a significant economic impact on a
substantial number of small entities. This determination requires
further study and an IRFA is provided in these proposed regulations.
The Treasury Department and the IRS invite comments on both the number
of entities affected and the economic impact on small entities.
Pursuant to section 7805(f), this notice of proposed rulemaking has
been submitted to the Chief Counsel of Advocacy of the Small Business
Administration for comment on its impact on small business.
1. Need for and Objectives of the Rule
The proposed regulations would provide guidance for purposes of
participation in the program to allocate the environmental justice
solar and wind capacity limitation under Sec. 48(e) for the Low-Income
Communities Bonus Credit Program. The proposed rule is expected to
encourage applicants to invest in solar and wind energy. Thus, the
Treasury Department and the IRS intend and expect that the proposed
rule will deliver benefits across the economy and environment that will
beneficially impact various industries.
2. Affected Small Entities
The Small Business Administration estimates in its 2018 Small
Business Profile that 99.9 percent of United States businesses meet its
definition of a small business. The applicability of these
[[Page 35801]]
proposed regulations does not depend on the size of the business, as
defined by the Small Business Administration. As described more fully
in the preamble to this proposed regulation and in this IRFA, these
rules may affect a variety of different businesses across serval
different industries.
The Treasury Department and the IRS expect to receive more
information on the impact on small businesses through comments on this
proposed rule and again when participation in the Low-Income
Communities Bonus Credit Program commences.
3. Impact of the Rules
The recordkeeping and reporting requirements would increase for
applicants that participate in the Low-Income Communities Bonus Credit
Program. Although the Treasury Department and the IRS do not have
sufficient data to determine precisely the likely extent of the
increased costs of compliance, the estimated burden of complying with
the recordkeeping and reporting requirements are described in the
Paperwork Reduction Act section of the preamble.
4. Alternatives Considered
The Treasury Department and the IRS considered alternatives to the
proposed regulations. For example, the Treasury Department and the IRS
considered exclusively using a lottery system for all over-subscribed
categories, rather than creating reservations for facilities meeting
additional selection criteria. Although a lottery system may ultimately
need to be used for an oversubscribed category, the Treasury Department
and the IRS decided that it was important to propose reserving Capacity
Limitation for facilities that meet certain additional selection
criteria that further the policy goals of the Low-Income Communities
Bonus Credit Program.
Additionally, when considering how to define ``in connection
with,'' the Treasury Department and the IRS were mindful that the
statute requires the energy storage technology to be installed in
connection with a qualifying solar or wind facility to be eligible for
an increase in the energy percentage used to calculate the amount of
the section 48 credit. Different alternatives were considered on how to
address this definition. For example, the Treasury Department and the
IRS considered but ultimately decided not to incorporate the proposed
safe harbor (deeming the energy storage technology to be charged at
least 50 percent by the facility if the power rating of the energy
storage technology is less than 2 times the capacity rating of the
connected wind or solar) as part of the general rule to define ``in
connection with.'' The proposed general rule instead requires the
energy storage technology to have a sufficient nexus to the other
eligible property because it is part of the single project and is
significantly charged by the eligible property.
Another example where different alternatives were considered was
with respect to application materials. Section 48(e)(4)(A) directs the
Secretary to provide procedures to allow for an efficient allocation
process, and section 48(e)(4)(E)(i) allows an applicant up to four
years after receiving a Capacity Limitation allocation to place
eligible property into service. Alternatives were considered on how
best to balance these statutory requirements, considering practical
issues for taxpayers and residents as well as the traditional structure
and arrangement of these solar and wind transactions, including
considerations on the type of facility (BTM or FTM) and the capacity of
the facility. Among other things, the Treasury Department and the IRS
considered whether an application for an interconnection agreement or
an executed interconnection agreement should be required as part of the
application materials. The proposed regulations are based on the view
that the executed interconnection agreement, if applicable, is an
essential documentation to demonstrate sufficient project maturity.
Additionally, the Treasury Department and the IRS considered a
variety of bill credit discounts for Category 4 qualified low-income
benefit project facilities. The bill credit discounts considered
included 10 percent, 15 percent, or 20 percent. Alternatively, the
Treasury Department and the IRS considered the option of a range of
discounts from 10 percent to 20 percent from which applicants could
choose which discount rate to provide low-income customers. However, to
ensure that low-income customers are receiving meaningful financial
benefits, the Treasury Department and the IRS decided to propose a 20
percent discount.
5. Duplicative, Overlapping, or Conflicting Federal Rules
The proposed rule would not duplicate, overlap, or conflict with
any relevant Federal rules. As discussed in the Explanation of
Provisions, the proposed rules would merely provide requirements,
procedures, and definitions related to the Low-Income Communities Bonus
Credit Program. The Treasury Department and the IRS invite input from
interested members of the public about identifying and avoiding
overlapping, duplicative, or conflicting requirements.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA)
requires that agencies assess anticipated costs and benefits and take
certain other actions before issuing a final rule that includes any
Federal mandate that may result in expenditures in any one year by a
State, local, or Tribal government, in the aggregate, or by the private
sector, of $100 million in 1995 dollars, updated annually for
inflation. This proposed rule does not include any Federal mandate that
may result in expenditures by State, local, or Tribal governments, or
by the private sector in excess of that threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (Federalism) prohibits an agency from
publishing any rule that has federalism implications if the rule either
imposes substantial, direct compliance costs on State and local
governments, and is not required by statute, or preempts State law,
unless the agency meets the consultation and funding requirements of
section 6 of the Executive order. These regulations do not have
federalism implications and do not impose substantial direct compliance
costs on State and local governments or preempt State law within the
meaning of the Executive order.
Comments
Before these proposed rules are adopted as final rules,
consideration will be given to comments that are submitted timely to
the IRS as prescribed in this preamble under the ADDRESSES section. The
Treasury Department and the IRS request comments on all aspects of the
proposed rules. Any electronic or paper comments submitted will be made
available at <a href="https://www.regulations.gov">https://www.regulations.gov</a> or upon request.
Statement of Availability of IRS Documents
Guidance cited in this preamble is published in the Internal
Revenue Bulletin and is available from the Superintendent of Documents,
U.S. Government Publishing Office, Washington, DC 20402, or by visiting
the IRS website at <a href="https://www.irs.gov">https://www.irs.gov</a>.
Drafting Information
The principal author of these proposed rules is the Office of the
Associate Chief Counsel (Passthroughs
[[Page 35802]]
and Special Industries), IRS. However, other personnel from the
Treasury Department and the IRS participated in their development.
Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2023-11718 Filed 5-31-23; 8:45 am]
BILLING CODE 4830-01-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.