Proposed Rule2024-19617
Guidance on Clean Electricity Low-Income Communities Bonus Credit Amount 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
September 3, 2024
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document contains proposed regulations concerning the program to allocate clean electricity low-income communities bonus credit amounts established pursuant to the Inflation Reduction Act of 2022 for calendar years 2025 and succeeding years. Applicants investing in certain clean electricity generation facilities that produce electricity without combustion and gasification may apply for an allocation of environmental justice capacity limitation to increase the amount of the clean electricity investment credit for the taxable year in which the facility is placed in service. This document describes proposed definitions and requirements that would be applicable for the program.
Full Text
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<title>Federal Register, Volume 89 Issue 170 (Tuesday, September 3, 2024)</title>
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[Federal Register Volume 89, Number 170 (Tuesday, September 3, 2024)]
[Proposed Rules]
[Pages 71193-71214]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-19617]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-108920-24]
RIN 1545-BR26
Guidance on Clean Electricity Low-Income Communities Bonus Credit
Amount Program
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
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SUMMARY: This document contains proposed regulations concerning the
program to allocate clean electricity low-income communities bonus
credit amounts established pursuant to the Inflation Reduction Act of
2022 for calendar years 2025 and succeeding years. Applicants investing
in certain clean electricity generation facilities that produce
electricity without combustion and gasification may apply for an
allocation of environmental justice capacity limitation to increase the
amount of the clean electricity investment credit for the taxable year
in which the facility is placed in service. This document describes
proposed definitions and requirements that would be applicable for the
program.
DATES: Written or electronic comments must be received by October 3,
2024. The public hearing on these proposed regulations is scheduled to
be held on October 17, 2024, at 10 a.m. EST. Requests to speak and
outlines of topics to be discussed at the public hearing must be
received by October 3, 2024. If no outlines are received by October 3,
2024, the public hearing will be cancelled. Requests to attend the
public hearing must be received by 5 p.m. on October 15, 2024.
ADDRESSES: Commenters are strongly encouraged to submit public comments
electronically via the Federal eRulemaking Portal at <a href="https://www.regulations.gov">https://www.regulations.gov</a> (indicate IRS and REG-108920-24) by following the
online instructions for submitting comments. Requests for the public
hearing must be submitted as prescribed in the ``Comments and Public
Hearing'' section. Once submitted to the Federal eRulemaking Portal,
comments cannot be edited or withdrawn. The Department of the Treasury
(Treasury Department) and the Internal Revenue Service (IRS) will
publish for public availability any comments submitted to the IRS's
public docket. Send paper submissions to: CC:PA:01:PR (REG-108920-24),
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 comments
or the public hearing, the Publications and Regulations Section at
(202) 317-6901 (not a toll-free number) or by email at
<a href="/cdn-cgi/l/email-protection#91e1e4f3fdf8f2f9f4f0e3f8fff6e2d1f8e3e2bff6fee7"><span class="__cf_email__" data-cfemail="176762757b7e747f7276657e797064577e656439707861">[email protected]</span></a> (preferred).
SUPPLEMENTARY INFORMATION:
Authority
This document contains proposed amendments to the Income Tax
Regulations (26 CFR part 1) under section 48E(h) of the Internal
Revenue Code (Code) to provide proposed definitions and rules relating
to the allocation of environmental justice capacity limitation
(Capacity Limitation) for calendar year 2025 and succeeding years
(proposed regulations). Section 48E(h)(4)(A) provides an express
delegation of authority for the Secretary of the Treasury or her
delegate (Secretary) to establish a program to allocate amounts of
Capacity Limitation to applicable facilities not later than January 1,
2025, and to make such allocations. Section 48E(h)(5) provides an
express delegation of authority for the Secretary, by regulations or
other guidance, to provide rules for recapturing the benefit of any
increase in the credit allowed under section 48E(a) that results from
an allocation of Capacity Limitation with respect to any property that
ceases to be property eligible for such increase (but that does not
cease to be investment credit property within the meaning of section
50(a) of the Code). In addition, section 48E(i) provides an express
delegation of authority for the Secretary to issue guidance regarding
implementation of section 48E not later than January 1, 2025. The
proposed regulations are also issued under the express delegation of
authority under section 7805 of the Code.
Background
I. Overview
Section 13702 of Public Law 117-169, 136 Stat. 1818, 1921 (August
16, 2022), commonly known as the Inflation Reduction Act of 2022 (IRA),
added new section 48E(h) to authorize the Secretary to establish a
program for calendar years 2025 and succeeding years to award
allocations of Capacity Limitation that increase the amount of the new
clean electricity investment credit determined under section 48E(a)
(section 48E credit) with respect to eligible property that is part of
an applicable facility. This document contains proposed definitions and
rules relating to the allocation of Capacity Limitation for calendar
year 2025 and succeeding years.
The amount of section 48E credit for a taxable year generally is
calculated by multiplying the qualified investment for such taxable
year with respect to any qualified facility placed in service during
that taxable year by the applicable percentage (as defined in section
48E(a)(2)). If an applicable facility is awarded an allocation of
Capacity Limitation, section 48E(h) increases the amount of the section
48E credit with respect to the applicable facility by increasing the
applicable percentage used to calculate the amount of the section 48E
credit (section 48E(h) Increase). The term ``applicable facility'' is
defined in section 48E(h)(2) to mean any qualified facility that (i) is
not described in section 45Y(b)(2)(B) of the Code (relating to
combustion and gasification facilities); (ii) has a maximum net output
of less than 5 megawatts (MW) (as measured in alternating current
(AC)); and (iii) is described in at least one of four categories in
section 48E(h)(2)(A)(iii) (as further described in part II of this
Background).
Section 48E(h)(4)(A) directs the Secretary, not later than January
1, 2025, to establish a program to allocate amounts of Capacity
Limitation to applicable facilities and to ``provide procedures to
allow for an efficient allocation'' of Capacity Limitation to
applicable facilities. Accordingly, the Treasury Department and the IRS
are establishing the Clean Electricity Low-Income Communities Bonus
Credit Amount Program (Program). As described in the Explanation of
Provisions, this notice of proposed rulemaking provides proposed
threshold definitions and requirements for the Program to make
allocations of Capacity Limitation efficiently and
[[Page 71194]]
effectively. After finalizing these rules, the Treasury Department and
the IRS will provide the procedures for the 2025 Program in a revenue
procedure published in the Internal Revenue Bulletin. See Sec. 601.601
of the Statement of Procedural Rules (26 CFR part 601).
Procedures for future Program years also will be provided in
guidance published in the Internal Revenue Bulletin. The Treasury
Department and the IRS expect that many of the procedural aspects of
the Program will be similar to the Low-Income Communities Bonus Credit
Program established under section 48(e) of the Code \1\ available for
calendar years 2023 and 2024.
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\1\ For the most recent procedures applicable to the Low-Income
Communities Bonus Credit Program established under section 48(e),
refer to Revenue Procedure 2024-19, 2024-16 I.R.B 899.
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II. Four Categories of Applicable Facilities
Depending on the category of the facility, an allocation of
Capacity Limitation may result in a section 48E(h) Increase equal to
either 10 percentage points or 20 percentage points. Section
48E(h)(1)(A)(i) provides for a section 48E(h) Increase of 10 percentage
points for eligible property that is located in a low-income community,
as defined in section 45D(e) of the Code (Category 1 facility), or on
Indian land, as defined in section 2601(2) of the Energy Policy Act of
1992 (25 U.S.C. 3501(2)) (Category 2 facility). Section
48E(h)(1)(A)(ii) provides for a section 48E(h) Increase of 20
percentage points for eligible property that is part of a qualified
low-income residential building project (Category 3 facility) or a
qualified low-income economic benefit project (Category 4 facility).
Section 48E(h)(2)(B) provides that a facility will be treated as
part of a ``qualified low-income residential building project'' if the
facility is installed on a residential rental building that
participates in a covered housing program (as defined in section
41411(a) of the Violence Against Women Act of 1994 (34 U.S.C.
12491(a)(3)) (VAWA)), 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 section 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 the
financial benefits of the electricity produced by the facility are
allocated equitably among the occupants of the dwelling units of such
building.
Section 48E(h)(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 48E(h)(2)(D)
provides that electricity acquired at a below-market rate will be
considered a financial benefit.
III. Overview of Clean Electricity Low-Income Communities Bonus Credit
Amount Program
Section 48E(h)(4)(A) directs the Secretary to establish the
Program, not later than January 1, 2025, to allocate amounts of
Capacity Limitation to applicable facilities. Under section
48E(h)(4)(C), the total annual Capacity Limitation that may be
allocated is 1.8 gigawatts of direct current capacity for each of the
calendar years during the period beginning on January 1, 2025, and
ending on December 31 of the applicable year (as defined in section
45Y(d)(3)),\2\ and zero thereafter.
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\2\ Section 45Y(d)(3) defines the term ``applicable year'' as
the later of the calendar year in which the Secretary determines
that the annual greenhouse gas emissions from the production of
electricity in the United States are equal to or less than 25
percent of the annual greenhouse gas emissions from the production
of electricity in the United States for calendar year 2022, or 2032.
See also proposed Sec. 1.45Y-1(c)(3).
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Under section 48E(h)(4)(D)(i), if the annual Capacity Limitation
for any calendar year exceeds the aggregate amount allocated for such
year, the excess is carried forward to the next year. No amount of
Capacity Limitation may be carried to any calendar year after the third
calendar year following the applicable year (as defined in section
45Y(d)(3)). Under section 48E(h)(4)(D)(ii), if the annual Capacity
Limitation for calendar year 2024 under section 48(e)(4)(D) exceeds the
aggregate amount allocated for such year, the excess amount may be
carried over and applied to the annual Capacity Limitation under this
paragraph for calendar year 2025. The annual Capacity Limitation for
calendar year 2025 is increased by the amount of such excess.
The proposed regulations in this notice of proposed rulemaking
would provide definitions and requirements necessary to submit an
application to request an allocation of Capacity Limitation for
calendar year 2025 (and subsequent years) under the Program and to
claim a section 48E(h) Increase. The Treasury Department and the IRS
request comments on these proposed definitions and requirements.
Explanation of Provisions
The proposed regulations relate to specific definitions and
requirements regarding the following topics: (1) the definition of
``applicable facility;'' (2) definitions of ``eligible property'' under
section 48E(h)(3); (3) the definition of ``located in'' for relevant
geographic criteria; (4) definitions and requirements related to the
term ``financial benefit'' and ``electricity acquired at a below-market
rate'' under section 48E(h)(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; (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) the requirement to submit certain application materials
demonstrating facility viability in order to allow for an efficient
allocation process; (9) the requirement to submit certain documentation
and attestations when a facility is placed in service; and (10) post-
allocation compliance, including disqualification of allocations of
Capacity Limitation and recapture of the section 48E(h) Increase.
I. Definition of Applicable Facility
The term ``applicable facility'' is defined in section 48E(h)(2)(A)
to mean any qualified facility (as defined in section 48E(b)(3)) that
(i) is not described in section 45Y(b)(2)(B) (related to combustion and
gasification facilities); (ii) has a maximum net output of less than 5
MW (as measured in AC); and (iii) is described in at least one of the
four categories described in section 48E(h)(2)(A)(iii) (Category 1, 2,
3, or 4). Therefore, proposed Sec. 1.48E(h)-1(b)(1) would define an
applicable facility as any qualified facility described in section
48E(b)(3) that (i) is a facility that is not described in section
45Y(b)(2)(B) (non-combustion and gasification facilities); (ii) has a
[[Page 71195]]
maximum net output of less than 5 MW (as measured in AC); and (iii) is
described in at least one of the four categories described in section
48E(h)(2)(A)(iii) (Category 1, 2, 3, or 4).
A. Types of Applicable Facilities
Proposed Sec. 1.48E(h)-1(b)(1) would also clarify that the types
of qualified facilities eligible for the Program are only those non-
combustion and gasification qualified facilities \3\ (non-C&G
facilities) that the Secretary has determined have a greenhouse gas
(GHG) emissions rate of not greater than zero. An emissions rate table
for eligible non-C&G facilities will be published annually in the
Federal Register or the Internal Revenue Bulletin. Consistent with the
notice of proposed rulemaking and a notice of public hearing (REG-
119283-23) published in the Federal Register (89 FR 47792) providing
guidance on the clean electricity production and investment credits
under sections 45Y and 48E, the following types or categories of
qualified facilities are categorically non-C&G facilities with a GHG
emissions rate that is not greater than zero: wind facilities
(including small wind properties), hydropower facilities (including
retrofits adding power production to non-powered dams, conduit
hydropower, hydropower using new impoundments, and hydropower using
diversions such as a penstock or channel), marine and hydrokinetic
facilities, solar facilities (including photovoltaic and concentrating
solar power), geothermal facilities (including flash and binary
plants), nuclear fission facilities, nuclear fusion facilities, and
waste energy recovery property (WERP) that derives energy from any of
the energy sources described in proposed Sec. 1.45Y-5(c)(2)(i) through
(vii) (including geothermal or solar waste heat recovery such as from a
district geothermal heating system, and waste heat recovery such as
from a nuclear reactor dedicated to heat production for an industrial
facility). These categories of facilities may be eligible for an
allocation of Capacity Limitation during the 2025 Program year.
Additional types of categories of non-C&G facilities may be eligible in
future Program years if the Secretary determines that such facilities
have a GHG emissions rate that is not greater than zero in guidance
published in the Federal Register or the Internal Revenue Bulletin. For
ease of reference for applicants to the Program, the Treasury
Department and the IRS will include the list of eligible qualified
facilities in the procedural guidance that will be published for the
Program.
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\3\ See proposed Sec. 1.48E-2(a), as proposed in the notice of
proposed rulemaking (REG-119283-23) published in the Federal
Register (89 FR 47792) on June 3, 2024, and corrected at 2024-15718
on July 18, 2024, for more information regarding the definition of
``qualified facility.''
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B. Four Categories of Applicable Facilities
Depending on the category of the facility, an allocation of
Capacity Limitation under the Program may result in a section 48E(h)
Increase equal to either 10 percentage points or 20 percentage points.
Section 48E(h)(1)(A)(i) provides for a section 48(e) Increase of 10
percentage points for eligible property that is located in a low-income
community (Category 1 facility), or on Indian land (Category 2
facility). Section 48E(h)(1)(A)(ii) provides for a section 48E(h)
Increase of 20 percentage points for eligible property that is part of
a qualified low-income residential building project (Category 3
facility) or a qualified low-income economic benefit project (Category
4 facility). Proposed Sec. 1.48E(h)-1(b)(2) would define the four
facility categories (Category 1, 2, 3, or 4).
Section 48E(h)(2)(A)(iii)(I) defines an ``applicable facility'' in
part to include a qualified facility that is located in a low-income
community (as defined in section 45D(e)). Under section
48E(h)(2)(A)(iii)(I), the term low-income community generally is
defined under section 45D(e)(1), with certain modifications described
elsewhere in section 45D(e), as any population census tract if the
poverty rate for such tract is at least 20 percent, or, in the case of
a tract not located within a metropolitan area, the median family
income for such tract does not exceed 80 percent of statewide median
family income, or in the case of a tract located within a metropolitan
area, the median family income for such tract does not exceed 80
percent of the greater of statewide median family income or the
metropolitan area median family income.
Proposed Sec. 1.48E(h)-1(b)(2)(i) would define a Category 1
facility consistent with section 48E(h)(2)(A)(iii)(I) as a facility
located in a low-income community, which generally is defined under
section 45D(e)(1) as any population census tract if the poverty rate
for such tract is at least 20 percent based on the most recently
released low-income community data currently used for the New Markets
Tax Credit (NMTC) under section 45D, or, in the case of a tract not
located within a metropolitan area, the median family income for such
tract does not exceed 80 percent of statewide median family income, or,
in the case of a tract located within a metropolitan area, the median
family income for such tract does not exceed 80 percent of the greater
of statewide median family income or the metropolitan area median
family income. Proposed Sec. 1.48E(h)-1(b)(2)(i) would provide that
the term ``low-income community'' also includes the modifications in
section 45D(e)(4) and (5) for tracts with low population and
modification of the income requirement for census tracts with high
migration rural counties. Low-income community information for NMTC can
be found at the U.S. Department of Treasury, Community Development
Financial Institutions Fund website and its web page mapping tool,
<a href="https://www.cdfifund.gov/cims">https://www.cdfifund.gov/cims</a>.
Proposed Sec. 1.48E(h)-1(b)(2)(i) would clarify also that the
poverty rate for a census tract generally is based on the most recently
released ACS low-income community data for the NMTC. However, if
updated data is released, a taxpayer can choose to base the poverty
rate for any population census tract on either the prior version of the
ACS low-income community data or the updated ACS low-income community
data for a period of 1 year following the date of the release of the
updated data. After the 1-year transition period, the updated ACS low-
income community data must be used.
Proposed Sec. 1.48E(h)-1(b)(2)(i) would provide that population
census tracts that satisfy the definition of low-income community at
the time of application are considered to continue to meet the
definition of low-income community for the duration of the recapture
period unless the location of the facility changes.
Section 48E(h)(2)(A)(iii)(I) defines an ``applicable facility'' in
part to include a qualified facility that is located on Indian land (as
defined in section 2601(2) of the Energy Policy Act of 1992 (25 U.S.C.
3501(2)). Proposed Sec. 1.48E(h)-1(b)(2)(ii) would define a Category 2
facility, consistent with section 48E(h)(2)(A)(iii)(I), as facility
that is located on Indian land. Proposed Sec. 1.48E(h)-1(b)(2)(ii)
would provide that the term ``Indian land'' is defined in section
2601(2) of the Energy Policy Act of 1992 (25 U.S.C. 3501(2)).
Section 48E(h)(2)(A)(iii)(II) defines an ``applicable facility'' in
part to include a qualified facility that is part of a qualified low-
income residential building project. Proposed Sec. 1.48E(h)-
1(b)(2)(iii) would define a Category 3 facility as a facility that is
part of a qualified low-income residential building project. A facility
would be treated as part of a qualified low-income residential building
project if such
[[Page 71196]]
facility is installed on a residential rental building that
participates in a covered housing program or other affordable housing
program described in section 48E(h)(2)(B)(i) (Qualified Residential
Property) and the financial benefits of the electricity produced by
such facility are allocated equitably among the occupants of the
dwelling units of such building as provided in proposed Sec. 1.48E(h)-
1(e). Consistent with the statute, proposed Sec. 1.48E(h)-1(b)(2)(iii)
would clarify that the Qualified Residential Property, and not just its
tenants, must participate in a covered housing program or other
affordable housing program described in section 48E(h)(2)(B)(i). A
Qualified Residential Property could either be a multifamily rental
property or single-family rental property. Proposed Sec. 1.48E(h)-
1(b)(2)(iii) also would clarify that a facility does not need to be
installed directly on the building to be considered installed on a
Qualified Residential Property if the facility is installed on the same
or an adjacent parcel of land as the Qualified Residential Property,
and the other requirements to be a Category 3 facility are satisfied.
The statutory cross-reference to VAWA is comprehensive and includes
numerous types of housing programs and policies across Federal
agencies. The Treasury Department and the IRS, in consultation with
other Federal agencies, developed an illustrative list of Federal
housing programs and policies that meet the requirements in section
48E(h)(2)(B)(i):
Covered housing programs and policies (as defined in VAWA) are
those with active affordability covenants tied to the following:
<bullet> Department of Housing and Urban Development's (HUD)
Section 202 Supportive Housing for the Elderly, including the direct
loan program under Section 202.
<bullet> HUD's Section 811 Supportive Housing for Persons with
Disabilities.
<bullet> HUD's Housing Opportunities for Persons With AIDS (HOPWA)
program.
<bullet> HUD's homeless programs under title IV of the McKinney-
Vento Homeless Assistance Act, including the Emergency Solutions Grants
program, the Continuum of Care program, and the Rural Housing Stability
Assistance program.
<bullet> HUD's HOME Investment Partnerships (HOME) program.
<bullet> Federal Housing Administration (FHA) mortgage insurance
under Section 221(d)(3) subsidized with a below-market interest rate
(BMIR) prescribed in the proviso of Section 221(d)(5) of the National
Housing Act.
<bullet> HUD's Section 236 interest rate reduction payments.
<bullet> HUD Public Housing assisted under section 9 of the United
States Housing Act of 1937.
<bullet> HUD project-based rental assistance under section 8 of the
United States Housing Act of 1937.
<bullet> HUD Section 8 Moderate Rehabilitation Program.
<bullet> HUD Section 8 Moderate Rehabilitation Single Room
Occupancy Program for Homeless Individuals.
<bullet> USDA Section 515 Rural Rental Housing.
<bullet> USDA Section 514/516 Farm Labor Housing.
<bullet> USDA Section 538 Guaranteed Rural Rental Housing.
<bullet> USDA Section 533 Housing Preservation Grant Program.
<bullet> Treasury/IRS Low-Income Housing Credit under section 42.
<bullet> HUD's National Housing Trust Fund.
<bullet> Veterans Administration's (VA) Comprehensive Service
Programs for Homeless Veterans.
<bullet> VA's grant program for homeless veterans with special
needs.
<bullet> VA's financial assistance for supportive services for very
low-income veteran families in permanent housing.
<bullet> Department of Justice transitional housing assistance
grants for victims of domestic violence, dating violence, sexual
assault, or stalking.
Section 48E(e)(2)(B)(i) also includes the following Federal housing
programs:
<bullet> Housing assistance programs administered by the USDA under
title V of the Housing Act of 1949.
<bullet> Housing programs administered by an Indian Tribe or a
Tribally designated housing entity (as defined in section 4(22) of the
Native American Housing Assistance and Self-Determination Act of 1996
(25 U.S.C. 4103(22)).
<bullet> Housing programs administered by the Department of
Hawaiian Homelands as defined in Title VIII of the Native American
Housing Assistance and Self-Determination Act of 1996 (24 CFR 1006.10),
Native Hawaiian Organizations as defined in (13 CFR 124.3), and
Hawaiian Homestead Associations as defined in (43 CFR 48.6).
This list also will be made available on the Program web page.
Section 48E(e)(2)(B)(i) authorizes the Secretary to add other
affordable housing programs to the list of eligible programs. The
Treasury Department and the IRS request comment on whether other
affordable housing programs should be added to the list of eligible
programs, and specifically request comment on whether and under what
conditions certain state programs should be added to the list.
Section 48E(h)(2)(A)(iii)(II) defines an ``applicable facility'' in
part to include a qualified facility that is part of a qualified low-
income economic benefit project. Section 48E(h)(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)) 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)).
Proposed Sec. 1.48E(h)-1(b)(2)(iv), consistent with
48E(h)(2)(A)(iii)(II), would define a Category 4 facility as a facility
that is part of qualified low-income economic benefit project. A
facility would be treated as part of a qualified low-income economic
benefit project if, as provided in proposed Sec. 1.48E(h)-1(f), at
least 50 percent of the financial benefits of the electricity produced
by the facility are provided to households with income of less than (A)
200 percent of the poverty line (as defined in section 36B(d)(3)(A))
applicable to a family of the size involved, or (B) 80 percent of area
median gross income (as determined under section 142(d)(2)(B)).
C. Less Than Five Megawatts Requirement
Section 48E(h)(2)(A)(ii) requires that an applicable facility have
a maximum net output of less than 5 (MW) (measured in AC), referred to
in this preamble as the ``less than five megawatts requirement.''
Proposed Sec. 1.48E(h)-1(b)(3)(i) would provide that the less than
five megawatts requirement is measured at the level of the applicable
facility in accordance with section 48E(h)(2)(A)(ii). The maximum net
output of an applicable facility is measured only by nameplate
generating capacity of the applicable facility, which includes only
functionally interdependent components of property that are owned by
the taxpayer, that are operated together, and that can operate apart
from other property to produce electricity, at the time the applicable
facility is placed in service. In accordance with proposed Sec. 1.48E-
2(b)(2)(ii), proposed Sec. 1.48E(h)-1(b)(3)(i) would provide that
components of property are functionally interdependent if the placing
in service of each component is dependent upon placing in service other
components to produce electricity.
[[Page 71197]]
Proposed Sec. 1.48E(h)-1(b)(3)(ii) would provide that the
determination of whether an applicable facility has a maximum net
output of less than 5 MW (as measured in AC) is based on the nameplate
capacity of the applicable facility. The nameplate capacity for
purposes of the less than five megawatts requirement is the maximum
electrical generating output in MW that the applicable facility 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 of nameplate capacity provided in 40
CFR 96.202. If applicable, the International Standard Organization
conditions should be used to measure the maximum electrical generating
output of an applicable facility.
The Treasury Department and the IRS request comments on other
approaches to address this statutory requirement that would further the
purpose of efficient allocation of a Federal tax credit program with a
national impact and would advance the goals of the Program to
incentivize additional deployment of qualified facilities in low-income
communities. These approaches could include rules that would aggregate
the capacity of qualified facilities with integrated operations (that
is, qualified facilities that are owned by the same taxpayer, placed in
service in the same taxable year, and transmit electricity generated by
the facilities through the same point of interconnection or, if the
facilities are not grid-connected, to the same end user(s)) solely for
the purposes of whether an application meets the less than five
megawatts requirement under Section 48E(h)(2)(A)(ii).
II. Eligible Property
Section 48E(h)(3) defines ``eligible property'' as a qualified
investment with respect to any applicable facility. Section 48E(b)
describes a qualified investment with respect to a qualified facility.
Generally, for purposes of section 48E(a), section 48E(b)(1)(A) and
(b)(1)(B)(i) provides that the qualified investment with respect to a
qualified facility for any taxable year is the sum of the basis of any
qualified property placed in service by the taxpayer during such
taxable year that is part of a qualified facility, plus the amount of
expenditures that are paid or incurred by the taxpayer for qualified
interconnection property that is properly chargeable to capital account
of the taxpayer. Pursuant to section 48E(h)(3), eligible property does
not include any qualified investment with respect to energy storage
technology.
Proposed Sec. 1.48E(h)-1(c) would define ``eligible property'' as
a qualified investment (as defined in section 48E(b)) \4\ with respect
to any applicable facility.
---------------------------------------------------------------------------
\4\ See proposed Sec. 1.48E-2(d), as proposed in the notice of
proposed rulemaking (REG-119283-23) published in the Federal
Register (89 FR 47792) on June 3, 2024, and corrected at 2024-15718
on July 18, 2024, for more information regarding the definition of
``qualified investment.''
---------------------------------------------------------------------------
III. Location
Proposed Sec. 1.48E(h)-1(d)(1) would treat an applicable facility
as ``located in a low-income community'' or ``on Indian land'' under
section 48E(h)(2)(A)(iii)(I) or located in a geographic area under the
Additional Selection Criteria (see part V.B.2. of this Explanation of
Provisions) if the facility satisfies the nameplate capacity test
(Nameplate Capacity Test for Location) provided in proposed Sec.
1.48E(h)-1(d)(2).
Under the Nameplate Capacity Test for Location, which would be
provided in proposed Sec. 1.48E(h)-1(d)(2), an applicable facility
would be considered located in or on the relevant geographic area
described in proposed Sec. 1.48E(h)-1(d)(1) if 50 percent or more of
the applicable facility's nameplate capacity is in a qualifying area.
The percentage of an applicable facility's nameplate capacity (as
defined in proposed Sec. 1.48E(h)-1(d)(3)) that is in a qualifying
area would be determined by dividing the nameplate capacity of the
applicable facility's electricity-generating units that are located in
the qualifying area by the total nameplate capacity of all the
electricity-generating units of the applicable facility.
Proposed Sec. 1.48E(h)-1(d)(3) would provide that nameplate
capacity for purposes of the Nameplate Capacity Test for Location for
an electricity generating unit means the maximum electrical generating
output that the applicable facility 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 of
nameplate capacity provided in 40 CFR 96.202. If applicable, the
International Standard Organization conditions should be used to
measure the maximum electrical generating output of an applicable
facility. For purposes of assessing the Nameplate Capacity Test for
Location, electricity-generating units that generate direct current
(DC) power before converting to AC (for example, solar photovoltaic)
should use nameplate capacity in DC, otherwise the nameplate capacity
in AC should be used.
IV. Financial Benefits for Category 3 and Category 4 Allocations
Section 48E(h)(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
48E(h)(2)(D), as well as a manner to apply such definitions,
appropriately, to qualified low-income residential building projects
(section 48E(h)(2)(B)) and qualified economic benefit projects (section
48E(h)(2)(C)). The definitions and requirements would be different for
an allocation under Category 3 (section 48E(h)(2)(B)) and Category 4
(section 48E(h)(2)(C)).
A. 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 (Category 3 facility), section
48E(h)(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 in proposed Sec. 1.48E(h)-1(e).
Proposed Sec. 1.48E(h)-1(e)(1) would provide that, to satisfy the
requirements of a Category 3 facility, the financial benefits of the
electricity produced by the facility must be allocated equitably among
the occupants of the dwelling units of the Qualified Residential
Property. The same rules for financial benefits for Category 3
facilities apply to both multi-family property and single-family
Qualified Residential Property.
Proposed Sec. 1.48E(h)-1(e)(2) would provide that at least 50
percent of the financial value of the electricity produced by the
facility (as defined in proposed Sec. 1.48E(h)-1(e)(3)) must be
equitably allocated to the Qualified Residential Property's occupants
that are designated as low-income occupants under the housing program.
Proposed Sec. 1.48E(h)-1(e)(3) would define the financial value of
the electricity produced by the applicable facility as the greater of:
(i) 25 percent of the gross financial value (as defined
[[Page 71198]]
in proposed Sec. 1.48E(h)-1(e)(4)) of the annual electricity produced
by the applicable facility, or (ii) the net financial value (as defined
in proposed Sec. 1.48E(h)-1(e)(5)) of the annual energy produced by
the applicable facility. This requirement would recognize that not all
the financial value of the electricity produced can be passed on to
building occupants because a certain percentage can be assumed to be
dedicated to lowering the operational costs of electricity consumption
for common areas, which benefits all building occupants.
Proposed Sec. 1.48E(h)-1(e)(4) would calculate gross financial
value of the annual electricity produced by the applicable facility as
the sum of: (i) the total self-consumed kilowatt-hours produced by the
applicable facility multiplied by the Qualified Residential Property's
metered volumetric price of electricity, (ii) the total exported
kilowatt-hours produced by the applicable facility multiplied by the
Qualified Residential Property's volumetric export compensation rate
for kilowatt-hours of electricity, and (iii) the sale of any attributes
associated with the applicable facility's production (including, for
example, any Federal, State, or Tribal renewable energy credits or
incentives), if separate from the metered price of electricity or
export compensation rate.
The definition of net financial value in proposed Sec. 1.48E(h)-
1(e)(5) would account for the specific nature of facilities serving
low-income residential buildings and facility ownership, as the
applicable facility may be third-party owned or commonly owned with the
building. For common ownership, proposed Sec. 1.48E(h)-1(e)(5)(i)
would define net financial value as the gross financial value of the
annual electricity produced minus the annual average (or levelized)
cost of the applicable facility over the useful life of the facility
(including debt service, maintenance, replacement reserve, capital
expenditures, and any other costs associated with constructing,
maintaining, and operating the facility). For third-party ownership, if
the facility and the Qualified Residential Property are not commonly
owned, and the facility owner enters into a power purchase agreement or
other contract for electricity services with the Qualified Residential
Property owner and/or building occupants, proposed Sec. 1.48E(h)-
1(e)(5)(ii) would define net financial value as the gross financial
value of the annual electricity produced minus any payments made by the
building owner and/or building occupants to the applicable facility
owner for electricity services associated with the applicable facility
in a given year.
Proposed Sec. 1.48E(h)-1(e)(5)(iii) would provide different rules
to ensure an equitable allocation of financial benefits depending on
whether or not financial value is distributed to building occupants via
utility bill savings or through different means. If financial value is
distributed via utility bill savings, proposed Sec. 1.48E(h)-
1(e)(5)(iii)(A) would provide that financial benefits will be
considered to be allocated equitably if at least 50 percent of the
financial value of the electricity produced by the applicable facility
is distributed as utility bill savings in equal shares to each building
dwelling unit among the Qualified Residential Property's occupants that
are designated as low-income under the covered housing program or other
affordable housing program (described in section 48E(h)(2)(B)(i)) or
alternatively distributed in proportional shares based on each low-
income dwelling unit's square footage, or each low-income dwelling
unit's number of occupants. Proposed Sec. 1.48E(h)-1(e)(5)(iii)(A)
would provide also that for any occupant(s) who choose to not receive
utility bill savings (for example, exercise their right to not
participate in or to opt out of a community generation subscription in
applicable jurisdictions), the portion of the financial value that
would otherwise be distributed to non-participating occupants must be
instead distributed to all participating occupants. Proposed Sec.
1.48E(h)-1(e)(5)(iii)(A) would clarify that no less than 50 percent of
the Qualified Residential Property's occupants that are designated as
low-income must participate and receive utility bill savings for the
applicable facility to use this method of benefit distribution.
Proposed Sec. 1.48E(h)-1(e)(5)(iii)(A) also would provide that in
the case of a solar facility, applicants must follow the HUD guidance
on Treatment of Financial Benefits to HUD-Assisted Tenants Resulting
from Participation in Solar Programs Notice (Housing Notice 2023-09),
located at <a href="https://www.hud.gov/sites/dfiles/OCHCO/documents/2023-09hsgn.pdf">https://www.hud.gov/sites/dfiles/OCHCO/documents/2023-09hsgn.pdf</a>, or future HUD guidance, or other guidance or notices from
the Federal agency that oversees the applicable housing program
identified in section 48E(h)(2)(B) to ensure that tenants' annual
income for rent calculations or other requirements impacting total
tenant payment are not impacted negatively by the distribution of
financial value. Applicants should apply similar principles in the case
of any other applicable facility.
Proposed Sec. 1.48E(h)-1(e)(5)(iii)(B) would provide that if
financial value is not distributed via utility bill savings, financial
benefits will be considered to be allocated equitably if at least 50
percent of the financial value of the electricity produced by the
applicable facility is distributed to occupants using one or more
methods described Housing Notice 2023-09 for a master-metered building,
or future HUD guidance, or other guidance or notices from the Federal
agency that oversees the applicable housing program identified in
section 48E(h)(2)(B). In the case of a solar facility, applicants must
comply with HUD guidance, or future HUD guidance, for how residents of
master-metered HUD-assisted housing can benefit from owners' sharing of
financial benefits accrued from an investment in solar electricity
generation to ensure that tenants' utility allowances and annual income
for rent calculations are not negatively impacted. Applicants should
apply similar principles in the case of any other applicable facility.
To achieve the goal of verifying Program compliance and to provide
clarification to applicants regarding how they can demonstrate that
statutory requirements are met, proposed Sec. 1.48E(h)-1(e)(6)(i)
would provide that a Category 3 facility owner must prepare a Benefits
Sharing Statement. The Benefits Sharing Statement would be required to
include (A) a calculation of the facility's gross financial value using
the method described in proposed Sec. 1.48E(h)-1(e)(4), (B) a
calculation of the facility's net financial value using the method
described in proposed Sec. 1.48E(h)-1(e)(5), (C) a calculation of the
financial value required to be distributed to building occupants using
the method described in proposed Sec. 1.48E(h)-1(e)(3), (D) a
description of the means through which the required financial value
will be distributed to building occupants, and (E) if the facility and
Qualified Residential Property are separately owned, an indication of
which entity will be responsible for the distribution of benefits to
the occupants.
Proposed Sec. 1.48E(h)-1(e)(6)(ii) would provide that the
Qualified Residential Property owner must formally notify the occupants
of units in the Qualified Residential Property of the development of
the facility and planned distribution of benefits.
B. Financial Benefits in Qualified Low-Income Economic Benefit Projects
For a facility to be treated as part of a qualified low-income
economic
[[Page 71199]]
benefit project, section 48E(h)(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.
Proposed Sec. 1.48E(h)-1(f)(1) would provide that to satisfy the
requirements of a Category 4 facility:
(i) The facility must serve multiple qualifying low-income
households under section 48E(e)(2)(C)(i);
(ii) At least 50 percent of the facility's total output in
kilowatts (kW) must be assigned to Qualifying Households; and
(iii) Each Qualifying Household must be provided a bill credit
discount rate (as defined in proposed Sec. 1.48E(h)-1(f)(2)) of at
least 30 percent.
The Treasury Department and the IRS request comment on (1) whether
a 30-percent bill credit discount rate would be feasible for Category 4
facilities, (2) whether a rate of 30 percent or greater would be
feasible if transitioned in over time (that is, an increase in the
minimum bill credit discount for each subsequent program year) and, if
so, what would be an appropriate rate of transition, (3) how would this
discount rate impact different eligible technologies, and (4) the
impact of a minimum bill discount credit rate for Category 4 facilities
that is different from benefit requirements for existing or planned
state programs (for example, state-level community solar programs
supported by the U.S. Environmental Protection Agency's Greenhouse Gas
Reduction Fund).
Proposed Sec. 1.48E(h)-1(f)(2)(i) would define a bill credit
discount rate as the difference between the financial benefit provided
to a Qualifying Household (including utility bill credits, reductions
in a Qualifying Household's electricity rate, or other monetary
benefits accrued by the Qualifying Household on their utility bill) and
the cost of participating in the community program (including
subscription payments for zero-carbon energy and any other fees or
charges), expressed as a percentage of the financial benefit
distributed to the Qualifying Household. The bill credit discount rate
can be calculated by starting with the financial benefit provided to
the Qualifying Household, subtracting all payments made by the
Qualifying Household (or payments remitted on behalf of the Qualifying
Household through net crediting, consolidated billing, or similar
arrangements) 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 Qualifying
Household.
Proposed Sec. 1.48E(h)-1(f)(2)(ii) would provide that in cases in
which the Qualifying Household has no or only a nominal cost of
participation, and financial benefits are delivered through a utility
or government body, the bill credit discount rate should be calculated
as the financial benefit provided to a Qualifying Household (including
utility bill credits, reductions in a Qualifying Household's
electricity rate, or other monetary benefits accrued by a Qualifying
Household on their utility bill) divided by the total value of the
electricity produced by the facility and assigned to the Qualifying
Household (including any electricity services, products, and credits
provided in conjunction with the electricity produced by such
facility), as measured by the utility, independent system operator
(ISO), or other off-taker procuring electricity (and related services,
products, and credits) from the facility. Proposed Sec. 1.48E(h)-
1(f)(2)(iii) would clarify that the bill credit discount rate is
calculated on an annual basis. Proposed Sec. 1.48E(h)-1(f)(2)(iv)
would provide examples to clarify that application of proposed Sec.
1.48E(h)-1(f)(2).
The Treasury Department and the IRS are considering adding other
methods, apart from bill credit discounts, for financial benefits to be
shared with Qualifying Households. Accordingly, the Treasury Department
and the IRS request comments on (1) what alternative methods for
delivering financial benefits should be considered to provide
equivalent financial benefits in cases in which bill credit discounts
are not available or are not feasible for covered technologies; (2) how
these alternative mechanisms should be verified to ensure they provide
the required financial benefits to Qualifying Households; (3) whether
these alternative mechanisms are feasible for multiple technologies;
and (4) what requirements can be put in place to address any
uncertainties related to the potential treatment of financial benefits
as income for Federal income tax purposes or the potential impact on
eligibility for public assistance benefits.
Proposed Sec. 1.48E(h)-1(f)(2)(iii) would provide that if the
facility derives financial value from the production of electricity in
a manner such that this value cannot be directly applied to the
Qualifying Household's utility bill (for example, renewable energy
credit payments made directly to the facility owner), then no less than
30 percent of that monetary value must also be provided to the
Qualifying Household, either through a greater bill credit discount on
the Qualifying Household's utility bill than would otherwise be derived
from the method described in proposed Sec. 1.48E(h)-1(f)(1)(i) or
through other means.
To ensure the requirements of proposed Sec. 1.48E(h)-1(f) are met,
proposed Sec. 1.48E(h)-1(f)(3) would require verification of
households' qualifying low-income status. Applicants are responsible
for proof-of-income verification. Proposed Sec. 1.48E(h)-1(f)(3)(i)
would provide that to establish that financial benefits are provided to
Qualifying Households as provided in proposed Sec. 1.48E(h)-1(f)(1),
applicants must submit documentation in accordance with guidance
published in the Internal Revenue Bulletin. A Qualifying Household's
low-income status is determined at the time the household enrolls in
the subscription program and does not need to be re-verified.
Proposed Sec. 1.48E(h)-1(f)(3)(ii) would provide that applicants
can use categorical eligibility or other income verification methods to
establish that a household is a Qualifying Household. Proposed Sec.
1.48E(h)-1(f)(3)(ii)(A) would provide that categorical eligibility
consists of obtaining proof of the household's participation in a
needs-based Federal, State, Tribal, or utility program with income
limits at or below the qualifying income level required to be a
Qualifying Household. Federal programs may include, but are not limited
to: Medicaid, Low-Income Home Energy Assistance Program (LIHEAP)
administered by the Department of Health and Human Services,
Weatherization Assistance Program (WAP) administered by the Department
of Energy (DOE), Supplemental Nutrition Assistance Program (SNAP)
administered by the USDA, Section 8 Project-Based Rental Assistance,
the Housing Choice Voucher Program administered by HUD, the Federal
Communication Commission's Lifeline Support for Affordable
Communications, the National School Lunch Program administered by the
USDA, the Supplemental Security Income Program administered by the
Social Security Administration, and any verified government or non-
profit program serving Asset Limited Income Constrained Employed
(ALICE) persons or households. With respect to the Federal programs
listed previously an individual in the household must currently be
approved for assistance from or participation in the program with an
award letter or other written documentation within the last 12 months
for enrollment in that program to establish categorical eligibility of
the household. State agencies also can
[[Page 71200]]
provide verification that a household is a Qualifying Household if the
household participates in a State's solar or other program and income
limits for such program are at or below the qualifying income level
required to be a Qualifying Household. The qualifying income level for
a Qualifying Household is based on where such household is located.
Proposed Sec. 1.48E(h)-1(f)(3)(ii)(B) would provide that paystubs,
Federal or State tax returns, or income verification through crediting
agencies and commercial data sources can also be used to establish that
a household is a Qualifying Household. Proposed Sec. 1.48E(h)-
1(f)(3)(ii)(C) would provide that a self-attestation from a household
is not a permissible method to establish a household is a Qualifying
Household. This prohibition on direct self-attestation from a household
does not extend to categorical eligibility for needs-based Federal,
State, Tribal, or utility programs with income limits that rely on
self-attestation for verification of income.
V. Proposed Program Requirements and Structure
A. Annual Capacity Limitation
Under section 48E(h)(4)(C), the total annual Capacity Limitation is
1.8 gigawatts of DC capacity for each calendar year during the period
beginning on January 1, 2025, and ending on December 31 of the
applicable year (as defined in section 45Y(d)(3)),\5\ and zero
thereafter. Proposed Sec. 1.48E(h)-1(g) would provide that the
Treasury Department and the IRS intend to announce how the annual
Capacity Limitation would be allocated across the four facility
categories (described in proposed Sec. 1.48E(h)-1(b)(2)) in future
guidance published in the Internal Revenue Bulletin. Proposed Sec.
1.48E(h)-1(g)(1) also would provide that the Capacity Limitation for
each Program year is divided across the four facility categories based
on factors such as the anticipated number of applications that are
expected for each category and the amount of Capacity Limitation that
needs to be reserved for each category to encourage market
participation in each category consistent with statutory intent and the
goals of the Program. After the Capacity Limitation for each facility
category is established in guidance published in the Internal Revenue
Bulletin, it may be reallocated later across facility categories and
sub-reservation in the event one category or sub-reservation is
oversubscribed and another has excess capacity. Proposed Sec.
1.48E(h)-1(g) would specify that a facility category or sub-reservation
is oversubscribed if it receives applications in excess of Capacity
Limitation reserved for the facility category or sub-reservation.
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\5\ Section 45Y(d)(3) defines the term ``applicable year'' as
the later of the calendar year in which the Secretary determines
that the annual greenhouse gas emissions from the production of
electricity in the United States are equal to or less than 25
percent of the annual greenhouse gas emissions from the production
of electricity in the United States for calendar year 2022, or 2032.
See also proposed Sec. 1.45Y-1(c)(3).
---------------------------------------------------------------------------
Proposed Sec. 1.48E(h)-1(g)(2) would provide that if the annual
Capacity Limitation for any calendar year exceeds the aggregate amount
of annual Capacity Limitation allocated for a calendar year under
proposed Sec. 1.48E(h)-1(g)(2), then the annual Capacity Limitation
for the succeeding calendar year is increased by the amount of such
excess. No amount of Capacity Limitation may be carried to any calendar
year after the third calendar year following the applicable year (as
defined in section 45Y(d)(3)).
B. Additional Selection Criteria
Proposed Sec. 1.48E(h)-1(h)(1) would provide that at least 50
percent of the total Capacity Limitation in each facility category
would be reserved for facilities meeting criteria described in proposed
Sec. 1.48E(h)-1(h)(2) (relating to ownership criteria) and proposed
Sec. 1.48E(h)-1(h)(3) (relating to geographic criteria); both the
ownership and the geographic criteria are collectively referred to as
``Additional Selection Criteria''. The specific amount of Capacity
Limitation reserved (but not less than 50 percent) would be provided in
guidance published in the Internal Revenue Bulletin for each Program
year.
The procedure for using these Additional Selection Criteria also
will be provided in guidance published in the Internal Revenue
Bulletin. The Treasury Department and the IRS expect that 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. The Treasury Department
and the IRS expect that 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, then facilities meeting both of the Additional Selection
Criteria categories would be prioritized for an allocation. 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, then 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.
Proposed Sec. 1.48E(h)-1(h) also would provide that after the
reservation of Capacity Limitation for qualified facilities meeting the
Additional Selection Criteria described in proposed Sec. 1.48E(h)-
1(h)(2) and (3) is established in guidance published in the Internal
Revenue Bulletin, it may be reallocated later across facility
categories and sub-reservations in the event one category or sub-
reservation within a category is oversubscribed and another has excess
capacity. The Treasury Department and the IRS would retain the
discretion to reallocate Capacity Limitation across categories and sub-
categories to maximize allocations in the event one category or sub-
reservation is oversubscribed and another has excess capacity.
1. Ownership Criteria
Proposed Sec. 1.48E(h)-1(h)(2) would provide criteria based on
ownership (Ownership Criteria). The Ownership Criteria category is
based on characteristics of the applicant that owns the applicable
facility. An applicable facility would meet the Ownership Criteria if
it is owned by a Tribal enterprise, an Alaska Native Corporation, a
Native Hawaiian Organization, a renewable energy cooperative, or a
qualified tax-exempt entity. If an applicant wholly owns an entity that
is the owner of an applicable facility, and the entity is disregarded
as separate from its owner for Federal income tax purposes (disregarded
entity), then the applicant, and not the disregarded entity, is treated
as the owner of the applicable facility for purposes of the Ownership
Criteria. For corporations incorporated under the authority of either
section 17 of the Indian Reorganization Act of 1934, 25 U.S.C. 5124 or
section 3 of the Oklahoma Indian Welfare Act, 25 U.S.C. 5203, an
application may be made as a Tribal Enterprise. If an applicant is an
entity treated as a partnership for Federal income tax purposes, and an
entity described in proposed Sec. 1.48E(h)-1(h)(2)(i)(A) through (E)
owns at least a one percent interest (either directly or indirectly) in
each material item of partnership income, gain, loss, deduction, and
credit and is a managing member or general partner (or similar title)
under State or Tribal law of the partnership (or directly owns 100
percent of the equity interests in the managing member or general
partner) at
[[Page 71201]]
all times during the existence of the partnership, the applicable
facility will be deemed to meet the Ownership Criteria. If the
partnership becomes the owner of the facility after an allocation is
made to an entity described in proposed Sec. 1.48E(h)-1(h)(2)(i)(A)
through (E), the transfer of the facility to the partnership is not a
disqualification event for purposes of proposed Sec. 1.48E(h)-1(m)(5),
so long as the requirements of proposed Sec. 1.48E(h)-1(m)(5) are
satisfied. The original applicant and the successor partnership should
refer to guidance published in the Internal Revenue Bulletin for the
procedures to request a transfer of the Capacity Limitation allocation
to the successor partnership.
Currently, these proposed regulations do not include an Ownership
Criteria category for emerging market businesses, such as those
businesses that do not have large market shares that could be
demonstrated by the number of employees, annual revenue, and other
factors. The Treasury Department and IRS considered including a
category for emerging market businesses similar to the qualified
renewable energy company category under the section 48(e) Low-Income
Communities Bonus Credit Program and Sec. 1.48(e)-1(h)(2)(vi), but
ultimately decided not to retain the qualified renewable energy company
category for purposes of the Program under section 48E(h) and these
proposed regulations. The Treasury Department and IRS request comments
on how an administrable emerging market business Ownership Criteria
category could be structured, including what thresholds a definition
should include to define market share and size, age of business, the
number of employees (both minimum and maximum) and/or annual gross
receipts generated by an emerging market business, and the supporting
documentation that could be provided as part of the application to
verify an applicant meets such criteria. Additionally, the Treasury
Department and the IRS request comments on any other appropriate
Ownership Criteria that might be applied, for example the degree to
which a business focuses its efforts on and delivers benefits to low-
income and disadvantaged communities, and the supporting documentation
that could be provided as part of the application to verify an
applicant meets such criteria.
a. Tribal Enterprise
A ``Tribal enterprise'' for purposes of the Ownership Criteria is
an entity that is (1) owned at least 51 percent directly by an Indian
Tribal government (as defined in section 30D(g)(9) of the Code), or
owned at least 51 percent indirectly through a corporation that is
wholly owned by the Indian Tribal government and is created either
under the Tribal laws of the Indian Tribal government or through a
corporation incorporated under the authority of either section 17 of
the Indian Reorganization Act of 1934, 25 U.S.C. 5124, or section 3 of
the Oklahoma Indian Welfare Act, 25 U.S.C. 5203, and (2) subject to
Tribal government rules, regulations, and/or codes that regulate the
operations of the entity.
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. Native Hawaiian Organization
A ``Native Hawaiian Organization'' for purposes of the Ownership
Criteria is defined in 13 CFR 124.3.
d. Renewable Energy Cooperative
A ``renewable energy cooperative'' for purposes of the Ownership
Criteria is an entity that develops applicable facilities and is either
(1) a consumer or purchasing cooperative controlled by its members with
each member having an equal voting right and with each member having
rights to profit distributions based on patronage as defined by
proportion of volume of energy or energy credits purchased (kWh),
volume of financial benefits delivered ($), or volume of financial
payments made ($), and in which at least 50 percent of the patronage in
the qualified facility is by cooperative members who are low-income
households (as defined in section 48(e)(2)(C)); or (2) a worker
cooperative controlled by its worker-members with each member having an
equal voting right.
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 (d) of
the Code;
(2) Any State, the District of Columbia, or political subdivision
thereof, or any agency or instrumentality of any of the foregoing;
(3) An Indian Tribal government (as defined in section 30D(g)(9)),
a 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 that is engaged in furnishing electric energy to
persons in rural areas.
2. Geographic Criteria
Proposed Sec. 1.48E(h)-1(h)(3) would provide criteria based on
geography (Geographic Criteria). The Geographic Criteria category is
based on where the facility will be placed in service. Geographic
Criteria would not apply to Category 2 facilities. To meet the
Geographic Criteria, a facility would need to be located in a
Persistent Poverty County (PPC) \6\ as described in proposed Sec.
1.48E(h)-1(h)(3)(ii) or in certain census tracts identified on the
Climate and Economic Justice Screening Tool (CEJST) \7\ and as
described in proposed Sec. 1.48E(h)-1(h)(3)(iii). Proposed Sec.
1.48E(h)-1(h)(3) would also provide 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 described in proposed Sec. 1.48E(h)-1(n)(1) unless
the location of the facility changes.
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\6\ <a href="https://www.ers.usda.gov/data-products/county-typology-codes/">https://www.ers.usda.gov/data-products/county-typology-codes/</a>.
\7\ <a href="https://screeningtool.geoplatform.gov/en/#3/33.47/-97.5">https://screeningtool.geoplatform.gov/en/#3/33.47/-97.5</a>.
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Proposed Sec. 1.48E(h)-1(h)(3)(ii) would describe a PPC as any
county in which 20 percent or more of residents have experienced high
rates of poverty over the past 30 years. For purposes of the Program,
the Treasury Department and the IRS propose using the PPC measure
adopted by the USDA to make this determination. The most recent
measure, which would apply for the 2025 program year, incorporates
poverty estimates from the 1990 and 2000 censuses, and 2007-2011 and
2017-2021 ACS Survey 5-year averages.\8\
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\8\ <a href="https://www.ers.usda.gov/data-products/poverty-area-measures">https://www.ers.usda.gov/data-products/poverty-area-measures</a>.
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Proposed Sec. 1.48E(h)-1(h)(3)(iii) would provide that a census
tract qualifies under Sec. 1.48E(h)-1(h)(3)(i) if it is described in
the latest official CEJST, as greater than or equal to the 90th
percentile for energy burden and greater than or equal to the 65th
percentile for low income, or as greater than or equal to the 90th
percentile for PM<INF>2.5</INF> exposure and greater than or equal to
the 65th percentile for low income. Proposed Sec. 1.48E(h)-
1(h)(3)(iii)(A) through (C) would provide definitions for terms used in
identifying census tracts described in proposed Sec. 1.48E(h)-
1(h)(3)(iii). See CEJST, Methodology & data, <a href="https://screeningtool.geoplatform.gov/en/methodology">https://screeningtool.geoplatform.gov/en/methodology</a> for
[[Page 71202]]
more information on these terms as applied in the screening tool.
C. Sub-Reservations of Allocation for Facilities Located in a Low-
Income Community
The Treasury Department and the IRS anticipate that Category 1 will
receive the largest number of applications, and that within Category 1,
many applications will involve residential solar facilities that are
smaller in scale and have relatively short construction completion
timelines. Therefore, proposed Sec. 1.48E(h)-1(i) would subdivide the
Capacity Limitation reservation for facilities seeking a Category 1
allocation with a portion of the Capacity Limitation specifically
reserved 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 predominantly are awarded to
facilities serving residences and consumers, rather than facilities
serving businesses. Proposed Sec. 1.48E(h)-1(i) would reserve the
remaining Capacity Limitation in Category 1 for applicants with front
of the meter (FTM) facilities as well as non-residential BTM
facilities. Proposed Sec. 1.48E(h)-1(i) clarifies that the specific
amounts of the Category 1 sub-reservations will be provided in future
guidance published in the Internal Revenue Bulletin that is applicable
to a Program year based on factors such as promoting efficient
allocation of Capacity Limitation and allowing like-projects to compete
for an allocation. Proposed Sec. 1.48E(h)-1(i) provides that after the
sub-reservation is established in guidance published in the Internal
Revenue Bulletin, it may be reallocated later in the event it has
excess capacity.
Proposed Sec. 1.48E(h)-1(i)(2)(ii) would define an eligible
residential BTM facility as single-family or multi-family residential
applicable facility that does not meet the requirements for Category 3
and is BTM. Proposed Sec. 1.48E(h)-1(i)(2)(ii) would provide that an
applicable facility is residential if it is uses energy to generate
electricity for use in a dwelling unit that is used as a residence.
Proposed Sec. 1.48E(h)-1(i)(2)(i) would define an applicable facility
as 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.
Proposed Sec. 1.48E(h)-1(i)(2)(iii) would define a facility as FTM
if it is directly connected to a grid and its primary purpose is to
provide electricity to one or more offsite locations via such grid or
utility meters with which it does not have an electrical connection;
alternatively, FTM is defined as a facility that is not BTM. For
purposes of Category 4 facilities, an applicable facility is also FTM
if 50 percent or more of its electricity generation on an annual basis
is physically exported to the broader electricity grid.
D. Application and Selection Process
Section 48E(h)(4)(A) provides that ``[i]n establishing such program
and to carry out the purposes of this paragraph, the Secretary shall
provide procedures to allow for an efficient allocation process.'' 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. Accordingly, 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 and facilitates an efficient allocation
process.
Proposed Sec. 1.48E(h)-1(j)(1) provides that applications for a
Capacity Limitation allocation will be evaluated according to the
procedures specified in guidance published in the Internal Revenue
Bulletin. Based on feedback received with respect to the section 48(e)
Low-Income Communities Bonus Credit Program (a similar program
applicable solely to qualified solar and wind facilities in 2023 and
2024) and an assessment of operational capabilities set up to
administer the Program, the Treasury Department and the IRS expect to
provide a process that includes one or more initial application windows
in which applications received by a certain time and date would be
evaluated together, followed by a rolling application process if
Capacity Limitation is not fully allocated after an initial application
window closes. Facilities that meet at least one of the two categories
of specified Ownership and Geographic criteria (Additional Selection
Criteria, discussed in part V.B. of this Explanation of Provisions)
would receive priority for an allocation within each facility category
described in section 48E(h)(2)(A)(iii).
Because section 48E(h) is subject to a finite annual Capacity
Limitation, the Treasury Department and the IRS think that allocating
amounts of Capacity Limitation to a group of related qualified
facilities with an aggregate total maximum net output equal to or
greater than five megawatts (as measured in alternating current) could
concentrate allocations in a smaller number of communities, which would
not further the purpose of efficient allocation of a Federal tax credit
program with a national impact. The Treasury Department and the IRS
additionally believe that although such facilities could be provided a
small capacity allocation rather than be deprioritized, providing a
small allocation to a group of related qualified facilities with a much
larger aggregate capacity is not likely to be determinative of the
deployment of those qualified facilities and thus would not advance the
goals of the Program to incentivize additional deployment of qualified
facilities in low-income communities. The Treasury Department and the
IRS therefore intend to deprioritize review of applications for an
applicable facility that together with other qualified facilities (1)
share a point of interconnection, (2) produce electricity using the
same technology, (3) are owned by the same taxpayer, and (4) have an
aggregate total maximum net output (as determined by the sum of the
maximum net output of the applicable facility and each qualified
facility under proposed Sec. 1.48E(h)-1(b)(3)(ii)) equal to or greater
than five megawatts (alternating current). Deprioritized applications
will be considered after other applications in the current allocation
round, or a subsequent allocation round at the Secretary's discretion.
An application for review may be deemed to not be part of a group of
related qualified facilities with a total combined maximum net output
equal to or greater than five megawatts if it has an interconnection
agreement for less than five megawatts.
Section 48E(h)(4)(A) directs the Secretary to provide procedures to
allow for an efficient allocation process. Additionally, section
48E(h)(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 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
[[Page 71203]]
such that they are likely to meet the four-year placed-in-service
deadline, proposed Sec. 1.48E(h)-1(j)(2) would require applicants to
submit certain information, documentation, and attestations when
applying for an allocation that demonstrate project eligibility and
viability. Proposed Sec. 1.48E(h)-1(j)(2) would clarify that the
specific information, documentation, and attestation to be submitted
will be provided in future guidance published in the Internal Revenue
Bulletin that is applicable to a Program year. Details regarding the
application process will be provided in future procedural guidance
published in the Internal Revenue Bulletin. Procedural guidance for the
2025 Program year will be issued later this year.
The Treasury Department and the IRS expect that the specific
application information, documentation, and attestation requirements
provided in procedural guidance applicable to the Program published in
the Internal Revenue Bulletin will be substantially similar to
requirements applicable the section 48(e) Low-Income Communities Bonus
Program provided in Revenue Procedure 2024-19, 2024-16 I.R.B. 899. Like
the section 48(e) program, some requirements may differ for FTM and BTM
facilities and other requirements may differ by Facility Category and
Additional Selection Criteria. The Treasury Department and the IRS will
periodically assess the Program and previous applications to determine
any changes to the Program's application process. The Treasury
Department and the IRS request comments on all aspects of the
application and selection process but specifically request comments on
whether (1) modifications are necessary with respect to any of the
application requirements so that the Program is available to all
applicable facilities under the Program, and (2) certain facility
categories can demonstrate project viability with other types of
documentation.
Proposed Sec. 1.48E(h)-1(j)(3) would provide that there is no
administrative appeal of Capacity Limitation allocation decisions.
E. Documentation and Attestations To Be Submitted When Placed in
Service
The Treasury Department and the IRS also propose in Sec. 1.48E(h)-
1(k)(1) to require facilities that received a Capacity Limitation
allocation to report to the DOE the date the eligible property was
placed in service. Proposed Sec. 1.48E(h)-1(k)(1) also would require
that this report be made through the same portal used to submit the
original application for allocation.
Proposed Sec. 1.48E(h)-1(k)(2) would require facilities that
received a Capacity Limitation 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 Program. Therefore, proposed Sec.
1.48E(h)-1(k)(2) would require facilities awarded a Capacity Limitation
to submit final eligibility information at placed in service time. At
the time that the owner reports that eligible property has been placed
in service the owner also must confirm information about the facility
and submit additional documentation to prove the facility is still
eligible to maintain the allocation and the increased applicable
percentage under section 48E(h)(1) as specified in guidance published
in the Internal Revenue Bulletin.
Proposed Sec. 1.48E(h)-1(k)(3) would provide that the DOE will
review the placed in service documentation and attestations to
determine if the facility meets the eligibility criteria for the owner
to claim an increased applicable percentage. The DOE then provides a
recommendation to the IRS regarding whether the facility continues to
meet the eligibility requirements for the facility to retain its
allocation or if the facility should be disqualified (as provided in
proposed Sec. 1.48E(h)-1(m)). Based on DOE's recommendation, the IRS
will decide whether the facility should retain its allocation or if the
facility should be disqualified and will notify the applicant of its
decision. Each applicant must receive confirmation from the IRS that
the DOE has reviewed the placed in service submissions, and that
eligibility is confirmed, prior to the owner (or a partner or
shareholder in the case of a partnership or S corporation) claiming the
increased credit amount on Form 3468, Investment Credit (or Form 3800,
General Business Credit), or successor form, or, if eligible, making a
transfer election under section 6418 of the Code, or an elective
payment election under section 6417 of the Code.
Proposed Sec. 1.48E(h)-1(k)(4) would provide a definition of
placed in service. Pursuant to proposed Sec. 1.48E(h)-1(k)(4), for
purposes of Sec. 1.48E(h)-1(k), eligible property is considered placed
in service in the earlier of the following taxable years: (i) the
taxable year in which, under the taxpayer's depreciation practice, the
period for depreciation with respect to such eligible property begins;
or (ii) the taxable year in which the eligible property is placed in a
condition or state of readiness and availability for a specifically
assigned function, whether in a trade or business or in the production
of income.
F. Placed in Service Prior to Allocation Award
The Treasury Department and the IRS propose in Sec. 1.48E(h)-1(l)
that facilities placed in service prior to being awarded an allocation
of Capacity Limitation would not be eligible to receive an allocation.
One of the goals of the Program is to increase adoption of and access
to renewable energy facilities in low-income and other communities with
environmental justice concerns. Awarding an allocation to facilities
that have already been placed in service would be inconsistent with
this goal. Further, section 48E(h)(4)(E)(i) provides that a facility
must be placed in service within four years of receiving an allocation
of Capacity Limitation, indicating that allocations should be made to
new facilities that have not yet been placed in service. Accordingly,
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.
VI. Post-Allocation Compliance
A. Disqualification After Receiving an Allocation
The Treasury Department and the IRS recognize that because, under
section 48E(h)(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 48E(h)(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, proposed Sec. 1.48E(h)-1(m) would provide that a
facility that was awarded a Capacity Limitation allocation is
disqualified and loses its 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 maximum net output of the facility
increases such that
[[Page 71204]]
it exceeds the less than five megawatt requirement provided in section
48E(h)(2)(A)(ii) or the nameplate capacity 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 48E(h)(2)(B)(ii) and proposed Sec.
1.48E(h)-1(e) as planned (if applicable) or cannot satisfy the
financial benefits requirements under section 48E(h)(2)(C) and proposed
Sec. 1.48E(h)-1(f) as planned (if applicable); (4) the eligible
property that 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, unless the original applicant transfers the facility
to an entity treated as a partnership for Federal income tax purposes
and retains at least a one percent interest (either directly or
indirectly) in each material item of partnership income, gain, loss,
deduction, and credit of such partnership and is a managing member or
general partner (or similar title) under State or Tribal law of the
partnership (or directly owns 100 percent of the equity interests in
the managing member or general partner) at all times during the
existence of the partnership.
B. Recapture of Section 48E(h) Increase
Section 48E(h)(5) requires the Secretary, by regulations or other
guidance, to provide rules for recapturing the benefit of any section
48E(h) Increase with respect to any property that ceases to be property
eligible for such section 48E(h) Increase (but that 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 48E(h) Increase, the eligibility of
such property for such section 48E(h) Increase is restored. Such
restoration of a section 48E(h) Increase is not available more than
once with respect to any facility.
Proposed Sec. 1.48E(h)-1(n)(1) would provide that if, at any time
during the five-year recapture period beginning on the date that an
applicable facility under section 48E(h) is placed in service, there is
a recapture event under proposed Sec. 1.48E(h)-1(n)(3) with respect to
such property, then the Federal income tax imposed on the taxpayer by
chapter 1 of the Code for the taxable year in which the recapture event
occurs is increased by the recapture percentage of the benefit of the
increase in the section 48E credit. The recapture percentage is
determined according to the table provided in section 50(a)(1)(B).
Proposed Sec. 1.48E(h)-1(n)(2) would provide that recapture under
proposed Sec. 1.48E(h)-1(n)(1) 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 increase in the credit allowed under
section 48E(a), the eligibility of such property for such increase
pursuant to section 48E(h) is restored. Such restoration of an increase
pursuant to section 48E(h) is not available more than once with respect
to any facility.
Proposed Sec. 1.48E(h)-1(n)(3) would provide that the following
circumstances result in a recapture event if the property ceases to be
eligible for the increased credit under section 48E(h): (1) property
described in section 48E(h)(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 48E(h)(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
48E(h)(2)(C) ceases to provide at least 50 percent of the financial
benefits of the electricity produced to Qualifying Households as
described under section 48E(h)(2)(C)(i) or (ii), or fails to provide
those households the required minimum 30 percent bill credit discount
rate; (4) for property described under section 48E(h)(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 48E(h)(2)(B)(i), if applicable; and (5) a facility
increases its maximum net output such that the facility's maximum net
output is 5 MW AC or greater.
Proposed Sec. 1.48E(h)-1(n)(4) would provide that any event that
results in recapture under section 50(a) also will result in recapture
of the benefit of the increase in the section 48E credit by reason of
section 48E(h). The exception to the application of recapture provided
in proposed Sec. 1.48E(h)-1(n)(2) does not apply in the case of a
recapture event under section 50(a).
Proposed Applicability Date
These regulations are proposed to apply to qualified facilities
placed in service after December 31, 2024, and during taxable years
ending after the date the final regulations are filed for public
inspection by the Office of the Federal Register.
Special Analysis
I. Regulatory Planning and Review--Economic Analysis
Pursuant to the Memorandum of Agreement, Review of Treasury
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory
actions issued by the IRS are not subject to the requirements of
section 6 of Executive Order 12866, as amended. Therefore, a regulatory
impact assessment is not required.
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 48E(h) Increase. This information in the collections
of information would generally be used by the IRS and the 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 Sec. 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 48E(h)
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 regulations also provide reporting requirements
related to providing attestations and supporting documentation for
initial application,
[[Page 71205]]
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 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>. Comments on the collection of
information should be received by October 3, 2024. Comments are
specifically requested concerning:
(1) 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;
(2) The accuracy of the estimated burden associated with the
proposed collection of information;
(3) How the quality, utility, and clarity of the information to be
collected may be enhanced;
(4) 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
(5) 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 to potential
applicants to determine eligibility to apply for an allocation of
Capacity Limitation under section 48E(h), and, in general, to taxpayers
awarded an allocation of Capacity Limitation to understand the
requirement to claim the section 48E(h) Increase. The proposed
regulations are expected to encourage applicants to invest in
applicable facilities. 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 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 Program commences.
3. Impact of the Rules
The recordkeeping and reporting requirements would increase for
applicants that participate in the 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 requests from stakeholders that potential applicants be able
to place a facility in service before applying for or receiving an
allocation of Capacity Limitation. The Treasury Department and IRS
determined it would not be possible to accommodate this request in the
proposed regulations because the statutory language under section
48E(h)(4)(E)(i) requires that the facility be placed in service by a
date that is 4 years after the date of the allocation. Moreover,
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 Program, and so do not further
Program goals.
Additionally, the Treasury Department and IRS considered proposing
a variety of bill credit discounts for Category 4 qualified low-income
benefit project facilities, including the 20 percent bill credit
discount rate used in the Low-Income Communities Bonus Credit Program
established under section 48(e). However, to ensure that low-income
customers are receiving meaningful financial benefits, the Treasury
Department and the IRS decided to propose a 30 percent bill credit
discount for the Program but are also requesting comments on whether
this is the most appropriate bill credit discount rate for the Program
and whether a transition rule to achieve this bill discount rate is
necessary.
Another example is the revisions to the list of eligible covered
housing
[[Page 71206]]
programs that can be found in the Explanation of Provisions section of
this document. In the preamble to Treasury Decision 9979, applicable to
the Low-Income Communities Bonus Credit Program established under
section 48(e), the Treasury Department and the IRS included as an
eligible covered housing program, HUD tenant-based rental assistance
under section 8 of the United States Housing Act of 1937. The Treasury
Department and IRS considered retaining tenant-based housing assistance
programs. However, after consulting with HUD, it was determined that
tenant-based assistance is assistance that can only be attributed to a
particular tenant, and not a building. Under section 48E(h)(2)(B), for
a facility to qualify as a being part of a qualified low-income
residential building project, the facility must be installed on a
residential rental building that participates in a covered housing
program (that is, a Qualified Residential Property). Tenant-based
housing assistance programs applicable to a particular tenant do not
qualify the building in which the tenant resides as participating in a
covered housing program. Therefore, because tenant-based assistance
under Section 8 does not comport with the requirements under section
48E(h)(2)(B), tenant-based housing assistance programs under Section 8,
have been removed as an eligible covered housing program for purposes
of the Program under section 48E(h).
Additionally, the Treasury Department and IRS considered whether to
propose to include the sub-reservation for Category 1 facilities for
eligible residential BTM facilities but concluded this sub-reservation
should be proposed for the Program. 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.
Comments are requested on the requirements in the proposed
regulations, including specifically, whether there are less burdensome
alternatives that ensure the Treasury Department and IRS and DOE can
efficiently administer the Program.
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 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 Indian Tribal government, in the aggregate, or by the
private sector, of $100 million (updated annually for inflation). These
proposed regulations do not include any Federal mandate that may result
in expenditures by State, local, or Indian 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 proposed regulations do not
have federalism implications and does not impose substantial direct
compliance costs on State and local governments or preempt State law
within the meaning of the Executive order.
VI. Executive Order 13175: Consultation and Coordination With Indian
Tribal Governments
Executive Order 13175 (Consultation and Coordination With Indian
Tribal Governments) prohibits an agency from publishing any rule that
has Tribal implications if the rule either imposes substantial, direct
compliance costs on Indian Tribal governments, and is not required by
statute, or preempts Tribal law, unless the agency meets the
consultation and funding requirements of section 5 of the Executive
order. These proposed do not have substantial direct effects on one or
more Federally recognized Indian tribes and does not impose substantial
direct compliance costs on Indian Tribal governments within the meaning
of the Executive order.
Nevertheless, consistent with Treasury's Tribal Consultation
Policy, the Treasury Department and the IRS will hold a consultation
with Tribal leaders requesting assistance in addressing questions
related to these proposed regulations.
Comments and Public Hearing
Before these proposed amendments to the regulations are adopted as
final regulations, consideration will be given to comments regarding
the notice of proposed rulemaking that are submitted timely to the IRS
as prescribed in the preamble under the ADDRESSES section. The Treasury
Department and the IRS request comments on all aspects of the proposed
regulations. All comments will be made available at <a href="https://www.regulations.gov">https://www.regulations.gov</a>. Once submitted to the Federal eRulemaking Portal,
comments cannot be edited or withdrawn.
A public hearing with respect to this notice of proposed rulemaking
has been scheduled for October 17, 2024, beginning at 10 a.m. EST. The
hearing scheduled for October 17, 2024, will be held in the Auditorium
at the Internal Revenue Building, 1111 Constitution Avenue NW,
Washington, DC. Due to building security procedures, visitors must
enter at the Constitution Avenue entrance. In addition, all visitors
must present photo identification to enter the building. Because of
access restrictions, visitors will not be admitted beyond the immediate
entrance area more than 30 minutes before the hearing starts.
Participants may alternatively attend the public hearing by telephone.
The rules of 26 CFR 601.601(a)(3) apply to the public hearing.
Persons who wish to present oral comments at the public hearing must
submit an outline of the topics to be discussed and the time to be
devoted to each topic by October 3, 2024. A period of 10 minutes will
be allotted to each person for making comments. An agenda showing the
scheduling of the speakers will be prepared after the deadline for
receiving outlines has passed. Copies of the agenda will be available
free of charge at the public hearing. If no outline of the topics to be
discussed at the public hearing is received by October 3, 2024, the
public hearing will be cancelled. If the public hearing is cancelled, a
notice of cancellation of the public hearing will be published in the
Federal Register.
Individuals who want to testify in person at the public hearing
must send an email to <a href="/cdn-cgi/l/email-protection#7b0b0e19171218131e1a0912151c083b120908551c140d"><span class="__cf_email__" data-cfemail="0c7c796e60656f64696d7e65626b7f4c657e7f226b637a">[email protected]</span></a> to have your name added to
the building access list. The subject line of the email must contain
the regulation number REG-108920-24 and the language TESTIFY In Person.
For example, the subject line may say: Request to TESTIFY In Person at
Hearing for REG-108920-24.
[[Page 71207]]
Individuals who want to testify by telephone at the public hearing
must send an email to <a href="/cdn-cgi/l/email-protection#afdfdacdc3c6ccc7caceddc6c1c8dcefc6dddc81c8c0d9"><span class="__cf_email__" data-cfemail="ff8f8a9d93969c979a9e8d9691988cbf968d8cd1989089">[email protected]</span></a> to receive the telephone
number and access code for the public hearing. The subject line of the
email must contain the regulation number REG-108920-24 and the language
TESTIFY Telephonically. For example, the subject line may say: Request
to TESTIFY Telephonically at Hearing for REG-108920-24.
Individuals who want to attend the public hearing in person without
testifying must also send an email to <a href="/cdn-cgi/l/email-protection#0a7a7f68666369626f6b7863646d794a637879246d657c"><span class="__cf_email__" data-cfemail="b0c0c5d2dcd9d3d8d5d1c2d9ded7c3f0d9c2c39ed7dfc6">[email protected]</span></a> to have
your name added to the building access list. The subject line of the
email must contain the regulation number REG-108920-24 and the language
ATTEND In Person. For example, the subject line may say: Request to
ATTEND Hearing In Person for REG-108920-24. Requests to attend the
public hearing must be received by 5 p.m. EST on October 15, 2024.
Individuals who want to attend the public hearing by telephone
without testifying must also send an email to <a href="/cdn-cgi/l/email-protection#215154434d484249444053484f4652614853520f464e57"><span class="__cf_email__" data-cfemail="afdfdacdc3c6ccc7caceddc6c1c8dcefc6dddc81c8c0d9">[email protected]</span></a> to
receive the telephone number and access code for the public hearing.
The subject line of the email must contain the regulation number REG-
108920-24 and the language ATTEND Hearing Telephonically. For example,
the subject line may say: Request to ATTEND Hearing Telephonically for
REG-108920-24. Requests to attend the public hearing must be received
by 5 p.m. EST on October 15, 2024.
Public hearings will be made accessible to people with
disabilities. To request special assistance during a public hearing
please contact the Publications and Regulations Section of the Office
of Associate Chief Counsel (Procedure and Administration) by sending an
email to <a href="/cdn-cgi/l/email-protection#9aeaeff8f6f3f9f2fffbe8f3f4fde9daf3e8e9b4fdf5ec"><span class="__cf_email__" data-cfemail="c2b2b7a0aeaba1aaa7a3b0abaca5b182abb0b1eca5adb4">[email protected]</span></a> (preferred) or by telephone at (202)
317-6901 (not a toll-free number) and must be received by October 11,
2024.
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 and Special Industries), IRS.
However, other personnel from the Treasury Department and the IRS
participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, the Treasury Department and IRS propose to amend 26
CFR part 1 as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 is amended by adding an
entry for Sec. 1.48E(h)-1 in numerical order to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.48E(h)-1 also issued under 26 U.S.C. 48E(h) and (i).
* * * * *
0
Par. 2. Sections 1.48E(h)-0 and 1.48E(h)-1 are added to read as
follows:
Sec. 1.48E(h)-0 Table of contents.
This section lists the captions contained in Sec. 1.48E(h)-1.
Sec. 1.48E(h)-1 Clean Electricity Low-Income Communities Bonus
Credit Amount Program.
(a) Overview.
(1) General rule.
(2) Certain terms used in this section.
(i) Applicants.
(ii) Internal Revenue Bulletin.
(b) Applicable facility defined.
(1) In general.
(2) Facility categories.
(i) Category 1 facility.
(ii) Category 2 facility.
(iii) Category 3 facility.
(iv) Category 4 facility.
(3) Less than five megawatts requirement.
(i) In general.
(ii) Nameplate capacity for purposes of the less than five
megawatts requirement.
(c) Eligible property.
(d) Location.
(1) In general.
(2) Nameplate Capacity Test for Location.
(3) Nameplate capacity for purpose of Nameplate Capacity Test
for Location.
(e) Financial benefits for a Category 3 facility.
(1) In general.
(2) Threshold requirement.
(3) Financial value of the electricity produced by the facility.
(4) Gross financial value.
(5) Net financial value defined.
(i) Common ownership.
(ii) Third-party ownership.
(iii) Equitable allocation of financial benefits.
(A) If financial value distributed via utility bill savings.
(B) If financial value is not distributed via utility bill
savings.
(6) Benefits sharing statement.
(i) In general.
(ii) Notification requirement.
(f) Financial benefits for a Category 4 facility.
(1) In general.
(2) Bill credit discount rate.
(i) In general.
(ii) No or nominal cost of participation.
(iii) Other value from electricity production.
(iv) Calculation on annual basis.
(v) Examples.
(A) Example 1.
(B) Example 2.
(C) Example 3.
(3) Low-income verification.
(i) In general.
(ii) Methods of verification.
(A) Categorical eligibility.
(B) Other income verification methods.
(C) Impermissible verification method.
(g) Annual Capacity Limitation.
(1) In general.
(2) Carryover of unallocated Annual Capacity Limitation.
(h) Reservations of Capacity Limitation allocation for
facilities that meet certain Additional Selection Criteria.
(1) In general.
(2) Ownership criteria.
(i) In general.
(ii) Indirect ownership.
(A) Disregarded entities.
(B) Partner qualifying partnership under ownership criteria.
(iii) Tribal enterprise.
(iv) Alaska Native Corporation.
(v) Native Hawaiian Organization.
(vi) Renewable energy cooperative.
(vii) Qualified tax-exempt entity.
(3) Geographic criteria.
(i) In general.
(ii) Persistent Poverty County.
(iii) Certain census tracts under Climate and Economic Justice
Screening Tool.
(A) Energy burden.
(B) PM<INF>2.5</INF>.
(C) Low-income.
(i) Sub-reservations of allocation for Category 1 facilities.
(1) In general.
(2) Definitions.
(i) Behind the meter (BTM) facility.
(ii) Eligible residential BTM facility.
(iii) FTM facility.
(j) Process of application evaluation.
(1) In general.
(2) Information required as part of application.
(3) No administrative appeal of Capacity Limitation allocation
decisions.
(k) Placed in service.
(1) Requirement to report date placed in service.
(2) Requirement to submit final eligibility information at
placed in service time.
(3) DOE confirmation.
(4) Definition of placed in service.
(l) Facilities placed in service prior to an allocation award.
(1) In general.
(2) Rejection or rescission.
(m) Disqualification.
(n) Recapture of section 48E(h) Increase to the section 48E(a)
credit.
[[Page 71208]]
(1) In general.
(2) Exception to application of recapture.
(3) Recapture events.
(4) Section 50(a) recapture.
(o) Applicability date.
Sec. 1.48E(h)-1 Clean Electricity Low-Income Communities Bonus Credit
Amount Program.
(a) Overview--(1) General rule. For purposes of section 46 of the
Internal Revenue Code (Code), if an allocation of the environmental
justice capacity limitation (Capacity Limitation) is made with respect
to eligible property (as defined in paragraph (c) of this section) that
is part of any applicable facility (as defined in paragraph (b) of this
section) placed in service in connection with low-income communities
under the Clean Electricity Low-Income Communities Bonus Credit Amount
Program (Program) established under section 48E(h)(4), the applicable
percentage used to calculate the amount of the clean electricity
investment credit determined under section 48E(a) (section 48E credit)
is increased under section 48E(h)(1).
(2) Certain terms used in this section. In this section:
(i) Applicants. The terms applicant and taxpayer are used
interchangeably as the context may require.
(ii) Internal Revenue Bulletin. The term Internal Revenue Bulletin
has the meaning provided in Sec. 601.601 of this chapter.
(b) Applicable facility defined--(1) In general. An applicable
facility means any qualified facility (as defined in section 48E(b)(3))
that--
(i) Is a non-combustion and gasification facility for which the
Secretary of the Treasury or her delegate has determined has a
greenhouse gas (GHG) emissions rate of not greater than zero in
guidance published either in the Federal Register or in the Internal
Revenue Bulletin as of the opening date for a Program year, which the
Internal Revenue Service will publicly announce;
(ii) Has a maximum net output of less than 5 megawatts (MW) (as
measured in alternating current (AC)); and
(iii) Is described in at least one of the four categories described
in section 48E(h)(2)(A)(iii) and paragraph (b)(2) of this section.
(2) Facility categories--(i) Category 1 facility. A facility is a
Category 1 facility if it is located in a low-income community. The
term low-income community generally is defined under section 45D(e)(1)
of the Code as any population census tract for which the poverty rate
is at least 20 percent based on the most recently released American
Community Survey (ACS) low-income community data currently used for the
New Markets Tax Credit (NMTC) under section 45D, or, in the case of a
tract not located within a metropolitan area, the median family income
for such tract does not exceed 80 percent of statewide median family
income, or, in the case of a tract located within a metropolitan area,
the median family income for such tract does not exceed 80 percent of
the greater of statewide median family income or the metropolitan area
median family income. The term low-income community also includes the
modifications in section 45D(e)(4) and (5) for tracts with low
population and modification of the income requirement for census tracts
with high migration rural counties. Low-income community information
for NMTC can be found at <a href="https://www.cdfifund.gov/cims3">https://www.cdfifund.gov/cims3</a>. For purposes
of this paragraph (b)(2)(i), if updated ACS low-income community data
is released for the NMTC program, a taxpayer can choose to base the
poverty rate for any population census tract on either the prior
version of the ACS low-income community data for the NMTC program or
the updated ACS low-income community data for the NMTC program for a
period of 1 year following the date of the release of the updated data.
After the 1-year transition period, the updated ACS low-income
community data for the NMTC program must be used to determine the
poverty rate for any population census tract. Population census tracts
that satisfy the definition of low-income community at the time of
application are considered to continue to meet the definition of low-
income community for the duration of the recapture period described in
paragraph (n)(1) of this section unless the location of the facility
changes.
(ii) Category 2 facility. A facility is a Category 2 facility if it
is located on Indian land. The term Indian land is defined in section
2601(2) of the Energy Policy Act of 1992 (25 U.S.C. 3501(2)).
(iii) Category 3 facility. A facility is a Category 3 facility if
it is part of a qualified low-income residential building project. 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 that participates in a covered housing program or other
affordable housing program described in section 48E(h)(2)(B)(i)
(Qualified Residential Property) and the financial benefits of the
electricity produced by such facility are allocated equitably among the
occupants of the dwelling units of such building as provided in
paragraph (e) of this section. A Qualified Residential Property could
either be a multifamily rental property or single-family rental
property. However, the building, and not merely the tenants, must
participate in a covered housing program or other affordable housing
program described in section 48E(h)(2)(B)(i). A facility does not need
to be installed directly on the building to be considered installed on
a Qualified Residential Property if the facility is installed on the
same or an adjacent parcel of land as the Qualified Residential
Property, and the other requirements to be a Category 3 facility are
satisfied.
(iv) Category 4 facility. A facility is a Category 4 facility if it
is part of a qualified low-income economic benefit project. A facility
will be treated as part of a qualified low-income economic benefit
project if, as provided in paragraph (f) of this section, at least 50
percent of the financial benefits of the electricity produced by such
facility are provided to households with income of less than--
(A) Two-hundred 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
(B) Eighty percent of area median gross income (as determined under
section 142(d)(2)(B) of the Code).
(3) Less than five megawatts requirement--(i) In general. For
purposes of this paragraph (b), the less than five megawatts
requirement is measured at the level of the applicable facility in
accordance with section 48E(h)(2)(A)(ii). The maximum net output of an
applicable facility is measured only by nameplate generating capacity
of the applicable facility, which includes only functionally
interdependent components of property that are owned by the taxpayer,
that are operated together, and that can operate apart from other
property to produce electricity, at the time the applicable facility is
placed in service. Components of property are functionally
interdependent if the placing in service of each component is dependent
upon placing in service other components to produce electricity.
(ii) Nameplate capacity for purposes of the less than five
megawatts requirement. The determination of whether an applicable
facility has a maximum net output of less than 5 MW (as measured in AC)
is based on the nameplate capacity of the applicable facility. The
nameplate capacity for purposes of the less than five megawatts
requirement is the maximum electrical generating output in MW that the
applicable facility is capable of producing on a steady state basis and
during continuous operation under standard conditions, as measured by
the
[[Page 71209]]
manufacturer and consistent with the definition of nameplate capacity
provided in 40 CFR 96.202. If applicable, the International Standard
Organization conditions should be used to measure the maximum
electrical generating output of an applicable facility.
(c) Eligible property. Eligible property means a qualified
investment (as defined in section 48E(b)) with respect to any
applicable facility.
(d) Location--(1) In general. An applicable facility is treated as
located in a low-income community or located on Indian land under
section 48E(h)(2)(A)(iii)(I) if the applicable facility satisfies the
Nameplate Capacity Test for Location of paragraph (d)(2) of this
section. Similarly, an applicable facility is treated as located in a
geographic area under the Additional Selection Criteria described in
paragraph (h) of this section if it satisfies the Nameplate Capacity
Test for Location.
(2) Nameplate Capacity Test for Location. An applicable facility is
considered located in or on the relevant geographic area described in
paragraph (d)(1) of this section if 50 percent or more of the
applicable facility's nameplate capacity is in a qualifying area. The
percentage of an applicable facility's nameplate capacity (as defined
in paragraph (d)(3) of this section) that is in a qualifying area is
determined by dividing the nameplate capacity of the applicable
facility's electricity-generating units that are located in the
qualifying area by the total nameplate capacity of all the electricity-
generating units of the applicable facility.
(3) Nameplate capacity for purpose of Nameplate Capacity Test for
Location. Nameplate capacity for an electricity generating unit means
the maximum electrical output that the applicable facility 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 of nameplate capacity provided in 40 CFR
96.202. If applicable, the International Standard Organization
conditions should be used to measure the maximum electrical generating
output. For purposes of assessing the Nameplate Capacity Test,
electricity-generating units that generate direct current (DC) power
before converting to AC (for example, solar photovoltaic), should use
nameplate capacity in DC, otherwise the nameplate capacity in AC should
be used.
(e) Financial benefits for a Category 3 facility--(1) In general.
To satisfy the requirements of a Category 3 facility as provided in
paragraph (b)(2)(iii) of this section, the financial benefits of the
electricity produced by the facility must be allocated equitably among
the occupants of the dwelling units of the Qualified Residential
Property. The same rules for financial benefits for Category 3
facilities apply to both multi-family property and single-family
Qualified Residential Property.
(2) Threshold requirement. At least 50 percent of the financial
value of the electricity produced by the facility (as defined in
paragraph (e)(3) of this section) must be allocated equitably to the
Qualified Residential Property's occupants that are designated as low-
income occupants under the covered housing program or other affordable
housing program.
(3) Financial value of the electricity produced by the facility.
For purposes of this paragraph (e), the financial value of the
electricity produced by the facility is defined as the greater of:
(i) 25 percent of the gross financial value (as defined in
paragraph (e)(4) of this section) of the annual electricity produced by
the applicable facility; or
(ii) The net financial value (as defined in paragraph (e)(5) of
this section) of the annual electricity produced by the applicable
facility.
(4) Gross financial value. For purposes of this paragraph (e),
gross financial value of the annual electricity produced by the
applicable facility is calculated as the sum of:
(i) The total self-consumed kilowatt-hours produced by the
applicable facility multiplied by the Qualified Residential Property's
metered volumetric price of electricity;
(ii) The total exported kilowatt-hours produced by the applicable
facility multiplied by the Qualified Residential Property's volumetric
export compensation rate for the type of electricity produced by the
applicable facility per kilowatt-hour; and
(iii) The sale of any attributes associated with the applicable
facility's production (including, for example, any Federal, State, or
Tribal renewable energy credits or incentives), if separate from the
metered price of electricity or export compensation rate.
(5) Net financial value defined--(i) Common ownership. For purposes
of this paragraph (e), if the facility and Qualified Residential
Property are commonly owned, net financial value is defined as the
gross financial value of the annual electricity produced minus the
annual average (or levelized) cost of the applicable facility over the
useful life of the facility (including debt service, maintenance,
replacement reserve, capital expenditures, and any other costs
associated with constructing, maintaining, and operating the facility).
(ii) Third-party ownership. For purposes of this paragraph (e), if
the facility and the Qualified Residential Property are not commonly
owned and the facility owner enters into a Power Purchase Agreement or
other contract for electricity services with the Qualified Residential
Property owner and/or building occupants, net financial value is
defined as the gross financial value of the annual electricity produced
minus any payments made by the building owner and/or building occupants
to the facility owner for electricity services associated with the
facility in a given year.
(iii) Equitable allocation of financial benefits. There are
different rules to ensure an equitable allocation of financial benefits
depending on whether or not financial value is distributed to building
occupants via utility bill savings or through different means.
Previously distributed financial benefits or investments already made
to the Qualified Residential Property are not considered eligible
financial benefits for this purpose.
(A) If financial value distributed via utility bill savings. If
financial value is distributed via utility bill savings, financial
benefits will be considered to be allocated equitably if at least 50
percent of the financial value of the electricity produced by the
facility is distributed as utility bill savings in equal shares to each
building dwelling unit among the Qualified Residential Property's
occupants that are designated as low-income under the covered housing
program or other affordable housing program (described in section
48E(h)(2)(B)(i)) or alternatively distributed in proportional shares
based on each low-income dwelling unit's square footage, or each low-
income dwelling unit's number of occupants. For any occupant(s) who
choose to not receive utility bill savings (for example, exercise their
right to not participate in or to opt out of a community solar
subscription in applicable jurisdictions), the portion of the financial
value that would otherwise be distributed to non-participating
occupants must be distributed instead to all participating occupants.
No less than 50 percent of the Qualified Residential Property's
occupants that are designated as low-income must participate and
receive utility bill savings for the facility to use this method of
benefit distribution. In the case of a solar facility, applicants must
follow the Department of Housing and Urban Development (HUD) guidance
on Treatment of Financial Benefits to HUD-Assisted Tenants
[[Page 71210]]
Resulting from Participation in Solar Programs Notice (Housing Notice
2023-09), located at <a href="https://www.hud.gov/sites/dfiles/OCHCO/documents/2023-09hsgn.pdf">https://www.hud.gov/sites/dfiles/OCHCO/documents/2023-09hsgn.pdf</a>, or future HUD guidance, or other guidance or notices
from the Federal agency that oversees the applicable housing program
identified in section 48E(h)(2)(B) to ensure that tenants' annual
income for rent calculations or other requirements impacting total
tenant payment are not negatively impacted by the distribution of
financial value. Applicants should apply similar principles in the case
of any other applicable facility.
(B) If financial value is not distributed via utility bill savings.
If financial value is not distributed via utility bill savings,
financial benefits will be considered to be allocated equitably if at
least 50 percent of the financial value of the electricity produced by
the facility is distributed to occupants using one or more methods
described in Housing Notice 2023-09 for a master-metered building, or
future HUD guidance, or other guidance or notices from the Federal
agency that oversees the applicable housing program identified in
section 48E(h)(2)(B). In the case of a solar facility, applicants must
comply with HUD guidance, or future HUD guidance, for how residents of
master-metered HUD-assisted housing can benefit from owners' sharing of
financial benefits accrued from an investment in solar electricity
generation to ensure that tenants' utility allowances and annual income
for rent calculations are not negatively impacted. Applicants should
apply similar principles in the case of any other applicable facility.
(6) Benefits sharing statement--(i) In general. The facility owner
must prepare a Benefits Sharing Statement, which must include:
(A) A calculation of the facility's gross financial value using the
method described paragraph (e)(4) of this section;
(B) A calculation of the facility's net financial value using the
method described in paragraph (e)(5) of this section;
(C) A calculation of the financial value required to be distributed
to building occupants using the method described in paragraph (e)(3) of
this section;
(D) A description of the means through which the required financial
value will be distributed to building occupants; and
(E) If the facility and Qualified Residential Property are
separately owned, specify the entity that will be responsible for the
distribution of benefits to the occupants.
(ii) Notification requirement. The Qualified Residential Property
owner must formally notify the occupants of units in the Qualified
Residential Property of the development of the facility and planned
distribution of benefits.
(f) Financial benefits for a Category 4 facility--(1) In general.
To satisfy the requirements of a Category 4 facility as provided in
paragraph (b)(2)(iv) of this section:
(i) The facility must serve multiple qualifying low-income
households under section 48E(h)(2)(C)(i) or (ii) (Qualifying
Household);
(ii) At least 50 percent of the facility's total output in kW must
be assigned to Qualifying Households; and
(iii) Each Qualifying Household must be provided a bill credit
discount rate (as defined in paragraph (f)(2) of this section) of at
least 30 percent.
(2) Bill credit discount rate--(i) In general. A bill credit
discount rate is the difference between the financial benefit provided
to a Qualifying Household (including utility bill credits, reductions
in a Qualifying Household's electricity rate, or other monetary
benefits accrued by the Qualifying Household on their utility bill) and
the cost of participating in the community program (including
subscription payments for zero carbon and any other fees or charges),
expressed as a percentage of the financial benefit distributed to the
Qualifying Household. The bill credit discount rate can be calculated
by starting with the financial benefit provided to the Qualifying
Household, subtracting all payments made by the Qualifying Household
(or payments remitted on behalf of the Qualifying Household through net
crediting, consolidated billing, or similar arrangements) 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 Qualifying Household.
(ii) No or nominal cost of participation. In cases in which the
Qualifying Household has no or only a nominal cost of participation,
and financial benefits are delivered through a utility or government
body, the bill credit discount rate should be calculated as the
financial benefit provided to a Qualifying Household (including utility
bill credits, reductions in a Qualifying Household's electricity rate,
or other monetary benefits accrued by a Qualifying Household on their
utility bill) divided by the total value of the electricity produced by
the facility and assigned to the Qualifying Household (including any
electricity services, products, and credits provided in conjunction
with the electricity produced by such facility), as measured by the
utility, independent system operator, or other off-taker procuring
electricity (and related services, products, and credits) from the
facility.
(iii) Other value from electricity production. If the facility
derives financial value from the production of electricity in a manner
such that this value cannot be directly applied to the Qualifying
Household's utility bill (for example, renewable energy credit payments
made directly to the facility owner), than no less than 30 percent of
that monetary value must also be provided to the Qualifying Household,
either through a greater bill credit discount on the Qualifying
Household's utility bill than would otherwise be derived from the
method described in paragraph (f)(2)(i) of this section or through
other means.
(iv) Calculation on annual basis. In all instances, the bill credit
discount rate is calculated on an annual basis.
(v) Examples. The provisions of this paragraph (f)(2) may be
illustrated by the following examples:
(A) Example 1. A Qualifying Household signs a community solar
subscription agreement with the facility owner. Each month, the
facility owner will assign a portion of the electricity generated (or
its value) by the facility to the household's utility bill, and the
household will pay the facility owner. The amount the household pays
the facility owner cannot exceed 70 percent of the monetary value of
the assigned generation. The remaining 30 percent is a cost savings to
the household on electricity. In this example, over the course of the
first year the facility owner or their agent cause $180 in utility bill
credits to be placed on the Qualifying Household's bill, and the
Qualifying Household pays $126, inclusive of any upfront fees. The
subsequent year, due to variation in solar generation and/or the
compensation paid by the utility for solar generation, the facility
owner, in accordance with the community solar subscription agreement,
causes $240 in bill credits to be provided to the Qualifying
Household's bill and the household pays $168. In each year of facility
operation described within this example, a bill credit discount rate of
30 percent is maintained (($180-$126)/$180 = 30%) and (($240-$168)/$240
= 30%), respectively.
(B) Example 2. Due to the regulatory structure of the applicable
jurisdiction or program, the terms of the community solar subscription,
the use of a net-crediting mechanism, or other reason, the Qualifying
Household does not
[[Page 71211]]
make a direct payment to the facility owner, but rather payment is
remitted on their behalf by the utility. In this example, over the
course of the first year the facility owner or their agent cause $200
in utility bill credits to be placed on the Qualifying Household's
bill, and the Qualifying Household's utility remits $126 to the
facility owner, inclusive of any upfront fees. The subsequent year, due
to variation in solar generation and/or the compensation paid by the
utility for solar generation, the facility owner, in accordance with
the community solar subscription agreement, causes $240 in bill credits
to be provided to the Qualifying Household's bill and the utility
remits $168 to the facility owner. In each year of facility operation
described within this example, a bill credit discount rate of 30
percent is maintained (($180-$126)/$180 = 30%) and (($240-$168)/$240 =
30%), respectively.
(C) Example 3. Assume the facility is part of a program by which
the financial benefits are delivered to Qualifying Households through a
utility or government body, and each Qualifying Household pays no cost
to participate. Assume that the total annual financial benefit for a
Qualifying Household is $180 in the first year and $240 in the second
year. Assume further that the value of the electricity produced by the
facility and assigned to the Qualifying Household though a utility or
government body, as measured by the utility, independent system
operator, or other off-taker procuring the electricity, is $600 in the
first year and $800 in the second year. In this case, the bill credit
discount rate is 30 percent in each year (($600 x 30% = $180) and ($800
x 30% = $240), respectively).
(3) Low-income verification--(i) In general. To establish that
financial benefits are provided to Qualifying Households as provided in
paragraph (f)(1) of this section, applicants must, in accordance with
guidance published in the Internal Revenue Bulletin, submit
documentation upon placing the applicable facility in service. A
Qualifying Household's low-income status is determined at the time the
household enrolls in the subscription program and does not need to be
re-verified.
(ii) Methods of verification. Applicants may use categorical
eligibility or other income verification methods to establish that a
household is a Qualifying Household.
(A) Categorical eligibility. Categorical eligibility consists of
obtaining proof of the household's participation in a needs-based
Federal, State, Tribal, or utility program with income limits at or
below the qualifying income level required to be a Qualifying
Household. Federal programs may include, but are not limited to:
Medicaid, Low-Income Home Energy Assistance Program (LIHEAP)
administered by the Department of Health and Human Services,
Weatherization Assistance Program (WAP) administered by the Department
of Energy (DOE), Supplemental Nutrition Assistance Program (SNAP)
administered by the Department of Agriculture (USDA), Section 8
Project-Based Rental Assistance, the Housing Choice Voucher Program
administered by HUD, the Federal Communication Commission's Lifeline
Support for Affordable Communications, the National School Lunch
Program administered by the USDA, the Supplemental Security Income
Program administered by the Social Security Administration, and any
verified government or non-profit program serving Asset Limited Income
Constrained Employed (ALICE) persons or households. With respect to the
Federal programs listed previously an individual in the household must
currently be approved for assistance from or participation in the
program with an award letter or other written documentation within the
last 12 months for enrollment in that program to establish categorical
eligibility of the household. State agencies can also provide
verification that a household is a Qualifying Household if the
household participates in a State's solar or other energy program and
income limits for such program are at or below the qualifying income
level required to be a Qualifying Household. The qualifying income
level for a Qualifying Household is based on where such household is
located.
(B) Other income verification methods. Paystubs, Federal or State
tax returns, or income verification through crediting agencies and
commercial data sources can be used to establish that a household is a
Qualifying Household.
(C) Impermissible verification method. A self-attestation from a
household is not a permissible method to establish a household is a
Qualifying Household. This prohibition on direct self-attestation from
a household does not extend to categorical eligibility for needs-based
Federal, State, Tribal, or utility programs with income limits that
rely on self-attestation for verification of income.
(g) Annual Capacity Limitation--(1) In general. Under section
48E(h)(4)(C), the total annual Capacity Limitation is 1.8 gigawatts of
DC capacity for each calendar year of the Program. The annual Capacity
Limitation for each Program year is divided across the four facility
categories described in section 48E(h)(2)(A)(iii) and paragraph (b)(2)
of this section as provided in guidance published in the Internal
Revenue Bulletin. The Capacity Limitation for each Program year is
divided across the four facility categories based on factors such as
the anticipated number of applications that are expected for each
category and the amount of Capacity Limitation that needs to be
reserved for each category to encourage market participation in each
category consistent with statutory intent and the goals of the Program.
After the Capacity Limitation for each facility category is established
in guidance published in the Internal Revenue Bulletin, it may be
reallocated later across facility categories and sub-reservation in the
event one category or sub-reservation is oversubscribed and another has
excess capacity. A facility category or sub-reservation is
oversubscribed if it receives qualified applications in excess of
Capacity Limitation reserved for the facility category or sub-
reservation.
(2) Carryover of unallocated Annual Capacity Limitation. If the
Annual Capacity Limitation for any calendar year exceeds the aggregate
amount of Annual Capacity Limitation allocated for a calendar year
under paragraph (g)(1) of this section, the Annual Capacity Limitation
for the succeeding calendar year will be increased by the amount of
such excess. No amount of Capacity Limitation may be carried to any
calendar year after the third calendar year following the applicable
year (as defined in section 45Y(d)(3) of the Code).
(h) Reservations of Capacity Limitation allocation for facilities
that meet certain Additional Selection Criteria--(1) In general. At
least 50 percent of the total Capacity Limitation in each facility
category described in paragraph (b) of this section will be reserved
for qualified facilities meeting the Additional Selection Criteria
described in paragraph (h)(2) of this section (relating to ownership
criteria) and paragraph (h)(3) of this section (relating to geographic
criteria) as provided in guidance published in the Internal Revenue
Bulletin. Future guidance published in the Internal Revenue Bulletin
will provide the amounts reserved for each Program year. The procedure
for using these Additional Selection Criteria is provided in guidance
published in the Internal Revenue Bulletin. After the reservation of
Capacity Limitation for qualified facilities meeting the Additional
Selection Criteria described
[[Page 71212]]
in paragraphs (h)(2) and (3) of this section is established in guidance
published in the Internal Revenue Bulletin, it may be reallocated later
across facility categories and sub-reservations in the event one
category or sub-reservation within a category is oversubscribed and
another has excess capacity.
(2) Ownership criteria--(i) In general. The ownership criteria are
based on characteristics of the applicant that owns the applicable
facility. An applicable facility will meet the ownership criteria if it
is owned by one of the following:
(A) A Tribal enterprise (as defined in paragraph (h)(2)(iii) of
this section);
(B) An Alaska Native Corporation (as defined in paragraph
(h)(2)(iv) of this section);
(C) A Native Hawaiian Organization (as defined in paragraph
(h)(2)(v) of this section);
(D) A renewable energy cooperative (as defined in paragraph
(h)(2)(vi) of this section); or
(E) A qualified tax-exempt entity (as defined in paragraph
(h)(2)(vii) of this section).
(ii) Indirect ownership--(A) Disregarded entities. If an applicant
wholly owns an entity that is the owner of an applicable facility, and
the entity is disregarded as separate from its owner for Federal income
tax purposes (disregarded entity), then the applicant, and not the
disregarded entity, is treated as the owner of the applicable facility
for purposes of the ownership criteria.
(B) Partner qualifying partnership under ownership criteria. If an
applicant is an entity treated as a partnership for Federal income tax
purposes, and an entity described in paragraphs (h)(2)(i)(A) through
(E) of this section owns at least a one percent interest (either
directly or indirectly) in each material item of partnership income,
gain, loss, deduction, and credit and is a managing member or general
partner (or similar title) under State or Tribal law of the partnership
(or directly owns 100 percent of the equity interests in the managing
member or general partner) at all times during the existence of the
partnership, the applicable facility will be deemed to meet the
ownership criteria. If the partnership becomes the owner of the
facility after an allocation is made to an entity described in
paragraphs (h)(2)(i)(A) through (E) of this section, then the transfer
of the facility to the partnership is not a disqualification event for
purposes of paragraph (m)(5) of this section, so long as the
requirements of paragraph (m)(5) of this section are satisfied. The
original applicant and the successor partnership should refer to
guidance published in the Internal Revenue Bulletin for the procedures
to request a transfer of the Capacity Limitation allocation to the
successor partnership.
(iii) Tribal enterprise. A Tribal enterprise for purposes of the
ownership criteria is an entity that is:
(A) Owned at least 51 percent directly by an Indian Tribal
government (as defined in section 30D(g)(9) of the Code), or owned at
least 51 percent indirectly through a corporation that is wholly owned
by the Indian Tribal government and is created under either the Tribal
laws of the Indian Tribal government or through a corporation
incorporated under the authority of either section 17 of the Indian
Reorganization Act of 1934, 25 U.S.C. 5124, or section 3 of the
Oklahoma Indian Welfare Act, 25 U.S.C. 5203; and
(B) Subject to Tribal government rules, regulations, and/or codes
that regulate the operations of the entity.
(iv) 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).
(v) Native Hawaiian Organization. A Native Hawaiian Organization
for purposes of the ownership criteria is defined in 13 CFR 124.3.
(vi) Renewable energy cooperative. A renewable energy cooperative
for purposes of the ownership criteria is an entity that develops
applicable facilities and is either:
(A) A consumer or purchasing cooperative controlled by its members
with each member having an equal voting right and with each member
having rights to profit distributions based on patronage as defined by
proportion of volume of electricity or energy credits purchased (kWh),
volume of financial benefits delivered ($), or volume of financial
payments made ($); and in which at least 50 percent of the patronage in
the qualified facility is by cooperative members who are low-income
households (as defined in section 48E(h)(2)(C)); or
(B) A worker cooperative controlled by its worker-members with each
member having an equal voting right.
(vii) Qualified tax-exempt entity. A qualified tax-exempt entity
for purposes of the ownership criteria is:
(A) An organization exempt from the tax imposed by subtitle A by
reason of being described in section 501(c)(3) or section 501(d) of the
Code;
(B) Any State, the District of Columbia, or political subdivision
thereof, or any agency or instrumentality of any of the foregoing;
(C) An Indian Tribal government (as defined in section 30D(g)(9)),
a political subdivision thereof, or any agency or instrumentality of
any of the foregoing; or
(D) Any corporation described in section 501(c)(12) operating on a
cooperative basis that is engaged in furnishing electric energy to
persons in rural areas.
(3) Geographic criteria--(i) In general. Geographic criteria do not
apply to Category 2 facilities. To meet the geographic criteria, a
facility must be located in a county or census tract that is described
in paragraph (h)(3)(ii) or (iii) of this section. 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.
(ii) Persistent Poverty County. A Persistent Poverty County (PPC),
which is, generally, described as any county in which 20 percent or
more of residents have experienced high rates of poverty over the past
30 years. For purposes of the Program, the PPC measure adopted by the
USDA is used to make this determination. If updated data is released by
USDA, a taxpayer will have a 1-year period following the date of the
release of the updated data to be eligible under the previous data.
After the 1-year transition period, the updated data must be used to
determine eligibility.
(iii) Certain census tracts under Climate and Economic Justice
Screening Tool. A census tract that is described in the latest official
Climate and Economic Justice Screening Tool (CEJST), as greater than or
equal to the 90th percentile for energy burden and greater than or
equal to the 65th percentile for low income, or as greater than or
equal to the 90th percentile for PM<INF>2.5</INF> exposure and greater
than or equal to the 65th percentile for low income.
(A) Energy burden. Energy burden is defined as average household
annual energy cost in dollars divided by the average household income.
(B) PM<INF>2.5</INF>. 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.
(C) Low-income. Low income, for purposes of this section, is
defined as the percent of a census tract's population in households for
which household income is at or below 200 percent of the Federal
poverty level, not including students enrolled in higher education.
(i) Sub-reservations of allocation for Category 1 facilities--(1)
In general.
[[Page 71213]]
Capacity Limitation reserved for Category 1 facilities will be
subdivided each Program year for facilities seeking a Category 1
allocation with Capacity Limitation reserved specifically for eligible
residential behind the meter (BTM) facilities, including rooftop solar.
The remaining Capacity Limitation is available for applicants with
front of the meter (FTM) facilities as well as non-residential BTM
facilities. The specific sub-reservation for eligible residential BTM
facilities in Category 1 is provided in guidance published in the
Internal Revenue Bulletin and is established based on factors such as
promoting efficient allocation of Capacity Limitation and allowing
like-projects to compete for an allocation. After the sub-reservation
is established in guidance published in the Internal Revenue Bulletin,
it may be reallocated later in the event it has excess capacity.
(2) Definitions--(i) Behind the meter (BTM) facility. For purposes
of the Program, an applicable facility is BTM if:
(A) It is connected with an electrical connection between the
facility and the panelboard or sub-panelboard of the site where the
facility is located;
(B) 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
(C) 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.
(ii) Eligible residential BTM facility. For purposes of paragraph
(i)(1) of this section, an eligible residential BTM facility is defined
as a single-family or multi-family residential applicable facility that
does not meet the requirements for a Category 3 facility and is BTM. An
applicable facility is residential if it uses energy to generate
electricity for use in a dwelling unit that is used as a residence.
(iii) FTM facility. For purposes of the Program, an applicable
facility is FTM if it is directly connected to a grid and its primary
purpose is to provide electricity to one or more offsite locations via
such grid or utility meters with which it does not have an electrical
connection; alternatively, a FTM facility is defined as a facility that
is not a BTM facility. For the purpose of Category 4 facilities, an
applicable facility is also FTM if 50 percent or more of its
electricity generation on an annual basis is exported physically to the
broader electricity grid.
(j) Process of application evaluation--(1) In general. Applications
for a Capacity Limitation allocation will be evaluated according to the
procedures specified in guidance published in the Internal Revenue
Bulletin. If a facility category is oversubscribed, a lottery system
may be used to allocate Capacity Limitation to similarly situated
applicants.
(2) Information required as part of application. With each
application for a Capacity Limitation allocation, applicants are
required to submit information, documentation, and attestations to
demonstrate eligibility for an allocation and project viability as
specified in guidance published in the Internal Revenue Bulletin.
(3) No administrative appeal of Capacity Limitation allocation
decisions. An applicant may not administratively appeal decisions
regarding Capacity Limitation allocations.
(k) Placed in service--(1) Requirement to report date placed in
service. For any facility that receives an allocation of Capacity
Limitation, the owner of the facility must report to the DOE the date
the eligible property was placed in service. This report is made
through the same portal used to submit the original application for
allocation.
(2) Requirement to submit final eligibility information at placed
in service time. At the time that the owner reports that eligible
property has been placed in service, the owner also must confirm
information about the facility and submit additional documentation to
prove the facility is still eligible to maintain the allocation and the
increased applicable percentage under section 48E(h)(1) as specified in
guidance published in the Internal Revenue Bulletin.
(3) DOE confirmation. The DOE will review the placed in service
documentation and attestations to determine if the facility meets the
eligibility criteria for the owner to claim an increased applicable
percentage. The DOE then provides a recommendation to the IRS regarding
whether the facility continues to meet the eligibility requirements for
the facility to retain its allocation or if the facility should be
disqualified (as provided in paragraph (m) of this section). Based on
the DOE's recommendation and underlying facts and circumstances
analysis, the IRS will decide whether the facility should retain its
allocation or if the facility should be disqualified and will notify
the DOE of its decision. Each applicant must receive confirmation from
the IRS that the DOE has reviewed the placed in service submissions,
and that eligibility is confirmed, prior to the owner (or a partner or
shareholder in the case of a partnership or S corporation) claiming the
increased credit amount on Form 3468, Investment Credit (or Form 3800,
General Business Credit), or successor form, or, if eligible, making a
transfer election under section 6418 of the Code, or an elective
payment election under section 6417 of the Code.
(4) Definition of placed in service. For purposes of this section,
eligible property is considered placed in service in the earlier of the
following taxable years:
(i) The taxable year in which, under the taxpayer's depreciation
practice, the period for depreciation with respect to such eligible
property begins; or
(ii) The taxable year in which the eligible property is placed in a
condition or state of readiness and availability for a specifically
assigned function, whether in a trade or business or in the production
of income.
(l) Facilities placed in service prior to an allocation award--(1)
In general. Applicable facilities must be placed in service after being
awarded an allocation of Capacity Limitation.
(2) Rejection or rescission. An application for an applicable
facility that is placed in service prior to submission of the
application will be rejected. If a facility is placed in service after
the application is submitted, but prior to the allocation of Capacity
Limitation, and the facility is awarded an allocation, the allocation
will be rescinded.
(m) Disqualification. A facility will be disqualified and lose its
allocation if prior to or upon the facility being placed in service an
occurrence described in one of paragraphs (m)(1) through (5) of this
section takes place.
(1) The location where the facility will be placed in service
changes.
(2) The maximum net output of the facility increases such that it
exceeds the less than five megawatts AC requirement provided in section
48E(h)(2)(A)(ii) or the nameplate capacity 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 48E(h)(2)(B)(ii) and paragraph (e) of this section as
planned, if applicable, or cannot satisfy the financial benefits
requirements under section 48E(h)(2)(C) or paragraph (f) of this
section as planned, if applicable.
(4) The eligible property that is part of the facility that
received the Capacity Limitation allocation is not placed in
[[Page 71214]]
service within four years after the date the applicant was notified of
the allocation of Capacity Limitation to the facility.
(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, unless
the original applicant transfers the facility to an entity treated as a
partnership for Federal income tax purposes and retains at least a one
percent interest (either directly or indirectly) in each material item
of partnership income, gain, loss, deduction, and credit of such
partnership and is a managing member or general partner (or similar
title) under State or Tribal law of the partnership (or directly owns
100 percent of the equity interests in the managing member or general
partner) at all times during the existence of the partnership.
(n) Recapture of section 48E(h) Increase to the section 48E(a)
credit--(1) In general. Section 48E(h)(5) provides for recapturing the
benefit of any increase in the credit allowed under section 48E(a) by
reason of section 48E(h) with respect to any property that ceases to be
property eligible for such increase (but that does not cease to be
investment credit property within the meaning of section 50(a) of the
Code). Section 48E(h) provides that the period and percentage of such
recapture must be determined under rules similar to the rules of
section 50(a). Therefore, if, at any time during the five year
recapture period beginning on the date that an applicable facility
under section 48E(h) is placed in service, there is a recapture event
under paragraph (n)(3) of this section with respect to such property,
then the Federal income tax imposed on the taxpayer by chapter 1 of the
Code for the taxable year in which the recapture event occurs is
increased by the recapture percentage of the benefit of the increase in
the section 48E credit. The recapture percentage is determined
according to the table provided in section 50(a)(1)(B).
(2) Exception to application of recapture. 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 increase in the
credit allowed under section 48E(a), the eligibility of such property
for such increase pursuant to section 48E(h) is restored. Such
restoration of an increase pursuant to section 48E(h) is not available
more than once with respect to any facility.
(3) Recapture events. Any of the following circumstances result in
a recapture event if the property ceases to be eligible for the
increased credit under section 48E(h):
(i) Property described in section 48E(h)(2)(A)(iii)(II) fails to
provide financial benefits;
(ii) Property described under section 48E(h)(2)(B) ceases to
allocate the financial benefits equitably among the occupants of the
dwelling units, such as not allocating to residents the required net
electricity savings of the electricity, as required by paragraph (e) of
this section;
(iii) Property described under section 48E(h)(2)(C) ceases to
provide at least 50 percent of the financial benefits of the
electricity produced to qualifying households as described under
section 48E(h)(2)(C)(i) or (ii), or fails to provide those households
the required minimum 30 percent bill credit discount rate, as required
by paragraph (f) of this section;
(iv) For property described under section 48E(h)(2)(B), the
residential rental building the facility is a part of ceases to
participate in a covered housing program or any other affordable
housing program described in section 48E(h)(2)(B)(i), as applicable; or
(v) A facility increases its maximum net output or nameplate
capacity such that the facility's maximum net output or nameplate
capacity is 5 MW AC or greater.
(4) Section 50(a) recapture. Any event that results in recapture
under section 50(a) also will result in recapture of the benefit of the
increase in the section 48E credit by reason of section 48E(h). The
exception to the application of recapture provided in paragraph (n)(2)
of this section does not apply in the case of a recapture event under
section 50(a).
(o) Applicability date. This section applies to qualified
facilities placed in service after December 31, 2024, and during a
taxable year ending after [the date the final regulations are filed for
public inspection by the Office of the Federal Register].
Douglas W. O'Donnell,
Deputy Commissioner.
[FR Doc. 2024-19617 Filed 8-30-24; 8:45 am]
BILLING CODE 4830-01-P
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</html>Indexed from Federal Register on September 3, 2024.
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.