IRS announces Round 2 of Section 48C program

The IRS released Notice 2024-36 on April 29, 2024 to provide additional guidance and clarification on the allocation of credits under section 48C of the Internal Revenue Code for the qualifying advanced energy project credit program (i.e., the section 48C(e) program). The notice also announces the 2024 allocation round (Round 2) of the program. RSM US previously covered the program announcement and commencement of Round1.

Treasury issues additional guidance for qualifying advanced energy project credit allocation program

The Inflation Reduction Act of 2022 allowed the Department of the Treasury (Treasury) to allocate up to $10 billion dollars of credits for qualified investments in eligible qualifying advanced energy projects, including clean energy manufacturing and recycling, greenhouse gas emission reduction and critical material projects.

While Treasury and IRS may allocate $10 billion of section 48C credits in total, $4 billion may be allocated only to projects located in section 48C(e) Energy Communities Census Tracts (section 48C(e) energy communities). The qualifying advanced energy project credit under section 48C is an application-based credit program. The credit incentivizes taxpayers to make investments in energy projects by providing a credit of 30% of the qualifying investment, although the credit rate reduces to 6% if the prevailing wage and apprenticeship requirements are not met.

In early 2023, the IRS published initial guidance under Notice 2023-18 and Notice 2023-44 for the first allocation round of the section 48C(e) program (i.e., Round 1). The IRS released the allocations of Round 1 on March 29, 2024, allocating approximately $4 billion of section 48C credits, of which approximately $1.5 billion were for projects located in section 48C(e) energy communities.

For Round 2, Treasury and the IRS anticipate allocating the remaining $6 billion of section 48C credits, of which $2.5 billion would relate to projects located in section 48C(e) energy communities. After Round 2 is complete, Treasury and the IRS will evaluate if any section 48C credits remain unallocated and whether another allocation round is necessary.

Notice 2024-36 clarified that Round 2 will follow the same procedures as Round 1, as described within the previous notices mentioned above, except the appendices (A, B and C) of Notice 2024-36 supersede the respective appendices of Notice 2023-44. The appendices to the new notice provide key information, such as the definitions of qualifying advanced energy projects, an overview of the application process, and the list of census tracts that are section 48C(e) energy community census tracts.

Washington National Tax takeaways

Taxpayers should keep in mind that they are eligible to apply for a Round 2 credit allocation even if they applied and did not receive a credit allocation during Round 1. Applicants must first submit concept papers in order to be considered for an allocation of the section 48C credits in Round 2. Second, a full application must be submitted. Concept papers must be submitted through the Qualified Advanced Energy Project Credit Program Applicant Portal (48C Portal) on the Department of Energy’s website.

Notice 2024-36 also provides a timeline for Round 2. The 48C Portal will open to accept concept paper submissions no later than Tuesday, May 28, 2024. Taxpayers interested in submitting concept papers must do so within 30 calendar days after the 48C Portal opens. The IRS will make all Round 2 allocation decisions no later than Jan. 15, 2025.

Treasury and the IRS listed Round 2 priority areas in Notice 2024-36, Appendix B. A similar list of priority areas was published for Round 1 allocations. Round 1 included eight priority areas: clean hydrogen, electric grid, electric heat pumps, electric vehicles, nuclear energy, solar energy, sustainable aviation fuels and wind energy. Within each priority area, Treasury and the IRS described the specific project components the production or recycling of which were to be incentivized by Round 1 allocations. In Round 2, all eight categories return with minor revisions to the specific components the production or recycling of which were to be incentivized by Round 2 allocations. A ninth priority area was added to this list for Round 2: Energy-intensive materials that have a substantially lower carbon intensity when compared to an appropriate industry-specific benchmark.

The Department of Energy published a list of self-disclosed 48C program allocation recipients. The list provides information such as the organizations awarded the credit, the credit allocation amounts, and a description of the qualifying projects. Taxpayers interested in applying for allocations in Round 2 should review the list of Round 1 allocation recipients to compare and contrast their projects with those of other successful applicants.