IRS issues new guidance for energy community bonus credit

The Department of the Treasury (Treasury) and the IRS issued Notice 2024-48 on June 7, 2024 to help taxpayers determine whether energy projects and facilities qualify for the energy community bonus tax credit. The notice provides information that can be used to determine whether a taxpayer meets the requirements for the Statistical Area Category or Coal Closure Category as described in Notice 2023-29.

Appendix 1 identifies a MSA (Metropolitan Statistical Area) or non-MSA that satisfies the Fossil Fuel Employment threshold and the unemployment rate threshold for properties placed in service on or after June 7, 2024.  Appendix 2 lists newly identified census tracts for the Coal Closure Category, including significant additions in Illinois and Pennsylvania. 

Energy communities: An overview

The Inflation Reduction Act (IRA) amended sections 45 and 48 to provide increased, or bonus, credit amounts if certain energy projects are located in or placed in service within an energy community. The IRA also added new sections 45Y and 48E, which allow for bonus credit rates for certain qualified facilities, energy projects or energy storage technologies that comply with similar requirements and are placed in service after Dec. 31, 2024.

The energy community bonus credit is a 10% or 10 percentage point increase to one of those four credits.  If certain prevailing wage and apprenticeship requirements (PWA) are not met, the energy community bonus credit is reduced to a 2-percentage point credit increase for the section 48 and 48E credits. See RSM’s prior alert on the PWA requirements.

Three categories of energy communities

There are three location-based categories that qualify as energy communities for purposes of sections 45, 45Y, 48 and 48E:

• Brownfield Category
• Statistical Area Category
• Coal Closure Category

Energy community bonus credit: guidance summary

RSM US has covered previous guidance provided by Treasury and the IRS on the energy communities bonus credit. Below is a table that summarizes the previously issued guidance for the bonus credit: 

Notice 2024-48

Notice 2024-48 provides an updated appendix (Appendix 1) for the Statistical Area Category, related to MSA or non-MSA areas that meet the Fossil Fuel Employment threshold as well as the unemployment rate threshold for calendar year 2023. Appendix 1 applies to properties placed in service on or after June 7, 2024.

Properties placed in service between Dec. 31, 2022 and June 6, 2024, should rely on Appendix 2 to IRS Notice 2023-47 and Appendix 2 to Notice 2024-30 to determine MSA or non-MSAs that meet the Fossil Fuel Employment threshold and the unemployment rate threshold.

The new notice also provides an appendix (Appendix 2) that lists newly identified census tracts for the Coal Closure Category. Appendix 2 should be combined with Appendix C to Notice 2023-29 and Appendix 3 to Notice 2023-47 to provide the full list of coal closure census tracts for all properties regardless of the placed in service date.

The notice does not include information for the Brownfield Category of Notice 2023-29.

Washington National Tax takeways

Notice 2024-48 reiterated that Treasury and the IRS intend to propose regulations that would apply to taxable years ending after April 4, 2023. Until such proposed regulations are issued, taxpayers may continue to rely on the rules described in sections 3 through 6 of Notice 2023-29.

Over time, the lists of areas eligible for the energy community bonus credit will change. Taxpayers planning energy projects and facilities should work with a tax advisor to understand how these changes may impact their potential credit rate. The IRS has communicated it expects to release annual information on the Statistical Area Category and the Coal Closure Category in May of each year.

For further information, please consult with your RSM US tax advisor.