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IRS Releases Initial Guidance Regarding the Domestic Content Bonus Credit For Green Energy Projects under the Inflation Reduction Act

The Treasury Department and the Internal Revenue Service have issued Notice 2023-38, “Domestic Content Bonus Credit Guidance under Sections 45, 45Y, 48, and 48E,” for green energy projects. The Inflation Reduction Act of 2022 (IRA) amended sections 45 (Renewable Energy Production Credit) and 48 (Energy Credit) of the Internal Revenue Code to provide a domestic content bonus credit for certain qualified facilities or energy projects (like small irrigation power facilities and facilities that use small wind turbines to generate electricity) placed into service after December 31, 2022. The IRA also added new sections 45Y (Clean Energy Production Credit) and 48E (Clean Electricity Investment Credit), which include a domestic content bonus credit amount for certain investments in qualified facilities or energy storage technologies (like electricity generation facilities) placed in service after December 31, 2024. For purposes of Notice 2023-38, “domestic content” is generally defined as steel, iron, or manufactured products that are manufactured or produced in the United States.

Notice 2023-38 outlines requirements that the IRS intends to include in a forthcoming proposed rule regarding the domestic content bonus credit requirements and related recordkeeping and certification requirements. The guidance also describes a safe harbor regarding the classification of certain components in representative types of qualified facilities, energy projects, or energy storage technologies (e.g., utility-scale photovoltaic systems and land-based wind facilities). The IRS notes that the forthcoming proposed rule is intended to apply to taxable years ending after May 12, 2023. The agency adds that taxpayers may rely on this initial guidance with respect to qualified facilities, energy projects, or energy storage technologies, the construction of which begins before the date that is 90 days after the forthcoming rule is published in the Federal Register.

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