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IRS Issues Proposed Rule to Implement Section 48 Energy Tax Credit with Additional Clarifications Regarding Recapture and Transferability of the Tax Credit

The Internal Revenue Service (IRS) published a proposed rule to implement the Inflation Reduction Act’s (IRA) section 48 “Energy Tax Credit” by providing definitions of qualifying energy properties under the Internal Revenue Code (IRC) for builders, developers, and owners of clean energy facilities (collectively, taxpayers). The proposed rule also withdraws and reproposes “for additional clarity” discrete portions of the IRS’s August 30, 2023 proposed rule regarding recapture of the increased energy credit amount available if prevailing wage and registered apprenticeship requirements are not satisfied. Moreover, the proposed rule provides additional regulatory details related to the transfer of section 48 credits under section 6418 of the IRC to supplement the IRS’s June 21, 2023 proposed rule.

Under this proposed rule, the IRS would expand upon the definitions of energy property provided in existing regulations to account for new technologies that were added by amendments to section 48, including section 13102 of the IRA. For purposes of the section 48 credit, “energy property” includes: (1) electrochromic glass properties and fiber-optic solar energy properties; (2) solar energy properties; (3) combined heat and power system properties; (4) geothermal heat pump equipment; (5) geothermal energy properties; (6) qualified fuel cell properties; (7) qualified microturbine properties; (8) qualified biogas properties; (9) qualified small wind energy properties; (10) waste energy recovery properties; (11) energy storage technologies; and (12) microgrid controllers.

In addition, the proposed rule also clarifies that the five-year recapture period for the increased energy credit amount available for meeting prevailing wage and apprenticeship (PWA) requirements would begin on the day an energy project is placed in service and end on the day that is five full years after the placed-in-service date. The recapture amount would be determined consistent with the percentages set forth in section 50(a) based on the year in which the “section 48 recapture event” (i.e., failure to satisfy the section 48 PWA requirements) occurred. Accordingly, the proposed rule would establish recapture percentages of section 48 credits as follows: (1) if the PWA requirement violation occurs within one year, the recapture percentage would be 100%; (2) if the PWA requirement violation occurs within two years, the recapture percentage would be 80%; (3) if the PWA requirement violation occurs within three years, the recapture percentage would be 60%; (4) if the PWA requirement violation occurs within four years, the recapture percentage would be 40%; and (5) if the PWA requirement violation occurs within five years, the recapture percentage would be 20%.

Finally, the proposed rule amends the IRS’s June 2023 proposed rule by establishing that if, during any taxable year, there is a recapture under section 48(a)(10)(C) of the IRC before the close of the recapture period, the taxpayer and the transferee taxpayer must follow the notification process established in the June 2023 Rule. Under this process, the taxpayer must provide notice of the section 48 recapture event to the transferee taxpayer. The notice must: (1) provide all information necessary for a transferee to correctly compute the recapture amount; and (2) be provided in “sufficient time” to allow the transferee to compute the recapture amount by the due date of the transferee’s tax return for the taxable year in which the recapture event occurs (without extensions). The proposed rule would establish that the transferee taxpayer is responsible for any amount of tax increase if a section 48 recapture event occurs.

Comments on the proposed rule are due by January 22, 2024 and should be submitted here using Docket ID REG-132568-17.

The IRS will host a public hearing in connection with the proposed rule on February 20, 2024 at 10am ET. Requests to attend the public hearing must be received by 5pm ET on February 15, 2024 and should be submitted by email to

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