The IRS previously provided Notice 2023-29, which provided initial guidance on how projects can qualify for the energy community bonus credit. The IRS more recently published Notices 2023-45 and 2023-47 on June 15, 2023 and released an FAQ for energy communities. These notices clarify the guidance contained in Notice 2023-29 and provide updated appendixes that identify the energy communities which meet the statistical area or coal closure category requirements.
The Inflation Reduction Act provides for bonus credit amounts of 10% for certain clean energy related production tax credits generated in energy communities under Internal Revenue Code (IRC) Sections 45 and 45Y. For certain clean energy investment tax credits generated when projects are located in energy communities, under IRC Sections 48 and 48E the energy community bonus is 2% if prevailing wage and apprenticeship requirements aren’t met, and 10% if they are.
Notice 2023-29 initially described Notices 2023-45 and 2023-47, and further clarify certain rules the IRS and US Department of Treasury intend to include in forthcoming proposed regulations for determining what constitutes an energy community based on meeting one of three categories:
- Statistical area
- Coal closure
Notice 2023-29 previously provided that projects with a nameplate capacity no greater than 5 megawatts (MW) of alternating current would qualify for the brownfield category if an American Society for Testing and Materials E1527 Phase I Environmental Site Assessment (ESA) had been completed with respect to the site.
Notice 2023-45 updates this guidance to clarify that projects with a nameplate capacity no greater than 5 MW would qualify if a phase I ESA identifies the presence or potential presence of a hazardous substance as defined under 42 United States Code (USC) Section 9601(14), or a pollutant or contaminant as defined under 42 USC Section 9601(33).
To qualify for the energy community bonus based on the statistical area category, a project must be in a metropolitan statistical area (MSA) or non-MSA that meets the requirements of one of the following:
- Has—or had since December 31, 2009—0.17% or greater direct fossil fuel employment, or
- Has—or had since December 31, 2009—25% or greater local fossil fuel tax revenues related to the extraction, processing, transport, or storage of coal, oil, or natural gas; and
- Has an unemployment rate at or above the national average for the previous year
Appendix B of Notice 2023-29 and Appendix 1 of Notice 2023-47 provide the list of communities meeting the fossil fuel employment threshold. This combined list is applicable for the period beginning January 1, 2023, until an updated list is released next year.
Appendix 2 to Notice 2023-47 provides a list of the MSAs and non-MSAs that qualify as energy communities because they meet both the fossil fuel employment threshold and have an unemployment rate at or above the national average for calendar year 2022. The energy community status for these communities is effective as of January 1, 2023, and will continue until the list is updated for the 2023 unemployment rates.
Census tracts, or adjoining census tracts, where a coal mine closed after December 31, 1999, or a coal-fired electric generating unit has been retired after December 31, 2009, qualify.
Appendix 3 of Notice 2023-47 provides an updated list of census tracts and adjoining census tracts that meet the coal closure category since the previous notice was issued. This along with Appendix C to Notice 2023-29 provide a full list of communities qualifying for the bonus credit under the coal closure category.
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If you have additional questions about the energy community bonus credit, contact your Moss Adams professional.