The IRS published final regulations for the low-income bonus credit program under the Inflation Reduction Act on August 15, 2023, and Revenue Procedure 2023-27 on August 10, 2023, which details how to apply for the program.
The regulations and revenue procedure incorporate and expand on earlier guidance and proposed regulations. The Department of Energy (DOE) will publicly announce the application dates for 2023 and expects to receive upwards of 100,000 applications annually. The DOE will then review and recommend to the IRS whether to award an applicant an amount of the capacity limitation for each category.
Final Definitions and Requirements
The final definitions and requirements remain largely unchanged from the previous proposed regulations, with a few notable changes or clarifications outlined below.
Qualified Solar and Wind Facility Categories
Internal Revenue Code (IRC) Section 48(e) defines four categories of qualified solar and wind facilities. The final regulations clarify how each category is defined.
Category 1: Located in a Low-Income Community
Category 1 facilities are located within low-income communities as defined in IRC Section 45D(e). The final regulations clarify that the 2011-2015 American Community Survey low-income community data (ACS Data) for the New Markets Tax Credit will be used to determine the poverty rate for a given census tract.
When updated ACS Data is released, taxpayers can continue to rely on the 2011-2015 ACS Data for one year following the release of the updated data. Thereafter, the newly released ACS Data must be used. Unless the location of the facility changes, census tracts that satisfy the definition of low-income community at the time of application are considered to meet the definition for the recapture period.
Category 2: Located on Indian Land
Category 2 facilities are located on Indian land. The final regulations leave the definition of Indian land unchanged so that projects must be located on trust land, within the boundaries of a reservation, or land otherwise included within the definition of Indian land as defined in Section 2601(2) of the Energy Policy Act of 1992 (25 US Code 3501(2)).
Category 3: Financial Benefits for Qualified Low-Income Residential Building Projects
Category 3 facilities must be installed on and provide financial benefits to qualified low-income residential building projects. In response to comments received, the final regulations clarified that a facility is installed on a qualified low-income residential building if it is located on the same or an adjacent parcel of land. Treasury and the IRS also developed an illustrative list of federal housing programs that meet the requirements of a qualified residential building.
Category 4: Financial Benefits for Low-Income Economic Benefit Projects
Category 4 facilities must provide benefit to a low-income community. The final regulations provide flexibility in qualifying households for Category 4 eligibility, including categorical eligibility based on a household’s participation in a needs-based federal, state, Tribal, or utility program.
The final rules adopt the previously announced allocation of the 1.8 gigawatts of total annual capacity limitation for 2023.
The final regulations adopt the previously proposed selection criteria, which include an initial application window followed by a rolling application process if capacity remains. Facilities that meet at least one of the two categories of additional selection criteria with respect to ownership and geographic criteria would receive priority for an allocation within each category.
Although the final regulations don’t change the categories of ownership criteria that meet the additional selection criteria, the final regulations allow for partnership arrangements typically seen in tax-equity structures.
The final regulations largely adopt the proposed rules outlining the geographic criteria of persistent poverty counties or disadvantaged census tracts. One modification is that the final regulations removed the geographic criteria as additional selection criteria for Category 2 facilities, which are located on Indian land.
Rev. Proc. 2023-27 provides the specific application requirements for 2023.
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