IRS Provides Guidance on Domestic Content Requirements for Applicable Entities

The IRS issued Notice 2024-9 on December 28, 2023, providing guidance for applicable entities to satisfy the domestic content requirements enacted under the Inflation Reduction Act. Notice 2024-9 also requests additional comments for proposed upcoming regulations related to the domestic content requirements, due by February 26, 2024.


Under the Inflation Reduction Act, the new Internal Revenue Code (IRC) Section 6417 established a mechanism for applicable entities to make an elective payment election to have certain tax credits be refundable.

The Inflation Reduction Act also created a credit enhancement or bonus for certain clean energy projects that meet domestic content requirements.

Alternatively, for projects beginning construction on or after January 1, 2024, applicable entities claiming credits under the following may have the tax credit reduced if domestic content requirements aren’t met:

  • IRC Section 45, Renewable Electricity Production Tax Credit
  • IRC Section 45Y, Clean Energy Production Tax Credit
  • IRC Section 48, Energy Investment Tax Credit
  • IRC Section 48E, Clean Energy Investment Tax Credit

The IRS refers to this as the statutory elective payment or refundability phaseout. 

Applicable entities subject to the statutory elective payment phaseout generally include:

  • Tax-exempt organizations
  • US state, District of Columbia, US territory, or political subdivision thereof
  • Tennessee Valley Authority
  • Indian Tribal governments
  • Alaska Native corporations
  • Rural electrical cooperatives

The Statutory Elective Payment Phaseout

Under IRC Section 45(b)(10)(A), the credit percentage determined by an applicable entity making an election under IRC Section 6417 is the value of the credit multiplied by the applicable percentage.

For projects that satisfy either the domestic content credit enhancement or have a net output of less than 1 megawatt alternating current, the applicable percentage is 100%.

For projects that begin construction on or after January 1, 2024, and don’t meet either of the above requirements, the applicable percentage is 90%.

Additionally, IRC Section 45Y, which replaces IRC Section 45 in 2025, further reduces the applicable percentage for projects not meeting those requirements to 85% if construction begins on or after January 1, 2025, and 0% if construction begins on or after January 1, 2026.

However, IRC Section 45(b)(10)(D) does provide two exemptions to the reduced applicable percentage.

  • The increased cost exemption. If meeting the domestic content requirements increases the project's overall construction costs by more than 25%.
  • The non-availability exemption. If the relevant steel, iron, or manufactured products aren’t produced in the United States in sufficient and reasonably available quantities or of satisfactory quality.

If either exemption applies, the applicable percentage is 100%.

The statutory elective payment phaseout under IRC Section 45 is also incorporated into IRC Sections 45Y, 48, and 48E.

Claiming an Exemption to Statutory Elective Payment Election

Notice 2024-9 sets forth the method for applicable entities to claim an exemption to the phaseout from the statutory elective payment election for projects that begin construction before January 1, 2025. Future proposed regulations will apply for projects that begin construction on or after January 1, 2025.

Applicable entities can claim an exemption from the phaseout by attaching an attestation to the relevant tax form claiming the credit. The attestation must:

  • Be signed by an individual with the power to bind the applicable entity
  • Be made under the penalties of perjury
  • Set forth that the entity has reviewed the requirements for each exemption and has made a good faith determination that one or both exemptions apply

Applicable entities must also meet general record-keeping requirements under IRC Section 6001 to substantiate their attestation.

Request for Comments

The IRS has also requested comments related to the statutory elective payment phaseout, including factors considered with respect to the increased cost and non-availability exemptions, along with other considerations that might reduce the burden imposed by the statutory elective payment phaseout.

Comments received will help develop future proposed regulations for projects that begin construction after January 1, 2025. Comments are due by February 26, 2024.

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