On October 5, 2022, the Treasury Department and the IRS issued notices requesting comments on different aspects of the energy tax benefits in the Inflation Reduction Act (“IRA”). All comments are due by Friday, November 4, either electronically on www.regulations.gov or alternatively by mail to the IRS. Written comments submitted after that date will be considered as long as such consideration will not delay the issuance of guidance.
In each case, the Notices focus on a subset of the IRA expanded and enhanced existing consumer and business energy tax credits and the new credits, including tech-neutral production and investment tax credits, a clean hydrogen production credit, a nuclear power production tax credit, and credits for producing necessary components for clean energy production, among others. The Notices solicit general comments, but also focus on specific definitional and operational issues. The requests emanate from, among other things, the new domestic production and sourcing requirements in the IRA, including requirements for sourcing critical minerals for the manufacturing of electric vehicles and for constructing certain qualified facilities using materials produced in the United States. Requests also arise in reference to the new two-tiered credit structure, where, for many of these credits, taxpayers are eligible for a higher credit (typically five times the base amount) if they meet certain wage and apprenticeship requirements. And one Notice focuses on the new direct pay or transferability feature for some credits, which essentially results in a cash payment to the taxpayer regardless of whether they have any tax liability in the year in which the credit is claimed.
The IRA sets very short deadlines for Treasury to provide guidance to taxpayers. As a result, as specified in the Notices, stakeholders have a limited time to weigh in. The notices issued today request comments by the November deadline both for credits with regulations due by the end of the year (like the EV tax credit) and for those with regulations due in later years (like the tech neutral ITC and PTC). In addition to soliciting general comments, each Notice raises specific questions, a small portion of which are highlighted in the summaries below.
- Notice 2022-46 requests comments on credits for clean vehicles under § 30D. Notice 2022-46 asks stakeholders to answer a number of specific questions related to:
- What factors and definitions should be considered to determine the place of extraction or processing of critical minerals and the value of those minerals;
- How the guidance should define the components of a battery and determine the place of manufacture or assembly of battery components and the value of those components;
- Whether guidance is needed to clarify the definition of “foreign entity of concern” and to the extent available, whether there is any existing regulatory or guidance frameworks for tracking whether manufactures are in compliance with the foreign entity of concern rules; and
- Whether guidance is needed on the definition of “acquired,” “use,” and “lease.”
- Notice 2022-47 requests comments on energy security tax credits for manufacturing under § 48C and 45X. Notice 2022-47 asks stakeholders to comment on:
- Whether additional clarification is needed regarding the definition of “eligible component” in § 45X(c);
- How the phrase “integrated, incorporated, or assembled” should be determined when an eligible component is integrated, incorporated, or assembled into another component;
- What the Treasury Department and the IRS should consider in determining the selection criteria for awarding the qualifying advanced energy project credit; and
- Other important questions about how determinations will be made about whether certain components are manufactured for a qualifying purpose.
- Notice 2022-48 requests comments on incentive provisions for improving the energy efficiency of residential and commercial buildings under §§ 25C, 25D, 45L, and 179D. Notice 2022-48 asks numerous definitional questions, including:
- What criteria and technologies the government should consider in developing guidance addressing the determination of “energy use intensity” for purposes of energy efficiency commercial buildings deduction; and
- Whether guidance is needed regarding the definition of specific terms used in these sections, including “qualified retrofit plan” and “qualified battery storage technology expenditure.”
- Notice 2022-49 requests for comments on certain energy generation incentives, such as investment credits and production credits under §§ 45, 45U, 45Y, 48, and 48E. Some of the comments the government seeks in Notice 2022-49 include:
- What existing industry standards should the government consider in establishing guidelines and determining a taxpayer’s credit eligibility;
- Whether an investment credit facility claiming the investment tax credit must satisfy all requirements for the production tax credit, such as the requirement that electricity generated be sold to an unrelated person;
- Whether guidance is needed on definitions and what the government should consider (such as types of technologies) in determining these terms, such as “unrelated person,” “structure,” and “gross receipts”; and
- What guidance is needed in calculating a reduction in tax credits for tax-exempt bond financing.
- Notice 2022-50 requests comments on elective payment of applicable credits and transfer of certain credits under §§ 6417 and 6418. Notice 2022-50 requests comments from taxpayers on a number of questions, including:
- Whether any guidance is needed on the terms used in these monetization sections, such as “applicable credit,” “excessive payments,” and “applicable entity”;
- What potential issues and factors that the government should consider when a partnership or an S corporation makes such an election;
- What types of structures may be entered into by applicable entities and taxpayers that have elected to be treated as applicable entities;
- Whether any documentation or registration should be required and what factors the government should consider to prevent improper payments or excessive payments and whether clarification is needed on the penalty provisions for excess payments; and
- Whether the direct pay election under the CHIPS and Science Act should operate similarly to the direct pay election under the IRA.
- Notice 2022-51 requests comments on prevailing wage, apprenticeship, domestic content, and energy communities requirements. Notice 2022-51 specifically asks for comments, including:
- What documentation or substantiation should be used to demonstrate compliance with the requirements for bonus credits and what information parties currently maintain and could create;
- Whether the Treasury Department and the IRS should consistently use the definitions provided under 48 C.F.R. § 661 for the domestic content requirement and what existing regulatory or guidance, such as the Federal Acquisition Regulation (FAR) and Build America Buy America (BABA) guidance, may be useful for developing guidance;
- Whether the definitions, such as “component of a qualified facility,” “manufacture product”, “end product,” and “total costs,” need clarification for the domestic content requirement; and
- Whether the treatment of subcomponents of manufactured products needs clarification.
 Specifically, the IRA requires Treasury to issue guidance for the EV credit under § 30D by December 31, 2022; the Qualifying Advanced Energy Project Credit under § 48C by February 12, 2023; the Clean Hydrogen Production Tax Credit under § 45V by August 16, 2023; and the tech neutral PTC and ITC (§ 45Y and § 48E) by January 1, 2025.