Overview
On May 31, 2023, the Department of Treasury (Treasury) and Internal Revenue Service (IRS) released proposed rules that set forth application and eligibility criteria for the low-income communities bonus credit investment program (Low-Income Communities Bonus Credit Program or Program), which increases the amount of the Investment Tax Credit (ITC) under Code Section 48(a) as authorized under the Inflation Reduction Act of 2022 (IRA) for certain small wind, solar, and energy storage technology installed in connection with those facilities. These proposed rules provide important proposed clarifications to how the application process will function and what facilities will be eligible for the Program. The intent is for the proposed rules, once finalized, to apply to applicants for the 2023 capacity allocation and to inform future allocation years, including pursuant to Code Section 48E(h).
Overview of the Low-Income Communities Bonus Credit Program
Category Number | Title | Capacity Allocation | Bonus Credit Value | Short Definition |
Category 1 | Located in a Low-Income Community | 700 MW | 10% | The facility must be in a low-income community as defined by certain census tract income metrics. |
Category 2 | Located on Indian Land | 200 MW | 10% | The facility must be located on federally recognized Indian land. |
Category 3 | Qualified Low-Income Residential Building Project | 200 MW | 20% | The facility must be installed on a residential rental building that participates in an affordable housing program, as defined in the Violence Against Women Act of 1994, Housing Act of 1949, Native American Housing Assistance and Self-Determination Act of 1996, and other affordable housing determined by the Secretary, and the "financial benefits" of the electricity produced by such a facility are allocated equitably among the occupants of the dwelling units of such building. |
Category 4 | Qualified Low-Income Economic Benefit Project | 700 MW | 20% | Taxpayer must ensure that at least 50% of the “financial benefits” of the electricity produced by the eligible facility are provided to households with income of less than 200% of the poverty line applicable to a family of the size involved, or less than 80% of area median gross income. |
Summary of the Proposed Rule
The proposed rules supplement the guidance provided in Notice 2023-17 to outline the specific application procedures, additional allocation criteria, and applicable definitions, among other information required to submit an application to request an allocation of the capacity limitation (Capacity Limitation) in 2023 across the four Categories. The guidance indicates that Treasury and IRS expect to issue final rules for the 2023 application cycle via regulations later this year and seeks comments regarding the proposed rules, which must be submitted by June 30, 2023. Comments can be submitted on the Regulations.gov portal at this link.
The proposed rules do the following:
Key Takeaways
For more information, please contact Nicole Gambino, Nic Gladd, Jaron Goddard, Brandon King, Hershel Wein, or any member of the firm’s energy and climate solutions practice.