IRS requests comments on IRA’s energy tax benefits

| 11/17/2022
IRS requests comments on IRA’s energy tax benefits

On Oct. 5 and Nov. 3, the IRS issued notices requesting comments on various aspects of the energy tax benefits contained in the Inflation Reduction Act of 2022 (IRA). The IRS anticipates constructive comments from interested parties that will guide the IRS in its drafting of upcoming proposed regulations and other guidance related to these energy tax benefits. While the public will have an opportunity to comment further when future proposed regulations are published, the notices offer taxpayers and interested parties an early opportunity to provide input to inform the drafting of the proposed regulations and other guidance. Each of the notices covers a particular topic, contains a description of the relevant provisions, requests general comments, and requests specific comments addressing various questions posed by the IRS in the notices.

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Energy tax benefits under the IRA

The IRA added and amended several code sections that affect various consumer and business energy tax benefits, including credits related to manufacturing of clean energy components, generating energy, improving efficiency of commercial and residential buildings, and clean vehicles. The IRA also included provisions providing for the ability to treat certain credits as direct payments of tax instead of as credits and for the ability to transfer various energy-related credits. It also established an ability for taxpayers to qualify for increased credits by satisfying certain prevailing wage and apprenticeship requirements.

IRS notices

Following is an overview of the notices with a selection of some of the notices’ specific questions seeking comments:

  • Notice 2022-46 requests comments related to consumer vehicle credits under amended Section 30D and newly created Section 25E for new clean vehicles and previously owned clean vehicles, respectively.
  • Notice 2022-47 requests comments regarding the implementation of the Advanced Manufacturing Production Credit under newly created Section 45X and the Qualifying Advanced Energy Credit under Section 48C, including:
    • Section 45X provides credits for the production of eligible components produced and sold to unrelated persons. The notice seeks comments regarding the meaning of “unrelated person” as well as how other terms related to eligible components should be defined and the various operational aspects of the credit calculation.
    • The government is seeking input regarding defining the selection criteria for which the IRS awards credits under Section 48C as well as input on the general operation of the credit.
  • Notice 2022-48 requests comments regarding implementation of amended Sections 25C, 25D, 45L, and 179D and seeks to understand in which specific areas taxpayers need additional guidance. These sections of the code provide incentives for improving the energy efficiency of residential and commercial buildings.
  • Notice 2022-49 requests comments on various energy generation incentives including the Renewable Electricity Production Credit under Section 45, the Energy Investment Credit under Section 48, the Zero-Emission Nuclear Power Production Credit under Section 45U, the Clean Electricity Production Credit under Section 45Y, and the Clean Electricity Investment Credit under Section 48E, including:
    • Certain subsections under Sections 45 and 48 include reductions in credits for tax-exempt bond financing. The notice requests comments on additional guidance that would be helpful in calculating this reduction.
    • Which existing industry standards should be considered when issuing guidance related to taxpayers’ eligibility for the Sections 45 and 45Y credits.
    • Whether definitional guidance is needed in determining various terms in the new and amended code sections.
  • Notice 2022-50 requests comments related to newly created Sections 6417 and 6418. Section 6417 allows eligible applicable entities to elect to treat certain energy-related credits as direct payments as opposed to credits, while Section 6418 allows for the transferability of certain credits. The notice seeks comments including:
    • The potential issues and factors that the government should consider related to elections by partnerships and S corporations to treat certain credits as direct payments or to transfer credits for both provisions. The notice also seeks input regarding the general operation of the rules under Sections 6417 and 6418.
  • Notice 2022-51 requests comments related to the prevailing wage, apprenticeship, domestic content, and energy community requirements for increased or bonus credits under Sections 30C, 45, 45L, 45Q, 45U, 45V, 45Y, 45Z, 48, 48C, 48E, and 179D, including:
    • The type of documentation that should be required to substantiate taxpayer compliance with the prevailing wage and apprenticeship requirements to receive bonus credits.
    • Whether the definitions of various terms need to be further clarified in future guidance.
  • Notice 2022-56 requests comments related to the qualified commercial clean vehicle provisions and the alternative fuel vehicle refueling property under Sections 45W and 30C, including:
    • What factors should be considered when determining whether a vehicle is “comparable in size and use” for purposes of the definition of “comparable vehicle” in Section 45W(c).
    • Whether clarification is needed regarding the income limitations or manufacturer’s suggested retail price limitations that would apply for purposes of Section 45W.
    • How to clarify the various definitions in future guidance under Section 30C.
  • Notice 2022-57 requests comments related to the credit for carbon capture, including:
    • The types of existing and emerging technologies that might potentially meet the definition of a “direct air capture” facility and potential methods to determine and verify the amount of qualified carbon oxides captured by such facilities.
    • Whether the definitions of various terms and recordkeeping requirements need to be further clarified in future guidance.
    • How to calculate the Section 45Q credit reduction when tax-exempt bonds are used to finance the facility.
  • Notice 2022-58 requests comments related to the credits to produce clean hydrogen and clean fuel, including:
    • How to clarify the various definitions and recordkeeping requirements for purposes of the credit under Section 45V.
    • The interplay of requirements under Section 45V with certain requirements under Sections 45, 45Q, and 48.
    • Provisional emissions rates for purposes of Section 45Z.

Looking ahead

The deadline for submitting comments on the first release of notices was Nov. 4, 2022, but the IRS noted that comments received after the deadline still will be considered if they do not lead to the delay of the IRS issuing guidance. The second release of notices on Nov. 3 include a Dec. 3 date for comments. Comments may be submitted electronically via the Federal eRulemaking Portal or by mail. Taxpayers that might be eligible for any of the benefits under the new or amended code sections related to energy tax credits and that might be interested in providing comments to the IRS should consult with their tax advisers to determine the most appropriate course of action.

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