On February 13, 2023, the Department of Treasury and the Internal Revenue Service released Notice 2023-17, providing a high-level overview of the program to be established under Section 48(e) of the Internal Revenue Code (the “Code”) related to the Low-Income Communities Bonus Credit Program (the “Program”).
Section 48(e) provides an investment tax credit adder of up to 20% for certain solar and wind facilities, including any energy storage technology installed in connection with such eligible facilities, that are placed in service in connection with low-income communities. The additional credit will operate through an application, allocation, and award process administered by the Department of Energy in coordination with the Internal Revenue Service.
The Notice provides a helpful summary of the four categories of communities in which an otherwise qualified solar and wind facility (i.e., a facility that has a maximum net output of less than 5 MW (AC) that generates electricity solely from a wind facility, solar energy property or small wind energy property) must be located to qualify for the Program. General information regarding the four categories may be found below.
|
Category # |
Type |
Code Section |
Credit Increase |
|
1 |
Low-Income Community |
48(e)(2)(A)(iii)(I) |
10% |
|
2 |
Indian land |
48(e)(2)(A)(iii)(I) |
10% |
|
3 |
Qualified low-income residential building project |
48(e)(2)(B) |
20% |
|
4 |
Qualified low-income economic benefit project |
48(e)(2)(C) |
20% |
The Notice does not provide detail on the application process or precisely which criteria will be evaluated in determining a credit allocation. Although the Notice does not provide the details for applying for tax credit adders under the Program, it describes several notable features of the Program:
- Sets forth the Program capacity limitation for each of 2023 and 2024 is 1.8 GW (DC), which is divided among the four categories for 2023 as set forth below.
Category
Allocated Capacity for 2023
Category 1
700 MW (DC)
Category 2
200 MW (DC)
Category 3
200 MW (DC)
Category 4
700 MW (DC)
Total
1.8 GW (DC)
- Provides for a carry forward of any excess capacity in a single calendar year.
- Specifies that only the owner of an eligible facility may apply for a credit award, and such application may only be for one category of community (categories listed above). It is not clear whether “owner” in this context refers to the project company that owns the facility or, if a project company is a disregarded entity, the tax owner of the facility.
- Provides additional detail regarding when applications will be accepted, with applications for Category 3 and Category 4 facilities being accepted beginning in the third quarter of 2023, and applications for Category 1 and Category 2 facilities being accepted at a later date.
- Sets forth various rules surrounding the required placement in service timing for facilities within the Program, including requiring Program facilities to be placed in service after the applicant was notified of an accepted allocation request (the “Allocation Notification Date”), and no later than four years of the Allocation Notification Date.
- Clarifies that if an application is denied, the applicant will not automatically be added to a waitlist, but must reapply in a subsequent calendar year.
- Specifies that upon full rollout of the Program, additional criteria in determining how to allocate the capacity limitation among facilities may include a focus on facilities that are: (i) owned or developed by community-based organizations and mission-driven entities, (ii) have an impact on encouraging new market participants, (iii) provide substantial benefits to low-income communities and individuals marginalized from economic opportunities, and (iv) have a higher degree of commercial readiness.
Notice 2023-17 confirms that the Department of the Treasury and the Internal Revenue Service will issue further guidance outlining the specific application procedures, additional criteria, applicable definitions, and other information necessary to submit an application to request an allocation of capacity limitation for 2023 under the Program.
Foley will continue to monitor these developments, including the issuance of forthcoming guidance issued by the Department of the Treasury and the Internal Revenue Service with respect to the Program.
