Insights

The Treasury and IRS published their final rules on transferability for clean energy tax credits on April 30, 2024. The final rules include very few changes from the proposed regulations and rejected many of the suggestions offered by commenters during the public hearing.

Tax partner Carina Federico and Tax counsel Eleanor Moran McWaters discuss IRA and Tax Exempt Entities.

Key Takeaways:

Tax partner and co-chair Starling Marshall and tax partner Carina Federico discuss where they predict tax disputes may arise with the IRS related to the IRA clean energy provisions. 

Tax partner and co-chair Christine Lane and tax partner Carina Federico discuss recent developments with the Inflation Reduction Act.

Tax partner Carina Federico is joined by Tyler O’Connor, an energy and government affairs partner, to discuss how the upcoming presidential election will affect the IRA.

On August 30, the U.S. Department of the Treasury (“Treasury”) published in the Federal Register proposed regulations addressing the prevailing wage and apprenticeship (“PWA”) requirements under Sections 45(b)(7) and (8) of the Inflation Reduction Act (“IRA”).  These proposed regulations incorporate and supplement the limited guidance issued previously, which includes Notice 2022-61, published by the Treasury in November 2022, as well as the Frequently Asked Questions (“FAQ”) on the Department of Labor’s IRA website.  The proposed regulations shed light on various issues of significance to taxpayers seeking the enhanced tax credits provided by the IRA, as well as other stakeholders. 

On June 14, 2023, the Treasury Department and the Internal Revenue Service (IRS) released proposed regulations regarding the clean energy tax credits eligible for direct pay and transferability under the Inflation Reduction Act (IRA). The IRS also released FAQs for both direct pay and transferability, which provides further guidance to interested taxpayers.

The Treasury and IRS’s proposed guidance on the domestic content requirements under IRC Sections 45, 45Y, 48, and 48E generally track the Federal Transit Administration Buy America requirements, which represent a long-standing regime applicable to mass transportation infrastructure projects, with some important distinctions for the clean energy industry to consider when planning new projects.

On March 31st, the Treasury Department (“Treasury”) and the Internal Revenue Service (“IRS”) released proposed regulations (“Proposed Regulations”) under the Clean Vehicle Credit of Internal Revenue Code Section 30D, which provides a credit for the purchase and placing in service of certain new clean vehicles (“Section 30D Credit”). The Section 30D Credit was originally enacted in 2008 and has been amended several times. Most recently, the Inflation Reduction Act of 2022 (“IRA”) made numerous amendments to the Section 30D Credit to promote the purchase and use of new clean vehicles made with battery components manufactured in North America and critical minerals sourced from the United States or countries with which the United States has a free trade agreement. The Section 30D Credit is treated as a personal or business credit depending on the use of the vehicle.  Businesses looking to transition their fleets should also consider the availability of the Credit for Qualified Commercial Clean Vehicles under Internal Revenue Code Section 45W. 

On December 29, 2022, the IRS released new guidance on whether vehicles qualify for tax credits under the clean vehicle provisions of the Inflation Reduction Act (the “IRA”). At the same time, Treasury released a much-anticipated White Paper describing the Administration’s planned approach to assessing whether vehicles meet the critical mineral content and battery processing requirements of the IRA.

Among its many provisions, the Inflation Reduction Act (IRA) includes $3 billion for the purchase or installation of zero-emission port equipment or technology located at U.S. ports or used to directly serve U.S. ports. Of that funding, $750 million is reserved for ports located in a Clean Air Act non-attainment area. For the past two months, the Environmental Protection Agency (EPA) has held listening sessions with stakeholders in advance of issuing guidance on the program’s administration, and the agency is now soliciting responses by January 18, 2023, to a Request for Information that poses 8 key questions for stakeholders.

On November 30, 2022, the Internal Revenue Service (the “IRS”) released Notice 2022-61 with initial guidance (“Guidance”) on the prevailing wage and apprenticeship requirements and beginning of construction standard under the Inflation Reduction Act (the “IRA”). Shortly after, the Department of Labor (the “DOL”) published on its website Frequently Asked Questions (“FAQ”) and hosted a webinar providing additional guidance. Taxpayers meeting the prevailing wage and apprenticeship requirements may claim enhancements to various tax credits under the IRA. Under these provisions, a taxpayer seeking enhanced tax credits is required to pay prevailing wages to any laborers and mechanics employed in the construction, alteration, or repair of a qualified facility, and is required to meet certain labor hours, journeypersons-to-apprentices ratio, and participation requirements with regard to the use of apprentices at such facilities. For additional information on these requirements, please see our prior alert on this topic.

President Biden will soon sign into law the Inflation Reduction Act (IRA), which provides $750 billion in funding and major federal policy changes impacting the U.S. energy, environment, healthcare and tax sectors. On August 7, 2022, the IRA passed the U.S. Senate by an all-Democrat 50-50 party line vote, with Vice President Harris breaking the tie and ensuring passage. On August 12, 2022, the IRA passed the U.S. House by a vote of 220 to 207. The President's signature, will make the bill law, and allow President Biden, U.S. Senate Majority Leader Chuck Schumer (D-NY), and U.S. House Speaker Nancy Pelosi (D-CA) to claim a major victory while making progress on a portion of the President's Build Back Better agenda just three months before the mid-term elections on November 8, 2022.

On July 1, 2021, the Internal Revenue Service released Revenue Ruling 2021-13 (the “Revenue Ruling”) providing guidance regarding the tax credit for carbon oxide sequestration under Section 45Q. The Revenue Ruling provides guidance on what constitutes carbon capture equipment, who is eligible to claim the credit, and what is the relevant placed-in-service date for purposes of the Section 45Q credit.

The Biden Administration has promised an across-the-government effort to combat climate change, consistent with policy priorities during the Obama Administration. While much speculation has focused on a climate infrastructure package or a possible revamp of the Clean Power Plan, appliance manufacturers should be prepared for a less publicized but similarly significant change in direction from the current administration: increased enforcement under the U.S. Department of Energy’s (DOE) appliance standards program.

On January 6, 2021, Treasury and the IRS released final regulations providing guidance regarding the credit for carbon oxide sequestration under section 45Q. The final regulations, together with the two-year extension of the deadline for beginning construction of carbon capture projects in the COVID-19 relief legislation signed into law on December 27, 2020, are welcome developments for taxpayers contemplating investments in carbon capture, utilization and storage projects. Treasury Decision 9944 includes both the final regulations and a preamble, addressing comments and explaining the regulations. Both the preamble and the final regulations are important to review, as Treasury and the IRS provided some important clarifications that appear only in the preamble. In this client alert, we will discuss some of the key issues addressed in the preamble and final regulations.

As part of the H.R. 133, The Consolidated Appropriations Act, 2021, passed by Congress on December 21, 2020, and signed by the President on December 27, 2020, Congress included an extension to the beginning of construction date for carbon capture projects under Section 45Q. Section 45Q provides tax credits for the capture and sequestration of carbon dioxide and other carbon oxides from industrial sources that, absent capture and utilization or sequestration, would be vented to the atmosphere. Section 45Q, as amended by the Bipartisan Budget Act of 2018, required that a qualified facility’s construction must begin by the end of 2023 to be eligible for the Section 45Q tax credit. The new law, extends the deadline to start construction for two years, so that projects will have until the end of 2025 to demonstrate that construction has begun, as required to qualify for the tax credit.

On May 28, 2020, the IRS released long-awaited proposed regulations under Code Section 45Q, which provides the credit for carbon capture utilization and storage (CCUS). The proposed regulations address some key technical issues regarding how the credit will apply, including standards for the following: secure geological storage; recapture; how taxpayers investing in CCUS equipment can contract with others to ensure capture and disposal of qualified carbon dioxide and other carbon oxide (qualified CO)1; definition of “carbon capture equipment;” and elections to transfer the credit. The announcement states that taxpayers may rely on the proposed regulations until such time as the final regulations are published. Today’s Tax Alert discusses selected highlights from the proposed regulations.