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Recently, the Internal Revenue Service (IRS) released an update to areas that qualify for the Inflation Reduction Act’s Energy Communities Bonus Tax Credit by publishing IRS Notice 2024-48. In past months, USET has submitted formal comments to Treasury focused on the impact of the tax credits on Tribal Nations that can help to provide context on these available opportunities. Those comments can be found here.
The Inflation Reduction Act of 2022 extended and expanded a number of tax credits to encourage production of clean energy for which Tribal Nations are eligible. As additional incentive, some clean energy credits provide bonus credits that increase a base credit rate by a percentage for complying with certain social policy-related requirements. The Inflation Reduction Act also created elective pay, which allows tax-exempt entities to take advantage of these clean energy tax credits, including bonus credits, by receiving a cash payment in lieu of a credit. Information developed by USET SPF on elective pay can be found here.
The Low-Income Communities Bonus Credit Program provides an increase of 10 percentage points to the Section 48 investment tax credit (ITC) for qualifying solar and wind energy facilities located in low-income communities or on Tribal Nation homelands, and an increase of 20 percentage points for facilities that are built as part of a Qualified Low-Income Residential Building Project, or as part of a Qualified Low-Income Economic Benefit Project.
The Energy Communities Bonus Credit provides a 10 percent bonus to the existing Section 48 ITC and Section 45 production tax credit for projects, facilities, and technologies located in “energy communities.” The Inflation Reduction Act defines “energy communities” as follows:
1. A “brownfield site” (as defined in certain subparagraphs of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA))
2. A “metropolitan statistical area” or “non-metropolitan statistical area” that has (or had at any time after 2009)
- 0.17% or greater direct employment or 25% or greater local tax revenues related to the extraction, processing, transport, or storage of coal, oil, or natural gas; and
- has an unemployment rate at or above the national average unemployment rate for the previous year
3. A census tract (or directly adjoining census tract)
- in which a coal mine has closed after 1999; or
- in which a coal-fired electric generating unit has been retired after 2009
This IRS Notice provides updated information that taxpayers (or eligible elective pay entities) may use to determine whether they meet certain requirements under the second or third categories in the above definition. This Notice updates Notice 2023-29, the initial guidance on the Energy Communities Bonus Credit. Notice 2023-29 advises that taxpayers may rely on the interim guidance pending issuance of proposed regulations, and that the IRS and Treasury anticipate that the regulations will be proposed to apply retroactively to the date of publication of the notice. Department of Energy will be updating its energy communities mapping tool and it will be available, along with more information on the
Energy Communities Bonus at energycommunities.gov. Taxpayers will find Notice 2024-48 on irs.gov. Please contact Melanie Plucinski, Tribal Infrastructure Policy Analyst, at mplucinski@usetinc.org if you have any questions.
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