New IRS Guidance for Domestic Content 10% Bonus Tax Credit for Renewable Energy Projects

Description

The Inflation Reduction Act created a 10 percent tax credit adder to encourage the use of "domestic content" in renewable projects that qualify for the production tax credit and investment tax credit. The domestic content bonus credit is available to projects that qualify for the ITC or PTC under current Sections 48 or 45 or, beginning in 2025, Sections 48E or 45Y beginning in 2025 if all of the steel and iron and the required percentage of manufactured products included in the completed project are produced in the United States. Attorneys assisting renewable energy developers, manufacturers and investors must understand these domestic content requirements and the potential challenges involved in satisfying them.

On May 12, 2023, the IRS published Notice 2023-38, providing the rules for establishing satisfaction of the requirements to qualify for the bonus credit and a safe harbor regarding the classification of certain components. Qualifying renewable energy and storage projects built with 100 percent domestically produced steel and iron and the required percentage of manufactured products (currently 40 percent) can receive an additional 10 percent ITC or increase their PTCs by 10 percent. However, qualification for this bonus tax credit involves a thorough analysis of complex rules, providing evidence that may be difficult to obtain and consideration of available planning strategies to address related matters concerning expected tax credits, financing and the overall success of a renewable project.

Listen as our panel discusses key items under recently issued Notice 2023-38, applicable projects and the domestic content bonus opportunity, and next steps for renewable energy developers.