The U.S. Department of the Treasury and IRS on May 31, 2023, released a Notice of Proposed Rulemaking (NPRM) regarding the low-income community bonus credit under Section 48 of the Internal Revenue Code. The NPRM requests comments by June 30, 2023.
Section 48(e) provides for an increase in the investment tax credit (ITC) for qualified solar and wind facilities that receive an allocation of the bonus referred to as the "Low-Income Community Bonus." (See Holland & Knight's previous alert, "Treasury Department, IRS Release Preliminary Low-Income Community Bonus Credit Guidance," Feb. 17, 2023.) The Low-Income Community Bonus requires an allocation of the bonus credit, with 1.8 gigawatts (GW) of direct current capacity available for each of calendar years 2023 and 2024, and zero thereafter (referred to as the "Capacity Limitation"). To be eligible for the bonus, the solar or wind facilities must have a maximum net output of less than 5 megawatts (MW) of alternating current.
Notice 2023-17, released on Feb. 13, 2023, provided initial guidance on the procedures and information required to apply for an allocation of Capacity Limitation. The Low-Income Community Bonus allocation provides a 10 percent to 20 percent increase in the credit amount. The exact amount of the bonus amount depends on the category of the project:
The NPRM provides specific definitions and requirements on the following topics:
- the definition of facility based on single project factors
- the definition of "in connection with" to demonstrate what it means for energy storage technology to be considered part of eligible property of the qualified facility
- definitions of the terms "financial benefit" and "electricity acquired at a below market rate" under Section 48(e)(2)(D), as well as a manner to apply such definitions, appropriately, to Category 3 facilities that are part of qualified low-income residential building projects and Category 4 facilities that are part of qualified economic benefit projects
- the definition of "located in" for relevant geographic criteria
- a rule providing that facilities placed in service prior to an allocation award are ineligible for such an award
- reservations of Capacity Limitation allocation for applicant facilities that meet certain additional selection criteria
- sub-reservations of Capacity Limitation allocation for facilities built in a low-income community
- application materials demonstrating facility viability to allow for an efficient allocation process
- documentation and attestations to be submitted when a facility is placed in service
- post-allocation compliance, including disqualification and recapture of Section 48(e) increases
Those interested in pursuing the Low-Income Community Bonus should carefully review the NPRM and submit comments by the June 30, 2023, deadline as warranted.