Initially, the Inflation Reduction Act (IRA) left many taxpayers with questions about procedures for claiming credits, transferring credits, or electing direct pay, and other important topics such as qualification requirements and bonus credit calculations. Throughout 2023, the U.S. Department of the Treasury and the IRS have issued guidance addressing a variety of taxpayer questions. Proposed regulations, FAQs, and news releases continue to be issued on a variety of IRA topics; scan through the topics below to find FORsights that offer a deeper dive on respective IRA subjects.
Bonus Credits, Transferability, and the Direct Pay Election
The IRA changed clean energy credit calculations and added procedures for monetization. Many credits now allow for a “base” credit supplemented by “bonus” credits when certain requirements are met. Further, taxable entities are now able to transfer clean energy credits to third parties for cash. Additionally, many tax-exempt taxpayers (and taxable entities for specific credits) may receive a cash payment instead of an income tax credit for clean energy investment and production. Clarifications to these topics made available during the year include:
| Topic | Overview | Relevant FORsights |
|---|---|---|
| Prevailing Wage and Apprenticeship (PWA) Bonus Credit | Topics clarified by proposed regulations and FAQs during the year include documentation and recordkeeping requirements, information and actions required, wage determination resources, cures for noncompliance, and transferability risks, among others. Wage determination rates can be pulled for your projects here. | Prevailing Wage & Apprenticeship Proposed Regulations: What This Means for You | FORVIS FAQs Answered: Prevailing Wage & Apprenticeship Requirements | FORVIS |
| Energy Community Bonus Credit | The Treasury and IRS provided definitions and other clarifications needed to determine energy community locations and eligibility requirements in three notices and FAQs. In addition, a searchable map (located here) released this year makes it easy to find qualifying locations. | Energy Communities: Where & How to Use Clean Energy Credits | FORVIS |
| Domestic Content Bonus Credit | Guidance issued this year by way of Notice 2023-38 specified key qualifying factors in determining the ratio of domestic to foreign costs. Key clarifications include the focus on direct costs and not costs of subcomponents such as nuts, bolts, hinges, and more. | IRS Issues Detailed Guidance for the Domestic Content Bonus Credit | FORVIS |
| Low-Income Communities Bonus Credit | Although information was made available in final regulations and Revenue Procedure 2023-27 as to the requirements for a 10% vs. a 20% bonus credit amount, official guidance as to which locations qualify as low-income communities has yet to be released (as of the date of this publication). | IRS Releases Guidance on Low-Income Communities Bonus Credit Program | FORVIS |
| Transferability and the Direct Pay Election | The IRS released proposed and temporary regulations and FAQs regarding the information needed for registrations and registering each project separately (presenting a hurdle for “bundling” credits for sale), among other requirements. The portal taking registrations for transferability and direct pay is now live. | New IRS Elective Pay & Transferability Guidance | FORVIS Tax Structuring for Monetizing Tax Credits Under the Inflation Reduction Act of 2022 | FORVIS Registration Portal Available: Clean Energy & CHIPS Tax Credits Eligible for Direct Pay or Transfer |
Credit-Specific Guidance
In addition to credit calculation details and procedures for monetizing IRA credits, specific credit and deduction provisions were clarified throughout 2023. This listing includes relevant guidance for clean vehicles, manufacturing, construction, and carbon sequestration credits.
| Topic | Overview | Relevant FORsights |
|---|---|---|
| Clean Vehicle-Related Credits | Guidance issued in IRS notices and FAQs this year discusses qualifying vehicle specifications and transferability for dealers. | The Latest Guidance for Clean Vehicle Tax Credits | FORVIS Plug into Your Tax Savings | FORVIS Transportation Tax Credits & Grants in the Inflation Reduction Act of 2022 | FORVIS |
| Qualifying Advanced Energy Project Credit (Section 48C) | Section 48C is an award-based credit. The IRS issued two notices last spring which provided application guidance in addition to information needed to apply for and ultimately claim the Section 48C credit. Though the first round is now closed, the second round of applications and awards will likely occur in 2024. | Additional Guidance Issued Related to IRC §48C(e) Credit | FORVIS Qualifying Advanced Energy Project Credit Round 1 to Begin May 31, 2023 | FORVIS |
| New Energy Efficient Home Credit (Section 45L) | Information about date restrictions, qualifying home types, and Energy Star criteria is now available. The new rules remove the prior three-story height threshold for all but one multifamily home category. | Section 45L Tax Credit Update | FORVIS |
| Energy Efficient Commercial Buildings Property Deduction (Section 179D) | The IRA changed the deduction calculation, implemented a PWA bonus, clarified ASHRAE standards, and eliminated the partial deduction included in prior law. | Inflation Reduction Act Expands Energy Efficient Commercial Buildings Property Deduction | FORVIS |
| Carbon Sequestration Credit (Section 45Q) | Activities in which taxpayers capture, sequester, or utilize carbon oxides may qualify for a tax credit in the Inflation Reduction Act. Section 45Q applies to businesses that desire to reduce their carbon emissions and applies regardless of industry. | Navigating the Carbon Sequestration Tax Credit in the Inflation Reduction Act of 2022 | FORVIS |
FORVIS will continue to follow relevant updates to IRA incentives and will provide summaries, analysis, and commentary as new guidance becomes available. Currently, industry-specific content is available for franchisors, dealerships, energy producers, tax-exempt entities, public sector entities, higher education, construction and real estate, and more. View additional IRA FORsights here.