Skip to main content
Businessman using stylus pen signing e-document on digital tablet with laptop computer on table at office.

Domestic Content Phaseout Exceptions – Transitional Procedures

Domestic Content Exceptions can help tax-exempt entities avoid a direct payment phaseout.
banner background

IRS Notice 2024-9 was issued on December 28, 2023 and provided guidance to taxpayers pursuing the domestic content bonus credits for projects that begin construction prior to January 1, 2025. Written comments may be submitted until February 26, 2024.


The Inflation Reduction Act (IRA) introduced the opportunity for an additional 10% bonus credit, given taxpayers have 40% of their manufactured products and 100% of their steel and iron manufactured in the U.S. (For more on the domestic content requirement, see our article, “IRS Issues Detailed Guidance for the Domestic Content Bonus Credit.”). Further, the IRA introduced the potential for tax-exempt entities (and taxable entities in some cases) to elect to receive “cash back” direct payments in lieu of a tax credit. However, beginning in 2024, if entities pursuing the direct pay election have projects with a capacity over one megawatt that do not meet the domestic content requirements, then their elective payment amount is reduced to 90% of their otherwise benefit amount. This phaseout applies for the Investment Tax Credit and Production Tax Credit Sections, Section 45, 45Y, 48, or 48E credits.

Key Takeaway

Moving forward, tax-exempt entities should pay closer attention to the sourcing of the components of their clean energy projects, as their benefit could be reduced without meeting the direct pay requirements.

There are two exceptions that would allow entities to avoid this phaseout of their direct payment, collectively referred to as the “Domestic Content Exceptions.” The two exceptions are:

  1. Increased Cost Exception – If meeting the domestic content requirements would increase the overall cost of the project by more than 25%, then this exception is met.
  2. Non-Availability Exception – If there is not “sufficient and reasonably available quantities or a satisfactory quality” of products to meet the domestic content requirements, then this exception is met.

Action Items

The Notice provides for both transitional procedures to claim the above-mentioned exceptions and outlines the request for comments on the topic. The requests for comments include practical questions that would help the IRS determine how to implement the domestic content requirements and would help taxpayers substantiate and pursue the bonus credit. In short, keep an eye out for more information that will help provide clarity to those claiming the Domestic Content Exceptions.

In the meantime, the Notice provides transitional procedures for claiming the exception(s). To claim the exceptions—and, as a result, receive the 100% direct payment without meeting the domestic content requirements—entities should include an attestation that meets the following requirements:

The attestation:

  1. States that the taxpayer has reviewed the requirements for the exceptions and made a good faith determination that their project or investment qualifies for either exception.
  2. Is signed by a person with the appropriate legal authority for federal tax matters of the entity.
  3. Is attached to the Form 8835.
  4. Is attached to applicable form(s) required for direct pay election.
  5. Follows the general record-keeping requirements under §6001.

The IRA has introduced many new opportunities for tax-exempt entities involved in clean energy. However, meeting the domestic content bonus credit requirements should play a role in modeling out the overall business case for investing in clean energy projects or property. FORVIS will continue to monitor for further guidance on this topic and is prepared to help those meeting the Domestic Content Exceptions with the required attestation as examined in this article.

If you have any questions or need assistance, please reach out to one of our professionals.

Related FORsights

Like what you see?
Subscribe to receive tailored insights directly to your inbox.