On March 29, 2024, the IRS released Revenue Procedure 2024-19, which provides updated guidance for taxpayers applying for supplemental investment tax credits for 2024 pursuant to the Low-Income Communities Bonus Credit Program under Section 48(e) of the Internal Revenue Code.  The guidance applies to taxpayers submitting applications for the 2024 Program Year and, for purposes of the 2024 Program Year, supersedes Revenue Procedure 2023-27, which covered applications for the 2023 Program Year.  For our previous alert relating to Revenue Procedure 2023-27, see here.

Background

Under the Inflation Reduction Act (“IRA”), taxpayers who place wind and solar facilities in service after 2022 are generally entitled to an investment tax credit equal to 30% of the tax basis of the “energy property” comprising the facility, provided that they satisfy certain “prevailing wage and apprenticeship requirements” or qualify for an exception.  Section 48(e) provides an additional “bonus” tax credit of 10% or 20% of the relevant tax basis for qualified solar and wind facilities that apply for and are awarded an allocation of environmental justice solar and wind capacity limitation (“Capacity Limitation”). The Capacity Limitation is an aggregate amount of 1.8 gigawatts per Program Year (plus any unused amounts from prior years) that will be allocated across all taxpayers that successfully apply for a portion of the total allowable bonus credit.  For taxpayers who receive an allocation of capacity that is less than the applicable facility size, the increased credit is reduced proportionately.

A qualified solar and wind facility is a facility that produces electricity from wind or solar power, has a maximum net output of less than 5 megawatts (measured in alternating current), and falls into one of the four statutory categories itemized below.  The Capacity Limitation for 2024 is allocated among the four categories as follows:

• Located in a low-income community (10% bonus credit):
  
  - 600 megawatts, of which 400 megawatts is reserved for residential behind-the-meter facilities (BTM) such as rooftop solar.
  
  - This is a reduction from the 700 megawatt (490 megawatt BTM) allocation made for 2023.

• Located on Indian land (10% bonus credit):
  
  - 200 megawatts (same as 2023).

• Built as part of a qualified low-income residential building project (20% bonus credit):
  
  - 200 megawatts (same as 2023).

• Built as part of a qualified low-income economic benefit project (20% bonus credit):
  
  - 800 megawatts.
  
  - This is an increase from the 700 megawatt allocation made for 2023.

Half of the Capacity Limitation in each category is reserved for projects meeting at least one of either the ownership criterion or the geographic criterion.  The ownership criterion is satisfied by a project that is at least 51% owned by one of the following: (i) a Tribal Enterprise (majority owned or controlled by an Indian Tribal government), (ii) an Alaska Native Corporation, (iii) a renewable energy cooperative, (iv) a qualified renewable energy company (that is, a small entity that serves low-income communities and provides pathways for the adoption of clean energy by low-income households), or (v) a qualified tax-exempt entity.

A facility satisfies the geographic criterion if it is located in either a Persistent Poverty County or a census tract designated in the Climate and Economic Justice Screening Tool as disadvantaged. A facility located in one of these geographic locations at the time of the application would be considered to continue to meet the geographic criterion for the duration of the tax credit recapture period (generally, 5 years from when placed in service), unless the facility location is moved.

Application Process

The application process outlined in Revenue Procedure 2024-19 is very similar to the process for Project Year 2023 that is summarized in our prior update.

Certain attestations have been added to the list of attestations required of applicants, including that:

• The applicant reasonably believes the qualifying facility meets the statutory definition of a single “qualified solar and wind facility” and, if applicable, multiple solar or wind energy properties or facilities that are operated as part of a single project are aggregated and treated as a single facility; and
  
  
• The qualifying facility has not been placed in service at the time of this submission and will not be placed in service prior to being awarded an allocation of Capacity Limitation.

Significantly, the guidance provides new and extensive detail on the attestation requirements for projects claiming to benefit from the ownership criterion or geographic criterion.  Applicants claiming the ownership criterion must provide organizational documents proving ownership by the types of eligible entities that result in the criterion being met.  Qualified renewable energy companies must provide additional information regarding their employment and gross receipts.  The guidance also provides information for partnerships applying for the benefit of the criterion where a qualifying entity is a partner.

Overall, the application process is substantially unchanged.  The Department of Energy’s Office of Economic Impact and Diversity will evaluate applications and make recommendations to the IRS as to whether each application should be awarded any amount of Capacity Limitation.  Applications received in the first 30 days of the application period will be treated as received simultaneously, and applications received later will be awarded Capacity Limitation on a rolling basis.  As was the case in 2023, this creates a strong incentive for taxpayers seeking Capacity Limitation to apply as soon as the DOE announces it is accepting applications.

For our other previous alerts relating to the Low-Income Communities Bonus Credit Program, see here and here.

Baker Botts will continue to monitor IRA guidance and will provide further updates as guidance is released. In the meantime, we would be pleased to assist you in your analysis of the IRA and other clean energy tax incentive matters.

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