Additional guidance on the bonus credit program for low-income communities (2023)

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Internal Revenue Service (IRS), Treasury Department.

Notice of Proposed Rulemaking.

This document contains proposed rules for the Energy Investment Bonus Credit Program for Low-Income Communities established under the Inflation Reduction Act of 2022. Applicants who invest in certain solar and wind generating facilities may request the allocation of solar and wind capacity from environmental justice. limitation of increasing the amount of credit for investment in energy for the taxable year in which the installation was put into operation. This document describes the proposed definitions and requirements that will apply to the calendar year 2023 capacity constraint allocation program, which will also provide applicable guidance for future program years. The proposed rules would affect applicants seeking environmental justice curtailment rights for solar and wind capacity.

Written or electronic comments must be received by June 30, 2023.

Interested parties are encouraged to submit public comments online. Submit electronic returns through the Federal eRulemaking Portal athttps://www.regulations.gov(enter IRS and REG–110412–23) by following the online instructions for submitting comments. Once submitted to the Federal eRulemaking Portal, comments cannot be edited or removed. The Treasury Department (Treasury) and the IRS will post for public availability any comments submitted, either electronically or on paper, in the IRS public record. Mail documents to: CC:PA:LPD:PR (REG–110412–23), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.

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Regarding the proposed rules, the Office of Associate General Counsel (Transfers and Special Industries) at (202) 317–6853 (not toll-free) regarding the submission of written comments;Home Printed Page 35792Vivian Hayes at (202) 317–5306 (not toll-free).

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I. Biography

Section 13103 of Public Law 117–169, 136 Stat. 1818, 1921 (August 16, 2022), commonly known as the Inflation Reduction Act of 2022 (IRA), added new section 48(e) to the Internal Revenue Code (Code) to increase the amount of the energy investment credit that set out in section 48(a) (section 48 credit) in respect of eligible properties that are part of a qualified solar and wind installation that is granted an environmental justice solar and wind capacity limitation allowance (capacity limitation). This document contains definitions and proposed rules related to the allocation of the Capacity Limit for calendar year 2023 (2023 Capacity Limit).

The amount of the energy investment credit determined under section 48 for a financial year is generally calculated by multiplying the basis of each energy property brought into service during that financial year by the percentage of the energy (as defined in section 48(a )( 2). )). Section 48(e) increases the section 48 credit by increasing the percentage of energy used to calculate the amount of the section 48 credit (section 48(e) increase) for eligible solar and wind facilities that receive a capacity limitation assignment. The term "wind and solar energy facility" is defined in section 48(e)(2) to mean any facility that (i) generates electricity exclusively from a wind facility, solar property, or small wind property; (ii) has a maximum net power of less than 5 megawatts (measured in alternating current). and (iii) is described in at least one of the four categories in section 48(e)(2)(A)(iii) (and in part II of this History).

As described in part III of this background, section 48(e)(4)(A) directs the Secretary of the Treasury or his designee (Secretary) to “provide procedures to permit the effective allocation” of the Capacity Limitation to specific solar and Renewable energy . wind facilities. Later this year, the Treasury Department and the IRS expect to release details of the applicable schedule for the 2023 calendar year Capacity Limitation, which covers a full set of procedures and rules for applicants. More information about the details of the program will be in the internal regulations. However, some of the information that the Treasury Department and the IRS intend to include will provide more substantive detail covering the definitions and threshold requirements that must be in place to make distributions efficiently and effectively. These aspects of the program details are the subject of this notice of proposed rulemaking. The Treasury Department and the IRS hope that the final guidance will be reflected in the regulations.

II. Four Categories of Certified Solar and Wind Installations

Depending on the facility category, a capacity limitation allowance may result in a Section 48(e) increase of 10 percentage points or 20 percentage points. Section 48(e)(1)(A)(i) provides an increase of 10 percentage points under section 48(e) for eligible property located in a low-income community as defined in section 45D(e) (Category 1) , or on Indian land, as defined in section 2601(2) of the Energy Policy Act of 1992 (25 USC 3501(2)) (category 2 installation). Section 48(e)(1)(A)(ii) provides an increase of 20 percentage points under section 48(e) for eligible property that is part of an approved low-income housing construction project (Category 3 facility) or special economic project property low income benefit (category 4 benefit). Under section 48(e)(1)(A)(i), Class 1 or Class 2 facilities that also qualify as Class 3 or Class 4 facilities are considered Class 3 or Class 4 facilities (as appropriate) .

Section 48(e)(2)(B) provides that a facility will be treated as part of an approved low-income housing construction project if the facility is located in a residential rental building participating in a housing program. coverage (as defined in § 41411(a) of the Violence Against Women Act of 1994 (34 USC 12491(a)(3)), a housing assistance program administered by the Department of Agriculture under title V of the Housing Act of 1949, a housing program administered by a tribal housing entity (as defined in §4(22) of the Housing Assistance and Determination Act of 1996 (25 USC 4103(22)), or other affordable housing programs that the Secretary may provide, and (ii) the economic benefits of the electricity generated by such facility are equitably distributed among the occupants of the housing units in such building.

Section 48(e)(2)(C) provides that a facility will be treated as part of a special low-income economic benefit project if at least 50 percent of the economic benefits of the electricity generated by that facility are provided to households with an income less than 200 percent of the poverty threshold (as defined in Code section 36B(d)(3)(A)) applicable to a family of the size involved or less than 80 percent of the median gross income of the area (as defined in section 142(d)(2)(B) of the Code).

For an approved low-income housing construction project and an approved low-income economic benefit project, section 48(e)(2)(D) provides that electricity purchased at a below-market rate will be considered an economic benefit.

Low Income Communities 3rd Bonus Credit Program Overview

Section 48(e)(4) directs the Secretary to establish a schedule, within 180 days of the enactment of the IRA, for the allocation of Capacity Restriction amounts to approved solar and wind facilities. Notice 2023–17, 2023–10 I.R.B. 505, established the program under section 48(e) to permit the allocation of Capacity Limit amounts to specified solar and wind energy facilities eligible for the section 48 credit (Low Income Community Credit Bonus Program).^[1]Pursuant to section 48(e)(4)(C), the total annual allocable capacity limitation under the low-income community bonus credit program is 1.8 gigawatts of continuous current capacity for each of calendar years 2023 and 2024 .Under section 48(e)(4)(D), if the annual capacity limitation for any calendar year exceeds the full amount appropriated for that year, the excess shall be carried over to the next calendar year, but not beyond that calendar year. year 2024.^[2]

According to Notice 2023-17, the Treasury Department and the IRS propose to set aside a portion of the total annual capacity limitation of 1.8 gigawatts of DC power for each facility category for calendar year 2023 as follows:Start Printed Page 35793

The proposed rules in this document would supplement the guidance provided in Notice 2023-17 to describe the specific application procedures, additional award criteria, and applicable definitions, among other information, required to apply for an award from the capacity limit for the calendar. year 2023 under the credit bonus program for low-income communities. The Treasury Department and the IRS request comments on these proposed definitions and requirements. The Treasury Department and the IRS are also requesting comment on whether these proposed definitions and requirements should apply for purposes of the Low Income Community Bonus Credit Program for calendar year 2024 and the program established under section 48E ( h) for the calendar year 2025 and future years. The Treasury Department and the IRS expect further evaluation of the program in 2023 to determine what additional guidance may be useful or necessary in the future.

Explanation of the proposed rules

The proposed rules relate specific definitions and requirements regarding the following topics: (1) the definition of facility based on individual project factors; (2) the definition of ``in relation to'' to illustrate what it means for energy storage technology to be considered part of the eligible property of the approved facility; (3) definitions of the terms ``economic benefit'' and ``electricity purchased at a price less than the market" in accordance with section 48(e)(2)(D), and how these definitions apply, as appropriate, to category 3 Facilities forming part of approved social interest residential building projects and category 4 facilities forming part of skilled economic benefits; (4) the definition of “located in” for relevant geographic criteria; (5) a rule for facilities placed in operation prior to the award of a contract; (6) Capacity Limitation Allocation Reserves for applicant facilities that meet certain Addendums Selection Criteria. (7) Capacity limitation allocation subreserves for facilities constructed in a low-income community. (8) application materials demonstrating the feasibility of the facility to allow for an efficient allocation process; (9) documentation and certifications to be provided when a facility is commissioned; and (10) post-award compliance, including decommissioning and recovery of section 48(e) increases.

I. Proposed definitions and requirements

A. Definition of installation

The term "wind and solar energy facility" is defined in section 48(e)(2)(A) to mean any facility that (i) generates electricity exclusively from wind, solar, or utility facilities; small wind power; (ii) has a maximum net power of less than 5 megawatts (measured in alternating current). and (iii) is described in at least one of the four categories described in section 48(e)(2)(A)(iii) (Category 1, 2, 3, or 4). The Treasury Department and the IRS are concerned that some applicants may attempt to circumvent the under-5 megawatt generation limitation provided in section 48(e)(2)(A)(ii) by artificially dividing larger projects into multiple facilities. To prevent applicants from allocating larger projects that must be treated as a single facility under section 48(e)(2)(A), solely for purposes of the Low Income Community Bonus Credit Program, the Treasury Department and the IRS propose aggregate into a single “solar and wind facility” multiple energy facilities or properties of the same type (solar or wind) operated as part of a single project in accordance with the individual project factors provided for in section 7.01. (2)( a) ) of Proclamation 2018–59, 2018–28 I.R.B. 196 or section 4.04(2) of Notice 2013–29, 2013–20 I.R.B. 1085, as the case may be.

Therefore, the Treasury Department and the IRS propose to define a single qualifying solar or wind facility as any facility that (i) generates electricity solely from a wind facility, solar property, or small wind property; ii) with a maximum net power of less than 5 megawatts (measured in alternating current). and (iii) described in at least one of the four categories described in section 48(e)(2)(A)(iii) (Category 1, 2, 3, or 4). Additionally, in order to determine allocations, administer the program fairly, and prevent abuse, the Treasury Department and the IRS propose that multiple solar or wind properties or facilities operating as part of a single project be aggregated and treated as a single facility . The operation of multiple energy facilities or properties as part of a single project will depend on the relevant facts and circumstances and will be assessed against the factors set out in section 7.01(2)(a) of Notice 2018–59 or section 4.04(2) . ). ) of Notice 2013–29, as applicable.

B. Energy storage technology installed in conjunction with solar and wind facilities

Section 48(e)(3) defines "eligible property" as energy property that (i) is part of a wind facility described in section 45(d)(1) for which the decision to treat the facility as energy property . under section 48(a)(5) (wind facility), or (ii) is owned by solar energy described in section 48(a)(3)(A)(i) (solar energy property) or is owned by a qualified small wind power capacity described in section 48(a)(3)(A)(vi) (small wind property), including energy storage technology (as described in section 48(a)(3)(A)(ix) ) "installed in connection with" such energy property qualifications. The Treasury Department and the IRS are proposing to define "installed in connection with" for energy storage technology to indicate what is required for that energy storage technology to be considered eligible property under section 48(e)(3) .

Under the proposed definition, energy storage technology would be “installed in connection” with other eligible property if (1) the energy storage technology and other eligible property are considered part of a single qualified wind and solar facility because the energy storage technology and Other eligible properties the properties are owned by a single legal entity, are on the same or contiguous land, have a common interconnection point, and are described in one or more common environmental or other regulatory permits; and (2) the energy storage technology is charged at least 50 percent hundred for the other eligible property. The Treasury Department and the IRS are also proposing to add a safe harbor, which would deem the energy storage technology to be charged at least 50 percent by the installation if the energy storage technology's rated power is less than 2 times the rated capacity of the of connected wind installation (in kW AC) or solar installation (in kW DC).Home Printed Page 35794

C. Financial Benefits for Class 3 and Class 4 Jobs

Section 48(e)(2)(D) provides that “electricity purchased at a below-market price” shall not cease to be an economic benefit. To clarify this language, the Treasury Department and the IRS are proposing definitions of the terms “economic benefit” and “electricity purchased at a below-market price” in section 48(e)(2)(D), as well as a manner Apply these definitions, as appropriate, to low-income housing special construction projects (section 48(e)(2)(B)) and special economic benefit projects (section 48(e)(2)(C)). The definitions and requirements would be different for a job in Class 3 (section 48(e)(2)(B)) and in Class 4 (section 48(e)(2)(C)).

1. Financial benefits for specialized low-income housing construction projects

For a facility to be treated as part of an approved low-income housing construction project, section 48(e)(2)(B)(ii) provides that the economic benefits of the electricity generated by such a facility must be distributed equitably among the tenants of the residential units of a residential rental building participating in a housing program or other affordable housing program (eligible residential property). The Treasury Department and the IRS propose to reserve allocations in this category only to applicants who will apply the economic benefits requirement under Category 3 as follows.

The Treasury Department and the IRS suggest that economic benefit can be demonstrated through net energy savings, as defined below. It would require at least 50 percent of the economic value of the net energy savings to be equitably passed on to building occupants. This requirement recognizes that not all of the economic value of net energy savings can be passed on to the building's occupants, because a certain percentage can be considered dedicated to reducing the operational cost of energy consumption for common areas, which benefits all occupants. of the building. The Treasury Department and the IRS are proposing to reserve grants in this category only for applicants who will equitably pass-through the net energy savings by distributing them equally among qualified low-income housing units under the allocation program. with distribution of proportional shares based on the electricity use of each residential unit.

This proposal takes into account the specificity of facilities serving low-income residential buildings and the ownership of facilities, as the facility may be owned by a third party or may be jointly owned with the building.

to. The facility and the special residential property have the same owner

In scenarios where the facility and qualified residential property are owned in common, the Treasury Department and the IRS propose to define the economic value of the net energy savings as the economic value equal to the greater of: (1) 25 percent of the economic gross value of the annual energy produced or (2) the gross economic value of the annual energy produced less the annual cost of operating the facility. The gross economic value of the annual energy produced is calculated as the sum of (a) the total self-consumed kilowatt-hours produced by the appropriate solar and wind installation multiplied by the metered electricity price of the corresponding building and (b) the total exported kilowatt-hours produced by the eligible solar and wind installation multiplied by the applicable volumetric building export offset rate for solar and wind kilowatt-hours. The annual operating cost is calculated as the sum of the annual debt service, maintenance, replacement reserve and other costs associated with maintaining and operating the eligible solar and wind facility.

If the facility and building are jointly owned, a signed benefit sharing agreement between the building owner and tenants will be required. The Treasury Department and the IRS are requesting comments on how to adjust the definitions of gross economic value to account for scenarios in which building occupants reimburse the facility owner for energy services.

si. The facility and the special residential property have different owners

In scenarios where the facility and qualified residential property have different owners and the facility owner enters into a power purchase agreement or other energy service contract with the owner of the qualified residential property, the Treasury Department and the IRS propose setting the net energy savings equal to with the greater of: (1) 50 percent of the economic value of the annual energy produced by the facility attributable to the owner of the special residence in the form of a utility bill credit and/or cash payments for excess net production, or (2 ) the economic value of the annual energy produced by the installation that accrues to the owner of the special residence in the form of a utility bill credit and/or cash payments for the net excess production less any payment made by the building owner to the owner of the installation for installation-related energy services in a given year. In these scenarios, the facility owner must enter into an agreement with the building owner for the building owner to distribute the savings to the residents.

The Treasury Department and the IRS are requesting comments on how to adjust the definitions of gross economic value to account for scenarios in which building occupants reimburse the facility owner for energy services.

C. Impact of measurement on the provision of financial benefits

Regardless of ownership status, residential buildings may have metered or submetered common use. The economic benefits of the electricity produced by the facility cannot be distributed to residents in main-metered buildings in the same way as in sub-metered buildings, and are often administratively infeasible in some sub-metered buildings. Therefore, the Treasury Department and the IRS are proposing that for submetered buildings, tenants should receive the economic value associated with utility bill savings in the form of a credit to their utility bills. The U.S. Department of Housing and Urban Development (HUD) has issued guidance for residents of HUD-assisted housing with submeters participating in community solar, providing an analysis of how community solar credits can affect the allocation of services utilities and the annual income for rent calculations.^[3]The Treasury Department and the IRS recommend that applicants follow HUD guidance and future HUD guidance on this topic to ensure that tenants' utility benefits and annual rental income calculations are not adversely affected.

The Treasury Department and the IRS are aware that in some states or jurisdictions it may not be administratively or legally possible to apply utility bill savings to residents' electric bills. The Treasury Department and the IRS request comments on this matter and how financial benefits, such as services and building improvements, can be provided to residents of such residential buildings.

For the main metered buildings, the Treasury Department and the IRSHome Printed Page 35795suggests that because residents do not have individual metered services and do not receive utility bills, the building owner must pass on the savings through other means, such as providing certain benefits to building residents beyond those provided prior to installation of the special solar and wind installation service. HUD has issued guidance on how residents of HUD-metered housing can benefit from the cumulative economic benefits shared by owners of a solar energy generation investment.^[4]The Treasury Department and the IRS recommend that applicants follow HUD guidance and future HUD guidance on this topic to ensure that tenants' utility benefits and annual rental income calculations are not adversely affected.

2. Financial benefits in approved low-income financial benefit projects

For a facility to be treated as part of a qualified low-income economic benefit project, section 48(e)(2)(C) requires that at least 50 percent of the economic benefits of the electricity generated by the facility be provided to qualified individuals. low income households. To meet this standard, the Treasury Department and the IRS propose to require that the facility serve multiple households and that at least 50 percent of the facility's total output be distributed to low-income households that qualify under Sec. 48(e)(2)( C) (i) or (ii). In addition, to further the overall goals of the program, the Treasury Department and the IRS are proposing to set aside grants in this category only for applicants who provide a discount credit line rate of at least 20 percent for all low-income households. The Treasury Department and the IRS propose to define a "bill credit discount rate" as the difference between the financial benefit distributed to the low-income household (including utility bill credits, income from household electric rate reductions, or other monetary benefits that raised by the household) and the cost of participating in the program (including renewable energy subsidy payments and any other fees or charges), expressed as a percentage of the economic benefit distributed to the low-income household . The discount rate of account credit can be calculated starting from the economic benefit distributed to the low-income household, deducting all payments made by the low-income customer to the facility owner and any related third parties as a condition of receiving that benefit. then dividing this difference by the economic benefit distributed to the low-income household.

To ensure these requirements are met, verification of low household income is required. Applicants are responsible for verifying proof of income and must submit documentation upon commissioning of the dedicated wind and solar facility that identifies each qualifying low-income household, the generation allocated to each low-income household in kW, and the income verification method used.

Applicants may use the eligibility category or other methods of income verification to qualify for low-income households. Categorical eligibility consists of obtaining evidence of the household's participation in a federal program, based on need.^[5]State, tribal, or public utility program with income limits at or below the appropriate income level for the particular facility (special program). State agencies (for example, state community solar/wind program administrators) may also provide verification of low-income status if the state program income thresholds are at or below the qualifying income level for facilities that qualify for solar and wind power. If a household is not enrolled in a qualifying program, additional methods of income verification may be used, such as: stubs, tax returns, or income verification through credit bureaus and commercial data sources. Eligibility based on the applicant (or contractors or subcontractors) collecting self-certifications is not permitted.

D. Location

An approved solar and wind facility is treated as being “located in a low-income community” or “on Indian territory” under section 48(e)(2)(A)(iii)(I) or is located in a geographic area under Additional Criteria option (see part II.C) if the facility meets the Nameplate Capacity Test.

Under the rated capacity test, a facility that has a rated capacity (for example, wind and solar facilities) is considered to be within or above the relevant geographic area if 50 percent or more of the facility's rated capacity is located in a designated area . The percentage of rated capacity of a facility is determined by dividing the rated power of the facility's power generating units located in the specialty area by the total rated power of all the facility's power generating units.

The rated power of a power generating unit means the maximum power output that the unit can produce in steady state and during continuous operation under standard conditions, as measured by the manufacturer and according to the definition provided.40 CFR 96,202. Power plants that generate direct current (DC) power before converting it to alternating current (AC) (for example, solar PV) must use the DC nameplate capacity. Otherwise, the nameplate AC must be used (for example, wind farms). Where applicable, International Organization for Standardization (ISO) terms are used to measure peak electrical power output or usable power capacity. The rated capacity of any energy storage technology installed in connection with the eligible solar and wind installation does not affect the rating of the rated capacity test.

II. Requirements and structure of the proposed program

A. Commissioning prior to assignment

As set forth in section 4.05 of Notice 2023-17, the Treasury Department and the IRS are proposing that facilities that become operational before being granted a capacity limitation allowance will not be eligible for reimbursement. As described in Notice 2023-17, one of the general goals of the Low Income Community Bonus Credit Program is to increase the adoption of and access to renewable energy installations in low-income and other communities with equity concerns. Facilities commissioned prior to the allocation process do not increase adoption and access to renewable energy facilities compared to the absence of the Low Income Community Bonus Credit Program. In addition, section 48(e)(4)(E)(i) states that a facility must become operational within four years of receiving the Capacity Limitation assignment, which supports assignments to new facilities. which have not yet been put into operation. Accordingly, the Treasury Department and the IRS continue to propose that facilities that were placed in operation before they were granted a capacity limitation allowance would not be eligible to receive an allowance.Home Printed Page 35796

B. Selection process

Pursuant to section 48(e)(4)(C), the total annual capacity limitation is 1.8 gigawatts of continuous current capacity for the calendar year 2023 program. Section 4.02 of Notice 2023-17 specifies how the Annual Limitation will be allocated Capacity among the four facility categories in 2023: Located in a Low-Income Community (Category 1), Located in Indian Territory (Category 2), Low-Income Specialized Housing Project (Category 3), and Low-Income Special Financial Benefit Project (Category 4). ). Section 4.07 of Notice 2023-17 provided that applications would be accepted on a staggered basis for calendar year 2023, during the 60-day application windows. Based on public comments in response to Notice 2023-17 and an updated assessment of the operational capabilities established to administer the program, a new approach is proposed.

The Treasury Department and the IRS expect that the number of eligible applicants seeking an allotment may exceed the total capacity limitation allotment available for allotment. Treasury and the IRS are designing an application process that ensures that grants are made to facilities that are making progress toward the program goals previously set forth in Notice 2023-17 and facilitates an efficient allocation process.

Accordingly, the Treasury Department and the IRS are proposing an approach that includes an initial application window in which applications received by a specified date and time will be evaluated together, followed by a rolling application process if the Capacity Limit is not met. initial application window. closes Facilities that meet at least one of two specific property classes and geographic criteria (Additional Selection Criteria) will be given priority for award in each facility class described in section 48(e)(2)(A) (iii). The Treasury Department and the IRS propose that at least 50 percent of the total capacity limitation in each facility category be reserved for facilities that meet the Additional Selection Criteria as follows.

In evaluating applications received during the initial application period, priority will be given to eligible applications for facilities that meet at least one of the two Additional Selection Criteria. If applications eligible for Capacity Limitation for Facilities that meet at least one of the two categories of Additional Selection Criteria exceed the Capacity Limitation for one category, facilities that meet both categories of Additional Selection Criteria will be prioritized for award. . An oversubscription category lottery system can be used to decide between applications in similar situations (for example, facilities that meet both categories of Additional Selection Criteria, facilities that meet only one of the two categories of Additional Selection Criteria, facilities that meet neither of the additional Selection Criteria Categories). An applicant could not pursue an administrative appeal against capacity limitation allocation decisions made under the Low Income Community Bonus Credit program.

If eligible applications for facilities meeting at least one of the two categories of additional selection criteria received during the initial application window total less than 50 percent of the capacity constraint for a category, the additional capacity constraint will be withheld during the rolling application period so that 50 percent of the total capacity limitation in the category will be reserved for these facilities.

Treasury and the IRS will retain the discretion to reallocate the Capacity Limit among classes and subclasses to maximize allocation in the event that one class or subclass is oversubscribed and another is overcapacity.

C. Additional selection criteria

The Treasury Department and the IRS propose that the two Additional Selection Criteria be Property Criteria and Geographic Criteria.

1. Ownership criteria

The Ownership Criteria category is based on the characteristics of the applicant who owns the eligible solar and wind facility. A licensed solar and wind facility will qualify for ownership if it is owned by a tribal corporation, an Alaska Native corporation, a renewable energy cooperative, a qualified renewable energy corporation that meets certain characteristics, or a special tax-exempt entity. If an applicant wholly owns an entity that owns an eligible solar and wind energy facility and the entity is not treated as separate from its owner for federal income tax purposes (a disregarded entity), the applicant and not the disregarded entity be the owner of the eligible solar and wind installation for the purposes of the Ownership Criteria.

O. tribal corporation

A "Tribal Company" for purposes of the ownership criteria is an entity that (1) is an Indian tribal government (as defined in Code section 30D(g)(9)) that owns at least 51 percent, either directly or indirectly ( through a wholly owned corporation formed under the laws of your tribe or through a section 3 or section 17 corporation),^[6]and (2) the Indian tribal government has the power to appoint and remove a majority (more than 50 percent) of the persons serving on the entity's board of directors or a corresponding board of directors.

si. Alaska Native Corporation

An "Alaska Native corporation" for purposes of the Ownership Criteria is defined in section 3 of the Alaska Native Claims Settlement Act,43 USC 1602 (m).

C. Renewable Energy Cooperative

A "renewable energy cooperative" for purposes of the ownership criteria is an entity that develops eligible solar and/or wind energy facilities and owns at least 51 percent of a facility and is (1) a member-controlled consumer or purchasing cooperative that are low-income households (as defined in section 48(e)(2)(C)) in which each member has equal voting rights, or (2) a labor cooperative controlled by its employee-members in which each member has the same right to vote.

Hey. Certified Renewable Energy Company

An “eligible renewable energy company” for purposes of the ownership criteria will be an entity that serves low-income communities and provides pathways for clean energy adoption by low-income households. In addition to its general business purpose, the Treasury Department and the IRS consider the following requirements that a qualified renewable energy business must meet:

(1) At least 51 percent of the equity capital of the entity is owned and controlled by (a) one or more persons, (b) a community development corporation (as defined in13 CFR 124.3), (c) an agricultural or horticultural cooperative (as defined in section 199A(g)(4)(A) of the Code), (d) an Indian tribal government (as defined in section 30D(g)(9)) , (e) an Alaska Native corporation (as defined in section 3 of the Alaska Native ClaimsHome Printed Page 35797settlement law,43 USC 1602 (m)), or (f) a Native Hawaiian organization (as defined in s13 CFR 124.3)

(2) After applying the controlled group rules under section 52(a) of the Code, you have fewer than 10 full-time equivalent employees (as defined in section 4980H(c)(2)(E) and (c)(4) ) of the Code) and less than $5 million in gross annual revenue in the preceding calendar year;

(3) first installed or operated an eligible solar and wind facility as defined in section 48(e)(2)(A) two or more years before the date of application; and

(4) Has installed or operates approved solar and wind energy facilities as defined in section 48(e)(2)(A) with at least 100 kW of cumulative rated power located in one or more low-income communities as defined in section 48( (e)(2)(A)(iii)(I).

The Treasury Department and the IRS request specific comments on these proposed elements to determine whether a business is a qualified renewable energy business. The Treasury Department and the IRS are also requesting comment on an administrative rule to ensure that qualified renewable energy companies employ workers in low-income communities.

my. Special Tax Exempt Entity

A "paid tax-exempt entity" for the purposes of the ownership criteria is:

(1) An organization exempt from the tax imposed by subtitle A of the Code because it is described in section 501(c)(3) or section 501(d).

(2) Any State, the District of Columbia or political subdivision thereof, any territory of the United States, or any agency or instrumentality of any of the foregoing.

(3) An Indian tribal government (as defined in section 30D(g)(9)), political subdivision thereof, or any agency or instrumentality of any of the foregoing. either

(4) Any corporation described in section 501(c)(12) that operates cooperatively and is dedicated to providing electricity to people in rural areas.

2. Geographical criteria

The Geographical Criteria category is based on where the facility will be commissioned. To meet the Geographic Criteria, a facility must be located in a Persistent Poverty County (PPC)^[7]or in an inventory designated in the Climate and Economic Justice Assessment Tool (CEJST) as disadvantaged based on whether the area is (a) greater than or equal to the 90th percentile for energy load and is greater than or equal to the 65th percentile for low income, or (b) greater than or equal to the 90th percentile for PM_2.5exposure and is greater than or equal to the 65th percentile for low income.^[8]The Treasury Department and the IRS propose that applicants who meet the Geographic Criteria at the time of application are considered to continue to meet the Geographic Criteria during the recovery period, unless the location of the establishment changes.

A PPC is generally defined as any county where 20 percent or more of residents have experienced high rates of poverty in the past 30 years. For purposes of the Low Income Community Bonus Credit Program, the Treasury Department and the IRS propose the PPC measure adopted by the US Department of Agriculture to make this determination. The latest measure, which would be effective for the 2023 program year, incorporates poverty estimates from the 1980, 1990, and 2000 Censuses and the five-year average from the 2007–11 American Community Survey.

D. Individual Allocation Reserves for Facilities Located in a Low-Income Community

Notice 2023-17 provided that 700 megawatts of the calendar year 2023 capacity limitation would be reserved for Class 1. Treasury and the IRS expect Class 1 to receive the largest number of applications, with most applications being for small residential rooftops solar. facilities. Therefore, Treasury and the IRS are proposing to subdivide the 700 MW reserve capacity limitation for facilities seeking a Class 1 allocation with 560 megawatts earmarked specifically for eligible residential behind-the-meter (BTM) facilities, including rooftop solar . Committing a significant portion of the allocation to Class 1 for eligible BTM residential facilities would help ensure that allocations are made primarily to facilities serving homes and consumers, rather than facilities serving businesses. The remaining 140 megawatts of Power Limitation will be available to applicants with front-end meter (FTM) installations, as well as non-residential BTM installations.

The Treasury Department and the IRS are proposing to designate an eligible residential BTM facility as a qualified single- or multi-family solar and wind residential facility that does not meet the requirements for Class 3 and is a BTM. A licensed wind and solar installation is a BTM if: (1) it is connected by an electrical connection between the installation and the panel or subpanel of the site where the installation is located, (2) it is to be connected to the customer side of a utility meter before it is connected to a system distribution or transmission (ie, before it is connected to the electric grid) and (3) its primary purpose is to supply electricity to the utility customer at the location where it is located find the facility where it is located. This also includes off-grid systems that may not have a utility meter and whose primary purpose is to serve the electricity demand of the owner of the site where the system is located.

The Treasury Department and the IRS are proposing to designate an FTM facility. An installation is an FTM if it is directly connected to a network and its sole purpose is to supply electricity to one or more off-site locations through that network. Alternatively, FTM is defined as a non-BTM facility.

E. Application Materials

Section 48(e)(4)(A) directs the Secretary to provide procedures to permit an efficient allocation process. In addition, section 48(e)(4)(E)(i) requires facilities awarded a capacity restriction amount to be placed in service within four years of the date of award. To promote efficient allocation and to better ensure that grants are awarded to facilities that are viable and sufficiently defined to allow a review of an allocation and advanced enough to meet the established four years. service deadline, the Treasury Department and the IRS are proposing to require applicants to submit certain documents and certifications when applying for an award. Some requirements differ for FTM and BTM facilities and other requirements differ based on category and additional selection criteria.Home Printed Page 35798

Under this proposed approach, applicants should submit the following:

1. Documentation and certifications to be provided for all installations

2. Documentation and certifications to be submitted for certain facilities depending on category and additional selection criteria

F. Documentation and certifications to be provided when put into service

The Treasury Department and the IRS are also proposing to require facilities that have received a capacity curtailment allowance to notify the Department of Energy (DOE) that the facility has become operational and to submit additional documentation or complete additional certifications with that report. At the time of application, applicants will not necessarily be able to demonstrate that they meet certain eligibility requirements, as the facility would not yet be operating at that time. The award report requirement would allow for final verification that facilities awarded a Capacity Limitation Allowance meet certain eligibility requirements under the Low Income Community Bonus Credit program.

The applicant-owner shall submit documents or sign a certificate for the following:Home Printed Page 35799

G. Post-Award Compliance

1. Ban after receiving an assignment

The Treasury Department and the IRS recognize that because under section 48(e)(4)(E)(i) an applicant has four years after the date of assignment of a capacity limitation to place an eligible property in service, the conditions may change before the property is put into operation so that a facility is no longer eligible for the allocation it received. In addition, to promote an efficient allocation process under section 48(e)(4)(A), the Treasury Department and the IRS want to discourage material changes to project designs, such as significant reductions in the size of facilities that limit limited capacity . which might otherwise be awarded to other qualifying facilities.

Accordingly, the Treasury Department and the IRS propose that a facility that is granted a capacity limitation allowance be disqualified from receiving that allowance if before or after the facility becomes operational: (1) the location where the facility will be operational changes; (2) the rated capacity of the facility is increased so as to exceed the AC output limitation below 5 megawatts provided in section 48(e)(2)(A)(ii) or is reduced by 2 kW or 25, whichever is earlier; bigger. percentage of the capacity limitation granted in the award; (3) the facility is unable to meet the economic benefit requirements under section 48(e)(2)(B)(ii) as scheduled (if applicable) or does not is able to meet the financial benefit requirements under section 48(e)( 2)(B)(ii) section 48(e)(2)(C) ) as provided (if applicable). (4) the eligible property that is part of the facility that received the Capacity Limitation assignment is not placed in service within four years of the date the applicant was notified of the Capacity Limitation assignment to the facility. or (5) the facility received a Capacity Limitation assignment based, in part, on meeting the Ownership Criteria, and ownership of the facility changes before the facility becomes operational so that the ownership criteria are no longer met, unless a) the original applicant retains title to the entity owning the facility and b) the successor owner certifies that after the five-year repayment period, the original applicant who met the Ownership Criteria will become the owner of the facility or that such original applicant will have a right of first refusal.

2. Recovery of the increase of article 48 point e).

Section 48(e)(5) requires the Secretary, by regulations or other guidance, to provide rules for recapturing the benefit of any section 48(e) increase with respect to any property that ceases to be eligible section 48 property (e). 48(e). ) Increase (but not ceasing to be real estate investment credit within the meaning of Article 50(a)). The period and rate of this recovery are determined by rules similar to the rules in section 50(a). To the extent provided by the Secretary, such recovery may be waived in respect of any property if, within 12 months after the applicant becomes aware (or should reasonably be aware) that such property ceases to be eligible property under that section 48(e ) Increase, the eligibility of this property for such Section 48(e) increase is restored. This restoration of a section 48(e) increase is not available more than once with respect to any facility.

The Treasury Department and the IRS propose that the following circumstances result in a recapture event if the property is no longer eligible for the increased credit under section 48(e): (1) property described in section 48(e)(2 )( A) iii) (II) does not provide financial benefits for a period of 5 years after its initial date of operation. (2) the property described in section 48(e)(2)(B) fails to distribute economic benefits equitably among the occupants of the dwelling units, such as failing to pass on the required net energy savings from electricity to the occupants; (3 ) the property described in section 48(e)(2)(C) ceases to provide at least 50 percent of the economic benefits of the electricity produced to qualified households as described in section 48(e) ( 2)(C)(i) or (ii), or does not provide such households with the required minimum discount rate of account credit of 20 percent; (4) for the property described in section 48(e)(2)(B); ), the residential rental building of which the facility is a part ceases to participate in a covered housing program or any other housing program described in section 48( e)(2)(B)(i), if applicable; and (5) an installation increases its output so that the output of the installation is 5 MW AC or more, unless the applicant can demonstrate that the increased output cannot be attributed to the original installation but is generation related to a new installation below from the 80/20 Rule (the cost of the new property plus the value of the used property). See Rev. Rule. 94–31, 1994–1 BC 16.

Proposed Implementation Date

The proposed rules are proposed to be effective for taxable years ending on or after the date of publication of the final rules adopting these proposed rules inFederal registration.

Special Analysis

I. Regulatory Planning and Review—Economic Analysis

Executive Orders 13563 and 12866 direct agencies to evaluate the costs and benefits of available regulatory alternatives and, if regulation is required, to chooseHome Print Page 35800approaches that maximize net benefits (including potential economic, environmental, public health and safety, distributional and equity impacts).Executive Order 13563stresses the importance of quantifying both costs and benefits, reducing costs, harmonizing rules and promoting flexibility.

These proposed rules have been designated by the Office of Information and Regulatory Affairs (OIRA) of the Office of Management and Budget as subject to review under Executive Order 12866 pursuant to the Memorandum of Agreement (April 11, 2018) between the Treasury Department and the Office of Management and Budget (GP) regarding the revision of tax regulations. OIRA has determined that the proposed regulation is substantive and subject to review under Executive Order 12866 and section 1(b) of the Memorandum of Understanding. Accordingly, the proposed rules have been revised by OMB.

II. Red Tape Reduction Act

The Red Tape Reduction Act of 1995 (44 USC 3501–3520) (PRA) requires a Federal agency to obtain OMB approval before collecting information from the public, whether that information collection is mandatory, voluntary, or required to obtain or maintain a benefit. The information collections in these proposed regulations contain reporting and recordkeeping requirements necessary to achieve the section 48(e) increase. This information in the information collections will generally be used by the IRS and DOE for tax compliance purposes and by taxpayers to facilitate proper reporting and compliance. A federal agency may not conduct or sponsor, and an individual is not required to respond to, a collection of information unless the collection of information displays a valid control number.

The recordkeeping requirements set forth in this proposed regulation are generally considered tax records under Section 1.6001–1(e). These records are necessary for the IRS to certify that taxpayers have met the regulatory requirements and are eligible to receive the Section 48(e) increase. For PRA purposes, general tax records have already been approved by OMB under 1545-0123 for business taxpayers, 1545-0074 for individual taxpayers, and 1545-0047 for tax-exempt organizations.

The proposed regulation also addresses reporting requirements related to the submission of certifications and supporting documentation for the initial application, supplemental documentation for specific facilities, and to confirm that a facility is operating as described in this NPRM. These certifications and documentation will allow the IRS to set the Capacity Limitation and ensure that taxpayers maintain and maintain credit compliance. To assist in the collection of information, DOE will provide certain administrative services for the Low Income Community Bonus Credit Program. Among other things, DOE will establish an online portal to review applications for eligibility criteria and provide recommendations to the IRS regarding the selection of capacity limitation allowance applications. These collection requirements will be submitted to the Office of Management and Budget (OMB) in accordance with 1545-NEW for review and approval in accordance with5 CFR 1320.11. Potential respondents are business filers, individual filers and tax-exempt organizations. A summary of the paperwork burden estimates for the application and certifications is as follows:

Estimated number of respondents:70.000.

Estimated load per response:60 minutes.

Estimated frequency of response:1 for initial applications, 1 for follow-up documentation and 1 for commissioned projects.

Estimated total charging hours:210,000 charging hours.

The IRS will request comments on the application fee requirements and certifications. Commenters are encouraged to submit public comments online. Written comments and recommendations on the proposed data collection should be sentwww.reginfo.gov/​public/​do/​PRMain,with copies to the Internal Revenue Service. Find this particular collection of information by selecting "Currently under review: open for public comment” then using the search function. Submit electronic submissions for Proposed Collection of Information to the IRS by email atpra.comments@irs.gov(put REG–110412–23 in the Subject line). Comments on the information collection are due by June 30, 2023. Specific comments are requested on:

Whether the proposed collection of information is necessary for the proper performance of the IRS' functions, including whether the information will be of practical utility. The accuracy of the estimated load associated with the proposed data collection. How the quality, usefulness and clarity of the information to be collected can be improved. How the burden of complying with the proposed collection of information can be minimized, including through the application of automated collection techniques or other forms of information technology; and estimates of the capital or start-up costs and the costs of operating, maintaining and purchasing services to provide the information.

third law of regulatory flexibility

The law of regulatory flexibility (5 USC 601 u ss.) (RFA) imposes certain requirements with respect to federal rules that are subject to the notice and comment requirements of section 553(b) of the Administrative Procedure Act (5 USC 551 u ss.) and are likely to have a significant economic impact on a significant number of small entities. Unless an agency determines that a proposal is not likely to have a significant economic impact on a substantial number of small entities, the section 603 RFA requires the agency to submit an initial regulatory flexibility analysis (IRFA) of the proposed rule. The Treasury Department and the IRS have not determined whether the proposed rule will likely have a significant economic impact on a substantial number of small entities. This determination requires further study and an IRFA is provided in these proposed regulations. The Treasury Department and the IRS invite comment on the number of entities affected and the financial impact on small entities.

Pursuant to section 7805(f), this notice of proposed rulemaking has been sent to the Small Business Administration's Senior Advocacy Counsel for comment on its impact on small businesses.

1. Need and objectives of the rule

The proposed regulations would provide guidance for purposes of participation in the program's allocation of the environmental limitation of solar and wind capacity under §48(e) for the Low Income Community Credit Bonus Program. The proposed rule is expected to encourage applicants to invest in solar and wind energy. Therefore, the Treasury Department and the IRS intend and expect that the proposed rule will provide economy-wide and environmental benefits that will beneficially affect various industries.

2. Small Affected Entities

The Small Business Administration estimates in its 2018 Small Business Profile that 99.9 percent of businesses in the United States meet its definition of a small business. The possibility of applying theseHome Print Page 35801the proposed arrangements do not depend on the size of the business, as defined by the Small Business Administration. As described in more detail in the preamble to this proposed regulation and in this IRFA, these rules may affect a variety of different businesses in different service industries.

The Treasury Department and the IRS expect to receive more information about the impact on small businesses through comments on this proposed rule and again when participation in the Low Income Community Bonus Credit Program begins.

3. Effect of Rules

Recordkeeping and reporting requirements will be increased for applicants participating in the Low Income Communities Bonus Credit Program. Although the Treasury Department and the IRS do not have sufficient data to accurately determine the likely extent of increased compliance costs, the estimated burden of complying with the recordkeeping and reporting requirements is described in the preamble section of the Paperwork Reduction Act.

4. Alternative solutions are considered

The Treasury Department and the IRS considered alternatives to the proposed regulations. For example, the Treasury Department and the IRS considered using a lottery system exclusively for all oversubscribed categories, rather than creating reserves for facilities that meet additional selection criteria. While a lottery system may ultimately need to be used for an oversubscribed class, the Treasury Department and the IRS determined that it was important to recommend the reservation of the Capacity Limit for facilities that meet certain selection criteria. Additions that further the policy objectives of Low Income Communities. Credit bonus program.

Additionally, in considering how to define “in connection with,” the Treasury Department and the IRS noted that the Act requires energy storage technology to be installed in connection with an eligible solar or wind facility to be eligible for an energy boost. percentage used to calculate the amount of the section 48 credit. Different alternatives were considered as to how this definition should be approached. For example, the Treasury Department and the IRS considered but ultimately decided not to incorporate the proposed safe harbor (noting that the energy storage technology must be at least 50 percent loaded by the installation if the energy storage technology's capacity is less than 2 times the rated capacity of the connected wind or solar) as part of the general rule defined "in relation to". Instead, the proposed general rule requires that the energy storage technology has a sufficient relationship to the other eligible property because it is part of the single project and substantially charged by the eligible property.

Another example where different alternatives were considered was with regard to application materials. Section 48(e)(4)(A) directs the Secretary to provide procedures to permit an efficient allocation process, and section 48(e)(4)(E)(i) allows the applicant up to four years after the receiving Capacity Limitation Allowance for the commissioning of eligible properties. Alternatives were considered on how best to balance these legal requirements, taking into account practical issues for taxpayers and residents, as well as the traditional structure and arrangement of these solar and wind energy transactions, including considerations regarding the type of installation (BTM or FTM ) and the capacity of the facility. Among other things, the Treasury Department and the IRS have considered whether to require an application for an interconnection agreement or an executed interconnection agreement as part of the application materials. The proposed regulations are based on the view that the concluded interconnection agreement, if applicable, is necessary documentation to demonstrate the sufficient maturity of the project.

In addition, the Treasury Department and the IRS considered a variety of bill credit discounts for qualified Class 4 low-income benefit project facilities. The bill credit discounts considered included 10 percent, 15 percent, or 20 percent. Alternatively, the Treasury Department and the IRS considered selecting a range of discounts from 10 to 20 percent from which applicants could choose which discount rate to provide to low-income customers. However, to ensure that low-income customers receive significant financial benefits, the Treasury Department and the IRS decided to propose a 20% discount.

5. Duplicate, Overlapping, or Conflicting Federal Rules

The proposed rule would not duplicate, overlap, or conflict with any relevant federal rule. As discussed in the Explanation of Provisions, the proposed rules would simply provide requirements, procedures, and definitions related to the Low Income Community Bonus Credit Program. The Treasury Department and the IRS invite interested members of the public to provide input on how to identify and avoid overlapping, duplicative, or conflicting claims.

IV. Unfunded Mandate Reform Act

Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) requires agencies to evaluate expected costs and benefits and take certain other actions before issuing a final rule that includes any federal mandates that may result in costs in any year by a State, local, or tribal government, as a whole, or by the private sector, $100 million in 1995 dollars, adjusted annually for inflation. This proposed rule does not include federal mandates that could result in expenditures by state, local, or tribal governments or by the private sector that exceed this limit.

vExecutive Order 13132: federalism

Executive Order 13132(Federalism) prohibits an agency from promulgating any rule affecting federalism if the rule imposes direct and substantial compliance costs on state and local governments and is not required by law or preempts state law unless the agency complies with the consultation and funding requirements. requirements of Article 6 of the Executive Order. These regulations do not affect federalism and do not impose substantial direct compliance costs on state and local governments or override state law in the sense of an executive order.

Comments

Before these proposed rules are adopted as final rules, comments are submitted to the IRS in a timely manner as set forth in this preambleADDRESSESUnity. The Treasury Department and the IRS request comments on all aspects of the proposed rules. Any electronic or paper comments submitted will be available athttps://www.regulations.govor upon request.

IRS Document Availability Statement

The guidance referenced in this preamble is published in the Internal Revenue Bulletin and is available from the Superintendent of Records, US Government Publications Office, Washington, DC 20402, or by visiting the IRS website athttps://www.irs.gov.

Writing information

The lead author of these proposed rules is the Office of Associate Legal Counsel (PassthroughsHome Printed Page 35802and Special Industries), IRS. However, other personnel from the Ministry of Finance and the Tax Office participated in its preparation.

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