Manufacturer tax credits: Section 48C

Manufacturer tax credits: Section 48C

June 23, 2023 | By Keith Martin in Washington, DC

Manufacturers who plan to apply for an initial round of $4 billion in tax credits for building new production lines and re-equipping existing lines to make products for the green economy have until noon eastern time on July 31 to submit concept papers to the US Department of Energy.

The papers are submitted through a DOE eXCHANGE portal at

The portal is expected to open around June 30.

Another $6 billion in tax credits will be allocated in a second round. The deadline to submit concept papers for it has not been announced yet.

The credits are available under section 48C of the US tax code. They are 30% of the cost of a new factory or assembly line. Manufacturers must apply to the IRS for an allocation. The IRS has $10 billion in such tax credits in total to allocate.

The Inflation Reduction Act gave manufacturers a choice of two tax credits.

The other is a section 45X tax credit for making components for wind, solar and storage projects and extracting or processing 50 critical minerals. Section 45X credits are generally fixed amounts for each wind, solar or storage component produced and sold through 2032. For example, the tax credit is 4¢ a watt for making solar cells and 7¢ a watt for making solar modules. The tax credit for minerals producers is 10% of the cost of the extraction or processing done in the United States without any time limit.

Manufacturers who have the option to claim both section 48C and 45X credits must ordinarily choose one.

However, the Internal Revenue Service opened the door on May 31 for some manufacturers to claim both tax credits.

An example in Notice 2023-44 describes a factory with two production lines that operate in serial fashion. One makes photovoltaic wafers and the other uses the wafers to make photovoltaic cells. The factory owner claimed a section 48C tax credit on the wafer production line. The line that makes cells can function independently of the other production line. Therefore, the notice says, it is treated as a separate "facility" and section 45X credits can be claimed on it.

After reading the concept papers, DOE will "encourage" or "discourage" applicants from submitting actual allocations.

A portal will open to applicants seven days after receiving the DOE letter so that they can submit applications. Applications must be filed within 45 days later.

All of the first round allocations will be made by March 31, 2024.

Section 48C requires at least 40% of the $10 billion in tax credits to be allocated to projects in census tracts or directly adjoining tracts where a coal mine closed after 1999 or a coal-fired generating unit was retired after 2009. The IRS issued a table with a list of such census tracts on April 4 that can be found here. It supplemented the table on June 15 with a few more census tracts in Michigan, New Jersey and Texas that can be found here.

Roughly $1.6 billion of the first-round $4 billion in tax credits will be allocated to facilities in such census tracts. At least 50% of the square footage of the facility must be in such a census tract to qualify.

DOE will rank projects and make recommendations to the IRS. Projects must be commercially viable. The highest rankings will be given to projects that will create the greatest number of jobs, lead to the greatest net reduction in or avoidance of greenhouse gas emissions, involve the most technical innovation and will take the shortest time to complete.

An applicant must notify DOE within two years after receiving an award that the project will conform to the planned project. The IRS will then send a "certification letter."  The applicant must notify DOE through the exchange portal within two years after receiving the certification letter that the facility was put in service.

There is no benefit to rushing an application. All applications will be treated as submitted on the last day of the applications window.

Applicants must inform DOE and the IRS of any significant change in the plan described in the concept paper or application. A change is significant if it could have adversely affected the DOE ranking for the project or the IRS decision to make an allocation.

If the change occurs after an allocation has been made, the tax credits will be forfeited. A change made during the review process could cause the project to be bumped to the next allocation round.

Applicants who are denied tax credits can receive a briefing from DOE about where they fell short.

Tax credits cannot be claimed on equipment that is already in service when the applicant receives an award.

Manufacturers can claim section 48C credits for doing any of three things.

One is building a new production line or re-equipping an existing line to make a long list of products for the green economy. Notice 2023-18 has a list of both eligible and ineligible products.

Tax credits can also be claimed for re-equipping an existing factory to reduce greenhouse gas emissions by at least 20%.

They can also be claimed for building a new facility or re-equipping an existing facility to process, refine or recycle any of 50 critical minerals.

The tax credit is 30% of the amount of the new invested capital. The manufacturer must ensure that mechanics and laborers working on the project during construction are paid at least the same wages that are paid on federal construction jobs. Qualified apprentices must also be used for 12.5% to 15% of total labor hours, depending on when construction starts. (For more detail, see "IRS Issues Wage and Apprentice Requirements.")

Tax credits will not be awarded to any projects in census tracts that were allocated some of the $2.3 billion in similar tax credits that the federal government awarded in 2010 and 2013.

An award cannot be transferred, even to a successor in interest to the original applicant, without IRS permission. Any request to transfer must be made to the IRS at least 30 days before the due date for the successor in interest's tax return for the tax year the transfer occurs.

This creates a potential obstacle for tax equity financings where the project is moved into a tax equity vehicle. The application would have to be filed in the name of the special-purpose project company that is then moved under the tax equity partnership.

The IRS will not approve a transfer if there has been a significant change in the information provided by the original applicant.

The IRS will publish the names of award recipients and how much they were awarded. Applicants can try to prevent any confidential or proprietary information from being released in response to Freedom of Information Act requests by marking such information as confidential in the application.