Applying for Section 48C Tax Credits
Manufacturers angling for some of the $10 billion in tax credits that the Inflation Reduction Act authorizes to encourage construction of new US factories to make products for the green economy must submit concept papers to the US Department of Energy by July 31.
After reading the concept papers, DOE will “encourage” or “discourage” applicants from submitting actual applications.
Of the $10 billion in available tax credits, $4 billion will be allocated in a first round. One or more other rounds to allocate the rest should follow soon after round one. DOE will rank the applications and make recommendations to the Internal Revenue Service. The IRS will make the actual allocations.
Projects must be completed within two years after receiving an allocation.
The IRS issued interim guidance in February about what qualifies for tax credits and how the process will work. The interim guidance is in Notice 2023-18.
More guidance is expected by the end of May, presumably including a timetable for the phase one allocations and for allocating the rest of the tax credits.
The tax credits are available under section 48C of the US tax code. Manufacturers can claim them for doing any of three things.
One is building a new factory or re-equipping an existing factory 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 cost of the project. 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% or 15% of total labor hours, depending on when construction starts.
Tax credits will not be allocated to any projects in census tracts that were allocated some of the $2.3 billion in similar tax credits that the federal government allocated in 2010 and 2013.
At least $4 billion of the $10 billion in tax credits must go to projects in census tracts (or adjoining tracts) where a coal mine closed after 1999 or a coal-fired generating “unit” was retired after 2009. The government will issue a map showing what areas qualify. Of the phase-one $4 billion, $1.6 billion has been tentatively earmarked for projects in such census tracts.
There is no benefit to rushing an application. All applications will be treated as submitted on the last day of the applications window.
A significant change in facts after an application is submitted will void the allocation for a project that has already received an award. If the government is informed before the allocations, the project will fall out of the phase one queue but can reapply in the next round. A change is significant if it might have affected the ranking that DOE assigns to the project. A change in location to a different census tract is considered significant.
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 a special-purpose project company that is then moved under a 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 in the application.