On October 5, 2022, the U.S. Treasury Department (the Treasury) and Internal Revenue Service (IRS) released six notices requesting public comment on the new and expanded energy tax provisions in the Inflation Reduction Act of 2022 (IRA). Each notice is focused on particular aspects of the IRA changes, as follows:
- Notice 2022-46: Request for comments on "Consumer Vehicle Credits" under Code Sections 25E (previously owned clean vehicles credit) and 30D (new clean vehicles credit)
- Notice 2022-47: Request for comments on "Manufacturing Credits" under Code Sections 45X (advanced manufacturing production credit) and 48C (qualified advanced energy project credit)
- Notice 2022-48: Request for comments on "Incentives for Homes/Buildings" under Code Sections 25C (energy efficient home improvement credit), 25D (residential clean energy credit), 45L (new energy efficient home credit), and 179D (energy efficient commercial buildings deduction)
- Notice 2022-49: Request for comments on "Energy Generation Incentives" under Code Sections 45 (production tax credit), 45U (zero-emission nuclear power production credit), 45Y (clean electricity production credit), 48 (investment credit), and 48E (clean electricity investment credit)
- Notice 2022-50: Request for comments on "Credit Monetization" under Code Sections 6417 (direct payment election) and 6418 (transferability)
- Notice 2022-51: Request for comments on "Credit Enhancements" under Code Sections 30C, 45, 45L, 45Q, 45U, 45V, 45Y, 45Z, 48, 48C, 48E, and 179D, pertaining to the "prevailing wage," "apprenticeship," "domestic content," and "energy community" provisions
Details of the Requests
New and used clean vehicles. Notice 2022-46 requests comments on three important areas in need of clarification—the "critical mineral" requirement, the "battery component" requirement, and the "final assembly" requirement. Collectively, the interpretation of these requirements may have a substantial impact on the number of passenger vehicles and light trucks eligible for a Code Section 30D tax credit of up to $7,500. In August 2022, the U.S. Department of Energy issued a list of vehicles that it determined, pursuant to the IRA, satisfy the "final assembly" requirement for model year 2022 and early model year 2023 based on data submitted to the National Highway Traffic Safety Administration and FuelEconomy.gov as of August 1, 2022. The vehicles included on this list, as it may be modified, must also meet the "critical mineral" and "battery component" requirements to be eligible for the full $7,500 credit.
New manufacturing incentives. Notice 2022-47 requests comments regarding the definition of eligible components under Code Section 45X and the selection criteria for receiving allocations under Code Section 48C. Of particular note, the specific requests included in this notice focus on clarifications regarding various eligible components for batteries (and relatedly, critical minerals), as well as offshore wind components. For example, the Treasury requests comments on further detail with respect to purification, conversion, and refinement for the authorized critical minerals.
Energy generation activities. Notice 2022-49 includes requests for comments on the new standalone energy storage credit in Code Section 48 and standards for determining the greenhouse gas emission reductions related to the new technology-neutral production tax credit under Code Section 45Y and technology-neutral investment tax credit under Code Section 48E.
Direct pay and transferability. Notice 2022-50 specifically requests comments on the timing and manner for making either the direct pay election or the transferability election, in addition to issues relating to elections made by partnerships and S corporations. The IRA created a new regime by authorizing transferability and direct pay of certain tax credits, creating a new tax credit market, and providing alternative pathways for financing renewable energy projects and manufacturing.
Domestic content and energy communities. Finally, Notice 2022-51 requests comments on the documentation, reporting, and compliance requirements for claiming each of the domestic content and energy community bonus credits, and meeting the prevailing wage and apprenticeship requirements to claim the 5x multiplier for various IRA credits. For the prevailing wage requirements, the IRS has requested comments on whether guidance is needed on how to apply the existing Davis-Bacon prevailing wage laws to energy tax credits. For the apprenticeship requirements, comments are requested on the good faith exception in Code Section 45(b)(8)(D)(ii), which provides that a taxpayer need not employ the requisite percentage of apprentices if they request such apprentices from a registered apprenticeship program, and such request was either denied or is not responded to within five days of submitting the request. For the domestic content requirements, the IRS requested comments on how to apply the existing Buy America requirements. These requests for comments come at the same time as the Bipartisan Infrastructure Law authorized a permanent increase in existing domestic content requirements applicable to government contracts, loans, grants, loan guarantees, and insurance for infrastructure projects, and as the U.S. Department of Labor is currently updating Davis-Bacon and related acts with respect to wage determinations and other matters that may ultimately result in higher wage rates as applied to prevailing wage requirements under the IRA.
Forthcoming and Excluded Topics
Notably, the IRS and Treasury did not issue notices requesting comments on the Code Section 45V hydrogen production credit or Code Section 45Q carbon sequestration credit. We expect additional notices for these and other IRA provisions to be issued in the coming weeks.
The prevailing wage and apprenticeship requirements apply to projects that begin construction after a date that is 60 days after the Treasury and the IRS publish guidance implementing the prevailing wage and apprenticeship requirements. Projects that begin construction before then can claim the bonus rates available even if they do not satisfy the requirements. The notices made clear that they do not constitute guidance for purposes of triggering this requirement, and that the Treasury and the IRS will explicitly identify when they have published guidance for this purpose.
Commenting in Response to the Requests
The Treasury and the IRS have requested that comments be submitted by November 4, 2022, though they will continue to accept comments after that date provided such comments do not materially delay the issuance of proposed regulations under the applicable Code sections. Further opportunity to comment on proposed regulations will be forthcoming as the rulemaking process unfolds over the coming months and into next year, but this first opportunity is an important milestone in the IRA implementation process.
Our team would be pleased to assist you in preparation of your comments on issues of particular interest or concern. For more information on issues pertaining to tax and energy and climate solutions, please contact Wilson Sonsini attorneys Brandon King, Jaron Goddard, Hershel Wein, or Nicole Gambino.
