Section 48C application process set to reopen

 

The IRS has issued guidance (Notice 2024-36) outlining the process and criteria for taxpayers to apply for the remaining $6 billion allocation of credits for energy projects under Section 48C. The IRS said it will begin accepting concept papers no later than May 28, 2024, meaning the deadline will be June 27 at the latest.

 

The Section 48C credit program was resurrected by the Inflation Reduction Act and provides a 30% credit for investments in manufacturing equipment for a wide variety of energy-related products. Taxpayers must apply to receive a portion of the limited $10 billion allocation, and 40% of the allocation is earmarked for projects in specific census tracts.

 

The application process for the first round of allocations was conducted in 2023, and the IRS recently announced $4 billion in awards. The second round will allocate the remaining $6 billion. At least $2.5 billion of that allocation must be awarded to projects in census tracts listed in Appendix C of Notice 2024-36 (also available in a mapping tool).

 

 

The full second-round application process and updated criteria for judging submissions were provided in Appendices A and B of Notice 2024-36. Like in the first round, the application process will consist of two steps: a concept paper and a full application. Both must be submitted through an online portal from the Department of Energy (DOE). Taxpayers will have 30 calendar days to submit concept papers once the portal opens, which the IRS said would be no later than May 28.

 

The DOE will review the papers and provide taxpayers with a letter encouraging or discouraging them to apply. Taxpayers who receive a letter of discouragement may still submit a full application, but the letter represents the DOE’s feedback that the project is unlikely to receive a recommendation based on the information provided.

 

The IRS said it planned to open the portal for full applications in “Summer 2024.” Taxpayers will have 50 calendar days to submit applications once the portal opens. The IRS said it would inform applicants of allocation decisions no later than Jan. 15, 2025.

 

Grant Thornton Insight:

 

Competition for the remaining funding will be fierce. In the first round of funding, the IRS received concept papers worth nearly $42 billion in tax credits. It received approximately 250 full applications from projects requesting a total of $13.5 in billion tax credits, and was only able to fund around 100. A third round will only be conducted if there are leftover funds because an allocation is rescinded or withdrawn.

 

Taxpayers interested in applying should immediately begin working on concept papers and applications. Successful submissions will need to include clear and convincing documentation to support fulfilling the program’s objectives, with demonstrable progress on key steps toward commercial viability and satisfying the judging criteria.

 

The guidance in Appendix A on qualifying property and the judging criteria is fairly similar to that from the last round, though there are changes to some of the examples of qualifying projects under the various categories. The IRS also added electric heat pumps and low-carbon production of energy-intensive products like cement, concrete, iron, steel, and aluminum to its list of priority project areas. The other priority areas remain unchanged and include:

  • Clean hydrogen
  • Electric grid
  • Electric vehicles
  • Nuclear energy
  • Solar energy
  • Wind energy
  • Sustainable aviation fuels

The credit is potentially available to a broader range of activities than many other energy credits, but obtaining funding for projects outside of the priority areas can be difficult. The credit is generally available for:

  • Projects that re-equip, expand or establish an industrial facility for the processing, refining or recycling of critical minerals.
  • Projects that re-equip an industrial or manufacturing facility with equipment designed to reduce greenhouse gas emissions by at least 20% through the installation of the following:
    • Low-or-zero-carbon process heat systems
    • Carbon capture, transport, utilization and storage systems
    • Energy efficiency and reduction in waste from industrial processes
    • Other industrial technology designed to reduce greenhouse gas emissions, as determined by Treasury
  • Projects to re-equip, expand or establish an industrial or manufacturing facility for the production or recycling of the following:
    • Property designed to produce energy from the sun, water, wind, geothermal deposits or other renewable resources
    • Fuel cells, microturbines or energy storage systems and components
    • Grid modernization equipment or components
    • Property designed to capture, remove, use or sequester carbon dioxide emissions
    • Equipment designed to refine, electrolyze or blend renewable or low-carbon fuels, chemicals, or products
    • Fuel cell or electric vehicles, and their components, materials and charging infrastructure
    • Hybrid vehicles weighing less than 14,000 pounds and their components and materials
    • Property designed to produce energy-conservation technologies
    • Other property designed to reduce greenhouse gas emissions, as determined by Treasury

The statute under Section 48C requires qualifying projects to have a reasonable expectation of commercial viability and requires Treasury and the DOE to consider the following criteria:

  • Domestic job creation
  • Net impact on avoiding or reducing air pollutants or anthropogenic emissions of greenhouse gases
  • Potential for technological innovation and commercial deployment
  • Levelized cost of energy or reduction in consumption
  • Project timeline from certification to completion

Treasury and DOE have refined these factors into broad categories and will evaluate all applications based on four technical review criteria:

  • Commercial viability
  • Greenhouse gas emissions impact
  • Strengthening U.S. supply chains and domestic manufacturing for a net-zero economy
  • Workforce and community engagement
 
Grant Thornton Insight:

 

Workforce and community engagement were significant factors in judging applications. The IRS and DOE are seeking detailed and concrete information on jobs, including wages, benefits, health and safety at the workplace, and support for collective bargaining. They also seek detailed information and major progress on labor and community engagement, including labor agreements, community benefit agreements, and collective bargaining agreements.

 
 

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