IRS Updates and Expands Energy Community Bonus Tax Credit Guidance

The IRS released additional guidance on March 22, 2024, in the form of Notice 2024-30 (Notice) regarding the energy community bonus credit under Sections 45, 48, 45Y and 48E of the Internal Revenue Code, which also is applicable for purposes of Section 48C. The Notice follows prior guidance issued in Notice 2023-29, Notice 2023-45 and Notice 2023-47 and provides guidance regarding the qualification of offshore wind projects for the energy community bonus. The Notice also adds two North American Industry Classification System (NAICS) codes to the "Statistical Area Category" of energy communities list. (See Holland & Knight's previous alerts, "IRS Energy Community Bonus Guidance Provides Welcome Clarity," April 7, 2023, and "IRS Issues Updated Energy Community Bonus Guidance," June 20, 2023.)

Offshore Wind and Energy Communities

The Notice first expands the nameplate capacity test found in Notice 2023-29 for offshore wind projects. Previously, under Notice 2023-29, an offshore wind project with no generation units in an energy community could qualify as an energy community project through the nameplate capacity test. Generally, that test provides that a project that has nameplate capacity is considered located in, or placed in service in, an energy community if at least 50 percent of the project's nameplate capacity is in an area that qualifies as an energy community. For offshore wind projects, the test is determined by reference to the land-based power conditioning equipment that conditions energy generated by the offshore wind project for transmission, distribution or use and is closest to the point of interconnection.

The Notice clarifies that the nameplate capacity test is also applicable to offshore wind projects with multiple interconnection points. The Notice also expands the nameplate capacity test for offshore wind projects to include supervisory control and data acquisition (SCADA) equipment located in an "Energy Community Project Port."

As revised, the nameplate capacity test for an offshore wind project is applied by attributing all the nameplate capacity of such project to 1) any land-based power conditioning equipment that conditions energy generated by the project for transmission, distribution, or use before the energy is transmitted to the point of interconnection (or in the case of a project with multiple points of interconnection, any land-based power conditioning equipment that conditions energy generated by the project for transmission, distribution, or use before the energy is transmitted to one of the multiple points of interconnection) or 2) any project SCADA equipment located in an Energy Community Project Port.

The Notice defines an Energy Community Project Port as a port used for facilitating maritime operations necessary for the installation or operation and maintenance of the offshore wind project, and with a significant long-term relationship (i.e., where the taxpayer owns or has a lease of at least 10 years with respect to such port) with the project at which staff are based and perform functions essential to the project's operations. Additionally, staff (either employed by the taxpayer or independent contractors) must manage marine operations, inventory, the handling of spare parts and consumables, and the berthing and dispatch of operation and maintenance vessels and associated crews and technicians.

Additional Statistical Area Category Energy Communities

The Notice also provides additional guidance on the Statistical Area Category energy community, which is a metropolitan statistical area (MSA) or non-MSA, which has (or at any time during the period beginning after Dec. 31, 2009, had) 0.17 percent or greater direct employment or 25 percent or greater local tax revenues related to the extraction, processing, transport or storage of coal, oil or natural gas, and had an unemployment rate at or above the national average unemployment rate for the previous year. The IRS had previously issued guidance providing a list of qualifying MSAs and non-MSAs, as well as a mapping tool.

The IRS has yet to issue guidance regarding qualification under the areas with 25 percent or greater local tax revenues opportunity.

The Notice added 122 counties to the energy community list of MSAs and non-MSAs meeting the Fossil Fuel Employment threshold and the unemployment rate requirement for calendar year 2022, by adding two NAICS codes for the purposes of determining the Fossil Fuel Employment rate. The NAICS codes are from the 2017 NAICS, codes 2212 (Natural Gas Distribution) and 23712 (Oil and Gas Pipeline and Related Structures Construction).

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.