Navigating the Domestic Content Requirements Under Evolving IRS Guidance
Highlights
- Under the investment tax credits (Sections 48 and 48E of the Internal Revenue Code) and production tax credits (Sections 45 and 45Y), a domestic content bonus credit amount is available if certain domestic content requirements are met.
- Generally speaking, the domestic content requirements are met if steel, iron and manufactured products of an Applicable Project (qualified facility or energy property) were produced in the U.S. as determined under IRS guidance.
- On Jan. 16, 2025, the IRS issued its third notice concerning the domestic content requirements. The new notice, Notice 2025-08, provides a "First Updated Elective Safe Harbor," modifying a previous safe harbor provided by the IRS.
- This Holland & Knight alert summaries the First Updated Elective Safe Harbor and general status of IRS guidance on the domestic content requirements.
The IRS issued Notice 2025-08 on Jan. 16, 2025, which provides updated guidance regarding the domestic content requirements under Sections 45, 48, 45Y and 48E of the Internal Revenue Code – the investment tax credits and production tax credits. Notice 2025-08 is the third notice issued by the IRS on this topic. The IRS issued its first notice, Notice 2023-38, in May 2023. It was followed by Notice 2024-41, which provided a safe harbor for certain technologies by providing classifications of Applicable Project Components and Assigned Cost Percentages for Applicable Project Components and Manufactured Product Components (the Elective Safe Harbor). The most recent notice provides an updated safe harbor for purposes of calculating the domestic content percentage (the First Updated Elective Safe Harbor).
This Holland & Knight alert breaks down the state of the domestic content requirements after the release of Notice 2025-08.
Which of the 3 IRS Notices Applies to an Applicable Project?
With the issuance of Notice 2025-08, there are now three notices potentially applicable to a single Applicable Project. The notice applicable to a particular project depends on the desired calculation methodology and date construction of the Applicable Project begins.
Notice 2023-38 | Notice 2024-41 | Notice 2025-8 | |
Calculation Method | Must use the actual costs (direct material and direct labor costs) | Elective Safe Harbor | First Updated Elective Safe Harbor |
Beginning of Construction (BOC) Date 1 | The BOC Date does not affect the use of Notice 2023-28; rather, it can be relied upon for any Applicable Project unless the taxpayer choses to use Elective Safe Harbor or First Updated Elective Safe Harbor | May use if construction of the Applicable Project begins before April 16, 2025 | May use (in lieu of the Elective Safe Harbor) regardless of the BOC Date of the Applicable Project |
Basic Rules
To use either safe harbor, certain basic rules must be followed. These include:
- A taxpayer can rely on only one safe harbor – either the Elective Safe Harbor or Updated Elective Safe Harbor.
- In totaling the Assigned Cost Percentages, if a taxpayer's Applicable Project does not include a Applicable Project Component or Manufactured Product Component provided in the applicable table, the taxpayer must treat the missing component as "zero" in the calculation.
- In totaling the Assigned Cost Percentages, if a taxpayer's Applicable Project has additional Applicable Project Components or Manufactured Product Components not included in the table, the unlisted item is disregarded for purposes of calculating the domestic cost percentage. In other words, the Applicable Project Components, Manufactured Product Components and Assigned Cost Percentages listed in a table are exclusive and exhaustive.
- The Assigned Cost Percentage assigned to "production costs" is available only if each of the Manufactured Product Components of a Applicable Project Component identified in the applicable table are either is domestically produced or not part of the Applicable Project.
For further information on the general domestic content requirements, see Holland & Knight's previous alert "Break Out Your Calculator: IRS Releases Domestic Content Bonus Credit Guidance" (May 17, 2023), and for a discussion of the Elective Safe Harbor, see "Breaking Down the New Domestic Content Safe Harbor Guidance" (May 29, 2024).
First Updated Elective Safe Harbor
- Solar. The safe harbor tables for solar were updated as follows:
- expands the Solar PV Table into two distinct tables – one for photovoltaic (PV) ground-mount (Tracking and Fixed) Applicable Projects and one for PV Rooftop (MLPE and String) Applicable Projects
- accounts for the use of domestic crystalline silicon photovoltaic (c-Si PV) modules
- defines certain Manufactured Product Components with greater detail and updates Applicable Cost Percentages
- Land-Based Wind. The safe harbor table for land-based wind was updated as follows:
- renames "steel or iron rebar in foundation" to "steel or iron reinforcing products in foundation"
- renames "Material," which is listed as a Manufactured Product Component to "Preform"
- defines certain Manufactured Product Components with greater detail and updates Applicable Cost Percentages
- Battery Electric Storage System (BESS). The safe harbor table for a BESS was updated as follows:
- modifies the Manufactured Product Components to better reflect their particular functions within Applicable Project Components
- updates Assigned Cost Percentages applicable to grid-scale and distributed BESS
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Notes
1 When an Applicable Project begins, construction must be determined under IRS guidance. See Notice 2018-59 – modified by Notice 2019-43; modified by Notice 2020-41; clarified and modified by Notice 2021-5; clarified and modified by Notice 2021-41.
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.
