U.S. Individual Income Tax Return

Part III. Administrative, Procedural, and Miscellaneous
Amplification of Notice
2006–52; Deduction for
Energy Efficient Commercial
Buildings
Notice 2008–40
SECTION 1. PURPOSE
This notice clarifies and amplifies Notice 2006–52, 2006–1 C.B. 1175. Notice 2006–52 provides a process that allows a taxpayer who owns a commercial
building and installs property as part of
the commercial building’s interior lighting systems, heating, cooling, ventilation,
and hot water systems, or building envelope to obtain a certification that the property satisfies the energy efficiency requirements of § 179D(c)(1) and (d) of the Internal Revenue Code. Notice 2006–52 also
provides for a public list of software programs that may be used in calculating energy and power consumption for purposes
of § 179D.
This notice sets forth additional guidance relating to the deduction for energy
efficient commercial buildings under
§ 179D and is intended to be used with Notice 2006–52. Any reference in this notice
to Standard 90.1–2001 should be treated
as a reference to ANSI/ASHRAE/IESNA
Standard 90.1–2001, Energy Standard for
Buildings Except Low-Rise Residential
Buildings, developed for the American
National Standards Institute by the American Society of Heating, Refrigerating,
and Air Conditioning Engineers and the
Illuminating Engineering Society of North
America (as in effect on April 2, 2003, including addenda 90.1a–2003, 90.1b–2002,
90.1c–2002, 90.1d–2002, and 90.1k–2002
as in effect on that date).
SECTION 2. BACKGROUND
Section 1331 of the Energy Policy Act
of 2005, Pub. L. No. 109–58, 119 Stat.
594 (2005), enacted § 179D of the Code,
which provides a deduction with respect
to energy efficient commercial buildings.
Section 204 of the Tax Relief and Health
Care Act of 2006, Pub. L. No. 109–432,
120 Stat. 2922 (2006), extends the § 179D
deduction through December 31, 2008.

April 7, 2008

Section 179D(a) allows a deduction to
a taxpayer for part or all of the cost of energy efficient commercial building property that the taxpayer places in service after December 31, 2005, and before January
1, 2009. Sections 179D(d)(1) and 179D(f)
allow a deduction to a taxpayer for part
or all of the cost of certain partially qualifying commercial building property that
the taxpayer places in service after December 31, 2005, and before January 1, 2009.
Partially qualifying commercial building
property is property that would be energy
efficient commercial building property but
for the failure to achieve the 50-percent reduction in energy and power costs required
under § 179D(c)(1)(D).
SECTION 3. SPECIAL RULE
FOR GOVERNMENT-OWNED
BUILDINGS
.01 In General. In the case of energy
efficient commercial building property (or
partially qualifying commercial building
property for which a deduction is allowed
under § 179D) that is installed on or in
property owned by a Federal, State, or local government or a political subdivision
thereof, the owner of the property may allocate the § 179D deduction to the person primarily responsible for designing the
property (the designer). If the allocation of
a § 179D deduction to a designer satisfies
the requirements of this section, the deduction will be allowed only to that designer.
The deduction will be allowed to the designer for the taxable year that includes the
date on which the property is placed in service.
.02 Designer of Government-Owned
Buildings. A designer is a person that
creates the technical specifications for installation of energy efficient commercial
building property (or partially qualifying
commercial building property for which
a deduction is allowed under § 179D). A
designer may include, for example, an architect, engineer, contractor, environmental consultant or energy services provider
who creates the technical specifications
for a new building or an addition to an
existing building that incorporates energy
efficient commercial building property (or
partially qualifying commercial building
property for which a deduction is allowed

725

under § 179D). A person that merely installs, repairs, or maintains the property is
not a designer.
.03 Allocation of the Deduction. If
more than one designer is responsible for
creating the technical specifications for
installation of energy efficient commercial
building property (or partially qualifying
commercial building property for which
a deduction is allowed under § 179D) on
or in a government-owned building, the
owner of the building shall—
(1) determine which designer is primarily responsible and allocate the full deduction to that designer, or
(2) at the owner’s discretion, allocate
the deduction among several designers.
.04 Form of Allocation. An allocation
of the § 179D deduction to the designer
of a government-owned building must be
in writing and will be treated as satisfying
the requirements of this section with respect to energy efficient commercial building property (or partially qualifying commercial building property for which a deduction is allowed under § 179D) if the allocation contains all of the following:
(1) The name, address, and telephone
number of an authorized representative of
the owner of the government-owned building;
(2) The name, address, and telephone
number of an authorized representative of
the designer receiving the allocation of the
§ 179D deduction;
(3) The address of the government-owned building on or in which the
property is installed;
(4) The cost of the property;
(5) The date the property is placed in
service;
(6) The amount of the § 179D deduction
allocated to the designer;
(7) The signatures of the authorized
representatives of both the owner of the
government-owned building and the designer or the designer’s authorized representative; and
(8) A declaration, applicable to the allocation and any accompanying documents,
signed by the authorized representative of
the owner of the government-owned building, in the following form:
“Under penalties of perjury, I declare
that I have examined this allocation, in-

2008–14 I.R.B.

cluding accompanying documents, and
to the best of my knowledge and belief,
the facts presented in support of this
allocation are true, correct, and complete.”
.05 Obligations of Designer. Before
a designer may claim the § 179D deduction with respect to property installed on
or in a government-owned building, the
designer must obtain the written allocation described in section 3.04. A designer
is not required to attach the allocation to
the return on which the deduction is taken.
However, § 1.6001–1(a) of the Income Tax
Regulations requires that taxpayers maintain such books and records as are sufficient to establish the entitlement to, and
amount of, any deduction claimed by the
taxpayer. Accordingly, a designer claiming a deduction under § 179D should retain the allocation as part of the taxpayer’s
records for purposes of § 1.6001–1(a) of
the Income Tax Regulations.
.06 Tax Consequences to Designer of
Government-Owned Buildings. The maximum amount of the § 179D deduction to be
allocated to the designer is the amount of
the costs incurred by the owner of the government-owned building to place the energy efficient commercial building property in service. A partial deduction may
be allocated and computed in accordance
with the procedures set forth in sections 2
and 3 of Notice 2006–52. The designer
does not include any amount in income on
account of the § 179D deduction allocated
to the designer. In addition, the designer is
not required to reduce future deductions by
an amount equal to the § 179D deduction
allocated to the designer. Although reducing future deductions in this manner would
provide equivalent treatment for designers
that are allocated a § 179D deduction and
building owners that are required to reduce
the basis of their energy efficient commercial building property by the amount of the
§ 179D deduction they claim, § 179D does
not provide for any reductions other than
reductions to the basis of the energy efficient commercial building property.
.07 Tax Consequences to Owner of
Public Building. The owner of the public building is not required to include
any amount in income on account of the
§ 179D deduction allocated to the designer. The owner of the public building
is, however, required to reduce the basis of
the energy efficient commercial building

2008–14 I.R.B.

property (or partially qualifying commercial building property) by the amount of
the § 179D deduction allocated.
SECTION 4. LIST OF APPROVED
SOFTWARE PROGRAMS
.01 In General. The Department of Energy creates and maintains a public list of
software that may be used to calculate energy and power consumption and costs for
purposes of providing a certification under
section 4 of Notice 2006–52. This public
list appears at http://www.eere.energy.gov/
buildings/info/tax_incentives.html. Software will be included on the list if the
software developer submits the following
information to the Department of Energy:
(1) The name, address, and (if applicable) web site of the software developer;
(2) The name, email address, and telephone number of the person to contact
for further information regarding the software;
(3) The name, version, or other identifier of the software as it will appear on the
list;
(4) All test results, input files, output
files, weather data, modeler reports, and
the executable version of the software with
which the tests were conducted; and
(5) A declaration by the developer of
the software made under penalties of perjury and containing all of the following information:
(a) A statement that the software has
been tested according to the American National Standards Institute/American Society of Heating, Refrigerating and Air-Conditioning Engineers (ANSI/ASHRAE)
Standard 140–2007 Standard Method of
Test for the Evaluation of Building Energy
Analysis Computer Programs.
(b) A statement that the software can
model explicitly—
(i) 8,760 hours per year;
(ii) Calculation methodologies for the
building components being modeled;
(iii) Hourly variations in occupancy,
lighting power, miscellaneous equipment
power, thermostat setpoints, and HVAC
system operation, defined separately for
each day of the week and holidays;
(iv) Thermal mass effects;
(v) Ten or more thermal zones;
(vi) Part-load performance curves for
mechanical equipment;

726

(vii) Capacity and efficiency correction
curves for mechanical heating and cooling
equipment; and
(viii) Air-side and water-side economizers with integrated control.
(c) A statement that the software can explicitly model each of the following HVAC
systems listed in Appendix G of Standard
90.1–2004:
(i) Packaged Terminal Air Conditioner
(PTAC) (air source), single-zone package
(through the wall), multi-zone hydronic
loop, air-to-air DX coil cooling, central
boiler, hot water coil.
(ii) Packaged Terminal Heat Pump
(PTHP) (air source), single-zone package (through the wall), air-to-air DX coil
heat/cool.
(iii) Packaged Single Zone Air Conditioner (PSZ-AC), single-zone air, air-to-air
DX coil cool, gas coil, constant-speed fan.
(iv) Packaged Single Zone Heat Pump
(PSZ-HP), single-zone air, air-to-air DX
coil cool/heat, constant-speed fan.
(v) Packaged Variable-Air-Volume
(PVAV) with reheat, multi-zone air;
multi-zone hydronic loop, air-to-air DX
coil, VAV fan, boiler, hot water VAV terminal boxes.
(vi) Packaged Variable-Air-Volume
with parallel fan powered boxes (PVAV
with PFP boxes), multi-zone air, DX coil,
VAV fan, fan-powered induction boxes,
electric reheat.
(vii) Variable-Air-Volume (VAV) with
reheat, multi-zone air, multi-zone hydronic loop, air-handling unit, chilled
water coil, hot water coil, VAV fan, chiller,
boiler, hot water VAV boxes.
(viii) Variable-Air-Volume with parallel fan powered boxes (VAV with PFP
boxes), multi-zone air, air-handling unit,
chilled water coil, hot water coil, VAV
fan, chiller, fan-powered induction boxes,
electric reheat.
(d) A statement that the software can—
(i) Either directly determine energy and
power costs or produce hourly reports of
energy use by energy source suitable for
determining energy and power costs separately; and
(ii) Design load calculations to determine required HVAC equipment capacities
and air and water flow rates.
(e) A statement describing which, if
any, of the following the software can explicitly model:
(i) Natural ventilation.

April 7, 2008

(ii) Mixed mode (natural and mechanical) ventilation.
(iii) Earth tempering of outdoor air.
(iv) Displacement ventilation.
(v) Evaporative cooling.
(vi) Water use by occupants for cooking, cleaning or other domestic uses.
(vii) Water use by heating, cooling, or
other equipment, or for on-site landscaping.
(viii) Automatic interior or exterior
lighting controls (such as occupancy, photocells, or time clocks).
(viii) Daylighting (sidelighting, skylights, or tubular daylight devices).
(ix) Improved fan system efficiency
through static pressure reset.
(x) Radiant heating or cooling (low or
high temperature).
(xi) Multiple or variable speed control
for fans, cooling equipment, or cooling
towers.
(xii) On-site energy systems (such as
combined heat and power systems, fuel
cells, solar photovoltaic, solar thermal, or
wind).
.02 Addresses. Submissions under this
section must be addressed as follows:
Commercial Software List
Department of Energy
Office of Building Technologies,
EE–2J
1000 Independence Ave., SW
Washington, DC 20585–0121
.03 Updated Lists.
The software
list
at
http://www.eere.energy.gov/
buildings/info/tax_incentives.html
will
be updated as necessary to reflect
submissions received under this section.
.04 Removal from Published List. The
Department of Energy may, upon examination, determine that software is not sufficiently accurate to justify its use in calculating energy and power consumption and
costs for purposes of providing a certification under section 4 of Notice 2006–52 and
remove the software from the published
list. The Department of Energy may undertake such an examination on its own
initiative or in response to a public request
supported by appropriate analysis of the
software’s deficiencies.
.05 Effect of Removal from Published
List. Software may not be used to calculate energy and power consumption and
costs for purposes of providing a certifi-

April 7, 2008

cation with respect to property placed in
service after the date on which the software is removed from the published list.
The removal will not affect the validity of
any certification with respect to property
placed in service on or before the date on
which the software is removed from the
published list.
.06 Public Availability of Information.
The Department of Energy may make all
information provided under paragraph .01
of this section available for public review.
.07 Applicability. The procedures in
this section supersede the procedures set
forth in section 6 of Notice 2006–52 for
periods after March 31, 2008. Any software that is included on the public list on
March 31, 2008, will remain on the public list unless and until removed under the
procedures set forth in this section.
SECTION 5. CERTIFICATION
REQUIREMENTS FOR INTERIM
LIGHTING RULE
.01 In General. Section 2.03(1)(b) of
Notice 2006–52 provides an interim rule
under which partially qualifying property is treated as energy efficient lighting
property (the Interim Lighting Rule). Before a taxpayer may claim the § 179D
deduction under the Interim Lighting Rule
with respect to energy efficient lighting
property installed on or in a commercial
building, the taxpayer must obtain a certification with respect to the property.
The certification must be provided by a
qualified individual. Section 4 of Notice
2006–52 provides that the certification
must include a statement that qualified
computer software was used to calculate
energy and power consumption and costs.
That section also provides that the certification must include a statement that
the building owner has received an explanation of projected annual energy costs.
These requirements are appropriate only
in the case of certifications that involve
calculations of energy and power consumption and cost. The Interim Lighting
Rule is satisfied by a reduction in lighting
power density and such a reduction may
be computed using a spreadsheet or other
similar software. This computation does
not require qualified computer software
to model the entire building system or a
determination of projected annual energy
costs. Accordingly, the requirements of

727

section 4 of Notice 2006–52 do not apply
to certifications under the Interim Lighting
Rule.
.02 Applicable Requirements. A taxpayer is not required to attach the certification to the return on which the deduction
is taken. However, § 1.6001–1(a) of the
Income Tax Regulations requires that taxpayers maintain such books and records
as are sufficient to establish the entitlement to, and amount of, any deduction
claimed by the taxpayer. Accordingly,
a taxpayer claiming a deduction under
§ 179D should retain the certification as
part of the taxpayer’s records for purposes of § 1.6001–1(a) of the Income Tax
Regulations. The qualified individual providing a certification under the interim
rule must document a reduction in lighting
power density in a thorough and consistent
manner. A certification under the Interim
Lighting Rule will be treated as satisfying
the requirements of § 179D(c)(1) if the
certification contains all of the following:
(1) The name, address, and telephone
number of the qualified individual;
(2) The address of the building to which
the certification applies;
(3) A statement by the qualified individual that the interior lighting systems that
have been, or are planned to be, incorporated into the building—
(a) Achieve a reduction in lighting
power density of at least 25 percent (50
percent in the case of a warehouse) of the
minimum requirements in Table 9.3.1.1
or Table 9.3.1.2 (not including additional
interior lighting power allowances) of
Standard 90.1–2001;
(b) Have controls and circuiting that
comply fully with the mandatory and
prescriptive requirements of Standard
90.1–2001;
(c) Include provision for bi-level
switching in all occupancies except hotel
and motel guest rooms, store rooms, restrooms, public lobbies, and garages; and
(d) Meet the minimum requirements for
calculated lighting levels as set forth in the
IESNA Lighting Handbook, Performance
and Application, Ninth Edition, 2000;
(4) A statement by the qualified individual that—
(a) Field inspections of the building
were performed by a qualified individual
after the energy efficient lighting property
has been placed in service;

2008–14 I.R.B.

(b) The field inspections confirmed that
the building has met, or will meet, the reduction in lighting power density required
by the design plans and specifications; and
(c) The field inspections were performed in accordance with inspection and
testing procedures that—
(i) Have been prescribed by the National Renewable Energy Laboratory
(NREL) as Energy Savings Modeling and
Inspection Guidelines for Commercial
Building Federal Tax Deduction; and
(ii) Are in effect at the time the certification is given;
(5) A list identifying the components of
the energy efficient lighting property installed on or in the building, the energy
efficiency features of the building, and its
projected lighting power density;
(6) A statement that the building owner
has received an explanation of the energy
efficiency features of the building and its
projected lighting power density;
(7) A declaration, applicable to the
certification and any accompanying documents, signed by the qualified individual,
in the following form:
“Under penalties of perjury, I declare
that I have examined this certification,
including accompanying documents,
and to the best of my knowledge and
belief, the facts presented in support of
this certification are true, correct, and
complete.”
SECTION 6. APPLICATION OF THE
INTERIM LIGHTING RULE TO
UNCONDITIONED GARAGE SPACE
For purposes of the Interim Lighting
Rule, the definition of a Building within
the Scope of Standard 90.1–2001 (found
in Section 5.01 of Notice 2006–52) is expanded to include a structure that—
(1) Encloses space affording shelter to
persons, animals, or property within exterior walls (or within exterior and party
walls) and a roof;
(2) Is not a single-family house, a multifamily structure of three stories or fewer
above grade, a manufactured house (mobile home), or a manufactured house (modular); and
(3) Is unconditioned attached or detached garage space as referenced by
Tables 9.3.1.1 and 9.3.1.2 of Standard
90.1–2001.

2008–14 I.R.B.

SECTION 7. CHANGES RELATING
TO PARTIALLY QUALIFYING
PROPERTY
.01 Energy Savings Percentages. A
taxpayer may apply section 2.05 of Notice
2006–52 by substituting “10” for “162/3”
in section 2.05(1) of such notice. If a
taxpayer makes this substitution, the taxpayer must apply sections 2.03 and 2.04 of
Notice 2006–52 by substituting “20” for
“162/3” in sections 2.03(1)(a) and 2.04(1)
of such notice. If § 179D is extended
beyond December 31, 2008, the Internal
Revenue Service and the Treasury Department expect, in the absence of other
changes to § 179D, that the substitute percentages set forth in this section will be
the only percentages used in determining
whether property placed in service after
December 31, 2008, is partially qualifying
property.
.02 Limitation on Deduction for Partially Qualifying Property.
(1) In General. If property installed on
or in a building is treated as partially qualifying property under sections 2.03, 2.04,
and 2.05 of Notice 2006–52, the deduction
for the cost of such property shall not exceed the greatest of the following amounts:
(a) The sum of the deductions allowable
under sections 2.03 and 2.04 of such notice;
(b) The sum of the deductions allowable
under sections 2.04 and 2.05 of such notice; or
(c) The sum of the deductions allowable
under sections 2.03 and 2.05 of such notice.
(2) Application to Multiple Taxpayers.
If two or more taxpayers install property
on or in the same building and the deduction for the cost of the property is subject to
the limitation in section 7.02(1) of this notice, the aggregate amount of the § 179D
deductions allowed to all such taxpayers
with respect to the building shall not exceed the amount determined under section
7.02(1) of this notice.
SECTION 8. PAPERWORK
REDUCTION ACT
The collections of information contained in this notice have been reviewed
and approved by the Office of Management and Budget in accordance with the

728

Paperwork Reduction Act (44 U.S.C.
3507) under control number 1545–2004.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
OMB control number.
The collections of information are in
sections 4 and 6 of Notice 2006–52 and
sections 4 and 5 of this notice. This information is required to be collected and
retained in order to ensure that energy
efficient commercial building property
meets the requirements for the deduction
under § 179D. This information will be
used to determine whether commercial
building property for which certifications
are provided is property that qualifies for
the deduction.
The collection of information is required to obtain a benefit.
The likely respondents are two groups:
qualified individuals providing a certification under § 179D (section 4 of Notice
2006–52 and section 5 of this notice) and
software developers seeking to have software included on the public list created by
the Department of Energy (section 6 of Notice 2006–52 and section 4 of this notice).
For qualified individuals providing a
certification under § 179D, the likely respondents are individuals. The likely number of certifications is 20,000. The estimated burden per certification ranges from
15 to 30 minutes with an estimated average
burden of 22.5 minutes. The estimated total annual reporting burden is 7,500 hours.
For software developers seeking to
have software included on the public list
created by the Department of Energy, the
likely respondents are individuals, corporations and partnerships. The estimated
total annual reporting burden is 75 hours.
The estimated annual burden per respondent varies from 1 to 2 hours, depending
on individual circumstances, with an estimated average burden of 11/2 hours to
complete the submission required to have
the software added to the public list. The
estimated number of respondents is 50.
The estimated frequency of responses is
once.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any Internal Revenue
law. Generally, tax returns and tax return

April 7, 2008

information are confidential, as required
by 26 U.S.C. 6103.

SECTION 9. DRAFTING
INFORMATION
The principal author of this notice is
Jennifer C. Bernardini of the Office of

April 7, 2008

729

Associate Chief Counsel (Passthroughs
& Special Industries). For further information regarding this notice, contact
Jennifer C. Bernardini at (202) 622–3110
(not a toll-free call).

2008–14 I.R.B.