Download:
pdf |
pdf2842
Federal Register / Vol. 90, No. 7 / Monday, January 13, 2025 / Rules and Regulations
provides that ‘‘the Secretary shall
prescribe all needful rules and
regulations for the enforcement of [the
Code], including all rules and
regulations as may be necessary by
reason of any alteration of law in
relation to internal revenue.’’
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 10025]
RIN 1545–BR26
Background
Guidance on Clean Electricity LowIncome Communities Bonus Credit
Amount Program
Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations.
AGENCY:
This document contains final
regulations concerning the program to
allocate clean electricity low-income
communities bonus credit amounts
established pursuant to the Inflation
Reduction Act of 2022 for calendar
years 2025 and succeeding years.
Applicants investing in certain clean
electricity generation facilities that
produce electricity without combustion
and gasification may apply for an
allocation of capacity limitation to
increase the amount of the clean
electricity investment credit for the
taxable year in which the facility is
placed in service. This document
provides definitions and requirements
that are applicable for the program. The
final regulations affect taxpayers seeking
allocations of capacity limitation to
claim an increased clean electricity
investment credit.
DATES: These regulations are effective
on January 13, 2025.
FOR FURTHER INFORMATION CONTACT:
Concerning these final regulations,
Whitney Brady, IRS Office of Associate
Chief Counsel (Passthroughs & Special
Industries) at (202) 317–6853 (not a tollfree number).
SUPPLEMENTARY INFORMATION:
SUMMARY:
ddrumheller on DSK120RN23PROD with RULES3
Authority
This document amends the Income
Tax Regulations (26 CFR part 1) by
adding regulations authorized to be
issued by the Secretary of the Treasury
or her delegate (Secretary) under
sections 48E(i) and 7805(a) of the
Internal Revenue Code (Code) regarding
the application of section 48E(h) of the
Code (final regulations).
Section 48E(i) provides an express
delegation of authority to the Secretary
to provide guidance regarding the
implementation of section 48E, stating,
‘‘[n]ot later than January 1, 2025, the
Secretary shall issue guidance regarding
implementation of this section.’’
The final regulations are also issued
under the express delegation of
authority under section 7805(a), which
VerDate Sep<11>2014
21:51 Jan 09, 2025
Jkt 265001
I. Overview
Section 13702 of Public Law 117–169,
136 Stat. 1818, 1921 (August 16, 2022),
commonly known as the Inflation
Reduction Act of 2022 (IRA), added new
section 48E(h) to the Code to authorize
the Secretary to establish a program for
calendar years 2025 and succeeding
years to award allocations of capacity
limitation (Capacity Limitation) that
increase the amount of the new clean
electricity investment credit determined
under section 48E(a) (section 48E credit)
with respect to eligible property that is
part of an applicable facility. This
document contains final definitions and
rules relating to the allocation of
Capacity Limitation for calendar year
2025 and succeeding years,
requirements related to claiming the
increase under section 48E(h), and
recapture provisions.
II. Increase to Section 48E Credit
The amount of section 48E credit for
a taxable year generally is calculated by
multiplying the qualified investment for
such taxable year with respect to any
qualified facility placed in service
during that taxable year by the
applicable percentage (as defined in
section 48E(a)(2)). If an applicable
facility is awarded an allocation of
Capacity Limitation, section 48E(h)
increases the amount of the section 48E
credit with respect to the applicable
facility by increasing the applicable
percentage used to calculate the amount
of the section 48E credit (section 48E(h)
Increase). The term applicable facility is
defined in section 48E(h)(2) to mean any
qualified facility that (i) is not described
in section 45Y(b)(2)(B) of the Code
(relating to combustion and gasification
facilities); (ii) has a maximum net
output of less than five megawatts (MW)
(as measured in alternating current
(AC)); and (iii) is described in at least
one of four categories in section
48E(h)(2)(A)(iii) (as further described in
part III of this Background).
amounts of Capacity Limitation to
applicable facilities. Section 48E(h)(4)
also provides that in establishing a
program the Secretary establish
procedures for an efficient allocation
process. Section 48E(h)(4) contemplates
the collection and review of
applications to consider facilities for an
allocation.
B. Facility Categories and Increase
Amount
Depending on the category of the
facility, an allocation of Capacity
Limitation may result in a section
48E(h) Increase equal to either 10
percentage points or 20 percentage
points. Section 48E(h)(1)(A)(i) provides
for a section 48E(h) Increase of 10
percentage points for eligible property
that is located in a low-income
community, as defined in section 45D(e)
of the Code (Category 1 facility), or on
Indian land, as defined in section
2601(2) of the Energy Policy Act of 1992
(25 U.S.C. 3501(2)) (Category 2 facility).
Section 48E(h)(1)(A)(ii) provides for a
section 48E(h) Increase of 20 percentage
points for eligible property that is part
of a qualified low-income residential
building project (Category 3 facility) or
a qualified low-income economic
benefit project (Category 4 facility).
III. Clean Electricity Low-Income
Communities Bonus Credit Amount
Program
C. Capacity Limitation
Under section 48E(h)(4)(C), the total
annual Capacity Limitation that may be
allocated is 1.8 gigawatts of direct
current capacity for each of the calendar
years during the period beginning on
January 1, 2025, and ending on
December 31 of the applicable year (as
defined in section 45Y(d)(3)), and zero
thereafter. Under section 48E(h)(4)(D)(i),
if the annual Capacity Limitation for
any calendar year exceeds the aggregate
amount allocated for such year, the
excess is carried forward to the next
year. No amount of Capacity Limitation
may be carried to any calendar year after
the third calendar year following the
applicable year (as defined in section
45Y(d)(3)). Under section
48E(h)(4)(D)(ii), if the annual Capacity
Limitation for calendar year 2024 under
section 48(e)(4)(D) of the Code exceeds
the aggregate amount allocated for such
year, the excess amount may be carried
over and applied to the annual Capacity
Limitation under section 48E(h) for
calendar year 2025. The annual
Capacity Limitation for calendar year
2025 shall be increased by the amount
of such excess.
A. In General
Section 48E(h)(4)(A) directs the
Secretary to establish a program, not
later than January 1, 2025, to allocate
D. Allocation Amount
Section 48E(h)(1)(B) provides that any
section 48E(h) Increase for any taxable
year with respect to all eligible property
PO 00000
Frm 00002
Fmt 4701
Sfmt 4700
E:\FR\FM\13JAR3.SGM
13JAR3
Federal Register / Vol. 90, No. 7 / Monday, January 13, 2025 / Rules and Regulations
that is part of a facility shall not exceed
the amount which bears the same ratio
to the amount of such increase as the
amount of the Capacity Limitation
allocated to such facility bears to the
total megawatt nameplate capacity of
such facility, as measured in direct
current. Therefore, if an allocation is
made to a particular applicable facility,
the Capacity Limitation amount
allocated is based on the nameplate
capacity of that applicable facility.
E. Claiming the Section 48E(h) Increase
Taxpayers that own an applicable
facility which received an allocation
may claim the section 48E(h) Increase
once the applicable facility has been
placed in service, as part of its claim for
the section 48E credit. For a taxpayer to
claim the section 48E(h) Increase for any
property which is part of the applicable
facility, section 48E(h)(4)(E)(i) requires
that the eligible property be placed in
service within 4 years after the date of
allocation.
ddrumheller on DSK120RN23PROD with RULES3
IV. Notice of Proposed Rulemaking
On September 3, 2024, the
Department of the Treasury (Treasury
Department) and the IRS published in
the Federal Register (89 FR 71193) a
notice of proposed rulemaking (REG–
108920–24, 2024–38 I.R.B. 607),
corrected in 89 FR 77467 on September
23, 2024, under section 48E(h)
(Proposed Regulations) relating to the
Program. Comments were requested in
response to the Proposed Regulations by
October 3, 2024, and a public hearing on
the Proposed Regulations was held on
October 17, 2024. On September 27,
2024, the Treasury Department held a
consultation with Tribal leaders on the
Proposed Regulations.
The areas of comment and the
revisions to the Proposed Regulations
are discussed in the following Summary
of Comments and Explanation of
Revisions section of this preamble.
Other minor, editorial, and clarifying
revisions made to the Proposed
Regulations as adopted in these final
regulations are not discussed in the
Summary of Comments and Explanation
of Revisions section of this preamble.
V. Additional Guidance
As announced in the Proposed
Regulations, the Treasury Department
and the IRS are also providing
procedural guidance applicable to the
Program opening in calendar year 2025
and future Program years which will be
provided in guidance published in the
Internal Revenue Bulletin. These
procedural rules provide guidance
necessary to implement the Program,
including, in relevant part, information
VerDate Sep<11>2014
21:51 Jan 09, 2025
Jkt 265001
an applicant must submit, the
application review process, and the
manner of obtaining an allocation. Many
of the procedural aspects of the Program
will be similar to the Low-Income
Communities Bonus Credit Program
established under section 48(e) available
for calendar years 2023 and 2024.
Summary of Comments and
Explanation of Revisions
I. Overview
The Treasury Department and the IRS
received 45 written comments in
response to the Proposed Regulations.
The comments are available for public
inspection at https://
www.regulations.gov or upon request.
After full consideration of all comments
received, the testimony heard at the
public hearing, and the consultation
with Tribal leaders, these final
regulations adopt the Proposed
Regulations with modifications in
response to the comments and
testimony as described in this Summary
of Comments and Explanation of
Revisions.
Comments summarizing the statute or
the Proposed Regulations,
recommending statutory revisions,
grammatical edits, and addressing
issues that are outside the scope of this
rulemaking (such as revising other
Federal regulations, recommending
changes to tax forms, website portals, or
procedural guidance published in the
Internal Revenue Bulletin) are generally
not addressed in this Summary of
Comments and Explanation of Revisions
or adopted in these final regulations. In
addition to addressing the comments
received in response to the Proposed
Regulations, the final regulations also
include non-substantive grammatical or
stylistic changes to the Proposed
Regulations. Unless otherwise indicated
in this Summary of Comments and
Explanation of Revisions, provisions of
the Proposed Regulations with respect
to which no comments were received
are adopted without substantive change.
II. General Rules
A. In General
Consistent with section 48E(h)(1),
proposed § 1.48E(h)–1(a)(1) would
provide that for purposes of section 46
of the Code, if an allocation of Capacity
Limitation is made with respect to
eligible property (as defined in
proposed § 1.48E(h)–1(c)) that is part of
any applicable facility (as defined in
proposed § 1.48E(h)–1(b)) placed in
service in connection with low-income
communities under the Program
established under section 48E(h)(4), the
applicable percentage used to calculate
PO 00000
Frm 00003
Fmt 4701
Sfmt 4700
2843
the amount of the section 48E credit is
increased under section 48E(h)(1). The
final regulations adopt this rule.
B. Certain Terms
Proposed § 1.48E(h)–1(a)(2) would
describe certain terms used in the
Proposed Regulations. Proposed
§ 1.48E(h)–1(a)(2)(i) would explain that
the term applicant would be used
interchangeably with taxpayer in
accordance with the context of a
particular rule. Proposed § 1.48E(h)–
1(a)(2)(ii) would explain that the term
Internal Revenue Bulletin has the
meaning provided in § 601.601. The
final regulations adopt these terms and
descriptions with certain additions to
define the term applicant. Section
1.48E(h)–1(a)(2)(i) of the final
regulations adds language to clarify that
the owner of the facility, and the
taxpayer which intends to claim the
section 48E credit, is the applicant. The
final regulations further clarify that
disregarded entities are not eligible
applicants and may not apply for an
allocation. Instead, the regarded
taxpayer that owns the disregarded
entity is the applicant for purposes of
the Program.
III. Applicable Facility
A. Definition of Applicable Facility
The term applicable facility is defined
in section 48E(h)(2)(A) to mean any
qualified facility (as defined in section
48E(b)(3)) that (i) is not described in
section 45Y(b)(2)(B) (related to
combustion and gasification facilities);
(ii) has a maximum net output of less
than 5 MW (as measured in AC); and
(iii) is described in at least one of the
four categories described in section
48E(h)(2)(A)(iii). Consistent with section
48E(h)(2)(A), proposed § 1.48E(h)–
1(b)(1) would define an applicable
facility to mean any qualified facility (as
defined in section 48E(b)(3)) that (i) is
a non-combustion and gasification
facility for which the Secretary has
determined has a greenhouse gas (GHG)
emissions rate of not greater than zero
in guidance published either in the
Federal Register or in the Internal
Revenue Bulletin as of the opening date
for a Program year; (ii) has a maximum
net output of less than 5 MW (as
measured in AC); and (iii) is described
in at least one of the four categories
described in section 48E(h)(2)(A)(iii)
and proposed § 1.48E(h)–1(b)(2).
Several commenters requested the
final regulations revise the definition of
applicable facility to include additional
types of technologies that do not
otherwise meet the definition of an
applicable facility as defined under
E:\FR\FM\13JAR3.SGM
13JAR3
2844
Federal Register / Vol. 90, No. 7 / Monday, January 13, 2025 / Rules and Regulations
section 48E(h)(2)(A). Section
48E(h)(2)(A) defines applicable facility
by referencing the section 48E(b)(3)
definition of qualified facility. Section
48E(h)(2)(A) provides that a qualified
facility that is a combustion and
gasification (C&G) facility is not eligible
for the Program. However, whether a
qualified facility is a C&G facility or not
is beyond the scope of these regulations
under section 48E(h). On June 3, 2024,
the Treasury Department and the IRS
published in the Federal Register (89
FR 47792) a notice of proposed
rulemaking (REG–119283–23) under
sections 45Y and 48E (48E Proposed
Regulations) that would provide
definitions and rules for section 48E
generally, including the types of
qualified facilities that are C&G and the
types of qualified facilities that are nonC&G. The 48E Proposed Regulations
requested comments on types of
qualified facilities, and such comments
will be addressed in the final
regulations under section 48E. A facility
must first be a qualified facility that is
eligible to claim the investment credit
under section 48E for the facility to be
considered an applicable facility under
the Program. Information and rules for
qualified facilities and the types of
categories of non-C&G-facilities will be
included in other guidance, under
section 48E, published in the Federal
Register or the Internal Revenue
Bulletin. Consistent with the statute,
final § 1.48E(h)–1(b)(1) adopts the
proposed rule without revision.
ddrumheller on DSK120RN23PROD with RULES3
B. Four Categories of Applicable
Facilities
Section 48E(h)(2)(A)(iii) establishes
four categories of applicable facilities as
facilities that are located in a lowincome community (as defined in
section 45D(e)) or on Indian land (as
defined in section 2601(2) of the Energy
Policy Act of 1992 (25 U.S.C. 3501(2))),
or facilities that are part of a qualified
low-income residential building project
or a qualified low-income economic
benefit project. The amount of the
section 48E(h) Increase is 10 percentage
points for facilities located in a lowincome community or on Indian land,
and 20 percentage points for facilities
which are part of a qualified lowincome residential building project or
part of a qualified low-income economic
benefit project.
Proposed § 1.48E(h)–1(b)(2) would
generally adopt the statutory language to
define each of the four facility
categories, with minimal modifications
to shorten references to the categories as
Category 1, 2, 3, or 4, and to clarify
specific category requirements.
VerDate Sep<11>2014
21:51 Jan 09, 2025
Jkt 265001
Proposed § 1.48E(h)–1(b)(2)(i) would
provide that a facility is a Category 1
facility if it is located in a low-income
community (as defined in section
45D(e)). Proposed § 1.48E(h)–1(b)(2)(i)
would also provide clarifying language
to explain the term low-income
community generally is defined under
section 45D(e)(1) as any population
census tract for which the poverty rate
for such tract is at least 20 percent, or,
in the case of a tract not located within
a metropolitan area, the median family
income for such tract does not exceed
80 percent of statewide median family
income, or in the case of a tract located
within a metropolitan area, the median
family income for such tract does not
exceed 80 percent of the greater of
statewide median family income or the
metropolitan area median family
income.
Proposed § 1.48E(h)–1(b)(2)(i)
additionally would explain that the
term low-income community also
includes the modifications in sections
45D(e)(4) and (5) for tracts with low
population and modification of the
income requirement for census tracts
with high migration rural counties.
Proposed § 1.48E(h)–1(b)(2)(i) also
would provide that low-income
community information for the New
Markets Tax Credit (NMTC) can be
found at the U.S. Department of
Treasury, Community Development
Financial Institutions (CDFI) Fund
website and its web page mapping tool,
https://www.cdfifund.gov/cims.
Proposed § 1.48E(h)–1(b)(2)(i) then
would clarify that the poverty rate for a
census tract generally is based on the
most recently released ACS low-income
community data for the NMTC.
Proposed § 1.48E(h)–1(b)(2)(i) would
provide, however, if updated data is
released, a taxpayer, in its application,
can choose to base the poverty rate for
any population census tract on either
the prior version of the ACS low-income
community data or the updated ACS
low-income community data for a
period of 1 year following the date of
the release of the updated data.
Proposed § 1.48E(h)–1(b)(2)(i) would
provide that after the 1-year transition
period, the updated ACS low-income
community data must be used.
Additionally, proposed § 1.48E(h)–
1(b)(2)(i) would provide that population
census tracts that satisfy the definition
of low-income community at the time of
application are considered to continue
to meet the definition of low-income
community for the duration of the
recapture period unless the location of
the facility changes.
One commenter opposed reliance on
the NMTC definitions to identify
PO 00000
Frm 00004
Fmt 4701
Sfmt 4700
communities. This commenter
cautioned that the NMTC definition
may inadvertently exclude certain
disadvantaged areas due to changes in
census tracts and reliance on outdated
data. This commenter suggested that,
instead, the Program should use
alternative metrics to identify lowincome communities like the Climate
and Economic Justice Screening Tool
(CEJST) and allowing for case-by-case
evaluations for community-level
qualifications.
Section 48E(h)(2)(A)(iii)(I) requires
that a Category 1 facility be located in
a low-income community census tract
as defined under section 45D(e) for
purposes of the NMTC. Therefore, the
section 45D(e) definition of low-income
community census tracts must be used
to determine whether a facility is
located in a low-income community
census tract for purposes of determining
Category 1 eligibility under this
Program. The statute does not permit
another metric to identify communities
as low-income that have not been
identified as low-income community
census tracts by the CDFI Fund, for
purposes of NMTC. Finally, the Program
includes the use of CEJST data under
the Additional Selection Criteria
Geographic Criteria. These comments
are not adopted and final § 1.48E(h)–
1(b)(2)(i) retains the language from the
proposed rule.
One commenter expressed support for
the ability of a developer to choose to
base the poverty rate for any population
census tract on either the prior version
of the ACS low-income community data
or the updated ACS low-income
community data. The CDFI Fund uses
the ACS five-year data to determine the
low-income community census tracts
for purposes of the NMTC. When the
CDFI Fund updates the low-income
census tract determination based on the
most recent 5-year ACS data, the CDFI
Fund allows for a one-year transition
period for reliance purposes. The final
regulations adopt the CDFI Fund’s oneyear transition period to allow for the
same reliance; however, the final
regulations clarify that § 1.48E(h)–
1(b)(2)(i) does not provide a blanket
ability for applicants to select between
prior and current official ACS data. The
last update to the low-income
community census tracts for the NMTC
occurred on September 1, 2023. The
transition period, and, therefore, the
ability to utilize either the prior or
updated data to claim that a facility is
located in a low-income area also ended
on September 1, 2024. The Treasury
Department anticipates the next update
will occur in 2028. When a subsequent
update occurs, the transition period will
E:\FR\FM\13JAR3.SGM
13JAR3
ddrumheller on DSK120RN23PROD with RULES3
Federal Register / Vol. 90, No. 7 / Monday, January 13, 2025 / Rules and Regulations
again allow for taxpayers to use either
the prior or updated data to determine
whether their facility is located in a
low-income community census tract.
Proposed § 1.48E(h)–1(b)(2)(ii) would
provide that, consistent with section
48E(h)(2)(A)(iii)(I), a facility is a
Category 2 facility if it is located on
Indian land as defined in section
2601(2) of the Energy Policy Act of 1992
(25 U.S.C. 3501(2)). No comments were
received on this rule, and, accordingly,
the final regulations adopt this rule
without modification.
Section 48E(h)(2)(A)(iii)(II) defines an
applicable facility in part to include a
qualified facility that is part of a
qualified low-income residential
building project. Section 48E(h)(2)(B)
further describes a facility as part of a
‘‘qualified low-income residential
building project’’ if it is installed on a
residential building that participates in
a covered housing program (as defined
in section 41411(a) of the Violence
Against Women Act of 1994 (34 U.S.C.
12491(a)(3)) (VAWA), a housing
assistance program administered by the
Department of Agriculture under title V
of the Housing Act of 1949, a housing
program administered by a tribally
designated housing entity (as defined in
section 4(22) of the Native American
Housing Assistance and SelfDetermination Act of 1996 (25 U.S.C.
4103(22))), or such other affordable
housing programs as the Secretary may
provide, and requires that the financial
benefits of the electricity produced by
such facility are allocated equitably
among the occupants of the dwelling
units of such building.
Consistent with the statute, proposed
§ 1.48E(h)–1(b)(2)(iii) would define a
facility as a Category 3 facility if it is
part of a qualified low-income
residential building project, and further
would provide that a facility will be
treated as part of a qualified low-income
residential building project if such
facility is installed on a residential
rental building that participates in a
covered housing program or other
affordable housing program described in
section 48E(h)(2)(B)(i) and the financial
benefits of the electricity produced by
such facility are allocated equitably
among the occupants of the dwelling
units of such building as provided in
proposed § 1.48E(h)–1(e). Proposed
§ 1.48E(h)–1(b)(2)(iii) also would
include the term Qualified Residential
Property to separately refer to the
residential rental building (as opposed
to the Category 3 facility). Proposed
§ 1.48E(h)–1(b)(2)(iii) additionally
would clarify that the Qualified
Residential Property, and not just its
tenants, must participate in a covered
VerDate Sep<11>2014
21:51 Jan 09, 2025
Jkt 265001
housing program or other affordable
housing program described in section
48E(h)(2)(B)(i). Proposed § 1.48E(h)–
1(b)(2)(iii) would further clarify that a
Qualified Residential Property could
either be a multifamily rental property
or single-family rental property.
Additionally, proposed § 1.48E(h)–
1(b)(2)(iii) would clarify that a facility
does not need to be installed directly on
the building to be considered installed
on a Qualified Residential Property if
the facility is installed on the same or
an adjacent parcel of land as the
Qualified Residential Property and the
other requirements to be a Category 3
facility are satisfied. No comments were
submitted on this definition. These final
regulations adopt the proposed rule
without modification.
The preamble to the Proposed
Regulations would include an
illustrative list of eligible Federal
housing programs for Category 3. The
Treasury Department and the IRS, in
consultation with other Federal
agencies, developed the illustrative list
of Federal housing programs and
policies that meet the requirements in
section 48E(h)(2)(B)(i) of being covered
under section 41411(a) of VAWA,
administered by the Department of
Agriculture under title V of the Housing
Act of 1949, or administered by a
tribally designated housing entity (as
defined in section 4(22) of the Native
American Housing Assistance and SelfDetermination Act of 1996). The eligible
Federal housing program list will be
included in guidance published in the
Internal Revenue Bulletin, and the list
may be updated in future guidance
published in the Internal Revenue
Bulletin.
Section 48E(h)(2)(B)(i) also authorizes
the Secretary to add other affordable
housing programs to the list of eligible
programs. The Proposed Regulations
requested comment on whether other
affordable housing programs should be
added to the list of eligible programs,
and specifically whether and under
what conditions certain state programs
should be added to the list.
Several commenters named specific
state housing programs and requested
addition of those programs as eligible
Category 3 housing programs. However,
those commenters did not explain why
the specific program should be included
and what comprehensive set of criteria
warrant the inclusion of these specific
programs over others. One commenter
suggested that any property with a 100
percent affordability covenant that has a
minimum of 10 years remaining should
be included as an eligible program.
Similarly, another commenter
recommended that state-subsidized
PO 00000
Frm 00005
Fmt 4701
Sfmt 4700
2845
affordability restricted housing
programs that have affordability
restrictions equal to or greater than
federal programs listed in the Proposed
Regulations, should qualify for Category
3. As an additional recommendation,
this commenter suggested guidelines for
Naturally Occurring Affordable Housing
(NOAH), and provided an example
stating that eligibility could be
considered if the housing is owned by
a non-profit or a LLC with a non-profit
as the single member and the property
is located in a Justice 40 community or
where the average rent does not exceed
Department of Housing and Urban
Development (HUD) fair market rent.
Another commenter urged expansion of
the list of affordable housing programs
eligible to include state and local
programs that provide rental assistance
and/or capital investments in affordable
housing. This commenter also suggested
that state and local programs with
affordability and compliance
requirements like the Federal programs
currently qualifying for Category 3
should be eligible. Similarly, another
commenter suggested the inclusion of
any state-funded low-income housing or
transitional housing program where
eligibility for assistance under such
program is equivalent to eligibility
criteria for any of the enumerated
federal covered housing programs.
At this time, the Treasury Department
and the IRS have determined that the
list of eligible housing programs should
only include Federal housing programs,
not State and local programs. The
statute requires the building participate
in a covered hosing program or other
affordable housing program; it is not
sufficient that the building has certain
characteristics, such as being owned by
a tax-exempt entity. Additionally, the
statute enumerates programs that are
eligible based only on their inclusion
under VAWA or because the programs
are administered by the USDA or a
Tribally designated housing entity.
There are no standard criteria across
these eligible programs which can be
applied to objectively consider other
programs. Additionally, comments did
not provide a comprehensive set of
criteria that could be used to determine
what additional affordable housing
programs should be included. The
Treasury Department, under the
authority granted under section
48E(h)(2)(B)(i), may decide in the future
to include additional programs for
Category 3. If additional, specific
housing programs are deemed eligible,
or if a process is later developed to
consider housing programs for
inclusion, that information will be
E:\FR\FM\13JAR3.SGM
13JAR3
ddrumheller on DSK120RN23PROD with RULES3
2846
Federal Register / Vol. 90, No. 7 / Monday, January 13, 2025 / Rules and Regulations
announced through guidance published
in the Internal Revenue Bulletin.
Regarding Federal housing programs,
commenters recommended additional
housing programs, including programs
administered by the Department of
Hawaiian Home Lands, Native Hawaiian
Organizations, and Hawaiian
Homestead Associations. In
consultation with HUD, the Treasury
Department and the IRS have adopted
changes to the list of eligible housing
programs for Category 3. For the
Program year beginning in calendar year
2025, HUD project based vouchers
under Section 8 of the United States
Housing Act of 1937 and housing
programs administered by the
Department of Hawaiian Home Lands as
defined in Title VIII of the Native
American Housing Assistance and SelfDetermination Act of 1996 (24 CFR
1006.10), Hawaiian Homestead
Associations (HHA) as defined in 43
CFR 48.6, and DHHL or HHA lands
administered by Native Hawaiian
Organizations as defined in 13 CFR
124.3, have been added to the list of
eligible housing programs. Guidance
published in the Internal Revenue
Bulletin, as updated, will contain the
complete list of eligible housing
programs for Category 3.
Section 48E(h)(2)(A)(iii)(II) defines an
applicable facility in part to include a
qualified facility that is part of a
qualified low-income economic benefit
project. Section 48E(h)(2)(C) provides
that a facility will be treated as part of
a qualified low-income economic
benefit project if at least 50 percent of
the financial benefits of the electricity
produced by such facility are provided
to households with income of less than
200 percent of the poverty line (as
defined in section 36B(d)(3)(A) of the
Code) applicable to a family of the size
involved, or less than 80 percent of area
median gross income (as determined
under section 142(d)(2)(B) of the Code).
Consistent with section
48E(h)(2)(A)(iii)(II), proposed
§ 1.48E(h)–1(b)(2)(iv), would define a
Category 4 facility as a facility that is
part of a qualified low-income economic
benefit project. Proposed § 1.48E(h)–
1(b)(2)(iv) would further provide that a
facility will be treated as part of a
qualified low-income economic benefit
project if at least 50 percent of the
financial benefits of the electricity
produced by the facility are provided to
households with income of less than
200 percent of the poverty line (as
defined in section 36B(d)(3)(A))
applicable to a family of the size
involved, or 80 percent of area median
gross income (as determined under
section 142(d)(2)(B)).
VerDate Sep<11>2014
21:51 Jan 09, 2025
Jkt 265001
No comments were submitted
regarding proposed § 1.48E(h)–
1(b)(2)(iv). The final regulations adopt
the proposed rule without modification.
C. Less Than Five Megawatts
Requirement
Section 48E(h)(2)(A)(ii) requires that
an applicable facility have a maximum
net output of less than 5 megawatts (as
measured in AC), referred to in this
preamble as the less than five megawatts
requirement. Proposed § 1.48E(h)–
1(b)(3)(i) would provide that the less
than five megawatts requirement is
measured at the level of the applicable
facility in accordance with section
48E(h)(2)(A)(ii). Proposed § 1.48E(h)–
1(b)(3)(i) additionally would clarify that
the maximum net output of an
applicable facility is measured only by
nameplate generating capacity of the
applicable facility, which includes only
functionally interdependent
components of the applicable facility, at
the time the applicable facility is placed
in service. Proposed § 1.48E(h)–1(b)(3)(i)
would provide that components of
property are functionally
interdependent if the placing in service
of each component is dependent upon
placing in service other components to
produce electricity.
Proposed § 1.48E(h)–1(b)(3)(ii) would
further provide that the determination
of whether an applicable facility has a
maximum net output of less than 5
megawatts (MW) (as measured in AC) is
based on the nameplate capacity of the
applicable facility. Proposed § 1.48E(h)–
1(b)(3)(ii) would additionally state that
the nameplate capacity for purposes of
the less than five megawatts
requirement is the maximum electrical
generating output in MW that the
applicable facility is capable of
producing on a steady state basis and
during continuous operation under
standard conditions, as measured by the
manufacturer and consistent with the
definition of nameplate capacity
provided in 40 CFR 96.202. Proposed
§ 1.48E(h)–1(b)(3)(ii) would also state
that if applicable, the International
Standard Organization conditions
should be used to measure the
maximum electrical generating output
of an applicable facility.
The Proposed Regulations requested
comments on other approaches to
address this statutory requirement that
would further the purpose of efficient
allocation of a Federal tax credit
program with a national impact and
would advance the goals of the Program
to incentivize additional deployment of
qualified facilities in low-income
communities. The preamble to the
Proposed Regulations stated that these
PO 00000
Frm 00006
Fmt 4701
Sfmt 4700
approaches could include rules that
would aggregate the capacity of
qualified facilities with integrated
operations (that is, qualified facilities
that are owned by the same taxpayer,
placed in service in the same taxable
year, and transmit electricity generated
by the facilities through the same point
of interconnection or, if the facilities are
not grid-connected, to the same end
user(s)) solely for the purposes of
whether an application meets the less
than five megawatts requirement under
section 48E(h)(2)(A)(ii).
Further, the preamble to the Proposed
Regulations explained that the Treasury
Department and the IRS intended to
deprioritize review of applications for
an applicable facility that together with
other qualified facilities (1) share a
point of interconnection, (2) produce
electricity using the same technology,
(3) are owned by the same taxpayer, and
(4) have an aggregate total maximum net
output (as determined by the sum of the
maximum net output of the applicable
facility and each qualified facility under
proposed § 1.48E(h)–1(b)(3)(ii)) equal to
or greater than five megawatts (as
measured in AC). Deprioritized
applications would be considered after
other applications in the current
allocation round, or a subsequent
allocation round at the Secretary’s
discretion.
One commenter stated that the
proposed less than 5 MW requirement
may allow larger projects to be
deceptively segmented into smaller ones
to manufacture a false qualification for
the bonus credit. This commenter
supported the inclusion of stricter
aggregation rules to prevent developers
from dividing larger projects to
monopolize allocations intended for
genuinely small facilities. Another
commenter expressed support for the
proposal to aggregate capacity of
qualified facilities with integrated
operations. This commenter, however,
recommended using only one factor to
aggregate facilities, a common point of
interconnection. Another commenter
suggested that, in evaluating related
qualified facilities, the final regulations
should consider whether an application
is for a project where the developer and
its affiliates have multiple
interconnection agreements on the same
property.
Section 48E(h)(4)(A) provides that
‘‘[i]n establishing such program and to
carry out the purposes of this
subsection, the Secretary shall provide
procedures to allow for an efficient
allocation process.’’ To further the aims
of an efficient allocation process, the
Treasury Department and the IRS agree
with commenters that the final
E:\FR\FM\13JAR3.SGM
13JAR3
ddrumheller on DSK120RN23PROD with RULES3
Federal Register / Vol. 90, No. 7 / Monday, January 13, 2025 / Rules and Regulations
regulations should include an
aggregation rule to clarify the scope of
applications. Clear parameters of what
constitutes an ‘‘applicable facility’’ for
purposes of an application to the
Program provides certainty for
applicants preparing and submitting
applications and for the IRS in its
review of applications. For example, the
definition of a qualified facility, as
defined under the 48E Proposed
Regulations, may give the impression to
the taxpayer that they must submit
multiple applications for a 3 MW solar
facility with multiple inverters. Such a
result would not create an efficient
allocation process. Furthermore,
because section 48E(h) is subject to a
finite annual Capacity Limitation, the
Treasury Department and the IRS
believe allocating amounts of Capacity
Limitation to a group of related
qualified facilities with an aggregate
total maximum net output equal to or
greater than 5 MW (as measured in AC)
could concentrate allocations (and the
benefits of clean energy development) in
a smaller number of communities,
rather than making them more broadly
available, which would not further the
purpose of an efficient allocation of a
Federal tax credit. Accordingly, the final
regulations revise the nameplate
capacity measurement test to determine
whether an applicable facility has a
maximum net output of less than 5 MW
(as measured in AC).
Solely for the purposes of the less
than five megawatts requirement for the
Program, if an applicable facility has
integrated operations with one or more
other qualified facilities of the same
technology type, then the aggregate
nameplate capacity of the applicable
facility and other qualified facility must
be used to determine the maximum net
output of an applicable facility,
including in determining eligibility for
an allocation of Capacity Limitation.
This approach provides clarity to
applicants, creates a more efficient
allocation process relative to other
approaches because it streamlines
application intake and processing, and
helps address commenters’ concerns
about fairness in the allocation process.
The final regulations provide at newly
added § 1.48E–1(b)(3)(iv) that solely for
the purposes of the less than five
megawatts requirement for the Program,
an applicable facility is treated as
having integrated operations with one
or more other qualified facilities of the
same technology type, if the facilities
are: (i) owned by the same or related
taxpayers; (ii) placed in service in the
same taxable year; and (iii) transmit
electricity generated by the facilities
through the same point of
VerDate Sep<11>2014
21:51 Jan 09, 2025
Jkt 265001
interconnection or, if the facilities are
not grid-connected or are delivering
electricity directly to an end user
behind a utility meter, are able to
support the same end user. The final
regulations also provide a definition for
related taxpayers in newly added
§ 1.48E–1(b)(4). For purposes of the less
than five megawatts requirement, the
term related taxpayers means members
of a group of trades or businesses that
are under common control (as defined
in § 1.52–1(b)). Related taxpayers are
treated as one taxpayer in determining
whether an applicable facility has
integrated operations.
One commenter requested
clarification as to whether facilities with
exactly 5 MW are eligible for the
Program, or whether projects must
restrict their inverter output to 4.99 MW
(as measured in AC) to qualify. The
statutory language requires that an
applicable facility have a maximum net
output of less than 5 MW (as measured
in AC), and the final regulations provide
a nameplate capacity test to determine
whether an applicable facility satisfies
the statutory requirement. Accordingly,
facilities with a maximum net output of
5 MW (as measured in AC) or greater are
not applicable facilities and are not
eligible. Furthermore, derating or
restricting an inverter to get below 5
MW (as measured in AC) would only
change the output of the facility but
would not change the maximum net
output (or nameplate capacity) of the
facility.
The Treasury Department and the IRS
are aware that certain technologies
generate electricity in direct current, not
alternating current, and therefore, it is
unclear how to determine whether an
applicable facility has a maximum net
output of less than 5 MW (as measured
in AC).
For applicable facilities that generate
electrical output in direct current, the
final regulations provide an alternative
nameplate capacity measurement at
newly added § 1.48E–1(b)(3)(iii). Only
for qualified facilities that generate
electricity in direct current, the taxpayer
may choose to determine the maximum
net output (in alternating current) of the
applicable facility by using the lesser of:
(i) nameplate generating capacity of the
applicable facility in direct current,
which is deemed the nameplate
generating capacity of the applicable
facility in alternating current; or (ii) the
nameplate capacity of the first
component of property that inverts the
direct current electricity into alternating
current.
PO 00000
Frm 00007
Fmt 4701
Sfmt 4700
2847
D. Eligible Property
Section 48E(h)(3) defines eligible
property as a qualified investment with
respect to any applicable facility.
Section 48E(b) describes a qualified
investment with respect to a qualified
facility. Generally, for purposes of
section 48E(a), section 48E(b)(1)(A) and
(b)(1)(B) provide that the qualified
investment with respect to a qualified
facility for any taxable year is the sum
of the basis of any qualified property
placed in service by the taxpayer during
such taxable year that is part of a
qualified facility, plus the amount of
expenditures that are paid or incurred
by the taxpayer for qualified
interconnection property.
Consistent with section 48E(h)(3),
proposed § 1.48E(h)–1(c) would define
eligible property as a qualified
investment (as defined in section
48E(b)) 1 with respect to any applicable
facility. The preamble to the Proposed
Regulations explained that pursuant to
section 48E(h)(3), eligible property does
not include any qualified investment
with respect to energy storage
technology.
Several commenters objected to the
exclusion of energy storage technology
as eligible property for purposes of the
section 48E(h) Increase. Some
commenters requested that the final
regulations should include energy
storage technology as eligible property
for purposes of the Program. These
commenters cited to the inclusion of colocated energy storage technology as
eligible property for purposes of the
predecessor program under section
48(e). One commenter asserted that the
proposed rule was wrong, and that
certain energy storage technology
should be includable as a qualified
investment by distinguishing between
stand-alone energy storage technology
and energy storage technology
associated with a qualified facility. This
commenter asserted that associated
energy storage technology is an integral
part of the qualified facility and should
be includable as a qualified investment.
Another commenter similarly requested
that the final regulations under sections
48E and 45Y classify energy storage
technology as an integral part of the
qualified facility, and therefore, further
requested that energy storage technology
be eligible for the section 48E(h)
Increase. Alternatively, this commenter
suggested that the final regulations
1 See proposed § 1.48E–2(d), as proposed in the
notice of proposed rulemaking (REG–119283–23)
published in the Federal Register (89 FR 47792) on
June 3, 2024, and corrected on July 18, 2024 at 89
FR 58305, for more information regarding the
definition of ‘‘qualified investment.’’
E:\FR\FM\13JAR3.SGM
13JAR3
2848
Federal Register / Vol. 90, No. 7 / Monday, January 13, 2025 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES3
clarify that facilities that include energy
storage technology remain eligible for
the bonus credit for the portion of the
system that is a qualified facility.
Section 48E(a) defines and provides
an investment credit for energy storage
technology distinct and separate from a
credit for a qualified facility. Eligible
property under section 48E(h) only
includes a qualified investment with
respect to an applicable facility, and
therefore, the statute does not support
inclusion of energy storage technology
in the section 48E(h) Program. If an
applicant has a system that includes
both an applicable facility and energy
storage technology, the applicable
facility would still be eligible for a
credit under section 48E and the section
48E(h) Increase. Accordingly, the final
regulations do not adopt these
comments.
E. Location
Proposed § 1.48E(h)–1(d)(1) would
treat an applicable facility as located in
a low-income community or on Indian
land under section 48E(h)(2)(A)(iii)(I) or
located in a geographic area under the
Additional Selection Criteria (see part
VI.B. of this Summary of Comments and
Explanation of Revisions) if the facility
satisfies the nameplate capacity test
(Nameplate Capacity Test for Location)
provided in proposed § 1.48E(h)–1(d)(2).
Proposed § 1.48E(h)–1(d)(2) would
describe the Nameplate Capacity Test
for Location, which provides that an
applicable facility would be considered
located in or on the relevant geographic
area described in proposed § 1.48E(h)–
1(d)(1) if 50 percent or more of the
applicable facility’s nameplate capacity
is in a qualifying area. The purpose of
this proposed rule is to provide
applicants that have an applicable
facility that is not entirely located in a
qualifying area a means to evaluate
eligibility. For example, if an applicant’s
applicable facility is sited on the
boundary of a qualifying area, the
Nameplate Capacity Test for Location is
used to determine if the applicable
facility is deemed located in the
qualifying area.
One commenter recommended that
devices that are offshore but are eligible
for section 48E and can attribute their
nameplate capacity to where their
power conditioning equipment is
onshore should be able to satisfy the
Nameplate Capacity Test for Location.
This commenter noted that this
recommendation is consistent with the
Nameplate Capacity Attribution Rule
found in Notice 2024–30, 16 I.R.B. 878.
The final regulations do not adopt this
comment because it is not in accordance
with the Program’s requirements. The
VerDate Sep<11>2014
21:51 Jan 09, 2025
Jkt 265001
commenter’s suggestion stems from
guidance issued for an increased credit
rate for qualifying facilities located in
specific energy communities. The
statutory requirements for the location
of an applicable facility eligible for the
Program are different than for a
qualifying facility eligible for the energy
communities bonus. Moreover, the
Treasury Department and the IRS do not
expect applicable facilities to be located
offshore outside of the boundaries of a
qualifying area. Accordingly, for the
purposes of the Program, the Nameplate
Capacity Test for Location requires that
an applicable facility be located in a
qualifying area. The final regulations
adopt § 1.48E(h)–1(d)(1) as proposed.
IV. Financial Benefits for Category 3
and Category 4 Allocations
A. In General
Section 48E(h)(2)(D) provides that
electricity acquired at a below-market
rate will not fail to be taken into account
as a financial benefit. The Proposed
Regulations would propose definitions
and requirements related to the term
financial benefit under section
48E(h)(2)(D), as well as a manner to
apply such definitions and
requirements, appropriately, to qualified
low-income residential building projects
(section 48E(h)(2)(B)) and qualified lowincome economic benefit projects
(section 48E(h)(2)(C)). The proposed
definitions and requirements for
financial benefits were different for an
allocation under Category 3 (section
48E(h)(2)(B)) and Category 4 (section
48E(h)(2)(C)) and these definitions
remain different for each respective
category in the final regulations,
because the statutory language provides
distinct financial benefit requirements
for these categories. A Summary of
Comments and Explanation of Revisions
for financial benefits for Category 3
facilities is presented below in section
IV.C. and for Category 4 in section IV.D.
B. Renewable Energy Certificates (RECs)
For both Category 3 and Category 4,
commenters requested clarity on
whether RECs are included in the
determination of financial benefits.
Commenters generally opposed
including RECs as part of the financial
benefits determination. Section
48E(h)(2)(B)(ii) and (C) both require
distribution of the ‘‘financial benefits of
the electricity produced’’ by a facility.
The Treasury Department and the IRS,
understand that accessibility and
inclusion of RECs vary across the U.S.
depending on the relevant region or
state’s regulations and overall market.
RECs represent environmental or
PO 00000
Frm 00008
Fmt 4701
Sfmt 4700
renewable ‘‘attributes’’ or ‘‘benefits’’
associated with renewable energy
generation and RECs are environmental
commodities that can be traded
separately from wholesale electricity
markets. RECs are issued in situations
when electricity is generated from a
renewable facility and the ability of the
owner of the renewable facility to sell
RECs has the potential to generate
revenue and a financial benefit for the
owner. For this reason, any revenue
generated by the sale of RECs should be
included in determining financial
benefits for both Category 3 and
Category 4. Similarly, any other
certificates or credits (excluding Federal
tax credits) that are related to electricity
production and that yield revenue to the
owner as a result of electricity generated
should be included in determining
financial benefits. This clarification
does not impact any of the Proposed
Regulations under Category 3. There
were additional comments regarding
RECs and the manner by which RECs
must be included in determining the bill
credit discount rate for Category 4.
These comments are summarized and
addressed in section IV.D. of this
Summary of Comments and
Explanations of Revisions.
C. Financial Benefits for Qualified LowIncome Residential Building Projects
For a facility to be treated as part of
a qualified low-income residential
building project (Category 3 facility),
section 48E(h)(2)(B)(ii) provides that the
financial benefits of the electricity
produced by such facility must be
allocated equitably among the
occupants of the dwelling units of a
Qualified Residential Property.
Consistent with the statute, proposed
§ 1.48E(h)–1(e)(1) would provide that, to
satisfy the requirements of a Category 3
facility, the financial benefits of the
electricity produced by the facility must
be allocated equitably among the
occupants of the dwelling units of the
Qualified Residential Property.
Proposed § 1.48E(h)–1(e)(1) would also
clarify that the same rules for financial
benefits for Category 3 facilities apply to
both multi-family and single-family
Qualified Residential Property. No
comments were submitted regarding
this proposed rule, and the final
regulations adopt this proposed rule for
Category 3 financial benefits without
modification.
Proposed § 1.48E(h)–1(e)(2) would
require that at least 50 percent of the
financial value of the electricity
produced by the facility (as defined in
proposed § 1.48E(h)–1(e)(3)) must be
equitably allocated to the Qualified
Residential Property’s occupants that
E:\FR\FM\13JAR3.SGM
13JAR3
ddrumheller on DSK120RN23PROD with RULES3
Federal Register / Vol. 90, No. 7 / Monday, January 13, 2025 / Rules and Regulations
are designated as low-income occupants
under the housing program. Proposed
§ 1.48E(h)–1(e)(3) would further define
the financial value of the electricity
produced by the applicable facility as
the greater of: (i) 25 percent of the gross
financial value (as defined in proposed
§ 1.48E(h)–1(e)(4)) of the annual
electricity produced by the applicable
facility, or (ii) the net financial value (as
defined in proposed § 1.48E(h)–1(e)(5))
of the annual electricity produced by
the applicable facility. These
requirements recognize that not all the
financial value of the electricity
produced can be passed on to building
occupants because a certain percentage
can be assumed to be dedicated to
lowering the operational costs of
electricity consumption for common
areas, which benefits all building
occupants.
Proposed § 1.48E(h)–1(e)(4) would
then provide that the gross financial
value of the annual electricity produced
by the applicable facility is the sum of:
(i) the total self-consumed kilowatthours produced by the applicable
facility multiplied by the Qualified
Residential Property’s metered
volumetric price of electricity, (ii) the
total exported kilowatt-hours produced
by the applicable facility multiplied by
the Qualified Residential Property’s
volumetric export compensation rate for
kilowatt-hours of electricity, and (iii)
the sale of any attributes associated with
the applicable facility’s production
(including, for example, any Federal,
State or Tribal renewable energy
certificates or incentives), if separate
from the metered price of electricity or
export compensation rate.
Additionally, the proposed definition
of net financial value in § 1.48E(h)–
1(e)(5) would account for the specific
nature of facilities serving low-income
residential buildings and facility
ownership. In the case of common
ownership, when the facility owner is
also the Qualified Residential Property
owner, proposed § 1.48E(h)–1(e)(5)(i)
would define net financial value as the
gross financial value of the annual
electricity produced minus the annual
average (or levelized) cost of the
applicable facility over the useful life of
the facility (including debt service,
maintenance, replacement reserve,
capital expenditures, and any other
costs associated with constructing,
maintaining, and operating the facility).
For third-party ownership, when the
facility and the Qualified Residential
Property are not commonly owned and
the facility owner enters into a power
purchase agreement or other contract for
electricity services with the Qualified
Residential Property owner and/or
VerDate Sep<11>2014
21:51 Jan 09, 2025
Jkt 265001
building occupants, proposed
§ 1.48E(h)–1(e)(5)(ii) would define net
financial value as the gross financial
value of the annual electricity produced
minus any payments made by the
building owner and/or building
occupants to the applicable facility
owner for electricity services associated
with the applicable facility in a given
year.
A commenter stated that the proposed
methodology and calculations
established to calculate net financial
value and gross financial value are too
restrictive and hinder the ability for
qualified low-income residential
buildings to participate. This
commenter also asserted that the
required financial benefits would
exceed the value of the credit. Two
commenters requested that the final
regulations eliminate the ‘‘greater of’’
language in proposed § 1.48E(h)–1(e)(3)
and replace it with ‘‘either’’ to allow
applicants to choose between using the
gross financial value or the net financial
value. These commenters asserted that
using either method would still result in
the 50 percent minimum requirement
under the Proposed Regulations to be
met.
The Treasury Department and the IRS
do not agree with comment observing
that the calculations for Category 3
financial benefits will hinder the ability
for qualified low-income residential
buildings to participate. No other
comments were submitted suggesting
that the calculations will restrict the
participation of low-income residential
buildings. The calculations provide
clear parameters for applicants and
financial benefits to residents. This
comment is not adopted with respect to
eliminating the ‘‘greater of’’
requirement. The ‘‘greater of’’ language
helps implement the statutory
requirement for the equitable
distribution of financial benefits to
tenants and supports the Program’s
objectives of providing financial
benefits directly to households.
Additionally, while the statute requires
that the financial benefits of the
electricity produced be shared with
occupants, the final regulations already
recognize that not all the financial value
of the electricity produced can be
passed on to building occupants, and
that a certain portion can be used for
lowering the operational costs of
electricity consumption for common
areas, which benefits all building
occupants.
Proposed § 1.48E(h)–1(e)(5)(iii) would
provide different rules to ensure an
equitable allocation of financial benefits
regardless of whether the financial value
is distributed to building occupants via
PO 00000
Frm 00009
Fmt 4701
Sfmt 4700
2849
utility bill savings or through some
other means. If financial value is
distributed via utility bill savings,
proposed § 1.48E(h)–1(e)(5)(iii)(A)
would provide that financial benefits
will be considered to be allocated
equitably if at least 50 percent of the
financial value of the electricity
produced by the applicable facility is
distributed as utility bill savings in
equal shares to each building dwelling
unit among the Qualified Residential
Property’s occupants that are designated
as low-income under the covered
housing program or other affordable
housing program (described in section
48E(h)(2)(B)(i)) or alternatively
distributed in proportional shares based
on each low-income dwelling unit’s
square footage, or each low-income
dwelling unit’s number of occupants.
Proposed § 1.48E(h)–1(e)(5)(iii)(A) also
would provide that for any occupant(s)
who chooses to not receive utility bill
savings, the portion of the financial
value that would otherwise be
distributed to non-participating
occupants must be instead distributed to
all participating occupants. Proposed
§ 1.48E(h)–1(e)(5)(iii)(A) would further
clarify that no less than 50 percent of
the Qualified Residential Property’s
occupants that are designated as lowincome must participate and receive
utility bill savings for the applicable
facility to use this method of benefit
distribution.
Additionally, proposed § 1.48E(h)–
1(e)(5)(iii)(A) would provide that in the
case of a solar facility, applicants must
follow the HUD guidance on Treatment
of Financial Benefits to HUD-Assisted
Tenants Resulting from Participation in
Solar Programs Notice (Housing Notice
2023–09), located at https://
www.hud.gov/sites/dfiles/OCHCO/
documents/2023-09hsgn.pdf, or future
HUD guidance, or other guidance or
notices from the Federal agency that
oversees the applicable housing
program identified in section
48E(h)(2)(B) to ensure that tenants’
annual income for rent calculations or
other requirements impacting total
tenant payment are not impacted
negatively by the distribution of
financial value. In the case of any other
applicable facility, applicants must
follow future HUD guidance, or other
guidance from the Federal agency that
oversees the applicable housing
program. In the absence of future
guidance from a Federal agency,
applicants should apply principles
similar to those articulated in the HUD
guidance in the case of any other
applicable facility.
Proposed § 1.48E(h)–1(e)(5)(iii)(B)
would provide that if financial value is
E:\FR\FM\13JAR3.SGM
13JAR3
ddrumheller on DSK120RN23PROD with RULES3
2850
Federal Register / Vol. 90, No. 7 / Monday, January 13, 2025 / Rules and Regulations
not distributed via utility bill savings,
financial benefits will be considered to
be allocated equitably if at least 50
percent of the financial value of the
electricity produced by the applicable
facility is distributed to occupants using
one or more methods described in
Housing Notice 2023–09 located at
https://www.hud.gov/sites/dfiles/
OCHCO/documents/2023-09hsgn.pdf, or
future HUD guidance, or other guidance
or notices from the Federal agency that
oversees the applicable housing
program identified in section
48E(h)(2)(B). In the case of a solar
facility, applicants must comply with
HUD guidance, or future HUD guidance,
for how residents of master-metered
HUD-assisted housing can benefit from
owners’ sharing of financial benefits
accrued from an investment in solar
electricity generation to ensure that
tenants’ utility allowances and annual
income for rent calculations are not
negatively impacted. Applicants should
apply principles similar to those
articulated in the HUD guidance in the
case of any other applicable facility.
No comments were submitted
regarding the required methods of
delivery of financial benefits for
Category 3 facilities. The Proposed
Regulations would cite to specific HUD
guidance on benefits sharing. In
consultation with HUD, the Treasury
Department and the IRS understand that
HUD’s Office of Multifamily Housing,
Office of Public and Indian Housing,
Office of Native American Programs,
and other offices may publish guidance
on benefits sharing relevant Category 3
applicable facilities. Accordingly, the
final regulations adopt § 1.48E(h)–
1(e)(5)(iii)(A) and (B) as proposed with
minor clarifications to reflect HUD
guidance on benefits sharing.
To strengthen Program compliance
and to provide clarity to applicants
regarding how they can demonstrate
that statutory requirements are met,
proposed § 1.48E(h)–1(e)(6)(i) would
provide that a Category 3 facility owner
must prepare a Benefits Sharing
Statement. Proposed § 1.48E(h)–
1(e)(6)(i) would further state that the
Benefits Sharing Statement is required
to include (A) a calculation of the
facility’s gross financial value using the
method described in proposed
§ 1.48E(h)–1(e)(4), (B) a calculation of
the facility’s net financial value using
the method described in proposed
§ 1.48E(h)–1(e)(5), (C) a calculation of
the financial value required to be
distributed to building occupants using
the method described in proposed
§ 1.48E(h)–1(e)(3), (D) a description of
the means through which the required
financial value will be distributed to
VerDate Sep<11>2014
21:51 Jan 09, 2025
Jkt 265001
building occupants, and (E) if the
facility and Qualified Residential
Property are separately owned, an
indication of which entity will be
responsible for the distribution of
benefits to the occupants.
Proposed § 1.48E(h)–1(e)(6)(ii) would
provide that the Qualified Residential
Property owner must formally notify the
occupants of units in the Qualified
Residential Property of the development
of the facility and planned distribution
of benefits.
No comments were received on the
Benefits Sharing Statement or the
requirement to notify. Accordingly, the
final regulations adopt these rules
without modification.
D. Financial Benefits in Qualified LowIncome Economic Benefit Projects
For a facility to be treated as part of
a qualified low-income economic
benefit project, section 48E(h)(2)(C)
requires that at least 50 percent of the
financial benefits of the electricity
produced by the facility be provided to
qualifying low-income households.
Proposed § 1.48E(h)–1(f)(1) would add
the term Qualifying Households to refer
to households which meet the income
requirements under section
48E(h)(2)(C)(i) or (ii) and would provide
that to satisfy the requirements of a
Category 4 facility:
(i) The facility must serve multiple
Qualifying Households under section
48E(h)(2)(C)(i) or (ii);
(ii) At least 50 percent of the facility’s
total output in kilowatts (kW) must be
assigned to Qualifying Households; and
(iii) Each Qualifying Household must
be provided a bill credit discount rate
(as defined in proposed § 1.48E(h)–
1(f)(2)) of at least 30 percent.
Proposed § 1.48E(h)–1(f)(2)(i) would
additionally define a bill credit discount
rate as the difference between the
financial benefit provided to a
Qualifying Household (including utility
bill credits, reductions in a Qualifying
Household’s electricity rate, or other
monetary benefits accrued by the
Qualifying Household on its utility bill)
and the cost of participating in the
energy purchasing program (including
subscription payments for zero-carbon
energy and any other fees or charges),
expressed as a percentage of the
financial benefit distributed to the
Qualifying Household. Proposed
§ 1.48E(h)–1(f)(2)(i) also would clarify
that the bill credit discount rate can be
calculated by starting with the financial
benefit provided to the Qualifying
Household, subtracting all payments
made by the Qualifying Household (or
payments remitted on behalf of the
Qualifying Household through net
PO 00000
Frm 00010
Fmt 4701
Sfmt 4700
crediting, consolidated billing, or
similar arrangements) to the facility
owner and any related third parties as
a condition of receiving that financial
benefit, then dividing that difference by
the financial benefit distributed to the
Qualifying Household.
While several commenters supported
the proposed bill credit discount rate of
30 percent, many commenters opposed
the increase from the 20 percent bill
credit discount rate under the
predecessor program. These
commenters asserted that the market
and industry have not sufficiently
evolved to account for a bill credit
discount rate of 30 percent. Several
comments stated that an increase in the
bill credit discount rate would favor
States with higher utility rates and
already established solar markets, while
having a negative impact on States with
already low electricity prices, or with no
or emerging clean energy programs.
Commenters who opposed the 30
percent bill credit discount rate
generally supported reinstating the 20
percent rate from the predecessor
program. Several commenters stated
that projects are already in development
based on the 20 percent bill credit
discount rate from the predecessor
program under section 48(e), and the
commentors contended that the bill
credit discount rate should remain the
same. Some commenters also opposed a
phased-in approach to increasing the
bill credit discount rate citing a lack of
Program data to support any increase.
Two commenters, however, expressed
support for a phased-in approach.
Alternatively, some commenters
suggested a tiered approach to the bill
credit discount rate within Category 4
by adjusting the required bill credit
discount rate based on regional market
conditions.
After consideration of the comments,
the final regulations adopt a bill credit
discount rate of 20 percent. The 20
percent bill credit discount rate—as
opposed to a 30 percent bill credit
discount rate—supports the Program’s
goal of national impact by allowing a
broader range of facilities to apply
under Category 4. Given the uncertainty
of how the market will evolve and
yearslong industry development
timelines, the final regulations do not
adjust the bill credit discount rate over
time. Therefore, as finalized, § 1.48E(h)–
1(f)(1)(iii) provides ‘‘[e]ach Qualifying
Household must be provided a bill
credit discount rate (as defined in
§ 1.48E(h)–1(f)(2)) of at least 20
percent.’’ The final regulations adopt
the rest of the proposed § 1.48E(h)–
1(f)(1)(i) and (ii) without modification.
E:\FR\FM\13JAR3.SGM
13JAR3
ddrumheller on DSK120RN23PROD with RULES3
Federal Register / Vol. 90, No. 7 / Monday, January 13, 2025 / Rules and Regulations
Proposed § 1.48E(h)–1(f)(2)(ii) would
provide that in cases in which the
Qualifying Household has no or only a
nominal cost of participation, and
financial benefits are delivered through
a utility or government body, the bill
credit discount rate should be
calculated as the financial benefit
provided to a Qualifying Household
(including utility bill credits, reductions
in a Qualifying Household’s electricity
rate, or other monetary benefits accrued
by a Qualifying Household on their
utility bill) divided by the total value of
the electricity produced by the facility
and assigned to the Qualifying
Household (including any electricity
services, products, and credits provided
in conjunction with the electricity
produced by such facility), as measured
by the utility, independent system
operator (ISO), or other off-taker
procuring electricity (and related
services, products, and credits) from the
facility. Proposed § 1.48E(h)–1(f)(2)(iv)
would clarify that the bill credit
discount rate is calculated on an annual
basis. Proposed § 1.48E(h)–1(f)(2)(v)
would provide examples to clarify the
application of proposed § 1.48E(h)–
1(f)(2).
Proposed § 1.48E(h)–1(f)(2)(iii) would
provide that if the facility derives
financial value from the production of
electricity in a manner such that this
value cannot be directly applied to the
Qualifying Household’s utility bill (for
example, renewable energy certificate
payments made directly to the facility
owner), then no less than 30 percent of
that monetary value must also be
provided to the Qualifying Household,
either through a greater bill credit
discount on the Qualifying Household’s
utility bill than would otherwise be
derived from the method described in
proposed § 1.48E(h)–1(f)(1)(i) or through
other means.
As previously addressed in section IV,
generally, of this Summary of
Comments and Explanation of
Revisions, the final regulations clarify
that RECs are included in the financial
benefits calculation for both Category 3
and Category 4. Commenters stated that
any RECs would already be included in
the general bill credit discount
calculation provided for under proposed
§ 1.48E(h)–1(f)(1). Commenters,
therefore, questioned why proposed
§ 1.48E(h)–1(f)(2)(iii) would separate out
any RECs, when the RECs would
generally be included in determining
the pool of financial benefits. The
Treasury Department and the IRS
understand commenters’ concern and
agree that clarity is warranted. The final
regulations do not adopt proposed
§ 1.48E(h)–1(f)(2)(iii). Rather, the final
VerDate Sep<11>2014
21:51 Jan 09, 2025
Jkt 265001
regulations clarify that the value derived
from the sale of RECs (if any) are
included within the financial value
calculation associated with the
requirement that at least 50 percent of
the total financial value of the facility’s
total production in kilowatts must be
assigned to Qualifying Households.
Specifically, § 1.48E(h)–1(f)(1) is revised
to clarify that the financial value
calculation associated with the 50
percent requirement must include other
values from electricity production
(including any electricity services,
products, and credits or certificates such
as RECs provided in connection with
the electricity produced by such facility,
but excluding Federal tax credits), as
measured by the utility, independent
system operator, or other off-taker
procuring electricity (and related
services, products, and credits of
certificates) from the facility.
Notwithstanding that provision, the
Treasury Department and the IRS agree
with commenters that any monetary
value from the sale of RECs (if any)
would already be included in the
financial benefits value and general bill
credit discount described under
§ 1.48E(h)–1(f)(2)(i). As such, there is no
reason to separately identify such
possible REC value in the general bill
credit discount rate described therein.
However, the value from the sale of
RECs is appropriately included under
§ 1.48E(h)–1(f)(2)(ii) related to the bill
credit discount requirements when
there is no or nominal cost of
participation, in this case focused on the
total financial value of the electricity
produced by the facility. Specifically, as
described in § 1.48E(h)–1(f)(2)(ii), the
financial value of electricity produced
by the facility includes the sale of any
attributes associated with the applicable
facility’s production (including, for
example, any Federal, State, Tribal, or
utility incentives or renewable energy
certificates but excluding any Federal
tax credits). In recognition that utilities
may have incentives associated with the
production of electricity, the final
regulations revise proposed § 1.48E(h)–
1(e)(4) to include utility incentives in
the parenthetical examples of attributes
with financial value. The final
regulations at § 1.48E(h)–1(f)(2) also
include minor edits for clarity,
including revisions to § 1.48E(h)–
1(f)(2)(iv)(C) (Example 3), to clarify the
calculation of financial benefits for
Category 4 facilities when there is no or
nominal cost of participation.
The preamble to the Proposed
Regulations also stated that the Treasury
Department and the IRS were
considering adding other methods, apart
from bill credit discounts, for financial
PO 00000
Frm 00011
Fmt 4701
Sfmt 4700
2851
benefits to be shared with Qualifying
Households. The Proposed Regulations
requested comments on alternative
methods for delivering financial benefits
in cases in which bill credit discounts
are not available or are not feasible for
covered technologies. The Proposed
Regulations also requested comment on
how alternative financial benefits could
be verified and how to limit the
potential impact of financial benefits on
potential recipients’ income taxes and
eligibility for public assistance
programs.
Comments were mixed regarding the
inclusion of alternative financial
benefits, other than the bill credit
discount rate in Category 4. Although
several commenters opposed alternative
financial benefit delivery methods,
many commenters supported
alternatives and requested that the
framework for other methods allowed
under Category 3 be applied to Category
4. A commenter stated that some
Federally assisted housing is not able to
apply under Category 3 because the
housing does not have the proper roof
or adequate parcel size to support the
facility. In these situations, the
commenter stated that households in
master-metered buildings should be able
to benefit as a Category 4 project and the
financial benefits should be applied as
they are in Category 3. A commenter
suggested that Category 4 benefits could
be defined and distributed using the
same HUD documents, verification
protocols, and Benefit Sharing
Statement as used in Category 3.
Another commenter similarly suggested
that HUD regulations should be
promulgated to allow for building
improvements, and list, as an example,
adding wi-fi service for tenants.
Regarding the tax treatment of financial
benefits for the residents of the
Qualifying Households, one commenter
requested that the final regulations
provide that financial benefits are not
taxable.
The statutory requirements for a
Category 4 facility are distinctly
different than Category 3 facility
requirements. For example, the statutory
language under section 48E(h)(2)(C)
requires Category 4 financial benefits be
‘‘provided to households’’ that meet
specific income limits. An applicant is
required to demonstrate that the
participating households meet the
statutory income limits, and further,
prove that a minimum of fifty percent of
the financial benefits of the electricity
produced by the facility are distributed
to Qualifying Households. In contrast,
the statutory language for Category 3
requires that the financial benefits be
allocated equitably to the occupants of
E:\FR\FM\13JAR3.SGM
13JAR3
ddrumheller on DSK120RN23PROD with RULES3
2852
Federal Register / Vol. 90, No. 7 / Monday, January 13, 2025 / Rules and Regulations
the residential rental building with
which this energy facility is associated.
The alternative financial benefit options
to bill credit discount that are provided
under Category 3 may be provided
indirectly to the building as a whole as
long as the benefit is equitably
distributed among the occupants of the
dwelling units of the building. Because
of this requirement, alternative financial
delivery methods that serve the whole
building can be easily distributed for
Category 3 facilities because all
occupants must be within the
residential rental building.
Further, investments in applicable
facilities may require other investments,
such as a new roof that can support a
solar installation. Whether an applicant
chooses to make such investments in
order to be eligible for to apply under
a certain category is a decision that is
unique to each applicant and is outside
the scope of these final regulations.
Therefore, § 1.48E(h)–1(f) of the final
regulations do not adopt these
comments. The final regulations also do
not adopt the comments related to
promulgating HUD regulations because
such regulations are issued pursuant to
HUD’s authority. Lastly, the final
regulations do not adopt comments
regarding the tax treatment of financial
benefits because that is outside of the
scope of these regulations.
Proposed § 1.48E(h)–1(f)(3)(i) would
require applicants to establish that
financial benefits are provided to
Qualifying Households as defined in
proposed § 1.48E(h)–1(f)(1), by
submitting documentation in
accordance with guidance published in
the Internal Revenue Bulletin. The
Proposed Regulations also would
provide that a Qualifying Household’s
low-income status is determined at the
time the household enrolls in the
subscription program and does not need
to be re-verified.
Proposed § 1.48E(h)–1(f)(3)(ii) would
further provide methods that applicants
could use to establish that a household
is a Qualifying Household, including
the ability to use categorical eligibility
or other income verification methods.
Proposed § 1.48E(h)–1(f)(3)(ii)(A) would
provide that categorical eligibility
consists of obtaining proof of the
household’s participation in a needsbased Federal, State, Tribal, or utility
program with income limits at or below
the qualifying income level required to
be a Qualifying Household, and
included a non-exclusive list of Federal
programs which could be used for
categorical eligibility verification.
Proposed § 1.48E(h)–1(f)(3)(ii)(A) would
also clarify that the qualifying income
level for a Qualifying Household is
VerDate Sep<11>2014
21:51 Jan 09, 2025
Jkt 265001
based on where such household is
located.
Proposed § 1.48E(h)–1(f)(3)(ii)(B)
would provide other income verification
methods including paystubs, Federal or
State tax returns, or income verification
through crediting agencies and
commercial data. Proposed § 1.48E(h)–
1(f)(3)(ii)(C) would provide that a selfattestation from a household is not a
permissible method to establish a
household is a Qualifying Household
but clarified that this prohibition on
direct self-attestation from a household
did not extend to categorical eligibility
for needs-based programs with income
limits that rely on self-attestation for
verification of income.
Commenters requested clarifications
of and additions to the income
verification methods. One commenter
observed that, without clarification or
modification, the requirements set forth
in Proposed Regulations will not lead to
verification methods that demonstrate
that a particular household necessarily
meets the income parameters of section
48(e)(2)(C).
In response to these comments, the
documentation requirements have been
modified in the final regulations for
Category 4. The predecessor program
under section 48(e) required taxpayers
who had been awarded an allocation for
a Category 4 facility to submit a
spreadsheet showing a calculation of the
projected financial benefits for the
facility and a list of subscribers with the
method used to verify income for each
subscriber. The final regulations
eliminate the subscriber list as a
Category 4 documentation requirement
under the section 48E(h) Program and
modify the spreadsheet documentation
rule to instead require the submission of
a statement by the applicant to
demonstrate how the applicant will
fulfill the financial benefits distribution
requirements.
The final regulations provide at
§ 1.48E–1(f)(3) that a Demonstration of
Financial Benefits statement is required,
which includes certain information to
demonstrate that the financial benefits
requirements will be met based on the
expected annual energy produced by the
as-built facility at the time it is placed
in service and during the recapture
period under section 48E(h)(5) and
§ 1.48E(h)–1(n). The statement must
include a calculation of the total
financial value of annual electricity
production, the bill credit discount rate
calculation, and a description of the
means of distributing the required
benefits to Qualifying Households. With
the Demonstration of Financial Benefits
statement, the taxpayer must provide
documentation showing the facility is
PO 00000
Frm 00012
Fmt 4701
Sfmt 4700
enrolled in a utility tariff, program, or
other arrangement to distribute financial
benefits to Qualifying Households.
Additional information regarding the
Demonstration of Financial Benefits
statement will be included in guidance
published in the Internal Revenue
Bulletin to explain submission
requirements at application and at
placed in service reporting.
Section 1.48E(h)–1(f)(4) of the final
regulations retains portions of the
income verification rules as a
recordkeeping requirement. With the
decision to exclude the predecessor
program subscriber list requirement
from the Program under section 48E(h),
taxpayers will not be required to
directly report the method of
verification used for each household as
part of placed in service reporting.
However, to submit an accurate
application and Demonstration of
Financial Benefits statements, and to
appropriately claim the section 48E(h)
Increase, taxpayers must have a process
to verify that the requisite percentage of
their subscribers are Qualifying
Households, so that the taxpayer will be
able to fulfill the Category 4 financial
benefits requirements under section
48E(h)(2)(C) and § 1.48E(h)–1(f)(1) and
(2). Moreover, in the event of an audit,
taxpayers must be able to provide
documentation to prove, that, for each
year of the recapture period, the
taxpayer has fulfilled the financial
benefits requirements under section
48E(h)(2)(C) and § 1.48E(h)–1(f)(1) and
(2), validly claimed the credit, and is
qualified to retain the section 48E(h)
Increase. See the recapture rules under
§ 1.48E(h)–1(n) and section 48E(h)(5).
Regarding comments requesting more
clarity and additions to the list of needsbased programs which can be used for
categorical eligibility verification, the
final regulations will not provide an
exhaustive list of Federal or Tribal
programs and will not provide any list
regarding State or utility programs. The
list included in the Proposed
Regulations was limited to examples
where it could readily be established
that the Federal programs have the same
income limit requirements as this
Program does for Category 4 Qualifying
Households. The illustrative list was
intended to provide examples of types
of programs which are need-based and
that would demonstrate that the
household is a Qualifying Household
based on participation in that program.
To prevent further confusion, the
illustrative list of Federal programs is
not included in the final regulations.
For reference purposes, the illustrative
list of Federal programs from the
Proposed Regulations will be included
E:\FR\FM\13JAR3.SGM
13JAR3
ddrumheller on DSK120RN23PROD with RULES3
Federal Register / Vol. 90, No. 7 / Monday, January 13, 2025 / Rules and Regulations
in procedural guidance for the Program
that will be published in the Internal
Revenue Bulletin.
Regarding a list of State or utility level
eligible programs, such programs are too
numerous and varied for the Treasury
Department and the IRS to provide a
list, even just for illustrative purposes.
Moreover, whether a household meets
the income limits is dependent on the
location of that household. Therefore, it
is the responsibility of the taxpayer
seeking the section 48E(h) Increase, to
determine whether a program, Federal
or otherwise, has the same income
limitations as required for Qualifying
Households, and, if documentation
proving that a member or members of a
household participate in such is
sufficient to qualify that household as a
Qualifying Household.
The final regulations also do not
adopt the proposed rule regarding state
agency documentation. The proposed
rule was only intended to clarify that
documentation from State agencies may
be acceptable provided the program
associated with the documentation had
the same income limit requirements.
However, the general rule already
provides that State program
documentation is acceptable for
categorical eligibility, and therefore this
additional rule was unnecessary.
Section 1.48E(h)–1(f)(4)(ii) provides
that applicants may use categorical
eligibility verification or direct income
verification methods to establish that a
household is a Qualifying Household.
Section 1.48E(h)–1(f)(4)(ii) provides that
applicants may use categorical
eligibility verification or direct income
verification methods to establish that a
household is a Qualifying Household.
Section 1.48E(h)–1(f)(4)(ii)(A) defines
categorical eligibility consistent with
the general definition from the Proposed
Regulations, excluding the illustrative
list of Federal programs and the
discussion of state agencies. Section
1.48E(h)–1(f)(4)(ii) also includes
language that an individual in the
household must currently be approved
for assistance from or participation in a
program with an award letter or other
written documentation within the last
12 months for enrollment in that
program to establish categorical
eligibility of the household. This
language was adopted from another
paragraph in the same section of the
Proposed Regulations. Finally, the term
other income verification methods, from
the Proposed Regulations has been
revised to direct income verification, but
otherwise § 1.48E(h)–1(f)(4)(ii) adopts
the language from the Proposed
Regulations.
VerDate Sep<11>2014
21:51 Jan 09, 2025
Jkt 265001
V. Annual Capacity Limitation
Under section 48E(h)(4)(C), the total
annual Capacity Limitation is 1.8
gigawatts of DC capacity for each
calendar year during the period
beginning on January 1, 2025, and
ending on December 31 of the
applicable year (as defined in section
45Y(d)(3)), and zero thereafter. Proposed
§ 1.48E(h)–1(g)(1) would provide that
the Capacity Limitation would be
divided across the four facility
categories described in section
48E(h)(2)(A)(iii) and proposed
§ 1.48E(h)–1(b)(2), and that the
distribution of the annual Capacity
Limitation would be announced in
future guidance published in the
Internal Revenue Bulletin.
Some commenters requested that the
Program retain the Capacity Limitation
distributions established for the
predecessor program under section
48(e). These commenters observed that
maintaining the distribution will
encourage facility development in
categories that were undersubscribed in
the predecessor program. To promote
facility development in categories that
were undersubscribed in the
predecessor program and to provide
greater certainty in the Program, the
Treasury Department and the IRS revise
proposed § 1.48E(h)–1(g)(1), and
§ 1.48E(h)–1(g)(1) of the final
regulations provides, in added Table 1,
the annual Capacity Limitation
distribution across facility categories for
each Program year. Additionally, Table
2 has been added to new § 1.48E(h)–
1(g)(2) to provide the distribution of
Capacity Limitation within Category to
the Category 1 sub-reservations
(described in § 1.48E(h)–1(i) of the final
regulations and Section VII of these
Summary of Comments and Explanation
of Revisions).
Proposed § 1.48E(h)–1(g)(1) would
also provide that, after the Capacity
Limitation for each facility category is
established in guidance published in the
Internal Revenue Bulletin, it may be
reallocated later across facility
categories and sub-reservation in the
event one category or sub-reservation is
oversubscribed and another has excess
capacity. Proposed § 1.48E(h)–1(g)(1)
would also clarify that a facility
category or sub-reservation is
oversubscribed if it receives qualified
applications in excess of Capacity
Limitation reserved for the facility
category or sub-reservation.
To provide clarity on the
redistribution process of Capacity
Limitation during a Program year, the
final regulations add procedural rules to
§ 1.48E(h)–1(g)(2)(i) through (iv). These
PO 00000
Frm 00013
Fmt 4701
Sfmt 4700
2853
procedural rules detail the process by
which the annual Capacity Limitation
described in § 1.48E(h)–1(g)(1) will be
redistributed in the event that some
categories are undersubscribed and
others oversubscribed. Additionally,
§ 1.48E(h)–1(g)(3) includes the
definition for oversubscribed that was
proposed in § 1.48E(h)–1(g)(1) and adds
a coordinating definition for the term
undersubscribed.
Proposed § 1.48E(h)–1(g)(2) would
provide that if the annual Capacity
Limitation for any calendar year exceeds
the aggregate amount of annual Capacity
Limitation allocated for a calendar year
under proposed § 1.48E(h)–1(g)(1), then
the annual Capacity Limitation for the
succeeding calendar year shall be
increased by the amount of such excess.
No comments were received on this
proposed rule. The final regulations
adopt this rule with some clarifications
at § 1.48E(h)–1(g)(4). The final
regulations provide that any unallocated
Capacity Limitation carried over from
the preceding year will be equally
distributed across Category 1, 2, 3, and
4, and further equally distributed across
non-Additional Selection Criteria and
Additional Selection Criteria
reservations. Section 1.48E(h)–1(g)(3)
also provides that within Category 1, the
portion distributed from the carried over
Capacity Limitation will be equally
distributed across Category 1 subreservations and further across the
reserves for Additional Selection
Criteria within those sub-reservations.
Finally, § 1.48E(h)–1(g)(5) has been
added to the final regulations to clarify
how allocations of Capacity Limitation
in DC, which is stipulated in section
48E(h)(4)(C), are made to facilities
which have a nameplate capacity
measured in AC. Section 1.48E(h)–
1(g)(5) provides that applicable facilities
that have a nameplate capacity in AC
and that are awarded an allocation, will
be awarded an amount of Capacity
Limitation in DC that is equal to the
facility’s reported nameplate capacity in
AC.
VI. Additional Selection Criteria
Proposed § 1.48E(h)–1(h)(1) would
provide that at least 50 percent of the
total Capacity Limitation in each facility
category will be reserved for facilities
meeting criteria described in proposed
§ 1.48E(h)–1(h)(2) (relating to ownership
criteria) and proposed § 1.48E(h)–1(h)(3)
(relating to geographic criteria). In the
Proposed Regulations and in these final
regulations the ownership criteria and
the geographic criteria are collectively
referred to as Additional Selection
Criteria.
E:\FR\FM\13JAR3.SGM
13JAR3
ddrumheller on DSK120RN23PROD with RULES3
2854
Federal Register / Vol. 90, No. 7 / Monday, January 13, 2025 / Rules and Regulations
Proposed § 1.48E(h)–1(h)(1) would
also provide that, after the reservation of
Capacity Limitation for qualified
facilities meeting the Additional
Selection Criteria described in proposed
§ 1.48E(h)–1(h)(2) and (3) is established
in guidance published in the Internal
Revenue Bulletin, it may be reallocated
later across facility categories and subreservations in the event one category or
sub-reservation within a category is
oversubscribed and another has excess
capacity.
No comments were submitted directly
addressing these general Proposed
Regulations for Additional Selection
Criteria. However, one commenter
encouraged consideration of other
potential Additional Selection Criteria,
such as facilities that provide increased
financial benefits to qualifying lowincome households or that are located
on previously developed sites, such as
building rooftops, at brownfield sites,
and co-located with other infrastructure,
because projects that meet these criteria
could create greater community impact.
The final regulations do not adopt this
recommendation because the
commenter did not establish how other
potential Additional Selection Criteria
could potentially create greater
community impact. Further, apart from
Additional Selection Criteria, the
Program reserves Capacity Limitation
for BTM facilities located on rooftops.
The Additional Selection Criteria
established under proposed § 1.48E(h)–
1(h) allows applicants to be evaluated
for eligibility under the Additional
Selection Criteria, and therefore, an
increased chance for an allocation
award based on characteristics of the
applicant and facility, and without the
need to compare applicants.
The final regulations generally adopt
proposed § 1.48E(h)–1(h)(1) with the
addition that if eligible applications for
facilities that meet at least one of the
two Additional Selection Criteria
categories received during the initial 30day period total less than 50 percent of
the Capacity Limitation for a category,
then additional Capacity Limitation
would be reserved during the rolling
application period such that 50 percent
of the total Capacity Limitation in the
category would be reserved for these
facilities.
However, the final regulations revise
§ 1.48E(h)–1(h)(1) to account for the
inclusion of the distribution of annual
Capacity Limitation across categories
and the redistribution within a Program
year in these final regulations under
§ 1.48E(h)–1(g). The final regulations
clarify that, at the beginning of an
application period, the reservation for
Additional Selection Criteria applicants
VerDate Sep<11>2014
21:51 Jan 09, 2025
Jkt 265001
is 50 percent of the Capacity Limitation
reserved for each category or Category 1
sub-reservation. The final regulations
retain the informational language that
specific procedures under Additional
Selection Criteria will be provided in
guidance published in the Internal
Revenue Bulletin.
Comments regarding specific criteria
under either the Ownership Criteria
category or the Geographic Criteria
category are summarized and addressed
where appropriate in the sections
following this paragraph.
A. Ownership Criteria
1. In General
Proposed § 1.48E(h)–1(h)(2)(i) would
provide criteria based on ownership
(Ownership Criteria), stating that the
Ownership Criteria category is based on
characteristics of the applicant that
owns the applicable facility. Proposed
§ 1.48E(h)–1(h)(2)(i) would provide that
an applicable facility meets the
Ownership Criteria if it is owned by a
Tribal enterprise, an Alaska Native
Corporation, a Native Hawaiian
Organization, a renewable energy
cooperative, or a qualified tax-exempt
entity.
No comments were submitted
regarding this general definition, and,
therefore, the final regulations adopt
this general rule without modification.
2. Indirect Ownership
Proposed § 1.48E(h)–1(h)(2)(ii)(A)
would provide that if an applicant
wholly owns an entity that is the owner
of an applicable facility, and the entity
is disregarded as separate from its
owner for Federal income tax purposes
(disregarded entity), then the applicant,
and not the disregarded entity, is treated
as the owner of the applicable facility
for purposes of the Ownership Criteria.
No comments were submitted on this
proposed rule. Section 1.48E(h)–
1(h)(2)(ii)(A) of the final regulations
adopts the proposed rule with a
clarification that disregarded entities are
not eligible for an award and may not
submit an application. The final
regulations at § 1.48E(h)–1(h)(2)(ii)(A)
also provide that for entities wholly
owned and chartered under Tribal law
and corporations incorporated under the
authority of either section 17 of the
Indian Reorganization Act of 1934, 25
U.S.C. 5124 or section 3 of the
Oklahoma Indian Welfare Act, 25 U.S.C.
5203, an application may be made as a
Tribal Enterprise.
3. Partner Qualifying Partnership
Proposed § 1.48E(h)–1(h)(2)(ii)(B)
would provide that if an applicant is an
PO 00000
Frm 00014
Fmt 4701
Sfmt 4700
entity classified as a partnership for
Federal income tax purposes, and an
entity described in proposed § 1.48E(h)–
1(h)(2)(i)(A) through (E) owns at least a
one percent interest (either directly or
indirectly) in each material item of
partnership income, gain, loss,
deduction, and credit and is a managing
member or general partner (or similar
title) under State or Tribal law of the
partnership (or directly owns 100
percent of the equity interests in the
managing member or general partner) at
all times during the existence of the
partnership, the applicable facility will
be deemed to meet the ownership
criteria. Proposed § 1.48E(h)–
1(h)(2)(ii)(B) would provide that if the
partnership becomes the owner of the
facility after an allocation is made to an
entity described in proposed § 1.48E(h)–
1(h)(2)(i)(A) through (E), the transfer of
the facility to the partnership is not a
disqualification event for purposes of
proposed § 1.48E(h)–1(m)(5), so long as
the requirements of proposed
§ 1.48E(h)–1(m)(5) are satisfied.
Proposed § 1.48E(h)–1(h)(2)(ii)(B) would
provide that the original applicant and
the successor partnership should refer
to guidance published in the Internal
Revenue Bulletin for the procedures to
request a transfer of the Capacity
Limitation allocation to the successor
partnership.
No comments were received on this
proposed rule. The final regulations
adopt the proposed rules without
modification at § 1.48E(h)–1(h)(2)(ii)(B).
4. Definitions
i. Tribal Enterprise
Proposed § 1.48E(h)–1(h)(2)(iii) would
provide that a ‘‘Tribal enterprise’’ for
purposes of the Ownership Criteria is an
entity that is (1) owned at least 51
percent directly by an Indian Tribal
government (as defined in section
30D(g)(9) of the Code), or owned at least
51 percent indirectly through an entity
that is wholly owned by the Indian
Tribal government and is created either
under the Tribal laws of the Indian
Tribal government or through a
corporation incorporated under the
authority of either section 17 of the
Indian Reorganization Act of 1934, 25
U.S.C. 5124, or section 3 of the
Oklahoma Indian Welfare Act, 25 U.S.C.
5203, and (2) subject to Tribal
government rules, regulations, and/or
codes that regulate the operations of the
entity.
ii. Alaska Native Corporation
Proposed § 1.48E(h)–1(h)(2)(iv) would
provide that an ‘‘Alaska Native
Corporation’’ for purposes of the
E:\FR\FM\13JAR3.SGM
13JAR3
Federal Register / Vol. 90, No. 7 / Monday, January 13, 2025 / Rules and Regulations
Ownership Criteria is defined in section
3 of the Alaska Native Claims
Settlement Act, 43 U.S.C. 1602(m).
iii. Native Hawaiian Organization
Proposed § 1.48E(h)–1(h)(2)(v) would
provide that a ‘‘Native Hawaiian
Organization’’ for purposes of the
Ownership Criteria is defined in 13 CFR
124.3.
ddrumheller on DSK120RN23PROD with RULES3
iv. Renewable Energy Cooperative
Proposed § 1.48E(h)–1(h)(2)(vi) would
provide that a ‘‘renewable energy
cooperative’’ for purposes of the
Ownership Criteria is an entity that
develops applicable facilities and is
either (1) a consumer or purchasing
cooperative controlled by its members
with each member having an equal
voting right and with each member
having rights to profit distributions
based on patronage as defined by
proportion of volume of energy or
energy credits purchased (kWh), volume
of financial benefits delivered ($), or
volume of financial payments made ($),
and in which at least 50 percent of the
patronage in the qualified facility is by
cooperative members who are lowincome households (as defined in
section 48E(h)(2)(C)); or (2) a worker
cooperative controlled by its workermembers with each member having an
equal voting right.
v. Qualified Tax-Exempt Entity
Proposed § 1.48E(h)–1(h)(2)(vii)
would provide that a ‘‘qualified taxexempt entity’’ for purposes of the
Ownership Criteria is:
(1) An organization exempt from the
tax imposed by subtitle A of the Code
by reason of being described in section
501(c)(3) or (d) of the Code;
(2) Any State, the District of
Columbia, or political subdivision
thereof, or any agency or
instrumentality of any of the foregoing;
(3) An Indian Tribal government (as
defined in section 30D(g)(9)), a political
subdivision thereof, or any agency or
instrumentality of any of the foregoing;
or
(4) Any corporation described in
section 501(c)(12) operating on a
cooperative basis that is engaged in
furnishing electric energy to persons in
rural areas.
No comments were submitted
regarding the proposed definitions of
Tribal Enterprise, Alaska Native
Corporation, Native Hawaiian
Organization, and Renewable Energy
Cooperative. The final regulations adopt
the proposed definitions without
change, except that corporation in the
definition of Tribal enterprise is
replaced with ‘‘entity.’’
VerDate Sep<11>2014
21:51 Jan 09, 2025
Jkt 265001
However, several commenters
representing the low-income housing
credit (commonly referred to as LIHTC)
industry stated that the definition of
qualified tax-exempt entity should be
revised to reflect LIHTC partnership
structure. According to these
commenters, a LIHTC partnership
generally has an investor with a 99.9
percent ownership interest and the taxexempt or nonprofit entity has an 0.01
percent ownership interest. Because the
Proposed Regulations require that a
qualified tax-exempt entity own a one
percent interest in each material item of
the partnership to qualify the
partnership for Additional Selection
Criteria, these commenters asserted that
this requirement is incompatible with
the ownership structure commonly used
for LIHTC financed developments.
These commenters alternatively
requested the final regulations clarify
that a special allocation of depreciation
and any associated credits would not be
considered to be a ‘‘material item’’ in
determining one percent ownership.
The Treasury and the IRS understand
commenters’ concerns and the
unintended impacts to LIHTC
applicants that are seeking to install
clean energy facilities on their qualified
low-income residential building
projects. Accordingly, the final
regulations at § 1.48E–1(h)(2)(ii)(C)
revise the Ownership Criteria to allow
an applicant to include any partnership
that (1) owns an applicable facility
connected to a residential building to
which credits under section 42 of the
Code are reasonably anticipated or have
been determined and (2) has a partner
for Federal income tax purposes that is
a qualified tax-exempt (or another
eligible entity identified § 1.48E(h)–
1(h)(2)(i)(A) through (E)) to qualify the
partnership for the purposes of
Ownership Criteria. Section 1.48E–
1(h)(2)(ii)(C) of the final regulations
provides that the transfer of the facility
to the partnership is not a
disqualification event for purposes of
§ 1.48E(h)–1(m)(5) or subject to
recapture for purposes of § 1.48E(h)–
1(m), so long as the requirements of
§ 1.48E(h)–1(m)(5) are satisfied. This
modification is limited only to
applicable facilities that are part of a
section 42 LIHTC building.
5. Emerging Market Business
The preamble to the Proposed
Regulations indicated that the Treasury
Department and the IRS were proposing
not to carry over to the Program under
section 48E(h), the qualified renewable
energy company (QREC) category of
Ownership Criteria described in
§ 1.48(e)–1(h)(2)(vi) from the
PO 00000
Frm 00015
Fmt 4701
Sfmt 4700
2855
predecessor program under section
48(e). However, the preamble further
stated that the Treasury Department and
the IRS considered including a category
for emerging market businesses, defined
as those businesses that do not have
large market shares that could be
demonstrated by the number of
employees, annual revenue, and other
factors, similar to the QREC category
from the predecessor Program under
section 48(e). The Proposed Regulations
requested comment on options to
include an Ownership Criteria category
for emerging market businesses, similar
to the former QREC category. This
request specifically asked for comments
on how an administrable emerging
market business Ownership Criteria
category could be structured, including
what thresholds a definition should
include to define market share and size,
age of business, the number of
employees (both minimum and
maximum) and/or annual gross receipts
generated by an emerging market
business, and the supporting
documentation that could be provided
as part of the application to verify an
applicant meets such criteria.
Some commenters expressed general
support for including an emerging
market business category but offered no
further detail or advice. Several other
commenters noted that they qualified as
QRECs under the section 48(e) program
and asked that the final regulations use
the same criteria for ‘‘emerging market
business’’ Ownership Criteria. One
commenter stated that they understood
that this particular Ownership Criteria
might be more burdensome than the
other criteria in the Ownership Criteria
category but asked that the QREC
criteria be retained in the section 48E(h)
Program and final regulations. This
commenter seemed focused on burden
to the potential applicants by stating
that the QREC requirements for majority
ownership by individuals and company
size thresholds were workable, and that
it would not be an undue burden for
companies in the QREC size range to
provide tax returns, financial
statements, operating agreements, and
other business organizational
documents.
The QREC category, as with all
Additional Selection Criteria, was
intended to help create a more efficient
allocation process and help ensure that
allocations were made to the types of
applicants and projects that support the
purposes of the Program. However, the
QREC criteria instead resulted in a
disproportionate administrative burden.
Applicants frequently applied as QRECs
that did not meet the criteria or failed
to submit complete information, causing
E:\FR\FM\13JAR3.SGM
13JAR3
ddrumheller on DSK120RN23PROD with RULES3
2856
Federal Register / Vol. 90, No. 7 / Monday, January 13, 2025 / Rules and Regulations
delays in the allocation process across
the program. In response to these
comments and in part based on their
administration of the predecessor
program under section 48(e), the
Treasury Department and the IRS have
clarified and streamlined the QREC
definition used in the predecessor
section 48(e) program to make this
criterion more administrable.
Specifically, the QREC definition was
revised to provide more detail on
affiliated entities so as to provide
taxpayer certainty and promote sound
tax administration. Section 1.48E(h)–
1(h)(2)(i)(F) has been added to the final
regulations to include QREC as an
eligible Ownership Criteria category,
and § 1.48E(h)–1(h)(2)(viii) has been
added to the final regulations to define
QREC. The final regulations provide
several changes from the section 48(e)
program QREC definition.
First, the definition provided in the
final regulations clarifies that QRECs
must have a general business purpose to
serve low-income communities or lowincome households. Second, the final
regulations remove the option that at
least 51 percent of the entity’s
ownership interest are owned or
controlled by a Community
Development Corporation (as defined in
13 CFR 124.3), an agricultural or
horticultural cooperative (as defined in
section 199A(g)(4)(A) of the Code), an
Indian Tribal government (as defined in
section 30D(g)(9)), an Alaska Native
corporation (as defined in section 3 of
the Alaska Native Claims Settlement
Act, 43 U.S.C. 1602(m)), or a Native
Hawaiian organization (as defined in 13
CFR 124.3). These entities are removed
from the definition because they are
eligible for Additional Selection Criteria
as other Ownership criteria. Therefore,
the final regulations provide that at least
51 percent of the entity’s equity
interests are owned and controlled by
one or more individuals. Third, the final
regulations clarify that entity affiliation
for the purposes of determining both the
number of full-time equivalent
employees and annual gross receipts is
defined as: (1) 25 percent or more of an
entity’s board seats, voting rights, or
equity interests, are cumulatively held
by another entity and related entities (as
described in described in sections
267(b) or 707(b)(1) of the Code); or (2)
one or more of an entities’ officers,
directors, managing members or
partners with authority over the board
of directors or management and
operations also have authority over the
board of directors or management and
operations of another entity. Lastly, the
final regulations remove the
VerDate Sep<11>2014
21:51 Jan 09, 2025
Jkt 265001
requirement included in the section
48(e) program that a QREC must have
provided solar services as a contractor
or subcontractor to qualified solar or
wind facilities as defined in section
48(e)(2)(A) with at least 100 kW of
cumulative nameplate capacity located
in one or more low-income
communities as defined in section
48(e)(2)(A)(iii)(I).
Proposed § 1.48E(h)–1(h)(2)(ii)(B),
regarding a partner qualifying a
partnership for purposes of the
Ownership Criteria, has also been
revised to note that this paragraph is not
applicable to QREC applicants. Under
the regulations for the predecessor
program under section 48(e), a partner
that qualified as a QREC and held the
requisite interest amount in the
partnership could qualify the
partnership as a QREC. Moreover, a
QREC that received an allocation was
permitted to transfer the allocation to a
partnership without triggering
disqualification if the original applicant
that qualified as a QREC remained in
the partnership and met the requisite
interest requirements in the partnership.
This inclusion of QRECs under
§ 1.48(e)–1(h)(2)(ii)(B) (the regulations
for the predecessor program under
section 48(e)), at times, proved to be
incompatible with the purpose of
establishing QRECs as an Ownership
Criteria category, which was to
prioritize small, emerging market
businesses for an allocation. Instead,
some applicants utilized the presence of
a small business partner to then qualify
a partnership that is not a small
business. Moreover, the inclusion of
QRECs to qualify a partnership was
often in conflict with the QREC
affiliated entities threshold
requirements. Therefore, to eliminate
confusion and any conflict between the
Ownership Criteria provision, these
final regulations for the program under
section 48E(h) exclude QRECs from the
partner qualifying a partnership
provisions under § 1.48E(h)–
1(h)(2)(ii)(B).
described in proposed § 1.48E(h)–
1(h)(3)(ii) or in certain census tracts
identified on the CEJST 3 and as
described in proposed § 1.48E(h)–
1(h)(3)(iii).
Proposed § 1.48E(h)–1(h)(3)(ii) would
describe a PPC as any county where 20
percent or more of residents have
experienced high rates of poverty over
the past 30 years. Proposed § 1.48E(h)–
1(h)(3)(ii) would provide that for
purposes of the Program, the Proposed
Regulations would use the PPC measure
adopted by the United States
Department of Agriculture (USDA) to
make this determination.
No comments were received
recommending modification of these
rules, and the Proposed Regulations
related to Geographic Criteria are
adopted in the final regulations at
§ 1.48E(h)–1(h)(3)(ii) without
modification.
B. Geographic Criteria
Proposed § 1.48E(h)–1(h)(3) would
provide criteria based on geography
(Geographic Criteria). As described in
the preamble of the Proposed
Regulations, the Geographic Criteria
category is based on where the facility
will be placed in service. Geographic
Criteria do not apply to Category 2
facilities. To meet the Geographic
Criteria, a facility needs to be located in
a Persistent Poverty County (PPC) 2 as
VII. Sub-Reservations of Allocation for
Facilities Located in a Low-Income
Community
Proposed § 1.48E(h)–1(i)(1) would
subdivide the Capacity Limitation
reservation for facilities seeking a
Category 1 allocation with a portion of
the Capacity Limitation specifically
reserved for eligible residential behind
the meter (BTM) facilities, including
rooftop solar. This is because the subreservation of a substantial portion of
the allocation in Category 1 for eligible
residential BTM facilities would help
ensure that allocations predominantly
are awarded to facilities serving
residences and consumers, rather than
facilities serving businesses. Proposed
§ 1.48E(h)–1(i)(1) would reserve the
remaining Capacity Limitation in
Category 1 for applicants with front of
the meter (FTM) facilities as well as
non-residential BTM facilities. Proposed
§ 1.48E(h)–1(i)(1) would clarify that the
specific amounts of the Category 1 subreservations will be provided in future
guidance published in the Internal
Revenue Bulletin that is applicable to a
Program year based on factors such as
promoting efficient allocation of
Capacity Limitation and allowing likeprojects to compete for an allocation.
Proposed § 1.48E(h)–1(i)(1) would
provide that after the sub-reservation is
established in guidance published in the
Internal Revenue Bulletin, it may be
reallocated later in the event it has
excess capacity.
One commenter generally supported
the proposal contained in the Proposed
Regulations to create a sub-reservation
of Category 1 Capacity Limitation for
2 https://www.ers.usda.gov/data-products/countytypology-codes/.
3 https://screeningtool.geoplatform.gov/en/#3/
33.47/-97.5, or a successor website such as IRS.gov.
PO 00000
Frm 00016
Fmt 4701
Sfmt 4700
E:\FR\FM\13JAR3.SGM
13JAR3
Federal Register / Vol. 90, No. 7 / Monday, January 13, 2025 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES3
residential BTM facilities under
proposed § 1.48E(h)–1(i). No other
comments were submitted on this
proposal. The final regulations under
§ 1.48E(h)–1(i) adopt the proposed rule
without modification.
VIII. Application and Selection Process
Section 48E(h)(4)(A) provides that
‘‘[i]n establishing such program and to
carry out the purposes of this
subsection, the Secretary shall provide
procedures to allow for an efficient
allocation process.’’ In part based on
their administration of the predecessor
program under section 48(e), the
Treasury Department and the IRS
anticipate that the number of eligible
applicants within any given category
seeking an allocation may exceed the
total Capacity Limitation allocation
available to be allocated. Accordingly,
the Treasury Department and the IRS
are designing an application process
that both ensures that allocations are
awarded to facilities that advance the
program goals and facilitates an efficient
allocation process.
Proposed § 1.48E(h)–1(j)(1) would
provide that applications for a Capacity
Limitation allocation will be evaluated
according to the procedures specified in
guidance published in the Internal
Revenue Bulletin. Based on feedback
received with respect to the section
48(e) predecessor program and an
assessment of operational capabilities
set up to administer the Program under
section 48E(h), the preamble to the
Proposed Regulations explained that the
expected process would include one or
more initial application windows in
which applications received by a certain
time and date would be evaluated
together, followed by a rolling
application process. The final
regulations add § 1.48E(h)–1(j)(4) to
establish the annual application period.
Section 1.48E(h)–1(j)(4) also adds
certain procedural rules to explain the
initial 30-day application window in
which applications received by a certain
time and date would be evaluated
together, followed by a rolling
application process. Additionally,
§ 1.48E(h)–1(j)(4) explains the process
by which Additional Selection Criteria
applications are prioritized for review
and allocations from a particular
reservation of Capacity Limitation.
Section 48E(h)(4)(A) directs the
Secretary to provide procedures to allow
for an efficient allocation process.
Additionally, section 48E(h)(4)(E)(i)
requires that facilities allocated an
amount of Capacity Limitation be
placed in service within four years of
the date of allocation. To promote
efficient allocation, and to ensure that
VerDate Sep<11>2014
21:51 Jan 09, 2025
Jkt 265001
allocations will be awarded to facilities
that are sufficiently viable and well
defined to allow for a review for an
allocation, and sufficiently advanced
such that they are likely to meet the
four-year placed in service deadline,
proposed § 1.48E(h)–1(j)(2) would
require applicants, when applying for
an allocation, to submit certain
information, documentation, and
attestations that demonstrate project
eligibility and viability. Proposed
§ 1.48E(h)–1(j)(2) would clarify that the
specific information, documentation,
and attestations to be submitted will be
provided in guidance published in the
Internal Revenue Bulletin that is
applicable to a Program year.
Several comments discussed
documentation requirements and
related procedural requirements. These
comments specifically requested
exemptions from having to provide
documentation or requested the ability
to provide alternate documentation due
to circumstances specific to that
commenter or specific to a State or
utility. Comments regarding specific
documentation or procedural
requirements are outside the scope of
these regulations. State and local rules
for energy-generating facilities and lowincome clean energy programs vary
considerably, and procedures for those
rules may not be relevant to or
compatible with the requirements under
section 48E(h). Consistent with the
statute, the Treasury Department and
the IRS seek to establish an efficient
application and allocation process, as
well as promote certainty for applicants
as to how their application is being
reviewed. To do so, documentation and
procedural requirements must be
standardized to the extent appropriate
and possible, and it would not promote
sound tax administration to create
separate requirements for each applicant
based on their specific circumstances.
The Treasury Department and the IRS
will periodically assess the Program to
determine whether to make any changes
to the Program’s application process.
Specific information related to
documentation and procedural
requirements will be provided in
guidance published in the Internal
Revenue Bulletin. The Treasury
Department and the IRS expect that the
specific application information,
documentation, and attestation
requirements provided in procedural
guidance applicable to the Program
published in the Internal Revenue
Bulletin will be substantially similar to
requirements applicable the section
48(e) Low-Income Communities Bonus
Program provided in Revenue Procedure
PO 00000
Frm 00017
Fmt 4701
Sfmt 4700
2857
2024–19, 2024–16 I.R.B. 899. Like the
section 48(e) program, some
requirements may differ for FTM and
BTM facilities and other requirements
may differ by facility category and
Additional Selection Criteria. The final
regulations under § 1.48E(h)–1(j)(1)
through (2) adopt the proposed rules
without modification.
Although no specific comments were
submitted in response to the Proposed
Regulations regarding recordkeeping,
the Treasury Department and the IRS
determined that, in the interest of sound
tax administration, a record retention
rule is necessary in addition to the
specific information, documentation,
and attestation requirements set forth in
the Proposed Regulations. Consistent
with the current applicable periods of
limitations under section 6501 of the
Code on assessment and collection of
tax under chapter 1 with respect to the
applicable taxpayer’s return filed for the
taxable year, § 1.48E(h)–1(o) of the final
regulations provide that the applicant is
required to retain records and materials
related to the application for the
following periods: (1) for at least 6 years
after the due date (with extensions) for
filing the Federal income tax return after
the tax year that return is filed to claim
the increase in the section 48E credit;
and (2) for at least 6 years after the due
date (with extensions) for filing the
Federal income tax return for the last
year that the applicant could be subject
to recapture as described in § 1.48E(h)–
1(n). These records are considered
general tax records under § 1.6001–1(e),
and they are required for the IRS to
validate that taxpayers have met the
regulatory requirements and are entitled
to receive the section 48E(h) Increase.
Proposed § 1.48E(h)–1(j)(3) would
provide that there is no administrative
appeal of Capacity Limitation allocation
decisions. No comments were submitted
on this provision, and the final
regulations at § 1.48E(h)–1(j)(3) adopt
this rule without modification.
IX. Placed in Service
A. Documentation and Attestations To
Be Submitted When Facility Is Placed in
Service
Proposed § 1.48E(h)–1(k)(1) would
require facilities that received a
Capacity Limitation allocation to report
to the Department of Energy (DOE) the
date the applicable facility was placed
in service. Proposed § 1.48E(h)–1(k)(2)
would require facilities that received a
Capacity Limitation to submit
additional documentation or complete
additional attestations with this
reporting. At the time of application,
applicants would not necessarily be able
E:\FR\FM\13JAR3.SGM
13JAR3
2858
Federal Register / Vol. 90, No. 7 / Monday, January 13, 2025 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES3
to demonstrate compliance with certain
eligibility requirements, as the facility
would not yet be operating at that time.
Requiring placed in service reporting
will allow for final verification that the
facilities that were awarded a Capacity
Limitation Allocation have met certain
eligibility requirements under the
Program. Therefore, proposed
§ 1.48E(h)–1(k)(2) would require
facilities awarded a Capacity Limitation
to submit final eligibility information at
the time of placed in service.
Proposed § 1.48E(h)–1(k)(3) would
provide that the DOE will review the
placed in service documentation and
attestations to determine if the facility
meets the eligibility criteria for the
owner to claim an increased applicable
percentage. Proposed § 1.48E(h)–1(k)(3)
would provide that the DOE then
provides a recommendation to the IRS
regarding whether the facility continues
to meet the eligibility requirements for
the facility to retain its allocation or if
the facility should be disqualified (as
provided in proposed § 1.48E(h)–1(m)).
Proposed § 1.48E(h)–1(k)(3) would
generally provide that the IRS reviews
recommendations, and if deemed
appropriate, issues the final eligibility
letter.
No comments were submitted
regarding documentation and
attestations to be submitted when
placed in service. The final regulations
adopt proposed § 1.48E(h)–1(k) with
minor edits to clarify technical
procedures.
B. Placed in Service Prior to Allocation
Award
Proposed § 1.48E(h)–1(l)(1) would
provide that facilities that are placed in
service prior to being awarded an
allocation of Capacity Limitation will
not be eligible to receive an allocation.
Proposed § 1.48E(h)–1(l)(2) would
provide that if a facility is placed in
service after the application is
submitted, but prior to the allocation of
Capacity Limitation, and the facility is
awarded an allocation, the allocation
will be rescinded.
Several commenters recommend that
§ 1.48E(h)–1(l)(2) be modified so that an
award is not rescinded if a Category 1
facility is placed in service after
submitting an application but prior to
receiving the allocation award. These
commenters asserted that this rule is
problematic and disruptive in practice
for residential-serving rooftop solar
projects that have shorter development
timelines.
The Treasury Department and the IRS
do not adopt this recommendation, and
§ 1.48E(h)–1(l)(2) is adopted without
modification. Awarding an allocation to
VerDate Sep<11>2014
21:51 Jan 09, 2025
Jkt 265001
facilities that have already been placed
in service would be inconsistent with
the statute and the goal of the Program
to promote investment in new clean
electricity facilities. Section
48E(h)(4)(E)(i) provides that a facility
must be placed in service within four
years of receiving an allocation of
Capacity Limitation, indicating that
allocations should be made to new
facilities that have not yet been placed
in service. Accordingly, facilities placed
in service prior to being awarded an
allocation of Capacity Limitation are
ineligible to receive an allocation. The
final regulations maintain the use of a
Category 1 sub-reservation for facilities
that serve BTM facilities to support
timely review of applications serving
residential-serving rooftop solar projects
that have shorter development
timelines.
X. Post-Allocation Compliance
A. Disqualification After Receiving an
Allocation
Proposed § 1.48E(h)–1(m) would
provide that a facility that was awarded
a Capacity Limitation allocation is
disqualified and loses its allocation if
prior to or upon the facility being placed
in service: (1) the location where the
facility will be placed in service
changes; (2) the maximum net output of
the facility increases such that it
exceeds the less than five megawatt
requirement provided in section
48E(h)(2)(A)(ii) or the nameplate
capacity decreases by the greater of 2
kW or 25 percent of the Capacity
Limitation awarded in the allocation; (3)
the facility cannot satisfy the financial
benefits requirements under section
48E(h)(2)(B)(ii) and proposed
§ 1.48E(h)–1(e) as planned (if
applicable) or cannot satisfy the
financial benefits requirements under
section 48E(h)(2)(C) and proposed
§ 1.48E(h)–1(f) as planned (if
applicable); (4) the eligible property that
is part of the facility that received the
Capacity Limitation allocation is not
placed in service within four years after
the date the applicant was notified of
the allocation of Capacity Limitation to
the facility or the facility that received
the Capacity Limitation allocation is
placed in service ahead of allocation of
award; or (5) the facility received a
Capacity Limitation allocation based, in
part, on meeting the Ownership Criteria
and ownership of the facility changes
prior to the facility being placed in
service, unless the original applicant
transfers the facility to an entity
classified as a partnership for Federal
income tax purposes and retains at least
a one percent interest (either directly or
PO 00000
Frm 00018
Fmt 4701
Sfmt 4700
indirectly) in each material item of
partnership income, gain, loss,
deduction, and credit of such
partnership and is a managing member
or general partner (or similar title) under
State or Tribal law of the partnership (or
directly owns 100 percent of the equity
interests in the managing member or
general partner) at all times during the
existence of the partnership. No
comments were received related to
proposed § 1.48E(h)–1(m), and this rule
is adopted without modification.
B. Recapture of Section 48E(h) Increase
Section 48E(h)(5) requires the
Secretary, by regulations or other
guidance, to provide rules for
recapturing the benefit of any section
48E(h) Increase with respect to any
property that ceases to be property
eligible for such section 48E(h) Increase
(but that does not cease to be investment
credit property within the meaning of
section 50(a) of the Code). The period
and percentage of such recapture is
determined under rules similar to the
rules of section 50(a). To the extent
provided by the Secretary, such
recapture may not apply with respect to
any property if, within 12 months after
the date the applicant becomes aware
(or reasonably should have become
aware) of such property ceasing to be
property eligible for such section 48E(h)
Increase, the eligibility of such property
for such section 48E(h) Increase is
restored. Such restoration of a section
48E(h) Increase is not available more
than once with respect to any facility.
Proposed § 1.48E(h)–1(n)(1) would
provide that if, at any time during the
five year recapture period beginning on
the date that an applicable facility under
section 48E(h) is placed in service, there
is a recapture event under proposed
§ 1.48E(h)–1(n)(3) with respect to such
property, then the Federal income tax
imposed on the taxpayer by chapter 1 of
the Code for the taxable year in which
the recapture event occurs is increased
by the recapture percentage of the
benefit of the increase in the section 48E
credit. Proposed § 1.48E(h)–1(n)(1)
would provide that the recapture
percentage is determined according to
the table provided in section 50(a)(1)(B).
Proposed § 1.48E(h)–1(n)(2) would
provide that recapture under proposed
§ 1.48E(h)–1(n)(1) may not have applied
with respect to any property if, within
12 months after the date the applicant
becomes aware (or reasonably should
have become aware) of such property
ceasing to be property eligible for such
increase in the credit allowed under
section 48E(a), the eligibility of such
property for such increase pursuant to
section 48E(h) is restored. Proposed
E:\FR\FM\13JAR3.SGM
13JAR3
Federal Register / Vol. 90, No. 7 / Monday, January 13, 2025 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES3
§ 1.48E(h)–1(n)(2) would provide that
such restoration of an increase pursuant
to section 48E(h) is not available more
than once with respect to any facility.
Proposed § 1.48E(h)–1(n)(3) would
describe that the following
circumstances result in a recapture
event if the property ceases to be
eligible for the increased credit under
section 48E(h): (1) property described in
section 48E(h)(2)(A)(iii)(II) fails to
provide financial benefits over the 5year period after its original placed in
service date; (2) property described
under section 48E(h)(2)(B) ceases to
allocate the financial benefits equitably
among the occupants of the dwelling
units, such as not passing on to
residents the required net energy
savings of the electricity; (3) property
described under section 48E(h)(2)(C)
ceases to provide at least 50 percent of
the financial benefits of the electricity
produced to Qualifying Households as
described under section 48E(h)(2)(C)(i)
or (ii), or fails to provide those
households the required minimum 30
percent bill credit discount rate; (4) for
property described under section
48E(h)(2)(B), the residential rental
building the facility is a part of ceases
to participate in a covered housing
program or any other housing program
described in section 48E(h)(2)(B)(i), if
applicable; and (5) a facility increases
its maximum net output such that the
facility’s maximum net output is 5 MW
AC or greater.
Proposed § 1.48E(h)–1(n)(4) would
provide that any event that results in
recapture under section 50(a) also will
result in recapture of the benefit of the
increase in the section 48E credit by
reason of section 48E(h). Proposed
§ 1.48E(h)–1(n)(4) would provide that
the exception to the application of
recapture provided in proposed
§ 1.48E(h)–1(n)(2) did not apply in the
case of a recapture event under section
50(a).
No comments were received related to
the recapture provisions contained in
the Proposed Regulations. Accordingly,
these recapture provisions are adopted
in the final regulations without
modification.
Applicability Date
The final regulations set forth apply to
applicable facilities that are placed in
service after December 31, 2024, and
during taxable years ending on or after
January 13, 2025.
Special Analyses
I. Regulatory Planning and Review—
Economic Analysis
Pursuant to the Memorandum of
Agreement, Review of Treasury
VerDate Sep<11>2014
21:51 Jan 09, 2025
Jkt 265001
Regulations under Executive Order
12866 (June 9, 2023), tax regulatory
actions issued by the IRS are not subject
to the requirements of section 6 of
Executive Order 12866, as amended.
Therefore, a regulatory impact
assessment is not required.
II. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(44 U.S.C. 3501–3520) (PRA) requires
that a Federal agency obtain the
approval of OMB before collecting
information from the public, whether
such collection of information is
mandatory, voluntary, or required to
obtain or retain a benefit. The
collections of information in these final
regulations contain reporting and
recordkeeping requirements that are
required to obtain the section 48E(h)
Increase. This information in the
collections of information would
generally be used for tax compliance
purposes and by taxpayers to facilitate
proper reporting and compliance. A
Federal 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 control number.
The recordkeeping requirements
mentioned within this final regulation
are considered general tax records under
§ 1.6001–1(e). These records are
required for IRS to validate that
taxpayers have met the regulatory
requirements and are entitled to receive
the section 48E(h) Increase. For PRA
purposes, general tax records are
already approved by OMB under 1545–
0123 for business filers, 1545–0074 for
individual filers, and 1545–0047 for taxexempt organizations.
The final regulations also provide
reporting requirements related to
providing attestations and supporting
documentation for initial application,
supplemental documentation for
specific facilities, and to confirm a
facility is placed in service as detailed
in these final regulations. These
attestations and documentation would
allow IRS to allocate Capacity
Limitation and ensure taxpayers keep
and maintain compliance for the credits.
To assist with the collections of
information, the IRS will procure
certain administration services for the
Program. Among other things, these
administration services will include
establishing a website portal to review
the applications for eligibility criteria
and providing recommendations to the
IRS regarding the selection of
applications for an allocation of
Capacity Limitation. These collection
requirements will be submitted to the
Office of Management and Budget
PO 00000
Frm 00019
Fmt 4701
Sfmt 4700
2859
(OMB) under 1545–2327 for review and
approval in accordance with 5 CFR
1320.11. The likely respondents are
business filers, individual filers, and
tax-exempt organization filers. A
summary of paperwork burden
estimates for the application and
attestations is as follows:
Estimated number of respondents:
70,000.
Estimated burden per response: 60
minutes.
Estimated frequency of response: 1 for
initial applications, 1 for follow-up
documentation, and 1 for projects
placed in service.
Estimated total burden hours: 210,000
burden hours.
The IRS solicited feedback on the
collection requirements for the
application, supporting documentation,
and attestations. Although no public
comments received by the IRS were
directed specifically at the PRA or on
the collection requirements, several
commenters generally expressed
concerns about the burdens associated
with the documentation requirements
contained in the Proposed Regulations.
As described in the relevant portions of
this preamble, the Treasury Department
and the IRS believe that the
documentation requirements are
necessary to administer the Program.
III. Regulatory Flexibility Act
The Regulatory Flexibility Act (5
U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to
Federal rules that are subject to the
notice and comment requirements of
section 553(b) of the Administrative
Procedure Act (5 U.S.C. 551 et seq.) and
that are likely to have a significant
economic impact on a substantial
number of small entities. Unless an
agency determines that a proposal will
not have a significant economic impact
on a substantial number of small
entities, section 604 of the RFA requires
the agency to present a final regulatory
flexibility analysis (FRFA) of the final
regulations. The Treasury Department
and the IRS have not determined
whether the final regulations will likely
have a significant economic impact on
a substantial number of small entities.
This determination requires further
study and an FRFA is provided in these
final regulations.
Pursuant to section 7805(f) of the
Code, these final regulations were
submitted to the Chief Counsel of
Advocacy of the Small Business
Administration, and no comments were
received.
E:\FR\FM\13JAR3.SGM
13JAR3
2860
Federal Register / Vol. 90, No. 7 / Monday, January 13, 2025 / Rules and Regulations
1. Need for and Objectives of the Rule
The final regulations provide
guidance to potential applicants to
determine eligibility to apply for an
allocation of Capacity Limitation under
section 48E(h), and, in general, to
taxpayers awarded an allocation of
Capacity Limitation to understand the
requirement to claim the section 48E(h)
Increase. The final regulations are
expected to encourage applicants to
invest in applicable facilities. Thus, the
Treasury Department and the IRS intend
and expect that the final rule will
deliver benefits across the economy and
environment that will beneficially
impact various industries.
2. Significant Issues Raised by Public
Comments in Response to the IRFA
There were no comments filed that
specifically addressed the Proposed
Regulations and policies presented in
the IRFA. Additionally, no comments
were filed by the Chief Counsel of
Advocacy of the Small Business
Administration.
ddrumheller on DSK120RN23PROD with RULES3
3. Affected Small Entities
The Small Business Administration
estimates in its 2018 Small Business
Profile that 99.9 percent of United States
businesses meet its definition of a small
business. The applicability of the final
regulations does not depend on the size
of the business, as defined by the Small
Business Administration. As described
more fully in the preamble to this final
regulation and in the FRFA, these rules
may affect a variety of different
businesses across serval different
industries.
4. Impact of the Rules
The recordkeeping and reporting
requirements would increase for
applicants that participate in the
Program. Although the Treasury
Department and the IRS do not have
sufficient data to determine precisely
the likely extent of the increased costs
of compliance, the estimated burden of
complying with the recordkeeping and
reporting requirements are described in
section II. (Paperwork Reduction Act) of
the Special Analyses. In particular,
section II. of the Special Analyses
contains a summary of paperwork
burden estimates for the application,
supporting documentation, and
submissions when projects are placed in
service. The IRS solicited feedback on
the collection requirements for the
application, supporting documentation,
and attestations. Although no public
comments received by the IRS were
directed specifically at the PRA or on
the collection requirements, several
commenters generally expressed
VerDate Sep<11>2014
21:51 Jan 09, 2025
Jkt 265001
concerns about the burdens associated
with the documentation requirements
contained in the Proposed Rule. As
described in the relevant portions of this
preamble, the Treasury Department and
the IRS believe that the documentation
requirements are necessary to
administer the Program.
5. Steps Taken To Minimize Impacts on
Small Entities and Alternatives
Considered
The Treasury Department and the IRS
considered alternatives to the final
regulations. For example, the Treasury
Department and the IRS considered
requests from stakeholders that
potential applicants be able to place a
facility in service before applying for or
receiving an allocation of Capacity
Limitation. The Treasury Department
and the IRS determined it would not be
possible to accommodate this request in
the final regulations because the
statutory language under section
48E(h)(4)(E)(i) requires that the facility
be placed in service by a date that is 4
years after the date of the allocation.
Moreover, facilities that were placed in
service prior to the allocation process do
not increase adoption of and access to
renewable energy facilities, as compared
to the absence of the Program, and so do
not further Program goals.
Another example is the revisions to
the list of eligible housing programs that
can be found in the Summary of
Comments and Explanation of Revisions
section of this document. In the
preamble to Treasury Decision 9979,
applicable to the Low-Income
Communities Bonus Credit Program
established under section 48(e), the
HUD tenant-based rental assistance
under section 8 of the United States
Housing Act of 1937 was included as
eligible housing program. The Treasury
Department and the IRS considered
retaining tenant-based housing
assistance programs. However, after
consulting with HUD, it was determined
that tenant-based assistance is
assistance that can only be attributed to
a particular tenant, and not a building.
Under section 48E(h)(2)(B), for a facility
to qualify as a being part of a qualified
low-income residential building project,
the facility must be installed on a
residential rental building that
participates in a covered housing
program or other affordable housing
program (that is, a Qualified Residential
Property). Tenant-based housing
assistance programs applicable to a
particular tenant do not qualify the
building in which the tenant resides as
participating in a covered housing
program or other affordable housing
program. Therefore, because tenant-
PO 00000
Frm 00020
Fmt 4701
Sfmt 4700
based assistance under Section 8 does
not comport with the requirements
under section 48E(h)(2)(B), tenant-based
housing assistance programs under
Section 8 have been removed as an
eligible housing program for purposes of
the Program under section 48E(h).
Additionally, the Treasury
Department and the IRS considered
excluding the sub-reservation for
Category 1 facilities for eligible
residential BTM facilities but concluded
that this sub-reservation should be
included in the Program. The subreservation of a substantial portion of
the allocation in Category 1 for eligible
residential BTM facilities would help
ensure that allocations are
predominantly awarded to facilities
serving residences and consumers,
rather than facilities serving businesses.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded
Mandates Reform Act of 1995 (UMRA)
requires that agencies assess anticipated
costs and benefits and take certain other
actions before issuing a final rule that
includes any Federal mandate that may
result in expenditures in any one year
by a State, local, or Indian Tribal
government, in the aggregate, or by the
private sector, of $100 million (updated
annually for inflation). This final rule
does not include any Federal mandate
that may result in expenditures by State,
local, or Indian Tribal governments, or
by the private sector in excess of that
threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (Federalism)
prohibits an agency from publishing any
rule that has federalism implications if
the rule either imposes substantial,
direct compliance costs on State and
local governments, and is not required
by statute, or preempts State law, unless
the agency meets the consultation and
funding requirements of section 6 of the
Executive order. These regulations do
not have federalism implications and
does not impose substantial direct
compliance costs on State and local
governments or preempt State law
within the meaning of the Executive
order.
VI. Executive Order 13175:
Consultation and Coordination With
Indian Tribal Governments
Executive Order 13175 (Consultation
and Coordination With Indian Tribal
Governments) prohibits an agency from
publishing any rule that has Tribal
implications if the rule either imposes
substantial, direct compliance costs on
Indian Tribal governments, and is not
required by statute, or preempts Tribal
E:\FR\FM\13JAR3.SGM
13JAR3
Federal Register / Vol. 90, No. 7 / Monday, January 13, 2025 / Rules and Regulations
law, unless the agency meets the
consultation and funding requirements
of section 5 of the Executive order.
These regulations do not have
substantial direct effects on one or more
Federally recognized Indian tribes and
does not impose substantial direct
compliance costs on Indian Tribal
governments within the meaning of the
Executive order.
Nevertheless, on September 27, 2024,
the Treasury Department and the IRS
held a consultation with Tribal leaders
requesting assistance in addressing
questions related to Low-Income
Communities Bonus Credit Amount
Program, which informed the
development of these regulations.
VII. Congressional Review Act
Pursuant to the Congressional Review
Act (CRA) (5 U.S.C. 801 et seq.), the
Office of Information and Regulatory
Affairs has determined that this rule
meets the criteria set forth in 5 U.S.C.
804(2).
ddrumheller on DSK120RN23PROD with RULES3
VIII. Immediate Effective Date
These final regulations have an
effective date of January 13, 2025. To
the extent that a good cause statement
is necessary under any provision of law,
the Treasury Department and the IRS
find that there would be good cause to
make this rule immediately effective
upon publication in the Federal
Register. The IRA added the section 48E
credit to the Code, and provided that the
section 48E credit applies to property
placed in service after December 31,
2024. Pursuant to the IRA, section
48E(h)(4)(A) directs the Secretary, not
later than January 1, 2025, to establish
a program to allocate amounts of
Capacity Limitation to applicable
facilities and to ‘‘provide procedures to
allow for an efficient allocation’’ of
Capacity Limitation to applicable
facilities. In addition, the public already
has been provided notice of the general
contents of the rules in the proposed
regulations and their proposed
applicability to applicable facilities
placed in service after December 31,
2024, and during taxable years ending
on or after the date of publication of
these final regulations. As provided in
the IRA, section 48E(h) replaces the
existing low-income communities bonus
credit program for applicable facilities
placed in service after December 31,
2024. The statute and proposed
regulations, therefore, provide notice
that the rules will apply to applicable
facilities placed in service beginning in
2025, and provide notice of the
qualification requirements being
promulgated in this final rule.
VerDate Sep<11>2014
21:51 Jan 09, 2025
Jkt 265001
The Treasury Department and the IRS
have determined that an expedited
effective date of the final regulations is
appropriate here because of the January
1, 2025, deadline to establish the
Program and to provide certainty to
taxpayers.
Consistent with Executive Order
14008 (January 27, 2021), and
commenters’ requests for final rules, the
Treasury Department and the IRS have
determined that an expedited effective
date of the final regulations is
appropriate here given the statutory
deadline to establish the Program and to
provide certainty to taxpayers. The final
regulations provide needed rules on
what the law requires for taxpayers to
begin job-generating construction of
capital-intensive projects qualifying for
section 48E(h). Making the final
regulations effective as soon as possible
will also prevent delays in enabling
low-income households to access costsaving clean electricity in 2025 given
the transition from section 48(e) to
section 48E(h). Accordingly, to the
extent that a finding of good cause is
necessary, the Treasury Department and
the IRS have found good cause for the
rules in this Treasury decision to take
effect on the date of publication in the
Federal Register.
Statement of Availability of IRS
Documents
Guidance cited in this preamble is
published in the Internal Revenue
Bulletin and is available from the
Superintendent of Documents, U.S.
Government Publishing Office,
Washington, DC 20402, or by visiting
the IRS website at https://www.irs.gov.
Drafting Information
The principal author of these
regulations is the Office of the Associate
Chief Counsel (Passthroughs and
Special Industries), IRS. However, other
personnel from the Treasury
Department and the IRS participated in
their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
Amendments to the Regulations
Accordingly, 26 CFR part 1 is
amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by adding an entry
for § 1.48E(h)–1 in numerical order to
read in part as follows:
■
Authority: 26 U.S.C. 7805 * * *
*
PO 00000
*
*
Frm 00021
*
Fmt 4701
*
Sfmt 4700
2861
Section 1.48E(h)–1 also issued under 26
U.S.C. 48E(i).
*
*
*
*
*
Par. 2. Sections 1.48E(h)–0 and
1.48E(h)–1 are added to read as follows:
■
§ 1.48E(h)–0
Table of contents.
This section lists the captions
contained in § 1.48E(h)–1.
§ 1.48E(h)–1 Clean Electricity LowIncome Communities Bonus Credit Amount
Program.
(a) Overview.
(1) General rule.
(2) Certain terms used in this section.
(i) Applicant.
(ii) Disregarded entity.
(iii) Internal Revenue Bulletin.
(b) Applicable facility defined.
(1) In general.
(2) Facility categories.
(i) Category 1 facility.
(ii) Category 2 facility.
(iii) Category 3 facility.
(iv) Category 4 facility.
(3) Less than five megawatts requirement.
(i) In general.
(ii) Nameplate capacity for purposes of the
less than five megawatts requirement.
(iii) Nameplate capacity for an applicable
facility that generates in direct current for
purposes of the less than five megawatts
requirement.
(iv) Integrated operations.
(4) Related taxpayers.
(c) Eligible property.
(d) Location.
(1) In general.
(2) Nameplate Capacity Test for Location.
(3) Nameplate capacity for purpose of
Nameplate Capacity Test for Location.
(e) Financial benefits for a Category 3
facility.
(1) In general.
(2) Threshold requirement.
(3) Financial value of the electricity
produced by the facility.
(4) Gross financial value defined.
(5) Net financial value defined.
(i) Common ownership.
(ii) Third-party ownership.
(iii) Equitable allocation of financial
benefits.
(A) If financial value distributed via utility
bill savings.
(B) If financial value is not distributed via
utility bill savings.
(6) Benefits sharing statement.
(i) In general.
(ii) Notification requirement.
(f) Financial benefits for a Category 4
facility.
(1) In general.
(2) Bill credit discount rate.
(i) With cost to participate.
(ii) No or nominal cost of participation.
(iii) Calculation on annual basis.
(iv) Examples.
(A) Example 1.
(B) Example 2.
(C) Example 3.
(3) Demonstration of financial benefits
statement.
(4) Low-income verification and
recordkeeping.
E:\FR\FM\13JAR3.SGM
13JAR3
ddrumheller on DSK120RN23PROD with RULES3
2862
Federal Register / Vol. 90, No. 7 / Monday, January 13, 2025 / Rules and Regulations
(i) In general.
(ii) Methods of verification.
(A) Categorical eligibility.
(B) Direct income verification methods.
(C) Impermissible verification method.
(g) Annual Capacity Limitation.
(1) In general.
(2) Sub-reservations.
(3) Redistribution within Program year.
(4) Carryover of unallocated Annual
Capacity Limitation.
(5) Allocations to applicable facilities with
nameplate capacity in alternating current.
(h) Reservations of Capacity Limitation
allocation for facilities that meet certain
Additional Selection Criteria.
(1) In general.
(2) Ownership criteria.
(i) In general.
(ii) Indirect ownership.
(A) Disregarded entities.
(B) Partner qualifying partnership under
ownership criteria.
(C) Partner qualifying partnership
involving low-income housing credit under
ownership criteria.
(iii) Tribal enterprise.
(iv) Alaska Native Corporation.
(v) Native Hawaiian Organization.
(vi) Renewable energy cooperative.
(vii) Qualified tax-exempt entity.
(viii) Qualified renewable energy company.
(3) Geographic criteria.
(i) In general.
(ii) Persistent Poverty County.
(iii) Certain census tracts under Climate
and Economic Justice Screening Tool.
(A) Energy burden.
(B) PM2.5.
(C) Low-income.
(i) Sub-reservations of allocation for
Category 1 facilities.
(1) In general.
(2) Definitions.
(i) Behind the meter (BTM) facility.
(ii) Eligible residential BTM facility.
(iii) FTM facility.
(j) Process of application evaluation.
(1) In general.
(2) Information required as part of
application.
(3) No administrative appeal of Capacity
Limitation allocation decisions.
(4) Application period.
(i) Opening and closing dates.
(ii) Initial 30-day period.
(iii) Applications submitted after the initial
30-day period.
(A) In general.
(B) Additional Selection Criteria
Applications submitted after the initial 30day period.
(k) Placed in service.
(1) Requirement to report date placed in
service.
(2) Requirement to submit final eligibility
information at placed in service time.
(3) Confirmation.
(4) Definition of placed in service.
(l) Facilities placed in service prior to an
allocation award.
(1) In general.
(2) Rejection or rescission.
(m) Disqualification.
(n) Recapture of section 48E(h) Increase to
the section 48E(a) credit.
VerDate Sep<11>2014
21:51 Jan 09, 2025
Jkt 265001
(1) In general.
(2) Exception to application of recapture.
(3) Recapture events.
(4) Section 50(a) recapture.
(o) Record retention.
(p) Applicability date.
§ 1.48E(h)–1 Clean Electricity Low-Income
Communities Bonus Credit Amount
Program.
(a) Overview—(1) General rule. For
purposes of section 46 of the Internal
Revenue Code (Code), if an allocation of
the capacity limitation (Capacity
Limitation) is made with respect to
eligible property (as defined in
paragraph (c) of this section) that is part
of any applicable facility (as defined in
paragraph (b) of this section) placed in
service in connection with low-income
communities under the Clean Electricity
Low-Income Communities Bonus Credit
Amount Program (Program) established
under section 48E(h)(4), the applicable
percentage used to calculate the amount
of the clean electricity investment credit
determined under section 48E(a)
(section 48E credit) is increased under
section 48E(h)(1).
(2) Certain terms used in this section.
In this section:
(i) Applicant. The terms applicant
and taxpayer are used interchangeably
as the context may require. An applicant
is the taxpayer that owns the applicable
facility and that intends to claim the
section 48E credit and will be applying
for an allocation of Capacity Limitation
for purposes of the section 48E(h)
Increase. A disregarded entity is not
eligible to be an applicant. The regarded
taxpayer that owns the disregarded
entity is the owner of the applicable
facility and, therefore, the applicant, for
purposes of the Program and this
section.
(ii) Disregarded entity. The term
disregarded entity means an entity that
is disregarded as separate from its
owner for Federal income tax purposes.
(iii) Internal Revenue Bulletin. The
term Internal Revenue Bulletin has the
meaning provided in § 601.601 of this
chapter.
(b) Applicable facility defined—(1) In
general. An applicable facility means
any qualified facility (as defined in
section 48E(b)(3)) that—
(i) Is a non-combustion and
gasification facility for which the
Secretary of the Treasury or her delegate
has determined has a greenhouse gas
(GHG) emissions rate of not greater than
zero and announced in guidance
published either in the Federal Register
or in the Internal Revenue Bulletin as of
the opening date for a Program year;
(ii) Has a maximum net output of less
than five megawatts (MW) (as measured
in alternating current (AC)); and
PO 00000
Frm 00022
Fmt 4701
Sfmt 4700
(iii) Is described in at least one of the
four categories described in section
48E(h)(2)(A)(iii) and paragraph (b)(2) of
this section.
(2) Facility categories—(i) Category 1
facility. A facility is a Category 1 facility
if it is located in a low-income
community. The term low-income
community is defined under section
45D(e)(1) of the Code as any population
census tract for which the poverty rate
is at least 20 percent based on the most
recently released American Community
Survey (ACS) low-income community
data currently used for the New Markets
Tax Credit (NMTC) under section 45D,
or, in the case of a tract not located
within a metropolitan area, the median
family income for such tract does not
exceed 80 percent of statewide median
family income, or, in the case of a tract
located within a metropolitan area, the
median family income for such tract
does not exceed 80 percent of the
greater of statewide median family
income or the metropolitan area median
family income. The term low-income
community also includes the
modifications in section 45D(e)(4) and
(5) for tracts with low population and
modification of the income requirement
for census tracts with high migration
rural counties. Low-income community
information for NMTC can be found at
https://www.cdfifund.gov/cims3. For
purposes of this paragraph (b)(2)(i), if
updated ACS low-income community
data is released for the NMTC, a
taxpayer can choose to base the poverty
rate for any population census tract on
either the prior version of the ACS lowincome community data for the NMTC
program or the updated ACS lowincome community data for the NMTC
program for a period of 1 year following
the date of the release of the updated
data. After the 1-year transition period,
the updated ACS low-income
community data for the NMTC program
must be used to determine the poverty
rate for any population census tract.
Population census tracts that satisfy the
definition of low-income community at
the time of application are considered to
continue to meet the definition of lowincome community for the duration of
the recapture period described in
paragraph (n)(1) of this section unless
the location of the facility changes.
(ii) Category 2 facility. A facility is a
Category 2 facility if it is located on
Indian land. The term Indian land is
defined in section 2601(2) of the Energy
Policy Act of 1992 (25 U.S.C. 3501(2)).
(iii) Category 3 facility. A facility is a
Category 3 facility if it is part of a
qualified low-income residential
building project. A facility will be
treated as part of a qualified low-income
E:\FR\FM\13JAR3.SGM
13JAR3
ddrumheller on DSK120RN23PROD with RULES3
Federal Register / Vol. 90, No. 7 / Monday, January 13, 2025 / Rules and Regulations
residential building project if such
facility is installed on a residential
rental building that participates in a
covered housing program or other
affordable housing program as described
in section 48E(h)(2)(B)(i) (Qualified
Residential Property) and the financial
benefits of the electricity produced by
such facility are allocated equitably
among the occupants of the dwelling
units of such building as provided in
paragraph (e) of this section. A
Qualified Residential Property could
either be a multifamily rental property
or single-family rental property.
However, the building, and not merely
the tenants, must participate in a
covered housing program or other
affordable housing program described in
section 48E(h)(2)(B)(i). A facility does
not need to be installed directly on the
building to be considered installed on a
Qualified Residential Property if the
facility is installed on the same or an
adjacent parcel of land as the Qualified
Residential Property, and the other
requirements to be a Category 3 facility
are satisfied.
(iv) Category 4 facility. A facility is a
Category 4 facility if it is part of a
qualified low-income economic benefit
project. A facility will be treated as part
of a qualified low-income economic
benefit project if, as provided in
paragraph (f) of this section, at least 50
percent of the financial benefits of the
electricity produced by such facility are
provided to households with income of
less than—
(A) Two-hundred percent of the
poverty line (as defined in section
36B(d)(3)(A) of the Code) applicable to
a family of the size involved; or
(B) Eighty percent of area median
gross income (as determined under
section 142(d)(2)(B) of the Code).
(3) Less than five megawatts
requirement—(i) In general. For
purposes of this paragraph (b), the less
than five megawatts requirement in
paragraph (b)(1)(ii) of this section is
measured at the level of the applicable
facility in accordance with section
48E(h)(2)(A)(ii). The maximum net
output of an applicable facility is
measured only by nameplate generating
capacity of the applicable facility,
which includes only functionally
interdependent components of the
applicable facility, at the time the
applicable facility is placed in service.
Components of property are
functionally interdependent if the
placing in service of each component is
dependent upon placing in service other
components to produce electricity.
(ii) Nameplate capacity for purposes
of the less than five megawatts
requirement. The determination of
VerDate Sep<11>2014
21:51 Jan 09, 2025
Jkt 265001
whether an applicable facility has a
maximum net output of less than 5 MW
(as measured in AC) is based on the
nameplate capacity of the applicable
facility. If an applicable facility has
integrated operations with one or more
other qualified facilities of the same
technology type, then the aggregate
nameplate capacity of the applicable
facility and each other qualified facility
is used to determine whether the less
than five megawatts requirement in
paragraph (b)(1)(ii) of this section is
met. If an applicable facility has a
maximum net output equal to or more
than 5MW (as measured in AC), it is not
eligible for the Program. The nameplate
capacity for purposes of the less than
five megawatts requirement in
paragraph (b)(1)(ii) of this section is the
maximum electrical generating output
in MW that the applicable facility is
capable of producing on a steady state
basis and during continuous operation
under standard conditions, as measured
by the manufacturer and consistent with
the definition of nameplate capacity
provided in 40 CFR 96.202. If
applicable, the International Standard
Organization conditions should be used
to measure the maximum electrical
generating output of an applicable
facility.
(iii) Nameplate capacity for an
applicable facility that generates in
direct current for purposes of the less
than five megawatts requirement. Only
for applicable facilities that generate
electricity in direct current, the taxpayer
may choose to determine the maximum
net output (in alternating current) of the
applicable facility by using the lesser of:
(A) The nameplate generating
capacity of the applicable facility in
direct current, which is deemed the
nameplate generating capacity of the
applicable facility in alternating current;
or
(B) The nameplate capacity of the first
component of property that inverts the
direct current electricity into alternating
current.
(iv) Integrated operations. For the
purposes of the less than five megawatts
requirement in paragraph (b)(1)(ii) of
this section, an applicable facility is
treated as having integrated operations
with one or more other qualified
facilities of the same technology type if
the facilities are:
(A) Owned by the same or related
taxpayers;
(B) Placed in service in the same
taxable year; and
(C) Transmit electricity generated by
the facilities through the same point of
interconnection or, if the facilities are
not grid-connected or are delivering
electricity directly to an end user
PO 00000
Frm 00023
Fmt 4701
Sfmt 4700
2863
behind a utility meter, are able to
support the same end user.
(4) Related taxpayers—(i) Definition.
For purposes of this paragraph (b), the
term related taxpayers means members
of a group of trades or businesses that
are under common control (as defined
in § 1.52–1(b)).
(ii) Related taxpayer rule. For
purposes of this paragraph (b), related
taxpayers are treated as one taxpayer in
determining whether an applicable
facility has integrated operations.
(c) Eligible property. Eligible property
means a qualified investment (as
defined in section 48E(b)) with respect
to any applicable facility.
(d) Location—(1) In general. An
applicable facility is treated as located
in a low-income community or located
on Indian land under section
48E(h)(2)(A)(iii)(I) if the applicable
facility satisfies the requirements of the
Nameplate Capacity Test for Location of
paragraph (d)(2) of this section.
Similarly, an applicable facility is
treated as located in a geographic area
under the Additional Selection Criteria
described in paragraph (h) of this
section if it satisfies the Nameplate
Capacity Test for Location.
(2) Nameplate Capacity Test for
Location. An applicable facility satisfies
the requirements of the Nameplate
Capacity Test for Location of this
paragraph (d)(2) and is considered
located in or on the relevant geographic
area described in paragraph (d)(1) of this
section if 50 percent or more of the
applicable facility’s nameplate capacity
is in a qualifying area. The percentage
of an applicable facility’s nameplate
capacity (as defined in paragraph (d)(3)
of this section) that is in a qualifying
area is determined by dividing the
nameplate capacity of the applicable
facility’s electricity-generating units that
are located in the qualifying area by the
total nameplate capacity of all the
electricity-generating units of the
applicable facility.
(3) Nameplate capacity for purpose of
Nameplate Capacity Test for Location.
Nameplate capacity for an electricity
generating unit means the maximum
electrical output that the applicable
facility is capable of producing on a
steady state basis and during continuous
operation under standard conditions, as
measured by the manufacturer and
consistent with the definition of
nameplate capacity provided in 40 CFR
96.202. If applicable, the International
Standard Organization conditions
should be used to measure the
maximum electrical generating output.
For purposes of assessing the Nameplate
Capacity Test, electricity-generating
units that generate direct current (DC)
E:\FR\FM\13JAR3.SGM
13JAR3
ddrumheller on DSK120RN23PROD with RULES3
2864
Federal Register / Vol. 90, No. 7 / Monday, January 13, 2025 / Rules and Regulations
power before converting to AC (for
example, solar photovoltaic), should use
nameplate capacity in DC, otherwise the
nameplate capacity in AC should be
used.
(e) Financial benefits for a Category 3
facility—(1) In general. To satisfy the
requirements of a Category 3 facility as
provided in paragraph (b)(2)(iii) of this
section, the financial benefits of the
electricity produced by the facility must
be allocated equitably among the
occupants of the dwelling units of the
Qualified Residential Property. The
same rules for financial benefits for
Category 3 facilities apply to both multifamily property and single-family
Qualified Residential Property.
(2) Threshold requirement. At least 50
percent of the financial benefits of the
electricity produced by the applicable
facility (as defined in paragraph (e)(3) of
this section) must be allocated equitably
to the Qualified Residential Property’s
occupants that are designated as lowincome occupants under the covered
housing program or other affordable
housing program.
(3) Financial value of the electricity
produced by the facility. Financial
benefits are calculated as the financial
value of the electricity produced by the
applicable facility. For purposes of this
paragraph (e), financial value of the
electricity produced by the facility
means the greater of:
(i) 25 percent of the gross financial
value (as defined in paragraph (e)(4) of
this section) of the annual electricity
produced by the applicable facility; or
(ii) The net financial value (as defined
in paragraph (e)(5) of this section) of the
annual electricity produced by the
applicable facility.
(4) Gross financial value defined. For
purposes of this paragraph (e), gross
financial value of the annual electricity
produced by the applicable facility
means the sum of:
(i) The total self-consumed kilowatthours produced by the applicable
facility multiplied by the Qualified
Residential Property’s metered
volumetric price of electricity;
(ii) The total exported kilowatt-hours
produced by the applicable facility
multiplied by the Qualified Residential
Property’s volumetric export
compensation rate for the type of
electricity produced by the applicable
facility per kilowatt-hour; and
(iii) The sale of any attributes
associated with the applicable facility’s
production (including, for example, any
Federal, State, Tribal, or utility
incentives or renewable energy
certificates), if separate from the
metered price of electricity or export
compensation rate.
VerDate Sep<11>2014
21:51 Jan 09, 2025
Jkt 265001
(5) Net financial value defined—(i)
Common ownership. For purposes of
this paragraph (e), if the facility and
Qualified Residential Property are
commonly owned, net financial value
means:
(A) The gross financial value of the
annual electricity produced; minus
(B) The annual average (or levelized)
cost of the applicable facility over the
useful life of the facility (including debt
service, maintenance, replacement
reserve, capital expenditures, and any
other costs associated with constructing,
maintaining, and operating the facility).
(ii) Third-party ownership. For
purposes of this paragraph (e), if the
facility and the Qualified Residential
Property are not commonly owned and
the facility owner enters into a power
purchase agreement or other contract for
electricity services with the Qualified
Residential Property owner and/or
building occupants, net financial value
means:
(A) The gross financial value of the
annual electricity produced; minus
(B) Any payments made by the
building owner and/or building
occupants to the facility owner for
electricity services associated with the
facility in a given year.
(iii) Equitable allocation of financial
benefits. Paragraphs (e)(5)(iii)(A) and (B)
of this section provide rules regarding
an equitable allocation of financial
benefits in circumstances where
financial value is distributed to building
occupants via utility bill savings or via
different means, respectively.
Distributed financial benefits or
investments previously made to the
Qualified Residential Property are not
considered eligible financial benefits for
this purpose.
(A) If financial value distributed via
utility bill savings. If financial value is
distributed via utility bill savings,
financial benefits will be considered to
be allocated equitably if at least 50
percent of the financial value of the
electricity produced by the facility is
distributed as utility bill savings in
equal shares to each building dwelling
unit among the Qualified Residential
Property’s occupants that are designated
as low-income under the covered
housing program or other affordable
housing program (described in section
48E(h)(2)(B)(i)) or alternatively
distributed in proportional shares based
on each low-income dwelling unit’s
square footage, or each low-income
dwelling unit’s number of occupants.
For any occupant(s) who choose to not
receive utility bill savings (for example,
who exercise their right to not
participate in or to opt out of a
community solar subscription in their
PO 00000
Frm 00024
Fmt 4701
Sfmt 4700
applicable jurisdictions), the portion of
the financial value that would otherwise
be distributed to non-participating
occupants must be distributed instead to
all participating occupants. No less than
50 percent of the Qualified Residential
Property’s occupants that are designated
as low-income must participate and
receive utility bill savings for the facility
to use this method of benefit
distribution. In the case of a solar
facility, applicants must follow
guidance published by the Department
of Housing and Urban Development
(HUD) regarding benefits sharing, such
as Treatment of Financial Benefits to
HUD-Assisted Tenants Resulting from
Participation in Solar Programs Notice
(Housing Notice 2023–09), located at
https://www.hud.gov/sites/dfiles/
OCHCO/documents/2023-09hsgn.pdf, or
other applicable HUD guidance, or other
guidance or notices from the Federal
agency that oversees the applicable
housing program identified in section
48E(h)(2)(B) to ensure that tenants’
annual income for rent calculations or
other requirements impacting total
tenant payment are not negatively
impacted by the distribution of financial
value. In the case of any other
applicable facility, applicants must
follow applicable HUD guidance on
benefits sharing, or other guidance from
the Federal agency that oversees the
applicable housing program. In the
absence of applicable guidance from a
Federal agency, applicants should apply
principles similar to those articulated in
HUD guidance in the case of any other
applicable facility.
(B) If financial value is not distributed
via utility bill savings. If financial value
is not distributed via utility bill savings,
financial benefits will be considered to
be allocated equitably if at least 50
percent of the financial value of the
electricity produced by the facility is
distributed to occupants using one or
more methods described in HUD
guidance regarding benefits sharing for
master-metered HUD-assisted housing,
such as the Treatment of Financial
Benefits to HUD-Assisted Tenants
Resulting from Participation in Solar
Programs Notice (Housing Notice 2023–
09) located at https://www.hud.gov/
sites/dfiles/OCHCO/documents/202309hsgn.pdf, or other applicable HUD
guidance, or other guidance or notices
from the Federal agency that oversees
the applicable housing program
identified in section 48E(h)(2)(B). In the
case of a solar facility, applicants must
comply with applicable HUD guidance
for how residents of master-metered
HUD-assisted housing can benefit from
owners’ sharing of financial benefits
E:\FR\FM\13JAR3.SGM
13JAR3
ddrumheller on DSK120RN23PROD with RULES3
Federal Register / Vol. 90, No. 7 / Monday, January 13, 2025 / Rules and Regulations
accrued from an investment in solar
electricity generation to ensure that
HUD-assisted tenants’ calculations for
utility allowances and annual income
for rent are not negatively impacted. In
the absence of applicable guidance from
a Federal agency, applicants should
apply principles similar to those
articulated in HUD guidance in the case
of any other applicable facility.
(6) Benefits sharing statement—(i) In
general. The facility owner must
prepare a Benefits sharing statement to
submit at placed in service reporting,
which must include:
(A) A calculation of the facility’s gross
financial value using the method
described paragraph (e)(4) of this
section;
(B) A calculation of the facility’s net
financial value using the method
described in paragraph (e)(5) of this
section;
(C) A calculation of the financial
value required to be distributed to
building occupants using the method
described in paragraph (e)(3) of this
section;
(D) A description of the means
through which the required financial
value will be distributed to building
occupants; and
(E) If the facility and Qualified
Residential Property are separately
owned, specify which entity will be
responsible for the distribution of
benefits to the occupants.
(ii) Notification requirement. The
Qualified Residential Property owner
must formally notify the occupants of
units in the Qualified Residential
Property of the development of the
facility and planned distribution of
benefits.
(f) Financial benefits for a Category 4
facility—(1) In general. The
requirements of each of paragraph
(f)(1)(i) through (iii) of this section must
be met to satisfy the requirements of a
Category 4 facility as provided in
paragraph (b)(2)(iv) of this section.
(i) The facility must serve multiple
qualifying low-income households
under section 48E(h)(2)(C)(i) or (ii)
(Qualifying Household).
(ii) At least 50 percent of the total
financial benefits of the electricity
produced by the applicable facility must
be assigned to Qualifying Households.
Total financial benefits is calculated as
the sum of all value from electricity
production as measured by the utility,
independent system operator, or other
off-taker procuring electricity, and any
additional value (including, for
example, any electricity services,
products, and credits or certificates such
as RECs provided in connection with
the electricity produced by such facility,
VerDate Sep<11>2014
21:51 Jan 09, 2025
Jkt 265001
but excluding any Federal tax credits),
from the facility.
(iii) Each Qualifying Household must
be provided a bill credit discount rate
(as defined in paragraph (f)(2) of this
section) of at least 20 percent.
(2) Bill credit discount rate—(i) With
cost to participate. A bill credit discount
rate is the difference between the
amount of the total financial benefits
provided to a Qualifying Household
(including utility bill credits, reductions
in a Qualifying Household’s electricity
rate, or other monetary benefits accrued
by the Qualifying Household on their
utility bill) and the cost by a Qualifying
Household for participating in the
program (including, but not limited to
subscription payments for zero carbon
and any other fees or charges, such as
consolidated billing fees), expressed as
a percentage of the amount of the total
financial benefits provided to a
Qualifying Household. The bill credit
discount rate must be calculated by
starting with the amount of the total
financial benefits provided to a
Qualifying Household, subtracting all
payments made by a Qualifying
Household (or payments remitted on
behalf of the Qualifying Household
through net crediting, consolidated
billing, or similar arrangements) to the
facility owner and any related third
parties as a condition of receiving that
financial benefit to determine the net
financial benefit (cost savings) to a
Qualified Household, then dividing that
difference by the amount of the total
financial benefit provided to the
Qualifying Household.
(ii) No or nominal cost of
participation. In cases in which the
Qualifying Household has no or only a
nominal cost of participation, and
financial benefits are delivered through
a utility or government body, the bill
credit discount rate must be calculated
as the net financial benefits (cost
savings) provided to a Qualifying
Household (including utility bill credits,
reductions in a Qualifying Household’s
electricity rate, or other monetary
benefits accrued by a Qualifying
Household on their utility bill) divided
by the amount of the total financial
benefit assigned to a Qualifying
Household.
(iii) Calculation on annual basis. In
all instances, the bill credit discount
rate is calculated on an annual basis.
(iv) Examples. The provisions of this
paragraph (f)(2) may be illustrated by
the following examples:
(A) Example 1. A Qualifying
Household signs a community solar
subscription agreement with the facility
owner. Each month, the facility owner
will assign a portion of the electricity
PO 00000
Frm 00025
Fmt 4701
Sfmt 4700
2865
generated (or its value) by the facility to
the household’s utility bill, and the
household will pay the facility owner.
The amount the household pays the
facility owner cannot exceed 80 percent
of the monetary value of the assigned
generation. The remaining 20 percent is
a cost savings to the household on
electricity. In this example, over the
course of the first year the facility owner
or their agent cause $180 in utility bill
credits to be placed on the Qualifying
Household’s bill, and the Qualifying
Household pays $144, inclusive of any
upfront fees. The subsequent year, due
to variation in solar generation and/or
the compensation paid by the utility for
solar generation, the facility owner, in
accordance with the community solar
subscription agreement, causes $240 in
bill credits to be provided to the
Qualifying Household’s bill and the
household pays $192. In each year of
facility operation described within this
example, a bill credit discount rate of 20
percent is maintained (($180–$144)/
$180 = 20%) and (($240–$192)/$240 =
20%), respectively.
(B) Example 2. Due to the regulatory
structure of the applicable jurisdiction
or program, the terms of the community
solar subscription, the use of a netcrediting mechanism, or other reason,
the Qualifying Household does not
make a direct payment to the facility
owner, but rather payment is remitted
on their behalf by the utility. In this
example, over the course of the first year
the facility owner or their agent cause
$200 in utility bill credits to be placed
on the Qualifying Household’s bill, and
the Qualifying Household’s utility
remits $160 to the facility owner,
inclusive of any upfront fees. The
subsequent year, due to variation in
solar generation and/or the
compensation paid by the utility for
solar generation, the facility owner, in
accordance with the community solar
subscription agreement, causes $240 in
bill credits to be provided to the
Qualifying Household’s bill and the
utility remits $192 to the facility owner.
In each year of facility operation
described within this example, a bill
credit discount rate of 20 percent is
maintained (($200–$160)/$200 = 20%)
and (($240–$192)/$240 = 20%),
respectively.
(C) Example 3. Assume the facility is
part of a program by which the financial
benefits are delivered to 100 Qualifying
Households through a utility or
government body, and each Qualifying
Household pays no cost to participate.
Assume that the financial value of the
electricity produced by the facility’s
total output is $120,000 in the first year
and $160,000 in the second year.
E:\FR\FM\13JAR3.SGM
13JAR3
ddrumheller on DSK120RN23PROD with RULES3
2866
Federal Register / Vol. 90, No. 7 / Monday, January 13, 2025 / Rules and Regulations
Assume that 50% of the facility’s
financial value of the electricity is
assigned to Qualifying Households and
is therefore calculated as $60,000 in the
first year ($120,000 × 50% = $60,000)
and $80,000 in the second year
($160,000 × 50% = $80,000). Assume
further that each Qualifying Household
is assigned the same total financial
benefit ($600 in the first year and $800
in the second year). If the bill credit
discount rate for each Qualifying
Household is 20 percent in each year,
the net financial benefits (or cost
savings) provided to each Qualifying
Household is $120 in the first year
($120/$600 = 20%) and $160 in the
second year ($160/$800 = 20%).
(3) Demonstration of financial
benefits statement. The facility owner
must prepare a Demonstration of
Financial Benefits Statement, which
must include:
(i) A calculation of the total financial
benefits of annual electricity
production, as described in paragraph
(f)(1)(ii) of this section;
(ii) The percent of the total financial
benefits provided and/or assigned to
Qualifying Households;
(iii) The bill credit discount rate
method used (with cost to participate or
no or nominal cost of participation);
(iv) A calculation of the bill credit
discount rate;
(v) A description of the means of
distributing the required benefits to
Qualifying Households; and
(vi) Documentation that the facility is
enrolled in the applicable utility tariff,
program, or other arrangement used to
distribute financial benefits to
Qualifying Households.
(4) Low-income verification and
recordkeeping—(i) In general.
Taxpayers must verify that a household
meets the income limits under section
48E(h)(2)(C)(i) or (ii), whichever is
applicable to the household based on
the household’s location, for the
household to be a Qualifying Household
under paragraph (f)(1)(i) of this section.
A household’s low-income status is
determined at the time the household
enrolls in the subscription program and
does not need to be re-verified. The
qualifying income level for a Qualifying
Household is based on where such
household is located. Taxpayers must
additionally maintain records of the
verification for each household that
prove the taxpayer has provided
requisite percentage of financial benefits
to Qualifying Households.
(ii) Methods of verification.
Applicants may use categorical
eligibility verification or direct income
verification methods, but not an
impermissible verification method
VerDate Sep<11>2014
21:51 Jan 09, 2025
Jkt 265001
described in paragraph (f)(4)(ii)(C) of
this section, to establish that a
household is a Qualifying Household.
(A) Categorical eligibility. Categorical
eligibility consists of obtaining proof of
the household’s participation in a
needs-based Federal, State, Tribal, or
utility program with income limits at or
below the qualifying income level
required to be a Qualifying Household.
An individual in the household must
currently be approved for assistance
from or participation in a program with
an award letter or other written
documentation within the last 12
months for enrollment in that program
to establish categorical eligibility of the
household.
(B) Direct income verification
methods. Documentation like paystubs,
Federal or State tax returns, or income
verification through crediting agencies
and commercial data sources can be
used to establish that a household is a
Qualifying Household.
(C) Impermissible verification
method. A self-attestation from a
member or members of a household is
not a permissible method to establish a
household is a Qualifying Household.
This prohibition on direct selfattestation from a household, for
purposes of this Program, does not
extend to categorical eligibility
verification where the eligible needsbased Federal, State, Tribal, or utility
programs with income limits rely on
self-attestation for verification of
income, and the taxpayer has obtained
proof of a member or members of a
household’s participation in such a
program.
(g) Annual Capacity Limitation—(1)
In general. Under section 48E(h)(4)(C),
the total annual Capacity Limitation is
1.8 gigawatts of DC capacity (Annual
Capacity Limitation) for each calendar
year of the Program. The Annual
Capacity Limitation for each Program
year is divided across the four facility
categories described in section
48E(h)(2)(A)(iii) and paragraph (b)(2) of
this section based on factors such as the
anticipated number of applications that
are expected for each category and the
amount of Capacity Limitation that
needs to be reserved for each category
to encourage market participation in
each category. The initial distribution of
the Annual Capacity Limitation for each
Program year is:
PO 00000
Frm 00026
Fmt 4701
Sfmt 4700
TABLE 1 TO PARAGRAPH (g)(1) OF
THIS SECTION
Category
1: Located in a Low-Income
Community.
2: Located on Indian Land .........
3: Qualified Low-Income Residential Building Project.
4: Qualified Low-Income Economic Benefit Project.
Capacity
limitation
(DC)
600 MW.
200 MW.
200 MW.
800 MW.
(2) Sub-reservations. The reservation
of Capacity Limitation for Category 1 is
further divided into Category 1 subreservations, which are described in
paragraph (i) of this section. The
category 1 sub-reservation distribution
of Capacity Limitation is:
TABLE 2 TO PARAGRAPH (g)(2) OF
THIS SECTION
Eligible FTM facilities and nonresidential BTM facilities.
200 MW.
(3) Redistribution within Program
year. At the close of the application
period for a Program year, if some
categories or sub-reservations are
undersubscribed, while others are
oversubscribed, capacity will be
redistributed within the Program year
for allocation to applicants in another
Category or sub-reservation. A category
or sub-reservation is undersubscribed if
the amount of capacity applied for in all
eligible applications within a
reservation is less than the amount of
the Capacity Limitation portion
distributed to that reservation. A
category or sub-reservation is
oversubscribed if the amount of capacity
applied for in all eligible applications
within a particular reservation is in
excess of the Capacity Limitation
portion distributed to that reservation.
Capacity Limitation will be
redistributed within a Program year in
the following manner:
(i) Capacity will first be redistributed
within a category from the
undersubscribed reservation to the
oversubscribed reservation. For
example, if the Additional Selection
Criteria reservation is undersubscribed
while the non-Additional Selection
Criteria reservation is oversubscribed,
the remaining capacity reservation for
the Additional Selection Criteria will be
redistributed to and increase the nonAdditional Selection Criteria reservation
or sub-reservation in the same category.
(ii) If there is remaining capacity in a
category after redistribution under
paragraph (g)(3)(i) of this section, or, in
general, if a category is, as a whole,
E:\FR\FM\13JAR3.SGM
13JAR3
ddrumheller on DSK120RN23PROD with RULES3
Federal Register / Vol. 90, No. 7 / Monday, January 13, 2025 / Rules and Regulations
undersubscribed such that paragraph
(g)(3)(i) of this section does not apply to
that category, then, any remaining
capacity in any category will be
redistributed to and increase the
reservation for Category 1 residential
BTM facilities, but only if Category 1
residential BTM is oversubscribed. If
both the Additional Selection Criteria
and non-Additional Section Criteria
reservations are oversubscribed for
Category 1 residential BTM, then
consistent with paragraph (h)(1) of this
section, the redistributed capacity
limitation will first increase the
reservation for Additional Selection
Criteria applications, and then if any
capacity is remaining it will be added to
the reservation for non-Additional
Selection Criteria applications.
(iii) If there is remaining capacity after
redistribution under paragraphs (g)(3)(i)
and (ii) of this section, or if
redistribution under paragraph (g)(3)(ii)
of this section is inapplicable due to
undersubscription in Category 1
residential BTM, then the remaining
capacity will be redistributed to and
increase the reservation for Category 4.
If both the Additional Selection Criteria
and the non-Additional Selection
Criteria reservations under Category 4
are oversubscribed, then consistent with
paragraph (j)(4)(ii) of this section, the
redistributed capacity limitation will
first increase the reservation for
Additional Selection Criteria
applications, and then if any capacity is
remaining it will be added to the
reservation for non-Additional Selection
Criteria applications.
(iv) If there is remaining capacity after
redistribution under paragraphs (g)(3)(i)
through (iii) of this section, or if
redistribution under paragraph (g)(3)(iii)
of this section is inapplicable due to
undersubscription in Category 1
residential BTM and Category 4, then
the remaining capacity will be
redistributed to and increase the
reservation for Category 3. If both the
Additional Selection Criteria and the
non-Additional Selection Criteria
reservations under Category 3 are
oversubscribed, then consistent with
paragraph (j)(4)(ii) of this section, the
redistributed capacity limitation will
first increase the reservation for
Additional Selection Criteria
applications, and then if any capacity is
remaining it will be added to the
reservation for non-Additional Selection
Criteria applications.
(v) If there is remaining capacity after
redistribution under paragraphs (g)(3)(i)
through (iv) of this section, or if
redistribution under paragraph (g)(3)(iv)
of this section is inapplicable due to
undersubscription in Category 1
VerDate Sep<11>2014
21:51 Jan 09, 2025
Jkt 265001
residential BTM, Category 4, and
Category 3 then the remaining capacity
will be redistributed to and increase the
reservation for Category 2. If both the
Additional Selection Criteria and the
non-Additional Selection Criteria
reservations under Category 2 are
oversubscribed, then consistent with
paragraph (j)(4)(ii) of this section, the
redistributed capacity limitation will
first increase the reservation for
Additional Selection Criteria
applications, and then if any capacity is
remaining it will be added to the
reservation for non-Additional Selection
Criteria applications.
(vi) If there is remaining capacity after
redistribution under paragraphs (g)(3)(i)
through (v) of this section, or if
redistribution under paragraph (g)(3)(iv)
of this section is inapplicable due to
undersubscription in Category 1
residential BTM, Category 4, Category 3,
and Category 2, then the remaining
capacity will be redistributed to and
increase the reservation for Category 1
Eligible FTM facilities and nonresidential BTM facilities. If both the
Additional Selection Criteria and the
non-Additional Selection Criteria
reservations under Category 1 Eligible
FTM facilities and non-residential BTM
facilities are oversubscribed, then
consistent with paragraph (j)(4)(ii) of
this section, the redistributed capacity
limitation will first increase the
reservation for Additional Selection
Criteria applications, and then if any
capacity is remaining it will be added to
the reservation for non-Additional
Selection Criteria applications.
(vii) If after redistribution under
paragraphs (g)(3)(i) through (vi) of this
section, there is remaining Capacity
Limitation at the close of a Program
year, the unallocated amount of
Capacity Limitation will be carried
forward to the succeeding year as
described in paragraph (g)(4) of this
section.
(4) Carryover of unallocated Annual
Capacity Limitation. If the Annual
Capacity Limitation, as described in
paragraph (g)(1) of this section, for any
calendar year exceeds the aggregate
amount of Annual Capacity Limitation
allocated for a given calendar year, the
Annual Capacity Limitation for the
succeeding calendar year will be
increased by the amount of such excess
or remainder from previous Program
Year. No amount of Capacity Limitation
may be carried to any calendar year after
the third calendar year following the
applicable year (as defined in section
45Y(d)(3) of the Code). Any unallocated
Capacity Limitation carried over from
the preceding year will be equally
distributed across Category 1, 2, 3, and
PO 00000
Frm 00027
Fmt 4701
Sfmt 4700
2867
4. Within Category 1, the portion
distributed from the carried over
Capacity Limitation will be equally
distributed across Category 1 subreservations and further across the
reservation for Additional Selection
Criteria within those sub-reservations.
The portion of the carried over Capacity
Limitation distributed to each of
Category 2, 3, and 4 will be equally
distributed within each category to the
Additional Selection Criteria reservation
and the non-Additional Selection
Criteria reservation.
(5) Allocations to applicable facilities
with nameplate capacity in alternating
current. For applicable facilities which
have a nameplate capacity in AC, and
which are awarded an allocation, such
an applicable facility will be awarded
an amount of Capacity Limitation in
direct current that is equal to the
applicable facility’s reported nameplate
capacity in alternating current.
(h) Reservations of Capacity
Limitation allocation for facilities that
meet certain Additional Selection
Criteria—(1) In general. 50 percent of
the total Capacity Limitation in each
facility category described in paragraph
(b) of this section and Category 1 subreservation (described in paragraph (i)
of this section) will be reserved at the
beginning of an application period for
applicable facilities meeting the
Additional Selection Criteria described
in paragraph (h)(2) of this section
(relating to ownership criteria) and
paragraph (h)(3) of this section (relating
to geographic criteria). The reservation
of Capacity Limitation for applicable
facilities meeting the Additional
Selection Criteria may be redistributed
across facility categories and subreservations as described in paragraph
(g)(3) of this section. If after the initial
30-day period an Additional Selection
Criteria reservation for a category or
Category 1 sub-reservation is
undersubscribed, such Additional
Selection Criteria reservation of 50
percent is maintained. The procedures
for applying under these Additional
Selection Criteria are provided in
guidance published in the Internal
Revenue Bulletin.
(2) Ownership criteria—(i) In general.
The ownership criteria are based on
characteristics of the applicant that
owns the applicable facility. An
applicable facility will meet the
ownership criteria if it is owned by one
of the following:
(A) A Tribal enterprise (as defined in
paragraph (h)(2)(iii) of this section);
(B) An Alaska Native Corporation (as
defined in paragraph (h)(2)(iv) of this
section);
E:\FR\FM\13JAR3.SGM
13JAR3
ddrumheller on DSK120RN23PROD with RULES3
2868
Federal Register / Vol. 90, No. 7 / Monday, January 13, 2025 / Rules and Regulations
(C) A Native Hawaiian Organization
(as defined in paragraph (h)(2)(v) of this
section);
(D) A renewable energy cooperative
(as defined in paragraph (h)(2)(vi) of this
section); or
(E) A qualified tax-exempt entity (as
defined in paragraph (h)(2)(vii) of this
section).
(F) A qualified renewable energy
company (as defined in paragraph
(h)(2)(viii) of this section).
(ii) Indirect ownership—(A)
Disregarded entities. If an applicant
wholly owns a disregarded entity that is
the owner of an applicable facility, then
the applicant, and not the disregarded
entity, is treated as the owner of the
applicable facility for purposes of the
ownership criteria. For entities wholly
owned and chartered under Tribal law
and corporations incorporated under the
authority of either section 17 of the
Indian Reorganization Act of 1934, 25
U.S.C. 5124, or section 3 of the
Oklahoma Indian Welfare Act, 25 U.S.C.
5203, an application may be made as a
Tribal Enterprise. Disregarded entities
are not eligible for an award and may
not submit an application.
(B) Partner qualifying partnership
under ownership criteria. Except as
described in paragraph (h)(2)(ii)(C) of
this section, if an applicant is an entity
classified as a partnership for Federal
income tax purposes, and an entity
described in paragraphs (h)(2)(i)(A)
through (E) of this section owns at least
a one percent interest (either directly or
indirectly) in each material item of
partnership income, gain, loss,
deduction, and credit of the partnership
and is also a managing member or
general partner (or similar title) under
State or Tribal law of the partnership (or
directly owns 100 percent of the equity
interests in the managing member or
general partner) at all times during the
existence of the partnership, the
applicable facility will be deemed to
meet the ownership criteria. If the
partnership described in the preceding
sentence becomes the owner of the
facility after an allocation is made to an
entity described in paragraphs
(h)(2)(i)(A) through (E) of this section,
then the transfer of the facility to the
partnership is not a disqualification
event for purposes of paragraph (m)(5)
of this section, so long as the
requirements of paragraph (m)(5) of this
section are satisfied. Nothing in this
paragraph (h)(2)(ii)(B) applies to an
applicant described in paragraph
(h)(2)(i)(F) of this section.
(C) Partner qualifying partnership
involving low-income housing credit
under ownership criteria. If an applicant
is an entity classified as a partnership
VerDate Sep<11>2014
21:51 Jan 09, 2025
Jkt 265001
for Federal income tax purposes and is
the owner of an applicable facility
connected to a residential building to
which credits under section 42 of the
Code are reasonably anticipated or have
been determined and has a partner for
Federal income tax purposes that is an
entity described in paragraphs
(h)(2)(i)(A) through (E) of this section,
the applicable facility will be deemed to
meet the ownership criteria. If the
partnership becomes the owner of the
facility after an allocation is made to an
entity described in paragraph (h)(2)(i)(E)
of this section, and complete ownership
is transferred to a partnership that owns
a qualified low-income building within
the meaning of section 42(c)(2)
(including, through a disregarded entity
owned by the partnership), then the
transfer of the facility to the partnership
is not a disqualification event for
purposes of paragraph (m)(5) of this
section or subject to recapture for
purposes of paragraph (n) of this
section, so long as the requirements of
paragraph (m)(5) of this section are
satisfied.
(iii) Tribal enterprise. A Tribal
enterprise for purposes of the ownership
criteria is an entity that is:
(A) Owned at least 51 percent directly
by an Indian Tribal government (as
defined in section 30D(g)(9) of the
Code), or owned at least 51 percent
indirectly through an entity that is
wholly owned by the Indian Tribal
government and is created under either
the Tribal laws of the Indian Tribal
government or through a corporation
incorporated under the authority of
either section 17 of the Indian
Reorganization Act of 1934, 25 U.S.C.
5124, or section 3 of the Oklahoma
Indian Welfare Act, 25 U.S.C. 5203; and
(B) Subject to Tribal government
rules, regulations, and/or codes that
regulate the operations of the entity.
(iv) Alaska Native Corporation. An
Alaska Native Corporation for purposes
of the ownership criteria is defined in
section 3 of the Alaska Native Claims
Settlement Act, 43 U.S.C. 1602(m).
(v) Native Hawaiian Organization. A
Native Hawaiian Organization for
purposes of the ownership criteria is
defined in 13 CFR 124.3.
(vi) Renewable energy cooperative. A
renewable energy cooperative for
purposes of the ownership criteria is an
entity that develops applicable facilities
and is either:
(A) A consumer or purchasing
cooperative controlled by its members
with each member having an equal
voting right and with each member
having rights to profit distributions
based on patronage as defined by
proportion of volume of electricity or
PO 00000
Frm 00028
Fmt 4701
Sfmt 4700
energy credits purchased (kWh), volume
of financial benefits delivered (in
United States dollars), or volume of
financial payments made (in United
States dollars); and in which at least 50
percent of the patronage in the qualified
facility is by cooperative members who
are low-income households (as defined
in section 48E(h)(2)(C)); or
(B) A worker cooperative controlled
by its worker-members with each
member having an equal voting right.
(vii) Qualified tax-exempt entity. A
qualified tax-exempt entity for purposes
of the ownership criteria is:
(A) An organization exempt from the
tax imposed by subtitle A of the Code
by reason of being described in section
501(c)(3) or (d) of the Code;
(B) Any State, the District of
Columbia, or political subdivision
thereof, or any agency or
instrumentality of any of the foregoing;
(C) An Indian Tribal government (as
defined in section 30D(g)(9)), a political
subdivision thereof, or any agency or
instrumentality of any of the foregoing;
or
(D) Any corporation described in
section 501(c)(12) operating on a
cooperative basis that is engaged in
furnishing electric energy to persons in
rural areas.
(viii) Qualified renewable energy
company. A qualified renewable energy
company (QREC) for purposes of the
ownership criteria is an entity that
serves low-income communities and
provides pathways for the adoption of
clean energy by low-income
households. To be a QREC, an entity
must meet all of the requirements in
paragraphs (h)(2)(vii)(A) through (D) of
this section.
(A) The entity’s business purpose
must be to serve low-income
households or low-income
communities, and this purpose must be
stated in governing documents and
dated at least two years prior to
application submission;
(B) At least 51 percent of the entity’s
equity interests must be owned and
controlled by one or more individuals;
(C) The entity must have first
installed, operated, or provided services
as a contractor or subcontractor to an
applicable facility two or more years
prior to the date of application; and
(D) The entity must have at least one
but less than 10 full-time equivalent
employees (as determined under section
4980H(c)(2)(E) and (c)(4) of the Code)
and less than $20 million in annual
gross receipts in the previous two
calendar years. The number of full-time
equivalent employees and amount in
annual gross receipts must include the
full-time equivalent employees and
E:\FR\FM\13JAR3.SGM
13JAR3
ddrumheller on DSK120RN23PROD with RULES3
Federal Register / Vol. 90, No. 7 / Monday, January 13, 2025 / Rules and Regulations
annual gross receipts of all affiliated
entities. An entity is considered to be an
affiliated entity if—
(1) 25 percent or more of an entity’s
board seats, voting rights, or equity
interests, are cumulatively held by
another entity and related entities (as
described in described in section 267(b)
or section 707(b)(1) of the Code); or
(2) One or more of an entities’ officers,
directors, managing members or
partners with authority over the board
of directors or management and
operations also have authority over the
board of directors or management and
operations of another entity.
(3) Geographic criteria—(i) In general.
Geographic criteria do not apply to
Category 2 facilities. To meet the
geographic criteria, a facility must be
located in a county or census tract that
is described in paragraph (h)(3)(ii) or
(iii) of this section. Applicants who
meet the geographic criteria at the time
of application are considered to
continue to meet the geographic criteria
for the duration of the recapture period
unless the location of the facility
changes.
(ii) Persistent Poverty County. A
Persistent Poverty County (PPC), which
is, generally, described as any county
where 20 percent or more of residents
have experienced high rates of poverty
over the past 30 years. For purposes of
the Program and this section, the PPC
measure adopted by the USDA is used
to make this determination. If updated
data is released by USDA, a taxpayer
will have a 1-year period following the
date of the release of the updated data
to be eligible under the previous data.
After the 1-year transition period, the
updated data must be used to determine
eligibility.
(iii) Certain census tracts under
Climate and Economic Justice Screening
Tool. A census tract that is described in
the latest official Climate and Economic
Justice Screening Tool (CEJST), as
greater than or equal to the 90th
percentile for energy burden and greater
than or equal to the 65th percentile for
low income, or as greater than or equal
to the 90th percentile for PM2.5 exposure
and greater than or equal to the 65th
percentile for low income.
(A) Energy burden. Energy burden is
defined as average household annual
energy cost in dollars divided by the
average household income.
(B) PM2.5. PM2.5 is defined as fine
inhalable particles with 2.5 or smaller
micrometer diameters. The percentile is
the weight of the particles per cubic
meter.
(C) Low-income. Low income, for
purposes of this section, is defined as
the percent of a census tract’s
VerDate Sep<11>2014
21:51 Jan 09, 2025
Jkt 265001
population in households for which
household income is at or below 200
percent of the Federal poverty level, not
including students enrolled in higher
education.
(i) Sub-reservations of allocation for
Category 1 facilities—(1) In general.
Capacity Limitation reserved for
Category 1 facilities will be subdivided
each Program year for facilities seeking
a Category 1 allocation with Capacity
Limitation reserved specifically for
eligible residential behind the meter
(BTM) facilities, including rooftop solar.
The remaining Capacity Limitation is
available for applicants with front of the
meter (FTM) facilities as well as nonresidential BTM facilities. The specific
sub-reservation for eligible residential
BTM facilities in Category 1 is provided
in guidance published in the Internal
Revenue Bulletin and is established
based on factors such as promoting
efficient allocation of Capacity
Limitation and allowing like-projects to
compete for an allocation. After the subreservation is established in guidance
published in the Internal Revenue
Bulletin, the sub-reservation may be
reallocated later in the event it has
excess capacity.
(2) Definitions—(i) Behind the meter
(BTM) facility. For purposes of the
Program and this section, an applicable
facility is BTM if:
(A) It is connected with an electrical
connection between the facility and the
panelboard or sub-panelboard of the site
where the facility is located;
(B) It is to be connected on the
customer side of a utility service meter
before it connects to a distribution or
transmission system (that is, before it
connects to the electricity grid); and
(C) Its primary purpose is to provide
electricity to the utility customer of the
site where the facility is located. This
also includes systems not connected to
a grid and that may not have a utility
service meter, and whose primary
purpose is to serve the electricity
demand of the owner of the site where
the system is located.
(ii) Eligible residential BTM facility.
For purposes of paragraph (i)(1) of this
section, an eligible residential BTM
facility is defined as a single-family or
multi-family residential applicable
facility that does not meet the
requirements for a Category 3 facility
and is BTM. An applicable facility is
residential if it uses energy to generate
electricity for use in a dwelling unit that
is used as a residence.
(iii) FTM facility. For purposes of the
Program and this section, an applicable
facility is FTM if it is directly connected
to a grid and its primary purpose is to
provide electricity to one or more offsite
PO 00000
Frm 00029
Fmt 4701
Sfmt 4700
2869
locations via such grid or utility meters
with which it does not have an
electrical connection; alternatively, a
FTM facility is defined as a facility that
is not a BTM facility. For the purpose
of Category 4 facilities, an applicable
facility is also FTM if 50 percent or
more of its electricity generation on an
annual basis is exported physically to
the broader electricity grid.
(j) Process of application evaluation—
(1) In general. Applications for a
Capacity Limitation allocation will be
evaluated according to the procedures
specified in guidance published in the
Internal Revenue Bulletin.
(2) Information required as part of
application. With each application for a
Capacity Limitation allocation,
applicants are required to submit
information, documentation, and
attestations to demonstrate eligibility for
an allocation and project viability as
specified in guidance published in the
Internal Revenue Bulletin.
(3) No administrative appeal of
Capacity Limitation allocation
decisions. An applicant may not
administratively appeal decisions
regarding Capacity Limitation
allocations.
(4) Application period—(i) Opening
and closing dates. For calendar year
2026 and each succeeding calendar year
of the Program, the application period
will open the first Monday of February
at 9 a.m. EST and close the first Friday
of August at 11:59 p.m. EST. The
application period for calendar year
2025 will be announced in guidance
published in the Internal Revenue
Bulletin.
(ii) Initial 30-day period. For each
year, there will be an initial 30-day
period during which all applications
submitted will be considered to be
submitted at the same time and date.
The initial 30-day period will begin on
the opening day of the application
period described in paragraph (j)(4)(i) of
this section, and end at 11:59 p.m. EST
on the 30th calendar day after the
opening day of the application period.
The opening day is included in
calculating the 30-day period. All
applications submitted within the 30day period will be ordered for review
and consideration of an allocation of
Capacity Limitation within the same
category based on a process described in
procedural guidance published in the
Internal Revenue Bulletin. If during the
initial 30-day period, an Additional
Selection Criteria reservation for a
category or Category 1 sub-reservation is
oversubscribed with Additional
Selection Criteria applications, Capacity
Limitation from the applicable category
or sub-reservation may be reallocated to
E:\FR\FM\13JAR3.SGM
13JAR3
ddrumheller on DSK120RN23PROD with RULES3
2870
Federal Register / Vol. 90, No. 7 / Monday, January 13, 2025 / Rules and Regulations
prioritize review and consideration of
Additional Selection Criteria
applications. Additional Selection
Criteria applications received during the
initial 30-day period receive priority
over other applications received during
the initial 30-day period.
(iii) Applications submitted after the
initial 30-day period—(A) In general.
Applications submitted after the close of
the initial 30-day period will be held for
review and consideration of an
allocation of Capacity Limitation after
the applications in the same category or
Category 1 sub-reservation which were
submitted during the initial 30-day
period. Review of such applications will
occur only if sufficient Capacity
Limitation remains to be allocated in a
given category or Category 1 subreservation, and in conjunction with the
redistribution provisions described
under paragraph (g)(2) of this section.
Provided sufficient Capacity Limitation
remains in a given category or Category
1 sub-reservation, these applications
submitted after the initial 30-day period
will be reviewed and considered for an
allocation in the order in which they are
received.
(B) Additional Selection Criteria
Applications submitted after the initial
30-day period. If the Additional
Selection Criteria reservation for a
category or Category 1 sub-reservation is
undersubscribed after the initial 30-day
period ends, then the Additional
Selection Criteria reservation of 50
percent is maintained. Additional
Selection Criteria applications
submitted after the initial 30-day period
will be prioritized for review and
consideration of an allocation of
Capacity Limitation from the Additional
Selection Criteria reservation in the
applicable category or Category 1 subreservation until such Additional
Selection Criteria reservation is
allocated or is reallocated.
(k) Placed in service—(1) Requirement
to report date placed in service. For any
facility that receives an allocation of
Capacity Limitation, the owner of the
facility must report the date the eligible
property was placed in service.
(2) Requirement to submit final
eligibility information at placed in
service time. At the time that the owner
reports that eligible property has been
placed in service, the owner also must
confirm information about the facility
and submit additional documentation to
demonstrate the facility is still eligible
to maintain the allocation and claim the
increased applicable percentage under
section 48E(h)(1) as specified in
guidance published in the Internal
Revenue Bulletin.
VerDate Sep<11>2014
21:51 Jan 09, 2025
Jkt 265001
(3) Confirmation. The placed in
service documentation and attestations
demonstrating that the facility meets the
eligibility criteria for the owner to claim
an increased applicable percentage will
be reviewed. A recommendation will
then be considered by the IRS regarding
whether the facility continues to meet
the eligibility requirements for the
facility to retain its allocation or if the
facility should be disqualified (as
provided in paragraph (m) of this
section). Based on this recommendation
and underlying facts and circumstances
analysis, the IRS will decide whether
the facility should retain its allocation
or if the facility should be disqualified.
Eligibility is determined, prior to the
owner (or a partner or shareholder in
the case of a partnership or S
corporation) claiming the increased
credit amount on Form 3468,
Investment Credit (or Form 3800,
General Business Credit), or successor
form, or, if eligible, making a transfer
election under section 6418 of the Code,
or an elective payment election under
section 6417 of the Code.
(4) Definition of placed in service. For
purposes of this section, eligible
property is considered placed in service
in the earlier of the following taxable
years:
(i) The taxable year in which, under
the taxpayer’s depreciation practice, the
period for depreciation with respect to
such eligible property begins; or
(ii) The taxable year in which the
eligible property is placed in a
condition or state of readiness and
availability for a specifically assigned
function, whether in a trade or business
or in the production of income.
(l) Facilities placed in service prior to
an allocation award—(1) In general.
Applicable facilities must be placed in
service after being awarded an
allocation of Capacity Limitation.
(2) Rejection or rescission. An
application for an applicable facility
that is placed in service prior to
submission of the application will be
rejected. If a facility is placed in service
after the application is submitted, but
prior to the allocation of Capacity
Limitation, and the facility is awarded
an allocation, the allocation will be
rescinded.
(m) Disqualification. A facility will be
disqualified and lose its allocation if
prior to or upon the facility being placed
in service an occurrence described in
one of paragraphs (m)(1) through (5) of
this section takes place.
(1) The location where the facility
will be placed in service materially
changes or is in a different census tract.
(2) The maximum net output of the
facility increases such that it exceeds
PO 00000
Frm 00030
Fmt 4701
Sfmt 4700
the less than five megawatts AC
requirement provided in section
48E(h)(2)(A)(ii) or the nameplate
capacity decreases by the greater of 2
kW or 25 percent of the Capacity
Limitation awarded in the allocation.
However, the amount of bonus credit
capacity allocated will not be exceeded
from the original allocation amount.
(3) The facility either cannot or did
not satisfy the financial benefits
requirements under section
48E(h)(2)(B)(ii) and paragraph (e) of this
section as planned, if applicable, or
cannot satisfy the financial benefits
requirements under section 48E(h)(2)(C)
or paragraph (f) of this section as
planned, if applicable.
(4) The eligible property that is part
of the facility that received the Capacity
Limitation allocation is not placed in
service within four years after the date
the applicant was notified of the
allocation of Capacity Limitation to the
facility.
(5) The facility received a Capacity
Limitation allocation based, in part, on
meeting the ownership criteria and
ownership of the facility changes prior
to the facility being placed in service,
unless the original applicant transfers
the facility to an entity classified as a
partnership for Federal income tax
purposes and retains at least a one
percent interest (either directly or
indirectly) in each material item of
partnership income, gain, loss,
deduction, and credit of such
partnership and is a managing member
or general partner (or similar title) under
State or Tribal law of the partnership (or
directly owns 100 percent of the equity
interests in the managing member or
general partner) at all times during the
existence of the partnership.
(n) Recapture of section 48E(h)
Increase to the section 48E(a) credit—(1)
In general. Section 48E(h)(5) provides
for recapturing the benefit of any
increase in the credit allowed under
section 48E(a) by reason of section
48E(h) with respect to any property that
ceases to be property eligible for such
increase (but that does not cease to be
investment credit property within the
meaning of section 50(a) of the Code).
Section 48E(h) provides that the period
and percentage of such recapture must
be determined under rules similar to the
rules of section 50(a). Therefore, if, at
any time during the five year recapture
period beginning on the date that an
applicable facility under section 48E(h)
is placed in service, there is a recapture
event under paragraph (n)(3) of this
section with respect to such property,
then the Federal income tax imposed on
the taxpayer by chapter 1 of the Code for
the taxable year in which the recapture
E:\FR\FM\13JAR3.SGM
13JAR3
Federal Register / Vol. 90, No. 7 / Monday, January 13, 2025 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES3
event occurs is increased by the
recapture percentage of the benefit of
the increase in the section 48E credit.
The recapture percentage is determined
according to the table provided in
section 50(a)(1)(B).
(2) Exception to application of
recapture. Such recapture may not
apply with respect to any property if,
within 12 months after the date the
applicant becomes aware (or reasonably
should have become aware) of such
property ceasing to be property eligible
for such increase in the credit allowed
under section 48E(a), the eligibility of
such property for such increase
pursuant to section 48E(h) is restored.
Such restoration of an increase pursuant
to section 48E(h) is not available more
than once with respect to any facility.
(3) Recapture events. Any of the
following circumstances result in a
recapture event if the property ceases to
be eligible for the increased credit under
section 48E(h):
(i) Property described in section
48E(h)(2)(A)(iii)(II) fails to provide
financial benefits;
(ii) Property described under section
48E(h)(2)(B) ceases to allocate the
financial benefits equitably among the
occupants of the dwelling units as
described under section 48E(h)(2)(B)(ii),
VerDate Sep<11>2014
21:51 Jan 09, 2025
Jkt 265001
such as not allocating to residents the
required net electricity savings of the
electricity, as required by paragraph (e)
of this section;
(iii) Property described under section
48E(h)(2)(C) ceases to provide at least 50
percent of the financial benefits of the
electricity produced to Qualifying
Households as described under section
48E(h)(2)(C)(i) or (ii), or fails to provide
those households the required
minimum 20 percent bill credit
discount rate, as required by paragraph
(f) of this section;
(iv) For property described under
section 48E(h)(2)(B), the residential
rental building the facility is a part of
ceases to participate in a covered
housing program or any other affordable
housing program described in section
48E(h)(2)(B)(i), as applicable; or
(v) A facility increases its maximum
net output or nameplate capacity such
that the facility’s maximum net output
or nameplate capacity is 5 MW AC or
greater.
(4) Section 50(a) recapture. Any event
that results in recapture under section
50(a) also will result in recapture of the
benefit of the increase in the section 48E
credit by reason of section 48E(h). The
exception to the application of recapture
provided in paragraph (n)(2) of this
PO 00000
Frm 00031
Fmt 4701
Sfmt 9990
2871
section does not apply in the case of a
recapture event under section 50(a).
(o) Record retention. The applicant is
required to retain records and materials
related to the application for the
following periods:
(1) For at least 6 years after the due
date (with extensions) for filing the
Federal income tax return after the tax
year that return is filed to claim the
increase in the section 48E credit; and
(2) For at least 6 years after the due
date (with extensions) for filing the
Federal income tax return for the last
year that the applicant could be subject
to recapture as described in paragraph
(n) of this section.
(p) Applicability date. This section
applies to applicable facilities placed in
service after December 31, 2024, and
during taxable years ending on or after
January 13, 2025.
Douglas W. O’Donnell,
Deputy Commissioner.
Approved: December 26, 2024.
Aviva R. Aron-Dine,
Deputy Assistant Secretary of the Treasury
(Tax Policy).
[FR Doc. 2025–00331 Filed 1–8–25; 8:45 am]
BILLING CODE 4830–01–P
E:\FR\FM\13JAR3.SGM
13JAR3
| File Type | application/pdf |
| File Modified | 2025-01-11 |
| File Created | 2025-01-11 |