IRS adds 446 counties to list qualifying for Energy Communities tax credit

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The Internal Revenue Service added 446 more U.S. counties to the list where renewable energy projects could qualify for a 10% Energy Community tax credit bonus under the Inflation Reduction Act.

The 446 counties are in statistical areas that the IRS identifies as potential energy communities. Not all of the 446 qualify for the bonus credit currently. Locations must check two boxes to qualify.

The Treasury said 122 of the 446 qualify as energy communities for the period January 2023 through late May 2024 when the Internal Revenue Service is expected to update the qualification tables. Those 122 counties check both boxes currently.

The IRS made the announcement in Notice 2024-30, which expands rules for determining what an energy community is for the production and investment tax credits.

The IRS also released Appendix 1, identifying additional Metropolitan Statistical Areas (MSAs) and non-MSAs that meet the Fossil Fuel Employment threshold, and Appendix 2, identifying additional MSAs and non-MSAs that qualify as energy communities in 2023 by meeting the Fossil Fuel Employment threshold and the unemployment rate requirement for calendar year 2022.

The Inflation Reduction Act allows for increased credit amounts or rates if certain requirements pertaining to energy communities are satisfied.

There are three categories of energy communities:

  1. Brownfield sites,
  2. Certain metropolitan statistical areas and non-metropolitan statistical areas based on unemployment rates (MSA/non-MSA), and
  3. Census tracts where a coal mine closed after 1999 or where a coal-fired electric generating unit was retired after 2009 (and directly adjoining census tracts).

The latest IRS announcement of additional potentially qualifying counties affects areas that are in category 3.

The increased credit amount or rate available for meeting the requirements of the energy community provisions is generally 10% for the production tax credit and 2% for the investment tax credit. If prevailing wage and apprenticeship requirements or certain other requirements are met, it’s 10%.

This notice expands the Nameplate Capacity Attribution Rule in Notice 2023-29 to include additional attribution property. It also adds two 2017 North American Industry Classification System (NAICS) industry codes to the table in section 3.03(2) of Notice 2023-29 for purposes of determining the Fossil Fuel Employment rate.

The IRS also updated the frequently asked questions for energy communities. More information can be found on the Inflation Reduction Act of 2022 page on IRS.gov.

Eligible Projects

A project on which an investment tax credit will be claimed qualifies for an energy community bonus credit if it is in an energy community when the project is placed in service, according to the project finance experts at the law firm Norton Rose Fulbright.

A project on which production tax credits will be claimed must be tested for qualification every year during the 10-year period such tax credits are claimed. It may fall in or out of qualification.

Qualification can be locked in by starting construction for tax purposes when the location qualifies. Construction cannot have started before 2023.

Additional Counties

The IRS increased the number of counties that qualify potentially as eligible statistical areas by adding two more categories of workers it considers directly employed in oil, natural gas or coal.

The additional workers are employees of local gas distribution companies and construction workers on oil and gas pipeline projects and related structures.

Every county has a local gas distribution company. Some project developers were frustrated that counties that had temporary spikes in employment after 2009 to build oil and gas pipelines were not counted earlier. CO2 pipelines are not covered.

The biggest additions to the list of potentially eligible counties are in six Midwestern states: Minnesota (57), Missouri (57), Illinois (28), North Dakota (23), Wisconsin (23) and Indiana (20). Georgia (34) and California (22) also saw a lot of new counties made potentially eligible.

The local unemployment rate must be at least at high as the national rate to check the second box and capitalize on the potential eligibility.

— Solar Builder magazine

[source: https://solarbuildermag.com/projects/irs-adds-446-counties-to-list-qualifying-for-energy-communities-tax-credit/]

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