Internal Revenue Service Issues Guidance for the Domestic Content Bonus Credit for Green Energy

The Internal Revenue Service (IRS) released Notice 2024-41 (“the Notice”) on May 16, 2024, to modify an existing safe harbor and provide a new elective safe harbor for determining the Domestic Content Bonus Credit amounts. The Notice also provides a new safe harbor that allows taxpayers to elect to use the classifications of components and cost percentages (in lieu of direct costs of the manufacturer as provided in Notice 2023-38) to determine if the adjusted percentage rule is satisfied.

Ian Boccaccio, Principal and Practice Leader for Ryan’s Green Energy Tax practice, notes: “The government has provided important guidance around the one tax credit adder, which previously carried the most uncertainty for taxpayers. These greatly simplified calculations will significantly help streamline the eligibility construct for both taxpayers claiming the credit and tax credit buyers in the diligence process.”

Highlights include the following:

• First, this notice expands the list of Applicable Projects in Table 2 - Categorization of Applicable Project Components in Notice 2023-38 to include hydropower and pumped hydropower storage facilities.
• Second, this notice redesignates the “utility scale photovoltaic system” Applicable Project as the “ground-mount and rooftop photovoltaic system.”
• Third, the notice includes certain Manufactured Product Components with respect to previously listed Applicable Projects.
• The notice also provides a new safe harbor that taxpayers may elect to use to classify Applicable Project Components and to calculate the Domestic Cost Percentage in an Applicable Project (New Elective Safe Harbor) to qualify for the domestic content bonus credit amounts under §§ 45, 45Y, 48, and 48E of the Internal Revenue Code.

Taxpayers may elect to use the classifications and cost percentages in the New Elective Safe Harbor in lieu of the Domestic Manufactured Products and Components Cost and Total Manufactured Products Cost provisions of the Adjusted Percentage Rule in Section 3.03(2)(b) and (c) of Notice 2023-38, which provisions require taxpayers to use the manufacturer’s direct costs of producing Manufactured Products and Manufactured Product Components in an Applicable Project. Taxpayers who elect to use the New Elective Safe Harbor for any Applicable Project must use the classifications and cost percentages provided under the New Elective Safe Harbor when applying the Adjusted Percentage Rule and may not use a different method or substitute any cost percentages into the provided table to determine any classifications and costs. Notice 2024-41 also requests comments regarding the new elective safe harbor to inform any future updates.

Please contact our Ryan tax professionals listed below for additional information on how these changes impact your business.

TECHNICAL INFORMATION CONTACTS:

Ian Boccaccio
Principal
Ryan
469.399.4545
ian.boccaccio@ryan.com

Scott Stogsdill
Director
Ryan
469.399.4496
scott.stogsdill@ryan.com

The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at info@ryan.com.