Inflation Reduction Act: IRS Unveils Guidelines for Energy Communities and Bonus Credit Program

By Better Today On Mar 22, 2024

TL/DR –

The Internal Revenue Service (IRS) has expanded rules for determining what an energy community is, in relation to production and investment tax credits. This includes three categories: Brownfield sites, certain metropolitan statistical areas and non-metropolitan statistical areas based on unemployment rates, and census tracts where a coal mine closed after 1999 or where a coal-fired electric generating unit was retired after 2009. These changes allow for an increased credit amount or rate when specific requirements are fulfilled, usually by 10% for the production tax credit and 2 percentage points for the investment tax credit.

The IRS’ New Provisions on Energy Communities

The Internal Revenue Service (IRS) has issued a new Notice 2024-30 that modifies certain rules for determining an energy community for the production and investment tax credits.

The IRS also produced Appendix 1 and Appendix 2, identifying additional MSAs and non-MSAs that meet the Fossil Fuel Employment threshold and that qualify as energy communities in 2023.

The Inflation Reduction Act provides increased credit amounts or rates if specific requirements related to energy communities are met. Energy communities fall into three categories: Brownfield sites, certain metropolitan and non-metropolitan areas based on unemployment rates, and specific census tracts with coal mine closure or coal-fired electric unit retirement after specific years.

The increased credit amount or rate for satisfying the energy community provisions is generally 10 percent for the production tax credit and 2 percentage points for the investment tax credit.

The IRS also expanded the Nameplate Capacity Attribution Rule in Notice 2023-29 and added two 2017 NAICS industry codes for determining the Fossil Fuel Employment rate.

Moreover, the IRS has updated the frequently asked questions for energy communities. More details can be found on the Inflation Reduction Act of 2022 page on IRS.gov.