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30 January 2024

Eyes On Energy Tax Update: Fourth Quarter 2023

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Holland & Knight

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Eyes on Energy Tax Update is a quarterly publication of the Holland & Knight Renewable and Alternative Energy Tax Team that provides highlights of important...
United States Energy and Natural Resources
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Eyes on Energy Tax Update is a quarterly publication of the Holland & Knight Renewable and Alternative Energy Tax Team that provides highlights of important developments. The Renewable and Alternative Energy Tax Team also issues more in-depth publications on certain developments. To subscribe to these publications, please add yourself to our Renewable Energy list.

The fourth quarter of 2023 featured a flurry of activity by the U.S. Department of the Treasury and IRS over proposed regulations to numerous sections of the Internal Revenue Code regarding tax and other credits, as well as developments in significant court cases and announcements from federal agencies. Below, we summarize the updates you need to know.

Treasury Department and IRS Guidance

  • The Treasury Department and IRS released long-awaited Section 48 Investment Tax Credit (ITC) proposed regulations offering key guidance on solar, wind and other long-standing incentivized technologies, as well as for newer qualifying technologies added to Section 48, including energy storage and qualified biogas property. (See Holland & Knight's previous alerts, "Section 48 Proposed Regulations Detail Treatment of Qualified Biogas Property," Nov. 20, 2023, and "Breaking Down the Section 48 Investment Tax Credit Proposed Regulations," Nov. 28, 2023.)
  • The Treasury Department and IRS released proposed regulations under Section 30D, the Clean Vehicle Tax Credit, as they relate to the restrictions on "foreign entities of concern" (FEOC). Simultaneously, the IRS released Rev. Proc. 2023-38, which provides additional procedural rules for qualified manufacturers to evidence compliance with the FEOC restrictions.
  • Rev. Proc. 2023-33, which addresses the transfer of Sections 30D and 25E clean vehicle credits, was released by the Treasury Department and IRS. The revenue procedure discusses the procedures taxpayers must follow to transfer their credits to an "eligible entity." The revenue procedure also sets out the IRS registration requirements for manufacturers, sellers and dealers of clean vehicles. Additionally, the IRS released updated frequently asked questions related to new, previously owned and qualified commercial clean vehicle credits. Finally, in IR-2024-02, the IRS temporarily extended the three-day time period for dealers and sellers of clean vehicles to submit time-of-sale reports as provided in Rev. Proc. 2023-38.
  • Notice 2024-06, which addresses the Section 40B Sustainable Aviation Fuel Credit, was released by the Treasury Department and IRS. Section 40B provides a tax credit for sustainable aviation fuel (SAF) in a qualified mixture. The notice follows the initial guidance of Notice 2023-06, which provides rules regarding the life cycle greenhouse gas (GHG) emissions for certain fuels and a safe harbor for the use of life cycle GHG emissions percentages, as well as details registration requirements. (See Holland & Knight's previous alert, "IRS, Treasury Department Release New Section 40B Sustainable Aviation Fuel Credit Guidance," Dec. 15, 2023.)
  • The Treasury Department and IRS released proposed regulations under Section 45X, the Advanced Manufacturing Production Credit. Section 45X provides a production tax credit for domestic manufacturing of certain "eligible components," including solar and wind energy, inverters, battery components and critical minerals. (See Holland & Knight's previous alert, "An In-Depth Look at Section 45X Proposed Regulations," Dec. 18, 2023.)
  • The Treasury Department and IRS released proposed regulations regarding the Section 45V Credit for the Production of Clean Hydrogen. In conjunction with the proposed regulations, the U.S. Department of Energy (DOE) also released a whitepaper on the considerations related to the credit. Additionally, the U.S. Environmental Protection Agency (EPA) weighed in, providing a letter to the Treasury Department to inform some of the interpretations it made in the proposed regulations. Finally, the Treasury Department and the White House also held a briefing on Section 45V. Under Section 45V, a tax credit is available for each kilogram of clean hydrogen produced during the taxable year for the first 10 years after the hydrogen generation facility is placed into service at an amount of up to $3 (adjusted for inflation). Taxpayers may elect to claim the ITC under Section 48 in lieu of the Section 45V. (See Holland & Knight's previous alert, "Breaking Down the Section 45V Clean Hydrogen PTC Proposed Regulations," Jan. 10, 2024.)
  • In Notice 2024-13, the Treasury Department and IRS announced their intent to propose regulations detailing the Section 25C, the Energy Efficient Home Improvement Credit product identification number (PIN) requirement. The PIN requirement applies to exterior windows, skylights and exterior doors.
  • The Treasury Department and IRS released Notice 2024-9 discussing their intent to issue proposed regulations addressing the statutory exceptions to the direct pay haircut if domestic content requirements are not satisfied. Beginning in 2024, the credit amount calculated under Sections 45, 45Y, 48 and 48E, where direct pay elections are made, will be reduced if certain domestic content requirements have not been met. The notice also requested comments on a variety of topics including the increased cost exception and non-availability exception, as well as on documentation and substantiation requirements.
  • The initial 30-day application window for the low-income communities bonus credit program as established by Section 48(e) and Rev. Proc. 2023-27 has closed. However, the DOE will accept applications on a rolling basis and provide recommendations to the IRS in the order applications are received until the IRS allocates all capacity limitation in a program year. (See Holland & Knight's previous alert, "Treasury Department, IRS Release Low-Income Community Bonus Credit Proposed Rules," June 1, 2023.)
  • The IRS requested comments on Notice 2010-54, which provides guidance on the Section 45 production tax credit for refined coal.

The following new guidance was issued regarding the treatment of taxes in ratemaking.

The IRS also released information regarding the sustainable aviation fuel credits allowed under Section 6427.

  • In CCA 202346014, the IRS confirmed that while it normally doesn't owe interest on sustainable aviation fuel credits under Section 6427(e)(1), there is an exception under Section 6427(i)(3) for claims not paid after 45 days where two criteria are met.

Other Energy Updates

  • The DOE released initial guidance on its proposed interpretation of the statutory definition of FEOC. The DOE guidance is important because of relevance to Section 30D, the Clean Vehicle Tax Credit. (See Holland & Knight's previous alert, "A Look at Foreign Entities of Concern and the Section 30D Clean Vehicle Tax Credit," Dec. 5, 2023.)
  • The U.S. Department of Labor announced a notice of proposed rulemaking updating the national apprenticeship system by modernizing regulations for registered apprenticeships. This would impact the definition of "registered apprentice program" for purposes of the Inflation Reduction Act (IRA). (See Holland & Knight's previous alert, "U.S. Department of Labor Announces Final Rule Revamp of the Davis-Bacon Act," Aug. 10, 2023.)
  • On Capitol Hill, the U.S. Senate Committee on Energy & Natural Resources held a full committee hearing on tax incentives relating to electric vehicles and the federal government's role in fostering reliable and resilient electric vehicle supply chains.
  • The Joint Committee on Taxation released the Bluebook for the 117th Congress. The Bluebook provides explanations of tax provisions enacted by the IRA.

Key Cases

  • In Alta Wind I Owner Lessor C v. United States, No. 13-402, 2023 WL 8876214 (Fed. Cl. Dec. 23, 2023), the U.S. Court of Federal Claims affirmed its denial of summary judgment on whether cash grants under the American Recovery and Reinvestment Act and the indemnities associated with them are separate assets for purposes of Section 1060 of the Internal Revenue Code in a suit filed by Alta wind farm facility owners that alleged the government underpaid them in energy grants.
  • In Site Solar (FEDOK) III LLC v. Commissioner, No. 19733-23, the taxpayers filed a petition for redetermination of deficiency, stating that the IRS erred in decreasing the basis of the taxpayer's energy property.
  • In Philadelphia Energy Solutions Refining & Marketing, LLC v. United States, No. 22-1834 (Fed. Cir. 3, 2024), the U.S. Court of Appeals for the Federal Circuit affirmed the Court of Federal Claims and denied the taxpayer refunds for excise taxes paid on fuel mixtures because the fuel mixtures of butane and gasoline did not qualify as an "alternative fuel mixture" under Section 6426.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

ARTICLE
30 January 2024

Eyes On Energy Tax Update: Fourth Quarter 2023

United States Energy and Natural Resources

Contributor

Holland & Knight is a global law firm with nearly 2,000 lawyers in offices throughout the world. Our attorneys provide representation in litigation, business, real estate, healthcare and governmental law. Interdisciplinary practice groups and industry-based teams provide clients with access to attorneys throughout the firm, regardless of location.
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