Treasury Issues Guidance on Energy Community Bonus Credit

On April 4, 2023, Treasury released guidance on the IRA’s Energy Community Bonus, which adds a 10% bonus to the tax credits available under IRC sections 45 and 45Y for clean electricity production, as well as sections 48 and 48E for clean electricity investments. The guidance describes forthcoming proposed regulations Treasury will issue defining what qualifies as an energy community eligible for the bonus. Taxpayers may rely on the guidance until the proposed regulations are issued. The proposed regulations will apply to taxable years ending after April 4, 2023.

Energy communities that qualify for the bonus include census tracts with, or are directly adjoining to, areas with coal mine closures occurring after 1999 or coal-fired power plant retirements after 2009. Areas with significant employment in the fossil fuel industry (at least 0.17% direct employment) or 25% of local tax revenues from fossil fuel extraction, processing, transport, or storage, and higher than average unemployment during the previous year also qualify for the bonus.

Brownfield sites, areas contaminated by hazardous pollutants as defined under CERCLA § 101(39), 42 U.S.C. § 9601(39), likewise qualify as energy communities.

The guidance provides details on whether a qualified facility is “located in” an energy community, the “beginning of construction” for energy community projects, how much nameplate capacity projects must contribute to energy communities to qualify, and a safe harbor provision for brownfield sites.

Treasury has created a searchable mapping tool with the Interagency Working Group on Energy Communities to identify areas that qualify as energy communities. The agency is accepting public comments through May 4, 2023 on whether areas qualify as energy communities based on fossil fuel tax revenue.