Section 48C: An Opportunity to Fund Advanced Energy Projects Through Tax Credits
May 31, 2023
At a glance
- The main takeaway: The Treasury and IRS released new guidance on May 31, 2023, clarifying the criteria for Section 48C, an opportunity under the Inflation Reduction Act that provides up to 30% of tax credit allocations to advanced energy-related projects
- Impact on your business: For taxpayers with anticipated projects related to clean energy, now is the time to carefully analyze tax saving opportunities under investment and production tax credits.
- Next steps Round 1 of Section 48C will begin accepting concept paper submissions no later than June 30th, 2023. Aprio’s ESG Tax Services team can help you navigate Section 48C from eligibility requirements to guidance on which tax credits will be the most beneficial for your project.
Schedule a consultation with an Aprio Tax Advisor today.
The full story:
The Inflation Reduction Act (IRA), enacted in 2022, has brought changes to various tax credit options under the Internal Revenue Code (IRC), including Section 48C: Qualifying Advanced Energy Project Credits. The provision focuses on promoting clean energy projects that would reduce greenhouse gas emissions by providing tax credits for investments in clean energy technologies and projects.
Under the IRA, a total of $10 billion in tax credits will be allocated under Section 48C, and of those, at least $4 million will be allocated to projects located in the coal census tracts. The allocations will take place in at least two application rounds, beginning with the $4 billion allocation in the first round.
Two-step application process
Section 48C application is a two-step process — one for the concept paper and one for the Section 48C application. For the first round, the concept paper application will be accepted between May 31, 2023 and July 31, 2023. Upon submitting the concept paper, the Department of Energy (DOE) will review and issue a letter either encouraging or discouraging the taxpayer from submitting the application for Section 48C credits. Even if the DOE discourages the application, the taxpayer can still apply for Section 48C. It’s important to note, only the taxpayers who submitted the concept papers can apply for Section 48C credits.
Prevailing wage and apprenticeship requirements
If the taxpayer meets the prevailing wage and apprenticeship requirements, it can receive credits up to 30% of its advanced energy-related project investments.
- The prevailing wage can be identified based on the information provided under Notice 2022-61. Notice 2022-61 explains how to identify the applicable wage for a specific geographic area, type of construction and labor classification found under the System for Award Management (SAM.gov) website.
- Apprenticeship requirements can be satisfied by hiring labor from a qualified apprenticeship program. Depending on the date construction started, the number of apprenticeship hires needs to be 10%-to-15% of the total labor hours of construction. Also, if each taxpayer, contractor, or subcontractor employs four or more individuals to perform construction, it needs to employ at least one qualified apprentice to perform the work.
Most Recent Guidance
The Treasury and the IRS released additional guidance on May 31, provided in Notice 2023-44, that expands on the process for submitting the concept papers and subsequent applications, as well as the criteria upon which the DOE will be evaluating applicants. Notable updates in the new guidance include specific details about the type of information that should be provided during each stage of the application process and how taxpayers can access and submit the required information.
Round 1 of the application process begins soon, so review the important updates from Notice 2023-44, highlighted below.
Round 1 Priority Areas
The Notice specified eight priority areas that are going to be considered under Round 1:
- Clean hydrogen
- Electric grid
- Electric heat pumps
- Electric vehicles
- Nuclear energy
- Solar energy
- Sustainable aviation fuels
- Wind energy
These specified areas are applicable to Round 1, and the guidance for future rounds may include different priority areas.
Round 1 Timeline
The table below includes an approximate timeline for Round 1, as described in the Notice.
|Portal opens for concept paper submissions||No later than 6/30/2023|
|Concept paper submissions deadline||7/31/2023 by 12PM Eastern Time|
|Sec. 48C(e) applications deadline||Fall 2023 – Winter 2023/2024|
|IRS allocation decision notifications||No later than 3/31/2024|
Requirements for the Concept Paper
The Notice includes the criteria that the DOE will use to evaluate the concept paper submissions, which are due by July 31, 2023. Submitted concept papers will go through a multi-step evaluation by the DOE encompassing the following:
- Compliance and Eligibility Review
- Whether eligibility requirements under Section 48C have been met
- Whether the required information has been submitted
- Whether the proposed project is technically valid
- Whether all mandatory requirements of the Notice are satisfied
- Technical Review
- Commercial viability of the project
- Impact on greenhouse gas emission reductions
- Impact on strengthening US supply chains and domestic manufacturing for a net-zero economy
- Impact on workforce and community engagement
- Program policy factors: The DOE may consider program policy factors when determining the final portfolio of recommendations.
The bottom line
Since the current guidance provides detailed information on the concept paper and the application process, it is very important for each applicant to carefully review the guidance to ensure all requirements are met before submission. Additionally, certain credits cannot be utilized together to prevent a potential double-benefit (such as potential overlap between Section 48C and 45X, since taxpayers cannot receive both credits for the same facility), thus taxpayers must evaluate scenarios on utilizing the credit that will provide the highest benefit. There are additional investment credits under Section 48C that are not application-based and provide bonus credits, so if the requirements are met, other credit options may provide you with greater benefits.
Aprio’s ESG Tax Services team can help you navigate Section 48C from eligibility requirements to guidance on which tax credits will be the most beneficial for your project. Schedule a consultation with an Aprio Tax advisor to learn more.
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About the Author
Jiyoon is a Senior Tax Manager, ESG at Aprio, where she assists clients in aligning their ESG goals with their tax strategies. She leads a team of specialists that help domestic and international clients maximize clean energy-related investment and production tax credits. She helps clients in manufacturing and distribution industries claim and obtain these valuable credits and align tax governance processes and reporting to meet government standards and the needs of customers, shareholders and potential investors.