Eyes on Energy Tax Update: First Quarter 2023
Eyes on Energy Tax Update is a regular publication of the Holland & Knight Energy Tax Team that provides highlights of important energy tax developments. The Energy Tax Team also publishes more in-depth publications on certain developments. To subscribe to these publications, please add yourself to our Renewable Energy list.
The first quarter of 2023 featured continued energy tax developments as a result of the enactment of the Inflation Reduction Act of 2022 (IRA), court activity and announcements from federal agencies. Below, we summarize the energy tax updates you need to know.
IRS Rulings and Guidance
Following enactment of the IRA, a plethora of related guidance continued to be released by the U.S. Department of the Treasury and IRS.
- The Treasury Department and IRS released proposed regulations under the Section 30D new clean vehicle credit. The proposed regulations provide guidance with respect to the critical mineral and battery component requirements. More information on the proposed regulations are available in Holland & Knight's previous alert, "Treasury Department, IRS Release Clean Vehicle Tax Guidance," April 12, 2023.
- In March 2023, the IRS updated frequently asked questions related to Section 30D (new clean vehicle credit), Section 25E (previously owned clean vehicle credit) and Section 45W (qualified commercial clean vehicles credit). The IRS also released the vehicles qualifying for the Section 30D credit.
- In Notice 2023-18, the Treasury Department and IRS provided initial program guidance for implementation of the Section 48C program. In the notice, the IRS indicated that additional guidance is expected by May 31, 2023. More information on the guidance is available in Holland & Knight's previous alert, "Treasury Department Releases Section 48C Guidance with Billions in Tax Credits Up for Grabs," Feb. 14, 2023.
Holland & Knight Insight: Notice 2023-18 provides taxpayers key deadlines for application of an allocation of credit and helpful preliminary background information regarding eligible projects. However, further guidance from the Treasury Department and IRS is critically needed to address the content required in the concept papers as the first round of applications for allocations runs from May 31 to July 31, 2023.
- In Notice 2023-29, the IRS released guidance regarding the energy community bonus credit under Sections 45, 48, 45Y and 48E, which also is applicable for purposes of Section 48C. More information on the guidance is available in Holland & Knight's previous alert, "IRS Energy Community Bonus Guidance Provides Welcome Clarity," April 7, 2023.
- In Notice 2023-17, the IRS provided guidance on the procedures and information required to apply for an allocation of the low-income community bonus. More information on the guidance is available in Holland & Knight's previous alert, "Treasury Department, IRS Release Preliminary Low-Income Community Bonus Credit Guidance," Feb. 14, 2023.
- In Revenue Procedure 2023-15, the IRS provided a safe harbor method of accounting that taxpayers may use to determine whether certain expenditures to maintain, repair, replace or improve natural gas transmission and distribution property must be capitalized as improvements under Section 263(a) or as the costs of property produced by the taxpayer for use in its trade or business under Section 263A or are allowable as deductions under Section 162.
- In Notice 2023-24, the IRS provided long-awaited guidance regarding the Section 45J credit for the production of electricity from advanced nuclear power facilities.
Holland & Knight Insight: Similar to Section 48C, Section 45J is an allocated credit. The notice provides procedures regarding the allocation of the credit to advanced nuclear power facilities for which the U.S. Department of Energy provides certification to the IRS that the facility qualifies as an "advanced nuclear facility." The guidance also included provisions on the rules for transferring the section 45J credit; although those rules do not apply for purposes of section 6418, they potentially may signal how Treasury may resolve some open questions under that provision.
The Treasury Department released proposed regulations to implement the superfund tax on chemicals.
- The proposed rules provide guidance on exemptions from the tax, as well as how to obtain a refund if the tax was paid on chemicals that were used for an exempt purpose. For more information on the proposed regulations, view a Holland & Knight webinar and related materials.
The IRS also released a private letter ruling related to application of the normalization rules under Section 168(i).
- In PLR 202303003, the IRS ruled that a natural gas distribution and transmission company's excess deferred income taxes (EDIT) included in the asset purchase agreement of gas distribution assets continued to be protected for purposes of the normalization rules.
- In a status report to the U.S. District Court for the Western District of Texas, the taxpayer and U.S. in Valero Energy Corp. v. U.S., no 5:21-cv-00922, asked the court to dismiss the case. The request comes after the U.S. Court of Appeals for the Fifth Circuit's decision in Exxon Mobil Corp. v. United States, 43 F. 4th 424 (5th Cir. 2022).
- In a status report to the U.S. District Court for the Northern District of Texas, the parties in HollyFrontier Corp. v. U.S., No.3:22-cv-00581 (N.D. Tex. Jan. 31, 2023), asked the court to continue the stay in the case following the decision in Exxon Mobil Corp. v. United States, 43 F. 4th 424 (5th Cir. 2022).
Other Energy Updates
- In Congress, the Joint Committee on Taxation (JCT) released the Description of Energy Tax Changes Made by Public Law 117-169 for purposes of a House Committee on Ways and Means hearing.
Holland & Knight Insight: The report provides insight as to technical corrections that may be required to reflect the intent of certain provisions in the IRA and other insights as to congressional intent, including providing:
Note that the above are possible technical corrections noted in the JCT report but require a statutory change, which may or may not occur.
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.