Eyes on Energy Tax Update: Second Quarter 2023

Eyes on Energy Tax Update is a regular 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 publishes more in-depth publications on certain developments. To subscribe to these publications, please add yourself to our Renewable Energy list.

The second quarter of 2023 saw continued 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 updates you need to know.

IRS Rulings and Guidance

Following the enactment of the IRA, a plethora of related guidance continued to be released by U.S. Department of the Treasury and IRS.

• On May 12, 2023, the IRS released initial domestic content bonus credit guidance in the form of Notice 2023-38, applicable to tax years ending after May 12, 2023. The guidance provides taxpayers with preliminary guidance regarding the calculation for determining whether manufactured products are deemed produced in the United States and provides a nonexhaustive list of safe harbor classifications for certain solar, wind and energy storage components. More information on the proposed regulations are available in Holland & Knight's previous alert, "Break Out Your Calculator: IRS Releases Domestic Content Bonus Credit Guidance," May 17, 2023.
• On May 31, 2023, the IRS released additional guidance regarding the allocation of credits under Section 48C in Notice 2023-44. Round one of allocations of Section 48C closes on July 31, 2023. For more information, see Holland & Knight's previous alerts, "IRS and Department of Energy Release Additional Section 48C Guidance," May 31, 2023, and "Treasury Department Releases Section 48C Guidance with Billions in Tax Credits Up for Grabs," Feb. 14, 2023.
• Also on May 31, the Treasury Department and IRS released a Notice of Proposed Rulemaking (NOPR) regarding the low-income community bonus credit under Section 48 of the Internal Revenue Code. Notice 2023-17, released on Feb. 13, 2023, provides initial guidance on the procedures and information required to apply for an allocation of Capacity Limitation. For more information, see Holland & Knight's previous alert, "Treasury Department, IRS Release Low-Income Community Bonus Credit Proposed Rules," June 1, 2023.
• On June 14, 2023, the Treasury Department and IRS released two NOPRs regarding the direct payment of tax credits under Section 6417 of the Internal Revenue Code (Elective Payment of Applicable Credits), the transferability of tax credits under Section 6418 (Transfer of Certain Credits) and temporary regulations regarding mandatory information and registration requirements for taxpayers planning to make an elective payment election under Section 6417 or to make an election to transfer certain tax credits under Section 6418 (Pre-Filing Registration Requirements for Certain Tax Credit Elections). Comments on the proposed and temporary regulations are sought by Aug. 14, 2023. For a full breakdown of the proposed and temporary regulations, see Holland & Knight's previous alert, "Inflation Reduction Act: Answers to Key Questions on Direct Pay and Transferability," June 26, 2023.
• On June 15, 2023, the IRS updated its energy community bonus guidance by issuing Notice 2023-45 and Notice 2023-47. The notices clarify application of the safe harbor rule for projects located on brownfield sites, add statistical information for the Coal Closure and Statistical Area categories, and acknowledge a prior amendment to the safe harbor for the Statistical Area category. The IRS also issued frequently asked questions that may continue to be updated. For a summary of all energy community guidance, see Holland & Knight's previous alerts, "IRS Energy Community Bonus Guidance Provides Welcome Clarity," April 7, 2023, and "IRS Issues Updated Energy Community Bonus Guidance," June 20, 2023.
• On June 21, 2023, the IRS released 2023 production tax credit (PTC) amounts under Section 45 of the Internal Revenue Code. Generally, the PTC amounts for facilities placed in service after 2022 equal 0.55 cents per kilowatt hour (kWh), or 2.75 cents if prevailing wage and apprenticeship requirements are satisfied. For more information, see Holland & Knight's previous alert, "IRS Releases 2023 Section 45 Production Tax Credit Amounts," June 21, 2023.

Key Cases

• In a precedential opinion filed on May 16, 2023, in Growmark, Inc. & Subsidiaries v. Commissioner, 160 T.C. No. 11 (2023), the U.S. Tax Court held that the petitioner was required to reduce the amount of fuel excise tax included in its cost of goods sold by the amount of excise tax credits claimed and received under Section 6426(b) and (c). The Tax Court has not ruled on the entire dispute; its opinions in this case are appealable to the U.S. Court of Appeals for the Seventh Circuit.
• In an opinion and order filed on June 20, 2023, in Alta Wind I Owner-Lessor C, et al. v. U.S. (Nos. 13-402, 13-917, 13-935, 13-972, 14-47, 14-93, 14-174, 14-175, 17-997), the U.S. Court of Federal Claims denied the plaintiff's motion for summary judgment regarding whether Section 1603 cash grants (and the indemnities associated with them) are separate grant-ineligible assets to which purchase price should be allocated pursuant to Section 1060. The court held that the "incremental cash consideration paid for the anticipated Section 1603 cash grants is not basis allocable to Class V tangible property" and that "the purchase price pertaining to consideration for the anticipated Section 1603 cash grants is grant-ineligible intangible property under Class VI (contract rights) or Class VI (goodwill or going concern value)." The court also reserved decision for trial on the factual questions underlying the question of "whether the indemnities associated with the Section 1603 cash grants are part of the grant-eligible basis." These holdings will ultimately be appealable to the U.S. Court of Appeals for the Federal Circuit.

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.