IRS broadens request for public comment on energy-related incentives

Executive summary: Treasury notices expand list of energy topics for public comment

The Treasury Department released three notices on Nov. 3, 2022, related to forthcoming guidance on energy incentives. Each notice requests public input for the forthcoming Treasury guidance on energy incentives created or modified by the Inflation Reduction Act. Public comment has been requested on the following topics relevant to various income tax credits: commercial clean vehicles and alternative fuel vehicle refueling property, carbon capture and sequestration, and production of certain fuels.

Treasury issues three new notices requesting comments on clean energy provisions

Since enactment of the Inflation Reduction Act, the Treasury Department has been gathering public input for forthcoming guidance necessary for claimants of certain energy-related incentives. On Nov. 3, 2022, the IRS released three notices requesting public comments on the following energy topics:

• Notice 2022-56: Section 45W credit for qualified commercial clean vehicles and section 30C alternative fuel vehicle refueling property credit
• Notice 2022-57: The section 45Q credit for carbon oxide sequestration
• Notice 2022-58: Credits for clean hydrogen (section 45V) and clean fuel production (section 45Z)

Public comments in response to these notices are due Dec. 3, 2022. Each notice provides detailed instructions for submitting electronic and hard-copy comments.

The three new notices focus on topics that add to the list of topics for which the IRS has previously requested comments through a batch of six notices released on Oct. 5, 2022. Like that previous batch, the IRS has posed specific questions for the public to provide commentary. The notices also request general comments on these topics from the public.

The Inflation Reduction Act created a regime in which many energy-related incentives contain a base rate and bonus rate. The bonus rates for these credits are generally available if the new prevailing wage and apprenticeship requirements are met.

For many credits, these two requirements are deemed to be met if construction of applicable facilities or property begins before the date that is 60 days after Treasury guidance on these requirements is issued. The three notices each state that this 60-day rule has not yet been effectuated.

For clean fuel credits, Treasury is requesting comments in the following areas:

For the section 45Z credit:

• Factors to consider in determining fuel purchases by unrelated persons for use in a trade or business
• Factors to consider in determining whether fuel is sold at retail
• Potential methodologies for Treasury’s use in determining the lifecycle greenhouse gas emissions of sustainable aviation fuel
• Requirements on timing and content of petitions filed to determine the provisional emissions rate that has not been established
• Certification requirements for sustainable aviation fuel
• Clarifications on coordinating provisions (e.g., application of prevailing wage and apprenticeship requirements)
• Allocation of credits in scenarios where a facility is owned by more than one person

For the section 45V credit:

• Clarifications needed for the definition of qualified clean hydrogen, including issues related to lifecycle greenhouse gas emissions determinations, alignment with the Department of Energy Clean Hydrogen Production Standards
• Process for determining provisional emissions rates
• Recordkeeping and reporting requirements
• Unrelated party verification
• Coordination with the section 45 production tax credit, section 48 investment tax credit, and section 45Q carbon capture credit

With respect to section 45Q, Treasury is requesting comments in the following areas:

• Clarifications to the definition of “qualified facility” under section 45Q(d)
• Types of projects that may qualify for direct air capture
• Records and recordkeeping for original planning and design requirements, carbon capture amounts, and questions for carbon capture and electricity generating facilities
• Tax exempt bond issues
• New or emerging technologies

For clean commercial vehicles and refueling property, Treasury is requesting comments in the following areas:

• Factors and data sources to determine comparable size and use for determining incremental cost
• Coordination with section 30D
• Whether guidance is necessary to clarify the term property of a character subject to an allowance for depreciation under sections 30C and 45W
• Definition of “single item” for section 30C
• Factors for developing guidance for refueling property that is also bidirectional charging equipment
• Clarifications on the definition of eligible census tract
• Clarifications and modifications to the section 179A recapture rules

Washington National Tax observations

Treasury’s request for comments on sections 45Z, 45Q, 45V, 45W and 30C is the beginning of the guidance process implementing the new credit provisions enacted by the Inflation Reduction Act. The three notices help inform the public and practitioners what topics may be covered when guidance on these topics is ultimately released. Affected stakeholders are encouraged to provide comments before Dec. 3, 2022, to help Treasury identify areas where clarification is needed.