Additional Guidance on Low-Income Communities Bonus Credit Program, 35791-35802 [2023-11718]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 88, Number 105 (Thursday, June 1, 2023)]
[Proposed Rules]
[Pages 35791-35802]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-11718]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Chapter I

[REG-110412-23]
RIN 1545-BQ81


Additional Guidance on Low-Income Communities Bonus Credit 
Program

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed rules concerning the low-
income communities bonus energy investment credit program established 
pursuant to the Inflation Reduction Act of 2022. Applicants investing 
in certain solar and wind powered-electricity generation facilities may 
apply for an allocation of environmental justice solar and wind 
capacity limitation to increase the amount of an energy investment 
credit for the taxable year in which the facility is placed in service. 
This document describes proposed definitions and requirements that 
would be applicable for the program allocating the calendar year 2023 
capacity limitation, which also would inform guidance applicable for 
future program years. The proposed rules would affect applicants 
seeking allocations of environmental justice solar and wind capacity 
limitation.

DATES: Written or electronic comments must be received by June 30, 
2023.

ADDRESSES: Stakeholders are strongly encouraged to submit public 
comments electronically. Submit electronic submissions via the Federal 
eRulemaking Portal at https://www.regulations.gov (indicate IRS and 
REG-110412-23) by following the online instructions for submitting 
comments. Once submitted to the Federal eRulemaking Portal, comments 
cannot be edited or withdrawn. The Department of the Treasury (Treasury 
Department) and the IRS will publish for public availability any 
comments submitted, whether electronically or on paper, to the IRS's 
public docket. Send paper submissions to: CC:PA:LPD:PR (REG-110412-23), 
Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin 
Station, Washington, DC 20044.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed rules, Office 
of Associate Chief Counsel (Passthroughs & Special Industries) at (202) 
317-6853 (not a toll-free number); concerning submissions of written 
comments,

[[Page 35792]]

Vivian Hayes at (202) 317-5306 (not a toll-free number).

SUPPLEMENTARY INFORMATION: 

Background

I. Overview

    Section 13103 of Public Law 117-169, 136 Stat. 1818, 1921 (August 
16, 2022), commonly known as the Inflation Reduction Act of 2022 (IRA), 
added new section 48(e) to the Internal Revenue Code (Code) to increase 
the amount of the energy investment credit determined under section 
48(a) (section 48 credit) with respect to eligible property that is 
part of a qualified solar and wind facility that is awarded an 
allocation of environmental justice solar and wind capacity limitation 
(Capacity Limitation). This document contains proposed definitions and 
rules relating to the allocation of Capacity Limitation for calendar 
year 2023 (2023 Capacity Limitation).
    The amount of the energy investment credit determined under the 
section 48 credit for a taxable year is generally calculated by 
multiplying the basis of each energy property placed in service during 
that taxable year by the energy percentage (as defined in section 
48(a)(2)). Section 48(e) increases the section 48 credit by increasing 
the energy percentage used to calculate the amount of the section 48 
credit (section 48(e) Increase) in the case of qualified solar and wind 
facilities that receive an allocation of Capacity Limitation. The term 
``qualified solar and wind facility'' is defined in section 48(e)(2) to 
mean any facility that (i) generates electricity solely from a wind 
facility, solar energy property, or small wind energy property; (ii) 
has a maximum net output of less than 5 megawatts (as measured in 
alternating current); and (iii) is described in at least one of four 
categories in section 48(e)(2)(A)(iii) (and in part II of this 
Background).
    As described in part III of this Background, section 48(e)(4)(A) 
directs the Secretary of the Treasury or her delegate (Secretary) to 
``provide procedures to allow for an efficient allocation'' of Capacity 
Limitation to qualified solar and wind facilities. Later this year, the 
Treasury Department and the IRS expect to issue details for the program 
applicable for the calendar year 2023 Capacity Limitation, covering a 
comprehensive set of procedures and rules for applicants. The majority 
of the information regarding the program's details will be procedural 
rules. Some of the information that the Treasury Department and the IRS 
intend to include, however, will provide more substantive details that 
cover threshold definitions and requirements that must be established 
to make allocations efficiently and effectively. Those aspects of the 
program's details are the subject of this notice of proposed 
rulemaking. The Treasury Department and the IRS expect that final 
guidance will be reflected in regulations.

II. Four Categories of Qualified Solar and Wind Facilities

    Depending on the category of the facility, an allocation of 
Capacity Limitation may result in a section 48(e) Increase equal to 
either 10 percentage points or 20 percentage points. Section 
48(e)(1)(A)(i) provides for a section 48(e) Increase of 10 percentage 
points for eligible property that is located in a low-income community, 
as defined in section 45D(e) (Category 1 facility), or on Indian land, 
as defined in section 2601(2) of the Energy Policy Act of 1992 (25 
U.S.C. 3501(2)) (Category 2 facility). Section 48(e)(1)(A)(ii) provides 
for a section 48(e) Increase of 20 percentage points for eligible 
property that is part of a qualified low-income residential building 
project (Category 3 facility) or a qualified low-income economic 
benefit project (Category 4 facility). Under section 48(e)(1)(A)(i), a 
Category 1 or Category 2 facility that also qualifies as a Category 3 
or Category 4 facility is considered a Category 3 facility or Category 
4 facility (as applicable).
    Section 48(e)(2)(B) provides that a facility will be treated as 
part of a qualified low-income residential building project if such 
facility is installed on a residential rental building which 
participates in a covered housing program (as defined in Sec.  41411(a) 
of the Violence Against Women Act of 1994 (34 U.S.C. 12491(a)(3)), a 
housing assistance program administered by the Department of 
Agriculture under title V of the Housing Act of 1949, a housing program 
administered by a tribally designated housing entity (as defined in 
Sec.  4(22) of the Native American Housing Assistance and Self-
Determination Act of 1996 (25 U.S.C. 4103(22)), or such other 
affordable housing programs as the Secretary may provide, and (ii) the 
financial benefits of the electricity produced by such facility are 
allocated equitably among the occupants of the dwelling units of such 
building.
    Section 48(e)(2)(C) provides that a facility will be treated as 
part of a qualified low-income economic benefit project if at least 50 
percent of the financial benefits of the electricity produced by such 
facility are provided to households with income of less than 200 
percent of the poverty line (as defined in section 36B(d)(3)(A) of the 
Code) applicable to a family of the size involved, or less than 80 
percent of area median gross income (as determined under section 
142(d)(2)(B) of the Code).
    For a qualified low-income residential building project and a 
qualified low-income economic benefit project, section 48(e)(2)(D) 
provides that electricity acquired at a below-market rate will be 
considered a financial benefit.

III. Overview of Low-Income Communities Bonus Credit Program

    Section 48(e)(4) directs the Secretary to establish a program, 
within 180 days of enactment of the IRA, to allocate amounts of 
Capacity Limitation to qualified solar and wind facilities. Notice 
2023-17, 2023-10 I.R.B. 505, established the program under section 
48(e) to allow amounts of Capacity Limitation to be allocated to 
qualified solar and wind facilities eligible for the section 48 credit 
(Low-Income Communities Bonus Credit Program).\1\ Under section 
48(e)(4)(C), the total annual Capacity Limitation that may be allocated 
under the Low-Income Communities Bonus Credit Program is 1.8 gigawatts 
of direct current capacity for each of the calendar years 2023 and 
2024. Under section 48(e)(4)(D), if the annual Capacity Limitation for 
any calendar year exceeds the aggregate amount allocated for such year, 
the excess is carried forward to the next year, but not beyond calendar 
year 2024.\2\
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    \1\ Notice 2023-17 describes several other definitions and 
requirements related to the Low-Income Communities Bonus Credit 
Program.
    \2\ Section 13702(a) of the IRA also enacted section 48E(h), 
which generally provides for a program similar to the Low-Income 
Communities Bonus Credit Program for calendar years after 2024. 
Section 48E(i) directs the Secretary to issue guidance regarding the 
implementation of section 48E not later than January 1, 2025. Any 
excess Capacity Limitation from calendar year 2024 may be carried 
forward and applied to the Capacity Limitation for calendar year 
2025 under new section 48E(h)(4)(D)(ii). The Treasury Department and 
the IRS anticipate that operation of the Low-Income Communities 
Bonus Credit Program will inform the operation of the section 48E(h) 
program generally, as described in future guidance.
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    Consistent with Notice 2023-17, the Treasury Department and the IRS 
propose to reserve a portion of the total annual Capacity Limitation of 
1.8 gigawatts of direct current capacity for each facility category for 
calendar year 2023 as follows:

[[Page 35793]]



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Category 1: Located in a Low-Income   700 megawatts.
 Community.
Category 2: Located on Indian Land..  200 megawatts.
Category 3: Qualified Low-Income      200 megawatts.
 Residential Building Project.
Category 4: Qualified Low-Income      700 megawatts.
 Economic Benefit Project.
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    The proposed rules in this document would supplement the guidance 
provided in Notice 2023-17 to outline the specific application 
procedures, additional allocation criteria, and applicable definitions, 
among other information, necessary to submit an application to request 
an allocation of the Capacity Limitation for calendar year 2023 under 
the Low-Income Communities Bonus Credit Program. The Treasury 
Department and the IRS request comments on these proposed definitions 
and requirements. The Treasury Department and the IRS also request 
comment on whether these proposed definitions and requirements should 
apply for purposes of the Low-Income Communities Bonus Credit Program 
for calendar year 2024 and the program to be established under section 
48E(h) for calendar year 2025 and future years. The Treasury Department 
and the IRS anticipate further evaluating the program for 2023 to 
determine what further guidance may be helpful or necessary in the 
future.

Explanation of Proposed Rules

    The proposed rules relate to specific definitions and requirements 
regarding the following topics: (1) the definition of facility based on 
single project factors; (2) the definition of ``in connection with'' to 
demonstrate what it means for energy storage technology to be 
considered part of eligible property of the qualified facility; (3) 
definitions of the terms ``financial benefit'' and ``electricity 
acquired at a below market rate'' under section 48(e)(2)(D), as well as 
a manner to apply such definitions, appropriately, to Category 3 
facilities that are part of qualified low-income residential building 
projects and Category 4 facilities that are part of qualified economic 
benefit projects; (4) the definition of ``located in'' for relevant 
geographic criteria; (5) a rule for facilities placed in service prior 
to an allocation award; (6) reservations of Capacity Limitation 
allocation for applicant facilities that meet certain Additional 
Selection Criteria; (7) sub-reservations of Capacity Limitation 
allocation for facilities built in a low-income community; (8) 
application materials demonstrating facility viability in order to 
allow for an efficient allocation process; (9) documentation and 
attestations to be submitted when a facility is placed in service; and 
(10) post-allocation compliance including disqualification and 
recapture of section 48(e) Increases.

I. Proposed Definitions and Requirements

A. Definition of Facility
    The term ``qualified solar and wind facility'' is defined in 
section 48(e)(2)(A) to mean any facility that (i) generates electricity 
solely from a wind facility, solar energy property, or small wind 
energy property; (ii) has a maximum net output of less than 5 megawatts 
(as measured in alternating current); and (iii) is described in at 
least one of the four categories described in section 48(e)(2)(A)(iii) 
(Category 1, 2, 3, or 4). The Treasury Department and the IRS are 
concerned that some applicants may attempt to circumvent the less than 
5-megawatt output limitation provided in section 48(e)(2)(A)(ii) by 
artificially dividing larger projects into multiple facilities. To 
prevent applicants from dividing larger projects that should be 
regarded as a single facility under section 48(e)(2)(A), solely for the 
purpose of the Low-Income Communities Bonus Credit Program, the 
Treasury Department and the IRS propose to aggregate into a single 
``qualified solar and wind facility'' multiple facilities or energy 
properties of the same type (solar or wind) that are operated as part 
of a single project consistent with the single-project factors provided 
in section 7.01(2)(a) of Notice 2018-59, 2018-28 I.R.B. 196 or section 
4.04(2) of Notice 2013-29, 2013-20 I.R.B. 1085, as applicable.
    Therefore, the Treasury Department and the IRS propose to define a 
single qualified solar or wind facility as any facility that (i) 
generates electricity solely from a wind facility, solar energy 
property, or small wind energy property; (ii) that has a maximum net 
output of less than 5 megawatts (as measured in alternating current); 
and (iii) that is described in at least one of the four categories 
described in section 48(e)(2)(A)(iii) (Category 1, 2, 3, or 4). In 
addition, for purposes of determining allocations, administering the 
program fairly, and avoiding abuse, the Treasury Department and the IRS 
propose that multiple solar or wind energy properties or facilities 
that are operated as part of a single project would be aggregated and 
treated as a single facility. Whether multiple facilities or energy 
properties are operated as part of a single project would depend on the 
relevant facts and circumstances and would be evaluated based on the 
factors provided in section 7.01(2)(a) of Notice 2018-59 or section 
4.04(2) of Notice 2013-29, as applicable.
B. Energy Storage Technology Installed in Connection With Solar and 
Wind Facility
    Section 48(e)(3) defines ``eligible property'' to mean energy 
property that (i) is part of a wind facility described in section 
45(d)(1) for which an election to treat the facility as energy property 
was made under section 48(a)(5) (wind facility), or (ii) is solar 
energy property described in section 48(a)(3)(A)(i) (solar energy 
property) or qualified small wind energy property described in section 
48(a)(3)(A)(vi) (small wind energy property), including energy storage 
technology (as described in section 48(a)(3)(A)(ix)) ``installed in 
connection with'' such qualifying energy property. The Treasury 
Department and the IRS propose to define ``installed in connection 
with'' for energy storage technology to demonstrate what is required 
for such energy storage technology to be considered eligible property 
under section 48(e)(3).
    Under the proposed definition energy storage technology would be 
``installed in connection with'' other eligible property if both (1) 
the energy storage technology and other eligible property are 
considered part of a single qualified solar and wind facility because 
the energy storage technology and other eligible property are owned by 
a single legal entity, located on the same or contiguous pieces of 
land, have a common interconnection point, and are described in one or 
more common environmental or other regulatory permits; and (2) the 
energy storage technology is charged no less than 50 percent by the 
other eligible property. The Treasury Department and the IRS also 
propose to add a safe harbor, which would deem the energy storage 
technology to be charged at least 50 percent by the facility if the 
power rating of the energy storage technology is less than 2 times the 
capacity rating of the connected wind facility (in kW alternating 
current) or solar facility (in kW direct current).

[[Page 35794]]

C. Financial Benefits for Category 3 and Category 4 Allocations
    Section 48(e)(2)(D) provides that ``electricity acquired at a below 
market rate'' will not fail to be taken into account as a financial 
benefit. To clarify this language, the Treasury Department and the IRS 
propose definitions of the terms ``financial benefit'' and 
``electricity acquired at a below market rate'' under section 
48(e)(2)(D), as well as a manner to apply such definitions, 
appropriately, to qualified low-income residential building projects 
(section 48(e)(2)(B)) and qualified economic benefit projects (section 
48(e)(2)(C)). The definitions and requirements would be different for 
an allocation in Category 3 (section 48(e)(2)(B)) and Category 4 
(section 48(e)(2)(C)).
1. Financial Benefits for Qualified Low-Income Residential Building 
Projects
    For a facility to be treated as part of a qualified low-income 
residential building project, section 48(e)(2)(B)(ii) provides that the 
financial benefits of the electricity produced by such facility must be 
allocated equitably among the occupants of the dwelling units of a 
residential rental building that participates in a covered housing 
program or other affordable housing program (qualified residential 
property). The Treasury Department and the IRS propose to reserve 
allocations under this category exclusively for applicants that would 
apply the financial benefits requirement under Category 3 in the 
following manner.
    The Treasury Department and the IRS propose that financial benefit 
can be demonstrated through net energy savings as defined below. At 
least 50 percent of the financial value of net energy savings would be 
required to be equitably passed on to building occupants. This 
requirement would recognize that not all the financial value of the net 
energy savings can be passed on to building occupants because a certain 
percentage can be assumed to be dedicated to lowering the operational 
costs of energy consumption for common areas, which benefits all 
building occupants. The Treasury Department and the IRS propose to 
reserve allocations under this category exclusively for applicants that 
would equitably pass on net energy savings by distributing equal shares 
among the qualified residential property's units that are designated as 
low-income under the covered housing program, or by distributing 
proportional shares based on each dwelling unit's electricity usage.
    This proposal accounts for the specific nature of facilities 
serving low-income residential buildings and facility ownership, as the 
facility may be third party owned or commonly owned with the building.
a. Facility and Qualified Residential Property Have Same Ownership
    In scenarios where the facility and the qualified residential 
property have the same ownership, the Treasury Department and the IRS 
propose to define the financial value of net energy savings as the 
financial value equal to the greater of: (1) 25 percent of the gross 
financial value of the annual energy produced or (2) the gross 
financial value of the annual energy produced minus the annual costs to 
operate the facility. Gross financial value of the annual energy 
produced is calculated as the sum of (a) the total self-consumed 
kilowatt-hours produced by the qualified solar and wind facility 
multiplied by the applicable building's metered price of electricity 
and (b) the total exported kilowatt-hours produced by the qualified 
solar and wind facility multiplied by the applicable building's 
volumetric export compensation rate for solar and wind kilowatt-hours. 
The annual operating costs are calculated as the sum of annual debt 
service, maintenance, replacement reserve, and other costs associated 
with maintaining and operating the qualified solar and wind facility.
    If the facility and building are commonly owned, a signed benefits 
sharing agreement between the building owner and the tenants would be 
required. The Treasury Department and the IRS request comments on how 
to adjust definitions of gross financial value to account for scenarios 
in which building occupants are compensating the facility owner for 
energy services.
b. Facility and Qualified Residential Property Have Different Ownership
    In scenarios where the facility and the qualified residential 
property have different ownership and the facility owner enters into a 
power purchase agreement or other contract for energy services with the 
qualified residential property owner, the Treasury Department and the 
IRS propose to define net energy savings as equal to the greater of: 
(1) 50 percent of the financial value of the annual energy produced by 
the facility which accrues to the owner of the qualified residential 
property in the form of utility bill credit and/or cash payments for 
net excess generation or (2) the financial value of the annual energy 
produced by the facility which accrues to the owner of the qualified 
residential property in the form of utility bill credit and/or cash 
payments for net excess generation minus any payments made by the 
building owner to the facility owner for energy services associated 
with the facility in a given year. In these scenarios, the facility 
owner must enter into an agreement with the building owner for the 
building owner to distribute the savings to residents.
    The Treasury Department and the IRS request comments on how to 
adjust definitions of gross financial value to account for scenarios in 
which building occupants are compensating the facility owner for energy 
services.
c. Impact of Metering on Delivery of Financial Benefits
    Regardless of ownership, residential buildings may have master-
metered or sub-metered utilities. The financial benefits of the 
electricity produced by the facility cannot be distributed to residents 
in master-metered buildings in the same manner as in sub-metered 
buildings and is often administratively infeasible in certain sub-
metered buildings. Therefore, the Treasury Department and the IRS 
propose that for sub-metered buildings, the tenants must receive the 
financial value associated with utility bill savings in the form of a 
credit on their utility bills. The U.S. Department of Housing and Urban 
Development (HUD) has issued guidance for residents of sub-metered HUD-
assisted housing that participate in community solar, providing an 
analysis of how community solar credits may affect utility allowance 
and annual income for rent calculations.\3\ The Treasury Department and 
the IRS propose that applicants follow the HUD guidance and future HUD 
guidance on this issue to ensure that tenants' utility allowances and 
annual income for rent calculations are not negatively impacted.
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    \3\ U.S. Department of Housing and Urban Development, Treatment 
of Community Solar Credits on Tenant Utility Bills (July 2020): MF 
Memo re Community Solar Credits July 14 Draft (hud.gov).
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    The Treasury Department and the IRS are aware that in some States 
or jurisdictions it may not be administratively, or legally, possible 
to apply utility bill savings on residents' electricity bills. The 
Treasury Department and the IRS request comments on this issue and how 
financial benefits, such as services and building improvements, can be 
provided to residents in such residential buildings.
    For master-metered buildings, the Treasury Department and the IRS

[[Page 35795]]

propose that because residents do not have individually metered 
utilities and do not receive utility bills, the building owner must 
pass on the savings through other means, such as by providing certain 
benefits to the building residents beyond those provided prior to the 
qualified solar and wind facility being placed in service. HUD has 
issued guidance for how residents of mastered-metered HUD-assisted 
housing can benefit from owners' sharing financial benefits accrued 
from an investment in solar energy generation.\4\ The Treasury 
Department and the IRS propose that applicants follow the HUD guidance 
and future HUD guidance on this issue to ensure that tenants' utility 
allowances and annual income for rent calculations are not negatively 
impacted.
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    \4\ U.S. Department of Housing and Urban Development, Treatment 
of Solar Benefits in Mastered-metered Buildings (May 2023), 
MF_Memo_re_Community_Solar_Credits_in_MM_Buildings.pdf (hud.gov).
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2. Financial Benefits in Qualified Low-Income Economic Benefit Projects
    For a facility to be treated as part of a qualified low-income 
economic benefit project, section 48(e)(2)(C) requires that at least 50 
percent of the financial benefits of the electricity produced by the 
facility be provided to qualifying low-income households. To satisfy 
this standard, the Treasury Department and the IRS propose to require 
that the facility serves multiple households and at least 50 percent of 
the facility's total output is distributed to qualifying low-income 
households under section 48(e)(2)(C)(i) or (ii). In addition, to 
further the overall goals of the program, the Treasury Department and 
the IRS propose to reserve allocations under this category exclusively 
for applicants that would provide at least a 20-percent bill credit 
discount rate for all such low-income households. The Treasury 
Department and the IRS propose defining a ``bill credit discount rate'' 
as the difference between the financial benefit distributed to the low-
income household (including utility bill credits, reductions in the 
low-income household's electricity rate, or other monetary benefits 
accrued by the household) and the cost of participating in the program 
(including subscription payments for renewable energy and any other 
fees or charges), expressed as a percentage of the financial benefit 
distributed to the low-income household. The bill credit discount rate 
can be calculated by starting with the financial benefit distributed to 
the low-income household, subtracting all payments made by the low-
income customer to the facility owner and any related third parties as 
a condition of receiving that financial benefit, then dividing that 
difference by the financial benefit distributed to the low-income 
household.
    To ensure these requirements are met, verification of households' 
qualifying low-income status is required. Applicants are responsible 
for proof-of-income verification and would be required to submit 
documentation upon placing the qualified solar and wind facility in 
service that identifies each qualifying low-income household, the 
output allocated to each qualifying low-income household in kW, and the 
method of income verification utilized.
    Applicants may use category eligibility or other income 
verification methods to qualify low-income households. Categorical 
eligibility consists of obtaining proof of household participation in a 
needs-based Federal,\5\ State, Tribal, or utility program with income 
limits at or below the qualifying income level for the specific 
facility (qualifying program). State agencies (for example, state 
community solar/wind program administrators) can also provide 
verification of low-income status if the State program's income limits 
are at or below the qualifying income level for the qualified solar and 
wind facility. If a household is not enrolled in a qualifying program, 
additional income verification methods can be used such as: paystubs, 
tax returns, or income verification through crediting agencies and 
commercial data sources. Eligibility based on the applicant (or 
contractors or subcontractors) collecting self-attestations is not 
permissible.
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    \5\ Federal programs may include, but are not limited to: 
Medicaid, Low-Income Home Energy Assistance Program (LIHEAP), 
Weatherization Assistance Program (WAP), Supplemental Nutrition 
Assistance Program (SNAP), Section 8 Project-Based Rental 
Assistance, and the Housing Choice Voucher Program.
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D. Location
    A qualified solar and wind facility is treated as ``located in a 
low-income community'' or ``on Indian Land'' under section 
48(e)(2)(A)(iii)(I) or located in a geographic area under the 
Additional Selection Criteria (see part II.C) if the facility satisfies 
the nameplate capacity test (Nameplate Capacity Test).
    Under the Nameplate Capacity Test, a facility that has nameplate 
capacity (for example, wind and solar facilities) is considered located 
in or on the relevant geographic area if 50 percent or more of the 
facility's nameplate capacity is in a qualifying area. A facility's 
nameplate capacity percentage is determined by dividing the nameplate 
capacity of the facility's energy-generating units that are located in 
the qualifying area by the total nameplate capacity of all the energy-
generating units of the facility.
    Nameplate capacity for an electricity generating unit means the 
maximum electricity generating output that the unit is capable of 
producing on a steady state basis and during continuous operation under 
standard conditions, as measured by the manufacturer and consistent 
with the definition provided in 40 CFR 96.202. Energy-generating units 
that generate direct current (DC) power before converting to 
alternating current (AC) (for example, solar photovoltaic) should use 
the nameplate capacity in DC, otherwise the nameplate capacity in AC 
should be used (for example, wind facilities). Where applicable, the 
International Standard Organization (ISO) conditions are used to 
measure the maximum electricity generating output or usable energy 
capacity. The nameplate capacity of any energy storage technology 
installed in connection with the qualified solar and wind facility does 
not affect the assessment of the Nameplate Capacity Test.

II. Proposed Program Requirements and Structure

A. Placed in Service Prior to Allocation Award
    As stated in section 4.05 of Notice 2023-17, the Treasury 
Department and the IRS propose that facilities placed in service prior 
to being awarded an allocation of Capacity Limitation would not be 
eligible to receive an allocation. As described in Notice 2023-17, one 
of the broad goals of the Low-Income Communities Bonus Credit Program 
is to increase adoption of and access to renewable energy facilities in 
low-income and other communities with environmental justice concerns. 
Facilities that were placed in service prior to the allocation process 
do not increase adoption of and access to renewable energy facilities 
as compared to the absence of the Low-Income Communities Bonus Credit 
Program. Further, section 48(e)(4)(E)(i) provides that a facility must 
be placed in service within four years of receiving an allocation of 
Capacity Limitation, supporting allocations to new facilities that have 
not yet been placed in service. Accordingly, the Treasury Department 
and the IRS continue to propose that facilities placed in service prior 
to being awarded an allocation of Capacity Limitation would not be 
eligible to receive an allocation.

[[Page 35796]]

B. Selection Process
    Under section 48(e)(4)(C), the total annual Capacity Limitation is 
1.8 gigawatts of direct current capacity for the calendar year 2023 
program. Section 4.02 of Notice 2023-17 specified how the annual 
Capacity Limitation would be allocated across the four facility 
categories in 2023: Located in a Low-Income Community (Category 1), 
Located on Indian Land (Category 2), Qualified Low-Income Residential 
Building Project (Category 3), and Qualified Low-Income Economic 
Benefit Project (Category 4). Section 4.07 of Notice 2023-17 provided 
that applications would be accepted in a phased approach for calendar 
year 2023, during 60-day application windows. Based on public feedback 
in response to Notice 2023-17 and an updated assessment of operational 
capabilities set up to administer the program, a new approach is 
proposed.
    The Treasury Department and the IRS anticipate that the number of 
eligible applicants seeking an allocation may exceed the total Capacity 
Limitation allocation available to be allocated. The Treasury 
Department and the IRS are designing an application process that both 
ensures that allocations are awarded to facilities that advance the 
program goals previously stated in Notice 2023-17 and facilitates an 
efficient allocation process.
    Accordingly, the Treasury Department and the IRS propose an 
approach that includes an initial application window in which 
applications received by a certain time and date would be evaluated 
together, followed with a rolling application process if Capacity 
Limitation is not fully allocated after the initial application window 
closes. Facilities that meet at least one of the two categories of 
specified ownership and geographic criteria (Additional Selection 
Criteria) would receive priority for an allocation within each facility 
category described in section 48(e)(2)(A)(iii). The Treasury Department 
and the IRS propose that at least 50 percent of the total Capacity 
Limitation in each facility category would be reserved for facilities 
meeting Additional Selection Criteria in the following fashion.
    In evaluating applications received during the initial application 
window, priority would be given to eligible applications for facilities 
meeting at least one of the two Additional Selection Criteria. If the 
eligible applications for Capacity Limitation for facilities that meet 
at least one of the two Additional Selection Criteria categories exceed 
the Capacity Limitation for a category, facilities meeting both of the 
Additional Selection Criteria categories would be prioritized for an 
allocation. A lottery system may be used in oversubscribed categories 
to decide among similarly situated applications (for example, 
facilities that meet both of the Additional Selection Criteria 
categories, facilities that meet only one of the two Additional 
Selection Criteria categories, facilities that do not meet either of 
the Additional Selection Criteria categories). An applicant could not 
administratively appeal the Capacity Limitation allocation decisions 
made under the Low-Income Communities Bonus Credit Program.
    If eligible applications for facilities that meet at least one of 
the two Additional Selection Criteria categories received during the 
initial application window total less than 50 percent of the Capacity 
Limitation for a category, additional Capacity Limitation would be 
reserved during the rolling application period such that 50 percent of 
the total Capacity Limitation in the category would be reserved for 
these facilities.
    The Treasury Department and the IRS would retain the discretion to 
reallocate Capacity Limitation across categories and sub-categories in 
order to maximize allocation in the event one category or sub-category 
is oversubscribed and another has excess capacity.
C. Additional Selection Criteria
    The Treasury Department and the IRS propose that the two Additional 
Selection Criteria are Ownership Criteria and Geographic Criteria.
1. Ownership Criteria
    The Ownership Criteria category is based on characteristics of the 
applicant that owns the qualified solar and wind facility. A qualified 
solar and wind facility would meet the Ownership Criteria if it is 
owned by a Tribal Enterprise, an Alaska Native Corporation, a renewable 
energy cooperative, a qualified renewable energy company meeting 
certain characteristics, or a qualified tax-exempt entity. If an 
applicant wholly owns an entity that is the owner of a qualified solar 
and wind facility, and the entity is disregarded as separate from its 
owner for Federal income tax purposes (disregarded entity), the 
applicant, and not the disregarded entity, is treated as the owner of 
the qualified solar and wind facility for purposes of the Ownership 
Criteria.
a. Tribal Enterprise
    A ``Tribal Enterprise'' for purposes of the Ownership Criteria is 
an entity that is (1) an Indian Tribal government (as defined in 
section 30D(g)(9) of the Code) that owns at least a 51 percent interest 
in, either directly or indirectly (through a wholly owned corporation 
created under its Tribal laws or through a section 3 or section 17 
Corporation),\6\ and (2) the Indian Tribal government has the power to 
appoint and remove a majority (more than 50 percent) of the individuals 
serving on the entity's board of directors or equivalent governing 
board.
---------------------------------------------------------------------------

    \6\ A ``section 17 corporation'' is a corporation incorporated 
under the authority of section 17 of the Indian Reorganization Act 
of 1934, 25 U.S.C. 5124. A ``section 3 corporation'' is a 
corporation that is incorporated under the authority of section 3 of 
the Oklahoma Indian Welfare Act, 25 U.S.C. 5203.
---------------------------------------------------------------------------

b. Alaska Native Corporation
    An ``Alaska Native corporation'' for purposes of the Ownership 
Criteria is defined in section 3 of the Alaska Native Claims Settlement 
Act, 43 U.S.C. 1602(m).
c. Renewable Energy Cooperative
    A ``renewable energy cooperative'' for purposes of the Ownership 
Criteria is an entity that develops qualified solar and/or wind 
facilities and owns at least 51 percent of a facility and is either (1) 
a consumer or purchasing cooperative controlled by its members who are 
low-income households (as defined in section 48(e)(2)(C)) with each 
member having an equal voting right, or (2) a worker cooperative 
controlled by its worker-members with each member having an equal 
voting right.
d. Qualified Renewable Energy Company
    A ``qualified renewable energy company'' for purposes of the 
Ownership Criteria would be an entity that serves low-income 
communities and provides pathways for the adoption of clean energy by 
low-income households. In addition to its general business purpose, the 
Treasury Department and the IRS are considering the following 
requirements that a qualified renewable energy company would need to 
satisfy:
    (1) At least 51 percent of the entity's equity interests are owned 
and controlled by (a) one or more individuals, (b) a Community 
Development Corporation (as defined in 13 CFR 124.3), (c) an 
agricultural or horticultural cooperative (as defined in section 
199A(g)(4)(A) of the Code), (d) an Indian Tribal government (as defined 
in section 30D(g)(9)), (e) an Alaska Native corporation (as defined in 
section 3 of the Alaska Native Claims

[[Page 35797]]

Settlement Act, 43 U.S.C. 1602(m)), or (f) a Native Hawaiian 
organization (as defined in 13 CFR 124.3);
    (2) After applying the controlled group rules under section 52(a) 
of the Code, has less than 10 full-time equivalent employees (as 
determined under section 4980H(c)(2)(E) and (c)(4) of the Code) and 
less than $5 million in annual gross receipts in the previous calendar 
year;
    (3) First installed or operated a qualified solar and wind facility 
as defined in section 48(e)(2)(A) two or more years prior to the date 
of application; and
    (4) Has installed and/or operated qualified solar and wind 
facilities as defined in section 48(e)(2)(A) with at least 100 kW of 
cumulative nameplate capacity located in one or more Low-Income 
Communities as defined in section 48(e)(2)(A)(iii)(I).
    The Treasury Department and the IRS specifically request comments 
on these proposed elements for determining whether a business is a 
qualified renewable energy company. The Treasury Department and the IRS 
also request comments on an administrable rule to ensure that qualified 
renewable energy companies are employing workers in the Low-Income 
Communities.
e. Qualified Tax-Exempt Entity
    A ``qualified tax-exempt entity'' for purposes of the Ownership 
Criteria is:
    (1) An organization exempt from the tax imposed by subtitle A of 
the Code by reason of being described in section 501(c)(3) or section 
501(d);
    (2) Any State, the District of Columbia, or political subdivision 
thereof, any territory of the United States, or any agency or 
instrumentality of any of the foregoing;
    (3) An Indian Tribal government (as defined in section 30D(g)(9)), 
political subdivision thereof, or any agency or instrumentality of any 
of the foregoing; or
    (4) Any corporation described in section 501(c)(12) operating on a 
cooperative basis which is engaged in furnishing electric energy to 
persons in rural areas.
2. Geographic Criteria
    The Geographic Criteria category is based on where the facility 
will be placed in service. To meet the Geographic Criteria, a facility 
would need to be located in a Persistent Poverty County (PPC) \7\ or in 
a census tract that is designated in the Climate and Economic Justice 
Screening Tool (CEJST) as disadvantaged based on whether the tract is 
either (a) greater than or equal to the 90th percentile for energy 
burden and is greater than or equal to the 65th percentile for low 
income, or (b) greater than or equal to the 90th percentile for 
PM2.5 exposure and is greater than or equal to the 65th 
percentile for low income.\8\ The Treasury Department and the IRS 
propose that applicants who meet the Geographic Criteria at the time of 
application are considered to continue to meet the Geographic Criteria 
for the duration of the recapture period, unless the location of the 
facility changes.
---------------------------------------------------------------------------

    \7\ https://www.ers.usda.gov/data-products/county-typology-codes/.
    \8\ https://screeningtool.geoplatform.gov/en/#3/33.47/-97.5. The 
CEJST website provides further detail on the terms used in 
identifying census tracts for the Energy category. ``Energy cost'' 
is defined as ``Average household annual energy cost in dollars 
divided by the average household income.'' PM2.5 is 
defined as ``Fine inhalable particles with 2.5 or smaller micrometer 
diameters. The percentile is the weight of the particles per cubic 
meter.'' ``Low income'' is defined as ``Percent of a census tract's 
population in households where household income is at or below 200% 
of the Federal poverty level, not including students enrolled in 
higher education.'' See Methodology & data--Climate & Economic 
Justice Screening Tool (geoplatform.gov.)
---------------------------------------------------------------------------

    A PPC is generally defined as any county where 20 percent or more 
of residents have experienced high rates of poverty over the past 30 
years. For the purposes of the Low-Income Communities Bonus Credit 
Program, the Treasury Department and the IRS propose the PPC measure 
adopted by the U.S. Department of Agriculture to make this 
determination. The most recent measure, which would apply for the 2023 
program year, incorporates poverty estimates from the 1980, 1990, 2000 
censuses, and 2007-11 American Community Survey 5-year average.
D. Sub-Reservations of Allocation for Facilities Located in a Low-
Income Community
    Notice 2023-17 provided that 700 megawatts of 2023 calendar year 
Capacity Limitation would be reserved for Category 1. The Treasury 
Department and the IRS anticipate that Category 1 will receive the 
largest number of applications, and that most applications will be for 
small rooftop residential solar facilities. Therefore, the Treasury 
Department and the IRS propose to subdivide the 700 MW Capacity 
Limitation reservation for facilities seeking a Category 1 allocation 
with 560 megawatts reserved specifically for eligible residential 
behind the meter (BTM) facilities, including rooftop solar. The sub-
reservation of a substantial portion of the allocation in Category 1 
for eligible residential BTM facilities would help ensure that 
allocations are predominantly awarded to facilities serving residences 
and consumers, rather than facilities serving businesses. The remaining 
140 megawatts of Capacity Limitation would be available for applicants 
with front of the meter (FTM) facilities as well as non-residential BTM 
facilities.
    The Treasury Department and the IRS propose to define an eligible 
residential BTM facility as single-family or multi-family residential 
qualified solar and wind facility that does not meet the requirements 
for Category 3 and is BTM. A qualified wind and solar facility is BTM 
if: (1) it is connected with an electrical connection between the 
facility and the panelboard or sub-panelboard of the site where the 
facility is located, (2) it is to be connected on the customer side of 
a utility service meter before it connects to a distribution or 
transmission system (that is, before it connects to the electricity 
grid), and (3) its primary purpose is to provide electricity to the 
utility customer of the site where the facility is located. This also 
includes systems not connected to a grid and that may not have a 
utility service meter, and whose primary purpose is to serve the 
electricity demand of the owner of the site where the system is 
located.
    The Treasury Department and the IRS propose to define a FTM 
facility. A facility is FTM if it is directly connected to a grid and 
its sole purpose is to provide electricity to one or more offsite 
locations via such grid; alternatively, FTM is defined as a facility 
that is not BTM.
E. Application Materials
    Section 48(e)(4)(A) directs the Secretary to provide procedures to 
allow for an efficient allocation process. Additionally, section 
48(e)(4)(E)(i) requires that facilities allocated an amount of Capacity 
Limitation be placed in service within four years of the date of 
allocation. To promote efficient allocation, and to better ensure that 
allocations will be awarded to facilities that are sufficiently viable 
and well defined to allow for a review for an allocation, and 
sufficiently advanced such that they are likely to meet the four-year 
placed-in-service deadline, the Treasury Department and the IRS propose 
to require applicants to submit certain documentation and attestations 
when applying for an allocation. Some requirements differ for FTM and 
BTM facilities and other requirements differ by Category and Additional 
Selection Criteria.

[[Page 35798]]

    Under this proposed approach, applicants would be required to 
submit the following:
1. Documentation and Attestations To Be Submitted for All Facilities



----------------------------------------------------------------------------------------------------------------
                                                 FTM                 BTM <=1 MW AC             BTM >1 MW AC
----------------------------------------------------------------------------------------------------------------
                                          Proposed Document Requirement
----------------------------------------------------------------------------------------------------------------
An executed contract to purchase the   No.....................  Yes....................  Yes.
 facility, an executed contract to
 lease the facility, or an executed
 power purchase agreement for the
 facility.
A copy of the final executed           Yes....................  No.....................  Yes.
 interconnection agreement, if
 applicable \9\.
----------------------------------------------------------------------------------------------------------------
                                        Proposed Attestation Requirement
----------------------------------------------------------------------------------------------------------------
The applicant has site control         Yes....................  No.....................  No.
 through ownership, an executed lease
 contract, site access agreement or
 similar agreement between the
 property owner and the applicant.
The facility has obtained all          Yes....................  Yes....................  Yes.
 applicable Federal, State, Tribal,
 and local non-ministerial permits,
 or that the facility is not required
 to obtain such permits.
The applicant is in compliance with    Yes....................  Yes....................  Yes.
 all Federal, State, and Tribal laws,
 including consumer protection laws
 (as applicable).
The applicant has appropriately sized  No.....................  Yes....................  Yes.
 the facility (to meet no more than
 110% of historical customer load).
The applicant has appropriately sized  Yes....................  No.....................  No.
 the customer's facility output share
 and has based facility output share
 on historical customer load.
The applicant has inspected            Yes....................  Yes....................  Yes.
 installation sites for suitability
 (for example, roofs).
----------------------------------------------------------------------------------------------------------------

2. Documentation and Attestations To Be Submitted for Certain 
Facilities Depending on Category and Additional Selection Criteria

----------------------------------------------------------------------------------------------------------------
                                      Category 1          Category 2          Category 3          Category 4
----------------------------------------------------------------------------------------------------------------
                                          Proposed Document Requirement
----------------------------------------------------------------------------------------------------------------
Documentation demonstrating       No................  No................  Yes...............  No.
 property will be installed on
 an eligible residential
 building.
Plans to ensure tenants receive   No................  No................  Yes...............  No.
 required financial benefits.
If applying under Additional      Yes...............  Yes...............  Yes...............  Yes.
 Selection Criteria:
 Documentation demonstrating
 applicant meets Ownership
 Criteria.
----------------------------------------------------------------------------------------------------------------
                                        Proposed Attestation Requirement
----------------------------------------------------------------------------------------------------------------
Facility location is eligible     Yes...............  Yes...............  No................  No.
 \10\.
Consumer disclosures informing    Yes...............  Yes...............  Yes (provided to    Yes.
 customers of their legal rights                                           tenants).
 and protections have been
 provided to customers that have
 signed up and will be provided
 to future customers.
The applicant will ensure at      No................  No................  No................  Yes.
 least 50% of the financial
 benefits will be provided to
 qualified households at 20%
 bill credit discount rate.
If applying under additional      Yes...............  No................  Yes...............  Yes.
 Selection Criteria: Facility
 location is eligible based on
 PPC/CEJST.
----------------------------------------------------------------------------------------------------------------

F. Documentation and Attestations To Be Submitted When Placed in 
Service
    The Treasury Department and the IRS also propose to require 
facilities that received a Capacity Limitation allocation to report to 
the Department of Energy (DOE) that the facility has been placed in 
service, and to submit additional documentation or complete additional 
attestations with this reporting. At the time of application, 
applicants would not necessarily be able to demonstrate compliance with 
certain eligibility requirements, as the facility would not yet be 
operating at that time. Requiring placed in service reporting would 
allow for final verification that the facilities that were awarded a 
Capacity Limitation Allocation have met certain eligibility 
requirements under the Low-Income Communities Bonus Credit Program.
---------------------------------------------------------------------------

    \9\ If an interconnection agreement is not applicable to the 
facility (for example, due to utility ownership), this requirement 
is satisfied by a final written decision from a Public Utility 
Commission, cooperative board, or other governing body with 
sufficient authority that financially authorizes the facility. If 
the facility is located in a market where the interconnection 
agreement cannot be signed prior to construction of the facility or 
interconnection facilities, this requirement is satisfied by a 
signed conditional approval letter from the jurisdictional utility 
and an affidavit from a senior corporate officer of the applicant 
(or someone with authority to bind the applicant) stating that an 
interconnection agreement cannot be executed until after 
construction of the facility.
    \10\ Facility location would be reviewed using latitude and 
longitude coordinates when possible.
---------------------------------------------------------------------------

    The applicant-owner would submit documentation or sign an 
attestation for the following:

[[Page 35799]]



------------------------------------------------------------------------
                                                        Category
------------------------------------------------------------------------
                    Proposed Attestation Requirement
------------------------------------------------------------------------
Confirmation of material ownership and/or      All.
 facility changes from application or that
 there has been no change from the
 application.
------------------------------------------------------------------------
                      Proposed Document Requirement
------------------------------------------------------------------------
Permission to Operate (PTO) letter (or         All.
 commissioning report verifying for off-grid
 facilities) that the facility has been
 placed in service and the location of the
 facility being placed in service.
Final, Professional Engineer (PE) stamped as-  All.
 built design plan, PTO letter with nameplate
 capacity listed, or other documentation from
 an unrelated party verifying as-built
 nameplate capacity.
Benefits Sharing Agreement for qualified       3.
 residential building projects between
 building owner and tenants (including for
 facilities that are third party owned,
 additional sharing agreement between the
 facility owner and the building owner).
Final list of households or other entities     4.
 served with name, address, subscription
 share, and income status of qualifying low-
 income households served, and the income
 verification method used.
Spreadsheet demonstrating the expected         4.
 financial benefit to low-income subscribers
 to demonstrate the 20% bill credit discount
 rate.
------------------------------------------------------------------------

G. Post-Allocation Compliance
1. Disqualification After Receiving an Allocation
    The Treasury Department and the IRS recognize that because, under 
section 48(e)(4)(E)(i), an applicant has four years after the date of 
an allocation of Capacity Limitation to place eligible property in 
service, circumstances may change prior to the property being placed in 
service such that a facility is no longer eligible for the allocation 
it received. In addition, to promote an efficient allocation process 
consistent with section 48(e)(4)(A), the Treasury Department and the 
IRS want to discourage material changes in project plans, such as 
significant reductions in facility size that tie up Capacity Limitation 
that could otherwise be awarded to other qualified facilities.
    Accordingly, the Treasury Department and the IRS propose that a 
facility that was awarded a Capacity Limitation allocation is 
disqualified from receiving that allocation if prior to or upon the 
facility being placed in service: (1) the location where the facility 
will be placed in service changes; (2) the nameplate capacity of the 
facility increases such that it exceeds the less than 5-megawatt 
alternating current output limitation provided in section 
48(e)(2)(A)(ii) or decreases by the greater of 2 kW or 25 percent of 
the Capacity Limitation awarded in the allocation; (3) the facility 
cannot satisfy the financial benefits requirements under section 
48(e)(2)(B)(ii) as planned (if applicable) or cannot satisfy the 
financial benefits requirements under section 48(e)(2)(C) as planned 
(if applicable); (4) the eligible property which is part of the 
facility that received the Capacity Limitation allocation is not placed 
in service within four years after the date the applicant was notified 
of the allocation of Capacity Limitation to the facility; or (5) the 
facility received a Capacity Limitation allocation based, in part, on 
meeting the Ownership Criteria and ownership of the facility changes 
prior to the facility being placed in service such that the Ownership 
criteria is no longer satisfied, unless a) the original applicant 
retains an ownership interest in the entity that owns the facility and 
b) the successor owner attests that after the five year recapture 
period, the original applicant that met the Ownership Criteria will 
become the owner of the facility or that this original applicant will 
have the right of first refusal.
2. Recapture of Section 48(e) Increase
    Section 48(e)(5) requires the Secretary, by regulations or other 
guidance, to provide rules for recapturing the benefit of any section 
48(e) Increase with respect to any property which ceases to be property 
eligible for such section 48(e) Increase (but which does not cease to 
be investment credit property within the meaning of section 50(a)). The 
period and percentage of such recapture is determined under rules 
similar to the rules of section 50(a). To the extent provided by the 
Secretary, such recapture may not apply with respect to any property 
if, within 12 months after the date the applicant becomes aware (or 
reasonably should have become aware) of such property ceasing to be 
property eligible for such section 48(e) Increase, the eligibility of 
such property for such section 48(e) Increase is restored. Such 
restoration of a section 48(e) Increase is not available more than once 
with respect to any facility.
    The Treasury Department and the IRS propose that the following 
circumstances result in a recapture event if the property ceases to be 
eligible for the increased credit under section 48(e): (1) property 
described in section 48(e)(2)(A)(iii)(II) fails to provide financial 
benefits over the 5-year period after its original placed-in-service 
date; (2) property described under section 48(e)(2)(B) ceases to 
allocate the financial benefits equitably among the occupants of the 
dwelling units, such as not passing on to residents the required net 
energy savings of the electricity; (3) property described under section 
48(e)(2)(C) ceases to provide at least 50 percent of the financial 
benefits of the electricity produced to qualifying households as 
described under section 48(e)(2)(C)(i) or (ii), or fails to provide 
those households the required minimum 20 percent bill credit discount 
rate; (4) for property described under section 48(e)(2)(B), the 
residential rental building the facility is a part of ceases to 
participate in a covered housing program or any other housing program 
described in section 48(e)(2)(B)(i), if applicable; and (5) a facility 
increases its output such that the facility's output is 5 MW AC or 
greater, unless the applicant can prove that the output increase is not 
attributable to the original facility but rather is output associated 
with a new facility under the 80/20 Rule (the cost of the new property 
plus the value of the used property). See Rev. Rul. 94-31, 1994-1 C.B. 
16.

Proposed Applicability Date

    These proposed rules are proposed to apply to taxable years ending 
on or after the date that final rules adopting these proposed rules are 
published in the Federal Register.

Special Analyses

I. Regulatory Planning and Review--Economic Analysis

    Executive Orders 13563 and 12866 direct agencies to assess costs 
and benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory

[[Page 35800]]

approaches that maximize net benefits (including potential economic, 
environmental, public health and safety effects, distributive impacts, 
and equity). Executive Order 13563 emphasizes the importance of 
quantifying both costs and benefits, of reducing costs, of harmonizing 
rules, and of promoting flexibility.
    These proposed rules have been designated by the Office of 
Management and Budget's Office of Information and Regulatory Affairs 
(OIRA) as subject to review under Executive Order 12866 pursuant to the 
Memorandum of Agreement (April 11, 2018) between the Treasury 
Department and the Office of Management and Budget (OMB) regarding 
review of tax rules. OIRA has determined that the proposed rulemaking 
is significant and subject to review under Executive Order 12866 and 
section 1(b) of the Memorandum of Agreement. Accordingly, the proposed 
rules have been reviewed by OMB.

II. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA) 
requires that a Federal agency obtain the approval of OMB before 
collecting information from the public, whether such collection of 
information is mandatory, voluntary, or required to obtain or retain a 
benefit. The collections of information in these proposed regulations 
contain reporting and recordkeeping requirements that are required to 
obtain the section 48(e) Increase. This information in the collections 
of information would generally be used by the IRS and DOE for tax 
compliance purposes and by taxpayers to facilitate proper reporting and 
compliance. A Federal agency may not conduct or sponsor, and a person 
is not required to respond to, a collection of information unless the 
collection of information displays a valid control number.
    The recordkeeping requirements mentioned within this proposed 
regulation are considered general tax records under Section 1.6001-
1(e). These records are required for IRS to validate that taxpayers 
have met the regulatory requirements and are entitled to receive 
section 48(e) Increase. For PRA purposes, general tax records are 
already approved by OMB under 1545-0123 for business filers, 1545-0074 
for individual filers, and 1545-0047 for tax-exempt organizations.
    The proposed regulation also mentions reporting requirements 
related to providing attestations and supporting documentation for 
initial application, supplemental documentation for specific 
facilities, and to confirm a facility is placed in service as detailed 
in this NPRM. These attestations and documentation would allow IRS to 
allocate Capacity Limitation and ensure taxpayers keep and maintain 
compliance for the credits. To assist with the collections of 
information, the DOE will provide certain administration services for 
the Low-Income Communities Bonus Credit Program. Among other things, 
the DOE will establish a website portal to review the applications for 
eligibility criteria and will provide recommendations to the IRS 
regarding the selection of applications for an allocation of Capacity 
Limitation. These collection requirements will be submitted to the 
Office of Management and Budget (OMB) under 1545-NEW for review and 
approval in accordance with 5 CFR 1320.11. The likely respondents are 
business filers, individual filers, and tax-exempt organization filers. 
A summary of paperwork burden estimates for the application and 
attestations is as follows:
    Estimated number of respondents: 70,000.
    Estimated burden per response: 60 minutes.
    Estimated frequency of response: 1 for initial applications, 1 for 
follow-up documentation, and 1 for projects placed in service.
    Estimated total burden hours: 210,000 burden hours.
    IRS will be soliciting feedback on the collection requirements for 
the application and attestations. Commenters are strongly encouraged to 
submit public comments electronically. Written comments and 
recommendations for the proposed information collection should be sent 
to www.reginfo.gov/public/do/PRAMain, with copies to the Internal 
Revenue Service. Find this particular information collection by 
selecting ``Currently under Review--Open for Public Comments'' then by 
using the search function. Submit electronic submissions for the 
proposed information collection to the IRS via email at 
[email protected] (indicate REG-110412-23 on the Subject line). 
Comments on the collection of information should be received June 30, 
2023. Comments are specifically requested concerning:
    Whether the proposed collection of information is necessary for the 
proper performance of the functions of the IRS, including whether the 
information will have practical utility. The accuracy of the estimated 
burden associated with the proposed collection of information. How the 
quality, utility, and clarity of the information to be collected may be 
enhanced. How the burden of complying with the proposed collection of 
information may be minimized, including through the application of 
automated collection techniques or other forms of information 
technology; and estimates of capital or start-up costs and costs of 
operation, maintenance, and purchase of services to provide 
information.

III. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to Federal rules that are subject to 
the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely 
to have a significant economic impact on a substantial number of small 
entities. Unless an agency determines that a proposal is not likely to 
have a significant economic impact on a substantial number of small 
entities, section 603 of the RFA requires the agency to present an 
initial regulatory flexibility analysis (IRFA) of the proposed rule. 
The Treasury Department and the IRS have not determined whether the 
proposed rule would likely have a significant economic impact on a 
substantial number of small entities. This determination requires 
further study and an IRFA is provided in these proposed regulations. 
The Treasury Department and the IRS invite comments on both the number 
of entities affected and the economic impact on small entities.
    Pursuant to section 7805(f), this notice of proposed rulemaking has 
been submitted to the Chief Counsel of Advocacy of the Small Business 
Administration for comment on its impact on small business.
1. Need for and Objectives of the Rule
    The proposed regulations would provide guidance for purposes of 
participation in the program to allocate the environmental justice 
solar and wind capacity limitation under Sec.  48(e) for the Low-Income 
Communities Bonus Credit Program. The proposed rule is expected to 
encourage applicants to invest in solar and wind energy. Thus, the 
Treasury Department and the IRS intend and expect that the proposed 
rule will deliver benefits across the economy and environment that will 
beneficially impact various industries.
2. Affected Small Entities
    The Small Business Administration estimates in its 2018 Small 
Business Profile that 99.9 percent of United States businesses meet its 
definition of a small business. The applicability of these

[[Page 35801]]

proposed regulations does not depend on the size of the business, as 
defined by the Small Business Administration. As described more fully 
in the preamble to this proposed regulation and in this IRFA, these 
rules may affect a variety of different businesses across serval 
different industries.
    The Treasury Department and the IRS expect to receive more 
information on the impact on small businesses through comments on this 
proposed rule and again when participation in the Low-Income 
Communities Bonus Credit Program commences.
3. Impact of the Rules
    The recordkeeping and reporting requirements would increase for 
applicants that participate in the Low-Income Communities Bonus Credit 
Program. Although the Treasury Department and the IRS do not have 
sufficient data to determine precisely the likely extent of the 
increased costs of compliance, the estimated burden of complying with 
the recordkeeping and reporting requirements are described in the 
Paperwork Reduction Act section of the preamble.
4. Alternatives Considered
    The Treasury Department and the IRS considered alternatives to the 
proposed regulations. For example, the Treasury Department and the IRS 
considered exclusively using a lottery system for all over-subscribed 
categories, rather than creating reservations for facilities meeting 
additional selection criteria. Although a lottery system may ultimately 
need to be used for an oversubscribed category, the Treasury Department 
and the IRS decided that it was important to propose reserving Capacity 
Limitation for facilities that meet certain additional selection 
criteria that further the policy goals of the Low-Income Communities 
Bonus Credit Program.
    Additionally, when considering how to define ``in connection 
with,'' the Treasury Department and the IRS were mindful that the 
statute requires the energy storage technology to be installed in 
connection with a qualifying solar or wind facility to be eligible for 
an increase in the energy percentage used to calculate the amount of 
the section 48 credit. Different alternatives were considered on how to 
address this definition. For example, the Treasury Department and the 
IRS considered but ultimately decided not to incorporate the proposed 
safe harbor (deeming the energy storage technology to be charged at 
least 50 percent by the facility if the power rating of the energy 
storage technology is less than 2 times the capacity rating of the 
connected wind or solar) as part of the general rule to define ``in 
connection with.'' The proposed general rule instead requires the 
energy storage technology to have a sufficient nexus to the other 
eligible property because it is part of the single project and is 
significantly charged by the eligible property.
    Another example where different alternatives were considered was 
with respect to application materials. Section 48(e)(4)(A) directs the 
Secretary to provide procedures to allow for an efficient allocation 
process, and section 48(e)(4)(E)(i) allows an applicant up to four 
years after receiving a Capacity Limitation allocation to place 
eligible property into service. Alternatives were considered on how 
best to balance these statutory requirements, considering practical 
issues for taxpayers and residents as well as the traditional structure 
and arrangement of these solar and wind transactions, including 
considerations on the type of facility (BTM or FTM) and the capacity of 
the facility. Among other things, the Treasury Department and the IRS 
considered whether an application for an interconnection agreement or 
an executed interconnection agreement should be required as part of the 
application materials. The proposed regulations are based on the view 
that the executed interconnection agreement, if applicable, is an 
essential documentation to demonstrate sufficient project maturity.
    Additionally, the Treasury Department and the IRS considered a 
variety of bill credit discounts for Category 4 qualified low-income 
benefit project facilities. The bill credit discounts considered 
included 10 percent, 15 percent, or 20 percent. Alternatively, the 
Treasury Department and the IRS considered the option of a range of 
discounts from 10 percent to 20 percent from which applicants could 
choose which discount rate to provide low-income customers. However, to 
ensure that low-income customers are receiving meaningful financial 
benefits, the Treasury Department and the IRS decided to propose a 20 
percent discount.
5. Duplicative, Overlapping, or Conflicting Federal Rules
    The proposed rule would not duplicate, overlap, or conflict with 
any relevant Federal rules. As discussed in the Explanation of 
Provisions, the proposed rules would merely provide requirements, 
procedures, and definitions related to the Low-Income Communities Bonus 
Credit Program. The Treasury Department and the IRS invite input from 
interested members of the public about identifying and avoiding 
overlapping, duplicative, or conflicting requirements.

IV. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires that agencies assess anticipated costs and benefits and take 
certain other actions before issuing a final rule that includes any 
Federal mandate that may result in expenditures in any one year by a 
State, local, or Tribal government, in the aggregate, or by the private 
sector, of $100 million in 1995 dollars, updated annually for 
inflation. This proposed rule does not include any Federal mandate that 
may result in expenditures by State, local, or Tribal governments, or 
by the private sector in excess of that threshold.

V. Executive Order 13132: Federalism

    Executive Order 13132 (Federalism) prohibits an agency from 
publishing any rule that has federalism implications if the rule either 
imposes substantial, direct compliance costs on State and local 
governments, and is not required by statute, or preempts State law, 
unless the agency meets the consultation and funding requirements of 
section 6 of the Executive order. These regulations do not have 
federalism implications and do not impose substantial direct compliance 
costs on State and local governments or preempt State law within the 
meaning of the Executive order.

Comments

    Before these proposed rules are adopted as final rules, 
consideration will be given to comments that are submitted timely to 
the IRS as prescribed in this preamble under the ADDRESSES section. The 
Treasury Department and the IRS request comments on all aspects of the 
proposed rules. Any electronic or paper comments submitted will be made 
available at https://www.regulations.gov or upon request.

Statement of Availability of IRS Documents

    Guidance cited in this preamble is published in the Internal 
Revenue Bulletin and is available from the Superintendent of Documents, 
U.S. Government Publishing Office, Washington, DC 20402, or by visiting 
the IRS website at https://www.irs.gov.

Drafting Information

    The principal author of these proposed rules is the Office of the 
Associate Chief Counsel (Passthroughs

[[Page 35802]]

and Special Industries), IRS. However, other personnel from the 
Treasury Department and the IRS participated in their development.

Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2023-11718 Filed 5-31-23; 8:45 am]
BILLING CODE 4830-01-P