Guidance on Clean Electricity Low-Income Communities Bonus Credit Amount Program, 71193-71214 [2024-19617]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 89, Number 170 (Tuesday, September 3, 2024)]
[Proposed Rules]
[Pages 71193-71214]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-19617]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-108920-24]
RIN 1545-BR26


Guidance on Clean Electricity Low-Income Communities Bonus Credit 
Amount Program

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed regulations concerning the 
program to allocate clean electricity low-income communities bonus 
credit amounts established pursuant to the Inflation Reduction Act of 
2022 for calendar years 2025 and succeeding years. Applicants investing 
in certain clean electricity generation facilities that produce 
electricity without combustion and gasification may apply for an 
allocation of environmental justice capacity limitation to increase the 
amount of the clean electricity 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.

DATES: Written or electronic comments must be received by October 3, 
2024. The public hearing on these proposed regulations is scheduled to 
be held on October 17, 2024, at 10 a.m. EST. Requests to speak and 
outlines of topics to be discussed at the public hearing must be 
received by October 3, 2024. If no outlines are received by October 3, 
2024, the public hearing will be cancelled. Requests to attend the 
public hearing must be received by 5 p.m. on October 15, 2024.

ADDRESSES: Commenters are strongly encouraged to submit public comments 
electronically via the Federal eRulemaking Portal at https://www.regulations.gov (indicate IRS and REG-108920-24) by following the 
online instructions for submitting comments. Requests for the public 
hearing must be submitted as prescribed in the ``Comments and Public 
Hearing'' section. Once submitted to the Federal eRulemaking Portal, 
comments cannot be edited or withdrawn. The Department of the Treasury 
(Treasury Department) and the Internal Revenue Service (IRS) will 
publish for public availability any comments submitted to the IRS's 
public docket. Send paper submissions to: CC:PA:01:PR (REG-108920-24), 
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 comments 
or the public hearing, the Publications and Regulations Section at 
(202) 317-6901 (not a toll-free number) or by email at 
[email protected] (preferred).

SUPPLEMENTARY INFORMATION:

Authority

    This document contains proposed amendments to the Income Tax 
Regulations (26 CFR part 1) under section 48E(h) of the Internal 
Revenue Code (Code) to provide proposed definitions and rules relating 
to the allocation of environmental justice capacity limitation 
(Capacity Limitation) for calendar year 2025 and succeeding years 
(proposed regulations). Section 48E(h)(4)(A) provides an express 
delegation of authority for the Secretary of the Treasury or her 
delegate (Secretary) to establish a program to allocate amounts of 
Capacity Limitation to applicable facilities not later than January 1, 
2025, and to make such allocations. Section 48E(h)(5) provides an 
express delegation of authority for the Secretary, by regulations or 
other guidance, to provide rules for recapturing the benefit of any 
increase in the credit allowed under section 48E(a) that results from 
an allocation of Capacity Limitation with respect to any property that 
ceases to be property eligible for such increase (but that does not 
cease to be investment credit property within the meaning of section 
50(a) of the Code). In addition, section 48E(i) provides an express 
delegation of authority for the Secretary to issue guidance regarding 
implementation of section 48E not later than January 1, 2025. The 
proposed regulations are also issued under the express delegation of 
authority under section 7805 of the Code.

Background

I. Overview

    Section 13702 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 48E(h) to authorize the Secretary to establish a 
program for calendar years 2025 and succeeding years to award 
allocations of Capacity Limitation that increase the amount of the new 
clean electricity investment credit determined under section 48E(a) 
(section 48E credit) with respect to eligible property that is part of 
an applicable facility. This document contains proposed definitions and 
rules relating to the allocation of Capacity Limitation for calendar 
year 2025 and succeeding years.
    The amount of section 48E credit for a taxable year generally is 
calculated by multiplying the qualified investment for such taxable 
year with respect to any qualified facility placed in service during 
that taxable year by the applicable percentage (as defined in section 
48E(a)(2)). If an applicable facility is awarded an allocation of 
Capacity Limitation, section 48E(h) increases the amount of the section 
48E credit with respect to the applicable facility by increasing the 
applicable percentage used to calculate the amount of the section 48E 
credit (section 48E(h) Increase). The term ``applicable facility'' is 
defined in section 48E(h)(2) to mean any qualified facility that (i) is 
not described in section 45Y(b)(2)(B) of the Code (relating to 
combustion and gasification facilities); (ii) has a maximum net output 
of less than 5 megawatts (MW) (as measured in alternating current 
(AC)); and (iii) is described in at least one of four categories in 
section 48E(h)(2)(A)(iii) (as further described in part II of this 
Background).
    Section 48E(h)(4)(A) directs the Secretary, not later than January 
1, 2025, to establish a program to allocate amounts of Capacity 
Limitation to applicable facilities and to ``provide procedures to 
allow for an efficient allocation'' of Capacity Limitation to 
applicable facilities. Accordingly, the Treasury Department and the IRS 
are establishing the Clean Electricity Low-Income Communities Bonus 
Credit Amount Program (Program). As described in the Explanation of 
Provisions, this notice of proposed rulemaking provides proposed 
threshold definitions and requirements for the Program to make 
allocations of Capacity Limitation efficiently and

[[Page 71194]]

effectively. After finalizing these rules, the Treasury Department and 
the IRS will provide the procedures for the 2025 Program in a revenue 
procedure published in the Internal Revenue Bulletin. See Sec.  601.601 
of the Statement of Procedural Rules (26 CFR part 601).
    Procedures for future Program years also will be provided in 
guidance published in the Internal Revenue Bulletin. The Treasury 
Department and the IRS expect that many of the procedural aspects of 
the Program will be similar to the Low-Income Communities Bonus Credit 
Program established under section 48(e) of the Code \1\ available for 
calendar years 2023 and 2024.
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    \1\ For the most recent procedures applicable to the Low-Income 
Communities Bonus Credit Program established under section 48(e), 
refer to Revenue Procedure 2024-19, 2024-16 I.R.B 899.
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II. Four Categories of Applicable Facilities

    Depending on the category of the facility, an allocation of 
Capacity Limitation may result in a section 48E(h) Increase equal to 
either 10 percentage points or 20 percentage points. Section 
48E(h)(1)(A)(i) provides for a section 48E(h) Increase of 10 percentage 
points for eligible property that is located in a low-income community, 
as defined in section 45D(e) of the Code (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 
48E(h)(1)(A)(ii) provides for a section 48E(h) 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).
    Section 48E(h)(2)(B) provides that a facility will be treated as 
part of a ``qualified low-income residential building project'' if the 
facility is installed on a residential rental building that 
participates in a covered housing program (as defined in section 
41411(a) of the Violence Against Women Act of 1994 (34 U.S.C. 
12491(a)(3)) (VAWA)), 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 section 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 the 
financial benefits of the electricity produced by the facility are 
allocated equitably among the occupants of the dwelling units of such 
building.
    Section 48E(h)(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 48E(h)(2)(D) 
provides that electricity acquired at a below-market rate will be 
considered a financial benefit.

III. Overview of Clean Electricity Low-Income Communities Bonus Credit 
Amount Program

    Section 48E(h)(4)(A) directs the Secretary to establish the 
Program, not later than January 1, 2025, to allocate amounts of 
Capacity Limitation to applicable facilities. Under section 
48E(h)(4)(C), the total annual Capacity Limitation that may be 
allocated is 1.8 gigawatts of direct current capacity for each of the 
calendar years during the period beginning on January 1, 2025, and 
ending on December 31 of the applicable year (as defined in section 
45Y(d)(3)),\2\ and zero thereafter.
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    \2\ Section 45Y(d)(3) defines the term ``applicable year'' as 
the later of the calendar year in which the Secretary determines 
that the annual greenhouse gas emissions from the production of 
electricity in the United States are equal to or less than 25 
percent of the annual greenhouse gas emissions from the production 
of electricity in the United States for calendar year 2022, or 2032. 
See also proposed Sec.  1.45Y-1(c)(3).
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    Under section 48E(h)(4)(D)(i), 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. No amount of 
Capacity Limitation may be carried to any calendar year after the third 
calendar year following the applicable year (as defined in section 
45Y(d)(3)). Under section 48E(h)(4)(D)(ii), if the annual Capacity 
Limitation for calendar year 2024 under section 48(e)(4)(D) exceeds the 
aggregate amount allocated for such year, the excess amount may be 
carried over and applied to the annual Capacity Limitation under this 
paragraph for calendar year 2025. The annual Capacity Limitation for 
calendar year 2025 is increased by the amount of such excess.
    The proposed regulations in this notice of proposed rulemaking 
would provide definitions and requirements necessary to submit an 
application to request an allocation of Capacity Limitation for 
calendar year 2025 (and subsequent years) under the Program and to 
claim a section 48E(h) Increase. The Treasury Department and the IRS 
request comments on these proposed definitions and requirements.

Explanation of Provisions

    The proposed regulations relate to specific definitions and 
requirements regarding the following topics: (1) the definition of 
``applicable facility;'' (2) definitions of ``eligible property'' under 
section 48E(h)(3); (3) the definition of ``located in'' for relevant 
geographic criteria; (4) definitions and requirements related to the 
term ``financial benefit'' and ``electricity acquired at a below-market 
rate'' under section 48E(h)(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; (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) the requirement to submit certain application materials 
demonstrating facility viability in order to allow for an efficient 
allocation process; (9) the requirement to submit certain documentation 
and attestations when a facility is placed in service; and (10) post-
allocation compliance, including disqualification of allocations of 
Capacity Limitation and recapture of the section 48E(h) Increase.

I. Definition of Applicable Facility

    The term ``applicable facility'' is defined in section 48E(h)(2)(A) 
to mean any qualified facility (as defined in section 48E(b)(3)) that 
(i) is not described in section 45Y(b)(2)(B) (related to combustion and 
gasification facilities); (ii) has a maximum net output of less than 5 
MW (as measured in AC); and (iii) is described in at least one of the 
four categories described in section 48E(h)(2)(A)(iii) (Category 1, 2, 
3, or 4). Therefore, proposed Sec.  1.48E(h)-1(b)(1) would define an 
applicable facility as any qualified facility described in section 
48E(b)(3) that (i) is a facility that is not described in section 
45Y(b)(2)(B) (non-combustion and gasification facilities); (ii) has a

[[Page 71195]]

maximum net output of less than 5 MW (as measured in AC); and (iii) is 
described in at least one of the four categories described in section 
48E(h)(2)(A)(iii) (Category 1, 2, 3, or 4).
A. Types of Applicable Facilities
    Proposed Sec.  1.48E(h)-1(b)(1) would also clarify that the types 
of qualified facilities eligible for the Program are only those non-
combustion and gasification qualified facilities \3\ (non-C&G 
facilities) that the Secretary has determined have a greenhouse gas 
(GHG) emissions rate of not greater than zero. An emissions rate table 
for eligible non-C&G facilities will be published annually in the 
Federal Register or the Internal Revenue Bulletin. Consistent with the 
notice of proposed rulemaking and a notice of public hearing (REG-
119283-23) published in the Federal Register (89 FR 47792) providing 
guidance on the clean electricity production and investment credits 
under sections 45Y and 48E, the following types or categories of 
qualified facilities are categorically non-C&G facilities with a GHG 
emissions rate that is not greater than zero: wind facilities 
(including small wind properties), hydropower facilities (including 
retrofits adding power production to non-powered dams, conduit 
hydropower, hydropower using new impoundments, and hydropower using 
diversions such as a penstock or channel), marine and hydrokinetic 
facilities, solar facilities (including photovoltaic and concentrating 
solar power), geothermal facilities (including flash and binary 
plants), nuclear fission facilities, nuclear fusion facilities, and 
waste energy recovery property (WERP) that derives energy from any of 
the energy sources described in proposed Sec.  1.45Y-5(c)(2)(i) through 
(vii) (including geothermal or solar waste heat recovery such as from a 
district geothermal heating system, and waste heat recovery such as 
from a nuclear reactor dedicated to heat production for an industrial 
facility). These categories of facilities may be eligible for an 
allocation of Capacity Limitation during the 2025 Program year. 
Additional types of categories of non-C&G facilities may be eligible in 
future Program years if the Secretary determines that such facilities 
have a GHG emissions rate that is not greater than zero in guidance 
published in the Federal Register or the Internal Revenue Bulletin. For 
ease of reference for applicants to the Program, the Treasury 
Department and the IRS will include the list of eligible qualified 
facilities in the procedural guidance that will be published for the 
Program.
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    \3\ See proposed Sec.  1.48E-2(a), as proposed in the notice of 
proposed rulemaking (REG-119283-23) published in the Federal 
Register (89 FR 47792) on June 3, 2024, and corrected at 2024-15718 
on July 18, 2024, for more information regarding the definition of 
``qualified facility.''
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B. Four Categories of Applicable Facilities

    Depending on the category of the facility, an allocation of 
Capacity Limitation under the Program may result in a section 48E(h) 
Increase equal to either 10 percentage points or 20 percentage points. 
Section 48E(h)(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 (Category 1 facility), or on Indian land (Category 2 
facility). Section 48E(h)(1)(A)(ii) provides for a section 48E(h) 
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). Proposed Sec.  1.48E(h)-1(b)(2) would define the four 
facility categories (Category 1, 2, 3, or 4).
    Section 48E(h)(2)(A)(iii)(I) defines an ``applicable facility'' in 
part to include a qualified facility that is located in a low-income 
community (as defined in section 45D(e)). Under section 
48E(h)(2)(A)(iii)(I), the term low-income community generally is 
defined under section 45D(e)(1), with certain modifications described 
elsewhere in section 45D(e), as any population census tract if the 
poverty rate for such tract is at least 20 percent, or, in the case of 
a tract not located within a metropolitan area, the median family 
income for such tract does not exceed 80 percent of statewide median 
family income, or in the case of a tract located within a metropolitan 
area, the median family income for such tract does not exceed 80 
percent of the greater of statewide median family income or the 
metropolitan area median family income.
    Proposed Sec.  1.48E(h)-1(b)(2)(i) would define a Category 1 
facility consistent with section 48E(h)(2)(A)(iii)(I) as a facility 
located in a low-income community, which generally is defined under 
section 45D(e)(1) as any population census tract if the poverty rate 
for such tract is at least 20 percent based on the most recently 
released low-income community data currently used for the New Markets 
Tax Credit (NMTC) under section 45D, or, in the case of a tract not 
located within a metropolitan area, the median family income for such 
tract does not exceed 80 percent of statewide median family income, or, 
in the case of a tract located within a metropolitan area, the median 
family income for such tract does not exceed 80 percent of the greater 
of statewide median family income or the metropolitan area median 
family income. Proposed Sec.  1.48E(h)-1(b)(2)(i) would provide that 
the term ``low-income community'' also includes the modifications in 
section 45D(e)(4) and (5) for tracts with low population and 
modification of the income requirement for census tracts with high 
migration rural counties. Low-income community information for NMTC can 
be found at the U.S. Department of Treasury, Community Development 
Financial Institutions Fund website and its web page mapping tool, 
https://www.cdfifund.gov/cims.
    Proposed Sec.  1.48E(h)-1(b)(2)(i) would clarify also that the 
poverty rate for a census tract generally is based on the most recently 
released ACS low-income community data for the NMTC. However, if 
updated data is released, a taxpayer can choose to base the poverty 
rate for any population census tract on either the prior version of the 
ACS low-income community data or the updated ACS low-income community 
data for a period of 1 year following the date of the release of the 
updated data. After the 1-year transition period, the updated ACS low-
income community data must be used.
    Proposed Sec.  1.48E(h)-1(b)(2)(i) would provide that population 
census tracts that satisfy the definition of low-income community at 
the time of application are considered to continue to meet the 
definition of low-income community for the duration of the recapture 
period unless the location of the facility changes.
    Section 48E(h)(2)(A)(iii)(I) defines an ``applicable facility'' in 
part to include a qualified facility that is located on Indian land (as 
defined in section 2601(2) of the Energy Policy Act of 1992 (25 U.S.C. 
3501(2)). Proposed Sec.  1.48E(h)-1(b)(2)(ii) would define a Category 2 
facility, consistent with section 48E(h)(2)(A)(iii)(I), as facility 
that is located on Indian land. Proposed Sec.  1.48E(h)-1(b)(2)(ii) 
would provide that the term ``Indian land'' is defined in section 
2601(2) of the Energy Policy Act of 1992 (25 U.S.C. 3501(2)).
    Section 48E(h)(2)(A)(iii)(II) defines an ``applicable facility'' in 
part to include a qualified facility that is part of a qualified low-
income residential building project. Proposed Sec.  1.48E(h)-
1(b)(2)(iii) would define a Category 3 facility as a facility that is 
part of a qualified low-income residential building project. A facility 
would be treated as part of a qualified low-income residential building 
project if such

[[Page 71196]]

facility is installed on a residential rental building that 
participates in a covered housing program or other affordable housing 
program described in section 48E(h)(2)(B)(i) (Qualified Residential 
Property) and the financial benefits of the electricity produced by 
such facility are allocated equitably among the occupants of the 
dwelling units of such building as provided in proposed Sec.  1.48E(h)-
1(e). Consistent with the statute, proposed Sec.  1.48E(h)-1(b)(2)(iii) 
would clarify that the Qualified Residential Property, and not just its 
tenants, must participate in a covered housing program or other 
affordable housing program described in section 48E(h)(2)(B)(i). A 
Qualified Residential Property could either be a multifamily rental 
property or single-family rental property. Proposed Sec.  1.48E(h)-
1(b)(2)(iii) also would clarify that a facility does not need to be 
installed directly on the building to be considered installed on a 
Qualified Residential Property if the facility is installed on the same 
or an adjacent parcel of land as the Qualified Residential Property, 
and the other requirements to be a Category 3 facility are satisfied.
    The statutory cross-reference to VAWA is comprehensive and includes 
numerous types of housing programs and policies across Federal 
agencies. The Treasury Department and the IRS, in consultation with 
other Federal agencies, developed an illustrative list of Federal 
housing programs and policies that meet the requirements in section 
48E(h)(2)(B)(i):
    Covered housing programs and policies (as defined in VAWA) are 
those with active affordability covenants tied to the following:
     Department of Housing and Urban Development's (HUD) 
Section 202 Supportive Housing for the Elderly, including the direct 
loan program under Section 202.
     HUD's Section 811 Supportive Housing for Persons with 
Disabilities.
     HUD's Housing Opportunities for Persons With AIDS (HOPWA) 
program.
     HUD's homeless programs under title IV of the McKinney-
Vento Homeless Assistance Act, including the Emergency Solutions Grants 
program, the Continuum of Care program, and the Rural Housing Stability 
Assistance program.
     HUD's HOME Investment Partnerships (HOME) program.
     Federal Housing Administration (FHA) mortgage insurance 
under Section 221(d)(3) subsidized with a below-market interest rate 
(BMIR) prescribed in the proviso of Section 221(d)(5) of the National 
Housing Act.
     HUD's Section 236 interest rate reduction payments.
     HUD Public Housing assisted under section 9 of the United 
States Housing Act of 1937.
     HUD project-based rental assistance under section 8 of the 
United States Housing Act of 1937.
     HUD Section 8 Moderate Rehabilitation Program.
     HUD Section 8 Moderate Rehabilitation Single Room 
Occupancy Program for Homeless Individuals.
     USDA Section 515 Rural Rental Housing.
     USDA Section 514/516 Farm Labor Housing.
     USDA Section 538 Guaranteed Rural Rental Housing.
     USDA Section 533 Housing Preservation Grant Program.
     Treasury/IRS Low-Income Housing Credit under section 42.
     HUD's National Housing Trust Fund.
     Veterans Administration's (VA) Comprehensive Service 
Programs for Homeless Veterans.
     VA's grant program for homeless veterans with special 
needs.
     VA's financial assistance for supportive services for very 
low-income veteran families in permanent housing.
     Department of Justice transitional housing assistance 
grants for victims of domestic violence, dating violence, sexual 
assault, or stalking.
    Section 48E(e)(2)(B)(i) also includes the following Federal housing 
programs:
     Housing assistance programs administered by the USDA under 
title V of the Housing Act of 1949.
     Housing programs administered by an Indian Tribe or a 
Tribally designated housing entity (as defined in section 4(22) of the 
Native American Housing Assistance and Self-Determination Act of 1996 
(25 U.S.C. 4103(22)).
     Housing programs administered by the Department of 
Hawaiian Homelands as defined in Title VIII of the Native American 
Housing Assistance and Self-Determination Act of 1996 (24 CFR 1006.10), 
Native Hawaiian Organizations as defined in (13 CFR 124.3), and 
Hawaiian Homestead Associations as defined in (43 CFR 48.6).
    This list also will be made available on the Program web page.
    Section 48E(e)(2)(B)(i) authorizes the Secretary to add other 
affordable housing programs to the list of eligible programs. The 
Treasury Department and the IRS request comment on whether other 
affordable housing programs should be added to the list of eligible 
programs, and specifically request comment on whether and under what 
conditions certain state programs should be added to the list.
    Section 48E(h)(2)(A)(iii)(II) defines an ``applicable facility'' in 
part to include a qualified facility that is part of a qualified low-
income economic benefit project. Section 48E(h)(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)) 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)).
    Proposed Sec.  1.48E(h)-1(b)(2)(iv), consistent with 
48E(h)(2)(A)(iii)(II), would define a Category 4 facility as a facility 
that is part of qualified low-income economic benefit project. A 
facility would be treated as part of a qualified low-income economic 
benefit project if, as provided in proposed Sec.  1.48E(h)-1(f), at 
least 50 percent of the financial benefits of the electricity produced 
by the facility are provided to households with income of less than (A) 
200 percent of the poverty line (as defined in section 36B(d)(3)(A)) 
applicable to a family of the size involved, or (B) 80 percent of area 
median gross income (as determined under section 142(d)(2)(B)).
C. Less Than Five Megawatts Requirement
    Section 48E(h)(2)(A)(ii) requires that an applicable facility have 
a maximum net output of less than 5 (MW) (measured in AC), referred to 
in this preamble as the ``less than five megawatts requirement.'' 
Proposed Sec.  1.48E(h)-1(b)(3)(i) would provide that the less than 
five megawatts requirement is measured at the level of the applicable 
facility in accordance with section 48E(h)(2)(A)(ii). The maximum net 
output of an applicable facility is measured only by nameplate 
generating capacity of the applicable facility, which includes only 
functionally interdependent components of property that are owned by 
the taxpayer, that are operated together, and that can operate apart 
from other property to produce electricity, at the time the applicable 
facility is placed in service. In accordance with proposed Sec.  1.48E-
2(b)(2)(ii), proposed Sec.  1.48E(h)-1(b)(3)(i) would provide that 
components of property are functionally interdependent if the placing 
in service of each component is dependent upon placing in service other 
components to produce electricity.

[[Page 71197]]

    Proposed Sec.  1.48E(h)-1(b)(3)(ii) would provide that the 
determination of whether an applicable facility has a maximum net 
output of less than 5 MW (as measured in AC) is based on the nameplate 
capacity of the applicable facility. The nameplate capacity for 
purposes of the less than five megawatts requirement is the maximum 
electrical generating output in MW that the applicable facility 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 of nameplate capacity provided in 40 
CFR 96.202. If applicable, the International Standard Organization 
conditions should be used to measure the maximum electrical generating 
output of an applicable facility.
    The Treasury Department and the IRS request comments on other 
approaches to address this statutory requirement that would further the 
purpose of efficient allocation of a Federal tax credit program with a 
national impact and would advance the goals of the Program to 
incentivize additional deployment of qualified facilities in low-income 
communities. These approaches could include rules that would aggregate 
the capacity of qualified facilities with integrated operations (that 
is, qualified facilities that are owned by the same taxpayer, placed in 
service in the same taxable year, and transmit electricity generated by 
the facilities through the same point of interconnection or, if the 
facilities are not grid-connected, to the same end user(s)) solely for 
the purposes of whether an application meets the less than five 
megawatts requirement under Section 48E(h)(2)(A)(ii).

II. Eligible Property

    Section 48E(h)(3) defines ``eligible property'' as a qualified 
investment with respect to any applicable facility. Section 48E(b) 
describes a qualified investment with respect to a qualified facility. 
Generally, for purposes of section 48E(a), section 48E(b)(1)(A) and 
(b)(1)(B)(i) provides that the qualified investment with respect to a 
qualified facility for any taxable year is the sum of the basis of any 
qualified property placed in service by the taxpayer during such 
taxable year that is part of a qualified facility, plus the amount of 
expenditures that are paid or incurred by the taxpayer for qualified 
interconnection property that is properly chargeable to capital account 
of the taxpayer. Pursuant to section 48E(h)(3), eligible property does 
not include any qualified investment with respect to energy storage 
technology.
    Proposed Sec.  1.48E(h)-1(c) would define ``eligible property'' as 
a qualified investment (as defined in section 48E(b)) \4\ with respect 
to any applicable facility.
---------------------------------------------------------------------------

    \4\ See proposed Sec.  1.48E-2(d), as proposed in the notice of 
proposed rulemaking (REG-119283-23) published in the Federal 
Register (89 FR 47792) on June 3, 2024, and corrected at 2024-15718 
on July 18, 2024, for more information regarding the definition of 
``qualified investment.''
---------------------------------------------------------------------------

III. Location

    Proposed Sec.  1.48E(h)-1(d)(1) would treat an applicable facility 
as ``located in a low-income community'' or ``on Indian land'' under 
section 48E(h)(2)(A)(iii)(I) or located in a geographic area under the 
Additional Selection Criteria (see part V.B.2. of this Explanation of 
Provisions) if the facility satisfies the nameplate capacity test 
(Nameplate Capacity Test for Location) provided in proposed Sec.  
1.48E(h)-1(d)(2).
    Under the Nameplate Capacity Test for Location, which would be 
provided in proposed Sec.  1.48E(h)-1(d)(2), an applicable facility 
would be considered located in or on the relevant geographic area 
described in proposed Sec.  1.48E(h)-1(d)(1) if 50 percent or more of 
the applicable facility's nameplate capacity is in a qualifying area. 
The percentage of an applicable facility's nameplate capacity (as 
defined in proposed Sec.  1.48E(h)-1(d)(3)) that is in a qualifying 
area would be determined by dividing the nameplate capacity of the 
applicable facility's electricity-generating units that are located in 
the qualifying area by the total nameplate capacity of all the 
electricity-generating units of the applicable facility.
    Proposed Sec.  1.48E(h)-1(d)(3) would provide that nameplate 
capacity for purposes of the Nameplate Capacity Test for Location for 
an electricity generating unit means the maximum electrical generating 
output that the applicable facility 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 of 
nameplate capacity provided in 40 CFR 96.202. If applicable, the 
International Standard Organization conditions should be used to 
measure the maximum electrical generating output of an applicable 
facility. For purposes of assessing the Nameplate Capacity Test for 
Location, electricity-generating units that generate direct current 
(DC) power before converting to AC (for example, solar photovoltaic) 
should use nameplate capacity in DC, otherwise the nameplate capacity 
in AC should be used.

IV. Financial Benefits for Category 3 and Category 4 Allocations

    Section 48E(h)(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 
48E(h)(2)(D), as well as a manner to apply such definitions, 
appropriately, to qualified low-income residential building projects 
(section 48E(h)(2)(B)) and qualified economic benefit projects (section 
48E(h)(2)(C)). The definitions and requirements would be different for 
an allocation under Category 3 (section 48E(h)(2)(B)) and Category 4 
(section 48E(h)(2)(C)).
A. 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 (Category 3 facility), section 
48E(h)(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 in proposed Sec.  1.48E(h)-1(e).
    Proposed Sec.  1.48E(h)-1(e)(1) would provide that, to satisfy the 
requirements of a Category 3 facility, the financial benefits of the 
electricity produced by the facility must be allocated equitably among 
the occupants of the dwelling units of the Qualified Residential 
Property. The same rules for financial benefits for Category 3 
facilities apply to both multi-family property and single-family 
Qualified Residential Property.
    Proposed Sec.  1.48E(h)-1(e)(2) would provide that at least 50 
percent of the financial value of the electricity produced by the 
facility (as defined in proposed Sec.  1.48E(h)-1(e)(3)) must be 
equitably allocated to the Qualified Residential Property's occupants 
that are designated as low-income occupants under the housing program.
    Proposed Sec.  1.48E(h)-1(e)(3) would define the financial value of 
the electricity produced by the applicable facility as the greater of: 
(i) 25 percent of the gross financial value (as defined

[[Page 71198]]

in proposed Sec.  1.48E(h)-1(e)(4)) of the annual electricity produced 
by the applicable facility, or (ii) the net financial value (as defined 
in proposed Sec.  1.48E(h)-1(e)(5)) of the annual energy produced by 
the applicable facility. This requirement would recognize that not all 
the financial value of the electricity produced can be passed on to 
building occupants because a certain percentage can be assumed to be 
dedicated to lowering the operational costs of electricity consumption 
for common areas, which benefits all building occupants.
    Proposed Sec.  1.48E(h)-1(e)(4) would calculate gross financial 
value of the annual electricity produced by the applicable facility as 
the sum of: (i) the total self-consumed kilowatt-hours produced by the 
applicable facility multiplied by the Qualified Residential Property's 
metered volumetric price of electricity, (ii) the total exported 
kilowatt-hours produced by the applicable facility multiplied by the 
Qualified Residential Property's volumetric export compensation rate 
for kilowatt-hours of electricity, and (iii) the sale of any attributes 
associated with the applicable facility's production (including, for 
example, any Federal, State, or Tribal renewable energy credits or 
incentives), if separate from the metered price of electricity or 
export compensation rate.
    The definition of net financial value in proposed Sec.  1.48E(h)-
1(e)(5) would account for the specific nature of facilities serving 
low-income residential buildings and facility ownership, as the 
applicable facility may be third-party owned or commonly owned with the 
building. For common ownership, proposed Sec.  1.48E(h)-1(e)(5)(i) 
would define net financial value as the gross financial value of the 
annual electricity produced minus the annual average (or levelized) 
cost of the applicable facility over the useful life of the facility 
(including debt service, maintenance, replacement reserve, capital 
expenditures, and any other costs associated with constructing, 
maintaining, and operating the facility). For third-party ownership, if 
the facility and the Qualified Residential Property are not commonly 
owned, and the facility owner enters into a power purchase agreement or 
other contract for electricity services with the Qualified Residential 
Property owner and/or building occupants, proposed Sec.  1.48E(h)-
1(e)(5)(ii) would define net financial value as the gross financial 
value of the annual electricity produced minus any payments made by the 
building owner and/or building occupants to the applicable facility 
owner for electricity services associated with the applicable facility 
in a given year.
    Proposed Sec.  1.48E(h)-1(e)(5)(iii) would provide different rules 
to ensure an equitable allocation of financial benefits depending on 
whether or not financial value is distributed to building occupants via 
utility bill savings or through different means. If financial value is 
distributed via utility bill savings, proposed Sec.  1.48E(h)-
1(e)(5)(iii)(A) would provide that financial benefits will be 
considered to be allocated equitably if at least 50 percent of the 
financial value of the electricity produced by the applicable facility 
is distributed as utility bill savings in equal shares to each building 
dwelling unit among the Qualified Residential Property's occupants that 
are designated as low-income under the covered housing program or other 
affordable housing program (described in section 48E(h)(2)(B)(i)) or 
alternatively distributed in proportional shares based on each low-
income dwelling unit's square footage, or each low-income dwelling 
unit's number of occupants. Proposed Sec.  1.48E(h)-1(e)(5)(iii)(A) 
would provide also that for any occupant(s) who choose to not receive 
utility bill savings (for example, exercise their right to not 
participate in or to opt out of a community generation subscription in 
applicable jurisdictions), the portion of the financial value that 
would otherwise be distributed to non-participating occupants must be 
instead distributed to all participating occupants. Proposed Sec.  
1.48E(h)-1(e)(5)(iii)(A) would clarify that no less than 50 percent of 
the Qualified Residential Property's occupants that are designated as 
low-income must participate and receive utility bill savings for the 
applicable facility to use this method of benefit distribution.
    Proposed Sec.  1.48E(h)-1(e)(5)(iii)(A) also would provide that in 
the case of a solar facility, applicants must follow the HUD guidance 
on Treatment of Financial Benefits to HUD-Assisted Tenants Resulting 
from Participation in Solar Programs Notice (Housing Notice 2023-09), 
located at https://www.hud.gov/sites/dfiles/OCHCO/documents/2023-09hsgn.pdf, or future HUD guidance, or other guidance or notices from 
the Federal agency that oversees the applicable housing program 
identified in section 48E(h)(2)(B) to ensure that tenants' annual 
income for rent calculations or other requirements impacting total 
tenant payment are not impacted negatively by the distribution of 
financial value. Applicants should apply similar principles in the case 
of any other applicable facility.
    Proposed Sec.  1.48E(h)-1(e)(5)(iii)(B) would provide that if 
financial value is not distributed via utility bill savings, financial 
benefits will be considered to be allocated equitably if at least 50 
percent of the financial value of the electricity produced by the 
applicable facility is distributed to occupants using one or more 
methods described Housing Notice 2023-09 for a master-metered building, 
or future HUD guidance, or other guidance or notices from the Federal 
agency that oversees the applicable housing program identified in 
section 48E(h)(2)(B). In the case of a solar facility, applicants must 
comply with HUD guidance, or future HUD guidance, for how residents of 
master-metered HUD-assisted housing can benefit from owners' sharing of 
financial benefits accrued from an investment in solar electricity 
generation to ensure that tenants' utility allowances and annual income 
for rent calculations are not negatively impacted. Applicants should 
apply similar principles in the case of any other applicable facility.
    To achieve the goal of verifying Program compliance and to provide 
clarification to applicants regarding how they can demonstrate that 
statutory requirements are met, proposed Sec.  1.48E(h)-1(e)(6)(i) 
would provide that a Category 3 facility owner must prepare a Benefits 
Sharing Statement. The Benefits Sharing Statement would be required to 
include (A) a calculation of the facility's gross financial value using 
the method described in proposed Sec.  1.48E(h)-1(e)(4), (B) a 
calculation of the facility's net financial value using the method 
described in proposed Sec.  1.48E(h)-1(e)(5), (C) a calculation of the 
financial value required to be distributed to building occupants using 
the method described in proposed Sec.  1.48E(h)-1(e)(3), (D) a 
description of the means through which the required financial value 
will be distributed to building occupants, and (E) if the facility and 
Qualified Residential Property are separately owned, an indication of 
which entity will be responsible for the distribution of benefits to 
the occupants.
    Proposed Sec.  1.48E(h)-1(e)(6)(ii) would provide that the 
Qualified Residential Property owner must formally notify the occupants 
of units in the Qualified Residential Property of the development of 
the facility and planned distribution of benefits.
B. Financial Benefits in Qualified Low-Income Economic Benefit Projects
    For a facility to be treated as part of a qualified low-income 
economic

[[Page 71199]]

benefit project, section 48E(h)(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.
    Proposed Sec.  1.48E(h)-1(f)(1) would provide that to satisfy the 
requirements of a Category 4 facility:
    (i) The facility must serve multiple qualifying low-income 
households under section 48E(e)(2)(C)(i);
    (ii) At least 50 percent of the facility's total output in 
kilowatts (kW) must be assigned to Qualifying Households; and
    (iii) Each Qualifying Household must be provided a bill credit 
discount rate (as defined in proposed Sec.  1.48E(h)-1(f)(2)) of at 
least 30 percent.
    The Treasury Department and the IRS request comment on (1) whether 
a 30-percent bill credit discount rate would be feasible for Category 4 
facilities, (2) whether a rate of 30 percent or greater would be 
feasible if transitioned in over time (that is, an increase in the 
minimum bill credit discount for each subsequent program year) and, if 
so, what would be an appropriate rate of transition, (3) how would this 
discount rate impact different eligible technologies, and (4) the 
impact of a minimum bill discount credit rate for Category 4 facilities 
that is different from benefit requirements for existing or planned 
state programs (for example, state-level community solar programs 
supported by the U.S. Environmental Protection Agency's Greenhouse Gas 
Reduction Fund).
    Proposed Sec.  1.48E(h)-1(f)(2)(i) would define a bill credit 
discount rate as the difference between the financial benefit provided 
to a Qualifying Household (including utility bill credits, reductions 
in a Qualifying Household's electricity rate, or other monetary 
benefits accrued by the Qualifying Household on their utility bill) and 
the cost of participating in the community program (including 
subscription payments for zero-carbon energy and any other fees or 
charges), expressed as a percentage of the financial benefit 
distributed to the Qualifying Household. The bill credit discount rate 
can be calculated by starting with the financial benefit provided to 
the Qualifying Household, subtracting all payments made by the 
Qualifying Household (or payments remitted on behalf of the Qualifying 
Household through net crediting, consolidated billing, or similar 
arrangements) 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 Qualifying 
Household.
    Proposed Sec.  1.48E(h)-1(f)(2)(ii) would provide that in cases in 
which the Qualifying Household has no or only a nominal cost of 
participation, and financial benefits are delivered through a utility 
or government body, the bill credit discount rate should be calculated 
as the financial benefit provided to a Qualifying Household (including 
utility bill credits, reductions in a Qualifying Household's 
electricity rate, or other monetary benefits accrued by a Qualifying 
Household on their utility bill) divided by the total value of the 
electricity produced by the facility and assigned to the Qualifying 
Household (including any electricity services, products, and credits 
provided in conjunction with the electricity produced by such 
facility), as measured by the utility, independent system operator 
(ISO), or other off-taker procuring electricity (and related services, 
products, and credits) from the facility. Proposed Sec.  1.48E(h)-
1(f)(2)(iii) would clarify that the bill credit discount rate is 
calculated on an annual basis. Proposed Sec.  1.48E(h)-1(f)(2)(iv) 
would provide examples to clarify that application of proposed Sec.  
1.48E(h)-1(f)(2).
    The Treasury Department and the IRS are considering adding other 
methods, apart from bill credit discounts, for financial benefits to be 
shared with Qualifying Households. Accordingly, the Treasury Department 
and the IRS request comments on (1) what alternative methods for 
delivering financial benefits should be considered to provide 
equivalent financial benefits in cases in which bill credit discounts 
are not available or are not feasible for covered technologies; (2) how 
these alternative mechanisms should be verified to ensure they provide 
the required financial benefits to Qualifying Households; (3) whether 
these alternative mechanisms are feasible for multiple technologies; 
and (4) what requirements can be put in place to address any 
uncertainties related to the potential treatment of financial benefits 
as income for Federal income tax purposes or the potential impact on 
eligibility for public assistance benefits.
    Proposed Sec.  1.48E(h)-1(f)(2)(iii) would provide that if the 
facility derives financial value from the production of electricity in 
a manner such that this value cannot be directly applied to the 
Qualifying Household's utility bill (for example, renewable energy 
credit payments made directly to the facility owner), then no less than 
30 percent of that monetary value must also be provided to the 
Qualifying Household, either through a greater bill credit discount on 
the Qualifying Household's utility bill than would otherwise be derived 
from the method described in proposed Sec.  1.48E(h)-1(f)(1)(i) or 
through other means.
    To ensure the requirements of proposed Sec.  1.48E(h)-1(f) are met, 
proposed Sec.  1.48E(h)-1(f)(3) would require verification of 
households' qualifying low-income status. Applicants are responsible 
for proof-of-income verification. Proposed Sec.  1.48E(h)-1(f)(3)(i) 
would provide that to establish that financial benefits are provided to 
Qualifying Households as provided in proposed Sec.  1.48E(h)-1(f)(1), 
applicants must submit documentation in accordance with guidance 
published in the Internal Revenue Bulletin. A Qualifying Household's 
low-income status is determined at the time the household enrolls in 
the subscription program and does not need to be re-verified.
    Proposed Sec.  1.48E(h)-1(f)(3)(ii) would provide that applicants 
can use categorical eligibility or other income verification methods to 
establish that a household is a Qualifying Household. Proposed Sec.  
1.48E(h)-1(f)(3)(ii)(A) would provide that categorical eligibility 
consists of obtaining proof of the household's participation in a 
needs-based Federal, State, Tribal, or utility program with income 
limits at or below the qualifying income level required to be a 
Qualifying Household. Federal programs may include, but are not limited 
to: Medicaid, Low-Income Home Energy Assistance Program (LIHEAP) 
administered by the Department of Health and Human Services, 
Weatherization Assistance Program (WAP) administered by the Department 
of Energy (DOE), Supplemental Nutrition Assistance Program (SNAP) 
administered by the USDA, Section 8 Project-Based Rental Assistance, 
the Housing Choice Voucher Program administered by HUD, the Federal 
Communication Commission's Lifeline Support for Affordable 
Communications, the National School Lunch Program administered by the 
USDA, the Supplemental Security Income Program administered by the 
Social Security Administration, and any verified government or non-
profit program serving Asset Limited Income Constrained Employed 
(ALICE) persons or households. With respect to the Federal programs 
listed previously an individual in the household must currently be 
approved for assistance from or participation in the program with an 
award letter or other written documentation within the last 12 months 
for enrollment in that program to establish categorical eligibility of 
the household. State agencies also can

[[Page 71200]]

provide verification that a household is a Qualifying Household if the 
household participates in a State's solar or other program and income 
limits for such program are at or below the qualifying income level 
required to be a Qualifying Household. The qualifying income level for 
a Qualifying Household is based on where such household is located.
    Proposed Sec.  1.48E(h)-1(f)(3)(ii)(B) would provide that paystubs, 
Federal or State tax returns, or income verification through crediting 
agencies and commercial data sources can also be used to establish that 
a household is a Qualifying Household. Proposed Sec.  1.48E(h)-
1(f)(3)(ii)(C) would provide that a self-attestation from a household 
is not a permissible method to establish a household is a Qualifying 
Household. This prohibition on direct self-attestation from a household 
does not extend to categorical eligibility for needs-based Federal, 
State, Tribal, or utility programs with income limits that rely on 
self-attestation for verification of income.

V. Proposed Program Requirements and Structure

A. Annual Capacity Limitation
    Under section 48E(h)(4)(C), the total annual Capacity Limitation is 
1.8 gigawatts of DC capacity for each calendar year during the period 
beginning on January 1, 2025, and ending on December 31 of the 
applicable year (as defined in section 45Y(d)(3)),\5\ and zero 
thereafter. Proposed Sec.  1.48E(h)-1(g) would provide that the 
Treasury Department and the IRS intend to announce how the annual 
Capacity Limitation would be allocated across the four facility 
categories (described in proposed Sec.  1.48E(h)-1(b)(2)) in future 
guidance published in the Internal Revenue Bulletin. Proposed Sec.  
1.48E(h)-1(g)(1) also would provide that the Capacity Limitation for 
each Program year is divided across the four facility categories based 
on factors such as the anticipated number of applications that are 
expected for each category and the amount of Capacity Limitation that 
needs to be reserved for each category to encourage market 
participation in each category consistent with statutory intent and the 
goals of the Program. After the Capacity Limitation for each facility 
category is established in guidance published in the Internal Revenue 
Bulletin, it may be reallocated later across facility categories and 
sub-reservation in the event one category or sub-reservation is 
oversubscribed and another has excess capacity. Proposed Sec.  
1.48E(h)-1(g) would specify that a facility category or sub-reservation 
is oversubscribed if it receives applications in excess of Capacity 
Limitation reserved for the facility category or sub-reservation.
---------------------------------------------------------------------------

    \5\ Section 45Y(d)(3) defines the term ``applicable year'' as 
the later of the calendar year in which the Secretary determines 
that the annual greenhouse gas emissions from the production of 
electricity in the United States are equal to or less than 25 
percent of the annual greenhouse gas emissions from the production 
of electricity in the United States for calendar year 2022, or 2032. 
See also proposed Sec.  1.45Y-1(c)(3).
---------------------------------------------------------------------------

    Proposed Sec.  1.48E(h)-1(g)(2) would provide that if the annual 
Capacity Limitation for any calendar year exceeds the aggregate amount 
of annual Capacity Limitation allocated for a calendar year under 
proposed Sec.  1.48E(h)-1(g)(2), then the annual Capacity Limitation 
for the succeeding calendar year is increased by the amount of such 
excess. No amount of Capacity Limitation may be carried to any calendar 
year after the third calendar year following the applicable year (as 
defined in section 45Y(d)(3)).
B. Additional Selection Criteria
    Proposed Sec.  1.48E(h)-1(h)(1) would provide that at least 50 
percent of the total Capacity Limitation in each facility category 
would be reserved for facilities meeting criteria described in proposed 
Sec.  1.48E(h)-1(h)(2) (relating to ownership criteria) and proposed 
Sec.  1.48E(h)-1(h)(3) (relating to geographic criteria); both the 
ownership and the geographic criteria are collectively referred to as 
``Additional Selection Criteria''. The specific amount of Capacity 
Limitation reserved (but not less than 50 percent) would be provided in 
guidance published in the Internal Revenue Bulletin for each Program 
year.
    The procedure for using these Additional Selection Criteria also 
will be provided in guidance published in the Internal Revenue 
Bulletin. The Treasury Department and the IRS expect that 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. The Treasury Department 
and the IRS expect that 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, then facilities meeting both of the Additional Selection 
Criteria categories would be prioritized for an allocation. 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, then 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.
    Proposed Sec.  1.48E(h)-1(h) also would provide that after the 
reservation of Capacity Limitation for qualified facilities meeting the 
Additional Selection Criteria described in proposed Sec.  1.48E(h)-
1(h)(2) and (3) is established in guidance published in the Internal 
Revenue Bulletin, it may be reallocated later across facility 
categories and sub-reservations in the event one category or sub-
reservation within a category is oversubscribed and another has excess 
capacity. The Treasury Department and the IRS would retain the 
discretion to reallocate Capacity Limitation across categories and sub-
categories to maximize allocations in the event one category or sub-
reservation is oversubscribed and another has excess capacity.
1. Ownership Criteria
    Proposed Sec.  1.48E(h)-1(h)(2) would provide criteria based on 
ownership (Ownership Criteria). The Ownership Criteria category is 
based on characteristics of the applicant that owns the applicable 
facility. An applicable facility would meet the Ownership Criteria if 
it is owned by a Tribal enterprise, an Alaska Native Corporation, a 
Native Hawaiian Organization, a renewable energy cooperative, or a 
qualified tax-exempt entity. If an applicant wholly owns an entity that 
is the owner of an applicable facility, and the entity is disregarded 
as separate from its owner for Federal income tax purposes (disregarded 
entity), then the applicant, and not the disregarded entity, is treated 
as the owner of the applicable facility for purposes of the Ownership 
Criteria. For corporations incorporated under the authority of either 
section 17 of the Indian Reorganization Act of 1934, 25 U.S.C. 5124 or 
section 3 of the Oklahoma Indian Welfare Act, 25 U.S.C. 5203, an 
application may be made as a Tribal Enterprise. If an applicant is an 
entity treated as a partnership for Federal income tax purposes, and an 
entity described in proposed Sec.  1.48E(h)-1(h)(2)(i)(A) through (E) 
owns at least a one percent interest (either directly or indirectly) in 
each material item of partnership income, gain, loss, deduction, and 
credit and is a managing member or general partner (or similar title) 
under State or Tribal law of the partnership (or directly owns 100 
percent of the equity interests in the managing member or general 
partner) at

[[Page 71201]]

all times during the existence of the partnership, the applicable 
facility will be deemed to meet the Ownership Criteria. If the 
partnership becomes the owner of the facility after an allocation is 
made to an entity described in proposed Sec.  1.48E(h)-1(h)(2)(i)(A) 
through (E), the transfer of the facility to the partnership is not a 
disqualification event for purposes of proposed Sec.  1.48E(h)-1(m)(5), 
so long as the requirements of proposed Sec.  1.48E(h)-1(m)(5) are 
satisfied. The original applicant and the successor partnership should 
refer to guidance published in the Internal Revenue Bulletin for the 
procedures to request a transfer of the Capacity Limitation allocation 
to the successor partnership.
    Currently, these proposed regulations do not include an Ownership 
Criteria category for emerging market businesses, such as those 
businesses that do not have large market shares that could be 
demonstrated by the number of employees, annual revenue, and other 
factors. The Treasury Department and IRS considered including a 
category for emerging market businesses similar to the qualified 
renewable energy company category under the section 48(e) Low-Income 
Communities Bonus Credit Program and Sec.  1.48(e)-1(h)(2)(vi), but 
ultimately decided not to retain the qualified renewable energy company 
category for purposes of the Program under section 48E(h) and these 
proposed regulations. The Treasury Department and IRS request comments 
on how an administrable emerging market business Ownership Criteria 
category could be structured, including what thresholds a definition 
should include to define market share and size, age of business, the 
number of employees (both minimum and maximum) and/or annual gross 
receipts generated by an emerging market business, and the supporting 
documentation that could be provided as part of the application to 
verify an applicant meets such criteria. Additionally, the Treasury 
Department and the IRS request comments on any other appropriate 
Ownership Criteria that might be applied, for example the degree to 
which a business focuses its efforts on and delivers benefits to low-
income and disadvantaged communities, and the supporting documentation 
that could be provided as part of the application to verify an 
applicant meets such criteria.
a. Tribal Enterprise
    A ``Tribal enterprise'' for purposes of the Ownership Criteria is 
an entity that is (1) owned at least 51 percent directly by an Indian 
Tribal government (as defined in section 30D(g)(9) of the Code), or 
owned at least 51 percent indirectly through a corporation that is 
wholly owned by the Indian Tribal government and is created either 
under the Tribal laws of the Indian Tribal government or through a 
corporation incorporated under the authority of either section 17 of 
the Indian Reorganization Act of 1934, 25 U.S.C. 5124, or section 3 of 
the Oklahoma Indian Welfare Act, 25 U.S.C. 5203, and (2) subject to 
Tribal government rules, regulations, and/or codes that regulate the 
operations of the entity.
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. Native Hawaiian Organization
    A ``Native Hawaiian Organization'' for purposes of the Ownership 
Criteria is defined in 13 CFR 124.3.
d. Renewable Energy Cooperative
    A ``renewable energy cooperative'' for purposes of the Ownership 
Criteria is an entity that develops applicable facilities and is either 
(1) a consumer or purchasing cooperative controlled by its members with 
each member having an equal voting right and with each member having 
rights to profit distributions based on patronage as defined by 
proportion of volume of energy or energy credits purchased (kWh), 
volume of financial benefits delivered ($), or volume of financial 
payments made ($), and in which at least 50 percent of the patronage in 
the qualified facility is by cooperative members who are low-income 
households (as defined in section 48(e)(2)(C)); or (2) a worker 
cooperative controlled by its worker-members with each member having an 
equal voting right.
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 (d) of 
the Code;
    (2) Any State, the District of Columbia, or political subdivision 
thereof, or any agency or instrumentality of any of the foregoing;
    (3) An Indian Tribal government (as defined in section 30D(g)(9)), 
a 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 that is engaged in furnishing electric energy to 
persons in rural areas.
2. Geographic Criteria
    Proposed Sec.  1.48E(h)-1(h)(3) would provide criteria based on 
geography (Geographic Criteria). The Geographic Criteria category is 
based on where the facility will be placed in service. Geographic 
Criteria would not apply to Category 2 facilities. To meet the 
Geographic Criteria, a facility would need to be located in a 
Persistent Poverty County (PPC) \6\ as described in proposed Sec.  
1.48E(h)-1(h)(3)(ii) or in certain census tracts identified on the 
Climate and Economic Justice Screening Tool (CEJST) \7\ and as 
described in proposed Sec.  1.48E(h)-1(h)(3)(iii). Proposed Sec.  
1.48E(h)-1(h)(3) would also provide 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 described in proposed Sec.  1.48E(h)-1(n)(1) unless 
the location of the facility changes.
---------------------------------------------------------------------------

    \6\ https://www.ers.usda.gov/data-products/county-typology-codes/.
    \7\ https://screeningtool.geoplatform.gov/en/#3/33.47/-97.5.
---------------------------------------------------------------------------

    Proposed Sec.  1.48E(h)-1(h)(3)(ii) would describe a PPC as any 
county in which 20 percent or more of residents have experienced high 
rates of poverty over the past 30 years. For purposes of the Program, 
the Treasury Department and the IRS propose using the PPC measure 
adopted by the USDA to make this determination. The most recent 
measure, which would apply for the 2025 program year, incorporates 
poverty estimates from the 1990 and 2000 censuses, and 2007-2011 and 
2017-2021 ACS Survey 5-year averages.\8\
---------------------------------------------------------------------------

    \8\ https://www.ers.usda.gov/data-products/poverty-area-measures.
---------------------------------------------------------------------------

    Proposed Sec.  1.48E(h)-1(h)(3)(iii) would provide that a census 
tract qualifies under Sec.  1.48E(h)-1(h)(3)(i) if it is described in 
the latest official CEJST, as greater than or equal to the 90th 
percentile for energy burden and greater than or equal to the 65th 
percentile for low income, or as greater than or equal to the 90th 
percentile for PM2.5 exposure and greater than or equal to 
the 65th percentile for low income. Proposed Sec.  1.48E(h)-
1(h)(3)(iii)(A) through (C) would provide definitions for terms used in 
identifying census tracts described in proposed Sec.  1.48E(h)-
1(h)(3)(iii). See CEJST, Methodology & data, https://screeningtool.geoplatform.gov/en/methodology for

[[Page 71202]]

more information on these terms as applied in the screening tool.
C. Sub-Reservations of Allocation for Facilities Located in a Low-
Income Community
    The Treasury Department and the IRS anticipate that Category 1 will 
receive the largest number of applications, and that within Category 1, 
many applications will involve residential solar facilities that are 
smaller in scale and have relatively short construction completion 
timelines. Therefore, proposed Sec.  1.48E(h)-1(i) would subdivide the 
Capacity Limitation reservation for facilities seeking a Category 1 
allocation with a portion of the Capacity Limitation specifically 
reserved 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 predominantly are awarded to 
facilities serving residences and consumers, rather than facilities 
serving businesses. Proposed Sec.  1.48E(h)-1(i) would reserve the 
remaining Capacity Limitation in Category 1 for applicants with front 
of the meter (FTM) facilities as well as non-residential BTM 
facilities. Proposed Sec.  1.48E(h)-1(i) clarifies that the specific 
amounts of the Category 1 sub-reservations will be provided in future 
guidance published in the Internal Revenue Bulletin that is applicable 
to a Program year based on factors such as promoting efficient 
allocation of Capacity Limitation and allowing like-projects to compete 
for an allocation. Proposed Sec.  1.48E(h)-1(i) provides that after the 
sub-reservation is established in guidance published in the Internal 
Revenue Bulletin, it may be reallocated later in the event it has 
excess capacity.
    Proposed Sec.  1.48E(h)-1(i)(2)(ii) would define an eligible 
residential BTM facility as single-family or multi-family residential 
applicable facility that does not meet the requirements for Category 3 
and is BTM. Proposed Sec.  1.48E(h)-1(i)(2)(ii) would provide that an 
applicable facility is residential if it is uses energy to generate 
electricity for use in a dwelling unit that is used as a residence. 
Proposed Sec.  1.48E(h)-1(i)(2)(i) would define an applicable facility 
as 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.
    Proposed Sec.  1.48E(h)-1(i)(2)(iii) would define a facility as FTM 
if it is directly connected to a grid and its primary purpose is to 
provide electricity to one or more offsite locations via such grid or 
utility meters with which it does not have an electrical connection; 
alternatively, FTM is defined as a facility that is not BTM. For 
purposes of Category 4 facilities, an applicable facility is also FTM 
if 50 percent or more of its electricity generation on an annual basis 
is physically exported to the broader electricity grid.
D. Application and Selection Process
    Section 48E(h)(4)(A) provides that ``[i]n establishing such program 
and to carry out the purposes of this paragraph, the Secretary shall 
provide procedures to allow for an efficient allocation process.'' 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. Accordingly, 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 and facilitates an efficient allocation 
process.
    Proposed Sec.  1.48E(h)-1(j)(1) provides that applications for a 
Capacity Limitation allocation will be evaluated according to the 
procedures specified in guidance published in the Internal Revenue 
Bulletin. Based on feedback received with respect to the section 48(e) 
Low-Income Communities Bonus Credit Program (a similar program 
applicable solely to qualified solar and wind facilities in 2023 and 
2024) and an assessment of operational capabilities set up to 
administer the Program, the Treasury Department and the IRS expect to 
provide a process that includes one or more initial application windows 
in which applications received by a certain time and date would be 
evaluated together, followed by a rolling application process if 
Capacity Limitation is not fully allocated after an initial application 
window closes. Facilities that meet at least one of the two categories 
of specified Ownership and Geographic criteria (Additional Selection 
Criteria, discussed in part V.B. of this Explanation of Provisions) 
would receive priority for an allocation within each facility category 
described in section 48E(h)(2)(A)(iii).
    Because section 48E(h) is subject to a finite annual Capacity 
Limitation, the Treasury Department and the IRS think that allocating 
amounts of Capacity Limitation to a group of related qualified 
facilities with an aggregate total maximum net output equal to or 
greater than five megawatts (as measured in alternating current) could 
concentrate allocations in a smaller number of communities, which would 
not further the purpose of efficient allocation of a Federal tax credit 
program with a national impact. The Treasury Department and the IRS 
additionally believe that although such facilities could be provided a 
small capacity allocation rather than be deprioritized, providing a 
small allocation to a group of related qualified facilities with a much 
larger aggregate capacity is not likely to be determinative of the 
deployment of those qualified facilities and thus would not advance the 
goals of the Program to incentivize additional deployment of qualified 
facilities in low-income communities. The Treasury Department and the 
IRS therefore intend to deprioritize review of applications for an 
applicable facility that together with other qualified facilities (1) 
share a point of interconnection, (2) produce electricity using the 
same technology, (3) are owned by the same taxpayer, and (4) have an 
aggregate total maximum net output (as determined by the sum of the 
maximum net output of the applicable facility and each qualified 
facility under proposed Sec.  1.48E(h)-1(b)(3)(ii)) equal to or greater 
than five megawatts (alternating current). Deprioritized applications 
will be considered after other applications in the current allocation 
round, or a subsequent allocation round at the Secretary's discretion. 
An application for review may be deemed to not be part of a group of 
related qualified facilities with a total combined maximum net output 
equal to or greater than five megawatts if it has an interconnection 
agreement for less than five megawatts.
    Section 48E(h)(4)(A) directs the Secretary to provide procedures to 
allow for an efficient allocation process. Additionally, section 
48E(h)(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 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

[[Page 71203]]

such that they are likely to meet the four-year placed-in-service 
deadline, proposed Sec.  1.48E(h)-1(j)(2) would require applicants to 
submit certain information, documentation, and attestations when 
applying for an allocation that demonstrate project eligibility and 
viability. Proposed Sec.  1.48E(h)-1(j)(2) would clarify that the 
specific information, documentation, and attestation to be submitted 
will be provided in future guidance published in the Internal Revenue 
Bulletin that is applicable to a Program year. Details regarding the 
application process will be provided in future procedural guidance 
published in the Internal Revenue Bulletin. Procedural guidance for the 
2025 Program year will be issued later this year.
    The Treasury Department and the IRS expect that the specific 
application information, documentation, and attestation requirements 
provided in procedural guidance applicable to the Program published in 
the Internal Revenue Bulletin will be substantially similar to 
requirements applicable the section 48(e) Low-Income Communities Bonus 
Program provided in Revenue Procedure 2024-19, 2024-16 I.R.B. 899. Like 
the section 48(e) program, some requirements may differ for FTM and BTM 
facilities and other requirements may differ by Facility Category and 
Additional Selection Criteria. The Treasury Department and the IRS will 
periodically assess the Program and previous applications to determine 
any changes to the Program's application process. The Treasury 
Department and the IRS request comments on all aspects of the 
application and selection process but specifically request comments on 
whether (1) modifications are necessary with respect to any of the 
application requirements so that the Program is available to all 
applicable facilities under the Program, and (2) certain facility 
categories can demonstrate project viability with other types of 
documentation.
    Proposed Sec.  1.48E(h)-1(j)(3) would provide that there is no 
administrative appeal of Capacity Limitation allocation decisions.
E. Documentation and Attestations To Be Submitted When Placed in 
Service
    The Treasury Department and the IRS also propose in Sec.  1.48E(h)-
1(k)(1) to require facilities that received a Capacity Limitation 
allocation to report to the DOE the date the eligible property was 
placed in service. Proposed Sec.  1.48E(h)-1(k)(1) also would require 
that this report be made through the same portal used to submit the 
original application for allocation.
    Proposed Sec.  1.48E(h)-1(k)(2) would require facilities that 
received a Capacity Limitation 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 Program. Therefore, proposed Sec.  
1.48E(h)-1(k)(2) would require facilities awarded a Capacity Limitation 
to submit final eligibility information at placed in service time. At 
the time that the owner reports that eligible property has been placed 
in service the owner also must confirm information about the facility 
and submit additional documentation to prove the facility is still 
eligible to maintain the allocation and the increased applicable 
percentage under section 48E(h)(1) as specified in guidance published 
in the Internal Revenue Bulletin.
    Proposed Sec.  1.48E(h)-1(k)(3) would provide that the DOE will 
review the placed in service documentation and attestations to 
determine if the facility meets the eligibility criteria for the owner 
to claim an increased applicable percentage. The DOE then provides a 
recommendation to the IRS regarding whether the facility continues to 
meet the eligibility requirements for the facility to retain its 
allocation or if the facility should be disqualified (as provided in 
proposed Sec.  1.48E(h)-1(m)). Based on DOE's recommendation, the IRS 
will decide whether the facility should retain its allocation or if the 
facility should be disqualified and will notify the applicant of its 
decision. Each applicant must receive confirmation from the IRS that 
the DOE has reviewed the placed in service submissions, and that 
eligibility is confirmed, prior to the owner (or a partner or 
shareholder in the case of a partnership or S corporation) claiming the 
increased credit amount on Form 3468, Investment Credit (or Form 3800, 
General Business Credit), or successor form, or, if eligible, making a 
transfer election under section 6418 of the Code, or an elective 
payment election under section 6417 of the Code.
    Proposed Sec.  1.48E(h)-1(k)(4) would provide a definition of 
placed in service. Pursuant to proposed Sec.  1.48E(h)-1(k)(4), for 
purposes of Sec.  1.48E(h)-1(k), eligible property is considered placed 
in service in the earlier of the following taxable years: (i) the 
taxable year in which, under the taxpayer's depreciation practice, the 
period for depreciation with respect to such eligible property begins; 
or (ii) the taxable year in which the eligible property is placed in a 
condition or state of readiness and availability for a specifically 
assigned function, whether in a trade or business or in the production 
of income.
F. Placed in Service Prior to Allocation Award
    The Treasury Department and the IRS propose in Sec.  1.48E(h)-1(l) 
that facilities placed in service prior to being awarded an allocation 
of Capacity Limitation would not be eligible to receive an allocation. 
One of the goals of the Program is to increase adoption of and access 
to renewable energy facilities in low-income and other communities with 
environmental justice concerns. Awarding an allocation to facilities 
that have already been placed in service would be inconsistent with 
this goal. Further, section 48E(h)(4)(E)(i) provides that a facility 
must be placed in service within four years of receiving an allocation 
of Capacity Limitation, indicating that allocations should be made to 
new facilities that have not yet been placed in service. Accordingly, 
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.

VI. Post-Allocation Compliance

A. Disqualification After Receiving an Allocation
    The Treasury Department and the IRS recognize that because, under 
section 48E(h)(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 48E(h)(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, proposed Sec.  1.48E(h)-1(m) would provide that a 
facility that was awarded a Capacity Limitation allocation is 
disqualified and loses its 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 maximum net output of the facility 
increases such that

[[Page 71204]]

it exceeds the less than five megawatt requirement provided in section 
48E(h)(2)(A)(ii) or the nameplate capacity 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 48E(h)(2)(B)(ii) and proposed Sec.  
1.48E(h)-1(e) as planned (if applicable) or cannot satisfy the 
financial benefits requirements under section 48E(h)(2)(C) and proposed 
Sec.  1.48E(h)-1(f) as planned (if applicable); (4) the eligible 
property that 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, unless the original applicant transfers the facility 
to an entity treated as a partnership for Federal income tax purposes 
and retains at least a one percent interest (either directly or 
indirectly) in each material item of partnership income, gain, loss, 
deduction, and credit of such partnership and is a managing member or 
general partner (or similar title) under State or Tribal law of the 
partnership (or directly owns 100 percent of the equity interests in 
the managing member or general partner) at all times during the 
existence of the partnership.
B. Recapture of Section 48E(h) Increase
    Section 48E(h)(5) requires the Secretary, by regulations or other 
guidance, to provide rules for recapturing the benefit of any section 
48E(h) Increase with respect to any property that ceases to be property 
eligible for such section 48E(h) Increase (but that 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 48E(h) Increase, the eligibility of 
such property for such section 48E(h) Increase is restored. Such 
restoration of a section 48E(h) Increase is not available more than 
once with respect to any facility.
    Proposed Sec.  1.48E(h)-1(n)(1) would provide that if, at any time 
during the five-year recapture period beginning on the date that an 
applicable facility under section 48E(h) is placed in service, there is 
a recapture event under proposed Sec.  1.48E(h)-1(n)(3) with respect to 
such property, then the Federal income tax imposed on the taxpayer by 
chapter 1 of the Code for the taxable year in which the recapture event 
occurs is increased by the recapture percentage of the benefit of the 
increase in the section 48E credit. The recapture percentage is 
determined according to the table provided in section 50(a)(1)(B).
    Proposed Sec.  1.48E(h)-1(n)(2) would provide that recapture under 
proposed Sec.  1.48E(h)-1(n)(1) 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 increase in the credit allowed under 
section 48E(a), the eligibility of such property for such increase 
pursuant to section 48E(h) is restored. Such restoration of an increase 
pursuant to section 48E(h) is not available more than once with respect 
to any facility.
    Proposed Sec.  1.48E(h)-1(n)(3) would provide that the following 
circumstances result in a recapture event if the property ceases to be 
eligible for the increased credit under section 48E(h): (1) property 
described in section 48E(h)(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 48E(h)(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 
48E(h)(2)(C) ceases to provide at least 50 percent of the financial 
benefits of the electricity produced to Qualifying Households as 
described under section 48E(h)(2)(C)(i) or (ii), or fails to provide 
those households the required minimum 30 percent bill credit discount 
rate; (4) for property described under section 48E(h)(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 48E(h)(2)(B)(i), if applicable; and (5) a facility 
increases its maximum net output such that the facility's maximum net 
output is 5 MW AC or greater.
    Proposed Sec.  1.48E(h)-1(n)(4) would provide that any event that 
results in recapture under section 50(a) also will result in recapture 
of the benefit of the increase in the section 48E credit by reason of 
section 48E(h). The exception to the application of recapture provided 
in proposed Sec.  1.48E(h)-1(n)(2) does not apply in the case of a 
recapture event under section 50(a).

Proposed Applicability Date

    These regulations are proposed to apply to qualified facilities 
placed in service after December 31, 2024, and during taxable years 
ending after the date the final regulations are filed for public 
inspection by the Office of the Federal Register.

Special Analysis

I. Regulatory Planning and Review--Economic Analysis

    Pursuant to the Memorandum of Agreement, Review of Treasury 
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory 
actions issued by the IRS are not subject to the requirements of 
section 6 of Executive Order 12866, as amended. Therefore, a regulatory 
impact assessment is not required.

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 48E(h) Increase. This information in the collections 
of information would generally be used by the IRS and the 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 Sec.  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 48E(h) 
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 regulations also provide reporting requirements 
related to providing attestations and supporting documentation for 
initial application,

[[Page 71205]]

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 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. Comments on the collection of 
information should be received by October 3, 2024. Comments are 
specifically requested concerning:
    (1) 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;
    (2) The accuracy of the estimated burden associated with the 
proposed collection of information;
    (3) How the quality, utility, and clarity of the information to be 
collected may be enhanced;
    (4) 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
    (5) 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 to potential 
applicants to determine eligibility to apply for an allocation of 
Capacity Limitation under section 48E(h), and, in general, to taxpayers 
awarded an allocation of Capacity Limitation to understand the 
requirement to claim the section 48E(h) Increase. The proposed 
regulations are expected to encourage applicants to invest in 
applicable facilities. 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 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 Program commences.
3. Impact of the Rules
    The recordkeeping and reporting requirements would increase for 
applicants that participate in the 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 requests from stakeholders that potential applicants be able 
to place a facility in service before applying for or receiving an 
allocation of Capacity Limitation. The Treasury Department and IRS 
determined it would not be possible to accommodate this request in the 
proposed regulations because the statutory language under section 
48E(h)(4)(E)(i) requires that the facility be placed in service by a 
date that is 4 years after the date of the allocation. Moreover, 
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 Program, and so do not further 
Program goals.
    Additionally, the Treasury Department and IRS considered proposing 
a variety of bill credit discounts for Category 4 qualified low-income 
benefit project facilities, including the 20 percent bill credit 
discount rate used in the Low-Income Communities Bonus Credit Program 
established under section 48(e). However, to ensure that low-income 
customers are receiving meaningful financial benefits, the Treasury 
Department and the IRS decided to propose a 30 percent bill credit 
discount for the Program but are also requesting comments on whether 
this is the most appropriate bill credit discount rate for the Program 
and whether a transition rule to achieve this bill discount rate is 
necessary.
    Another example is the revisions to the list of eligible covered 
housing

[[Page 71206]]

programs that can be found in the Explanation of Provisions section of 
this document. In the preamble to Treasury Decision 9979, applicable to 
the Low-Income Communities Bonus Credit Program established under 
section 48(e), the Treasury Department and the IRS included as an 
eligible covered housing program, HUD tenant-based rental assistance 
under section 8 of the United States Housing Act of 1937. The Treasury 
Department and IRS considered retaining tenant-based housing assistance 
programs. However, after consulting with HUD, it was determined that 
tenant-based assistance is assistance that can only be attributed to a 
particular tenant, and not a building. Under section 48E(h)(2)(B), for 
a facility to qualify as a being part of a qualified low-income 
residential building project, the facility must be installed on a 
residential rental building that participates in a covered housing 
program (that is, a Qualified Residential Property). Tenant-based 
housing assistance programs applicable to a particular tenant do not 
qualify the building in which the tenant resides as participating in a 
covered housing program. Therefore, because tenant-based assistance 
under Section 8 does not comport with the requirements under section 
48E(h)(2)(B), tenant-based housing assistance programs under Section 8, 
have been removed as an eligible covered housing program for purposes 
of the Program under section 48E(h).
    Additionally, the Treasury Department and IRS considered whether to 
propose to include the sub-reservation for Category 1 facilities for 
eligible residential BTM facilities but concluded this sub-reservation 
should be proposed for the Program. 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.
    Comments are requested on the requirements in the proposed 
regulations, including specifically, whether there are less burdensome 
alternatives that ensure the Treasury Department and IRS and DOE can 
efficiently administer the Program.
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 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 Indian Tribal government, in the aggregate, or by the 
private sector, of $100 million (updated annually for inflation). These 
proposed regulations do not include any Federal mandate that may result 
in expenditures by State, local, or Indian 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 proposed regulations do not 
have federalism implications and does not impose substantial direct 
compliance costs on State and local governments or preempt State law 
within the meaning of the Executive order.

VI. Executive Order 13175: Consultation and Coordination With Indian 
Tribal Governments

    Executive Order 13175 (Consultation and Coordination With Indian 
Tribal Governments) prohibits an agency from publishing any rule that 
has Tribal implications if the rule either imposes substantial, direct 
compliance costs on Indian Tribal governments, and is not required by 
statute, or preempts Tribal law, unless the agency meets the 
consultation and funding requirements of section 5 of the Executive 
order. These proposed do not have substantial direct effects on one or 
more Federally recognized Indian tribes and does not impose substantial 
direct compliance costs on Indian Tribal governments within the meaning 
of the Executive order.
    Nevertheless, consistent with Treasury's Tribal Consultation 
Policy, the Treasury Department and the IRS will hold a consultation 
with Tribal leaders requesting assistance in addressing questions 
related to these proposed regulations.

Comments and Public Hearing

    Before these proposed amendments to the regulations are adopted as 
final regulations, consideration will be given to comments regarding 
the notice of proposed rulemaking that are submitted timely to the IRS 
as prescribed in the preamble under the ADDRESSES section. The Treasury 
Department and the IRS request comments on all aspects of the proposed 
regulations. All comments will be made available at https://www.regulations.gov. Once submitted to the Federal eRulemaking Portal, 
comments cannot be edited or withdrawn.
    A public hearing with respect to this notice of proposed rulemaking 
has been scheduled for October 17, 2024, beginning at 10 a.m. EST. The 
hearing scheduled for October 17, 2024, will be held in the Auditorium 
at the Internal Revenue Building, 1111 Constitution Avenue NW, 
Washington, DC. Due to building security procedures, visitors must 
enter at the Constitution Avenue entrance. In addition, all visitors 
must present photo identification to enter the building. Because of 
access restrictions, visitors will not be admitted beyond the immediate 
entrance area more than 30 minutes before the hearing starts. 
Participants may alternatively attend the public hearing by telephone.
    The rules of 26 CFR 601.601(a)(3) apply to the public hearing. 
Persons who wish to present oral comments at the public hearing must 
submit an outline of the topics to be discussed and the time to be 
devoted to each topic by October 3, 2024. A period of 10 minutes will 
be allotted to each person for making comments. An agenda showing the 
scheduling of the speakers will be prepared after the deadline for 
receiving outlines has passed. Copies of the agenda will be available 
free of charge at the public hearing. If no outline of the topics to be 
discussed at the public hearing is received by October 3, 2024, the 
public hearing will be cancelled. If the public hearing is cancelled, a 
notice of cancellation of the public hearing will be published in the 
Federal Register.
    Individuals who want to testify in person at the public hearing 
must send an email to [email protected] to have your name added to 
the building access list. The subject line of the email must contain 
the regulation number REG-108920-24 and the language TESTIFY In Person. 
For example, the subject line may say: Request to TESTIFY In Person at 
Hearing for REG-108920-24.

[[Page 71207]]

    Individuals who want to testify by telephone at the public hearing 
must send an email to [email protected] to receive the telephone 
number and access code for the public hearing. The subject line of the 
email must contain the regulation number REG-108920-24 and the language 
TESTIFY Telephonically. For example, the subject line may say: Request 
to TESTIFY Telephonically at Hearing for REG-108920-24.
    Individuals who want to attend the public hearing in person without 
testifying must also send an email to [email protected] to have 
your name added to the building access list. The subject line of the 
email must contain the regulation number REG-108920-24 and the language 
ATTEND In Person. For example, the subject line may say: Request to 
ATTEND Hearing In Person for REG-108920-24. Requests to attend the 
public hearing must be received by 5 p.m. EST on October 15, 2024.
    Individuals who want to attend the public hearing by telephone 
without testifying must also send an email to [email protected] to 
receive the telephone number and access code for the public hearing. 
The subject line of the email must contain the regulation number REG-
108920-24 and the language ATTEND Hearing Telephonically. For example, 
the subject line may say: Request to ATTEND Hearing Telephonically for 
REG-108920-24. Requests to attend the public hearing must be received 
by 5 p.m. EST on October 15, 2024.
    Public hearings will be made accessible to people with 
disabilities. To request special assistance during a public hearing 
please contact the Publications and Regulations Section of the Office 
of Associate Chief Counsel (Procedure and Administration) by sending an 
email to [email protected] (preferred) or by telephone at (202) 
317-6901 (not a toll-free number) and must be received by October 11, 
2024.

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

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, the Treasury Department and IRS propose to amend 26 
CFR part 1 as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by adding an 
entry for Sec.  1.48E(h)-1 in numerical order to read in part as 
follows:

    Authority:  26 U.S.C. 7805 * * *
* * * * *
    Section 1.48E(h)-1 also issued under 26 U.S.C. 48E(h) and (i).
* * * * *
0
Par. 2. Sections 1.48E(h)-0 and 1.48E(h)-1 are added to read as 
follows:


Sec.  1.48E(h)-0  Table of contents.

    This section lists the captions contained in Sec.  1.48E(h)-1.

Sec.  1.48E(h)-1 Clean Electricity Low-Income Communities Bonus 
Credit Amount Program.

    (a) Overview.
    (1) General rule.
    (2) Certain terms used in this section.
    (i) Applicants.
    (ii) Internal Revenue Bulletin.
    (b) Applicable facility defined.
    (1) In general.
    (2) Facility categories.
    (i) Category 1 facility.
    (ii) Category 2 facility.
    (iii) Category 3 facility.
    (iv) Category 4 facility.
    (3) Less than five megawatts requirement.
    (i) In general.
    (ii) Nameplate capacity for purposes of the less than five 
megawatts requirement.
    (c) Eligible property.
    (d) Location.
    (1) In general.
    (2) Nameplate Capacity Test for Location.
    (3) Nameplate capacity for purpose of Nameplate Capacity Test 
for Location.
    (e) Financial benefits for a Category 3 facility.
    (1) In general.
    (2) Threshold requirement.
    (3) Financial value of the electricity produced by the facility.
    (4) Gross financial value.
    (5) Net financial value defined.
    (i) Common ownership.
    (ii) Third-party ownership.
    (iii) Equitable allocation of financial benefits.
    (A) If financial value distributed via utility bill savings.
    (B) If financial value is not distributed via utility bill 
savings.
    (6) Benefits sharing statement.
    (i) In general.
    (ii) Notification requirement.
    (f) Financial benefits for a Category 4 facility.
    (1) In general.
    (2) Bill credit discount rate.
    (i) In general.
    (ii) No or nominal cost of participation.
    (iii) Other value from electricity production.
    (iv) Calculation on annual basis.
    (v) Examples.
    (A) Example 1.
    (B) Example 2.
    (C) Example 3.
    (3) Low-income verification.
    (i) In general.
    (ii) Methods of verification.
    (A) Categorical eligibility.
    (B) Other income verification methods.
    (C) Impermissible verification method.
    (g) Annual Capacity Limitation.
    (1) In general.
    (2) Carryover of unallocated Annual Capacity Limitation.
    (h) Reservations of Capacity Limitation allocation for 
facilities that meet certain Additional Selection Criteria.
    (1) In general.
    (2) Ownership criteria.
    (i) In general.
    (ii) Indirect ownership.
    (A) Disregarded entities.
    (B) Partner qualifying partnership under ownership criteria.
    (iii) Tribal enterprise.
    (iv) Alaska Native Corporation.
    (v) Native Hawaiian Organization.
    (vi) Renewable energy cooperative.
    (vii) Qualified tax-exempt entity.
    (3) Geographic criteria.
    (i) In general.
    (ii) Persistent Poverty County.
    (iii) Certain census tracts under Climate and Economic Justice 
Screening Tool.
    (A) Energy burden.
    (B) PM2.5.
    (C) Low-income.
    (i) Sub-reservations of allocation for Category 1 facilities.
    (1) In general.
    (2) Definitions.
    (i) Behind the meter (BTM) facility.
    (ii) Eligible residential BTM facility.
    (iii) FTM facility.
    (j) Process of application evaluation.
    (1) In general.
    (2) Information required as part of application.
    (3) No administrative appeal of Capacity Limitation allocation 
decisions.
    (k) Placed in service.
    (1) Requirement to report date placed in service.
    (2) Requirement to submit final eligibility information at 
placed in service time.
    (3) DOE confirmation.
    (4) Definition of placed in service.
    (l) Facilities placed in service prior to an allocation award.
    (1) In general.
    (2) Rejection or rescission.
    (m) Disqualification.
    (n) Recapture of section 48E(h) Increase to the section 48E(a) 
credit.

[[Page 71208]]

    (1) In general.
    (2) Exception to application of recapture.
    (3) Recapture events.
    (4) Section 50(a) recapture.
    (o) Applicability date.


Sec.  1.48E(h)-1  Clean Electricity Low-Income Communities Bonus Credit 
Amount Program.

    (a) Overview--(1) General rule. For purposes of section 46 of the 
Internal Revenue Code (Code), if an allocation of the environmental 
justice capacity limitation (Capacity Limitation) is made with respect 
to eligible property (as defined in paragraph (c) of this section) that 
is part of any applicable facility (as defined in paragraph (b) of this 
section) placed in service in connection with low-income communities 
under the Clean Electricity Low-Income Communities Bonus Credit Amount 
Program (Program) established under section 48E(h)(4), the applicable 
percentage used to calculate the amount of the clean electricity 
investment credit determined under section 48E(a) (section 48E credit) 
is increased under section 48E(h)(1).
    (2) Certain terms used in this section. In this section:
    (i) Applicants. The terms applicant and taxpayer are used 
interchangeably as the context may require.
    (ii) Internal Revenue Bulletin. The term Internal Revenue Bulletin 
has the meaning provided in Sec.  601.601 of this chapter.
    (b) Applicable facility defined--(1) In general. An applicable 
facility means any qualified facility (as defined in section 48E(b)(3)) 
that--
    (i) Is a non-combustion and gasification facility for which the 
Secretary of the Treasury or her delegate has determined has a 
greenhouse gas (GHG) emissions rate of not greater than zero in 
guidance published either in the Federal Register or in the Internal 
Revenue Bulletin as of the opening date for a Program year, which the 
Internal Revenue Service will publicly announce;
    (ii) Has a maximum net output of less than 5 megawatts (MW) (as 
measured in alternating current (AC)); and
    (iii) Is described in at least one of the four categories described 
in section 48E(h)(2)(A)(iii) and paragraph (b)(2) of this section.
    (2) Facility categories--(i) Category 1 facility. A facility is a 
Category 1 facility if it is located in a low-income community. The 
term low-income community generally is defined under section 45D(e)(1) 
of the Code as any population census tract for which the poverty rate 
is at least 20 percent based on the most recently released American 
Community Survey (ACS) low-income community data currently used for the 
New Markets Tax Credit (NMTC) under section 45D, or, in the case of a 
tract not located within a metropolitan area, the median family income 
for such tract does not exceed 80 percent of statewide median family 
income, or, in the case of a tract located within a metropolitan area, 
the median family income for such tract does not exceed 80 percent of 
the greater of statewide median family income or the metropolitan area 
median family income. The term low-income community also includes the 
modifications in section 45D(e)(4) and (5) for tracts with low 
population and modification of the income requirement for census tracts 
with high migration rural counties. Low-income community information 
for NMTC can be found at https://www.cdfifund.gov/cims3. For purposes 
of this paragraph (b)(2)(i), if updated ACS low-income community data 
is released for the NMTC program, a taxpayer can choose to base the 
poverty rate for any population census tract on either the prior 
version of the ACS low-income community data for the NMTC program or 
the updated ACS low-income community data for the NMTC program for a 
period of 1 year following the date of the release of the updated data. 
After the 1-year transition period, the updated ACS low-income 
community data for the NMTC program must be used to determine the 
poverty rate for any population census tract. Population census tracts 
that satisfy the definition of low-income community at the time of 
application are considered to continue to meet the definition of low-
income community for the duration of the recapture period described in 
paragraph (n)(1) of this section unless the location of the facility 
changes.
    (ii) Category 2 facility. A facility is a Category 2 facility if it 
is located on Indian land. The term Indian land is defined in section 
2601(2) of the Energy Policy Act of 1992 (25 U.S.C. 3501(2)).
    (iii) Category 3 facility. A facility is a Category 3 facility if 
it is part of a qualified low-income residential building project. 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 that participates in a covered housing program or other 
affordable housing program described in section 48E(h)(2)(B)(i) 
(Qualified Residential Property) and the financial benefits of the 
electricity produced by such facility are allocated equitably among the 
occupants of the dwelling units of such building as provided in 
paragraph (e) of this section. A Qualified Residential Property could 
either be a multifamily rental property or single-family rental 
property. However, the building, and not merely the tenants, must 
participate in a covered housing program or other affordable housing 
program described in section 48E(h)(2)(B)(i). A facility does not need 
to be installed directly on the building to be considered installed on 
a Qualified Residential Property if the facility is installed on the 
same or an adjacent parcel of land as the Qualified Residential 
Property, and the other requirements to be a Category 3 facility are 
satisfied.
    (iv) Category 4 facility. A facility is a Category 4 facility if it 
is part of a qualified low-income economic benefit project. A facility 
will be treated as part of a qualified low-income economic benefit 
project if, as provided in paragraph (f) of this section, at least 50 
percent of the financial benefits of the electricity produced by such 
facility are provided to households with income of less than--
    (A) Two-hundred 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
    (B) Eighty percent of area median gross income (as determined under 
section 142(d)(2)(B) of the Code).
    (3) Less than five megawatts requirement--(i) In general. For 
purposes of this paragraph (b), the less than five megawatts 
requirement is measured at the level of the applicable facility in 
accordance with section 48E(h)(2)(A)(ii). The maximum net output of an 
applicable facility is measured only by nameplate generating capacity 
of the applicable facility, which includes only functionally 
interdependent components of property that are owned by the taxpayer, 
that are operated together, and that can operate apart from other 
property to produce electricity, at the time the applicable facility is 
placed in service. Components of property are functionally 
interdependent if the placing in service of each component is dependent 
upon placing in service other components to produce electricity.
    (ii) Nameplate capacity for purposes of the less than five 
megawatts requirement. The determination of whether an applicable 
facility has a maximum net output of less than 5 MW (as measured in AC) 
is based on the nameplate capacity of the applicable facility. The 
nameplate capacity for purposes of the less than five megawatts 
requirement is the maximum electrical generating output in MW that the 
applicable facility is capable of producing on a steady state basis and 
during continuous operation under standard conditions, as measured by 
the

[[Page 71209]]

manufacturer and consistent with the definition of nameplate capacity 
provided in 40 CFR 96.202. If applicable, the International Standard 
Organization conditions should be used to measure the maximum 
electrical generating output of an applicable facility.
    (c) Eligible property. Eligible property means a qualified 
investment (as defined in section 48E(b)) with respect to any 
applicable facility.
    (d) Location--(1) In general. An applicable facility is treated as 
located in a low-income community or located on Indian land under 
section 48E(h)(2)(A)(iii)(I) if the applicable facility satisfies the 
Nameplate Capacity Test for Location of paragraph (d)(2) of this 
section. Similarly, an applicable facility is treated as located in a 
geographic area under the Additional Selection Criteria described in 
paragraph (h) of this section if it satisfies the Nameplate Capacity 
Test for Location.
    (2) Nameplate Capacity Test for Location. An applicable facility is 
considered located in or on the relevant geographic area described in 
paragraph (d)(1) of this section if 50 percent or more of the 
applicable facility's nameplate capacity is in a qualifying area. The 
percentage of an applicable facility's nameplate capacity (as defined 
in paragraph (d)(3) of this section) that is in a qualifying area is 
determined by dividing the nameplate capacity of the applicable 
facility's electricity-generating units that are located in the 
qualifying area by the total nameplate capacity of all the electricity-
generating units of the applicable facility.
    (3) Nameplate capacity for purpose of Nameplate Capacity Test for 
Location. Nameplate capacity for an electricity generating unit means 
the maximum electrical output that the applicable facility 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 of nameplate capacity provided in 40 CFR 
96.202. If applicable, the International Standard Organization 
conditions should be used to measure the maximum electrical generating 
output. For purposes of assessing the Nameplate Capacity Test, 
electricity-generating units that generate direct current (DC) power 
before converting to AC (for example, solar photovoltaic), should use 
nameplate capacity in DC, otherwise the nameplate capacity in AC should 
be used.
    (e) Financial benefits for a Category 3 facility--(1) In general. 
To satisfy the requirements of a Category 3 facility as provided in 
paragraph (b)(2)(iii) of this section, the financial benefits of the 
electricity produced by the facility must be allocated equitably among 
the occupants of the dwelling units of the Qualified Residential 
Property. The same rules for financial benefits for Category 3 
facilities apply to both multi-family property and single-family 
Qualified Residential Property.
    (2) Threshold requirement. At least 50 percent of the financial 
value of the electricity produced by the facility (as defined in 
paragraph (e)(3) of this section) must be allocated equitably to the 
Qualified Residential Property's occupants that are designated as low-
income occupants under the covered housing program or other affordable 
housing program.
    (3) Financial value of the electricity produced by the facility. 
For purposes of this paragraph (e), the financial value of the 
electricity produced by the facility is defined as the greater of:
    (i) 25 percent of the gross financial value (as defined in 
paragraph (e)(4) of this section) of the annual electricity produced by 
the applicable facility; or
    (ii) The net financial value (as defined in paragraph (e)(5) of 
this section) of the annual electricity produced by the applicable 
facility.
    (4) Gross financial value. For purposes of this paragraph (e), 
gross financial value of the annual electricity produced by the 
applicable facility is calculated as the sum of:
    (i) The total self-consumed kilowatt-hours produced by the 
applicable facility multiplied by the Qualified Residential Property's 
metered volumetric price of electricity;
    (ii) The total exported kilowatt-hours produced by the applicable 
facility multiplied by the Qualified Residential Property's volumetric 
export compensation rate for the type of electricity produced by the 
applicable facility per kilowatt-hour; and
    (iii) The sale of any attributes associated with the applicable 
facility's production (including, for example, any Federal, State, or 
Tribal renewable energy credits or incentives), if separate from the 
metered price of electricity or export compensation rate.
    (5) Net financial value defined--(i) Common ownership. For purposes 
of this paragraph (e), if the facility and Qualified Residential 
Property are commonly owned, net financial value is defined as the 
gross financial value of the annual electricity produced minus the 
annual average (or levelized) cost of the applicable facility over the 
useful life of the facility (including debt service, maintenance, 
replacement reserve, capital expenditures, and any other costs 
associated with constructing, maintaining, and operating the facility).
    (ii) Third-party ownership. For purposes of this paragraph (e), if 
the facility and the Qualified Residential Property are not commonly 
owned and the facility owner enters into a Power Purchase Agreement or 
other contract for electricity services with the Qualified Residential 
Property owner and/or building occupants, net financial value is 
defined as the gross financial value of the annual electricity produced 
minus any payments made by the building owner and/or building occupants 
to the facility owner for electricity services associated with the 
facility in a given year.
    (iii) Equitable allocation of financial benefits. There are 
different rules to ensure an equitable allocation of financial benefits 
depending on whether or not financial value is distributed to building 
occupants via utility bill savings or through different means. 
Previously distributed financial benefits or investments already made 
to the Qualified Residential Property are not considered eligible 
financial benefits for this purpose.
    (A) If financial value distributed via utility bill savings. If 
financial value is distributed via utility bill savings, financial 
benefits will be considered to be allocated equitably if at least 50 
percent of the financial value of the electricity produced by the 
facility is distributed as utility bill savings in equal shares to each 
building dwelling unit among the Qualified Residential Property's 
occupants that are designated as low-income under the covered housing 
program or other affordable housing program (described in section 
48E(h)(2)(B)(i)) or alternatively distributed in proportional shares 
based on each low-income dwelling unit's square footage, or each low-
income dwelling unit's number of occupants. For any occupant(s) who 
choose to not receive utility bill savings (for example, exercise their 
right to not participate in or to opt out of a community solar 
subscription in applicable jurisdictions), the portion of the financial 
value that would otherwise be distributed to non-participating 
occupants must be distributed instead to all participating occupants. 
No less than 50 percent of the Qualified Residential Property's 
occupants that are designated as low-income must participate and 
receive utility bill savings for the facility to use this method of 
benefit distribution. In the case of a solar facility, applicants must 
follow the Department of Housing and Urban Development (HUD) guidance 
on Treatment of Financial Benefits to HUD-Assisted Tenants

[[Page 71210]]

Resulting from Participation in Solar Programs Notice (Housing Notice 
2023-09), located at https://www.hud.gov/sites/dfiles/OCHCO/documents/2023-09hsgn.pdf, or future HUD guidance, or other guidance or notices 
from the Federal agency that oversees the applicable housing program 
identified in section 48E(h)(2)(B) to ensure that tenants' annual 
income for rent calculations or other requirements impacting total 
tenant payment are not negatively impacted by the distribution of 
financial value. Applicants should apply similar principles in the case 
of any other applicable facility.
    (B) If financial value is not distributed via utility bill savings. 
If financial value is not distributed via utility bill savings, 
financial benefits will be considered to be allocated equitably if at 
least 50 percent of the financial value of the electricity produced by 
the facility is distributed to occupants using one or more methods 
described in Housing Notice 2023-09 for a master-metered building, or 
future HUD guidance, or other guidance or notices from the Federal 
agency that oversees the applicable housing program identified in 
section 48E(h)(2)(B). In the case of a solar facility, applicants must 
comply with HUD guidance, or future HUD guidance, for how residents of 
master-metered HUD-assisted housing can benefit from owners' sharing of 
financial benefits accrued from an investment in solar electricity 
generation to ensure that tenants' utility allowances and annual income 
for rent calculations are not negatively impacted. Applicants should 
apply similar principles in the case of any other applicable facility.
    (6) Benefits sharing statement--(i) In general. The facility owner 
must prepare a Benefits Sharing Statement, which must include:
    (A) A calculation of the facility's gross financial value using the 
method described paragraph (e)(4) of this section;
    (B) A calculation of the facility's net financial value using the 
method described in paragraph (e)(5) of this section;
    (C) A calculation of the financial value required to be distributed 
to building occupants using the method described in paragraph (e)(3) of 
this section;
    (D) A description of the means through which the required financial 
value will be distributed to building occupants; and
    (E) If the facility and Qualified Residential Property are 
separately owned, specify the entity that will be responsible for the 
distribution of benefits to the occupants.
    (ii) Notification requirement. The Qualified Residential Property 
owner must formally notify the occupants of units in the Qualified 
Residential Property of the development of the facility and planned 
distribution of benefits.
    (f) Financial benefits for a Category 4 facility--(1) In general. 
To satisfy the requirements of a Category 4 facility as provided in 
paragraph (b)(2)(iv) of this section:
    (i) The facility must serve multiple qualifying low-income 
households under section 48E(h)(2)(C)(i) or (ii) (Qualifying 
Household);
    (ii) At least 50 percent of the facility's total output in kW must 
be assigned to Qualifying Households; and
    (iii) Each Qualifying Household must be provided a bill credit 
discount rate (as defined in paragraph (f)(2) of this section) of at 
least 30 percent.
    (2) Bill credit discount rate--(i) In general. A bill credit 
discount rate is the difference between the financial benefit provided 
to a Qualifying Household (including utility bill credits, reductions 
in a Qualifying Household's electricity rate, or other monetary 
benefits accrued by the Qualifying Household on their utility bill) and 
the cost of participating in the community program (including 
subscription payments for zero carbon and any other fees or charges), 
expressed as a percentage of the financial benefit distributed to the 
Qualifying Household. The bill credit discount rate can be calculated 
by starting with the financial benefit provided to the Qualifying 
Household, subtracting all payments made by the Qualifying Household 
(or payments remitted on behalf of the Qualifying Household through net 
crediting, consolidated billing, or similar arrangements) 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 Qualifying Household.
    (ii) No or nominal cost of participation. In cases in which the 
Qualifying Household has no or only a nominal cost of participation, 
and financial benefits are delivered through a utility or government 
body, the bill credit discount rate should be calculated as the 
financial benefit provided to a Qualifying Household (including utility 
bill credits, reductions in a Qualifying Household's electricity rate, 
or other monetary benefits accrued by a Qualifying Household on their 
utility bill) divided by the total value of the electricity produced by 
the facility and assigned to the Qualifying Household (including any 
electricity services, products, and credits provided in conjunction 
with the electricity produced by such facility), as measured by the 
utility, independent system operator, or other off-taker procuring 
electricity (and related services, products, and credits) from the 
facility.
    (iii) Other value from electricity production. If the facility 
derives financial value from the production of electricity in a manner 
such that this value cannot be directly applied to the Qualifying 
Household's utility bill (for example, renewable energy credit payments 
made directly to the facility owner), than no less than 30 percent of 
that monetary value must also be provided to the Qualifying Household, 
either through a greater bill credit discount on the Qualifying 
Household's utility bill than would otherwise be derived from the 
method described in paragraph (f)(2)(i) of this section or through 
other means.
    (iv) Calculation on annual basis. In all instances, the bill credit 
discount rate is calculated on an annual basis.
    (v) Examples. The provisions of this paragraph (f)(2) may be 
illustrated by the following examples:
    (A) Example 1. A Qualifying Household signs a community solar 
subscription agreement with the facility owner. Each month, the 
facility owner will assign a portion of the electricity generated (or 
its value) by the facility to the household's utility bill, and the 
household will pay the facility owner. The amount the household pays 
the facility owner cannot exceed 70 percent of the monetary value of 
the assigned generation. The remaining 30 percent is a cost savings to 
the household on electricity. In this example, over the course of the 
first year the facility owner or their agent cause $180 in utility bill 
credits to be placed on the Qualifying Household's bill, and the 
Qualifying Household pays $126, inclusive of any upfront fees. The 
subsequent year, due to variation in solar generation and/or the 
compensation paid by the utility for solar generation, the facility 
owner, in accordance with the community solar subscription agreement, 
causes $240 in bill credits to be provided to the Qualifying 
Household's bill and the household pays $168. In each year of facility 
operation described within this example, a bill credit discount rate of 
30 percent is maintained (($180-$126)/$180 = 30%) and (($240-$168)/$240 
= 30%), respectively.
    (B) Example 2. Due to the regulatory structure of the applicable 
jurisdiction or program, the terms of the community solar subscription, 
the use of a net-crediting mechanism, or other reason, the Qualifying 
Household does not

[[Page 71211]]

make a direct payment to the facility owner, but rather payment is 
remitted on their behalf by the utility. In this example, over the 
course of the first year the facility owner or their agent cause $200 
in utility bill credits to be placed on the Qualifying Household's 
bill, and the Qualifying Household's utility remits $126 to the 
facility owner, inclusive of any upfront fees. The subsequent year, due 
to variation in solar generation and/or the compensation paid by the 
utility for solar generation, the facility owner, in accordance with 
the community solar subscription agreement, causes $240 in bill credits 
to be provided to the Qualifying Household's bill and the utility 
remits $168 to the facility owner. In each year of facility operation 
described within this example, a bill credit discount rate of 30 
percent is maintained (($180-$126)/$180 = 30%) and (($240-$168)/$240 = 
30%), respectively.
    (C) Example 3. Assume the facility is part of a program by which 
the financial benefits are delivered to Qualifying Households through a 
utility or government body, and each Qualifying Household pays no cost 
to participate. Assume that the total annual financial benefit for a 
Qualifying Household is $180 in the first year and $240 in the second 
year. Assume further that the value of the electricity produced by the 
facility and assigned to the Qualifying Household though a utility or 
government body, as measured by the utility, independent system 
operator, or other off-taker procuring the electricity, is $600 in the 
first year and $800 in the second year. In this case, the bill credit 
discount rate is 30 percent in each year (($600 x 30% = $180) and ($800 
x 30% = $240), respectively).
    (3) Low-income verification--(i) In general. To establish that 
financial benefits are provided to Qualifying Households as provided in 
paragraph (f)(1) of this section, applicants must, in accordance with 
guidance published in the Internal Revenue Bulletin, submit 
documentation upon placing the applicable facility in service. A 
Qualifying Household's low-income status is determined at the time the 
household enrolls in the subscription program and does not need to be 
re-verified.
    (ii) Methods of verification. Applicants may use categorical 
eligibility or other income verification methods to establish that a 
household is a Qualifying Household.
    (A) Categorical eligibility. Categorical eligibility consists of 
obtaining proof of the household's participation in a needs-based 
Federal, State, Tribal, or utility program with income limits at or 
below the qualifying income level required to be a Qualifying 
Household. Federal programs may include, but are not limited to: 
Medicaid, Low-Income Home Energy Assistance Program (LIHEAP) 
administered by the Department of Health and Human Services, 
Weatherization Assistance Program (WAP) administered by the Department 
of Energy (DOE), Supplemental Nutrition Assistance Program (SNAP) 
administered by the Department of Agriculture (USDA), Section 8 
Project-Based Rental Assistance, the Housing Choice Voucher Program 
administered by HUD, the Federal Communication Commission's Lifeline 
Support for Affordable Communications, the National School Lunch 
Program administered by the USDA, the Supplemental Security Income 
Program administered by the Social Security Administration, and any 
verified government or non-profit program serving Asset Limited Income 
Constrained Employed (ALICE) persons or households. With respect to the 
Federal programs listed previously an individual in the household must 
currently be approved for assistance from or participation in the 
program with an award letter or other written documentation within the 
last 12 months for enrollment in that program to establish categorical 
eligibility of the household. State agencies can also provide 
verification that a household is a Qualifying Household if the 
household participates in a State's solar or other energy program and 
income limits for such program are at or below the qualifying income 
level required to be a Qualifying Household. The qualifying income 
level for a Qualifying Household is based on where such household is 
located.
    (B) Other income verification methods. Paystubs, Federal or State 
tax returns, or income verification through crediting agencies and 
commercial data sources can be used to establish that a household is a 
Qualifying Household.
    (C) Impermissible verification method. A self-attestation from a 
household is not a permissible method to establish a household is a 
Qualifying Household. This prohibition on direct self-attestation from 
a household does not extend to categorical eligibility for needs-based 
Federal, State, Tribal, or utility programs with income limits that 
rely on self-attestation for verification of income.
    (g) Annual Capacity Limitation--(1) In general. Under section 
48E(h)(4)(C), the total annual Capacity Limitation is 1.8 gigawatts of 
DC capacity for each calendar year of the Program. The annual Capacity 
Limitation for each Program year is divided across the four facility 
categories described in section 48E(h)(2)(A)(iii) and paragraph (b)(2) 
of this section as provided in guidance published in the Internal 
Revenue Bulletin. The Capacity Limitation for each Program year is 
divided across the four facility categories based on factors such as 
the anticipated number of applications that are expected for each 
category and the amount of Capacity Limitation that needs to be 
reserved for each category to encourage market participation in each 
category consistent with statutory intent and the goals of the Program. 
After the Capacity Limitation for each facility category is established 
in guidance published in the Internal Revenue Bulletin, it may be 
reallocated later across facility categories and sub-reservation in the 
event one category or sub-reservation is oversubscribed and another has 
excess capacity. A facility category or sub-reservation is 
oversubscribed if it receives qualified applications in excess of 
Capacity Limitation reserved for the facility category or sub-
reservation.
    (2) Carryover of unallocated Annual Capacity Limitation. If the 
Annual Capacity Limitation for any calendar year exceeds the aggregate 
amount of Annual Capacity Limitation allocated for a calendar year 
under paragraph (g)(1) of this section, the Annual Capacity Limitation 
for the succeeding calendar year will be increased by the amount of 
such excess. No amount of Capacity Limitation may be carried to any 
calendar year after the third calendar year following the applicable 
year (as defined in section 45Y(d)(3) of the Code).
    (h) Reservations of Capacity Limitation allocation for facilities 
that meet certain Additional Selection Criteria--(1) In general. At 
least 50 percent of the total Capacity Limitation in each facility 
category described in paragraph (b) of this section will be reserved 
for qualified facilities meeting the Additional Selection Criteria 
described in paragraph (h)(2) of this section (relating to ownership 
criteria) and paragraph (h)(3) of this section (relating to geographic 
criteria) as provided in guidance published in the Internal Revenue 
Bulletin. Future guidance published in the Internal Revenue Bulletin 
will provide the amounts reserved for each Program year. The procedure 
for using these Additional Selection Criteria is provided in guidance 
published in the Internal Revenue Bulletin. After the reservation of 
Capacity Limitation for qualified facilities meeting the Additional 
Selection Criteria described

[[Page 71212]]

in paragraphs (h)(2) and (3) of this section is established in guidance 
published in the Internal Revenue Bulletin, it may be reallocated later 
across facility categories and sub-reservations in the event one 
category or sub-reservation within a category is oversubscribed and 
another has excess capacity.
    (2) Ownership criteria--(i) In general. The ownership criteria are 
based on characteristics of the applicant that owns the applicable 
facility. An applicable facility will meet the ownership criteria if it 
is owned by one of the following:
    (A) A Tribal enterprise (as defined in paragraph (h)(2)(iii) of 
this section);
    (B) An Alaska Native Corporation (as defined in paragraph 
(h)(2)(iv) of this section);
    (C) A Native Hawaiian Organization (as defined in paragraph 
(h)(2)(v) of this section);
    (D) A renewable energy cooperative (as defined in paragraph 
(h)(2)(vi) of this section); or
    (E) A qualified tax-exempt entity (as defined in paragraph 
(h)(2)(vii) of this section).
    (ii) Indirect ownership--(A) Disregarded entities. If an applicant 
wholly owns an entity that is the owner of an applicable facility, and 
the entity is disregarded as separate from its owner for Federal income 
tax purposes (disregarded entity), then the applicant, and not the 
disregarded entity, is treated as the owner of the applicable facility 
for purposes of the ownership criteria.
    (B) Partner qualifying partnership under ownership criteria. If an 
applicant is an entity treated as a partnership for Federal income tax 
purposes, and an entity described in paragraphs (h)(2)(i)(A) through 
(E) of this section owns at least a one percent interest (either 
directly or indirectly) in each material item of partnership income, 
gain, loss, deduction, and credit and is a managing member or general 
partner (or similar title) under State or Tribal law of the partnership 
(or directly owns 100 percent of the equity interests in the managing 
member or general partner) at all times during the existence of the 
partnership, the applicable facility will be deemed to meet the 
ownership criteria. If the partnership becomes the owner of the 
facility after an allocation is made to an entity described in 
paragraphs (h)(2)(i)(A) through (E) of this section, then the transfer 
of the facility to the partnership is not a disqualification event for 
purposes of paragraph (m)(5) of this section, so long as the 
requirements of paragraph (m)(5) of this section are satisfied. The 
original applicant and the successor partnership should refer to 
guidance published in the Internal Revenue Bulletin for the procedures 
to request a transfer of the Capacity Limitation allocation to the 
successor partnership.
    (iii) Tribal enterprise. A Tribal enterprise for purposes of the 
ownership criteria is an entity that is:
    (A) Owned at least 51 percent directly by an Indian Tribal 
government (as defined in section 30D(g)(9) of the Code), or owned at 
least 51 percent indirectly through a corporation that is wholly owned 
by the Indian Tribal government and is created under either the Tribal 
laws of the Indian Tribal government or through a corporation 
incorporated under the authority of either section 17 of the Indian 
Reorganization Act of 1934, 25 U.S.C. 5124, or section 3 of the 
Oklahoma Indian Welfare Act, 25 U.S.C. 5203; and
    (B) Subject to Tribal government rules, regulations, and/or codes 
that regulate the operations of the entity.
    (iv) 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).
    (v) Native Hawaiian Organization. A Native Hawaiian Organization 
for purposes of the ownership criteria is defined in 13 CFR 124.3.
    (vi) Renewable energy cooperative. A renewable energy cooperative 
for purposes of the ownership criteria is an entity that develops 
applicable facilities and is either:
    (A) A consumer or purchasing cooperative controlled by its members 
with each member having an equal voting right and with each member 
having rights to profit distributions based on patronage as defined by 
proportion of volume of electricity or energy credits purchased (kWh), 
volume of financial benefits delivered ($), or volume of financial 
payments made ($); and in which at least 50 percent of the patronage in 
the qualified facility is by cooperative members who are low-income 
households (as defined in section 48E(h)(2)(C)); or
    (B) A worker cooperative controlled by its worker-members with each 
member having an equal voting right.
    (vii) Qualified tax-exempt entity. A qualified tax-exempt entity 
for purposes of the ownership criteria is:
    (A) An organization exempt from the tax imposed by subtitle A by 
reason of being described in section 501(c)(3) or section 501(d) of the 
Code;
    (B) Any State, the District of Columbia, or political subdivision 
thereof, or any agency or instrumentality of any of the foregoing;
    (C) An Indian Tribal government (as defined in section 30D(g)(9)), 
a political subdivision thereof, or any agency or instrumentality of 
any of the foregoing; or
    (D) Any corporation described in section 501(c)(12) operating on a 
cooperative basis that is engaged in furnishing electric energy to 
persons in rural areas.
    (3) Geographic criteria--(i) In general. Geographic criteria do not 
apply to Category 2 facilities. To meet the geographic criteria, a 
facility must be located in a county or census tract that is described 
in paragraph (h)(3)(ii) or (iii) of this section. 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.
    (ii) Persistent Poverty County. A Persistent Poverty County (PPC), 
which is, generally, described as any county in which 20 percent or 
more of residents have experienced high rates of poverty over the past 
30 years. For purposes of the Program, the PPC measure adopted by the 
USDA is used to make this determination. If updated data is released by 
USDA, a taxpayer will have a 1-year period following the date of the 
release of the updated data to be eligible under the previous data. 
After the 1-year transition period, the updated data must be used to 
determine eligibility.
    (iii) Certain census tracts under Climate and Economic Justice 
Screening Tool. A census tract that is described in the latest official 
Climate and Economic Justice Screening Tool (CEJST), as greater than or 
equal to the 90th percentile for energy burden and greater than or 
equal to the 65th percentile for low income, or as greater than or 
equal to the 90th percentile for PM2.5 exposure and greater 
than or equal to the 65th percentile for low income.
    (A) Energy burden. Energy burden is defined as average household 
annual energy cost in dollars divided by the average household income.
    (B) PM2.5. 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.
    (C) Low-income. Low income, for purposes of this section, is 
defined as the percent of a census tract's population in households for 
which household income is at or below 200 percent of the Federal 
poverty level, not including students enrolled in higher education.
    (i) Sub-reservations of allocation for Category 1 facilities--(1) 
In general.

[[Page 71213]]

Capacity Limitation reserved for Category 1 facilities will be 
subdivided each Program year for facilities seeking a Category 1 
allocation with Capacity Limitation reserved specifically for eligible 
residential behind the meter (BTM) facilities, including rooftop solar. 
The remaining Capacity Limitation is available for applicants with 
front of the meter (FTM) facilities as well as non-residential BTM 
facilities. The specific sub-reservation for eligible residential BTM 
facilities in Category 1 is provided in guidance published in the 
Internal Revenue Bulletin and is established based on factors such as 
promoting efficient allocation of Capacity Limitation and allowing 
like-projects to compete for an allocation. After the sub-reservation 
is established in guidance published in the Internal Revenue Bulletin, 
it may be reallocated later in the event it has excess capacity.
    (2) Definitions--(i) Behind the meter (BTM) facility. For purposes 
of the Program, an applicable facility is BTM if:
    (A) It is connected with an electrical connection between the 
facility and the panelboard or sub-panelboard of the site where the 
facility is located;
    (B) 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
    (C) 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.
    (ii) Eligible residential BTM facility. For purposes of paragraph 
(i)(1) of this section, an eligible residential BTM facility is defined 
as a single-family or multi-family residential applicable facility that 
does not meet the requirements for a Category 3 facility and is BTM. An 
applicable facility is residential if it uses energy to generate 
electricity for use in a dwelling unit that is used as a residence.
    (iii) FTM facility. For purposes of the Program, an applicable 
facility is FTM if it is directly connected to a grid and its primary 
purpose is to provide electricity to one or more offsite locations via 
such grid or utility meters with which it does not have an electrical 
connection; alternatively, a FTM facility is defined as a facility that 
is not a BTM facility. For the purpose of Category 4 facilities, an 
applicable facility is also FTM if 50 percent or more of its 
electricity generation on an annual basis is exported physically to the 
broader electricity grid.
    (j) Process of application evaluation--(1) In general. Applications 
for a Capacity Limitation allocation will be evaluated according to the 
procedures specified in guidance published in the Internal Revenue 
Bulletin. If a facility category is oversubscribed, a lottery system 
may be used to allocate Capacity Limitation to similarly situated 
applicants.
    (2) Information required as part of application. With each 
application for a Capacity Limitation allocation, applicants are 
required to submit information, documentation, and attestations to 
demonstrate eligibility for an allocation and project viability as 
specified in guidance published in the Internal Revenue Bulletin.
    (3) No administrative appeal of Capacity Limitation allocation 
decisions. An applicant may not administratively appeal decisions 
regarding Capacity Limitation allocations.
    (k) Placed in service--(1) Requirement to report date placed in 
service. For any facility that receives an allocation of Capacity 
Limitation, the owner of the facility must report to the DOE the date 
the eligible property was placed in service. This report is made 
through the same portal used to submit the original application for 
allocation.
    (2) Requirement to submit final eligibility information at placed 
in service time. At the time that the owner reports that eligible 
property has been placed in service, the owner also must confirm 
information about the facility and submit additional documentation to 
prove the facility is still eligible to maintain the allocation and the 
increased applicable percentage under section 48E(h)(1) as specified in 
guidance published in the Internal Revenue Bulletin.
    (3) DOE confirmation. The DOE will review the placed in service 
documentation and attestations to determine if the facility meets the 
eligibility criteria for the owner to claim an increased applicable 
percentage. The DOE then provides a recommendation to the IRS regarding 
whether the facility continues to meet the eligibility requirements for 
the facility to retain its allocation or if the facility should be 
disqualified (as provided in paragraph (m) of this section). Based on 
the DOE's recommendation and underlying facts and circumstances 
analysis, the IRS will decide whether the facility should retain its 
allocation or if the facility should be disqualified and will notify 
the DOE of its decision. Each applicant must receive confirmation from 
the IRS that the DOE has reviewed the placed in service submissions, 
and that eligibility is confirmed, prior to the owner (or a partner or 
shareholder in the case of a partnership or S corporation) claiming the 
increased credit amount on Form 3468, Investment Credit (or Form 3800, 
General Business Credit), or successor form, or, if eligible, making a 
transfer election under section 6418 of the Code, or an elective 
payment election under section 6417 of the Code.
    (4) Definition of placed in service. For purposes of this section, 
eligible property is considered placed in service in the earlier of the 
following taxable years:
    (i) The taxable year in which, under the taxpayer's depreciation 
practice, the period for depreciation with respect to such eligible 
property begins; or
    (ii) The taxable year in which the eligible property is placed in a 
condition or state of readiness and availability for a specifically 
assigned function, whether in a trade or business or in the production 
of income.
    (l) Facilities placed in service prior to an allocation award--(1) 
In general. Applicable facilities must be placed in service after being 
awarded an allocation of Capacity Limitation.
    (2) Rejection or rescission. An application for an applicable 
facility that is placed in service prior to submission of the 
application will be rejected. If a facility is placed in service after 
the application is submitted, but prior to the allocation of Capacity 
Limitation, and the facility is awarded an allocation, the allocation 
will be rescinded.
    (m) Disqualification. A facility will be disqualified and lose its 
allocation if prior to or upon the facility being placed in service an 
occurrence described in one of paragraphs (m)(1) through (5) of this 
section takes place.
    (1) The location where the facility will be placed in service 
changes.
    (2) The maximum net output of the facility increases such that it 
exceeds the less than five megawatts AC requirement provided in section 
48E(h)(2)(A)(ii) or the nameplate capacity 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 48E(h)(2)(B)(ii) and paragraph (e) of this section as 
planned, if applicable, or cannot satisfy the financial benefits 
requirements under section 48E(h)(2)(C) or paragraph (f) of this 
section as planned, if applicable.
    (4) The eligible property that is part of the facility that 
received the Capacity Limitation allocation is not placed in

[[Page 71214]]

service within four years after the date the applicant was notified of 
the allocation of Capacity Limitation to the facility.
    (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, unless 
the original applicant transfers the facility to an entity treated as a 
partnership for Federal income tax purposes and retains at least a one 
percent interest (either directly or indirectly) in each material item 
of partnership income, gain, loss, deduction, and credit of such 
partnership and is a managing member or general partner (or similar 
title) under State or Tribal law of the partnership (or directly owns 
100 percent of the equity interests in the managing member or general 
partner) at all times during the existence of the partnership.
    (n) Recapture of section 48E(h) Increase to the section 48E(a) 
credit--(1) In general. Section 48E(h)(5) provides for recapturing the 
benefit of any increase in the credit allowed under section 48E(a) by 
reason of section 48E(h) with respect to any property that ceases to be 
property eligible for such increase (but that does not cease to be 
investment credit property within the meaning of section 50(a) of the 
Code). Section 48E(h) provides that the period and percentage of such 
recapture must be determined under rules similar to the rules of 
section 50(a). Therefore, if, at any time during the five year 
recapture period beginning on the date that an applicable facility 
under section 48E(h) is placed in service, there is a recapture event 
under paragraph (n)(3) of this section with respect to such property, 
then the Federal income tax imposed on the taxpayer by chapter 1 of the 
Code for the taxable year in which the recapture event occurs is 
increased by the recapture percentage of the benefit of the increase in 
the section 48E credit. The recapture percentage is determined 
according to the table provided in section 50(a)(1)(B).
    (2) Exception to application of recapture. 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 increase in the 
credit allowed under section 48E(a), the eligibility of such property 
for such increase pursuant to section 48E(h) is restored. Such 
restoration of an increase pursuant to section 48E(h) is not available 
more than once with respect to any facility.
    (3) Recapture events. Any of the following circumstances result in 
a recapture event if the property ceases to be eligible for the 
increased credit under section 48E(h):
    (i) Property described in section 48E(h)(2)(A)(iii)(II) fails to 
provide financial benefits;
    (ii) Property described under section 48E(h)(2)(B) ceases to 
allocate the financial benefits equitably among the occupants of the 
dwelling units, such as not allocating to residents the required net 
electricity savings of the electricity, as required by paragraph (e) of 
this section;
    (iii) Property described under section 48E(h)(2)(C) ceases to 
provide at least 50 percent of the financial benefits of the 
electricity produced to qualifying households as described under 
section 48E(h)(2)(C)(i) or (ii), or fails to provide those households 
the required minimum 30 percent bill credit discount rate, as required 
by paragraph (f) of this section;
    (iv) For property described under section 48E(h)(2)(B), the 
residential rental building the facility is a part of ceases to 
participate in a covered housing program or any other affordable 
housing program described in section 48E(h)(2)(B)(i), as applicable; or
    (v) A facility increases its maximum net output or nameplate 
capacity such that the facility's maximum net output or nameplate 
capacity is 5 MW AC or greater.
    (4) Section 50(a) recapture. Any event that results in recapture 
under section 50(a) also will result in recapture of the benefit of the 
increase in the section 48E credit by reason of section 48E(h). The 
exception to the application of recapture provided in paragraph (n)(2) 
of this section does not apply in the case of a recapture event under 
section 50(a).
    (o) Applicability date. This section applies to qualified 
facilities placed in service after December 31, 2024, and during a 
taxable year ending after [the date the final regulations are filed for 
public inspection by the Office of the Federal Register].

Douglas W. O'Donnell,
Deputy Commissioner.
[FR Doc. 2024-19617 Filed 8-30-24; 8:45 am]
BILLING CODE 4830-01-P