TL/DR –
The IRS issued Notice 2024-41 on May 16, 2024, modifying its guidance on the application of rules that taxpayers must follow to qualify for domestic content bonus tax credit amounts under the Inflation Reduction Act. The new notice introduces a New Elective Safe Harbor, providing an objective calculation method for the domestic cost formula required to qualify for the bonus, and it adds hydropower and pumped hydropower storage facilities to the list of Applicable Projects and redefines “utility scale photovoltaic system” as “Ground-mount and rooftop photovoltaic system”. The notice also provides a new safe harbor that taxpayers may elect to use to classify Applicable Project Components and to calculate the Domestic Cost Percentage in an Applicable Project to qualify for domestic content bonus credits.
IRS Notice 2024-41: New Rules and Revisions
The IRS recently unveiled Notice 2024-41, introducing modifications to preliminary guidance on rules under the Inflation Reduction Act (IRA) outlined in Notice 2023-38. The recent release brings clarity and introduces a New Elective Safe Harbor for taxpayers to calculate the domestic cost formula to qualify for the domestic content bonus tax credit amounts.
A Brief on Notice 2024-41 Changes
- Applicable Projects now include hydropower and pumped hydropower storage facilities.
- Utility scale photovoltaic system has been renamed as Ground-mount and rooftop photovoltaic system.
- The Notice introduces additional Manufactured Product Components for Applicable Projects.
- A new safe harbor has been introduced for taxpayers to classify Applicable Project Components and calculate the Domestic Cost Percentage in an Applicable Project for the domestic content bonus credits. This New Elective Safe Harbor aims to address the substantiation and verification challenges in obtaining manufacturer’s direct costs.
If taxpayers use the New Elective Safe Harbor, the Notice provides detailed guidance on calculating combined solar energy and energy storage projects. It offers an objective, pre-formulated calculation of the Domestic Cost Percentage required to satisfy the Adjusted Percentage Rule. However, taxpayers can still choose the Direct Cost formula provided in Notice 2023-38.
Despite the changes, Notice 2024-41 is not a notice of proposed regulations. There are still uncertainties to be addressed in upcoming rulemaking. Notably, the Notice seems to have an incomplete description of steel or iron products in its Solar PV Table. The IRS asked for written comments on Notice 2024-41 by June 15, 2024.
For now, taxpayers can rely on Notice 2023-38, as modified by Notice 2024-41, for domestic content bonus credit requirements for any Applicable Project beginning construction before the forthcoming proposed regulations are published in the Federal Register.
The New Elective Safe Harbor introduced by Notice 2024-41 provides greater certainty to the renewable energy industry regarding the domestic content bonus tax credit pursuant to the IRA.
[1] The “Domestic Content Percentage” refers to the percentage obtained by dividing the Domestic Manufactured Products and Components Cost by the Total Manufactured Products Cost as outlined in Notice 2023-38.
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