[Federal Register Volume 88, Number 156 (Tuesday, August 15, 2023)]
[Rules and Regulations]
[Pages 55506-55548]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-17078]



[[Page 55505]]

Vol. 88

Tuesday,

No. 156

August 15, 2023

Part II





Department of the Treasury





-----------------------------------------------------------------------





Internal Revenue Service





-----------------------------------------------------------------------





26 CFR Part 1





Additional Guidance on Low-Income Communities Bonus Credit Program; 
Final Rule

  Federal Register / Vol. 88 , No. 156 / Tuesday, August 15, 2023 / 
Rules and Regulations  

[[Page 55506]]


-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9979]
RIN 1545-BQ81


Additional Guidance on Low-Income Communities Bonus Credit 
Program

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

-----------------------------------------------------------------------

SUMMARY: This document contains final regulations concerning the 
application of the low-income communities bonus credit program for the 
energy investment credit established pursuant to the Inflation 
Reduction Act of 2022. Under this program, applicants investing in 
certain solar or wind-powered electricity generation facilities for 
which the applicants otherwise would be eligible for an energy 
investment credit may apply for an allocation of environmental justice 
solar and wind capacity limitation to increase the amount of the energy 
investment credit for the taxable year in which the facility is placed 
in service. This document provides definitions and requirements that 
are applicable for this program. These final regulations affect 
applicants seeking allocations of the environmental justice solar and 
wind capacity limitation to increase the amount of the energy 
investment credit for which such applicants would otherwise be eligible 
once the facility is placed in service.

DATES: Effective date: These regulations are effective on October 16, 
2023.
    Applicability date: For date of applicability, see Sec.  1.48(e)-
1(o).

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Whitney 
Brady, the IRS Office of the Associate Chief Counsel (Passthroughs and 
Special Industries) at (202) 317-6853 (not a toll-free number).

SUPPLEMENTARY INFORMATION: 

Background

    This document contains amendments to the Income Tax Regulations (26 
CFR part 1) relating to new section 48(e) of the Internal Revenue Code 
(Code). Section 13103 of Public Law 117-169, 136 Stat. 1818, 1921 
(August 16, 2022), commonly known as the Inflation Reduction Act of 
2022 (IRA), added new section 48(e) to the Code to increase the amount 
of the energy investment credit determined under section 48(a) (section 
48 credit) with respect to eligible property of the taxpayer that is 
part of a qualified solar or wind facility if the taxpayer applies for 
and is awarded an allocation of environmental justice solar and wind 
capacity limitation (Capacity Limitation) as part of the low-income 
communities bonus credit program for the section 48 credit (Low-Income 
Communities Bonus Credit Program or Program).\1\ This document contains 
final definitions and rules applicable to the Program.
---------------------------------------------------------------------------

    \1\ This notice of proposed rulemaking uses the terms 
``taxpayer'' and ``applicant'' interchangeably (as the context may 
require) to avoid confusion given that persons eligible to apply for 
an allocation of Capacity Limitation under the Program may be exempt 
from or otherwise not subject to Federal income taxes imposed by 
chapter 1 of the Code.
---------------------------------------------------------------------------

    The section 48 credit for a taxable year is generally calculated by 
multiplying the basis of each energy property placed in service by a 
taxpayer during that taxable year by the energy percentage (as defined 
in section 48(a)(2)). Section 48(e) increases the taxpayer's section 48 
credit by increasing the energy percentage used to calculate the amount 
of the section 48 credit (section 48(e) Increase) in the case of 
eligible property that is part of a qualified solar or wind facility 
that receives an allocation of Capacity Limitation under the Program.
    On February 13, 2023, the Department of the Treasury (Treasury 
Department) and the IRS released Notice 2023-17, 2023-10 I.R.B. 505, to 
establish the Program. Notice 2023-17 also provided initial Program 
guidance regarding applicable definitions and Program requirements.
    On June 1, 2023, the Treasury Department and the IRS published in 
the Federal Register (88 FR 35791) a notice of proposed rulemaking 
(REG-110412-23, 2023-26 I.R.B. 1098) under section 48(e) (Proposed 
Rules) relating to the Program. Numerous commenters responded to the 
Proposed Rules, and after consideration of all comments received by 
June 30, 2023, the Proposed Rules are adopted as modified by this 
Treasury decision. The areas of comment and the revisions to the 
Proposed Rules are discussed in the following Summary of Comments and 
Explanation of Revisions section of this preamble. The comments are 
available for public inspection at https://www.regulations.gov or upon 
request. Other minor, editorial, and clarifying revisions made to the 
Proposed Rules as adopted in these final regulations are not discussed 
in the Summary of Comments and Explanation of Revisions section of this 
preamble.
    As announced in Proposed Rules, the Treasury Department and the IRS 
are also providing procedural and clarifying guidance applicable to the 
Program in Revenue Procedure 2023-27, 2023-35 I.R.B. This procedural 
and clarifying guidance is being issued simultaneously with these final 
regulations and provides the process for applying to the Program. These 
procedural rules provide guidance necessary to implement the Program, 
including, in relevant part, information an applicant must submit, the 
application review process, and the manner of obtaining an allocation.

Summary of Comments and Explanation of Revisions

I. Definition of Qualified Solar or Wind Facility

    Section 48(e)(2)(A) and the Proposed Rules define a single 
qualified solar or wind facility as any facility that (i) generates 
electricity solely from a wind facility, solar energy property, or 
small wind energy property; (ii) 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 facility categories described 
in section 48(e)(2)(A)(iii) (Category 1, 2, 3, or 4 are described in 
more detail in part III of this Summary of Comments and Explanation of 
Revisions section). In addition, for purposes of determining 
allocations, administering the Program fairly, and avoiding abuse, the 
Proposed Rules provided that multiple solar or wind energy properties 
or facilities that are operated as part of a single project would be 
aggregated and treated as a single facility. Whether multiple 
facilities or energy properties are operated as part of a single 
project would depend on the relevant facts and circumstances and would 
be evaluated based on the factors provided in section 7.01(2)(a) of 
Notice 2018-59 or section 4.04(2) of Notice 2013-29, as applicable.
    A few commenters suggested the Treasury Department and the IRS 
should not impose the single project factors to aggregate multiple 
facilities or energy properties into a single facility for purposes of 
these regulations. For example, some commenters said this does not work 
well for Tribal or some other partially-consolidated ``projects'' that 
may share ownership, financing, and other factors for efficiency, yet 
are different and distinguishable facilities. Some of the commenters 
suggested that a Tribe must be allowed to apply Capacity Limitation 
allocations for multiple projects, as separate projects, to allow for 
phased deployment of projects, and to treat each phase as a different 
project. Another commenter recommended relaxing restrictions in

[[Page 55507]]

the project definition so long as a reasonable period has elapsed to 
ensure adequate competitive forces in the market become established or 
suggested a carve-out from this rule for certain projects. An 
additional commenter suggested that if certain factors are present, 
those single factors standing alone should result in energy properties 
or facilities being regarded as a single project (that is, apart from 
other properties or facilities with which they might otherwise be 
grouped) without the need to apply all of the factors provided in 
section 7.01(2)(a) of Notice 2018-59 or section 4.04(2) of Notice 2013-
29, as applicable. Similarly, a commenter noted that co-located sites 
are typically permitted as a single project, even though the 
interconnection, ownership, financing, and construction of the 
facilities are conducted independently. This commenter stated that 
maintaining the requirement of one project per permit should not 
disqualify either project from receiving allocation under the Program.
    The Treasury Department and the IRS determined that to prevent some 
applicants from attempting to circumvent the less than 5 MW maximum net 
output limitation provided in section 48(e)(2)(A)(ii) by artificially 
dividing larger projects into multiple facilities, it is necessary to 
incorporate the single project factors tests provided in section 
7.01(2)(a) of Notice 2018-59 or section 4.04(2) of Notice 2013-29, as 
applicable, into the definition of qualified solar or wind facility. 
Therefore, the final regulations generally adopt the definition of 
qualified solar or wind facility provided in the Proposed Rules. 
However, the final regulations clarify that if multiple facilities or 
energy properties are regarded as a single facility for purposes of 
this rule, they will be regarded as a single facility for all purposes 
under the Program. Additionally, to alleviate some commenters' concerns 
that multiple energy properties or facilities that satisfy any of the 
listed factors will conclusively result in a single project 
determination, the final regulations clarify that whether multiple 
facilities or energy properties are operated as part of a single 
project and thus treated a single facility, will depend on the relevant 
facts and circumstances. Thus, a single factor or factors are not 
determinative.
    A commenter noted that the Proposed Rules specify that a qualified 
facility refers to a solar energy property with an output of less than 
5 MW and recommended aligning the Program with the industry standard by 
allowing projects that have a capacity of up to 5 MW. This comment is 
not adopted because section 48(e)(2)(A)(ii) limits the Program to 
facilities that have a maximum net output of less than 5 MW (as 
measured in AC).

II. Four Categories of Qualified Solar or Wind Facilities

    Depending on the category of the facility, an allocation of 
Capacity Limitation under the Program may result in a section 48(e) 
Increase equal to either 10 percentage points or 20 percentage points. 
Section 48(e)(1)(A)(i) provides for a section 48(e) Increase of 10 
percentage points for eligible property that is located in a low-income 
community (Category 1 facility), or on Indian land (Category 2 
facility). Section 48(e)(1)(A)(ii) provides for a section 48(e) 
Increase of 20 percentage points for eligible property that is part of 
a qualified low-income residential building project (Category 3 
facility) or a qualified low-income economic benefit project (Category 
4 facility).
    Under section 48(e)(2)(A)(iii)(I), the term low-income community is 
generally 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. Section 48(e)(2)(A)(iii)(I) 
provides that Indian land is defined in section 2601(2) of the Energy 
Policy Act of 1992 (25 U.S.C. 3501(2)). The final regulations clarify 
that the poverty rate for a census tract is generally based on the 
2011-2015 American Community Survey (ACS) low-income community data for 
the New Markets Tax Credit (NMTC), however, if updated data is 
released, a taxpayer can choose to base the poverty rate for any 
population census tract on either the 2011-2015 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. Applicants who 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 48(e)(2)(B) provides that a facility will be treated as 
part of a qualified low-income residential building project if (i) such 
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 (USDA) 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 (ii) the financial benefits of the electricity produced by such 
facility are allocated equitably among the occupants of the dwelling 
units of such building.
    Section 48(e)(2)(C) provides that a facility will be treated as 
part of a qualified low-income economic benefit project if at least 50 
percent of the financial benefits of the electricity produced by such 
facility are provided to households with income of less than 200 
percent of the poverty line (as defined in section 36B(d)(3)(A) of the 
Code) applicable to a family of the size involved, or less than 80 
percent of area median gross income (as determined under section 
142(d)(2)(B) of the Code).
    One commenter stated that the statute does not provide for 
``facility categories'' and that what section 48(e)(2)(A)(iii) 
describes is not four distinct facility categories, but four ways of 
meeting geographic or benefits-based qualifying criteria. The Treasury 
Department and the IRS determined that a change in the final 
regulations is not necessary because the use of facility categories as 
a means of differentiating the four distinct geographic or benefits-
based qualifying criteria is consistent with the statute and serves as 
an administratively convenient mechanism to distinguish among them and 
describe requirements and definitions applicable to each. Accordingly, 
as discussed in part II of this Summary of Comments and Explanation of 
Revisions section, the final regulations, consistent with the Proposed 
Rules, require a qualified solar or wind facility to be described in 
one of the four categories described in section 48(e)(2)(A)(iii) 
(Category 1, 2, 3, or 4).
    Another commenter asked for clarification on whether a project must 
just be located in a low-income

[[Page 55508]]

community or whether benefits must also go to a low-income community to 
qualify for each category. The Treasury Department and the IRS 
considered the comment but did not make a change because the Proposed 
Rules and now the final regulations clearly describe the categories 
that have applicable benefits sharing requirements consistent with 
statutory requirements, so no change is necessary. For Category 1 and 
Category 2, section 48(e)(2)(A)(iii)(I) requires a facility to be 
located in a low-income community (as defined in section 45D(e)) or on 
Indian land (as defined in section 2601(2) of the Energy Policy Act of 
1992 (25 U.S.C. 3501(2))), but the statute, and accordingly the final 
regulations, do not impose any requirements to share financial benefits 
with low-income subscribers or households. Conversely, for Category 3 
and Category 4, section 48(e)(2)(B) and (C) does impose benefits 
sharing requirements, and those rules were included in the Proposed 
Rules and are provided in these final regulations as modified. See part 
V of this Summary of Comments and Explanation of Revisions section for 
more discussion regarding those requirements.
    Specific to Category 2, another commenter noted that the definition 
of located on Indian land should include simple fee and trust lands 
located off-reservation owned by Tribes. Trust lands located off-
reservation are covered under the statutory definition of Indian land 
referenced in section 48(e)(2)(A)(I). Fee lands, however, would only be 
covered if they are included within the boundaries of a reservation or 
in the census categories included within the Indian land definition. 
Therefore, the final regulations did not adopt the commenter's 
suggestion and define ``Indian land'' by reference to section 2601(2) 
of the Energy Policy Act of 1992 (25 U.S.C. 3501(2)) without additional 
clarification.
    Specific to Category 3, a commenter asked for clarification that 
the installation of a facility on a ``residential rental building'' 
extends to the curtilage of the building, including carports, sheds, 
and open space on the same property. Another commenter asked for 
similar clarification stating that the guidance currently defines a 
facility as eligible if it is a facility installed on an eligible 
building. This commenter stated that this is an overly narrow statement 
that would not include adjacent carport or ground-mount solar on the 
same parcel. The commenter encouraged the Treasury Department and the 
IRS to include these other solar installation locations, as rural and 
suburban section 42 low-income housing credit (commonly referred to as 
LIHTC) properties often have excess land or large parking areas due to 
zoning requirements that could host solar installations. The final 
regulations adopt this comment by clarifying that a facility is treated 
as installed on a residential rental building that participates in a 
covered housing program or other affordable housing program (Qualified 
Residential Property) even if that facility is not on the Qualified 
Residential Property if the facility is installed on the same or 
adjacent parcel of land as the Qualified Residential Property, and the 
other requirements to be a Category 3 facility are satisfied.
    Several commenters requested that the Treasury Department and the 
IRS categorically include any LIHTC project as a Category 3 project. 
Section 48(e)(2)(B)(i) provides that a covered housing program is 
defined in VAWA. The statutory cross-reference is comprehensive and 
includes numerous types of housing programs and policies across Federal 
agencies, including the low-income housing credit under section 42 of 
title 26. Accordingly, a solar or wind facility that is installed on a 
``qualified low-income building'' under section 42 is eligible for 
Category 3. In response to commenters' general inquiries on covered 
housing programs, 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 
48(e)(2)(B)(i). This list will be made available on the Program web 
page and is also listed here:
    Covered housing programs and policies (as defined in VAWA) 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 tenant-based and 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 of 
the Code;
     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; and/or
     Department of Justice transitional housing assistance 
grants for victims of domestic violence, dating violence, sexual 
assault, or stalking.
    Section 48(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; and/or
     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)).
    One commenter also requested that Federal Weatherization Assistance 
Program (WAP) affordable housing categorically qualify as Category 3 
covered housing. The WAP is not a housing program. The WAP is a program 
of the DOE that provides weatherization services and support for 
qualifying housing but does not provide or administer the actual 
housing. Therefore, the WAP program is not included as a Category 3 
housing program.
    Several commenters also requested that Category 3 include as an 
eligible residential rental building housing that is enrolled under a 
State-specific low-

[[Page 55509]]

income housing program that is not enrolled, or may not qualify, under 
the statutorily listed Federal housing programs. Similarly, several 
commenters requested that housing authorities under State programs be 
able to appeal for qualification under the Program. One commenter 
provided that housing authorities should be able to prove they meet 
certain minimum criteria and thresholds beyond enrollment in specified 
Federal programs.
    State specific housing programs do not categorically qualify as 
Qualified Residential Properties nor do the facilities installed on 
such buildings categorically meet the requirements of section 
48(e)(2)(B). The statute specifically lists only Federal housing 
programs and provides that the Secretary may include other affordable 
housing programs. The Treasury Department and the IRS decline to 
include additional housing programs in the final regulations at this 
time so that the Program will focus on the statutorily-prescribed 
housing programs. However, the Treasury Department and the IRS may 
include additional housing programs in future Program guidance.
    The final regulations also do not provide a special review process 
for housing authorities to be considered as qualifying under State 
specific programs for the same reasons as provided earlier regarding 
State program eligibility. Moreover, a housing authority is not the 
same thing as a housing program. It is the solar or wind facility that 
is being reviewed, upon application, to determine whether the facility 
qualifies for an allocation, and not a specific housing authority or 
building that the facility will serve. The building on which the 
facility is built must already be a part of a Qualified Residential 
Property, otherwise the facility is not eligible under the requirements 
for Category 3.
    One commenter also requested greater protection for the tenants of 
a Qualified Residential Property when a facility applies for or 
receives an allocation under Category 3. The commenter requested rent 
protection for the life of the solar or wind facility to ensure tenants 
are not subject to rent increases due to the installation of the solar 
or wind facility. The commenter also requested eviction protection, 
relocation assistance for tenants affected by construction, with a 
right of return for those tenants after construction, a sales 
restriction of five years for the building on which the facility is 
installed, and strong enforcement mechanisms.
    The Treasury Department and the IRS considered this comment but did 
not adopt the commenter's suggestions because the requirements 
recommended by the commenter are outside the scope of section 48(e) and 
therefore what could be implemented by these final regulations.

III. Eligible Property, Including Energy Storage Technology Installed 
in Connection With Solar or Wind Facility

    ``Eligible property'' as defined by section 48(e)(3) means energy 
property that (i) is part of a wind facility described in section 
45(d)(1) for which an election to treat the facility as energy property 
was made under section 48(a)(5) (wind facility), or (ii) is solar 
energy property described in section 48(a)(3)(A)(i) (solar energy 
property) or qualified small wind energy property described in section 
48(a)(3)(A)(vi) (small wind energy property). Eligible property also 
includes energy storage technology (as described in section 
48(a)(3)(A)(ix)) ``installed in connection with'' such energy property.
    The Proposed Rules defined ``installed in connection with'' for 
energy storage technology to demonstrate what is required for such 
energy storage technology to be considered eligible property under 
section 48(e)(3), providing that this is met if both (1) the energy 
storage technology and other eligible property are considered part of a 
single qualified solar or wind facility because the energy storage 
technology and other eligible property are owned by a single legal 
entity, located on the same or contiguous pieces of land, have a common 
interconnection point, and are described in one or more common 
environmental or other regulatory permits; and (2) the energy storage 
technology is charged no less than 50 percent by the other eligible 
property.
    The Proposed Rules also added a safe harbor, which would deem the 
energy storage technology to be charged at least 50 percent by the 
facility if the power rating of the energy storage technology is less 
than 2 times the capacity rating of the connected wind facility (in kW 
AC) or solar facility (in kW direct current (DC)).
    A commenter stated that the last sentence relating to the safe 
harbor appears to have the phrases ``power rating'' and ``capacity 
rating'' reversed, and to have omitted how energy storage is measured. 
The commenter stated that energy storage is measured in kWh, a measure 
of energy. A generating facility such as a solar or wind farm produces 
power, measured in kW. The commenter believes that the apparent 
intended meaning of the sentence would be better rendered with: ``The 
Treasury Department and the IRS also propose to add a safe harbor, 
which would deem the energy storage technology to be charged at least 
50 percent by the facility if the [capacity] rating of the energy 
storage technology [(in kWh)] is less than 2 times the [power] rating 
of the connected wind facility (in kW AC) or solar facility (in kW 
DC).'' The Treasury Department and the IRS considered this comment, but 
the final regulations do not adopt the commenter's suggestion.\2\ For 
energy storage, the power rating (measured in kilowatts) indicates how 
much power can flow into or out of the battery in any given instant. It 
is similar to the capacity rating of a solar or wind facility, which 
indicates how much power can theoretically come out of the solar or 
wind facility in any given instant. In this context, the Treasury 
Department and the IRS accurately referred to the ``power rating'' of 
the energy storage technology.
---------------------------------------------------------------------------

    \2\ The commenter correctly identified that the Proposed Rules 
omitted how energy storage is measured. The omission was an error, 
and the Treasury Department and the IRS issued a correction to the 
Proposed Rules published in the Federal Register (88 FR 41340) on 
June 26, 2023, to clarify that the power rating of the energy 
storage technology is measured in kW. The final regulations 
incorporate this correction.
---------------------------------------------------------------------------

    Additionally, a couple of commenters requested that the Treasury 
Department and the IRS eliminate the requirement that energy storage 
technology be charged at least 50 percent by other eligible property. 
These commenters point to the general language in sections 
48(a)(2)(A)(i)(VI) and 48(c)(6) on energy storage technology and argue 
against including the charging requirement for section 48(e). One 
commenter said there is no statutory basis to require energy storage 
technology to be charged by other eligible energy property and this 
goes against Congressional intent. Another commenter said this rule may 
set a problematic and inequitable precedent in the context of the 
underlying section 48 credit, which Congress deliberately moved away 
from this standard in the IRA to better promote the benefits of energy 
storage, and that the standard for storage inclusion should not be more 
burdensome for environmental justice communities or Tribes than for 
other projects seeking the section 48 credit.
    The general language in sections 48(a)(2)(A)(vi) and 48(c)(6) 
describing energy storage technology eligible for the section 48 credit 
differs from what Congress included when describing energy storage 
technology eligible for a section 48(e) Increase. Eligible property as 
described in section 48(e)(3) includes

[[Page 55510]]

energy storage technology (as described in section 48(a)(3)(A)(ix)) 
installed in connection with other eligible energy property. The use of 
the phrase ``in connection with'' limits the energy storage technology 
eligible for a section 48(e) Increase to energy storage that is 
installed in connection with the eligible solar or wind facility. The 
general energy storage technology language in section 48 includes no 
such limiting language. As required by the statute, the Treasury 
Department and the IRS determined that the proposed rule serves to 
ensure that energy storage technology eligible for a section 48(e) 
Increase has a sufficient nexus to the eligible property. The Treasury 
Department and the IRS provide taxpayers with the safe harbor described 
earlier as a means of deeming the energy storage technology as 
satisfying the requirement that it be charged no less than 50 percent 
by the other eligible property. The Proposed Rule applies uniformly to 
all taxpayers seeking an allocation of Capacity Limitation. Therefore, 
the final regulations retain the requirement that the energy storage 
technology must be charged no less than 50 percent by the other 
eligible property. However, to provide additional guidance on the 
application of this standard, the final regulations clarify that ``50 
percent'' is based on an annual average.
    Another commenter suggested eliminating the co-location requirement 
applicable to energy storage technology because the language of the 
statute can and should be interpreted to include storage projects that 
have firm, contractual offtake agreements with offsite solar or wind 
projects, and that these projects would be located within the same 
balancing authority, ensuring that all benefits are local. The final 
regulations do not adopt the commenter's suggestion because the 
Treasury Department and the IRS view the Proposed Rule that the energy 
storage technology be located on the same or contiguous pieces of land 
as the other eligible property as consistent with the statutory 
requirement that limits energy storage technology eligible for a 
section 48(e) Increase to only energy storage technology that is 
installed in connection with other eligible property.
    Finally, one commenter requested clarification that the power 
rating of connected energy storage technology will not be counted 
against a facility's Capacity Limitation allocation. Because the final 
regulations, consistent with the Proposed Rules, define a qualified 
solar or wind facility eligible for a Capacity Limitation without 
reference to energy storage technology, the Treasury Department and the 
IRS believe this clarification in the final regulations is unnecessary.
    A few commenters also requested that final regulations expand the 
definition of ``in connection with'' under section 48(e)(3)(B) 
applicable to energy storage technology to include interconnection 
property under section 48(a)(8), so that interconnection costs are 
eligible for purposes of calculating the section 48(e) Increase.
    Section 48(e)(3)(B) provides that energy storage technology defined 
under section 48(a)(3)(A)(ix) installed in connection with eligible 
solar or wind property described in section 45(d)(1) or section 
48(a)(3)(A)(i) or (vi) is eligible property for purposes of calculating 
the section 48(e) Increase. Neither section 48(e)(3)(B) nor any other 
provision applicable to section 48(e) includes interconnection property 
or costs in the definition of eligible property. Therefore, the final 
regulations do not adopt these commenters' suggestion.

IV. Location

    The Proposed Rules provided that a qualified solar or wind facility 
is treated as ``located in a low-income community'' or ``on Indian 
land'' under section 48(e)(2)(A)(iii)(I) or located in a geographic 
area under the Additional Selection Criteria (see part VII of this 
Summary of Comments and Explanation of Revisions section) if the 
facility satisfies the nameplate capacity test (Nameplate Capacity 
Test).
    Under the Nameplate Capacity Test, a facility that has nameplate 
capacity (for example, wind and solar facilities) is considered located 
in or on the relevant geographic area if 50 percent or more of the 
facility's nameplate capacity is in a qualifying area. A facility's 
nameplate capacity percentage is determined by dividing the nameplate 
capacity of the facility's energy-generating units that are located in 
the qualifying area by the total nameplate capacity of all the energy-
generating units of the facility.
    Nameplate capacity for an electricity generating unit means the 
maximum electricity generating output that the unit is capable of 
producing on a steady state basis and during continuous operation under 
standard conditions, as measured by the manufacturer and consistent 
with the definition provided in 40 CFR 96.202. Energy-generating units 
that generate DC power before converting to AC (for example, solar 
photovoltaic) should use the nameplate capacity in DC, otherwise the 
nameplate capacity in AC should be used (for example, wind facilities). 
Where applicable, the International Standard Organization conditions 
are used to measure the maximum electricity generating output or usable 
energy capacity. The nameplate capacity of any energy storage 
technology installed in connection with the qualified solar or wind 
facility does not affect the assessment of the Nameplate Capacity Test.
    A few commenters noted concerns on the Nameplate Capacity Test and 
what it means to be ``located in.'' Another commenter suggested that 
the Nameplate Capacity Test should provide maximum flexibility. This 
commenter noted that Tribal lands are often not contiguous, and that 
new housing is limited so it is often off-reservation and there are 
also issues of right of way.
    The Nameplate Capacity Test to determine the location of a facility 
already inherently provides flexibility because it only requires that 
50 percent or more (rather than a larger percentage) of the facility's 
nameplate capacity be in a qualifying area. The Treasury Department and 
the IRS concluded that a 50 percent standard is a reasonable standard, 
which strikes the right balance between providing flexibility to 
taxpayers and ensuring that statutory requirements are satisfied. 
Additionally, this standard is familiar to taxpayers because it is the 
same standard that is used to determine whether a facility is located 
in an energy community under Notice 2023-29, 2023-20 IRB 1.
    Other commenters had concerns about the use of AC and DC. These 
commenters said that the Treasury Department and the IRS should update 
the Proposed Rules to clarify that the use of DC is limited to project 
location and does not apply to the maximum output of a qualified 
facility. One commenter also added that the Treasury Department and the 
IRS should update the Proposed Rules to clarify that an allocation will 
not be reduced if a qualified facility's AC output is less than the 
facility's DC output. Additionally, a few commenters suggested that the 
nameplate capacity for both wind and solar facilities should be based 
on AC as the statute indicates and questioned the differing standard.
    In response to these comments, the Treasury Department and the IRS 
added language in the final regulations to clarify that the Nameplate 
Capacity Test only applies for purposes of determining whether a 
facility is located in a qualifying area. The Treasury Department and 
the IRS did not modify the Nameplate Capacity Test to remove the 
reference to DC for measuring the nameplate capacity of a solar 
facility because nameplate capacity for a solar

[[Page 55511]]

facility is appropriately measured in DC. Solar facilities produce 
electricity in DC, which is then converted to AC for end use. 
Conversely, wind facilities produce electricity in AC.

V. Financial Benefits for Category 3 and Category 4 Allocations

    Section 48(e)(2)(D) provides that ``electricity acquired at a below 
market rate'' will not fail to be taken into account as a financial 
benefit. The Proposed Rules provided definitions of the terms 
``financial benefit'' and ``electricity acquired at a below market 
rate'' under section 48(e)(2)(D), as well as a manner to apply such 
definitions, appropriately, to qualified low-income residential 
building projects (section 48(e)(2)(B)) and qualified economic benefit 
projects (section 48(e)(2)(C)).
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, section 48(e)(2)(B)(ii) provides that the 
financial benefits of the electricity produced by such facility must be 
allocated equitably among the occupants of the dwelling units of a 
Qualified Residential Property. The Proposed Rules reserved allocations 
under this category exclusively for applicants that would apply the 
financial benefits requirement under Category 3 in the following 
manner.
    The Proposed Rules provided that financial benefits can be 
demonstrated through net energy savings as defined later. At least 50 
percent of the financial value of net energy savings would be required 
to be equitably passed on to building occupants. This requirement would 
recognize that not all the financial value of the net energy savings 
can be passed on to building occupants because a certain percentage can 
be assumed to be dedicated to lowering the operational costs of energy 
consumption for common areas, which benefits all building occupants. 
The Proposed Rules provided that applicants must equitably pass on net 
energy savings by distributing equal shares among the Qualified 
Residential Property's units that are designated as low-income under 
the covered housing program, or by distributing proportional shares 
based on each dwelling unit's electricity usage.
    The Proposed Rules accounted for the specific nature of facilities 
serving low-income residential buildings and facility ownership, as the 
facility may be third-party owned or commonly owned with the building.
    In scenarios where the facility and the Qualified Residential 
Property have the same ownership, the Proposed Rules defined the 
financial value of net energy savings as the financial value equal to 
the greater of: (1) 25 percent of the gross financial value of the 
annual energy produced or (2) the gross financial value of the annual 
energy produced minus the annual costs to operate the facility. Gross 
financial value of the annual energy produced is calculated as the sum 
of (a) the total self-consumed kilowatt-hours produced by the qualified 
solar or wind facility multiplied by the applicable building's metered 
price of electricity and (b) the total exported kilowatt-hours produced 
by the qualified solar or wind facility multiplied by the applicable 
building's volumetric export compensation rate for solar or wind 
kilowatt-hours. The annual operating costs are calculated as the sum of 
annual debt service, maintenance, replacement reserve, and other costs 
associated with maintaining and operating the qualified solar or wind 
facility.
    If the facility and building are commonly owned, a signed benefit-
sharing agreement between the building owner and the tenants would be 
required. The Proposed Rules requested comments on how to adjust 
definitions of gross financial value to account for scenarios in which 
building occupants are compensating the facility owner for energy 
services.
    In scenarios where the facility and the Qualified Residential 
Property have different ownership and the facility owner enters into a 
power purchase agreement (PPA) or other contract for energy services 
with the Qualified Residential Property owner, the Proposed Rules 
defined net energy savings as equal to the greater of: (1) 50 percent 
of the financial value of the annual energy produced by the facility 
that accrues to the owner of the Qualified Residential Property in the 
form of utility bill credit and/or cash payments for net excess 
generation or (2) the financial value of the annual energy produced by 
the facility that accrues to the owner of the Qualified Residential 
Property in the form of utility bill credit and/or cash payments for 
net excess generation minus any payments made by the building owner to 
the facility owner for energy services associated with the facility in 
a given year. In these scenarios, the facility owner must enter into an 
agreement with the building owner for the building owner to distribute 
the savings to residents.
1. Requirement To Equitably Allocate Financial Benefits
    Two commenters provided that under certain State and Federal 
housing programs, housing authorities receive utility subsidies based 
on historical utility costs. These commenters also noted that a housing 
authority may have their utility allowance decreased if the housing 
authority reduces their utility costs through savings from the 
facility. Additionally, these commenters stated that the department 
managing a housing authority can claim a portion of net metering 
credits if the housing authority receives net metering credits. One of 
the commenters, therefore, requested that the Treasury Department and 
the IRS draft a rule that the housing authority be able to retain 100 
percent of net metering credits, regardless of the energy savings 
received from the program and the facility. The other commenter 
requested that the Treasury Department and the IRS waive the 
requirement for public housing authorities to pass financial benefits 
along to residents. This commenter stated that in public housing, all 
benefits ultimately accrue to the benefit of residents. Another 
commenter stated that HUD-utility allowances may need to be increased 
for buildings if net benefits are to be shared between the owner and 
tenants, and the external financing is used to build the system, such 
that additional proceeds will be needed to pay debt service on the 
energy.
    The Treasury Department and the IRS considered these comments but 
did not adopt them in the final regulations because section 48(e)(2)(B) 
requires that the financial benefits of the electricity produced by the 
facility be allocated equitably among the occupants of the Qualified 
Residential Property.
    One commenter warned the Treasury Department and the IRS to guard 
against owner/related party financing designed to capture all or most 
of the energy savings benefits by artificially manipulating their terms 
of the financing to capture the savings during the term of the credit, 
and against owners seeking to purchase energy wholesale and mark up 
value to tenants to artificially inflate the value of the energy 
savings. The commenter says the value of the energy bill savings should 
be indexed against the approved meter rate as authorized by the 
relevant public service commission (where applicable) or some other 
third-party verifiable rate unrelated to the project sponsor or 
affiliates.
    In response to this comment, the Treasury Department and the IRS 
have

[[Page 55512]]

maintained the baseline of 50 percent of the net energy savings 
calculated from a minimum of 25 percent of the gross financial value of 
electricity produced as described in the Proposed Rules to ensure the 
statutory obligation that financial benefits be allocated to tenants. 
The final regulations clarify, consistent with the comments received, 
that gross financial value includes the sale of any renewable energy 
credits or other attributes associated with the facility's production, 
if separate from the metered price of electricity or export 
compensation rate.
    Many commenters requested that the final regulations provide 
guidance for facility owners to prove equitable distribution of 
benefits to tenants. A few commenters stated that in certain cases, 
like a project using community renewable energy facility rate 
structures offered by utilities, separately metered residents can 
subscribe voluntarily, and some residents may choose not to subscribe. 
Therefore, these commenters requested that the regulations allow for a 
reduction in the equitable distribution requirement on a pro-rata basis 
by the (number) of residents who choose not to subscribe. However, one 
of the commenters recommended a minimum threshold of resident 
participation, suggesting 50 percent participation at placed in 
service, for the distribution of benefits to be considered equitable.
    In consideration of these comments, the Treasury Department and the 
IRS have clarified in the final regulations that for any occupant(s) 
that choose to not receive utility bill savings, the portion of the 
financial value that would otherwise be distributed to non-
participating occupants must be instead distributed equitably to the 
participating occupants. Additionally, 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 utilize this method of benefit distribution.
2. Gross Financial Value
    A few commenters suggested changes to the definition of gross 
financial value. One commenter stated that for purposes of building 
occupants compensating the facility owner, gross financial value could 
be calculated based on the average monthly local utility rate for 
either residential or low-income residential (from the previous 
calendar year or trailing 12 months) multiplied by the average 
residential kilowatt hour usage per square foot multiplied by the per 
square footage of rentable residential space in the building. The 
commenter provided variation and detail on how this would be 
accomplished.
    Another commenter requested clarification on how to define ``gross 
financial value.'' The commenter stated that it is unclear whether the 
``price of electricity'' means only the energy costs or also all the 
delivery costs and other charges that may be charged on a per kilowatt 
hour basis. Additionally, the commenter noted that the ``export 
compensation rate for . . . kilowatt hours'' may not be solely tied to 
the energy but may also include additional compensation such as the 
value of renewable energy certificates or other incentives provided by 
States.
    Finally, one commenter stated that calculating the ``gross 
financial value of the annual energy produced,'' as defined in the 
Proposed Rules, would be difficult for buildings due to the complexity 
of electricity rate structures in many jurisdictions, which may vary 
depending on the time of day and time of year.
    The Treasury Department and the IRS considered the commenters' 
suggestions but generally did not adopt them because the Proposed Rules 
provide a clear and accurate framework for defining ``gross financial 
value.'' However, the final regulations clarify, consistent with the 
comments received, that gross financial value includes the sale of any 
renewable energy credits or other attributes associated with the 
facility's production, if separate from the metered price of 
electricity or export compensation rate. The same definition of gross 
financial value applies regardless of the ownership structure.
    One commenter requested clarification about whether front of the 
meter (FTM) volumetric tariff compensation rate, such as Connecticut's 
Residential Renewable Energy Solutions Buy-All-Sell-All tariff (BASA 
Tariff), may be included in the gross financial value calculation when 
the facility and Qualified Residential Property have the same 
ownership. The commenter believes that the BASA tariff $/kWh revenue 
would be included in the definition of gross financial value because it 
is included in the definition as part of ``the total exported kilowatt-
hours produced by the qualified solar or wind facility multiplied by 
the applicable building's volumetric export compensation rate for 
solar.''
    The Treasury Department and the IRS considered this comment but 
ultimately concluded that additional clarification in the final 
regulations to address specific State tariff rates is not necessary. 
The definition of gross financial value included in the final 
regulations, consistent with the Proposed Rules, already includes the 
total exported kilowatt-hours produced by the qualified solar or wind 
facility multiplied by the applicable building's volumetric export 
compensation rate for solar or wind kilowatt-hours, which would include 
compensation from the electricity produced from the facility.
    Another commenter stated that it is not appropriate to define 
financial benefits in terms of the value of energy savings. Instead, 
this commenter claimed that the only financial benefit that can be 
generated by facilities in Category 3 would be through net metering, 
where the facility generates excess capacity that is sold back to the 
grid for off-site consumption. The commenter also implied that, in the 
case of net metering credits, the credit would go directly to the 
tenants, and that the building owner will never receive any financial 
benefit.
    The Treasury Department and the IRS considered this comment but did 
not adopt it in the final regulations. The Treasury Department and the 
IRS determined that gross financial value from the electricity produced 
from a qualified solar or wind facility may stem from self-consumed 
kilowatt-hours produced by the facility, exported kilowatt-hours 
produced by the facility, or the sale of any renewable energy credits 
or other attributes associated with the facility's production (if 
separate from the metered price of electricity or export compensation 
rate). Further, financial value of energy savings from the electricity 
produced is a financial benefit of the electricity produced by the 
facility and section 48(e)(2)(B)(ii) provides that the financial 
benefits of the electricity produced by such facility must be allocated 
equitably among the occupants of the dwelling units of a Qualified 
Residential Property.
3. Net Financial Value
    One commenter stated that rather than creating two methods, the 
Treasury Department and IRS should adopt a single method to calculate 
net energy savings. The commenter stated that for both scenarios 
(commonly owned and third-party owned), the final regulations should 
adopt the method from the Proposed Rules that was only proposed to 
apply when the facility and Qualified Residential Property have the 
same ownership. The Treasury Department and the IRS considered this 
comment but did not adopt it in the final regulation because it is 
appropriate for ``net financial value'' to be defined differently 
depending on whether the facility is commonly owned or third-party 
owned because in third-party

[[Page 55513]]

owned scenarios calculating the facility's levelized cost of energy 
would be overly complex and potentially vulnerable to manipulation. 
Instead, relying on the PPA rate is simpler and more reliable. The 
final regulations clarify that in case of a commonly owned facility 
``net financial value'' is defined as the gross financial value of the 
annual energy produced minus the annual average (or levelized) cost of 
the qualified solar or wind 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). In the case of a third-party 
owned facility, ``net financial value'' is defined as gross financial 
value of the annual energy produced minus any payments made by the 
building owner and/or building occupants to the facility owner for 
energy services associated with the facility in a given year.
    Another commenter cited to the Connecticut's Residential Renewable 
Energy Solutions BASA Tariff, which involves FTM projects, and 
requested a change to the net financial value definition for third-
party owned facilities. The commenter proposed that, to include FTM 
projects in Category 3, the first definition of net financial value 
needs to be amended to reference ``the total financial value of energy 
produced by the facility that accrues to the owner of the qualified 
residential property, or the facility owner, the tenants, or a 
combination thereof.'' The commenter further provided that a set 
percentage can be required to be provided, like 25 percent, to the 
tenants, and the rest of the revenue can be allocated between the 
facility owner and the property owner in whatever manner is requested. 
This commenter also requested that the second definition of net 
financial value be amended to say that ``the total financial value of 
the annual energy produced by the facility that accrues to the owner of 
the qualified residential property, or the facility owner, the tenants, 
or a combination thereof minus any payments made, or revenue allocated, 
to the facility owner for energy services associated with the facility 
in a given year'' to consider solar site lease structures (for FTM 
project like BASA) in addition to PPAs.
    Another commenter generally recommended that the Treasury 
Department and the IRS adopt a baseline requirement of passing on at 
least 25 percent of net energy savings to tenants, to ensure meaningful 
financial benefits are afforded to households in Category 3.
    The Treasury Department and the IRS considered these comments but 
did not adopt them in the final regulations and maintain the baseline 
of 50 percent of the net energy savings calculated from a minimum of 25 
percent of the gross financial value of electricity produced as 
described in the Proposed Rule, which is a higher value of meaningful 
financial benefits than the commenter suggests. The other 50 percent of 
the net energy savings can be assumed to be dedicated to lowering the 
operational costs of energy consumption for common areas, which 
benefits all building occupants. The Treasury Department and the IRS 
determined that the baseline of 50 percent of the net energy savings is 
consistent with the statutory intent for Category 3, which is to 
provide the financial benefits of the electricity produced directly to 
building occupants.
4. Single Family Housing
    One commenter generally noted that the financial benefit 
definitions for Category 3 only contemplate multi-family housing. This 
commenter requests clarification for Tribal housing programs, which the 
commenter states primarily consist of Tribal single-family residences 
that would have their own meter.
    In response to the comment, the Treasury Department and the IRS 
have modified the financial benefit definition to provide clarity for 
single-family residences that meet the criteria of a Qualified 
Residential Property. The final regulations state that a Qualified 
Residential Property could either be a multifamily rental property or 
single-family rental property. The same rules for financial benefits 
for Category 3 apply to both property types.
5. Benefits Sharing Agreement
    Several commenters expressed concern over the signed benefits 
sharing agreement between the building owner and the tenants if the 
facility and building are commonly owned. Generally, commenters 
suggested the elimination of this requirement. A few commenters noted 
the administrative burdens and challenges on the building owner in 
obtaining signed agreements from all tenants. Likewise, another 
commenter said that this requirement is overly burdensome, and that 
requiring each resident to voluntarily sign a benefits sharing 
agreement would prevent a facility from proceeding. This commenter also 
noted the possibility that requiring such an agreement may conflict 
with consumer protection laws, and another commenter agreed suggesting 
certain customer protection disclosures may be required. One commenter 
also stated that this process would potentially present a `false 
promise' to residents should the project not be selected for an 
allocation. Some commenters offered alternatives to a signed benefits 
sharing agreement. Several commenters recommended that the facility 
owner or building owner provide notice to all building occupants of the 
expected financial benefits and the proposed method of allocating the 
benefit. Similarly, another suggested that owners be required to 
develop a benefits sharing plan that must be communicated to tenants, 
with owners ensuring that sufficient time is given for tenants to 
provide feedback. Finally, a few commenters suggested that applicants 
instead submit a self-attestation form certifying that they will 
equitably distribute benefits in accordance with the standards set 
forth in HUD guidelines.
    One commenter supported the requirement for a signed benefits 
sharing agreement. However, the commenter requested additional guidance 
on the contents of such a benefits sharing agreement, including 
specific required consumer protection disclosures, such as resources 
tenants can access to better understand or renegotiate the agreement. 
This commenter additionally encouraged the Treasury Department and the 
IRS to adopt a model affidavit or agreement between building owners and 
tenants based on the options considered and used in California's Solar 
on Multifamily Affordable Housing (SOMAH) program. Another commenter 
generally asked for clarification on how to prove or attest that 
financial benefits are due to cost savings associated with solar.
    Several Tribal commenters requested that facilities owned by Tribes 
or Tribal housing authorities should be presumed to result in an 
economic benefit to Tribal members who reside on the reservation or who 
live in Tribal-owned housing, and thus should not be required to enter 
into a benefits sharing agreement with Tribal members to show the 
financial benefit to Tribal members.
    The Treasury Department and the IRS agree that requiring a signed 
benefits sharing agreement between the building owner and the tenants 
is burdensome and not necessary to demonstrate compliance with Program 
requirements. Instead, to better achieve the goal of verifying Program 
compliance and to provide clarification to applicants regarding how 
they can demonstrate that statutory requirements are met the final 
regulations require that facility owners for all Category 3 facilities 
must

[[Page 55514]]

prepare a Benefits Sharing Statement, which must include (1) a 
calculation of the facility's gross financial value using the method 
described in the final regulations, (2) a calculation of the facility's 
net financial value using the method described in the final 
regulations, (3) a calculation of the financial value required to be 
distributed to building occupants using the method described in the 
regulations, (4) a description of the means through which the required 
financial value will be distributed to building occupants, and (5) if 
the facility and Qualified Residential Property are separately owned, 
indication of which entity will be responsible for the distribution of 
benefits to the occupants. In addition, 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.
6. Impact of Metering on Delivery of Financial Benefits
    Regardless of ownership, residential buildings may have master-
metered or sub-metered utilities. Therefore, the Proposed Rules 
provided that for sub-metered buildings, the tenants must receive the 
financial value associated with utility bill savings in the form of a 
credit on their utility bills. HUD has issued guidance for residents of 
sub-metered HUD-assisted housing that participate in community solar, 
providing an analysis of how community solar credits may affect utility 
allowance and annual income for rent calculations.\3\ The Proposed 
Rules provided that applicants follow the HUD guidance and future HUD 
guidance on this issue to ensure that tenants' utility allowances and 
annual income for rent calculations are not negatively impacted.
---------------------------------------------------------------------------

    \3\ U.S. Department of Housing and Urban Development, Treatment 
of Community Solar Credits on Tenant Utility Bills (July 2022): MF 
Memo re Community Solar Credits, (https://www.hud.gov/sites/dfiles/Housing/documents/MF_Memo_Community_Solar_Credits_signed.pdf) and 
Community Solar Credits in PIH Programs (August 2022), (https://www.hud.gov/sites/dfiles/documents/Solar%20Credits_PH_HCV.pdf).
---------------------------------------------------------------------------

    The Treasury Department and the IRS are aware that in some States 
or jurisdictions it may not be administratively, or legally, possible 
to apply utility bill savings on residents' electricity bills. The 
Proposed Rules requested comments on this issue and how financial 
benefits, such as services and building improvements, can be provided 
to residents in such residential buildings.
    For master-metered buildings, the Proposed Rules provided that 
because residents do not have individually metered utilities and do not 
receive utility bills, the building owner must pass on the savings 
through other means, such as by providing certain benefits to the 
building residents beyond those provided prior to the qualified solar 
or wind facility being placed in service. HUD has issued guidance for 
how residents of mastered-metered HUD-assisted housing can benefit from 
owners' sharing of financial benefits accrued from an investment in 
solar energy generation.\4\ The Proposed Rules provided that applicants 
follow the HUD guidance and future HUD guidance on this issue to ensure 
that tenants' utility allowances and annual income for rent 
calculations are not negatively impacted.
---------------------------------------------------------------------------

    \4\ U.S. Department of Housing and Urban Development, Treatment 
of Solar Benefits in Mastered-metered Buildings (May 2023), 
MF_Memo_re_Community_Solar_Credits_in_MM_Buildings.pdf (https://www.hud.gov/sites/dfiles/Housing/documents/MF_Memo_re_Community_Solar_Credits_in_MM_Buildings.pdf).
---------------------------------------------------------------------------

    Many commenters noted that it is difficult for utility bill credits 
to be distributed to residents even in sub-metered buildings and 
suggested that the financial benefit structure available under the 
Proposed Rules for master metered buildings be similarly applied to 
sub-metered buildings. Several commenters noted that it is not possible 
to distribute utility bill credits to residents in sub-metered 
buildings because most States lack legislation or regulations governing 
the allocation of solar credits to consumer utility bills, and, one 
commenter further stated, that even in States that do, the utilities 
may not have the administrative infrastructure to allocate credits 
across bills. Another commenter supported this by stating that only 21 
States and DC have statewide policies that support sharing solar 
savings in multi-family housing in the form of utility bill credits. 
Many commenters also voiced general concern that the process of 
distributing utility credits is administratively burdensome on the 
owner of the facility. One commenter stated that many of the residents 
who would be eligible to receive bill credits on their utility bills 
will already receive a subsidized electricity price from their 
distribution company, which would result in their cost of power already 
being lower than other consumers in their service territory. This 
commenter asserts that it be more economical to ``sell'' or 
``allocate'' the bill credits to another consumer in the same service 
territory and offset their higher energy costs and provide a greater 
overall financial benefit to tenants. The commenter states that this 
system would be similar to the process proposed for master-metered 
buildings.
    Many commenters asked for flexibility in providing financial 
benefits to residents. A few commenters suggested that metering 
configuration should not be regarded for purposes of defining financial 
benefits. One commenter stated that financial benefits should be 
defined by HUD, and should be applicable to all properties, regardless 
of whether the residential unit is sub-metered or if the building is 
master-metered. This commenter specifically stated that financial 
benefits should be allowed to accrue to the common area meters and then 
be disbursed equitably to occupants based upon any approved method--
without regard to metering configuration and without requiring a bill 
credit allocation method. Several other commenters suggested, as 
alternatives, services such as free or reduced cost high speed 
internet, shuttle services, public transportation subsidization, job 
training programs, community events, and building improvements as 
alternatives to be allowed instead of utility bill credits.
    One commenter suggested that if utility bill credits are not 
available, applicants could determine a baseline year and calculate the 
average price per kilowatt hour for that year and then for all 
subsequent years (after placed in service date) and multiply it by the 
kilowatt hours of production multiplied by an annual acceptable 
adjustment. The commenter stated that net energy savings from a given 
period (month, quarter, or year) would then be required to be spent on 
residential service programs (available to the largest group of 
residents), facility upgrades benefiting residents, and other services 
that benefit a large group of residents.
    A few commenters, although supportive, noted that the HUD guidance 
allowing for services or other benefits to be provided in master 
metered buildings, in lieu of direct financial savings to tenants, is 
limited in scope. One commenter pointed out that the HUD memorandum 
cited in the Proposed Rules only covers developments subsidized through 
HUD's multifamily programs. This commenter noted that this guidance 
does not cover HUD's Project Voucher Program and that the USDA does not 
provide matching guidance for the USDA supported housing. Therefore, 
this commenter suggests that the regulations directly define financial 
benefits for master metered housing,

[[Page 55515]]

rather than by reference to memoranda, so that this provision is 
clearly applicable to all master metered affordable housing 
developments. Similarly, one commenter stated that the types of 
benefits provided under the HUD guidance for community solar programs 
should be available as a mechanism to distribute financial benefits for 
all Category 3 applicants.
    Similarly, another commenter noted that certain financial benefits 
distributed directly to residents may be includable in a household's 
annual income. The commenter noted that HUD has determined that 
providing financial benefits in the form of gift cards or cash payments 
would generally be included in income. Therefore, this commenter 
supported the inclusion of language in the rules that would state that 
financial benefits can include credits on utility bills or could 
include benefits that can be equitably provided to residents but are 
not direct payments to the residents, such as resident services, free 
or reduced cost internet, job training, or building upgrades. However, 
another commenter requested the opposite, stating that direct payments 
or other financial benefits like rent reductions should be the 
preferred form of benefits.
    In response to these comments, the Treasury Department and the IRS 
modified the Proposed Rules in the final regulations to provide maximum 
flexibility to equitably allocate financial benefits to residents while 
also ensuring the statutory requirements are satisfied. Accordingly, 
the final regulations provide that financial value can be distributed 
to building occupants via utility bill savings or through different 
means, and depending on the method selected, the final regulations 
prescribe the requirements that must be met. For purposes of this via 
utility bill savings provision, financial benefits will be considered 
to be equitably allocated if at least 50 percent of the financial value 
of the energy 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 48(e)(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) that choose to not receive utility bill 
savings (for example, exercise their right 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 instead distributed 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 
utilize this method of benefit distribution. If financial value is not 
distributed via utility bill savings, financial benefits will be 
considered to be equitably allocated if at least 50 percent of the 
financial value of the energy produced by the facility is distributed 
to occupants using one of the methods described in HUD guidance, or 
other guidance or notices from the Federal agency that oversees the 
applicable housing program identified in section 48(e)(2)(B).
    With respect to allocating financial value via utility bill 
savings, commenters addressed the language in the Proposed Rules that 
provided an alternative method for net energy savings to be distributed 
in proportional shares based on each dwelling unit's electricity unit. 
The commenters stated that this method is not permitted by HUD. These 
commenters also proposed a third option for equitable distribution, 
which they claim is used in California's SOMAH program, where shares 
are distributed to each unit based on square footage. In response to 
this comment, the Treasury Department and the IRS added language in the 
final regulations to clarify that the financial value should be 
distributed 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 48(e)(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.
    Another commenter suggested that in a master-metered building, the 
facility owner be allowed to allocate the value of energy savings to 
the building's tenant association to distribute equally as the 
association sees fit. This was suggested in addition to and as 
alternative to the options provided in the HUD guidance.
    In response to this comment, the Treasury Department and the IRS 
considered but did not adopt this suggestion. The Treasury Department 
and the IRS have provided additional clarity on the applicability of 
HUD guidance in the final regulations to provide flexibility to the 
applicant to determine the methodology most appropriate for allocation 
of the value of energy savings based on the circumstances of the 
Qualified Residential Property. This includes options that have been 
determined to not affect a tenants utility allowance and annual income 
for rent calculations.
B. Financial Benefits in Qualified Low-Income Economic Benefit Projects
    For a facility to be treated as part of a qualified low-income 
economic benefit project, section 48(e)(2)(C) requires that at least 50 
percent of the financial benefits of the electricity produced by the 
facility be provided to qualifying low-income households. To satisfy 
this standard, the Proposed Rules required that the facility serve 
multiple households and at least 50 percent of the facility's total 
output is distributed to qualifying low-income households under section 
48(e)(2)(C)(i) or (ii). In addition, to further the overall goals of 
the Program, the Proposed Rules reserved allocations under this 
category exclusively for applicants that would provide at least a 20-
percent bill credit discount rate for all such low-income households. 
The Proposed Rules defined a ``bill credit discount rate'' as the 
difference between the financial benefit distributed to the low-income 
household (including utility bill credits, reductions in the low-income 
household's electricity rate, or other monetary benefits accrued by the 
household) and the cost of participating in the Program (including 
subscription payments for renewable energy and any other fees or 
charges), expressed as a percentage of the financial benefit 
distributed to the low-income household. The bill credit discount rate 
can be calculated by starting with the financial benefit distributed to 
the low-income household, subtracting all payments made by the low-
income customer to the facility owner and any related third parties as 
a condition of receiving that financial benefit, then dividing that 
difference by the financial benefit distributed to the low-income 
household.
1. Category 4 Community Solar
    Because of the financial benefits requirements that are structured 
for community solar projects, several commenters thought that the 
Proposed Rules too narrowly limited Category 4. Commenters noted that 
the Proposed Rule precluded otherwise eligible facilities from 
qualifying under Category 4, including behind the meter (BTM) 
facilities that meet the Category 4 requirements. One commenter 
suggested that Category 4 should be open to projects that directly 
benefit Tribal member small businesses. Similarly, a

[[Page 55516]]

commenter noted that Category 4 should be open to all projects, whether 
FTM or BTM, that directly benefit Tribal member small businesses (where 
the small business can apply for the section 48 credit) or Tribal 
enterprises, located on Tribal lands, that may want to deploy 
commercial roof-top or ground-mount solar (such as canopies) to offset 
energy costs, provide energy security, or support job creation. Another 
commenter also criticized the narrow nature of Category 4 noting that 
the Proposed Rules have made eligibility for Category 4 solely 
applicable to multifamily and community solar.
    Some commenters also made suggestions on how to define Category 4. 
One commenter suggested that projects under Category 4 allow only on-
site commercial and industrial projects to reach overall deployment and 
savings goals. Similarly, one commenter requested that Category 4 
incentivize larger agribusiness projects that employ residents living 
in these areas and working at these agribusiness facilities (or similar 
industries) and stated that the 50 percent household requirement is too 
complicated. This commenter felt that residential facilities are being 
prioritized in categories 1, 3, and 4, and, therefore, that Category 4 
should be modified to incentivize facilities supplying power to 
businesses but providing financial benefits to low-income residents in 
the same area. Another commenter recommended that the Category 4 
allocation give priority to qualified low-income benefit projects less 
than 1 MW that are located in low-income communities.
    The Treasury Department and the IRS recognize the commenters' 
concerns that Category 4 is limited. However, projects must meet the 
statutory requirements under section 48(e)(2)(C) to be considered 
eligible for Category 4. To ensure these requirements are not too 
narrowly construed, the Treasury Department and the IRS adopted a 
change to the FTM definition in the final regulations applicable to 
Category 4 to ensure that projects meeting the intent of Category 4, as 
that intent was described in the Proposed Rules, are not 
unintentionally disqualified due to an overly strict definition of FTM. 
The final regulations clarify that a 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, FTM is 
defined as a facility that is not BTM. The final regulations also 
clarify that for the purpose of Category 4, a qualified solar or wind 
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.
    However, the Treasury Department and the IRS emphasize that this 
does not change the intent of Category 4 that projects falling under 
the definition of BTM are not eligible for Category 4, and that 
financial benefits to eligible low-income households can only be 
delivered via utility bill savings. Based on industry and market 
research, community solar programs primarily use utility bill savings 
to deliver financial benefits to households. For this reason, the 
Treasury Department and the IRS have defined financial benefits in this 
manner.
    At least one other commenter requested allowing public and 
affordable housing buildings to participate in Category 4 through the 
use of geo-eligibility to establish qualification for a Category 4 
site. One of these commenters mentioned the process being adopted in 
New York for its Inclusive Community Solar Adder, which will allow 
anyone who lives in a designated ``Disadvantaged Community'' to qualify 
upon demonstration that their address is in one of the so-called DAC 
zones. This commenter noted that the Climate and Economic Justice 
Screening Tool (CEJST) map is already being used to qualify sites for 
Category 1 participation.
    Because section 48(e)(2)(C) provides requirements for ensuring that 
the financial benefits of the electricity produced by a qualified solar 
or wind facility are provided to qualifying households, establishing 
categorical eligibility for Category 4 based on geographic location of 
the project is inappropriate. Similarly, as discussed in more detail 
later under part V.B.6. of this Summary of Comments and Explanation of 
Revisions section, qualifying households based on geography is also 
inappropriate because of statutory requirements. Similarly, 
establishing eligibility for multifamily buildings (including master-
metered buildings), agribusinesses, or other arrangements that do not 
directly result in utility bill savings for low-income households is 
also inappropriate. As discussed earlier, financial benefits to 
eligible low-income households can only be delivered via utility bill 
savings under these regulations. Therefore, the final regulations do 
not adopt these comments.
2. Twenty Percent Bill Credit Discount
    One commenter urged the Treasury Department and the IRS to require 
a higher bill discount rate than 20 percent, stating the programs in 
Illinois, Massachusetts, and Maryland already provide discounts at or 
above the proposed threshold level. This commenter believes that the 
increased credit for qualified low-income economic benefit projects 
should allow for an increase in the amount of financial benefit 
delivered to low-income customers in these markets.
    Another commenter supported the method of requiring financial 
benefits in the form of bill credits, but suggested an additional 
requirement to be included in cases where beneficiaries have no cost of 
participation through a subscription fee. In this situation, the 
commenter suggested that the bill credit discount rate should be 
calculated as the total savings on a customer's utility bill, annually, 
divided by the total value of the electricity produced by the project, 
as measured by the income to the project paid by the utility, 
independent system operator (ISO), or other customer procuring power 
from the project.
    Another commenter requested clarification on the interpretation of 
bill credit discount rate, which the commenter read to mean that 20 
percent of the total export credit rate would be the minimum required 
revenue share with the low-income customer, rather than 20 percent of 
the customer's pre-solar electricity bill. This commenter also 
requested clarification as to whether the calculation will be annual, 
and whether the form of benefits must specifically be ``utility bill 
credits'' or could be other documented financial benefits provided to 
tenants.
    One commenter stated that a 20 percent cost savings requirement 
will likely be unattainable in some energy markets, specifically States 
and localities that have less amicable laws and utility regulations for 
community solar. This commenter recommended a 15 percent cost savings 
for 2023, stating that 15 percent is still on the higher end of the 
current industry average for community solar cost savings. This 
commenter also requested that the benefit should be an annual reduction 
(of 15 percent) because there can be cost savings fluctuations 
throughout a calendar year. Although the Treasury Department and the 
IRS considered various percentages for required cost savings between 5 
percent and 20 percent, based on a review of various State program 
rates and market information, the Treasury Department and the IRS have 
decided to maintain the 20 percent rate. This rate will allow for the 
greatest savings to the low-income households and further the

[[Page 55517]]

requirement of section 48(e)(2)(C) that 50 percent of the financial 
benefits of the electricity produced by the facility are provided to 
such households. Additionally, in response to comments, the Treasury 
Department and the IRS clarified that the 20 percent bill discount is 
an annual savings.
    Tribal commenters requested that projects owned by Tribes or Tribal 
housing authorities should be presumed to result in an economic benefit 
to Tribal members who reside on the reservation or who live in Tribal-
owned housing.
    The Treasury Department and the IRS decline to adopt the suggestion 
of presumption of economic benefit. The statutory requirements for the 
Program require that an qualified low-income economic benefit project 
serves multiple households and at least 50 percent of the facility's 
total output is distributed to qualifying low-income households under 
section 48(e)(2)(C). To help applicants meet this requirement, the 
Treasury Department and the IRS have provided in the final regulations 
an illustrative list of categorical eligibility options to provide 
maximum flexibility to qualify low-income households. This includes 
eligibility based on Tribal programs and housing programs, among many 
other options.
3. Single Household
    Several commenters have requested that the Treasury Department and 
the IRS add eligibility under Category 4 for projects that benefit one 
single-family residence where 100 percent of the facility's total 
output is distributed to the qualifying low-income household residing 
at that residence, provided that the project meets all other Category 4 
criteria, and the facility provides at least a 20-percent utility bill 
savings for such low-income household. Several commenters also added 
that Congress's use of the term ``households'' is more properly read as 
a programmatic term applying to all low-income households that can 
benefit from the Program, rather than a narrower reading suggested in 
the Proposed Rules. One commenter argued that this narrow reading 
(excluding single family households from Category 4) would 
unnecessarily and unfairly discriminate against certain households.
    After consideration of all these comments, the final regulations do 
not adopt the commenter's suggestion. Section 48(e)(2)(C) applicable to 
Category 4 facilities requires that at least 50 percent of the 
financial benefits of the electricity produced by the facility be 
provided to ``households'' with certain income levels. Because the 
statute uses the plural term ``households,'' the Treasury Department 
and the IRS determined that providing financial benefits to a single 
household is insufficient to meet the requirements of section 
48(e)(2)(C) applicable to Category 4 facilities.
4. Utility Bill Savings
    Several Tribal comment letters requested that Category 4 should not 
be limited to projects that provide only individual benefits or 
community-scale projects. These commenters urged the Treasury 
Department and the IRS to expand the definition of ``financial 
benefit'' to include community-wide benefits, such as direct benefits 
to the Tribal government from the additional tax credit (especially for 
projects owned by the Tribe and receiving elective payments from the 
Treasury Department), job creation and economic benefits to low-income 
Tribal members. These same commenters also stated that Category 4 
should be open to all projects, regardless of metering, that directly 
benefit Tribal member small businesses (where the small business can 
apply for the section 48 credit) or Tribal enterprises located on 
Tribal lands. Additionally, some of the Tribal comments requested 
flexibility for Tribal housing or economic development projects that 
are serving Tribal lands and Tribal households to define benefits 
collectively (rather than individually), because many of the Tribal 
commenters are located in States that do not allow for community solar. 
These commenters stated that they will have to negotiate directly with 
a utility to deploy community scale projects on the Reservation.
    To promote more flexibility with respect to financial benefits 
requirements in Category 4, a few commenters requested that the 
Treasury Department and the IRS extend the same flexibility is provided 
for Category 3 projects regarding financial benefits to Category 4 
projects as well. These commenters requested that a manner other than 
bill credits be permitted to provide financial benefits directly to 
low-income subscribers in Category 4 that still meets the nominal 20 
percent discount requirement, like gift cards, direct payments, or 
checks. One commenter asked whether master-metered projects are 
eligible for Category 4 if a project adheres to the same HUD guidance 
used for Category 3 projects.
    The Treasury Department and the IRS considered the comments 
requesting expansion or flexibility with respect to financial benefits 
for Category 4 to allow methods other than utility bill savings but 
ultimately decided not to adopt the commenters' suggestions in these 
final regulations. Requiring financial benefits via utility bill 
savings is the only means through which the Treasury Department and the 
IRS can ensure that the provision of financial benefits to qualifying 
households is sufficiently regulated such that the requirements of 
section 48(e)(2)(C) are satisfied. Therefore, the final regulations 
clarify that financial benefits for Category 4 must be tied to a 
utility bill of a qualifying household. The Treasury Department and the 
IRS may consider other methods of determining Category 4 financial 
benefits in future years.
    The final regulations, however, address comments regarding the 
potential unsuitably of the proposed rules to net-credit billing, or 
other structures where the qualifying household does not make a direct 
payment to the project owner by providing an alternative methodology 
for calculating a 20 percent bill credit discount rate in this 
scenario. In cases where the qualifying household has no or only a 
nominal cost of participation, 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 paid by the utility, ISO, or other off-taker 
procuring electricity (and related services, products, and credits) 
from the facility.
5. Fifty Percent of the Facility's Total Output to Low-Income 
Households
    One commenter requested that the facility should not have to 
provide power to households, as long as the financial benefits were 
distributed to residents of qualifying households. In this case, the 
commenter stated that a non-profit organization planned to build a 
facility on the non-profit office building but distribute the savings 
the non-profit derived from the facility to the residents of apartments 
the non-profit administers. Similarly, another commenter noted that the 
use of ``distribute'' rather than ``assigned'' in the requirement in 
the Proposed Rules that 50 percent of the facility's total output is 
distributed to qualifying low-income households may imply that 
beneficiaries are expected to receive the physical flows of electricity 
from the

[[Page 55518]]

facility, which is not how community solar works in most cases, nor is 
it what the statute requires.
    In response to these comments and to clarify the intent of the 
Proposed Rules, which was to structure Category 4 consistent with the 
market as it exists today (including community solar business models), 
the final regulations adopt the suggestion of the commenter to change 
``distributed'' to ``assigned.'' Therefore, the full clause in the 
final regulations is ``at least 50 percent of the facility's total 
output must be assigned to Qualified Households.''
6. Low-Income Verification
    To ensure the requirements of section 48(e)(2)(C) are met, 
verification of households' qualifying low-income status is required. 
The Proposed Rules provided that applicants are responsible for proof-
of-income verification and would be required to submit documentation 
upon placing the qualified solar or wind facility in service that 
identifies each qualifying low-income household, the output allocated 
to each qualifying low-income household in kW, and the method of income 
verification utilized.
    The Proposed Rules provided that applicants may use categorical 
eligibility or other income verification methods to qualify low-income 
households. Categorical eligibility consists of obtaining proof of 
household participation in a needs-based Federal,\5\ State, Tribal, or 
utility program with income limits at or below the qualifying income 
level for the specific facility (qualifying program). State agencies 
(for example, State community solar/wind program administrators) can 
also provide verification of low-income status if the State program's 
income limits are at or below the qualifying income level for the 
qualified solar or wind facility. If a household is not enrolled in a 
qualifying program, additional income verification methods can be used 
such as: paystubs, tax returns, or income verification through 
crediting agencies and commercial data sources. Eligibility based on 
the applicant (or contractors or subcontractors) collecting self-
attestations from households is not permitted.
---------------------------------------------------------------------------

    \5\ Federal programs may include, but are not limited to: 
Medicaid, Low-Income Home Energy Assistance Program (LIHEAP), 
Weatherization Assistance Program (WAP), Supplemental Nutrition 
Assistance Program (SNAP), Section 8 Project-Based Rental 
Assistance, and the Housing Choice Voucher Program.
---------------------------------------------------------------------------

    Several commenters commented on the verification methods to qualify 
low-income households. On self-attestation, many commenters disagree 
with the Proposed Rules prohibiting eligibility based on self-
attestation. Many commenters were in favor of self-attestation, which 
according to one commenter could include an attestation to the effect 
that the household either participates in one of the programs that has 
the relevant standard as a criterion or otherwise meets the standard to 
the best of the resident's knowledge. One commenter stated that self-
attestation is the fastest and most efficient way to ensure maximum 
low-income customer participation. This commenter noted that many 
customers will be skeptical of providing documents, and that the 
process of obtaining, processing, and verifying the documentation is 
administratively burdensome and time consuming. Another commenter noted 
a practical consideration that by accepting self-certification, 
households who are not yet enrolled in Federal or State energy 
assistance programs but are eligible or in the process of enrolling may 
still participate in qualified low-income economic benefit projects. 
Another commenter stated that only a fraction of eligible households 
currently participate in existing State, Federal, utility, or Tribal 
programs for which they are eligible, and many barriers--including 
knowledge, time, documentation, and language fluency--prevent many 
households from participating.
    Some of the commenters' recommendations also tied into the use of 
State programs. One commenter suggested removing the self-attestation 
limitation where self-attestation is permitted by State agencies. Two 
other commenters similarly suggested the rules accept income 
verification via State-program verification where States specifically 
accept self-attestation with one of the commenters noting that 
subscribers and applicants should not have to double verify a household 
if self-attestation is used on the State level. Another commenter 
encouraged that applicants be allowed to use benefit cards as 
sufficient evidence of participation in qualifying programs where such 
cards are the means by which a State makes the benefit available to 
participants.
    Another commenter requested that the rules clarify whether the use 
of State-approved geo-qualification maps or CEJST are approved income 
verification methods and recommended that, for individuals who reside 
within a CEJST or Persistent Poverty County (PPC), the rules should 
consider allowing self-attestation as a means of income-qualification 
in States where it is a permissible method for income-qualification. 
Another commenter asked for clarification about the interaction between 
this Program and State agency provided income verification, as well as 
Department of Energy's (DOE) community solar subscription tool tying 
eligibility, initially, to LIHEAP. The commenter noted that some State 
agencies allow self-attestation and/or State-approved geo-qualification 
maps in various programs and requested that the rules allow self-
attestation and geo-qualification (including both State maps and CEJST) 
meeting certain standards to the maximum extent allowable by law. 
Another commenter suggested expanding those who can provide 
verification to not just the State agencies but also utilities. In 
contrast, another commenter instead recommended removing the concept of 
allowing State agencies to provide verification at all and proposed 
adding a requirement to make clear that the requirement is on 
applicants to receive verification directly from the customers.
    Some commenters asked for the expansion of categorical eligibility. 
For example, one commenter recommended that public housing, USDA Rural 
Development, and the Project Based Voucher Program be added to the list 
of categorically eligible Federal assistance programs noted in footnote 
5 of the Proposed Rules. Another commenter asked if the listed methods 
are the only possible methods of verification or if other State-
approved methods may be considered as well. Another commenter also 
suggested for purposes of Category 4 that the rules allow participation 
in more programs as proof of income and that paystubs, tax returns, and 
credit checks should be removed as possibilities as these could 
alienate low-income households. An additional commenter noted their 
view on the importance of protecting Tribal data sovereignty. This 
commenter said the rules should not tie Tribes to external sources of 
data. This commenter believes that self-certification as to poverty 
levels or other metrics by Tribes should be sufficient.
    A few commenters suggested adding geographic eligibility to verify 
low-income status. One commenter suggested adding geographic 
eligibility to the ``category eligibility'' and ``other income 
verification methods'' to qualify low-income households, where 
``geographic eligibility'' is defined as a household that is currently 
residing in a LIHTC Qualified Census Tract (LIHTC Qualified Census 
Tract) and where at least one adult in that household has resided for 
at least the previous six months. The commenter claims that the LIHTC 
Qualified Census Tract

[[Page 55519]]

household income standard is stricter than that in section 
48(e)(2)(C)(ii), and thus this standard is an administratively 
efficient method of qualifying low-income households for a tax credit 
similar to the Low-Income Communities Bonus Credit. Another commenter 
recommended adding the physical location of the customer's home as an 
additional qualifying criterion, noting a reasonable criterion for 
inclusion as areas where at least 20 percent of the population falls 
below the poverty line, with prevalent harmful environmental impacts as 
outlined in the 2014-2018 5-year American Community Survey (ACS), 
conducted by the U.S. Census Bureau. Moreover, one commenter suggested 
including geo-qualification based on State maps and the CEJST Tool.
    In contrast, one commenter supported the Proposed Rules noting that 
categorical income verification decreases costs and increases available 
low-income customer benefits. Another commenter provided an entirely 
different suggestion stating that income verification is a vestige of 
the community solar subscription model and is alternatively achieved by 
serving communities in low-income areas as measured by area or State 
median income census data. The commenter suggested that income 
verification through the Statewide Shared Clean Energy Facility (SCEF) 
program (which is a Connecticut program) relies on the distribution 
utilities determining customer eligibility.
    After consideration of all of comments on the verification methods 
to qualify low-income households, the final regulations adopt these 
comments in part. The Treasury Department and the IRS considered 
numerous verification methods in crafting the Proposed Rules and the 
final regulations to strike a balance between reducing administrative 
burden for taxpayers and households and ensuring adequate checks that 
the facilities receiving a Capacity Limitation under Category 4 meet 
the requirements of section 48(e)(2)(C). The final regulations adopt 
the Proposed Rules' prohibition on self-attestations because they are 
not sufficiently reliable or verifiable. However, 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. The final regulations clarify that income verification is 
accepted via program verification where the relevant jurisdiction 
specifically accepts self-attestation.
    The Treasury Department and the IRS agree that subscribers and 
applicants should not have to double verify when a State program 
accepts self-attestation. The final regulations, consistent with the 
Proposed Rules, provide flexibility for applicants to qualify 
households through several means, including categorical eligibility and 
paystubs, tax returns, or income verification through crediting 
agencies and commercial data sources. Moreover, the list of Federal 
programs included in footnote 5 of the Proposed Rules is not the 
exclusive list of Federal programs that could be used to demonstrate 
categorical eligibility, which provide additional flexibility to 
qualify households. However, in response to the comments, the final 
regulations will include additional examples of programs that will be 
considered categorically eligible based on income status. Therefore, in 
response to the commenter's request the following additional programs 
will be added to the illustrative list that was provided in the 
Proposed Rules: Federal Communication Commission's Lifeline Support for 
Affordable Communications, USDA's National School Lunch Program; U.S. 
Social Security Administration's Supplemental Security Income; or any 
verified government or non-profit program serving Asset Limited Income 
Constrained Employed (ALICE) persons or households. The final 
regulations also clarify that to qualify for categorical eligibility 
under one of these programs, an individual in the household must be 
currently enrolled or must have received an award letter or other 
written documentation from the program in the last 12 months.
    With respect to State programs, the final regulations, consistent 
with the Proposed Rules, provide that categorical eligibility also 
consists of obtaining proof of household participation in a needs-based 
State or utility program, so long as the income limits are at or below 
the qualifying income level for the specific facility. The final 
regulations clarify that the qualifying income level for a household is 
based on where such household is located. Without additional 
information or requirements, geographic-based eligibility verification 
does not prove that a particular household necessarily meets the income 
parameters of section 48(e)(2)(C). Although one commenter, for example, 
noted that LIHTC Qualified Census Tracts have stricter income 
requirements, this does not address the concern that a particular 
household's income may not qualify under the statute but only that 
there are households in the census tract that would qualify.
    Two commenters requested eligibility of low-income households be 
established only at the time of enrollment and remain for the length of 
the subscription and that there should not be a continual obligation to 
verify households as low-income. This request is consistent with the 
Proposed Rules, which provided that applicants are responsible for 
proof-of-income verification and would be required to submit 
documentation once upon placing the qualified solar or wind facility in 
service that identifies each qualifying low-income household as well as 
other information. The final regulations maintain the Proposed Rule but 
clarify that the low-income status of a household is determined at the 
time the household is enrolled in the community program and does not 
need to be re-verified. Similarly, the recapture rules discussed in 
part XIII of this Summary of Comments and Explanation of Revisions 
section are not imposed if the low-income status of households change 
in later years; however, the Treasury Department and the IRS determined 
that a change in the final regulations to clarify this point is 
unnecessary.

VII. Annual Capacity Limitation

    Under section 48(e)(4)(C), the total annual Capacity Limitation is 
1.8 gigawatts (GW) of DC capacity for each of the calendar year 2023 
and 2024 programs. Consistent with section 4.02 of Notice 2023-17, the 
Proposed Rules specified how the annual Capacity Limitation would be 
allocated across the four facility categories for 2023. The Proposed 
Rules, consistent with Notice 2023-17, reserved a portion of the total 
annual Capacity Limitation of 1.8 GW of DC capacity for each facility 
category for calendar year 2023 as follows:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Category 1: Located in a Low-Income   700 megawatts.
 Community.
Category 2: Located on Indian land..  200 megawatts.
Category 3: Qualified Low-Income      200 megawatts.
 Residential Building Project.
Category 4: Qualified Low-Income      700 megawatts.
 Economic Benefit Project.
------------------------------------------------------------------------


[[Page 55520]]

    The Proposed Rules also provided that the Treasury Department and 
the IRS would retain the discretion to reallocate Capacity Limitation 
across categories and sub-reservations to maximize allocation in the 
event one category or sub-reservation is oversubscribed and another has 
excess capacity.
    One commenter suggested eliminating the 1.8 GW Capacity Limitation 
altogether, in favor of the same uncapped allocation that they view 
other solar customers, typically customers in a higher income bracket, 
have previously received. However, section 48(e)(4)(C) provides the 1.8 
GW Capacity Limitation, and it cannot be modified by the final 
regulations. Therefore, the final regulations do not adopt this 
comment.
    Another commenter suggested re-allocating the Capacity Limitation 
under Category 3 to Category 4 to increase the total number of MW that 
can be deployed efficiently while yielding the highest economic 
benefit. Similarly, a different commenter recommended increasing 
Category 4 by combining Category 1 and 4 into a single 1.4 GW category 
applicable to both. In addition, this commenter suggested that the 
Treasury Department and the IRS should layer on preferences for 
economic benefits over location in facility selection, similar to its 
preferences around ownership and location (discussed in part VII of 
this Summary of Comments and Explanation of Revisions section). 
Procedurally, an applicant would submit an application for this 
combined category in the applicable sub-allocation and indicate under 
which category qualification, and thus bonus level, for the project is 
sought. The commenter added that the Treasury Department and the IRS 
can apply a similar approach to the Proposed Rules to sub-allocate 
capacity among facility types within that combined category, 
subdividing among commercial, community, and single-family residential 
solar as strongly recommended by both industry and environmental 
justice groups since last year. Another commenter also had 
recommendations about how to re-allocate capacity taking into account 
the Additional Selection Criteria (ASC). The commenter suggested that 
the Treasury Department and the IRS reallocate unused capacity in the 
same year. Specifically, the commenter suggested that if there is 
unused capacity from a category or an ASC reservation that it be 
allocated in the same year to ensure all 1.8 GW of projects can be 
efficiently deployed annually. The commenter encouraged the Treasury 
Department and the IRS to consider implementing subcategory capacity 
carveouts within each category to effectively allow for a rolling 
application system. For example, in Category 4, there should be more 
capacity dedicated to certain projects over others. Two commenters 
expressed disagreement for the large total reservation in Category 1. 
These commenters suggested that some of the Category 1 reservation 
should be moved to Category 4.
    After consideration of these comments, the final regulations, 
consistent with the Proposed Rules, provide that the total Capacity 
Limitation for each Program year will be divided across the 4 facility 
categories and that the Treasury Department and the IRS retain the 
discretion to reallocate Capacity Limitation across categories and sub-
reservations to maximize allocation in the event one category or sub-
reservation is oversubscribed and another has excess capacity. The 
Treasury Department and the IRS continue to believe that the 
reservations based on facility category best allow a wide variety of 
facilities and benefits to go to low-income communities to further the 
intent of the statute. Absent category reservations, all the annual 
Capacity Limitation could get allocated to one facility category, which 
is contrary to the statute providing four distinct categories.
    The final regulations clarify that the specific reservations for a 
Program year are provided in guidance published in the Internal Revenue 
Bulletin. For Program year 2023, Notice 2023-17 and Revenue Procedure 
2023-27 provide the specific reservation amounts for each category. As 
clarified in the final regulations, the specific reservation amounts 
are established 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.
    One commenter stated that sub-allocations should be adaptable in 
future Program years to account for lessons learned. However, the 
commenter said that the 200 MW for Indian land should not be 
reallocated to other categories even if not fully claimed by 
applications in any given year, nor should any shortfall of 
applications be used to justify smaller future allocations. The 
Treasury Department and the IRS understand the importance of all of the 
categories provided by Congress in the statute and agree that the 
Capacity Limitation allocated to each facility category should be 
adaptable. Accordingly, the Treasury Department and the IRS have 
retained discretion to reallocate Capacity Limitation and to revise 
amounts reserved for each category in each Program year. After the 2023 
Program year, the Treasury Department and the IRS will determine 
whether to change the facility category reservation amounts for the 
2024 Program year based on the factors provided in the final 
regulations and will announce the specific reservation amounts in 
Program guidance applicable to 2024.

VIII. Additional Selection Criteria

    The Proposed Rules provided that facilities that meet at least one 
of the two categories of Ownership and Geographic Criteria, 
collectively the ASC, would receive priority for an allocation within 
each facility category described in section 48(e)(2)(A)(iii). The 
Proposed Rules also provided that at least 50 percent of the total 
Capacity Limitation in each facility category would be reserved for 
facilities meeting ASC.
    The Proposed Rules provided 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 
ASC. If the eligible applications for Capacity Limitation for 
facilities that meet at least one of the two ASC criteria exceed the 
Capacity Limitation for a category, facilities meeting both ASC 
criteria would be prioritized for an allocation.
    Several commenters expressed overall agreement and support for the 
inclusion of ASC, and the purpose behind these criteria, which 
commenters feel will promote community ownership. One commenter 
expressed disagreement with the use of ASC in the Program or that it 
should not be used for the 2023 Program. Another commenter echoed this 
by saying that the Treasury Department and the IRS should first assess 
the Program and applications received for 2023, and then consider 
including the ASC and a corresponding capacity reserve amount.
    Other commenters suggested that if ASC is used, the percentage of 
the total Capacity Limitation in each facility category for ASC should 
be reduced from 50 percent to 25 percent or to 10 percent. Another 
commenter stated that the Ownership Criteria is too restrictive, and 
few applicants will be able to meet the high standard. This commenter 
recommended giving preferential allocation of capacity limitation to 
groups that meet one or both of the ASC, without reserving 50 percent 
of the capacity under each category on a

[[Page 55521]]

rolling basis. One commenter similarly stated that an inflexible 
reservation of 50 percent of the total Capacity Limitation in each 
category for facilities meeting ASC may result in potentially hundreds 
of MW of unclaimed Capacity Limitation for 2023. This commenter 
suggested that a smaller amount of reservation should be reserved for 
ASC projects in 2023, and that the amount of reservation should be 
increased in future years. A few other commenters, similarly, suggested 
that in the first year of the Program, ten percent of the capacity in 
each sub-reservation should be reserved for ASC applicants, with the 
Treasury Department and the IRS retaining authority to reallocate the 
capacity and expand the capacity reservations in future Program years.
    One commenter separately stated that except for reallocations 
(meaning reallocations of capacity between categories) for facilities 
meeting the ASC, the Treasury Department and the IRS should ensure that 
proposed reallocations more than 50 MW are subject to public notice and 
comment.
    A few commenters who supported reduction of the ASC reservation 
amounts, stated that it will take significant time and coordinated 
effort for new community solar markets to emerge where efforts to 
establish Program frameworks have been lacking to date. These 
commenters stated that it is likely that there will be few applicants 
who meet the ASC, or that the projects developed by owners that would 
qualify tend to be small scale projects. Some commenters also asserted 
that the restrictive Ownership Criteria would likely encourage gaming.
    In contrast, some commenters expressed support for at least 50 
percent of the total Capacity Limitation being reserved for facilities 
meeting ASC. Additionally, one of the commenters supporting the 
reduction in the ASC reservation amounts stated that the Treasury 
Department and the IRS should prioritize reallocations to facility 
categories with more than 25 percent of the facilities meeting the ASC.
    One commenter suggested that a third set of ``Market-based'' 
criteria should be added to ASC. The commenter stated that these 
criteria would prioritize projects that maximize the benefit delivered 
to the largest number of low-income customers. The two criteria 
provided by the commenter under this category are: 1. Proposed discount 
rate: Savings delivered to low-income customers; and 2. Percentage of 
project reserved for low-income customers: The percentage of the output 
capacity that will service low-income customers. However, the commenter 
only includes community solar projects in discussing the reason for 
this proposal. Two other commenters also proposed a third set of 
criteria focused on prioritizing projects that are participating in 
State low-income renewable energy programs, with one commenter 
specifically naming programs funded under the Environmental Protection 
Agency's (EPA) Greenhouse Gas Reduction Fund Solar For All Program. 
However, one of the comments specifically limits these criteria to 
Category 1 projects. Neither of the comments explain how these criteria 
would be equitably applied to facilities applying from all States, 
especially States that do not have such programs, nor do the commenters 
explain how wind facilities would be eligible under the previously 
recommended criteria. Other commenters provided additional criteria 
that could be considered including the use of minority and woman-owned 
businesses as contractors and employment of workers from low-income 
communities. Finally, a group of commenters suggested that the Treasury 
Department and the IRS consider applicants under ASC if the applicant 
signs a binding commitment to provide financial benefits for longer 
than the statute requires; or if the applicant sign a binding 
commitment promising to provide greater financial benefits than 
required. Another commenter, similarly, suggested incorporating a new 
category of ASC based on whether the project provides benefits to the 
local community and its members. The commenter suggested that this 
would better ensure that Category 1 and Category 2 projects are 
providing direct benefits to households or the local community. This 
comment gives examples of criteria for this ``provision of benefits'' 
category including: targeted hiring provisions, local procurement 
standards for Minority, Women and Disadvantaged owned Business 
Enterprises, Community Workforce Agreements, and Community Benefit 
Agreements; provision of direct financial benefits to community 
members, such as energy bill savings or reduction of energy burden; and 
for Category 1 projects, actual low-income status of households who 
would be benefited.
    After consideration of these comments, the final regulations, 
consistent with the Proposed Rules, maintain that at least 50 percent 
of the total Capacity Limitation be reserved for facilities meeting ASC 
to help achieve the Treasury Department and the IRS's stated goals of 
the Program in Notice 2023-17 to (1) increase adoption of and access to 
renewable energy facilities in low-income communities and communities 
with environmental justice concerns; (2) encourage new market 
participants in the clean energy economy; and (3) provide social and 
economic benefits to people and communities that have been marginalized 
from economic opportunities and overburdened by environmental impacts. 
While many of the comments provide suggestions for alternative or 
additional ASC, many of the suggestions could not be applied to all 
categories or applied nation-wide such as the use of enrollment in a 
specific State energy program. Other suggestions are infeasible due to 
statutory conflict such as providing benefits for a longer duration 
than the statute requires. Lastly, the Treasury Department and the IRS 
are anticipating upwards of 100,000 applications annually for the 
Program. Selection criteria that is qualitative, subjective, and would 
require significant review such as a Community Benefits Agreement, 
Workforce Agreement, or procurement or hiring targets are 
administratively infeasible to have timely decisions made throughout 
the year. The Treasury Department and the IRS heard from many 
stakeholders that timely decisions will be key to Program success. The 
ASC proposed by the Treasury Department and the IRS are also directly 
connected to the applicant (ownership) or the facility (geography), 
which allows objective criteria. The Treasury Department and the IRS 
may consider other ASC in future guidance that help achieve these goals 
and are administratively feasible for the Program. However, the 
Treasury Department and the IRS did not adopt the commenters' 
suggestions to add other ASC at this time because the Treasury 
Department and the IRS determined the ASC provided in the Proposed 
Rules best promote the Program goals discussed earlier and should be 
the focus of the Program.
    The final regulations maintain that at least 50 percent of the 
Capacity Limitation in each facility category will be reserved for 
facilities meeting the ASC but clarify that the method for utilizing 
the ASC and the specific amount of the reservation (at or above 50 
percent) will be provided in guidance published in the Internal Revenue 
Bulletin. For program year 2023, those procedures are provided in 
Revenue Procedure 2023-27. The final regulations clarify that the total 
Capacity Limitation in each facility category reserved for qualified 
facilities meeting the ASC may be reevaluated in future guidance 
provided at least 50

[[Page 55522]]

percent is reserved. The final regulations also clarify that after the 
reservation for qualified facilities meeting the ASC is established in 
guidance, it may later be re-allocated across facility categories and 
sub-reservations in the event one category or sub-reservation within a 
category is oversubscribed and another has excess capacity.
    One commenter stated that most, if not all, categories, will be 
oversubscribed, and acknowledged that there will need to be a selection 
process other than a first-come, first-served application process. 
However, this commenter recommended against using the proposed 
Ownership and Geographic Criteria as a means for prioritizing 
applications. This commenter asserted that criteria related to the 
ownership or location of a project provides no indication of project 
viability. This commenter stated that instead, applicants should be 
prioritized based on project maturity, providing a list of factors that 
are already included in the Proposed Rules for the Program, for some or 
all categories, such as site control and possession of all non-
ministerial permits. The commenter suggested that a lottery be used in 
oversubscribed categories for projects that meet the commenters stated 
project maturity factors. A few other commenters requested that 
applicants who have made meaningful financial investments in relatively 
mature projects should be shown preference for an allocation. 
Specifically, this group of commenters suggested that the Treasury 
Department and the IRS, in addition to the Ownership and Geographic 
Criteria, prioritize projects that have signed agreements with income-
qualified customers representing 10 percent of a project's capacity.
    After consideration by the Treasury Department and the IRS, these 
comments are not adopted. The project maturity selection criteria that 
these commenters suggest are already part of the minimum Program 
requirements to apply that were provided in the Proposed Rules. ASC are 
selection factors for prioritizing projects in addition to the already 
required minimum project maturity level that this commenter requests. 
Prioritizing signed agreements with customers would not work for all 
categories, and applicants in Category 4
A. Ownership Criteria
    The Proposed Rules provided that the Ownership Criteria category is 
based on characteristics of the applicant that owns the qualified solar 
or wind facility. A qualified solar or wind facility will meet the 
Ownership Criteria if it is owned by a Tribal enterprise, an Alaska 
Native Corporation, a renewable energy cooperative, a qualified 
renewable energy company meeting certain characteristics, or a 
qualified tax-exempt entity. If an applicant wholly owns an entity that 
is the owner of a qualified solar or wind facility, and the entity is 
disregarded as separate from its owner for Federal income tax purposes 
(disregarded entity), the applicant, and not the disregarded entity, is 
treated as the owner of the qualified solar or wind facility for 
purposes of the Ownership Criteria.
    The Proposed Rules provided that a Tribal enterprise, for purposes 
of the Ownership Criteria, (1) is an entity that is owned at least 51 
percent, either directly or indirectly (through a wholly owned 
corporation created under its Tribal laws or through a section 3 or 
section 17 Corporation),\6\ by an Indian Tribal government (as defined 
in section 30D(g)(9) of the Code), and (2) the Indian Tribal government 
has the power to appoint and remove a majority (more than 50 percent) 
of the individuals serving on the entity's board of directors or 
equivalent governing board.
---------------------------------------------------------------------------

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

    The Proposed Rules provided that 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).
    The Proposed Rules provided that a Renewable Energy Cooperative, 
for purposes of the Ownership Criteria, is an entity that develops 
qualified solar and/or wind facilities and owns at least 51 percent of 
a facility and is either (1) a consumer or purchasing cooperative 
controlled by its members who are low-income households (as defined in 
section 48(e)(2)(C)) with each member having an equal voting right, or 
(2) a worker cooperative controlled by its worker-members with each 
member having an equal voting right.
    The Proposed Rules provided that a Qualified Renewable Energy 
Company (QREC), for purposes of the Ownership Criteria, is an entity 
that serves low-income communities and provides pathways for the 
adoption of clean energy by low-income households. In addition to its 
general business purpose, the Proposed Rules noted that the Treasury 
Department and the IRS were considering the following requirements and 
specifically requested comments on these potential requirements that a 
QREC would need to satisfy:
    (1) At least 51 percent of the entity's equity interests are owned 
and controlled by (a) one or more individuals, (b) a Community 
Development Corporation (as defined in 13 CFR 124.3), (c) an 
agricultural or horticultural cooperative (as defined in section 
199A(g)(4)(A) of the Code), (d) an Indian Tribal government (as defined 
in section 30D(g)(9)), (e) an Alaska Native corporation (as defined in 
section 3 of the Alaska Native Claims Settlement Act, 43 U.S.C. 
1602(m)), or (f) a Native Hawaiian organization (as defined in 13 CFR 
124.3);
    (2) After applying the controlled group rules under section 52(a) 
of the Code, the entity has less than 10 full-time equivalent employees 
(as determined under section 4980H(c)(2)(E) and (c)(4) of the Code) and 
less than $5 million in annual gross receipts in the previous calendar 
year;
    (3) The entity first installed or operated a qualified solar or 
wind facility as defined in section 48(e)(2)(A) two or more years prior 
to the date of application; and
    (4) The entity has installed and/or operated qualified solar or 
wind facilities as defined in section 48(e)(2)(A) with at least 100 kW 
of cumulative nameplate capacity located in one or more Low-Income 
Communities as defined in section 48(e)(2)(A)(iii)(I).
    The Proposed Rules provided that a ``qualified tax-exempt entity'', 
for purposes of the Ownership Criteria, is (1) An organization exempt 
from the tax imposed by subtitle A of the Code by reason of being 
described in section 501(c)(3) or section 501(d); (2) Any State, the 
District of Columbia, or political subdivision thereof, any territory 
of the United States, or any agency or instrumentality of any of the 
foregoing; (3) An Indian Tribal government (as defined in section 
30D(g)(9)), political subdivision thereof, or any agency or 
instrumentality of any of the foregoing; or (4) Any corporation 
described in section 501(c)(12) operating on a cooperative basis that 
is engaged in furnishing electric energy to persons in rural areas.
    The final regulations modify the definition of ``qualified tax-
exempt entity'' by striking ``any territory of the United States.'' The 
Treasury Department and the IRS made this change to correct a drafting 
error. The tax rules in section 50(b) related to investment tax credits 
(ITCs), such as section 48, generally provide that credit-eligible 
property cannot be used predominantly outside the United States

[[Page 55523]]

(the fifty States and the District of Columbia) unless the property is 
owned by a U.S. corporation or U.S. citizen (other than a citizen 
entitled to the benefits of section 931 (Guam, American Samoa, or the 
Northern Mariana Islands) or section 933 (Puerto Rico)). Therefore, 
property used in the territories and owned by a territory government, 
or an entity created in or organized under the laws of a U.S. 
territory, generally would not qualify for a section 48 credit.
    Another commenter stated that the Ownership Criteria should be 
eliminated because Congress indicated no intent in the IRA to prefer 
applications for the Program on project ownership. This commenter 
asserts that the Ownership Criteria results in non-profits 
organizations receiving outright allocation awards, while qualified 
business taxpayers will be subject to a lottery system for any 
remaining credit. Similarly, another commenter stated that the ASC and 
the reservations for ASC are not grounded in the statute. Although 
Congress did not include Ownership Criteria directly in the statute, it 
did direct the Treasury Department to create a Program to allocate the 
annual Capacity Limitation of 1.8 GW as measured in DC. As discussed 
earlier, the Treasury Department and the IRS stated three goals for the 
Program: (1) increase the adoption of and access to renewable energy 
facilities in low-income communities and communities with environmental 
justice concerns; (2) encourage new market participants in the clean 
energy economy; and (3) provide social and economic benefits to people 
and communities that have been marginalized from economic opportunities 
and overburdened by environmental impacts. Based on the breadth of 
research around the barriers to adoption of renewable energy technology 
by low-income communities and to meet statutory objectives and Program 
goals, the inclusion of Ownership Criteria will allow the participation 
of institutions that are well positioned to increase adoption of clean 
energy in low-income communities and by low-income households. 
Moreover, all applicants, with limited exception, in a given category 
and sub-category, are generally required to meet the same requirements 
to be awarded an allocation amount based on the projected net output of 
the facility. No applicant is being awarded the actual bonus credit 
amount during the application and selection period. All facility owner-
applicants who are awarded an allocation will then have to place the 
facility in service and meet certain requirements before the owner can 
claim the section 48(e) Increase for the section 48 credit.
    A few commenters stated that it is not appropriate to apply the ASC 
to Category 3 facilities. One commenter said that multi-family 
affordable housing guarantees that the benefits in Category 3 will be 
provided to low-income households. Another commenter claimed that 
Category 3 facilities are subject to existing rules that conflict with 
the ASC.
    Several commenters stated that the current Ownership Criteria may 
conflict with ownership structures typically used for LIHTC projects. 
One commenter expressed concern that a tax-exempt applicant who is an 
owner of a facility through a partnership structured as a limited 
liability company or a limited partnership for State law purposes would 
not be considered a qualified tax-exempt entity because the tax-exempt 
applicant is not the sole owner. This commenter requested revision of 
the Ownership Criteria to ensure that tax-exempt entities (and other 
prioritized owner types) remain eligible if the entity controls the 
managing member or general partner of the partnership that owns the 
facility for Federal income tax purposes. Another commenter suggested 
that additional language should state that a qualified tax-exempt 
entity would still meet the Ownership Criteria if the tax-exempt entity 
directly serves as the managing member or general partner of the 
partnership that owns the facility for Federal income tax purposes. A 
few commenters also stated that most tax-exempt entities entering into 
a renewable energy tax credit transaction related to a LIHTC project 
will enter into a partnership with a tax equity investor where the tax-
exempt entity is a general partner or managing member and has control 
over the partnership's operations, but is not the majority owner. The 
tax equity investor is usually the majority owner to allow the investor 
to claim most of the tax credits generated by the project.
    The Treasury Department and the IRS understand that for tax credit 
monetization purposes, LIHTC projects and solar and wind facilities are 
often financed using tax equity partnership structures where a tax-
exempt entity (or other Ownership Criteria entities) owns a minority 
interest (either directly or indirectly) in an entity treated as a 
partnership for Federal income tax purposes that owns the project or 
facility. In response to these comments, the Treasury Department and 
the IRS have clarified through additional language in the final 
regulations that a qualified solar or wind facility owned by an entity 
treated as a partnership for Federal income tax purposes is eligible 
for ASC consideration if an entity that meets the Ownership Criteria 
has at least a one percent interest (either directly or indirectly) in 
each material item of partnership income, gain, loss, deduction, and 
credit of the partnership and is a managing member or general partner 
(or similar title) under State 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. Because 
indirect ownership is permissible, this means an entity that meets the 
Ownership Criteria can hold its partnership interest through a taxable 
subsidiary. This clarification should allow tax partnerships formed for 
the purpose of monetizing LIHTCs or section 48 credits that are 
directly or indirectly owned and managed by an entity that satisfies 
the Ownership Criteria to meet the ASC and thus better reflect 
potential applicants and financing structures for all Categories. The 
final regulations also clarify that a facility that has received a 
Capacity Limitation allocation based, in part, on meeting the Ownership 
Criteria will not be disqualified and lose its allocation if it is 
transferred by the original applicant to a tax partnership, prior to 
being placed in service, in which the original applicant retains the 
requisite direct or indirect ownership of the tax partnership and is a 
managing member or general partner (or similar title) under State law 
of such 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.
    One commenter specifically noted that some Tribal enterprises do 
not have a ``board of directors or equivalent governing board,'' but 
the corresponding Tribes own utilities and have the power to appoint 
and remove the utility's leadership. Therefore, the commenter asked 
that the Treasury Department and the IRS to clarify Tribally owned 
utilities (or those Tribally owned entities that do not have a 
``board,'' such as an LLC) meet the Ownership Criteria set forth in the 
Program. The commenter also stated that ``Ownership'' should stem from 
a Tribe's sovereign decision to construct a project rather than how a 
managing entity is structured and stated that Tribes should be able to 
attest to ownership control without further documentation. Several 
commenters included a similar statement. Another commenter further 
requested that the Tribe be considered the applicant and

[[Page 55524]]

not the LLC, but that the LLC should also be allowed to apply, if it is 
a disregarded entity, and wholly owned by the Tribe (or Tribal 
enterprise).
    In response to these comments, the Treasury Department and the IRS 
have modified the definition of Tribal enterprise in the final 
regulations by providing that a Tribal enterprise for purposes of the 
Ownership Criteria is an entity that (1) an Indian Tribal government 
(as defined in section 30D(g)(9) of the Code) owns at least a 51 
percent interest in, either directly or indirectly (through a wholly 
owned corporation created under its Tribal laws or through a section 3 
or section 17 Corporation), and (2) is subject to Tribal government 
rules, regulations, and or codes that regulate the operations of the 
entity.
    Several commenters requested revisions to the definition of QREC. 
One commenter requested that QREC be further defined but did not 
provide specific language to further define the term. Additionally, a 
few commenters recommended that the Treasury Department and the IRS 
change the ``and'' at the end of the list of requirements that a QREC 
must satisfy to ``or'' so that the applicant only needs to meet one 
requirement, inclusive of the general business purpose to serve low-
income communities. One commenter added that this would be more 
inclusive for new market entrants. Another commenter requested that the 
criteria for QREC be modified to include trusts as individuals, and 
that the requirement that 51 percent of the equity interest be 
controlled by an individual be reduced to 45 percent or, alternatively, 
at least 25 percent employee owned, and that the second requirement be 
expanded to provide that the company must have less than 100 full time 
employees and less than $30 million in annual gross receipts from the 
previous calendar year. The same commenter also suggested that the 
definition of a QREC be expanded to include public benefit 
corporations. One commenter suggested that Category 1(a) of the QREC 
definition, which currently reads as ``one or more individuals,'' 
should be replaced with ``renewable energy cooperative,'' claiming that 
this keeps the consistency of the definition with the previous section 
and requires more rigorous working agreements.
    A few commenters variously commented on employee requirements for 
QRECs. Two commenters, also commenting on the gross receipts threshold, 
suggested that a QREC maintain less than 10 full time employees and 
less than $30.4 million in annual gross receipts from the previous 
calendar year. Another commenter stated that requiring a QREC to have 
fewer than ten full-time equivalent employees is excessively 
restrictive and unrealistic. This commenter also stated that the less 
than $5 million threshold for annual gross receipts in the previous 
calendar year may be unrealistically low. One commenter stated that the 
small size requirement appears to be arbitrary and suggested that the 
Treasury Department and the IRS use the Small Business Administration 
(SBA) small business size and revenue requirement to promote small 
business entrants. Further, another commenter stated that imposing an 
additional requirement to employ workers in certain low-income 
communities would be too onerous. Additionally, one commenter stated 
that it is unclear whether the requirement to employ low-income persons 
would be applicable at the time of application or through the life of 
the project. This commenter requested that the Treasury Department and 
the IRS clarify that this requirement is applicable at the time of 
application, and then consider allowing State or Federally approved 
workforce training programs, supported through the project, as a means 
of qualification. However, another commenter, who generally opposed the 
inclusion of QRECs as an ASC Ownership Criteria category, requested 
that the Treasury Department and the IRS require such companies to 
enter into Community Workforce Agreements to ensure workers within low-
income and disadvantaged communities benefit from the wealth building 
opportunities provided by the Program. This commenter also provided a 
list of the community benefits that should be incorporated into the 
commenter's suggested agreements.
    Additionally, one commenter stated that new market entrants are 
altogether barred from meeting this definition. Overall, the same 
commenter suggested as modification adding other consumer protection 
measures, minority- or women-owned business enterprise criteria, 
individual rather than company-based experience thresholds, and 
providing flexibility with regard to size, so as to enable more local 
clean energy business growth. A separate commenter also noted that new 
entrant companies, that would otherwise meet the QREC definition, will 
not qualify due to the specific experience requirement. Another 
commenter requested the Treasury Department and the IRS update the 
definition of QREC to include qualified rooftop lessors. This commenter 
provided an example of projects installed by small businesses that 
otherwise meet the definition but are counterparties to a lease 
provided by a third-party project developer. This commenter said that 
many single-family residential rooftop facilities use third-party 
ownership (TPO) models to meet the requirements of section 48 but 
claims that in many States legal title to such facilities is not 
possible for entities meeting the definition of a QREC, which, by 
virtue of their small size, do not have access to a lease fund. One 
commenter also noted that many new market entrants have prior 
experience as part of other solar projects that they do not own and 
suggested that companies that have been subcontractors be included for 
criteria (3) and (4), and that the scope be broadened to be ``any solar 
provider.'' A Tribal comment letter also stated that the definition of 
a QREC is too limited and does not support newly formed entities that 
are owned in part by Tribes. This commenter claims that, prior to the 
IRA, Tribes were not able to create joint ventures to deploy solar or 
wind projects.
    After consideration of all comments on the definition of QREC, the 
final regulations adopt some changes and do not adopt others. The 
Treasury Department and the IRS will maintain the inclusion of QREC in 
the final regulations. However, to provide increased flexibility and to 
encourage new market participants, the Treasury Department and the IRS 
have modified the QREC definition to allow for previous participation 
in a renewable energy project as a service provider (either as an 
individual or a company) to demonstrate a track record for serving low-
income communities. While some commenters stated that brand new 
entities may not meet the criteria for QREC, the Treasury Department 
and the IRS developed the QREC criteria to support companies or 
entrepreneurs with a commitment and track record of serving low-income 
communities that have not been able to grow their market share. The 
Treasury Department and the IRS also increased the annual gross 
receipts threshold based on the comments and additional market research 
to allow for flexibility to growing companies that may still not have 
significant market-share. After careful assessment of all the proposals 
provided in the comments and current market information, the final 
regulations provide additional flexibility to new market entrants by 
modifying the requirements that a QREC would need to satisfy:
    (1) At least 51 percent of the entity's equity interests are owned 
and controlled by (a) one or more

[[Page 55525]]

individuals, (b) a Community Development Corporation (as defined in 13 
CFR 124.3), (c) an agricultural or horticultural cooperative (as 
defined in section 199A(g)(4)(A) of the Code), (d) an Indian Tribal 
government (as defined in section 30D(g)(9)), (e) an Alaska Native 
corporation (as defined in section 3 of the Alaska Native Claims 
Settlement Act, 43 U.S.C. 1602(m)), or (f) a Native Hawaiian 
organization (as defined in 13 CFR 124.3);
    (2) Has less than 10 full-time equivalent employees (as determined 
under section 4980H(c)(2)(E) and (c)(4) of the Code) and less than $20 
million in annual gross receipts in the previous calendar year;
    (3) First installed or operated a qualified solar and or facility 
as defined in section 48(e)(2)(A) two or more years prior to the date 
of application; or
    (4) Has provided solar services as a contractor or subcontractor to 
qualified solar or wind facilities as defined in section 48(e)(2)(A) 
with at least 100 kW of cumulative nameplate capacity located in one or 
more Low-Income Communities as defined in section 48(e)(2)(A)(iii)(I).
    The Treasury Department and the IRS may consider other changes to 
the definition of a QREC in future guidance based on updated market 
information and what is administratively feasible for the Program.
    Another commenter suggested that the definition of QREC be revised 
to provide that the 51 percent ownership requirement applies as an 
average over the life of the project because of tax credit equity 
partnerships that may change facility ownership for a period of time.
    In response to these comments, the Treasury Department and the IRS 
have clarified through additional language in the final regulations 
that a partnership for Federal income tax purposes is eligible for ASC 
consideration so long as an entity that meets the Ownership Criteria 
has at least a one percent interest (either directly or indirectly) in 
each material item of partnership income, gain, loss, deduction, and 
credit of the partnership that owns the qualified solar or wind 
facility and is a managing member or general partner (or similar title) 
under State 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. Therefore, there is no 
need to revise the 51 percent ownership requirement as it applies as an 
average over the life of the project as the commenter suggests. This 
also allows more flexibility for all applicants that meet the Ownership 
Criteria to enter financing arrangements such as tax equity 
partnerships.
    This commenter also suggested that the definition of Renewable 
Energy Cooperatives be revised to require not only that each member 
have an equal voting right, but also that each member have rights to 
profit distributions based on patronage as defined by the proportion of 
either (i) volume of energy or energy credits purchased (kWh), (ii) 
volume of financial benefits delivered ($), or (iii) volume of 
financial payments made ($), and in which at least 50 percent of the 
patronage in the qualified project is by cooperative members who are 
low-income households. The commenter noted that the second requested 
change clarifies that the Renewable Energy Cooperative as a whole does 
not need to be made up solely of low-income households, but only that 
for qualified projects that are seeking the Low-Income Bonus Credit, 
over 50 percent of the participating member interests (and 
corresponding member benefits) must accrue to households that qualify 
as low-income (as defined in section 48(e)(2)(C)).
    One commenter stated, regarding Renewable Energy Cooperatives, that 
it may be difficult for cooperatives to ensure income verification of 
their members, and suggested adding eligibility pathways, potentially 
based on geography or charter documents, that retain an equity and 
justice focus while allowing greater flexibility.
    Based on these comments, the Treasury Department and the IRS have 
modified the definition of Qualified Renewable Energy Cooperative in 
the final regulations to account for different energy cooperative 
models where profits could be distributed to members based on volume of 
energy, volume of financial benefits delivered, or volume of financial 
payments made. The modified language states that a Qualified Renewable 
Energy Cooperative is an entity that develops qualified solar and/or 
wind facilities and is either (1) a consumer or purchasing cooperative 
controlled by its members with each member having an equal voting right 
and with each member having rights to profit distributions based on 
patronage as defined by the proportion of either (i) volume of energy 
or energy credits purchased (kWh), (ii) volume of financial benefits 
delivered ($), or (iii) volume of financial payments made ($), and in 
which at least 50 percent of the patronage in the qualified project 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.
    One commenter expressed that qualified tax-exempt entity should not 
include all section 501(c)(3) entities without additional guardrails. 
This commenter further suggests that if QRECs are required to submit 
documentation of ``general business purpose,'' then section 501(c)(3) 
organizations applying as a qualified tax-exempt entity should be 
required to provide minimal documentation showing relevant charitable 
purposes. This commenter additionally requested clarification about the 
manner of application for tax-exempt entities in Puerto Rico and other 
territories. Similarly, one commenter noted that many large 
corporations have section 501(c)(3) organizations that could deploy 
renewable energy projects without tax credits but will be eligible 
under the definition in the Proposed Rules. This commenter proposed 
adding to the definition the following requirements: annual gross 
receipts of no more than $30.4 million (consistent with recommendations 
for QRECs); prior experience owning, operating, or consulting on a 
renewable energy project; and an organizational mission statement and/
or values that show alignment with the Program.
    One commenter requested more clarity on how Tribal enterprises, as 
well as Tribal governments, political sub-divisions, and agencies or 
instrumentalities thereof under the qualified tax-exempt entity 
definition and Tribally owned QRECs can satisfy the Ownership Criteria.
    The Treasury Department and the IRS have not adopted any changes in 
the final regulations regarding qualified tax-exempt entities. The 
addition of guardrails such as requiring a particular business or 
charitable purpose is infeasible. All tax-exempt organizations that 
qualify for ASC will need to demonstrate a charitable purpose through 
their tax-exempt designation. The Treasury Department and the IRS 
anticipate that a wide variety of qualified tax-exempt entities may 
participate in the Program that may include community-based 
organizations, educational institutions of all sizes, and State and 
local governments, among others. Accordingly, there is no one business 
or charitable purpose for qualified tax-exempt entities that would 
apply to the range of entities that support meeting the stated goals of 
the Program. The Treasury Department and the IRS may consider changes 
in future guidance based on updated market information

[[Page 55526]]

and what is administratively feasible for the Program. The Treasury 
Department and the IRS are also providing clarity through modifications 
in the definition of Tribal enterprise, and the circumstances in which 
Tribal governments, political sub-divisions, and agencies or 
instrumentalities thereof would meet the criteria of the qualified tax-
exempt entity definition and other Ownership Criteria based on a 
variety of comments provided by Tribes.
B. Geographic Criteria
    The Proposed Rules provided that the Geographic Criteria category 
is based on where the facility will be placed in service. To meet the 
Geographic Criteria, a facility would need to be located in a PPC \7\ 
or in a census tract that is designated in the CEJST as disadvantaged 
based on whether the tract is either (a) greater than or equal to the 
90th percentile for energy burden and is greater than or equal to the 
65th percentile for low income, or (b) greater than or equal to the 
90th percentile for PM2.5 exposure and is greater than or 
equal to the 65th percentile for low income.\8\ The Proposed Rules 
provided that applicants who meet the Geographic Criteria at the time 
of application are considered to continue to meet the Geographic 
Criteria for the duration of the recapture period, unless the location 
of the facility changes.
---------------------------------------------------------------------------

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

    The Proposed Rules defined a PPC generally as any county where 20 
percent or more of residents have experienced high rates of poverty 
over the past 30 years. For the purposes of the Program, the Proposed 
Rules provided that the PPC measure adopted by the USDA should be used 
to make this determination. The most recent measure, which would apply 
for the 2023 Program year, incorporates poverty estimates from the 
1980, 1990, 2000 censuses, and 2007-11 ACS 5-year average.
    Generally, commenters were supportive of the Geographic Criteria, 
including several commenters who had concerns with Ownership Criteria. 
However, one commenter stated that the Geographic Criteria conflict 
with existing Federal housing policy because it would encourage 
facilities to be built in connection with housing in certain areas, 
rather than supporting low-income residents no matter where they live. 
Another commenter stated that the Geographic Criteria is imprecise 
because it does not take into account disadvantaged communities in 
certain areas, especially those that are highly disadvantaged but 
border affluent communities.
    Several commenters on behalf of Tribes stated that Geographic 
Criteria should not be applied to Category 2 Projects. However, a few 
Tribal commenters asked that the Treasury Department and the IRS retain 
Geographic Criteria for Category 3 and Category 4 projects that are 
located on Indian land so that Tribal projects can better compete. In 
response to these comments, the Treasury Department and the IRS have 
decided to not include Geographic Criteria as an ASC for Category 2 but 
maintain the use of Geographic Criteria as an ASC as stated in the 
Proposed Rules in all other categories.
    Another commenter provided several suggestions for revising the 
Geographic Criteria, stating that the Treasury Department and the IRS 
should consider broadening the Geographic Criteria by including all 
Indian land or not applying additional Geographic Criteria to them; 
adding LIHTC and New Markets Tax Credit designations; applying all or 
at least more of CEJST's burden thresholds as well as the Environmental 
Protection Agency's EJScreen's thresholds; allowing State screening 
tools and maps; providing for community self-nomination; or perhaps 
including adjacent tracts.
    Another commenter, providing a comment on Category 3 projects, 
generally supported the use of Geographic Criteria to prioritize 
allocations, but recommended reconsideration of the use of the PPCs as 
a poverty measure. This commenter stated that the PPCs provide data at 
a county-level designation and that this masks significant variation 
within counties and does not capture persistent poverty within counties 
not registering as PPCs. This commenter instead recommended that the 
LIHTC Qualified Census Tract geographic definition be utilized as an 
option to determine whether a project meets the Geographic Criteria, 
stating that the QCT designation denotes census tracts where either (1) 
50 percent or more of the households have an income less than 60 
percent of the Area Median Gross Income, or (2) the poverty rate is 
over 25 percent. One Tribal commenter recommended that the Treasury 
Department and the IRS use a geographic determination based on the 
LIHTC, or the NMTC because Tribes have been using these to build new 
Tribal housing or invest in clean energy. Additionally, another 
commenter suggested that the Geographic Criteria should be expanded to 
include: disadvantaged communities in other burdened categories; a 
process for communities to be recognized as communities with 
environmental justice concerns based on State environmental justice 
screening tools; and a self-nomination process for communities to 
submit additional information to demonstrate that they are communities 
with environmental justice concerns that may not be captured by CEJST 
or other screening tools. This commenter additionally requested the 
provision of a publicly accessible mapping tool to identify the areas 
that meet the geographic criteria.
    After consideration of these comments, the Treasury Department and 
the IRS have not adopted the suggestions. The intent of the Geographic 
Criteria as applied to Category 3 and to other categories is to 
encourage the construction of energy facilities in areas across the 
country that have high energy costs and that might otherwise suffer 
from underinvestment. This includes areas of the country where 
affordable housing currently exists but where the adoption of renewable 
energy technology may be challenging. The Treasury Department and the 
IRS have determined ASC based on their applicability across all 
categories. While LIHTC Qualified Census Tract as a Geographic criteria 
may meet some goals of the program, it is a methodology that is used 
primarily in the LIHTC industry and not widely known or used by other 
housing programs or in energy programs. Therefore, its inclusion as a 
Geographic Criteria is not adopted. Additionally, an allocation based 
on Geographic Criteria in Category 3 for a facility built in connection 
with an existing Federally subsidized housing building does not impact 
the Federal housing policy with regards to siting of the housing 
itself. The Treasury Department and the IRS may consider other metrics 
for Geographic Criteria in future guidance that help achieve the 
Program goals and are administratively feasible for the Program. A 
publicly accessible mapping tool will be available on DOE's Program 
website.

[[Page 55527]]

IX. Sub-Reservation of Allocation for Facilities Located in a Low-
Income Community

    The Proposed Rules provided that the 700 MW Capacity Limitation 
reservation for facilities seeking a Category 1 allocation would be 
sub-divided with 560 MW reserved specifically for eligible residential 
BTM facilities, including rooftop solar. The Proposed Rules provided 
that the remaining 140 MW of Capacity Limitation would be available for 
applicants with FTM facilities as well as non-residential BTM 
facilities.
    Several commenters opposed to the reservation of capacity in 
Category 1 for BTM residential facilities. Generally, these commenters 
requested that the 560 MW capacity reserved for BTM residential 
facilities be eliminated (leaving a general 700 MW reservation) or that 
the amounts should be revised. The main concern of commenters is that 
the proposed 140 MW will provide very limited eligibility for FTM 
projects, including community solar projects that would otherwise 
qualify under the statute. One commenter strongly recommended against 
subdividing the Category 1 Capacity Limitation into BTM and FTM MW 
blocks. This commenter stated that a BTM project typically requires a 
credit review and/or a long-term financial commitment from the 
customer, which the commenter believes is antithetical to the objective 
of a Program intended to ease financial burdens on low-income 
households, not impose them. The commenter suggested to instead require 
that a certain percentage of all generating facilities' capacity be 
allocated to low-income, residential subscribers. Another commenter 
pointed out that location is the only requirement in Category 1 under 
the statute, and that the focus on BTM residential facilities does not 
fit with the statute.
    Other commenters have noted that this focus on BTM residential 
facilities limits the potential of other applicants to benefit from 
Category 1. For example, at least two commenters have noted that the 
prioritization of residential facilities limits the potential for non-
profit organizations and municipalities from obtaining an allocation 
for facilities built to power schools, libraries, food pantries, 
shelters, houses of worship, education facilities, local community-
based non-profits, assisted living facilities, performing arts centers, 
and community development corporations. One of these commenters 
explains that these organizations play crucial roles in their 
communities, providing necessary services and support to the residents 
of the surrounding area, and the sub-reservation overlooks the fact 
that commercial and industrial scale solar benefits may be more 
impactful. In arguing against the sub-reservation, another commenter 
noted the belief that Category 1 should be reserved specifically for 
facilities that are ``Located in a Low-Income Community,'' which 
directly benefit the residents of that community. As an alternative, 
the commenter asks that non-profits, public facilities, and 
municipalities be included in the larger sub-reservation. Another 
commenter, in its suggestion to revisit this sub-reservation, stated 
their view that community facilities represent the ``highest and best 
use'' of the 10 percent low-income adder from the standpoint of 
ensuring meaningful community benefit. Similarly, another commenter 
stated that the reservation of 560 MW exclusively for residential BTM 
ignores the fact that most agrivoltaic and agribusiness BTM projects 
that benefit farmers (and thus consumers) would also benefit from 
Category 1. This commenter states that the benefit of using renewable 
energy solar and storage is an emerging renewable agribusiness industry 
that would benefit America significantly by lowering energy input costs 
and lowering food prices for the nation by extension.
    One commenter suggested to amend the requirements from focusing on 
FTM versus BTM to instead distinguish ``on-site usage of credits'' from 
``off-site usage of credits'' to more accurately prioritize residential 
projects. Similarly, another commenter had concerns with the limitation 
of defining residential rooftop solar as BTM. The commenter appreciated 
the efforts to set aside an allocation for residential rooftop solar, 
but the commenter believed that the Proposed Rules go too far by 
defining residential rooftop solar as solely BTM. This commenter 
explained that Connecticut's regulated utilities offer a FTM solar 
tariff for residential and commercial solar projects and that FTM 
residential solar projects, though somewhat rare in Connecticut, are 
particularly attractive for projects in low-income communities. 
Therefore, this commenter suggested an updated definition that 
accounted for single family or multi-family residential that does not 
qualify under Category 3 and has a maximum net output (and is not 
limited as BTM). Another commenter noted that BTM arrangements are not 
achievable in States like Vermont and offered suggestions for 
redefining BTM.
    Commenters had other suggestions on how to handle the sub-
reservations in Category 1. One commenter recommended expanding the 
criteria for qualifying Category 1 projects to allow 600 MW (85 
percent) of the allocated MW for FTM facilities. Another commenter 
noted that if the concern is that the 700 MW capacity allocation will 
be monopolized by businesses in low-income areas, the rules could 
reserve a portion of the total allocation for businesses, but that the 
rules should consider a larger reservation for commercial and 
industrial scale solar projects for non-profit community organizations, 
public entities, and other impactful entities that play a key role in 
these low-income communities. This commenter suggests considering, in 
addition to the 140 MW reservation for businesses, a 280 MW carve out 
for residential solar and a separate 280 MW carve out for community-
based not-for-profit organizations. Another commenter suggested a sub-
allocation of at least 400 MW for BTM installations at community 
facilities.
    One commenter suggested that if the 560 MW amount cannot be 
changed, the rules should allow any facility that serves at least 50 
percent residential customers to qualify. This commenter noted that the 
goal of the sub-reservation is a laudable intent, but that community 
solar, though predominantly deployed FTM, is also positioned to serve 
residential customers, especially low-income customers. Another 
commenter recommended altering the sub-reservations by providing a 
third sub-reservation in Category 1 of at least 150-200 MW for eligible 
community solar projects that are located on (non-residential) rooftops 
or parking lots in low-income communities, are less than 1 MW, reserve 
at least 50 percent of off-take for low-income households, and offer a 
minimum 20 percent discount to low-income subscribers.
    Two commenters had additional concerns with Category 1, 
particularly related to consumer protections for residential customers. 
While this commenter is opposed to prioritization of residential 
rooftop solar over other types of solar installations within Category 
1, the comment implied this is because of serious consumer protection 
issues associated with how these allocations are being implemented by 
the private marketplace. This commenter provided an example of solar 
installers telling potential customers that the IRS will send them a 
check for 70 percent of the cost of the solar installation if they sign 
up with the installer. Therefore, this commenter encourages the 
Treasury Department and the IRS to be vigilant and to ensure that 
companies awarded these credits are held accountable within the scope 
of

[[Page 55528]]

the Treasury Department and the IRS's authority.
    After consideration of the comments recommending elimination or 
significant modification of the rules regarding the Category 1 sub-
reservation, the comments are not adopted. The purpose of the 
residential BTM sub-reservation is to preserve capacity for projects 
that directly benefit residential customers and would not otherwise be 
eligible for Category 3 or Category 4, while also recognizing the large 
and established market share of companies using the TPO single-family 
residential business model. Additionally, residential BTM (of which the 
majority is expected to be single-family) have faster development 
timelines, allowing this capacity to be efficiently allocated. 
Moreover, a separate set-aside allows like-projects to compete for 
capacity and will allow for more streamlined application processing.
    Accordingly, the final regulations provide that the Program 
includes a sub-reservation for eligible BTM residential facilities but 
clarifies that the specific amount of the sub-reservation for a Program 
year will be provided in guidance published in the Internal Revenue 
Bulletin. The final regulations also clarify that the amount of the 
sub-reservation is established based on factors such as promoting 
efficient allocation of Capacity Limitation and allowing like-projects 
to compete for an allocation. Revenue Procedure 2023-27 provides the 
Category 1 sub-reservation for eligible BTM residential facilities for 
the 2023 Program year.
    In response to the commenters' concerns about restrictions on FTM 
facilities and the ability of community facilities to apply for 
Category 1, FTM community facilities serving residential customers may 
apply for an allocation of the remaining Capacity Limitation in 
Category 1 and receive a section 48(e) Increase of 10 percentage 
points, assuming they do not meet Category 4 requirements, or apply for 
an allocation under Category 4 if they meet all of the requirements of 
Category 4 and receive a section 48(e) Increase of 20 percentage 
points. The Treasury Department and the IRS note that the rules do not 
impose additional requirements on Category 1 beyond the statutory 
location requirement, given the importance of creating an objective and 
administrable process that will allow taxpayers to quickly receive 
feedback on their applications. However, the Treasury Department and 
the IRS seek to encourage community solar projects to apply in Category 
4 as opposed to Category 1 because, although Category 1 facilities must 
be located in low-income communities, they do not necessarily have to 
serve low-income customers and do not have to comply with Category 4 
financial benefits requirements. Therefore, directing more community 
solar projects to Category 4 where there is a protected set aside of 
700 MW better promotes programmatic goals.
    In response to comments, the Treasury Department and the IRS agree 
that the 560 MW carve-out for residential BTM limits the potential for 
community organizations such as non-profit organizations and 
municipalities that serve communities from obtaining an allocation, and 
they will need to compete for limited capacity with for-profit 
nonresidential businesses (and all other projects that are located in a 
low-income community). As a result, the Treasury Department and the IRS 
modified the Category 1 sub-reservation for BTM residential in Revenue 
Procedure 2023-27 to reduce this sub-reservation to 490 MW for the 2023 
Program. Therefore, a larger portion of the Capacity Limitation in 
Category 1 (210 MW) will be available to FTM and non-residential BTM 
projects. The Treasury Department and the IRS may change this sub-
reservation amount for future years.
    The Proposed Rules defined a FTM facility as a facility that is 
directly connected to a grid, and its sole purpose is to provide 
electricity to one or more offsite locations via such grid; 
alternatively, FTM is defined as a facility that is not BTM.
    The Proposed Rules defined an eligible residential BTM facility as 
single-family or multi-family residential qualified solar or wind 
facility that does not meet the requirements for Category 3 and is BTM. 
A qualified wind and solar facility is BTM if: (1) it is connected with 
an electrical connection between the facility and the panelboard or 
sub-panelboard of the site where the facility is located, (2) it is to 
be connected on the customer side of a utility service meter before it 
connects to a distribution or transmission system (that is, before it 
connects to the electricity grid), and (3) its primary purpose is to 
provide electricity to the utility customer of the site where the 
facility is located. This also includes systems not connected to a grid 
and that may not have a utility service meter, and whose primary 
purpose is to serve the electricity demand of the owner of the site 
where the system is located. Commenters requested clarification on the 
meaning of ``residential.''
    The final regulations generally adopt the definition of BTM from 
the proposed rules, but the final regulations clarify that a qualified 
solar or wind facility is residential if it generates electricity for 
use in a dwelling unit used as a residence. The final regulations also 
clarify that a 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, FTM is defined as a 
facility that is not BTM. For the purposes of Category 4, a qualified 
solar or wind 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.

X. Application Process

A. Documentation and Attestations
    The Proposed Rules provided the general framework for evaluating 
applications for Capacity Limitation, including that applicants would 
be required to submit with each application certain information, 
documentation, and attestations specified in Program guidance.
    The Proposed Rules described the following required documents and 
attestations.

                        Documentation and Attestations To Be Submitted for All Facilities
----------------------------------------------------------------------------------------------------------------
                                                 FTM                 BTM <=1 MW AC             BTM >1 MW AC
----------------------------------------------------------------------------------------------------------------
                                          Proposed Document Requirement
----------------------------------------------------------------------------------------------------------------
An executed contract to purchase the  No......................  Yes....................  Yes.
 facility, an executed contract to
 lease the facility, or an executed
 PPA for the facility.
A copy of the final executed          Yes.....................  No.....................  Yes.
 interconnection agreement, if
 applicable \9\.
----------------------------------------------------------------------------------------------------------------

[[Page 55529]]

 
                                        Proposed Attestation Requirement
----------------------------------------------------------------------------------------------------------------
The applicant has site control        Yes.....................  No.....................  No.
 through ownership, an executed
 lease contract, site access
 agreement or similar agreement
 between the property owner and the
 applicant.
The facility has obtained all         Yes.....................  Yes....................  Yes.
 applicable Federal, State, Tribal,
 and local non-ministerial permits,
 or that the facility is not
 required to obtain such permits.
The applicant is in compliance with   Yes.....................  Yes....................  Yes.
 all Federal, State, and Tribal
 laws, including consumer protection
 laws (as applicable).
The applicant has appropriately       No......................  Yes....................  Yes.
 sized the facility (to meet no more
 than 110 percent of historical
 customer load).
The applicant has appropriately       Yes.....................  No.....................  No.
 sized the customer's facility
 output share and has based facility
 output share on historical customer
 load.
The applicant has inspected           Yes.....................  Yes....................  Yes.
 installation sites for suitability
 (for example, roofs).
----------------------------------------------------------------------------------------------------------------


       Documentation and Attestations To Be Submitted for Certain Facilities Depending on Category and ASC
----------------------------------------------------------------------------------------------------------------
                                      Category 1           Category 2          Category 3         Category 4
----------------------------------------------------------------------------------------------------------------
                                          Proposed Document Requirement
----------------------------------------------------------------------------------------------------------------
Documentation demonstrating      No.................  No.................  Yes..............  No.
 property will be installed on
 an eligible residential
 building.
Plans to ensure tenants receive  No.................  No.................  Yes..............  No.
 required financial benefits.
If applying under ASC:           Yes................  Yes................  Yes..............  Yes.
 Documentation demonstrating
 applicant meets Ownership
 Criteria.
----------------------------------------------------------------------------------------------------------------
                                        Proposed Attestation Requirement
----------------------------------------------------------------------------------------------------------------
Facility location is eligible    Yes................  Yes................  No...............  No.
 \10\.
Consumer disclosures informing   Yes................  Yes................  Yes (provided to   Yes.
 customers of their legal                                                   tenants).
 rights and protections have
 been provided to customers
 that have signed up and will
 be provided to future
 customers.
The applicant will ensure at     No.................  No.................  No...............  Yes.
 least 50 percent of the
 facility's total output will
 be provided to qualifying low-
 income households and that
 each receive at least a 20
 percent bill credit discount
 rate.
If applying under ASC: Facility  Yes................  No.................  Yes..............  Yes.
 location is eligible based on
 PPC/CEJST.
----------------------------------------------------------------------------------------------------------------

    The final regulations adopt the requirement that applicants must 
submit specified information, documentation, and attestations to 
demonstrate Program eligibility and project viability but clarify that 
the specific information, documentation, and attestations will be 
provided in guidance published in the Internal Revenue Bulletin. For 
the 2023 Program year, Revenue Procedure 2023-27 provides the 
application requirements. The specific information, documentation, and 
attestations that applicants are required to submit may get updated in 
future Program guidance for Program years following 2023.
---------------------------------------------------------------------------

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

    In developing the application requirements for the 2023 Program 
year provided in Revenue Procedure 2023-27, the Treasury Department and 
the IRS carefully considered the comments submitted in response to the 
Proposed Rules.
    One commenter requested that the Treasury Department and the IRS 
design the application intake mechanism to allow for bulk application 
submissions, including attestations. For example, the commenter stated 
that applicants could potentially be allowed to submit a spreadsheet 
for many projects at one time, along with required attestations. The 
commenter also cited to the efficient allocation language at section 
48(e)(4)(A), which states ``. . . the Secretary shall provide 
procedures to allow for an efficient allocation process, including, 
when determined appropriate, consideration of multiple projects in a 
single application if such projects will be placed in service by a 
single taxpayer.''
    One commenter cited to the language in the Proposed Rules that 
states a Category 1 or Category 2 facility that also qualifies as a 
Category 3 or Category 4 facility is considered a Category 3 or 
Category 4 facility, and requested that these facilities be 
automatically reviewed under Category 1 if their application is denied 
for an allocation in Category 4. As provided in Revenue Procedure 2023-
27, the Treasury Department and the IRS will not move applications from 
the category and sub-reservation under which the facility owner applied 
for an allocation. The statement the commenter cited was intended to 
remind applicants that if their facility meets the requirements under 
Category 1 or 2 and under Category 3 or 4, the applicant should apply 
under Category 3 or 4, as applicable, to be considered for the section 
48(e) Increase of 20 percentage points. Additionally, as provided in 
Notice 2023-17 and Revenue Procedure 2023-27 each applicant may only 
apply

[[Page 55530]]

for consideration of its facility, or for each facility if the 
applicant owns multiple facilities, under one category in 2023. If the 
facility is not awarded an allocation under the category in which the 
applicant applies, the facility will not be considered for an 
allocation in another category.
1. Permits
    Several commenters were concerned with the required attestation 
that the facility has obtained all applicable Federal, State, Tribal, 
and local non-ministerial permits, or that the facility is not required 
to obtain such permits. A few commenters suggested alternatively that 
the rule instead require applicants to provide sufficient documentation 
that the project ``expects to receive'' or has received all necessary 
permits to comply with and Federal, State, or local requirements. 
Another commenter uses the phrase ``proof of initiating'' in its 
suggestion.
    Commenters provided reasons for their concerns about the required 
permits. For example, a commenter stated that the requirement to have 
all necessary permits in place as a requirement for application (given 
the limited application window) as out of their direct control and not 
necessary given the other requirements of the guidelines. Another 
commenter considering the same issue noted that because there is 
tremendous variation in the scope and applicability of State and local 
permit requirements that eligible projects may be subject to depending 
on their geographic location, a completed permit requirement would 
serve to disqualify projects in locations that have suitable and 
appropriate permitting requirements and potentially advantage projects 
either already advancing without the benefit of Federal support or 
projects in jurisdictions with the lowest State and local permitting 
requirements.
    Additionally, commenters requested guidance on the definition of 
non-ministerial permits. For example, a commenter requested clarity on 
whether ``local non-ministerial permits'' includes such things as 
building and/or electrical permits. The commenter noted their agreement 
with the need to ensure applications for projects that are likely to 
move forward but that obtaining such permits requires significant 
expenditure of funds and investment of time in a project and that if 
all permits are required, many developers will be unlikely to invest in 
projects that need the low-income community bonus credit. Other 
commenters assumed building permits are required as non-ministerial 
permits and noted their disagreement with the requirement. Another 
commenter suggested that the Treasury Department and the IRS should 
clarify whether the appeals period for non-ministerial permits must 
have lapsed prior to application submission. Finally, a commenter noted 
that given the uncertainty of a competitive program, projects should 
not be required to secure building permits. Another commenter said 
rooftops particularly should not require building permits in the 
application. Further, one commenter requested that if a roof is found 
to be unsuitable for installation of a facility, after an inspection, 
that the application to the Program allow for the inclusion of a scope 
of work contract to make the roof suitable, in lieu of attesting that 
the roof is suitable. The commenter additionally requested that the 
cost of such construction work be allowed to be included in the cost of 
the overall installation.
    The Treasury Department and the IRS considered these comments but 
determined that a standard such as ``expects to receive'' or has 
``proof of initiating'' with respect to required permits is not enough 
to demonstrate sufficient project maturity to give assurances of the 
viability of the project. As explained in the Proposed Rules, section 
48(e)(4)(A) directs the Secretary to provide procedures to allow for an 
efficient allocation process. Additionally, section 48(e)(4)(E)(i) 
requires that facilities allocated an amount of Capacity Limitation be 
placed in service within four years of the date of allocation. 
Therefore, as explained in the Proposed Rules, the Treasury Department 
and the IRS determined that 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 such that they are likely to meet 
the four-year placed in service deadline, applicants are required to 
submit certain documentation and attestations when applying for an 
allocation. This requirement includes an attestation that the facility 
has obtained all applicable Federal, State, Tribal, and local non-
ministerial permits, or that the facility is not required to obtain 
such permits, which demonstrates completion of a critical project 
milestone.
    In response to the concerns commenters raised regarding the lack of 
clarity with respect to the definition of non-ministerial permits, the 
Treasury Department and the IRS included the following definition of 
non-ministerial permits in Revenue Procedure 2023-27, clarifying that 
building and electrical permits are not considered non-ministerial 
permits. Revenue Procedure 2023-27 provides that non-ministerial 
permits are defined as: ``Permits in which one or more officials or 
agencies consider various factors and exercise some discretion in 
deciding whether to issue or deny permits. This does not include 
ministerial permits based upon a determination that the request 
complies with established standards such as electrical or building 
permits. Non-ministerial permits typically come with conditions and 
usually require public notice or hearings. Examples of non-ministerial 
permits include local planning board authorization, conditional use 
permits, variances, and special orders.'' Lastly, on the question of 
whether the appeals period for non-ministerial permits must have lapsed 
prior to application submission, the lapse of this period is not a 
requirement for application submission.
    With respect to the comment about unsuitable roofs, applicants will 
continue to be required to attest that the location of the qualifying 
facility has been determined suitable for installation at application, 
to give assurances of the viability of the project. Additionally, the 
Treasury Department and the IRS cannot accommodate the request for the 
cost of roof repairs to be includable in the overall cost of the 
project, presumably, so that the repair costs are eligible costs for 
determining the bonus credit amount. The statutory language provides 
for the energy percentage increase with respect to eligible property 
that is part of a solar or wind facility. The roof of a building is not 
part of a solar or wind facility, and therefore, costs associated with 
building improvements are not includable in the basis of the solar or 
wind facility to determine the section 48(e) Increase.
2. Interconnection Agreements
    Several commenters disagree with the documentation requirement in 
the Proposed Rules that for FTM and BTM larger than 1 MW, a copy of the 
final executed interconnection agreement, if applicable, is required. 
Commenters suggested that requiring negotiated or approved 
interconnection agreements is premature for the first application 
period. Some commenters suggested an interconnection proxy, such as a 
submitted interconnection application or some other documentation from 
the utility that acknowledges the interconnection process has formally 
begun.
    Many commenters noted practical considerations. For example, a 
commenter pointed out that an executed

[[Page 55531]]

interconnection agreement and all applicable permits are typically 
received up to the date (and often after) a financial closing on a 
transaction occurs; it is not anticipated that a debt and equity 
investor will close on financing without prior receipt of an award 
letter by the IRS. Therefore, the commenter argues that requiring such 
documents at time of application will slow down the development 
process, increase the cash requirements of a developer prior to 
financial closing, and lengthen the construction timing. The commenter 
instead suggests that these documents be required when the facility is 
placed in service. As an alternative for the application, this 
commenter suggests requiring teaming agreements be in place and that 
each of the teaming parties provide a resume outlining at least 3 years 
of experience obtaining permits and interconnection agreements within 
the specified jurisdictions along with the number of renewable energy 
facilities that each of the parties has placed in service in such 
jurisdictions. Echoing that concern, another commenter suggested that 
this requirement of mandating signed interconnection agreements sets a 
high bar and would only make the Program accessible to those developers 
with financing readily available for upgrades before being accepted 
into the Program. Another commenter provided that an applicant should 
not be disadvantaged due to stricter requirements on permitting and 
interconnection agreements in one locality versus another. Another 
commenter said that by requiring eligible projects to submit final 
executed interconnection agreements, the Treasury Department and the 
IRS prevent taxpayers in certain States from being able to apply for 
capacity under the Program. The commenter explained that in California, 
Connecticut, North Carolina, and Washington, DC, utilities often do not 
execute or sign interconnection service agreements until after a 
project has received permission to operate (PTO). The commenter noted 
that a footnote in the Proposed Rules elaborates that if a taxpayer is 
not able to present a signed interconnection agreement, the taxpayer 
can instead submit a final written decision from the Public Utilities 
Commission or other governing body or a signed conditional 
interconnection approval letter that authorizes the facility. However, 
the commenter said that these alternatives to providing an executed 
interconnection agreement are infeasible in States and regions like 
those listed. The commenter suggests as an alternative to the proposed 
rulemaking, the Treasury Department and the IRS should allow taxpayers 
to submit an unsigned or customer-signed contingent approval to 
interconnect for projects located in utility zones that don't provide 
executed interconnection agreements until PTO.
    Other commenters suggested additional alternatives. For example, 
instead of an executed interconnection agreement, a commenter suggested 
allowing FTM facilities to submit interconnection applications and 
studies. Another commenter also suggested proof of an interconnection 
application stating it should be adequate given the differing processes 
across utilities districts (which reiterates the comment earlier 
describing limitations in certain States and Washington, DC) Another 
suggestion for a larger project is proof that such project has an 
active queue position and an attestation from the applicant that the 
project is not in default, payment or otherwise, with the relevant 
transmission and distribution companies. This commenter pointed out 
that with the time required, most applicants with an actual executed 
interconnection agreement started their projects before the IRA was 
enacted. This commenter suggested that for future application rounds 
for larger projects, an ``executed interconnection agreement'' may be a 
more feasible expectation. Another commenter similarly suggested that 
projects that are actively in the queue for interconnection, and 
projects with a proposed timeline for site interconnection application 
should suffice. Lastly, a commenter recommended that for BTM projects 
smaller than 1 MW, a ``limited notice to proceed'' with an EPC 
(engineering, procurement and construction) contractor authorizing the 
EPC to produce a design for a renewable energy facility and apply for 
interconnection should be considered adequate documentation in lieu of 
an executed contract to purchase the energy facility.
    The Treasury Department and the IRS considered these comments but 
ultimately decided not to make a change to the interconnection 
agreement requirements, and the proposed requirements are included in 
Revenue Procedure 2023-27. For the same reasons explained earlier under 
part X.A1. of this Summary of Comments and Explanation of Revisions 
section, the interconnection agreement documentation requirements are 
necessary to achieve Program goals including ensuring applications 
represent mature, viable projects. In response to the comment that 
these projects with executed interconnection agreements would have 
begun prior to the implementation of the IRA, the Treasury Department 
and the IRS believe that this issue will be mitigated as the Program 
progresses.
    Additionally, in response to the commenters who raised scenarios 
where interconnection agreements are not possible or feasible, footnote 
9 of the Proposed Rules explained that if the facility is located in a 
market where the interconnection agreement cannot be signed prior to 
construction of the facility or interconnection facilities, the 
interconnection agreement requirement is satisfied by a signed 
conditional approval letter from the jurisdictional utility and/or an 
affidavit from a senior corporate officer of the applicant (or someone 
with authority to bind the applicant) stating that an interconnection 
agreement cannot be executed until after construction of the facility. 
The Treasury Department and the IRS determined that this alternative 
provided in the Proposed Rules covers the scenarios identified by 
commenters. Lastly, a commenter requested clarification if an 
interconnection service agreement (ISA) is amended after submission of 
the initial application, whether this amendment must be submitted to 
the Treasury Department and the IRS. Details on these procedural 
requirements will be provided in later Program information.
3. 110 Percent Historical Customer Load
    Generally, commenters requested eliminating the attestation that 
the applicant has appropriately sized the facility (to meet no more 
than 110 percent of historical customer load). One commenter stated 
that many utility rules for net metering already have a limit 
(typically 125 percent), and the Program rules should defer to those 
local rules. The commenter said these limits can be verified or 
validated through the approved interconnection agreement (or utility 
approval of rooftop solar projects). Furthermore, this commenter, 
similar to others described previously, agrees with the idea that size 
should be able to increase noting that if a Tribal housing authority or 
Tribal member also implements electrification efforts, the electric 
load of a Tribal residence will increase and that rooftop solar 
projects should be allowed to ``oversize'' with the expectation that 
the load will increase.
    At least one commenter recognized that the purpose of a limitation 
may be to prevent abuse or waste in connection with the ability to 
claim section 48 credits, but the commenter anticipated there would 
also be renewable energy projects that could feasibly produce and

[[Page 55532]]

benefit from more than 110 percent of historical customer load. Another 
commenter argued that after the IRA, energy usage is likely to increase 
with the adoption of heat pump technology, electric vehicle chargers, 
and induction stoves, for example, so applicants need to build solar 
facilities that account for increased future usage. The commenter 
believed that the flexibility to oversize facilities relative to 
customers' current demand could be a way to provide direct financial 
benefits to residents of affordable housing properties noting that the 
commenters' particular technology allows facilities to maximize the 
size of the roof to produce net energy metering credit beyond the host 
properties' consumptions. The commenter explained the credits can then 
be allocated to qualifying low-income customers in the surrounding 
neighborhood including those who live in buildings that cannot support 
solar facilities. Similarly, focusing on arguments that the limitation 
prevents greater benefits to low-income individuals, another commenter 
agreed that facility sizing requirements should be set at the local/
utility level and not specified in the Program requirements because 
limiting the size of the facility will reduce the benefits available to 
tenants. Another commenter mentioned the need to expand the limitation 
due to the need to accommodate the installation of defined 
electrification projects.
    Another commenter gave additional reasons why it views the 
limitation as problematic noting that a Category 3 residential building 
may have multiple historical customer loads; this concept of limiting 
facility size to historical customer loads has previously been proposed 
to reduce the size of onsite solar facilities, limit financial 
benefits, and hinder overall distributed generation, which contradicts 
the intent of the statute; and that a limit to BTM facilities creates 
significant inconsistencies with other provisions of guidance referring 
to the fact that in certain States a Category 3 facility may only be 
allowed to interconnect to the local utility grid through a BTM 
configuration and this rule might be inconsistent with the requirement 
on 50 percent financial benefits.
    Comments on behalf of Tribal entities also disagreed with the 
limitation. These commenters said that for Tribal housing clean energy 
projects that qualify under Category 3, the rule should not limit the 
size of a BTM project to 110 percent of load. Additionally, one 
commenter stated that many utility rules for net metering already have 
a limit (typically 125 percent of historical load) and another 
commenter said that several States permit facilities of up to 200 
percent historical load, and the rules should defer to those local 
rules. The commenter said these limits can be verified or validated 
through the approved interconnection agreement (or utility approval of 
roof top solar projects). Furthermore, this commenter, similar to 
others described previously, agrees with the idea that size should be 
able to increase, noting that if a Tribal housing authority or Tribal 
member also implements electrification efforts the electric load of a 
Tribal residence will increase and that rooftop solar projects should 
be allowed to ``oversize'' with the expectation that the load will 
increase.
    While some commenters recommended removing the limitation, other 
commenters suggested modifications. One commenter suggested slightly 
increasing the historical customer load limitation to 120 percent based 
on rules in place in Minnesota for BTM facilities. Another commenter 
seemed to agree with keeping the attestation but removing the limit, 
noting that the rules simply require attestation that the project is 
appropriately sized based on applicable State and local solar program 
or utility interconnection rules, which they generally must already 
comply with, and that this would better accommodate concurrent or 
future additions of electrical load. Another commenter agreed with 
keeping the attestation and removing the limitation but noted that if 
the 110 percent of historical customer load requirement is retained, it 
should be clarified to allow for reasonable estimates of customer usage 
in cases where the customer does not have a full 12 months of 
historical usage at the specific location. Lastly, one of the 
commenters suggested as an alternative, and to maintain a rule that 
will preclude gaming, the following attestation requirement along the 
lines of the Category 4 attestation: ``For any facility that is 
projected to produce more than 110 percent of the its host property's 
historic annual kWh energy consumption, the applicant will ensure that 
either (A) any exported kWh will be provided to occupants of a 
qualified residential property at a 20 percent or greater bill credit 
discount related to the host property's volumetric export compensation 
rate for solar kWh, or (B) the applicant has reasonably accounted for 
an anticipated increase of the applicable building's energy 
consumption.'' Similarly, another commenter also thought the 
attestation for Category 3 should be similar to that for Category 4 
noting that ``applicants should not be constrained to ``110 percent of 
the historical customer load'' for rooftop projects for Categories 3 
and 4. A more reasonable approach would be to size the ``customer's 
facility output share'' appropriately as is proposed for FTM projects.
    One commenter asked for clarification on how the Treasury 
Department and the IRS plan to define ``appropriately sized'' for 
purposes of the requirement applicable to FTM projects that the 
``applicant has appropriately sized the customer's facility output 
share and has based facility output share on historical customer 
load.'' This commenter suggested as an example that their standard 
process for determining subscribers' allocation sizing is to size 
allocations at 85-90 percent of the customer's 12-month historical 
average kWh usage. The final regulations will not adopt a more detailed 
standard on this term and will use a reasonableness approach on whether 
an output share is appropriately sized.
    In response to these comments, the Treasury Department and the IRS 
believe that the attestation for BTM facilities related to the host 
properties' historic energy usage should be retained to prevent 
Capacity Limitation allocations from going to facilities that are 
oversized. However, the Treasury Department and the IRS recognize the 
need to modify the attestation requirement to account for future load 
projections and to not limit sizing to 110 percent where State and 
local requirements may allow for more. Accordingly, Revenue Procedure 
2023-27 includes the following revised attestation requirement: ``The 
applicant has appropriately sized the facility, or the customer/
offtaker subscriptions will be sized to meet the customer's energy 
needs, considering historical customer load and/or reasonable future 
load projections, in accordance with applicable State and local 
requirements.''
4. Tribal Documentation Requirements
    Some Tribal commenters requested modifications specifically 
regarding Tribal documentation requests. Commenters stated that 
development on certain Category 2 Indian land are subject to Tribal 
approval and regulatory authority and involve the co-management of the 
Department of Interior. To ensure applicants on Indian land understand 
documentation requirements, these commenters requested that the 
attestation requirements reflect a Tribal approval or a Tribal 
resolution for projects on lands

[[Page 55533]]

subject to Tribal civil jurisdiction under 25 U.S.C. 3501(2)(A)-(B).
    The United States has a trust relationship with Tribal governments 
whereby the Federal government manages certain Indian land for Tribal 
governments and Tribal citizens as the beneficial owners based on the 
cessation of Tribal lands.\11\ As a component of this relationship, 
Tribal governments are recognized as nations with inherent sovereignty 
and the ability to exercise criminal and civil jurisdiction over lands 
classified as Indian Country, which includes all lands identified in 25 
U.S.C. 3501(2)(A)-(B).\12\ This civil authority includes the right to 
regulate activities on their lands including taxation, and the ability 
to condition consent for development on Indian land via regulatory 
processes that might include approvals, permitting, and the right of 
exclusion.\13\ With regard to land described in 25 U.S.C. 3501(2)(C), 
Alaska Native Corporations have management and regulatory authority 
over their lands under the Alaskan Native Claims Settlement Act.\14\ 
Because Tribal governments and Alaska Native Corporations must approve 
development on Indian land described in 25 U.S.C. 3501(2)(A)-(C) under 
existing legal authorities, the comment to include Tribal approval as 
an attestation requirement for applications for a Category 2 allocation 
on such lands is adopted.
---------------------------------------------------------------------------

    \11\ See Johnson v. M'Intosh, 21 U.S. 543 (1823); Cherokee 
Nation v. Georgia, 20 U.S. 1 (1831); Worcester v. Georgia, 31 U.S. 
515 (1832) (setting forth foundational principles of Federal Indian 
law).
    \12\ Merrion v. Jicarilla Apache Tribe, 455 U.S. 130, 147 
(1982).
    \13\ See 25 CFR 169.10 and 25 CFR part 162.
    \14\ See 43 U.S.C. 1601.
---------------------------------------------------------------------------

    One commenter also suggested that Tribally owned qualified solar or 
wind facilities have priority [for an allocation] over other third-
party facility owners with respect to Category 2. Another commenter 
stated that Category 2 allocation should be fully reserved (not 50 
percent reserved) for projects that meet the Tribal Ownership Criteria.
    Commenters provided that projects owned directly by a Tribe, Tribal 
enterprise, Tribal utility, or Tribal housing authority, regardless of 
the category, should not have to comply with certain documentation and 
attestation requirements, such as site control, customer disclosures, 
benefit sharing agreement requirements, leases, contracts to purchase, 
PPAs (which should only be required if the project is structured to 
include a third-party owner), permits, and compliance with Tribal law. 
Another commenter agreed that for transactions not involving third 
parties, Tribes should not be required to provide certain application 
or attestation documents, and that Tribes should be able to self-
certify that qualifying projects are compliant. Other Tribal commenters 
support the ability to self-certify and additionally advised the 
Treasury Department and the IRS not to rely on external census data to 
track poverty levels on Indian land. Similarly, another commenter 
agreed that documentation requirements should be tailored for Category 
3 and Tribal-enterprise owned projects should be allowed more 
flexibility, based on Tribal recommendations.
    The Treasury Department and the IRS considered these comments but 
did not adopt them in Revenue Procedure 2023-27 because, as explained 
in the Proposed Rules, the documentation and attestation requirements 
are critical for all projects to ensure an efficient allocation process 
(that is, to ensure that projects receiving an allocation are viable 
and can satisfy Program requirements). Moreover, some of the 
requirements, such as site control, permits, and compliance with Tribal 
laws are attestations that merely require Tribal entities to attest 
that the Program requirements are satisfied, similar to self-
certification.
5. Other Documentation Requirements
    A commenter suggested that the Treasury Department and the IRS 
require applicants to submit documentation that they have received (or 
have contracted with a service provider that will be handling 
beneficiary personally identifiable information and that has received) 
a third-party cybersecurity assessment against a technology industry-
standard framework such as SOC 2 Type II (sponsored by the American 
Institute of Certified Public Accountants), and that the assessment 
does not include unaddressed or unremediated material findings.
    The Treasury Department and the IRS recognize that the Program 
requires information and documentation that may contain confidential 
information. The IRS and DOE are following all required protocols to 
protect information submitted to the IRS or DOE. However, the Treasury 
Department and the IRS think that it would be administratively 
impractical to impose cybersecurity assessment requirements on 
applicants, so this suggestion is not included in Program guidance.
    Another commenter provided that the final regulations should 
confirm that executed contracts and other documents containing 
personally identifying and/or business confidential information 
submitted in connection with the applications constitute trade secrets 
and/or commercial or financial information that is exempt from 
disclosure under the Freedom of Information Act (FOIA).
    After consideration of this comment, it is not adopted in these 
final regulations. Commenting on the IRS, DOE, or the Treasury's 
Department's response to any FOIA request is outside the scope of what 
can be appropriately addressed in Program guidance.
    In contrast to the commenters who requested relaxing or eliminating 
certain documentation and attestation requirements, three commenters 
were supportive of the project maturity requirements and some suggested 
that the final regulations should impose additional requirements. One 
commenter is pleased that maturity requirements for all capacity 
categories are included and recommends further strengthening these 
maturity requirements by necessitating a documentation requirement 
providing an interconnection agreement or State approved 
interconnection process, a community solar State program capacity award 
or a PPA, and proof of non-ministerial permits rather than an 
attestation. The other commenter suggested enhancing application 
requirements for the initial application period and subsequent rolling 
application process. The commenter suggests that demonstration of site 
control (for example, an executed contract, lease, or option to lease 
or purchase or similar agreement between the property owner and the 
developer/installer) and all non-ministerial permits should be included 
as a ``Proposed Document Requirement,'' rather than a ``Proposed 
Attestation Requirement'' for FTM and BTM that are smaller than 1 MW. 
The commenter says these milestones, as well as an executed 
interconnection agreement, are clearest and most efficient. The final 
commenter was supportive as long as the information submitted was kept 
strictly confidential and not subject to public disclosure as discussed 
earlier.
    For Category 3 specifically, one commenter suggested that the 
Documentation and Attestations table should be updated to add a line 
for ``An executed contract to purchase the facility, an executed 
contract to lease the facility, or an executed power purchase agreement 
for the facility.'' This same commenter also suggested that for 
Category 3, there should be a multifamily building financial benefits 
assignment plan to illustrate how the

[[Page 55534]]

financial benefits will reach the tenants. Additionally, this commenter 
said the rules should implement milestone requirements along this four-
year period to ensure the complete and efficient usage of the annual 
capacity limitation (speed timeline for placing in service).
    Other commenters included suggestions for documentation 
alternatives or requests for clarification on documentation 
requirements. One commenter suggested that for BTM projects, site 
control should also be accepted through other recordable documents such 
as ``Option Agreements'' or ``Memoranda of Understanding,'' including 
attestation that such documents exist, similar to what the transmission 
and distribution companies accept for site control. The commenter 
stated that the three documents listed as required in Table 1 for BTM 
are all proprietary to an applicant and contain business sensitive 
information. In addition, executing these documents may depend on if 
the applicant receives the ``adders (bonus).'' To clarify, the site 
control document attestations are required for FTM; these attestations 
are not required for BTM so this commenter's particular concerns do not 
arise. Another commenter asked for clarification whether a lease option 
agreement satisfies the requirement for FTM facilities, which requires 
showing that the applicant has site control through ownership, an 
executed lease contract, site access agreement or similar agreement 
between the property owner and the applicant. The same commenter asked 
also for clarification that a submitted executed contract may have an 
execution date of August 16, 2022, or later. Lastly, a commenter urged 
the Treasury Department and the IRS to consider a guaranteed maximum 
price contract or other design/build contract in lieu of the 
requirement that BTM facilities provide documentation in the form of an 
executed contract to purchase the facility, an executed contract to 
lease the facility, or an executed PPA for the facility. This commenter 
said that in most cases, the commenter expects to develop the project 
themselves and hire a contractor to install the solar arrays, and so 
there would be no need for a purchase, lease, or PPA contract.
    The Treasury Department and the IRS considered these comments but 
decided not to impose additional requirements. The Treasury Department 
and the IRS view the Proposed Rules as striking the right balance 
between requiring adequate documentation and attestations to ensure 
projects are viable and well defined to allow for a review for an 
allocation, and sufficiently advanced such that they are likely to meet 
the four-year placed in service deadline, while not being unduly 
burdensome for applicants. Additional documentation and attestations 
suggested by these commenters do not appear necessary to verify 
compliance with Program requirements.
    On the requests for alternatives (a lease option agreement 
requested by one commenter and guaranteed maximum price contract or 
other design/build contract requested by another), the Treasury 
Department and the IRS also considered these suggestions but believe 
the original documents described in the Proposed Rules are best able to 
demonstrate a project is viable and well defined to allow for a review 
for an allocation, and sufficiently advanced such that they are likely 
to meet the four-year placed in service deadline, while not being 
unduly burdensome for applicants. Lastly, on the question of timing and 
whether a submitted executed contract may have an execution date of 
August 16, 2022, or later, the rules do not have any date restrictions 
on the documentation required.
B. Lottery
    The Proposed Rules also provided a that a lottery system may be 
used in oversubscribed categories to decide among similarly situated 
applications.
    A few commenters requested that the lottery process be eliminated, 
and that the application process be entirely on a first-come, first-
served basis. One commenter advised against a lottery system and 
advised that in the event the Program is oversubscribed, the Treasury 
Department and the IRS should select projects based on ``project 
readiness'', which, the commenter states, in most existing solar 
markets, uses the earliest-in-time date of permit or ISA as a proxy for 
project maturity. Other commenters stated that they understand the 
purpose of a lottery in tie-breaker situations, but caution that a 
lottery may incentivize speculative project developers. The Treasury 
Department and the IRS made the decision to retain the lottery to 
provide an equitable review process for similarly situated 
applications. Due to the anticipated volume of applications, it would 
not be administratively feasible to select between applications for 
similar situated facilities that are submitted during the same time 
period for review without a lottery process that objectively 
prioritizes projects for review. The lottery process will allow for an 
efficient allocation process by ordering applications for review and 
allowing applications to be divided among reviewers for simultaneous 
review.
    The final regulations adopt the lottery system from the Proposed 
Rules to be used if a facility category or sub-reservation is 
oversubscribed but clarifies that details regarding how the lottery 
procedures will operate are specified in guidance published in the 
Internal Revenue Bulletin. The final regulations also clarify that a 
category or sub-category is oversubscribed if it receives applications 
in excess of Capacity Limitation reserved for the facility category or 
reservation within a facility category. For the 2023 Program year, 
Revenue Procedure 2023-27 provides the application review and selection 
procedures. The specific review and selection procedure may be updated 
in future Program guidance for Program year 2024.
C. Application Window
    The Treasury Department and the IRS proposed an approach that 
includes an initial application window in which applications received 
by a certain time and date would be evaluated together, followed with a 
rolling application process if Capacity Limitation is not fully 
allocated after the initial application window closes.
    Several commenters requested a first-come, first-served application 
process, with a few commenters adding that it should be first-come, 
first-served with respect to projects that are similarly situated. 
Additionally, several comment letters referred to the 60-day 
application period previously provided for the Program under Notice 
2023-17. These comment letters generally state that a 60-day period is 
too short and request instead that the Program accept applications on a 
rolling basis. The Proposed Rules already provided for a change from 
the 60-day window under Notice 2023-17. This change was noted under 
``Selection Process'' in the Proposed Rules.
    As provided in Revenue Procedure 2023-27, for Program year 2023 
there will be an initial 30-day window followed by a rolling 
application process thereafter for any capacity that remains in a given 
category or sub-reservation. At the end of the initial window, any 
category or sub-reservation that is oversubscribed will be subject to 
the lottery system. Applications may still be submitted in 
oversubscribed categories or for the Category 1 sub-reservation after 
the 30-day period and until the close of a Program year. Those 
applications may be reviewed in the order received only after DOE's 
review and the IRS's award determinations regarding all applications 
submitted

[[Page 55535]]

within the first 30 days. Applications submitted will only be reviewed 
if there is remaining Capacity Limitation. Applicants should refer to 
Revenue Procedure 2023-27 for additional details regarding the Program 
application process.
    A few commenters additionally suggested that any category that has 
remaining capacity at the close of the Program for a particular 
capacity year should enter into a continuous rolling application 
process, rather than requiring a new application window. One commenter 
further specified that if the category remains in a rolling application 
process through the end of the calendar year, then on January 1 of the 
following year, new annual capacity should be allocated to the category 
and the rolling application process should continue. Otherwise, these 
commenters state that there will be a backlog of applications. One of 
the commenters also urged the Treasury Department and the IRS to create 
a waitlist for the following year's capacity allocation, with 
applications prioritized in the order received. This commenter stated 
that this would obviate the need for a lottery system for similarly 
situated applications in oversubscribed categories. Finally, a few 
commenters expressed concern about the short application period for the 
2023 Program year. These commenters generally stated their belief that 
the 2023 Program will close on December 31, 2023 and that any 
unallocated Capacity Limitation will immediately rollover and be added 
to the 2024 Capacity Limitation on January 1, 2024.
    The Treasury Department and the IRS will assess the 2023 Program 
and initial applications before determining any capacity changes to the 
2024 Program and any changes to the application process. The Treasury 
Department and the IRS can also adjust Capacity Limitation among 
categories within a Program year. Moreover, although the statute 
provides for a Capacity Limitation for each calendar year, with the 
ability to rollover unused Capacity Limitation to the next year, there 
is no requirement to close the application and allocation period for 
the 2023 Program year on December 31, 2023. Applicants should refer to 
Revenue Procedure 2023-27 for additional details regarding the Program 
application process.

XI. Documentation and Attestations To Be Submitted When Placed in 
Service

    The Proposed Rules also required facilities that received a 
Capacity Limitation allocation to report to DOE that the facility has 
been placed in service, and to submit additional documentation or 
complete additional attestations with this reporting.
    The Proposed Rules provided that an owner must submit documentation 
or attest to the following:

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

    The final regulations adopt the requirement that the owner of a 
facility must report to DOE that the facility has been placed in 
service, and to submit additional documentation or complete additional 
attestations with this reporting but clarify that the specific 
information, documentation, and attestations that applicants are 
required to submit will be specified in guidance published in the 
Internal Revenue Bulletin. For the 2023 Program year, Revenue Procedure 
2023-27 provides the placed in service documentation procedures. The 
specific information, documentation, and attestations that applicants 
are required to submit when a qualified facility is placed in service 
may get updated for Program year 2024.
    One commenter provided that a final, PE stamped as-built design 
plan is unnecessary. The commenter stated that applicants should 
instead be able to rely upon the as-built design plan for the project 
(without a PE stamp, at least in jurisdictions where such a stamp is 
not required), or other permitting documentation from the authority 
having jurisdiction, demonstrating the nameplate capacity. This 
suggestion is partially adopted in the Revenue Procedure 2023-27, 
allowing as-built design plans to be submitted without a PE stamp in 
cases where the local jurisdiction does not require such a stamp. The 
Treasury Department and the IRS further note that the as-built design 
plan is only one of three options for verifying as-built nameplate 
capacity, which provides flexibility for applicants. A PTO letter with 
nameplate capacity listed or other documentation from an unrelated 
party verifying as-built nameplate capacity are also reliable and 
acceptable options.
    Also, as discussed in part V.5 of this Summary of Comments and 
Explanation of Revisions section, the Treasury Department and the IRS 
determined that to better achieve the goal of verifying Program 
compliance, the final regulations will require that facility owners 
must prepare a Benefits Sharing Statement, which must include certain 
information, and 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. Therefore, this Benefits Sharing Statement, instead of a 
Benefits Sharing Agreement, will be required documentation upon placing 
a Category 3 property in service.

[[Page 55536]]

XII. Placed in Service Prior to Allocation Award

    The Proposed Rules, consistent with an earlier statement in section 
4.05 of Notice 2023-17, provided that facilities placed in service 
prior to being awarded an allocation of Capacity Limitation would not 
be eligible to receive an allocation.
    Some commenters disagreed with the proposal that facilities must be 
placed in service after being awarded an allocation of Capacity 
Limitation to be eligible to receive an allocation. These commenters 
focused on the impact this will have on the economics of their projects 
for the Program as well as timing issues they argue arise due to 
waiting for allocation. For example, one commenter stated that they 
will not be able to complete projects without the bonus credit because 
the ``economics'' of their projects will be ``severely impacted'', and 
if they must apply first to get an award, that the projects will be 
delayed to 2024. Another commenter noted specifically for Category 3 
that multifamily affordable housing owners have been relying on the 
initial guidance and the February 13, 2023, statutory due date, and 
they have been planning on deploying solar power and storage that 
benefits residents of affordable housing since the day the IRA became 
law. The commenter added that these projects would not be economically 
viable without the Low-Income Communities Bonus Credit, and absent the 
bonus credit, these same developers would have planned to develop 
significantly smaller solar installations that offset common area 
electric loads only and would not have planned larger solar and storage 
facilities that also provide a direct economic benefit to low-income 
residents. This commenter disagreed with the statement that facilities 
placed in service prior to the allocation process do not increase 
adoption of and access to renewable energy facilities. Additionally, 
two commenters noted that the rationale for not allowing projects 
placed into service after January 1, 2023, but before receiving an 
allocation, to be eligible for the bonus allocation is insufficient, 
and should be rescinded.
    Some commenters expressed concern over the potential impact that 
this proposal would have on low-income residents, including Tribal 
members. Likewise, another commenter suggested that the Treasury 
Department and the IRS should reconsider the placed into service 
requirements due to reliance concerns and negative economic impacts on 
Tribes. The commenter explained that many new Tribal projects were 
planned, developed and started construction after the IRA passed in 
anticipation of qualifying for the bonus credit. This expectation 
escalated Tribal projects that might not otherwise have been 
developed--just as the statute intended. This commenter specifically 
suggested that Tribal projects that are placed in service after January 
1, 2023, should be eligible for this bonus allocation. Another 
commenter noted a particular project for which they would be able to 
provide 25 percent energy savings directly to low-income families if 
they receive the allocation, and without that bonus amount, their 
financing costs would rise (due to increased returns provided to their 
equity investor) and consequently they would have to reduce the 
economic savings to 20 percent. In this example, the commenter believed 
that providing an additional 5 percent in direct economic benefits to 
low-income families would increase adoption and access to renewable 
energy. Similarly, another commenter contended that, due to this 
requirement that a project must be placed in service after an 
allocation award, it would be more burdensome and therefore less likely 
that low-income communities with environmental justice concerns will 
benefit from the Program.
    Two commenters suggested allowing facilities that were placed in 
service after the date of the initial guidance, February 13, 2023. 
Another commenter suggested including facilities for which construction 
began after the enactment of the IRA on August 16, 2022. One commenter 
made some specific recommendations depending on the type of project. 
This commenter suggested allowing all facilities (in addition to 
Category 1 facilities) that have allocations awarded under the rolling 
application process to be placed in service prior to an allocation 
award. Alternatively, this commenter suggested allowing single-family 
residential rooftop facilities in Category 1 that have allocations 
awarded under the rolling application process to be placed in service 
prior to allocation award. This commenter also agreed with other 
commenters that 2023 capacity allocations be allowed for any qualifying 
Category 3 facility placed in service after final Program rules are 
issued noting that this suggestion is based on the longer development 
timelines and unique cost considerations for Category 3 projects.
    Another commenter suggested modifying the requirement to instead 
provide that projects must be placed in service after application, 
rather than after allocation.
    After consideration of the comments described herein, the final 
regulations adopt the Proposed Rule providing that projects must be 
placed in service after allocation. The Treasury Department and the IRS 
considered these comments but ultimately decided not to make a change 
because requiring projects be placed in service after allocation 
provides the best way to promote the increase of, and access to, 
renewable energy facilities that would not be completed in the absence 
of the Program. Although Treasury and IRS recognize the economic and 
business-model concerns raised by commenters, these issues are largely 
the result of allocations not being readily available before the 
Program opens. These issues are therefore expected to significantly 
diminish in the future. Further, section 48(e)(4)(E)(i) provides a 
lengthy window of four years to place a facility in service following 
an allocation of Capacity Limitation, supporting that statutory intent 
is for allocations to go to new facilities that have not yet been 
placed in service. The Treasury Department and the IRS therefore 
believe that this rule best accomplishes Congress's intent of the 
Program to encourage new development of renewable energy and the 
corresponding benefits to low-income communities. The Program cannot 
encourage additional renewable energy facilities in connection with 
low-income communities if those facilities were already placed in 
service without the Program.

XIII. Disqualification After Receiving an Allocation

    The Proposed Rules provided that a facility that was awarded a 
Capacity Limitation allocation is disqualified from receiving that 
allocation if prior to or upon the facility being placed in service: 
(1) the location where the facility will be placed in service changes; 
(2) the nameplate capacity of the facility increases such that it 
exceeds the less than 5 MW AC maximum net output limitation provided in 
section 48(e)(2)(A)(ii) or decreases by the greater of 2 kW or 25 
percent of the Capacity Limitation awarded in the allocation; (3) the 
facility cannot satisfy the financial benefits requirements under 
section 48(e)(2)(B)(ii) as planned (if applicable) or cannot satisfy 
the financial benefits requirements under section 48(e)(2)(C) as 
planned (if applicable); (4) the eligible property that is part of the 
facility that received the Capacity Limitation allocation is not placed 
in service within four years after the date

[[Page 55537]]

the applicant was notified of the allocation of Capacity Limitation to 
the facility; or (5) the facility received a Capacity Limitation 
allocation based, in part, on meeting the Ownership Criteria and 
ownership of the facility changes prior to the facility being placed in 
service such that the Ownership Criteria is no longer satisfied, unless 
(a) the original applicant retains an ownership interest in the entity 
that owns the facility and (b) the successor owner attests that after 
the five year recapture period, the original applicant that met the 
Ownership Criteria will become the owner of the facility or that this 
original applicant will have the right of first refusal.
    Commenters expressed concern over some of the disqualification 
factors set forth in the Proposed Rules. In response to the proposal 
that a certain decrease in nameplate capacity results in a 
disqualification, one commenter suggested increasing the threshold for 
disqualification due to a size reduction from 25 percent to at least 30 
percent. Another commenter recommended that the 2 kW or 25 percent 
threshold be applicable to both increasing and decreasing the system's 
size.
    Based on an assessment of other similar State programs and because 
this is an allocated credit with a finite amount of capacity awarded 
each year, the Treasury Department and the IRS have declined to adopt 
the comment to increase the size reduction to 30 percent.
    For a different disqualification factor that would occur when 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, a 
commenter suggested that projects receiving an allocation of bonus 
credits be allowed to show alternative forms of completion within the 
four-year window apart from ``placed in service,'' which commenter says 
unfairly depends on the utility's timeline for signing off on the 
project. Another commenter recommended adding additional requirements 
for the topic of placed in service for Category 1. This commenter 
suggested that for BTM projects that are smaller than 1 MW, these 
projects be required to attest that the project is active and moving 
forward towards being placed in service on an annual basis after 
receiving an allocation, or until the eligible property is placed in 
service. The commenter proposed that if the applicant is non-responsive 
or declines to attest that the project is active, then the allocation 
should be forfeited and the capacity returned and that applicants 
should also be able to proactively forfeit an allocation. The 
commenter's reasoning for this is that in commenter's view four years 
is far beyond the necessary time frame for smaller projects that can be 
completed in months instead of years.
    The Treasury Department and the IRS did not adopt these 
recommendations. Section 48(e)(4)(E) sets the placed in service 
deadline for the Program by providing that section 48(e)(1) does not 
apply with respect to any property that is placed in service after the 
date that is four years after the date of the allocation with respect 
to the facility of which such property is a part. Therefore, providing 
any type of alternative forms of completion within the four-year window 
apart from ``placed in service'' is inconsistent with the statute and 
not allowed. Similarly, additional burdens (and repercussions for non-
compliance) of annual attestation requirements for smaller Category 1 
projects should not be imposed.
    The Proposed Rules provided that if the facility received a 
Capacity Limitation allocation based, in part, on meeting the Ownership 
Criteria and ownership of the facility changes prior to the facility 
being placed in service such that the Ownership Criteria is no longer 
satisfied, unless (a) the original applicant retains an ownership 
interest in the entity that owns the facility and (b) the successor 
owner attests that after the five year recapture period, the original 
applicant that met the Ownership Criteria will become the owner of the 
facility or that this original applicant will have the right of first 
refusal. Commenters observed that put options, which are often used in 
tax equity structures, were excluded from the proposed rule. The 
Treasury Department and the IRS have modified this rule to better 
reflect contractual arrangements used with tax equity financing 
structures and to avoid unintended complications with other tax 
guidance. The final regulations eliminate the attestation regarding a 
call, put, or right of first refusal is that such contractual rights 
exist. Rather, the final regulations provide that if the facility 
received a Capacity Limitation allocation based, in part, on meeting 
the ownership criteria and if ownership of the facility changes prior 
to the facility being placed in service the facility is disqualified, 
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 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.

XIV. Recapture of Section 48(e) Increase

    In accordance with section 48(e)(5), the Proposed Rules provided 
for recapturing the benefit of any section 48(e) Increase with respect 
to any property that ceases to be property eligible for such section 
48(e) Increase (but that does not cease to be investment credit 
property within the meaning of section 50(a)). In accordance with 
section 48(e)(5), the Proposed Rules provided that the period and 
percentage of such recapture is determined under rules similar to the 
rules of section 50(a). In accordance with section 48(e)(5), the 
Proposed Rules acknowledged such recapture may not apply with respect 
to any property if, within 12 months after the date the applicant 
becomes aware (or reasonably should have become aware) of such property 
ceasing to be property eligible for such section 48(e) Increase, the 
eligibility of such property for such section 48(e) Increase is 
restored. In accordance with section 48(a)(5), the Proposed Rules 
provided that such restoration of a section 48(e) Increase is not 
available more than once with respect to any facility.
    The Proposed Rules provided that the following circumstances result 
in a recapture event if the property ceases to be eligible for the 
increased credit under section 48(e): (1) property described in section 
48(e)(2)(A)(iii)(II) fails to provide financial benefits over the 5-
year period after its original placed in service date; (2) property 
described under section 48(e)(2)(B) ceases to allocate the financial 
benefits equitably among the occupants of the dwelling units, such as 
not passing on to residents the required net energy savings of the 
electricity; (3) property described under section 48(e)(2)(C) ceases to 
provide at least 50 percent of the financial benefits of the 
electricity produced to qualifying households as described under 
section 48(e)(2)(C)(i) or (ii), or fails to provide those households 
the required minimum 20 percent bill credit discount rate; (4) for 
property described under section 48(e)(2)(B), the residential rental 
building the facility is a part of ceases to participate in a covered 
housing program or any other housing program described in section 
48(e)(2)(B)(i), if applicable; and (5) a facility increases its output 
such that the facility's output is 5 MW AC or greater,

[[Page 55538]]

unless the applicant can prove that the output increase is not 
attributable to the original facility but rather is output associated 
with a new facility under the 80/20 Rule (the cost of the new property 
plus the value of the used property). See Rev. Rul. 94-31, 1994-1 C.B. 
16.
    Commenters submitted recommendations and questions related to the 
recapture provisions in the Proposed Rules. One commenter suggested 
stricter rules by requiring attestations that the owner of the facility 
will maintain eligibility under the Program for a minimum of 15 years, 
or the lifetime of the project. This commenter said if it is not 
possible to require this sort of covenant or attestation, the Treasury 
Department and the IRS should instead implement continual and 
spontaneous audits of projects. The Treasury Department and the IRS did 
not adopt this suggestion. Under the recapture provisions of section 
48(e)(5), Congress provided that the period and percentage of such 
recapture must be determined under rules similar to the rules of 
section 50(a). Section 50(a) generally provides that this is a five 
year period with differing applicable percentages depending on when the 
property ceases to qualify. Therefore, under section 48(e)(5), stricter 
restrictions related to recapture should not be imposed.
    Two commenters raised concerns about the recapture event that 
occurs when the property ceases to provide at least 50 percent of the 
financial benefits of the electricity produced to qualifying households 
as described under section 48(e)(2)(C). Another commenter raised a 
similar issue regarding the Proposed Rule that projects can only cure 
an issue related to low-income verification one time if the 50 percent 
financial benefits threshold is not met. This commenter stated that, 
due to the complexity of subscription management, potential defaults, 
and subscription termination, it is possible that projects will dip 
below this 50 percent threshold more than once due to no fault of the 
project owner. This commenter recommended that the rules be revised to 
allow projects to dip below the 50 percent threshold if there is proven 
effort to restore the low-income percentage. The Treasury Department 
and the IRS did not adopt these recommendations because it is 
inconsistent with section 48(e)(5). Section 48(e)(5) allows only a one-
time restoration of section 48(e) eligibility per facility if the 
facility ceases to qualify for an allocation of Capacity Limitation 
before recapture of the section 48(e) Increase is triggered.
    A different commenter suggested an additional recapture event that 
rooftop solar lease and PPA providers should attest that they will 
adhere to the provisions of the Consumer Leasing Act (15 U.S.C. 1667-
1667f), and the rules should make documented violations of the Consumer 
Leasing Act an event that would trigger recapture of the allocation. 
While the Treasury Department and the IRS understand the commenter's 
concern, the statute provides no requirements related to the Consumer 
Leasing Act, and therefore, the final regulations do not impose this 
requirement on the applicants.
    The final regulations related to recapture adopt the requirements 
from the Proposed Rules but also include a clarification that any event 
that results in recapture under section 50(a) will also result in 
recapture of the benefit of the section 48(e) Increase. The exception 
to the application of recapture provided in Sec.  1.48(e)-1(n)(2) does 
not apply in the case of a recapture event under section 50(a).

Special Analyses

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 final regulations 
contain reporting and recordkeeping requirements that are required to 
obtain the section 48(e) Increase. This information in the collections 
of information would generally be used by the IRS and DOE for tax 
compliance purposes and by taxpayers to facilitate proper reporting and 
compliance. A Federal agency may not conduct or sponsor, and a person 
is not required to respond to, a collection of information unless the 
collection of information displays a valid control number.
    The recordkeeping requirements mentioned within this final 
regulation are considered general tax records under Section 1.6001-
1(e). These records are required for the IRS to validate that taxpayers 
have met the regulatory requirements and are entitled to receive a 
section 48(e) Increase. For PRA purposes, general tax records are 
already approved by OMB under 1545-0123 for business filers, 1545-0074 
for individual filers, and 1545-0047 for tax-exempt organizations.
    The final regulations also describe reporting requirements for 
providing attestations and supporting documentation for the initial 
application, providing supporting documentation for specific 
facilities, and confirming a facility is placed in service as detailed 
in these final regulations.
    These attestations and documentation would allow IRS to allocate 
Capacity Limitation and ensure taxpayers maintain compliance. To assist 
with the collections of information, DOE will provide certain 
administration services for the Program. Among other things, 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 1545-2308 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, supporting 
documentation, 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 
supporting documentation, and 1 for projects placed in service.
    Estimated total burden hours: 210,000 burden hours.
    The IRS solicited feedback on the collection requirements for the 
application, supporting documentation, and attestations. Although no 
public comments received by the IRS were directed specifically at the 
PRA or on the collection requirements, several commenters generally 
expressed concerns about the burdens associated with the documentation 
requirements contained in the Proposed Rules. As described in the 
relevant portions of this preamble, the Treasury Department and IRS 
believe that the documentation requirements are necessary to administer 
the Program.

[[Page 55539]]

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 will not have a 
significant economic impact on a substantial number of small entities, 
section 604 of the RFA requires the agency to present a final 
regulatory flexibility analysis (FRFA) of the final regulations. The 
Treasury Department and the IRS have not determined whether the final 
regulations will have a significant economic impact on a substantial 
number of small entities. This determination requires further study and 
an FRFA is provided in these final regulations.
    Pursuant to section 7805(f) of the Code, these final regulations 
were submitted to the Chief Counsel of Advocacy of the Small Business 
Administration, and no comments were received.
1. Need for and Objectives of the Rule
    The final regulations would provide guidance for purposes of 
participation in the Program to allocate the environmental justice 
solar and wind capacity limitation under section 48(e) for the Program. 
The final regulations are expected to encourage applicants to invest in 
solar and wind energy. Thus, the Treasury Department and the IRS intend 
and expect that the final regulations will deliver benefits across the 
economy and environment that will beneficially impact various 
industries.
2. Significant Issues Raised by Public Comments in Response to the IRFA
    There were no comments filed that specifically addressed the 
Proposed Rules and policies presented in the IRFA. Additionally, no 
comments were filed by the Chief Counsel of Advocacy of the Small 
Business Administration.
3. Affected Small Entities
    A total of 1800 MW of capacity are eligible for the section 48(e) 
bonus credit annually. Assuming the average size of each successful 
application is near 1 MW, then there will be approximately 2,000 
successful applications each year. The Treasury Department and the IRS 
expect the total number of applications to be significantly higher than 
this. In addition, the Treasury Department and the IRS also assume that 
some successful applicants will submit more than one successful 
application. The Treasury Department and the IRS do not have 
information on the expected business entity size distribution of 
successful applicants but will continue to examine this issue when data 
is collected during the first round of allocations.
4. 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 
this preamble. In particular, the Paperwork Reduction Act section of 
this preamble contains a summary of paperwork burden estimates for the 
application, supporting documentation, and submissions when projects 
are placed in service. The IRS solicited feedback on the collection 
requirements for the application, supporting documentation, and 
attestations. Although no public comments received by the IRS were 
directed specifically at the PRA or on the collection requirements, 
several commenters generally expressed concerns about the burdens 
associated with the documentation requirements contained in the 
Proposed Rule. As described in the relevant portions of this preamble, 
the Treasury Department and IRS believe that the documentation 
requirements are necessary to administer the Program.
5. Steps Taken To Minimize Impacts on Small Entities and Alternatives 
Considered
    The Treasury Department and the IRS considered alternatives to the 
final regulations. For example, the Treasury Department and the IRS 
considered exclusively using a lottery system for all over-subscribed 
categories, rather than creating reservations for facilities meeting 
ASC. Although a lottery system may ultimately need to be used for an 
oversubscribed category, the Treasury Department and the IRS decided 
that it was important to propose reserving Capacity Limitation for 
facilities that meet certain ASC that further the policy goals of the 
Program.
    Additionally, when considering how to define ``in connection 
with,'' the Treasury Department and the IRS were mindful that the 
statute requires the energy storage technology to be installed in 
connection with a qualifying solar or wind facility to be eligible for 
an increase in the energy percentage used to calculate the amount of 
the section 48 credit. Different alternatives were considered on how to 
address this definition. For example, the Treasury Department and the 
IRS considered but ultimately decided not to incorporate the safe 
harbor (deeming the energy storage technology to be charged at least 50 
percent by the facility if the power rating of the energy storage 
technology is less than 2 times the capacity rating of the connected 
wind or solar) as part of the general rule to define ``in connection 
with.'' The final regulations instead generally require the energy 
storage technology to have a sufficient nexus to the other eligible 
property because it is part of the single project and is significantly 
charged by the eligible property. The Treasury Department and the IRS 
maintain the safe harbor in the final regulations, but only as a means 
of deeming the energy storage technology charging requirement to be 
satisfied.
    Another example where different alternatives were considered was 
with respect to application materials. Section 48(e)(4)(A) directs the 
Secretary to provide procedures to allow for an efficient allocation 
process, and section 48(e)(4)(E)(i) allows an applicant up to four 
years after receiving a Capacity Limitation allocation to place 
eligible property into service. Alternatives were considered on how 
best to balance these statutory requirements, considering practical 
issues for taxpayers and residents as well as the traditional structure 
and arrangement of these solar or wind transactions, including 
considerations on the type of facility (BTM or FTM) and the capacity of 
the facility. Among other things, the Treasury Department and the IRS 
considered whether an application for an interconnection agreement or 
an executed interconnection agreement should be required as part of the 
application materials. The final regulations are based on the view that 
the executed interconnection agreement, if applicable, is essential 
documentation to demonstrate sufficient project maturity.
    Additionally, the Treasury Department and the IRS considered a 
variety of bill credit discounts for Category 4 qualified low-income 
benefit project facilities. The bill credit discounts considered 
included 10 percent, 15 percent, or 20 percent. Alternatively, the 
Treasury Department and the IRS considered the option of a range of 
discounts from 10 percent to 20 percent from which applicants could

[[Page 55540]]

choose the discount rate to provide low-income customers. However, to 
ensure that low-income customers are receiving meaningful financial 
benefits, the Treasury Department and the IRS decided to propose a 20 
percent discount.

IV. Unfunded Mandates Reform Act

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

V. Executive Order 13132: Federalism

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

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 regulations do not have substantial direct effects on one 
or more federally recognized Indian tribes and do not impose 
substantial direct compliance costs on Indian tribal governments within 
the meaning of the Executive Order.
    Nevertheless, on June 26, 2023, the Treasury Department and the IRS 
held a consultation with Tribal leaders requesting assistance in 
addressing questions related to Low-Income Communities Bonus Credit 
Program, which informed the development of these regulations.

VII. Congressional Review Act

    Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), 
the Office of Information and Regulatory Affairs designated this rule 
as a major rule as defined by 5 U.S.C. 804(2).

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 regulations 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.

Amendments to the Regulations

    Accordingly, the Treasury Department and IRS 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.  1.48(e)-1 in numerical order to read in part as 
follows:

    Authority:  26 U.S.C 7805, unless otherwise noted. 26 U.S.C. 
7805, unless otherwise noted. 26 U.S.C. 7805. 26 U.S.C. 401(m)(9) 
and 26 U.S.C. 7805.
* * * * *
Section 1.48(e)-1 issued under 26 U.S.C. 48
* * * * *

0
Par. 2. Section 1.48(e)-1 is added:
    The additions read as follows:


Sec.  1.48(e)-0  Table of Contents

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


Sec.  1.48(e)-1  Low-Income Communities Bonus Credit Program.

(a) In general.
(b) Qualified solar or wind 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) Single project treated as single facility.
(c) Eligible property.
(1) In general.
(2) Energy storage technology installed in connection with qualified 
solar or wind facility.
(3) Safe harbor for requirement of paragraph (c)(2)(ii) of this 
section.
(d) Location.
(1) In general.
(2) Nameplate Capacity Test.
(i) Nameplate capacity for purpose of Nameplate Capacity Test.
(ii) Exclusion of energy storage technology.
(e) Financial Benefits for a Category 3 Facility.
(1) In general.
(2) Threshold Requirement.
(3) Financial value of the energy 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) Calculation on annual basis.
(iv) Examples.
(A) Example 1.
(B) Example 2.
(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.
(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) Partnership.
(iii) Tribal enterprise.
(iv) Alaska native corporation.
(v) Renewable energy cooperative.
(vi) Qualified renewable energy company.
(vii) Qualified Tax-Exempt Entity.
(3) Geographic criteria.

[[Page 55541]]

(i) In general.
(A) Persistent Poverty County.
(B) Certain census tracts.
(ii) Applicable terms for certain census tracts.
(A) Energy burden or cost.
(B) Exposure.
(C) Energy cost.
(D) PM2.5.
(E) 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) Eligible 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 recission.
(m) Disqualification.
(n) Recapture of section 48(e) increase to the section 48(a) credit.
(1) In general.
(2) Exception to application of recapture.
(3) Recapture events.
(4) Section 50(a) Recapture.
(o) Applicability date.


Sec.  1.48(e)-1  Low-Income Communities Bonus Credit Program.

    (a) In general. For purposes of section 48 of the Internal Revenue 
Code (Code), the energy percentage used to calculate the amount of the 
energy investment credit determined under section 48(a) (section 48 
credit) is increased under section 48(e)(1) in the case of eligible 
property (as defined in paragraph (c) of this section) that is part of 
any qualified solar or wind facility (as defined in paragraph (b) of 
this section) placed in service in connection with low-income 
communities with respect to which an allocation of the environmental 
justice solar and wind capacity limitation (Capacity Limitation) is 
made under the Low-Income Communities Bonus Credit Program (Program) 
established under section 48(e)(4) of the Code on February 13, 2023. 
See Notice 2023-17, 2023-10 I.R.B. 505. In this section, the terms 
applicant and taxpayer are used interchangeably as the context may 
require.
    (b) Qualified solar or wind facility defined--(1) In general. A 
qualified solar or wind facility means any facility that--
    (i) Generates electricity solely from a wind facility (described in 
section 45(d)(1) of the Code) for which an election to treat the 
facility as energy property was made under section 48(a)(5) (wind 
facility), solar energy property (described in section 48(a)(3)(A)(i)) 
(solar energy property), or small wind energy property (described in 
section 48(a)(3)(A)(vi)) (small wind energy property);
    (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 48(e)(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 is generally defined under section 45D(e)(1) 
of the Code as any population census tract if the poverty rate for such 
tract is at least 20 percent based on the 2011-2015 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 2011-2015 
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. Populations 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 48(e)(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 facility is considered installed on a 
Qualified Residential Property even if not on the building 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) Single project treated as single facility. Multiple solar or 
wind facilities or energy properties that are operated as part of a 
single project are aggregated and treated as a single facility or 
energy property for purposes of determining if it is a qualified solar 
or wind facility under paragraph (b)(1) of this section. Any facility 
or energy property treated as part of a single facility under this 
paragraph (b)(3) will also be treated as a single facility for all 
other purposes

[[Page 55542]]

under this section and all other guidance applicable to section 48(e) 
published in the Internal Revenue Bulletin. See Sec.  601.601 of this 
chapter. Whether multiple facilities or energy properties are operated 
as part of a single project will depend on the relevant facts and 
circumstances and a single factor may not be dispositive. Factors 
indicating that multiple facilities or energy properties are operated 
as part of a single project may include--
    (i) The facilities or energy properties are owned by a single legal 
entity;
    (ii) The facilities or energy properties are constructed on 
contiguous pieces of land;
    (iii) The facilities or energy properties are described in a common 
power purchase agreement (PPA) or more than one common power purchase 
agreements (PPAs);
    (iv) The facilities or energy properties have a common 
interconnection;
    (v) The facilities or energy properties share a common substation;
    (vi) The facilities or energy properties are described in one or 
more common environmental or other regulatory permits;
    (vii) The facilities or energy properties were constructed pursuant 
to a single master construction contract; or
    (viii) The facilities or construction of the energy properties was 
financed pursuant to the same loan agreement.
    (c) Eligible property--(1) In general. Eligible property is energy 
property that is part of a qualified solar or wind facility described 
in paragraph (b) of this section. Eligible property also includes 
energy storage technology (as described in section 48(a)(3)(A)(ix)) 
installed in connection with such qualifying energy property.
    (2) Energy storage technology installed in connection with 
qualified solar or wind facility. Energy storage technology is 
installed in connection with other eligible property if the 
requirements of both paragraph (c)(2)(i) of this section and paragraph 
(c)(2)(ii) of this section (including by reason of paragraph (c)(3) of 
this section) are satisfied.
    (i) The requirements of this paragraph (c)(2)(i) are satisfied if 
the energy storage technology and other eligible property are 
considered part of a single qualified solar or wind facility based on 
the energy storage technology and other eligible property being:
    (A) Owned by a single legal entity,
    (B) Located on the same or contiguous pieces of land,
    (C) Having a common interconnection point, and
    (D) Described in one or more common environmental or other 
regulatory permits.
    (ii) The requirement of this paragraph (c)(2)(ii) is satisfied if 
the energy storage technology is charged no less than an annual average 
of 50 percent by the other eligible property.
    (3) Safe harbor for requirement of paragraph (c)(2)(ii) of this 
section. For purposes of paragraph (c)(2)(ii) of this section, energy 
storage technology is deemed to be charged at least 50 percent by the 
facility if the power rating of the energy storage technology (in kW) 
is less than 2 times the capacity rating of the connected wind facility 
(in kW AC) or solar facility (in kW direct current (DC)).
    (d) Location--(1) In general. A qualified solar or wind facility is 
treated as located in a low-income community or located on Indian land 
under section 48(e)(2)(A)(iii)(I) if the qualified solar or wind 
facility satisfies the Nameplate Capacity Test of paragraph (d)(2) of 
this section. Similarly, a qualified solar or wind 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.
    (2) Nameplate Capacity Test. A qualified solar or wind 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 
facility's nameplate capacity is in a qualifying area. The percentage 
of a facility's nameplate capacity (as defined in paragraph (d)(2)(i) 
of this section) that is in a qualifying area is determined by dividing 
the nameplate capacity of the facility's energy-generating units that 
are located in the qualifying area by the total nameplate capacity of 
all the energy-generating units of the facility.
    (i) Nameplate capacity for purpose of Nameplate Capacity Test. 
Nameplate capacity for an electricity generating unit means the maximum 
electricity generating output that the unit is capable of producing on 
a steady state basis and during continuous operation under standard 
conditions, as measured by the manufacturer and consistent with the 
definition provided in 40 CFR 96.202. Where applicable, the 
International Standard Organization conditions are used to measure the 
maximum electricity generating output or usable energy capacity. For 
purposes of assessing the Nameplate Capacity Test, qualified solar 
facilities use the nameplate capacity in DC and qualified wind 
facilities use the nameplate capacity in AC.
    (ii) Exclusion of energy storage technology. The nameplate capacity 
of any energy storage technology installed in connection with the 
qualified solar or wind facility is disregarded in applying the 
Nameplate Capacity Test.
    (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. A Qualified Residential Property could either be a 
multifamily rental property or single-family rental property. The same 
rules for financial benefits for Category 3 Facilities apply to both 
types of Qualified Residential Property.
    (2) Threshold requirement. At least 50 percent of the financial 
value of the energy produced by the facility (as defined in paragraph 
(e)(3) of this section) must be equitably allocated 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 energy produced by the facility. For 
purposes of this paragraph (e), the financial value of the energy 
produced by the facility is defined as the greater of:
    (i) Twenty-five percent of the gross financial value (as defined in 
paragraph (e)(4) of this section) of the annual energy produced by the 
energy property, or
    (ii) The net financial value (as defined in paragraph (e)(5) of 
this section) of the annual energy produced by the energy property.
    (4) Gross financial value. For purposes of this paragraph (e), 
gross financial value of the annual energy produced by the facility is 
calculated as the sum of:
    (i) The total self-consumed kilowatt-hours produced by the 
qualified solar or wind facility multiplied by the applicable 
building's metered volumetric price of electricity,
    (ii) The total exported kilowatt-hours produced by the qualified 
solar or wind facility multiplied by the applicable building's 
volumetric export compensation rate for solar or wind kilowatt-hours, 
and
    (iii) The sale of any attributes associated with the facility's 
production (including, for example, any Federal, State, or Tribal 
renewable energy tax 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

[[Page 55543]]

Qualified Residential Property are commonly owned, net financial value 
is defined as the gross financial value of the annual energy produced 
minus the annual average (or levelized) cost of the qualified solar or 
wind 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 PPA or other contract for 
energy services with the Qualified Residential Property owner and/or 
building occupants, net financial value is defined as the gross 
financial value of the annual energy produced minus any payments made 
by the building owner and/or building occupants to the facility owner 
for energy 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.
    (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 equitably allocated if at least 50 
percent of the financial value of the energy 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 48(e)(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 
instead distributed 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 utilize 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 the 
Treatment of Community Solar Credits on Tenant Utility Bills (July 
2022), located at https://www.hud.gov/sites/dfiles/Housing/documents/MF_Memo_Community_Solar_Credits_signed.pdf, Community Solar Credits in 
PIH Programs (August 2022), located at https://www.hud.gov/sites/dfiles/documents/Solar%20Credits_PH_HCV.pdf, or future HUD guidance, or 
other guidance or notices from the Federal agency that oversees the 
applicable housing program identified in section 48(e)(2)(B) 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 a wind 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 equitably allocated if at 
least 50 percent of the financial value of the energy produced by the 
facility is distributed to occupants using one of the methods described 
in HUD guidance on the Treatment of Solar Benefits in Master-metered 
Building (May 2023) located at https://www.hud.gov/sites/dfiles/Housing/documents/MF_Memo_re_Community_Solar_Credits_in_MM_Buildings.pdf, or future HUD 
guidance, or other guidance or notices from the Federal agency that 
oversees the applicable housing program identified in section 
48(e)(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 energy 
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 a wind 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, indication of which entity 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 48(e)(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 20 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 renewable 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 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 where the 
Qualifying Household has no or only a nominal cost of participation, 
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

[[Page 55544]]

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.
    (iii) Calculation on annual basis. In all instances, the bill 
credit discount rate is calculated on an annual basis.
    (iv) 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 that (1) requires the 
facility owner to cause a portion of the electricity generated (or its 
value) to be assigned to the utility bill of the Qualifying Household 
on a monthly basis, and (2) requires the Qualifying Household to pay 
the facility owner the equivalent of 80 percent of the monetary value 
of the assigned generation (that is, 80 percent of the value of bill 
credits provided to the Qualifying Household's utility bill) on a 
monthly basis. 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 
pays $160, 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, cause $220 in bill credits 
to be provided to the Qualifying Household's bill and the household 
pays $176. In each year of facility operation described within this 
example, a bill credit discount rate of 20 percent is maintained.
    (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 make a direct payment to the facility 
owner. Assume that the total value of the electricity produced by the 
facility and assigned to the household, as measured by the utility, 
ISO, or other off-taker procuring the electricity, is $500 in the first 
year and $600 in the second year. Assume further that the Qualifying 
Household receives a ``net'' bill credit of $100 in the first year and 
$120 in the second year. In this case, the bill credit discount rate is 
20 percent in each year ($500 x .2 = $100) and ($600 x .2 = $120), 
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 (see Sec.  601.601 
of this chapter), submit documentation upon placing the qualified solar 
or wind facility in service that identifies each Qualifying Household, 
the output from the facility allocated to each Qualifying Household in 
kW, and the method of income verification utilized for each Qualifying 
Household. 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 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. Under section 48(e)(4)(C), the 
total annual capacity limitation is 1.8 gigawatts of DC capacity for 
the calendar year 2023 and 2024 Program. The annual Capacity Limitation 
for each Program year is divided across the four facility categories 
described in section 48(e)(2)(A)(iii) and paragraph (b)(2) of this 
section as provided in guidance published in the Internal Revenue 
Bulletin. See Sec.  601.601 of this chapter. 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 later be re-allocated 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 applications in excess 
of Capacity Limitation reserved for the facility category or sub-
reservation.
    (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

[[Page 55545]]

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. See Sec.  601.601 of this 
chapter. Revenue Procedure 2023-27, 2023-35 I.R.B. provides the 
specific amounts reserved for 2023 and future guidance published in the 
Internal Revenue Bulletin will provide the amounts reserved for future 
years. The procedure for utilizing 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 in paragraphs 
(h)(2) and (3) of this section is established in guidance published in 
the Internal Revenue Bulletin, it may later be re-allocated 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 is 
based on characteristics of the applicant that owns the qualified solar 
or wind facility. A qualified solar or wind 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 renewable energy cooperative (as defined in paragraph 
(h)(2)(v) of this section),
    (D) A qualified renewable energy company meeting certain 
characteristics (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 a qualified solar or wind 
facility, and the entity is disregarded as separate from its owner for 
Federal income tax purposes (disregarded entity), the applicant, and 
not the disregarded entity, is treated as the owner of the qualified 
solar or wind facility for purposes of the ownership criteria.
    (B) Partnership; ownership of a partnership for purposes of 
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 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 qualified solar or wind 
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, 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 Internal Revenue 
Code (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) Renewable energy cooperative. A renewable energy cooperative 
for purposes of the ownership criteria is an entity that develops 
qualified solar and/or wind facilities and 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 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
    (B) A worker cooperative controlled by its worker-members with each 
member having an equal voting right.
    (vi) Qualified renewable energy company. A qualified renewable 
energy company for purposes of the ownership criteria is an entity that 
serves low-income communities and provides pathways for the adoption of 
clean energy by low-income households. In addition to its general 
business purpose, a qualified renewable energy company must satisfy the 
ownership requirements described in one of paragraphs (h)(2)(vi)(A) 
through (F) of this section and each of the requirements in paragraphs 
(h)(2)(vi)(G), (H), and (I) of this section.
    (A) At least 51 percent of the entity's equity interests are owned 
and controlled by one or more individuals.
    (B) At least 51 percent of the entity's equity interests are owned 
and controlled by a Community Development Corporation (as defined in 13 
CFR 124.3).
    (C) At least 51 percent of the entity's equity interests are owned 
and controlled by an agricultural or horticultural cooperative (as 
defined in section 199A(g)(4)(A)).
    (D) At least 51 percent of the entity's equity interests are owned 
and controlled by an Indian Tribal government (as defined in section 
30D(g)(9)).
    (E) At least 51 percent of the entity's equity interests are owned 
and controlled by an Alaska Native corporation (as defined in section 3 
of the Alaska Native Claims Settlement Act, 43 U.S.C. 1602(m)).
    (F) At least 51 percent of the entity's equity interests are owned 
and controlled by a Native Hawaiian organization (as defined in 13 CFR 
124.3).
    (G) Has less than 10 full-time equivalent employees (as determined 
under section 4980H(c)(2)(E) and (c)(4)) and less than $20 million in 
annual gross receipts in the previous calendar year; this must include 
the employees or receipts of all affiliates when determining the size 
of a business. Affiliation with another business is based on the power 
to control, whether exercised or not. The power to control exists when 
an external party has 50 percent or more ownership. It may also exist 
with considerably less than 50 percent ownership by contractual 
arrangement, or when one or more parties own a large share compared to 
other parties.

[[Page 55546]]

    (H) First installed and/or operated a qualified solar or wind 
facility as defined in section 48(e)(2)(A) two or more years prior to 
the date of application; or
    (I) Has provided solar services as a contractor or subcontractor to 
qualified solar or wind facilities as defined in section 48(e)(2)(A) 
with at least 100 kW of cumulative nameplate capacity located in one or 
more low-income communities as defined in section 48(e)(2)(A)(iii)(I).
    (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);
    (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 does 
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)(i)(A) or (B) 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.
    (A) Persistent Poverty County. A Persistent Poverty County (PPC for 
which information can be found at https://www.ers.usda.gov/data-products/poverty-area-measures/), which is generally defined as any 
county where 20 percent or more of residents have experienced high 
rates of poverty over the past 30 years. For the purposes of the 
Program, the PPC measure is that adopted by the USDA to make this 
determination. The most recent measure, which would apply for the 2023 
Program year, incorporates poverty estimates from the 1980, 1990, and 
2000 censuses, and 2007-11 ACS 5-year average. 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. Applicants who satisfy the 
definition of PPC community at the time of application are considered 
to continue to meet the definition of PPC for the duration of the 
recapture period described in paragraph (n)(1) of this section, unless 
the location of the facility changes.
    (B) Certain census tracts. A census tract that is designated in the 
Climate and Economic Justice Screening Tool (CEJST), which can be found 
at https://screeningtool.geoplatform.gov/en/#3/33.47/-97.5, as 
disadvantaged based on whether the tract is described in paragraph 
(h)(3)(ii)(A) or (B) of this section. The CEJST website provides 
further detail on the terms described in paragraphs (h)(3)(ii)(C) 
through (E) of this section, which are used in identifying census 
tracts described in paragraphs (h)(3)(ii)(A) and (B) of this section. 
See CEJST, Methodology & data, https://screeningtool.geoplatform.gov/en/methodology.
    (ii) Applicable terms for certain census tracts. The following 
terms are applicable to this paragraph (h)(3):
    (A) Energy burden or cost. The census tract is greater than or 
equal to the 90th percentile for energy burden (or energy cost) and is 
greater than or equal to the 65th percentile for low income.
    (B) Exposure. The census tract is greater than or equal to the 90th 
percentile for PM2.5 exposure and is greater than or equal 
to the 65th percentile for low income.
    (C) Energy cost. Energy cost is defined as average household annual 
energy cost in dollars divided by the average household income.
    (D) 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.
    (E) Low-income. Low income is defined as the percent of a census 
tract's population in households where 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. 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 later be re-allocated in the event it has excess capacity.
    (2) Definitions--(i) Behind the meter (BTM) facility. For purposes 
of the Program, a qualified wind or solar 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 qualified solar or wind 
facility that does not meet the requirements for a Category 3 Facility 
and is BTM. A qualified solar or wind facility is residential if it is 
uses solar or wind energy to generate electricity for use in a dwelling 
unit that is used as a residence.
    (iii) Eligible FTM facility. For purposes of the Program, a 
qualified solar or wind 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, FTM is defined as a 
facility that is not BTM. For the purposes of Category 4 Facilities, a 
qualified solar or wind 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.
    (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. See Sec.  601.601 of this chapter. If a facility category is 
oversubscribed, a lottery system may be

[[Page 55547]]

used to allocate Capacity Limitation to similarly situated applicants.
    (2) Information required as part of application. Applicants are 
required to submit with each application for a Capacity Limitation 
allocation information, documentation, and attestations to demonstrate 
eligibility for an allocation and project viability as specified in 
guidance published in the Internal Revenue Bulletin. See Sec.  601.601 
of this chapter.
    (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 received an allocation of Capacity 
Limitation the owner of the facility must report to DOE the date the 
eligible property was placed in service. This report is done through 
the same portal by which the original application for allocation was 
submitted.
    (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 energy percentage under section 48(e)(1) as specified in 
guidance published in the Internal Revenue Bulletin. See Sec.  601.601 
of this chapter.
    (3) DOE confirmation. 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 energy 
percentage. 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 
DOE's recommendation, the IRS will decide whether the facility should 
retain its allocation or if the facility should be disqualified and 
will notify DOE of its decision. Each applicant must receive 
confirmation from the IRS that 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, if 
eligible, making a transfer election under section 6418 of the Code, 
or, if eligible, making 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. Qualified solar or wind facilities must be placed in 
service after being awarded an allocation of Capacity Limitation.
    (2) Rejection or rescission. An application for a qualified solar 
or wind 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 net output of the facility increases such that it exceeds 
the less than 5 MW AC output limitation provided in section 
48(e)(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 
(AC for a wind facility; DC for a solar facility).
    (3) The facility cannot satisfy the financial benefits requirements 
under section 48(e)(2)(B)(ii) and paragraph (e) of this section as 
planned, if applicable, or cannot satisfy the financial benefits 
requirements under section 48(e)(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 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 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 48(e) Increase to the section 48(a) 
credit--(1) In general. Section 48(e)(5) provides for recapturing the 
benefit of any increase in the credit allowed under section 48(a) by 
reason of section 48(e) 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)). 
Section 48(e) 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 a qualified solar or wind facility property 
under section 48(e) 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 48 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 48(a), the eligibility of such property 
for such increase pursuant to section 48(e) is restored. Such 
restoration of an increase pursuant to section 48(e) 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 48(e):
    (i) Property described in section 48(e)(2)(A)(iii)(II) fails to 
provide financial benefits.
    (ii) Property described under section 48(e)(2)(B) ceases to 
allocate the

[[Page 55548]]

financial benefits equitably among the occupants of the dwelling units, 
such as not allocating to residents the required net energy savings of 
the electricity, as required by paragraph (e) of this section.
    (iii) Property described under section 48(e)(2)(C) ceases to 
provide at least 50 percent of the financial benefits of the 
electricity produced to qualifying households as described under 
section 48(e)(2)(C)(i) or (ii), or fails to provide those households 
the required minimum 20 percent bill credit discount rate, as required 
by paragraph (f) of this section.
    (iv) For property described under section 48(e)(2)(B), the 
residential rental building the facility is a part of ceases to 
participate in a covered housing program or any other affordable 
housing program described in section 48(e)(2)(B)(i), as applicable.
    (v) A facility increases its output such that the facility's output 
is 5 MW AC or greater, unless the applicant can prove that the output 
increase is not attributable to the original facility but rather is 
output associated with a new facility under the 80/20 Rule (the cost of 
the new property plus the value of the used property).
    (4) Section 50(a) Recapture. Any event that results in recapture 
under section 50(a) will also result in recapture of the benefit of the 
increase in the section 48 credit by reason of section 48(e). 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. The rules of this section will apply to 
taxable years ending on or after October 16, 2023.

Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.

    Approved: August 2, 2023.
Lily L. Batchelder,
Assistant Secretary (Tax Policy).
[FR Doc. 2023-17078 Filed 8-10-23; 8:45 am]
BILLING CODE 4830-01-P