Eyes on Energy Tax Update: First Quarter 2024

Eyes on Energy Tax Update is a regular publication of the Holland & Knight Renewable and Alternative Energy Tax Team that provides highlights of important developments. The Renewable and Alternative Energy Tax Team also issues more in-depth publications on certain developments. To subscribe to these publications, please add yourself to our Renewable Energy list.

The first quarter of 2024 saw continued developments as a result of the enactment of the Inflation Reduction Act of 2022 (IRA), as well as developments in significant court cases and announcements from federal agencies. Below, we summarize the updates from the quarter.

IRS Rulings and Guidance

• The U.S. Department of the Treasury and IRS released Notice 2024-20, stating their intent to issue proposed regulations regarding the Alternative Fuel Vehicle Refueling Property Credit under Section 30C of the Internal Revenue Code (IRC) and providing guidance on the requirement that property be located in an eligible census tract. The eligible census tracts were later updated in Appendix A and Appendix B to include additional census tracts. The date the refueling property is placed in service dictates which appendix should be used. (See Holland & Knight's previous alert, "Treasury, IRS Release Section 30C Alternative Fuel Vehicle Refueling Property Credit Guidance," Jan. 24, 2024.)
• Following significant industry engagement, the Treasury Department and IRS released a correction to the Section 48 Proposed Regulations regarding the new Investment Tax Credit (ITC) for qualified biogas property. The correction generally expanded the previous announced position and provides that gas upgrading equipment may be considered an integral part of energy property and, thus, is eligible for the ITC. (See Holland & Knight's previous alert, "Treasury Department, IRS Correct Section 48 Proposed Regulations on Qualified Biogas Property," Feb. 20, 2024.) The correction also reopened the comment period during which numerous comments were filed regarding the remaining critical issues for qualified biogas property, namely the separate ownership issue and the 80/20 Rule, which allows a previously placed-in-service facility to be considered a "new" facility for purposes of Section 45V, where the fair market value (FMV) of the existing components of the "old" facility make up no more than 20 percent of the FMV of the "new facility."
• The Treasury Department and IRS released final regulations regarding the direct payment of tax credits under Section 6417 of the IRC. The IRS also updated the elective payment FAQ based on the final regulations. The IRS also issued Notice 2024-27, which requests comments on situations in which a direct pay election could be made for a credit transferred under Section 6418, a process referred to as "chaining." (See Holland & Knight's previous alerts, "Inflation Reduction Act Direct Pay and Transfer Pre-Filing Registration Is Open for Business," Feb. 6, 2024, and "Inflation Reduction Act Direct Pay Rules Finalized," March 18, 2024.)
• In conjunction with the release of the final regulations discussed above, the Treasury Department and IRS issued proposed regulations regarding elections by certain unincorporated organizations such as partnerships (and limited liability companies (LLCs) treated as partnerships) that are owned by one or more applicable entities to be excluded from the application of the partnership tax rules. (See Holland & Knight's previous alert, "Inflation Reduction Act Diret Pay Rules Finalized," March 18, 2024.)
• Following the release of the proposed regulations under the Section 45V Clean Hydrogen Production Credit, the IRS released an updated draft of Form 7210 for 2023, as well as instructions for taxpayers looking to claim the credit for 2023. Taxpayers looking to claim Section 45V for 2023 must also attach the required verification report. (For more information on Section 45V, see Holland & Knight's previous alert, "Breaking Down the Section 45V Clean Hydrogen PTC Proposed Regulations," Jan. 10, 2024.)
• The IRS released Proc. 2024-5, which provides a safe harbor regarding the incremental cost of certain qualified commercial clean vehicles placed in service in 2024 for purposes of the Section 45W Qualified Commercial Clean Vehicle Credit. The guidance also requests comments regarding additional types or classes of vehicles that should be included in the safe harbor in the future.
• The IRS released Proc. 2024-12 regarding the Section 30D New Clean Vehicle Credit and Section 25E Used Clean Vehicle Credit. The guidance provides sellers of new and used clean vehicles additional time to submit sales information reports to the IRS and buyer of the vehicle.
• The IRS released additional guidance regarding the energy community bonus credit in Notice 2024-30. The notice provides guidance regarding the qualification of offshore wind projects for the energy community bonus and includes additional areas to the "Statistical Area Category" of the energy communities list. (See Holland & Knight's previous alert, "IRS Updates and Expands Energy Community Bonus Tax Credit Guidance," March 27, 2024).
• Following the conclusion of the 2023 allocations of the low-income community bonus credits, the IRS released Proc. 2024-19, which provided the process under Section 48(e) to apply for an allocation of the low-income communities bonus credit for 2024. (See Holland & Knight's previous alert, "Treasury Department, IRS Release Low-Income Community Bonus Credit Proposed Rules," June 1, 2023.)

The IRS also provided guidance regarding securitization transactions of regulated utilities, releasing Rev. Proc. 2024-15, which updates and modifies Rev. Proc. 2005-62 to reflect the evolution of securitization transactions undertaken by regulated public utilities. Rev. Proc. 2024-15 addresses both issues and allows state-created agencies not owned by utilities to issue the qualified debt instruments and for repayments to be made at least annually. (See Holland & Knight's previous alert, "IRS Updates and Modernizes Rules Governing Utility Securitizations," March 5, 2024.)

Key Case

A U.S. Tax Court decision entered in 23rd Chelsea Associates LLC v. Commissioner on Feb. 20, 2024, held that bond issuance and related financing costs incurred in connection with the development of a low-income housing tax credit project are includible in eligible basis, regardless of whether the bonds are taxable or tax-exempt. The decision is important for taxpayers claiming the Section 48 ITC, which, like the low-income housing tax credit, is based on the qualifying basis of the eligible energy property. (See Holland & Knight's previous alert, "U.S. Tax Court Holds Bond Financing Costs Are Includible in LIHTC Basis," March 21, 2024.)

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.