books and records to support making a direct payment election based on the chosen taxable year; and Regarding the excess benefit rule, the purpose of a tax‑exempt grant is determined at the time of the award, and grants awarded post-acquisition are generally not restricted tax amounts. Additionally, only forgivable loans are treated as tax exempt under the excess benefit rule. ENERGY PROPERTY PROPOSED REGULATIONS Section 48 provides that the ITC is available for “energy property.” On Nov. 17, 2023, the IRS issued proposed regulations for the ITC, specifically addressing what qualifies as energy property. This section highlights some of the major changes and clarifications from the proposed regulations. A. Definition of Energy Property The term “energy property” generally means a “unit of energy property.” A unit of energy property includes all functionally independent components of property owned by the taxpayer that operate together and can function independently from other energy properties within a larger project. B. Qualifying Energy Property The proposed regulations provide much-needed guidance on certain newer technologies including energy storage and qualified biogas property. C. Integral Part of Energy Property Any property that is an “integral part” of the energy property is considered energy property for ITC purposes. To qualify as an integral part, the property must be used directly in the intended function of the energy property and be essential to its completeness. D. Exclusions The proposed regulations specify that the power purchase agreements, goodwill, going concern value, and renewable energy certificates are not energy property. E. The 80/20 Rule Energy property qualifies as “acquired by the taxpayer” if the “original use” of such property commences with the taxpayer.18 The proposed regulations provide that for retrofitted energy property, the 80/20 Rule applies. If the fair market value of the used components is not more than 20% of the total value of the unit of energy property, then the rule is met and the property qualifies as “acquired by the taxpayer.”19 CONCLUSION The ITC and PTC are key financial incentives that boost investment in renewable energy projects. Transferability and direct pay expand access and enhance investment, promoting broader participation in the renewable energy sector. Recent final and proposed regulations aim to clarify the implementation and provide compliance guidance for these credits. Understanding these evolving regulations is crucial for determining eligibility and the extent of benefits under both the ITC and PTC. As every energy project is unique, the specific legal and tax implications can vary. As such, this article should be used as a guide and not as a definitive source of advice. We recommend consulting with a Baird Holm LLP attorney and a qualified accountant for advice regarding the specific tax implications of a project. Hannah Fischer Frey is a partner at Baird Holm law firm, focusing on corporate transactions, federal and state tax planning issues, and tax-exempt matters. Fischer Frey has addressed complex partnership and corporate tax issues, including business reorganizations, private equity fund structuring, business succession planning, and tax planning in mergers and acquisitions. She has been closely involved in numerous federal and state tax examinations and audits. Carrie Schwab is an associate at the firm, focusing on general corporate matters as well as tax law and employee compensation and benefits. She assists businesses of all sizes on a variety of matters, including entity formation, corporate governance, general tax strategy and planning, ERISA compliance and employee benefit programs, and equity compensation incentives. Jack Suter was a summer associate at the firm. For more information, call (402) 344-0500 or email hfrey@bairdholm.com or cschwab@bairdholm.com. 1 I.R.C. § 48(a)(5)(D); See also I.R.S. Notice 2013-29; Treas. Reg. § 1.46-3(d)(4). 2 I.R.C. § 48. 3 I.R.C. § 48(a)(3). 4 I.R.S. Notice 2022-61. 5 I.R.S. Notice 2013-29; I.R.C. § 48(a)(5). 6 I.R.S. Notice 2018-59. 7 I.R.S. Notice 2018-59. 8 I.R.S. Notice 2018-59. 9 I.R.C. § 45. 10 I.R.C. § 45(c)(1). 11 I.R.C. § 45(a)(2)(B), § 45(e)(4). 12 I.R.C. § 45(a). 13 I.R.C. § 45(a)(10); I.R.S. Notice 2022-61. 14 I.R.C. § 6418 (a). 15 I.R.C. § 6418 (b). 16 “Applicable entities” include (1) any tax-exempt organization; (2) any state or political subdivision thereof; (3) the Tennessee Valley Authority; (4) any Indian tribal government; (5) any Alaska Native Corporation; and (6) any corporation operating on a cooperative basis that is engaged in furnishing electricity to persons in rural areas and other eligible taxpayers. 17 I.R.C. § 6417. 18 I.R.C. § 48(a)(3)(B)(ii). 19 Prop. Treas. Reg. § 1.48-14(a). 17 nescpa.org
RkJQdWJsaXNoZXIy MTg3NDExNQ==