The Inflation Reduction Act's energy- and climate-related tax provisions

• Published in: The Tax Adviser 2023-01, Vol.54 (1), p.17-21
• Main Authors: Bernier, Michael, Hunt, Dorian, Matlock, Greg, Murphy, Brian
• Format: Article
• Language: English
• Subjects: Alternative energy sources; Apprenticeship; Carbon sequestration; Electric vehicles; Energy efficiency; Hydrogen; Inflation; Inflation Reduction Act 2022-US; Legislation; Manufacturing; Provisions; Renewable resources; Tax credits; Taxpayers; Wage rates
• ISSN: 0039-9957

Broad overview With respect to energy transition and renewable energy, the Inflation Reduction Act: Includes a two-tiered credit structure for many of the applicable tax credits, under which there is a base amount, which can be increased to a bonus amount, so long as requirements to pay prevailing wage rates and employ qualified apprentices for a certain percentage of the work are met (or an exception applies); Includes, for tax credits related to certain technologies, an additional credit amount based on meeting domestic content requirements; Includes a direct-pay provision under a new Sec. 6417 (effectively treating tax credits generated by a renewable energy project as equivalent to taxes paid on a filed return), but it applies only in certain circumstances; Includes a new transferability provision under a new Sec. 6418, which permits, in certain circumstances, the one-time sale or transfer of certain tax credits (including those under Secs. 30C, 45,45Q¿45U,45V, 48, and several others) in exchange for cash; Extends the carryback period for certain tax credits to three years; Extends and modifies the Sec. 45 production tax credit (PTC) for projects beginning construction before 2025, including a new PTC for solar property and the extension of the geothermal-related PTC; Extends and modifies the Sec. 48 investment tax credit (ITC) for projects beginning construction before 2025, including expanding the definition of ITC-eligible property to include energy storage, qualified biogas property, and microgrid controllers, and adds new rules for certain solar and wind facilities placed in sendee in connection with low-income communities; Provides for new technology-neutral, clean-energy-related PTCs and ITCs beginning in 2025; Extends and modifies Sec. 45Q_ carbon capture, use, and sequestration-related tax credits (including higher credit amounts, a later beginning-of-construction deadline of before Jan. 1,2033, and lower annual capture requirements); Adds a specific clean hydrogen PTC (new Sec. 45V); Includes a zero-emission nuclear power production credit (new Sec. 45U); Makes changes for biodiesel, renewable diesel, and alternative fuel credits under Sec. 6426 and related provisions; and Includes provisions related to electric vehicles and other energy-efficient technologies and clean fuels. Certain portions of the Sec. 30C alternative fuel vehicle refueling property credit; * The Sec. 45 PTC for facilities placed in service after Dec. 31,2022; The Sec. 45Q