82188 Federal Register / Vol. 88, No. 224 / Wednesday, November 22, 2023 / Proposed Rules 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[REG–132569–17] 

RIN 1545–BO40 

Definition of Energy Property and 

Rules Applicable to the Energy Credit 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Notice of proposed rulemaking, 

public hearing, and partial withdrawal 

of notice of proposed rulemaking. 

SUMMARY: This document contains 

proposed regulations that would amend 

the regulations relating to the energy 

credit for the taxable year in which 

eligible energy property is placed in 

service. This document also withdraws 

and reproposes, for additional clarity, 

portions of previously proposed 

regulations regarding the increased 

energy credit amount available if 

prevailing wage and registered 

apprenticeship requirements are met. In 

connection with the Inflation Reduction 

Act of 2022, the proposed regulations 

would: update the types of energy 

property eligible for the energy credit, 

including additional types of energy 

property added by that law; clarify the 

application of new credit transfer rules 

to the energy credit recapture rules 

applicable to failures to satisfy the 

prevailing wage requirements, including 

notification requirements for eligible 

taxpayers; and include qualified 

interconnection costs in the basis of 

some lower-output energy properties. 

The proposed regulations would also 

provide additional requirements and 

rules generally applicable to energy 

property, such as rules regarding: 

functionally interdependent 

components; property that is an integral 

part of an energy property; application 

of an ‘‘80/20 Rule’’ to retrofitted energy 

property; dual use property; separate 

ownership of components of an energy 

property; property that could be eligible 

for multiple Federal income tax credits; 

and the election to treat qualified 

facilities eligible for the renewable 

electricity production credit instead as 

property eligible for the energy credit. 

The proposed regulations would impact 

taxpayers who invest in energy property 

eligible for the energy credit. 

DATES: Written or electronic comments 

must be received by January 22, 2024. 

A public hearing on these proposed 

regulations is scheduled to be held on 

February 20, 2024, at 10 a.m. ET. 

Requests to speak and outlines of topics 

to be discussed at the public hearing 

must be received by January 22, 2024. 

If no outlines are received by January 

22, 2024, the public hearing will be 

cancelled. Requests to attend the public 

hearing must be received by 5 p.m. on 

February 15, 2024. The public hearing 

will be made accessible to people with 

disabilities. Requests for special 

assistance during the hearing must be 

received by 5 p.m. on February 14, 

2024. 

ADDRESSES: Commenters are strongly 

encouraged to submit public comments 

electronically. Submit electronic 

submissions via the Federal 

eRulemaking Portal at 

www.regulations.gov (indicate IRS and 

REG–132569–17) by following the 

online instructions for submitting 

comments. Once submitted to the 

Federal eRulemaking Portal, comments 

cannot be edited or withdrawn. The 

Department of Treasury (Treasury 

Department) and the IRS will publish 

for public availability any comments 

submitted, whether electronically or on 

paper, to the IRS’s public docket. 

Send paper submissions to: 

CC:PA:LPD:PR (REG–132569–17), Room 

5203, Internal Revenue Service, P.O. 

Box 7604, Ben Franklin Station, 

Washington, DC 20044. 

FOR FURTHER INFORMATION CONTACT: 

Concerning the proposed regulations, 

Office of Associate Chief Counsel 

(Passthroughs & Special Industries) at 

(202) 317–6853 (not a toll-free number); 

concerning submissions of comments or 

the public hearing, Vivian Hayes, (202) 

317–6901 (not toll-free number) or by 

email to publichearings@irs.gov 

(preferred). 

SUPPLEMENTARY INFORMATION: 

Background 

This notice of proposed rulemaking 

consists of several proposed 

amendments to the existing Income Tax 

Regulations (26 CFR part 1) under 

section 48 of the Internal Revenue Code 

(Code) addressing the energy credit 

determined under section 48 (section 48 

credit) for purposes of sections 38 and 

46 of the Code (proposed regulations). 

This notice of proposed rulemaking also 

withdraws and reproposes portions of 

another notice of proposed rulemaking 

(REG–100908–23) proposing regulations 

under section 48 that were published in 

the Federal Register (88 FR 60018) on 

August 30, 2023. This notice of 

proposed rulemaking would also 

propose additional regulations under 

section 6418 of the Code to supplement 

a notice of proposed rulemaking (REG– 

101610–23) published in the Federal 

Register (88 FR 40496) on June 21, 2023. 

Section 38 allows certain business 

credits against the Federal income tax 

imposed by chapter 1 of the Code 

(chapter 1). Among the credits allowed 

by section 38 are the investment credit 

determined under section 46, which 

includes the energy credit determined 

under section 48. See sections 38(b)(1) 

and 46(2). Section 48(a)(1) generally 

provides that the energy credit for any 

taxable year is the energy percentage of 

the basis of each energy property placed 

in service during such taxable year. For 

most types of energy property, eligibility 

for the section 48 credit and, in some 

cases, the amount of the section 48 

credit for which energy property is 

eligible, are dependent upon meeting 

certain deadlines for beginning 

construction of the energy property and 

for placing the energy property in 

service. 

Section 48 was originally enacted by 

section 2 of the Revenue Act of 1962, 

Public Law 87–834, (76 Stat. 960, 963) 

to spur economic growth by 

encouraging investments in various 

capital projects across many industries 

including energy, transportation, and 

communications. Section 48 has been 

amended many times since its 

enactment, most recently by section 

13102 of Public Law 117–169, 136 Stat. 

1818 (August 16, 2022), commonly 

known as the Inflation Reduction Act of 

2022 (IRA). The IRA amended section 

48 in several ways, including by making 

additional types of energy property 

eligible for the section 48 credit, 

providing a special rule to allow certain 

lower-output energy properties to 

include qualified interconnection costs 

in the basis of associated energy 

property, and providing an increased 

credit amount for energy projects that 

satisfy prevailing wage and 

apprenticeship requirements, a 

domestic content bonus credit amount, 

and an increase in credit rate for energy 

communities. 

The current Income Tax Regulations 

at § 1.48–9, which provide definitions 

and eligibility rules for determining 

whether property is energy property 

eligible for the section 48 credit, were 

published on January 23, 1981 (T.D. 

7765, 46 FR 7287). Those regulations 

were amended on July 21, 1987 (T.D. 

8147, 52 FR 27336), to provide rules for 

dual use property, but have not been 

updated since 1987, before many of the 

current types of energy property became 

eligible for the section 48 credit. 

Prior to proposing amendments to the 

existing regulations under section 48, 

the Treasury Department and the IRS 

have twice requested comments on 

issues to be addressed. On October 26, 

2015, the Treasury Department and the 


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Federal Register / Vol. 88, No. 224 / Wednesday, November 22, 2023 / Proposed Rules 82189 

IRS published Notice 2015–70, 2015–43 

I.R.B. 604, to request comments 

regarding statutory updates to section 48 

preceding those made by the IRA. On 

October 24, 2022, in response to the 

passage of the IRA, the Treasury 

Department and the IRS published 

Notice 2022–49, 2022–43 I.R.B. 321, to 

request general as well as specific 

comments on issues arising under 

section 48, among other sections, that 

were amended or added by the IRA. 

After consideration of comments 

submitted in response to Notice 2015– 

70 and Notice 2022–49, and after 

consultation with the Department of 

Energy, the Treasury Department and 

the IRS propose the revisions to the 

existing regulations under section 48 

contained in this notice of proposed 

rulemaking. 

On August 30, 2023, the Treasury 

Department and the IRS published in 

the Federal Register (88 FR 60018) a 

notice of proposed rulemaking (REG– 

100908–23) proposing rules regarding 

the increased credit amount available 

for taxpayers satisfying prevailing wage 

and registered apprenticeship 

requirements established by the IRA 

(August Proposed Regulations). The 

August Proposed Regulations provided 

rules addressing the recapture under 

section 48(a)(10)(C) of increased credit 

amounts from only initially satisfying 

the prevailing wage requirements under 

section 48(a)(10)(A) and (B). Comments 

were requested and a public hearing has 

been scheduled for November 21, 2023. 

This notice of proposed rulemaking 

withdraws certain portions of the 

August Proposed Regulations and 

reproposes regulations that would 

provide additional guidance on the 

prevailing wage and apprenticeship 

requirements under section 48, 

including the statutory exception for 

energy projects with a maximum output 

of less than one megawatt (MW) and the 

recapture rules under section 

48(a)(10)(C) related to the prevailing 

wage requirements. 

Although this notice of proposed 

rulemaking withdraws certain portions 

of the August Proposed Regulations, the 

Explanation of Provisions section in the 

preamble to the August Proposed 

Regulations generally remains relevant. 

Therefore, to the extent not inconsistent 

with the Summary of Comments and 

Explanation of Provisions section of this 

preamble, the Explanation of Provisions 

section of the August Proposed 

Regulations is incorporated by reference 

in this notice of proposed rulemaking. 

This notice of proposed rulemaking 

does not address written comments that 

were submitted in response to the 

regulations proposed in the August 

Proposed Regulations. Any comments 

received in response to this notice of 

proposed rulemaking, including 

comments on the reproposed 

regulations, will be addressed in the 

Treasury Decision adopting these 

regulations as final regulations. This 

notice of proposed rulemaking does not 

extend the comment period or affect the 

scheduled hearing for the August 

Proposed Regulations. 

On June 21, 2023, the Treasury 

Department and the IRS published in 

the Federal Register (88 FR 40496) a 

notice of proposed rulemaking (REG– 

101610–23) proposing rules concerning 

the election under section 6418 of the 

Code established by the IRA to transfer 

certain Federal income tax credits, 

including the section 48 credit (June 

Proposed Regulations). The June 

Proposed Regulations provided 

proposed rules addressing notification 

requirements and the impact of credit 

recapture rules under sections 50(a), 

49(b), and 45Q(f)(4) of the Code in 

proposed § 1.6418–5. Comments were 

requested and a public hearing on the 

June Proposed Regulations was held on 

August 23, 2023. This document 

amends those June Proposed 

Regulations to add guidance to 

proposed § 1.6418–5 that describes the 

recapture rules relating to failing to 

satisfy the prevailing wage and 

apprenticeship requirements under 

section 48(a)(10) and (11), including the 

statutory exception for energy projects 

with a maximum output of less than 1 

MW in section 48(a)(9)(B)(i), and the 

recapture rules under section 

48(a)(10)(C) related to the prevailing 

wage requirements. This notice of 

proposed rulemaking does not address 

written comments that were submitted 

in response to the regulations proposed 

in the June Proposed Regulations. Any 

comments received in response to this 

notice of proposed rulemaking, 

including the amendments to the June 

Proposed Regulations, will be addressed 

in the Treasury Decision adopting these 

regulations as final regulations. This 

notice of proposed rulemaking does not 

otherwise extend the comment period 

for the June Proposed Regulations. 

Summary of Comments and 

Explanation of Provisions 

I. Requirements for Energy Property 

For purposes of the section 48 credit, 

energy property consists of all the 

components of property that meet the 

statutory requirements for an energy 

property as defined by section 48. 

Components of an energy property are 

those that would be included in a unit 

of energy property because they are 

functionally interdependent (as 

described in proposed § 1.48–9(f)(2)(ii)) 

as well as property owned by the same 

taxpayer that is an integral part of such 

energy property (as described in 

proposed § 1.48–9(f)(3)). Additionally, 

components of property must not be a 

type of property specifically excluded 

from energy property (as described in 

proposed § 1.48–9(d)). 

Section 48(a)(3)(B)–(D) provides 

general requirements for all types of 

energy property. Section 48(a)(3)(B)(i) 

defines energy property as property that 

is constructed, reconstructed, or erected 

by the taxpayer. Alternatively, section 

48(a)(3)(B)(ii) provides that energy 

property can also include property 

which the taxpayer acquires if the 

original use of such property 

commences with the taxpayer. Section 

48(a)(3)(C) provides that to be eligible as 

energy property, depreciation (or 

amortization in lieu of depreciation) 

must be allowable for the property. 

Section 48(a)(3)(D) provides that to be 

eligible as energy property, the property 

must also meet any performance and 

quality standards that have been 

prescribed by the Secretary of the 

Treasury or her delegate (Secretary), 

after consultation with the Secretary of 

Energy, and are in effect at the time of 

the taxpayer’s acquisition of the 

property. Under section 48(a)(3), energy 

property does not include property that 

is part of a qualified facility the 

production from which is allowed a 

renewable electricity production credit 

determined under section 45 (section 45 

credit) for the taxable year or any prior 

taxable year. Lastly, where section 48 

provides dates by which construction of 

energy property must begin or when 

energy property must be placed in 

service, such energy property must meet 

those deadlines to be eligible for the 

section 48 credit at specified energy 

percentages. Proposed § 1.48–9(a) would 

provide this general overview of the 

definition of energy property. 

A. Definitions Related to Requirements 

for Energy Property 

Before 1990, section 48 defined the 

term ‘‘section 38 property’’ to include, 

among other types of property, energy 

property eligible for the section 48 

credit. The Revenue Reconciliation Act 

of 1990, Public Law 101–508, 104 Stat. 

1388 (November 5, 1990) removed the 

term ‘‘section 38 property’’ in amending 

section 48. However, section 48 is one 

of the credits that comprise the 

investment credit for any taxable year 

determined under section 46, which is 

included in section 38(b)(1) and remains 

subject to the general business credit 

rules under section 38. As a result, rules 


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82190 Federal Register / Vol. 88, No. 224 / Wednesday, November 22, 2023 / Proposed Rules 

related to ‘‘section 38 property’’ remain 

generally applicable to the section 48 

credit. The Treasury Department and 

the IRS published regulations under 

§§ 1.48–1 and 1.48–2 to provide 

guidance with respect to section 38 

property. Section 1.48–1 was last 

substantially revised on October 11, 

1988 (T.D. 8233, 53 FR 39592) and 

§ 1.48–2 was last revised on June 28, 

1985 (T.D. 8031, 50 FR 26698). 

Although subsequent amendments to 

section 48 have made some of the rules 

provided by these regulations 

inapplicable, those rules continue to 

provide useful definitions, some of 

which § 1.48–9 of these proposed 

regulations (proposed § 1.48–9) would 

adopt. 

1. Construction, Reconstruction, or 

Erection of Energy Property 

Section 48(a)(3)(B)(i) defines energy 

property as property that is constructed, 

reconstructed, or erected by the 

taxpayer. Existing § 1.48–2(b)(1) 

provides that property is considered as 

constructed, reconstructed, or erected 

by the taxpayer if the work is performed 

for the taxpayer in accordance with the 

taxpayer’s specifications. Proposed 

§ 1.48–9(b)(1) would largely adopt the 

definition of the term ‘‘constructed, 

reconstructed, or erected’’ from existing 

§ 1.48–2(b)(1) while modifying it to 

address energy property. 

2. Acquisition and Original Use of 

Energy Property 

Section 48(a)(3)(B)(ii) provides that 

energy property includes property that 

is acquired by the taxpayer if the 

original use of such property 

commences with the taxpayer. Existing 

§ 1.48–2(b)(6) provides that property is 

deemed to be acquired when reduced to 

physical possession or control by the 

taxpayer. Proposed § 1.48–9(b)(2) would 

adopt the concepts from existing § 1.48– 

2(b)(6), and provide additional 

clarification that the term ‘‘acquisition 

of energy property’’ means a transaction 

by which a taxpayer obtains rights and 

obligations with respect to energy 

property, including title to the energy 

property under the law of the 

jurisdiction in which the energy 

property is placed in service, unless the 

property is possessed or controlled by 

the taxpayer as a lessee, and physical 

possession or control of the energy 

property. In addition, existing § 1.48– 

2(b)(7) defines the term ‘‘original use’’ 

as the first use to which the property is 

put, whether or not such use 

corresponds to the use of such property 

by the taxpayer. Proposed § 1.48–9(b)(3) 

largely would adopt the § 1.48–2(b)(7) 

definition of original use while 

modifying it to address energy property. 

3. Depreciation Allowable 

Section 48(a)(3)(C) requires that 

energy property be property with 

respect to which depreciation (or 

amortization in lieu of depreciation) is 

allowable, and existing § 1.48–1(b) 

explains when depreciation is allowable 

with respect to section 38 property. 

Specifically, § 1.48–1(b) provides that a 

deduction for depreciation is allowable 

if the property is of a character subject 

to the allowance for depreciation under 

section 167 of the Code and the basis (or 

cost) of the property is recovered 

through a method of depreciation, 

including, for example, the unit of 

production method and the retirement 

method as well as methods of 

depreciation that measure the life of the 

property in terms of years. Proposed 

§ 1.48–9(b)(4)(i) generally would adopt 

the § 1.48–1(b) rule for determining 

whether depreciation is ‘‘allowable’’ 

under section 48, with certain 

modifications to update the described 

methods of depreciation and to make 

the definition specific to energy 

property as defined in section 48. 

Proposed § 1.48–9(b)(4)(i) would also 

clarify that the 100-percent additional 

first year depreciation provided by 

section 168(k) of the Code is considered 

a method of depreciation. 

In addition, existing § 1.48–1(b)(3) 

provides language describing when 

depreciation is not allowable to the 

taxpayer for purposes of defining 

section 38 property. Section 1.48–1(b)(3) 

provides that if the cost of property is 

not recovered through a method of 

depreciation but through a deduction of 

the full cost in one taxable year, for 

purposes of § 1.48–1(b)(1) a deduction 

for depreciation with respect to such 

property is not allowable to the 

taxpayer. However, if an adjustment 

with respect to the income tax return for 

such taxable year requires the cost of 

such property to be recovered through a 

method of depreciation, a deduction for 

depreciation will be considered as 

allowable to the taxpayer. 

Proposed § 1.48–9(b)(4)(ii) generally 

would adopt this rule from § 1.48– 

1(b)(3) to determine when depreciation 

is not allowable, with certain 

modifications to update the described 

methods of depreciation and to make 

the definition specific to energy 

property as defined in section 48. 

Proposed § 1.48–9(b)(4) would provide 

that if the basis or cost of energy 

property is not recovered through a 

method of depreciation but through a 

deduction of the full cost in one taxable 

year, a deduction for depreciation with 

respect to such property is not allowable 

to the taxpayer. 

However, proposed § 1.48–9(b)(4)(i) 

would provide that if an IRS adjustment 

with respect to an income tax return or 

information return for such taxable year 

requires the basis or cost of such 

property to be recovered using a method 

of depreciation, including any 

additional first year depreciation 

deduction provision in the Code, a 

deduction for depreciation will be 

considered as allowable to the taxpayer. 

4. Performance and Quality Standards 

for Energy Property 

Section 48(a)(3)(D) provides that 

energy property is property that meets 

the performance and quality standards 

(if any) that have been prescribed by the 

Secretary by regulations (after 

consultation with the Secretary of 

Energy), and are in effect at the time of 

the acquisition of the property. Existing 

§ 1.48–9(m)(1) provides that ‘‘energy 

property must meet quality and 

performance standards, if any, that have 

been prescribed by the Secretary (after 

consultation with the Secretary of 

Energy) and are in effect at the time of 

acquisition.’’ Proposed § 1.48–9(c)(2) 

would adopt this rule for performance 

and quality standards for energy 

property from § 1.48–9(m)(1). 

After consultation with the 

Department of Energy, proposed § 1.48– 

9(c)(2)(ii) would provide special rules 

for performance and quality standards 

with respect to both small wind and 

electrochromic glass property. These 

clarifications are needed to ensure that 

the intended energy production or 

savings occurs. 

a. Performance and Quality Standards 

for Small Wind Energy Property 

Proposed § 1.48–9(c)(2)(ii)(A) would 

provide that small wind energy property 

must meet the performance and quality 

standards in effect at the time of 

acquisition of the small wind turbine set 

forth in one of the following: the 

American Wind Energy Association 

Small Wind Turbine Performance and 

Safety Standard 9.1–2009, or subsequent 

revisions (AWEA); International 

Electrotechnical Commission 61400–1, 

61400–2, 61400–11, 61400–12, or 

subsequent revisions (IEC); or the ANSI/ 

ACP 101–1–2021, the Small Wind 

Turbine Standard, or subsequent 

revisions (ACP). Proposed § 1.48– 

9(c)(2)(ii)(A) would also provide that 

certification requirements applicable to 

such performance and quality standards 

for small wind energy property are 

provided in guidance published in the 

Internal Revenue Bulletin, such as 

Notice 2015–4, 2015–5 I.R.B. 407, and 


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its successor, Notice 2015–51, 2015–31 

I.R.B. 133. 

b. Performance and Quality Standards 

for Electrochromic Glass Property 

As described in part I.C.2.b of this 

Summary of Comments and Explanation 

of Provisions, electrochromic glass is 

incorporated into either an 

electrochromic window or secondary 

glazing product. Accordingly windows, 

including secondary glazings, that 

incorporate electrochromic glass are 

electrochromic glass property for 

purposes of the section 48 credit. 

Proposed § 1.48–9(c)(2)(ii)(B) would 

also adopt the requirement that 

windows that incorporate 

electrochromic glass must be rated in 

accordance with the National 

Fenestration Rating Council (NFRC) and 

would provide that secondary glazing 

systems must be rated in accordance 

with the Attachments Energy Rating 

Council (AERC) Rating and Certification 

Process, or subsequent revisions. 

c. Time of Acquisition 

Existing § 1.48–9(m)(2) provides that 

the time of acquisition for purposes of 

applying quality and performance 

standards for energy property is either 

(i) the date the taxpayer enters into a 

binding contract to acquire the property; 

or (ii) for property constructed, 

reconstructed, or erected by the 

taxpayer, the earlier of the date that the 

taxpayer begins construction, 

reconstruction, or erection of the 

property, or the date the taxpayer and 

another person enter into a binding 

contract requiring the other person to 

construct, reconstruct, or erect property 

and place the property in service for an 

agreed upon use. Proposed § 1.48– 

9(c)(2)(iii) would adopt the rule for the 

‘‘time of acquisition’’ from § 1.48– 

9(m)(2) only for purposes of applying 

the performance and quality standards 

for energy property. 

d. Binding Contract 

Section 1.168(k)–2(b)(5)(iii)(A) 

provides the following definition of a 

binding contract in the context of the 

acquisition of qualified property for the 

allowance of additional first year 

depreciation under section 168(k) of the 

Code: 

A contract is binding only if it is 

enforceable under State law against the 

taxpayer or a predecessor, and does not limit 

damages to a specified amount (for example, 

by use of a liquidated damages provision). 

For this purpose, a contractual provision that 

limits damages to an amount equal to at least 

five percent of the total contract price will 

not be treated as limiting damages to a 

specified amount. 

Proposed § 1.48–9(c)(2)(iv) would 

adopt this definition of the term 

‘‘binding contract’’ from § 1.168(k)– 

2(b)(5)(iii)(A) for purposes of applying 

the performance and quality standards 

for energy property. 

5. Placed in Service 

Section 48(a) provides that the energy 

credit for any taxable year is the energy 

percentage of the basis of each energy 

property placed in service during such 

taxable year. As part of the regulations 

under section 46 for the investment 

credit, § 1.46–3(d)(1) provides general 

rules for determining when a taxpayer 

has placed a property in service for the 

section 48 credit. Property is considered 

placed in service in the earlier of the 

taxable year in which, under the 

taxpayer’s depreciation practice, the 

period for depreciation with respect to 

such property begins; or the taxable year 

in which the property is placed in a 

condition or state of readiness and 

availability for a specifically assigned 

function, whether in a trade or business, 

in the production of income, in a taxexempt activity, or in a personal 

activity. 

Proposed § 1.48–9(b)(5) largely would 

adopt the general rules from § 1.46– 

3(d)(1) for determining whether a 

taxpayer has placed an energy property 

in service with certain modifications. As 

discussed previously, to be eligible for 

the section 48 credit, energy property 

must be property with respect to which 

depreciation (or amortization in lieu of 

depreciation) is allowable. Further, one 

requirement for determining if 

depreciation is allowable with respect to 

energy property is that the basis or cost 

of such energy property is recovered 

using a method of depreciation. 

Accordingly, proposed § 1.48–9(b)(5)(i) 

clarifies that the taxable year in which 

energy property is placed in service 

would be the earlier of the taxable year 

in which the period for depreciation of 

such property begins, or the taxable year 

in which the energy property is placed 

in a condition or state of readiness and 

availability for a specifically assigned 

function in either a trade or business or 

in the production of income. 

In addition, section 50(b)(3) of the 

Code provides that tax-exempt 

organizations cannot determine an 

investment tax credit, including the 

section 48 credit, unless the property is 

used predominantly in an unrelated 

trade or business, so the proposed 

regulations do not include a rule 

applicable to tax-exempt use. However, 

section 6417(d)(2) of the Code provides 

that an applicable entity (as defined in 

section 6417(d)(1), and including a taxexempt organization) making an elective 

payment election under section 6417 

can determine an applicable credit 

(defined in section 6417(b), and 

including the section 48 credit) without 

regard to section 50(b)(3), by treating 

any property with respect to which the 

section 48 credit is determined as used 

in a trade or business of the applicable 

entity. (See the rules of proposed 

§ 1.6417–2(c)(2) contained in the notice 

of proposed rulemaking (REG–101607– 

23) published in the Federal Register 

(88 FR 40528) on June 21, 2023.) Thus, 

if the rules under section 6417(d)(2) 

apply, the general rule adopted in 

proposed § 1.48–9(b)(5)(i) would apply 

to determine when the energy property 

is placed in service by an applicable 

entity. 

Section 1.46–3(d)(3) provides that 

notwithstanding the provisions of 

§ 1.46–3(d)(1), property with respect to 

which an election is made under § 1.48– 

4 to treat the lessee as having purchased 

such property is considered placed in 

service by the lessor in the taxable year 

in which possession is transferred to 

such lessee. Proposed § 1.48–9(b)(5)(ii) 

would adopt the special rule from 

§ 1.46–3(d)(3) for determining when a 

leased property has been placed in 

service. 

B. Property Excluded From Energy 

Property 

Section 48(a)(5) generally provides an 

election to treat certain types of 

qualified facilities as defined in section 

45(d), referred to as a ‘‘qualified 

investment credit facility,’’ as energy 

property for purposes of section 48. 

However, section 48(a)(5)(B) provides 

that no section 45 credit is allowed for 

any taxable year with respect to any 

qualified investment credit facility. 

Section 48(a)(5)(C) provides, in part, 

that the term ‘‘qualified investment 

credit facility’’ means any qualified 

facility with respect to which no section 

45 credit has been allowed for which 

the taxpayer makes an irrevocable 

election. Accordingly, proposed § 1.48– 

9(d) would exclude from energy 

property any property that is part of a 

qualified facility with respect to which 

a section 45 credit is allowed for any 

taxable year, including any prior taxable 

year. 

The Treasury Department and the IRS 

understand that energy storage 

technologies eligible for the section 48 

credit are often co-located with 

qualified facilities eligible for the 

section 45 credit and may share power 

conditioning and transfer equipment. In 

consideration of this practice, the 

proposed rules would provide that 

power conditioning and transfer 

equipment that is shared by a qualified 


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facility (as defined in section 45(d)) and 

an energy property may be treated as an 

integral part of the section 48 energy 

property. Such shared property is not 

considered part of a qualified facility 

and, therefore, the sharing of such 

property will not impact the ability of 

a taxpayer to claim the section 48 credit 

for the energy property or the section 45 

credit for the qualified facility. The 

Treasury Department and the IRS 

request comments regarding whether 

additional guidance is needed on this 

rule. 

C. Types of Energy Property 

Proposed § 1.48–9(e) would expand 

upon the definitions of energy property 

provided in existing § 1.48–9 to account 

for new technologies that were added by 

amendments to section 48, including by 

section 13102 of the IRA. Generally, the 

definitions of the types of energy 

property provided in the proposed 

regulations do not provide specific 

beginning of construction or placed in 

service deadlines. Taxpayers should 

refer to the current statutory language of 

section 48 for specific requirements 

applicable to each type of energy 

property with respect to any particular 

taxable year. The following definitions 

in proposed § 1.48–9(e) for the different 

types of energy properties were 

developed by the Treasury Department 

and the IRS in consultation with the 

Department of Energy. 

1. Solar Energy Property 

Section 48(a)(3)(A)(i) provides that 

energy property includes solar energy 

property and defines solar energy 

property as any property that is 

equipment that uses solar energy to 

generate electricity, to heat or cool (or 

provide hot water for use in) a structure, 

or to provide solar process heat, 

excepting property used to generate 

energy for the purposes of heating a 

swimming pool. 

Existing § 1.48–9(d)(1) defines solar 

energy property as including equipment 

and materials (and parts related to the 

functioning of such equipment) that use 

solar energy directly to (i) generate 

electricity, (ii) heat or cool a building or 

structure, or (iii) provide hot water for 

use within a building or structure. 

Further, existing § 1.48–9(d)(3), in part, 

defines solar electric generation 

equipment as equipment that uses solar 

energy to generate electricity through a 

process that involves the transformation 

of sunlight into electricity through the 

use of such devices as solar cells or 

other collectors. 

In response to Notice 2015–70, 

commenters requested that the Treasury 

Department and the IRS provide 

guidance regarding specific components 

that may be considered solar energy 

property, including in photovoltaic (PV) 

systems (including concentrated PV 

systems), non-PV concentrated solar 

power systems (passive solar), solar 

process, and thermal systems. Several 

commenters requested that the 

regulations explicitly list certain types 

of technologies as solar energy property, 

such as integrated thermoplastic roofing 

and racking systems. Other commenters 

requested that the regulations simply 

define solar energy property to include 

common components such as 

controllers to manage use of solar 

energy, mounting structures, energy 

storage technology, power conditioning 

equipment, and step-up transformers. 

Proposed § 1.48–9(e)(1)(i) would 

depart from the existing definition of 

solar energy property at § 1.48–9(d)(1) 

by adopting a modified version of the 

current statutory definition, which 

provides that solar energy property is 

equipment that uses solar energy to 

generate electricity, to heat or cool a 

structure, or to provide solar process 

heat, and parts related to the 

functioning of such equipment. 

Proposed § 1.48–9(e)(1)(ii) would define 

the term ‘‘solar electric generation 

equipment’’ as equipment that converts 

sunlight into electricity through the use 

of devices such as solar cells or other 

collectors, while adopting the current 

statutory exclusion for any property 

used to generate energy for the purposes 

of heating a swimming pool. The 

proposed regulations would eliminate 

the exclusion for passive solar in 

existing § 1.48–9(d)(2) because section 

48 does not distinguish between passive 

and active solar energy systems. Finally, 

the proposed regulations would apply 

the functional interdependence test as 

described in part I.D.2 of this Summary 

of Comments and Explanation of 

Provisions to determine whether 

components are included as part of solar 

energy property. 

Existing § 1.48–9(d)(7) provides that 

solar energy property does not include 

equipment that uses solar energy to 

generate steam at high temperatures for 

use in industrial or commercial 

processes (solar process heat). This 

definition conflicts with section 

48(a)(3)(A)(i). Accordingly, the 

proposed regulations would adopt the 

statutory language by explicitly 

including solar process heat within the 

definition of the term ‘‘solar energy 

property.’’ After consultation with the 

Department of Energy, proposed § 1.48– 

9(e)(1)(iii) would define ‘‘solar process 

heat equipment’’ as equipment that uses 

solar energy to generate heat for use in 

industrial or commercial processes. 

2. Fiber-Optic Solar Energy Property 

and Electrochromic Glass Property 

a. Fiber-Optic Solar Energy Property 

Section 48(a)(3)(A)(ii) provides that 

energy property includes equipment 

that uses solar energy to illuminate the 

inside of a structure using fiber-optic 

distributed sunlight. The Treasury 

Department and the IRS received no 

comments in response to Notice 2022– 

49 regarding fiber-optic solar energy 

property. Accordingly, proposed § 1.48– 

9(e)(2)(i) would adopt the statutory 

definition of fiber-optic solar energy 

property. Additionally, the proposed 

regulations would apply the functional 

interdependence test as described in 

part I.D.2 of this Summary of Comments 

and Explanation of Provisions to 

determine whether components are 

included as part of fiber-optic solar 

energy property. 

b. Electrochromic Glass Property 

Section 48(a)(3)(A)(ii) was modified 

by the IRA to add electrochromic glass 

property as a type of energy property. 

That provision defines electrochromic 

glass property as equipment that uses 

electricity to change its light 

transmittance properties in order to heat 

or cool a structure. The Treasury 

Department and IRS consulted with the 

Department of Energy to determine the 

types of property eligible as 

electrochromic glass property. 

Accordingly, § 1.48–9(e)(2)(ii) would 

provide that there are only two types of 

electrochromic glass property: (i) 

electrochromic glass incorporated into a 

full window that is installed directly 

into a building or (ii) electrochromic 

glass incorporated into a secondary 

window (known as secondary glazing) 

that is installed on top of an existing 

window. For each type of 

electrochromic glass property, there is a 

separate control package consisting of 

electronics, power supply, sensors, and 

software necessary to control the 

operations of the electrochromic glass 

property. Thus, electrochromic glass 

property is not only comprised of 

electrochromic glass but also the 

relevant window or secondary glazing 

property that incorporates the 

electrochromic glass property. 

Therefore, in addition to the electronic 

controls package that includes the 

power electronics, sensors, wires, and 

software systems, the electrochromic 

window or secondary glazing also 

includes the electrochromic glass 

coating and the balance of window and 

installation components including glass, 

flashing, framing, and sealants, as 

applicable, to the type of electrochromic 

glass property. 


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In response to Notice 2022–49, several 

commenters provided input on the 

definition of electrochromic glass 

property. Several commenters requested 

a narrow definition. Other commenters 

suggested adopting a broader definition 

of electrochromic glass property. One 

commenter stated that interpretations of 

the terms ‘‘electrochromic glass’’ or 

‘‘dynamic glass’’ should be expanded to 

include any material or technology that 

meets or exceeds the performance 

criteria for such components established 

by the most recent Energy Star or 

International Energy Conservation Code 

(IECC) standards in effect at the time 

such component is placed in service. 

In response to the comments and after 

consultation with the Department of 

Energy, the proposed regulations would 

clarify the definition of electrochromic 

glass property. Proposed § 1.48– 

9(e)(2)(ii) would adopt the statutory 

definition of electrochromic glass 

property while providing that light 

transmittance properties include both 

visible light and near infrared light. 

Additionally, as mentioned previously, 

proposed § 1.48–9(c)(2)(ii)(B) would 

adopt the performance and quality 

standards that new electrochromic 

windows must be rated in accordance 

with the NFRC and secondary glazing 

systems must be rated in accordance 

with the AERC Rating and Certification 

Process, or subsequent revisions. The 

application of these performance and 

quality standards are needed to ensure 

that the intended energy savings occurs 

from the installation of electrochromic 

glass property. 

The Treasury Department and the IRS 

received comments requesting guidance 

concerning the eligible components of 

electrochromic glass property. Similar 

to the other energy properties, the 

proposed regulations would apply the 

functional interdependence test as 

described in part I.D.2 of this Summary 

of Comments and Explanation of 

Provisions to determine whether 

components are included as part of 

electrochromic glass property. This 

approach provides a technology-neutral 

way to determine what is considered 

included in the energy property that is 

broad enough to encompass 

technological changes. In the case of 

electrochromic glass property, for 

example, an electrochromic glass system 

includes the full controls package, the 

electrochromic glass coating, and the 

balance of window and installation 

components including glass, flashing, 

framing, and sealants. 

3. Geothermal Energy Property 

Section 48(a)(3)(A)(iii) provides that 

energy property includes geothermal 

property, and defines geothermal 

property as equipment used to produce, 

distribute, or use energy derived from a 

geothermal deposit (within the meaning 

of section 613(e)(2) of the Code), but 

only, in the case of electricity generated 

by geothermal power, up to (but not 

including) the electrical transmission 

stage. 

Existing § 1.48–9(c)(10)(i) defines 

‘‘geothermal equipment’’ as equipment 

that produces, distributes, or uses 

energy derived from a geothermal 

deposit. Existing § 1.48–9(c)(10) 

generally provides that geothermal 

property includes production and 

distribution equipment. Proposed 

§ 1.48–9(e)(3)(i) would adopt this 

definitional framework by providing 

that geothermal energy property is 

equipment used to produce, distribute, 

or use energy derived from a geothermal 

deposit (within the meaning of section 

613(e)(2)), and includes production 

equipment (as defined in proposed 

§ 1.48–9(e)(3)(ii)) and distribution 

equipment (as defined in proposed 

§ 1.48–9(e)(3)(iii)). 

Proposed § 1.48–9(e)(3)(ii) would 

adopt a modified definition of 

production equipment from existing 

§ 1.48–9(c)(10)(ii) in three respects. 

First, proposed § 1.48–9(e)(3)(ii) would 

provide, in part, that production 

equipment includes equipment 

necessary to bring geothermal energy 

from the subterranean deposit to the 

surface. Second, while existing § 1.48– 

9(c)(10)(ii) provides that reinjection 

wells required for production may 

qualify as production equipment, 

proposed § 1.48–9(e)(3)(ii) would 

expand the types of wells that may 

qualify as production equipment to 

production, injection, and monitoring 

wells. Third, proposed § 1.48–9(e)(3)(ii) 

would also include the electricity 

generating equipment as production 

equipment for those projects that 

convert geothermal energy to electricity. 

Proposed § 1.48–9(e)(3)(iii) would 

adopt a modified definition of 

distribution equipment from existing 

§ 1.48–9(c)(10)(iii). The existing 

regulations provide that distribution 

equipment includes components of a 

heating system, such as pipes and 

ductwork that distribute the energy 

derived from the geothermal deposit 

within a building. Proposed § 1.48– 

9(e)(3)(iii) would also add components 

of a building’s heating or cooling system 

as distribution equipment. The 

proposed regulations would apply the 

functional interdependence test as 

described in part I.D.2 of this Summary 

of Comments and Explanation of 

Provisions to determine whether 

components are included as part of 

geothermal energy property. 

In response to Notice 2015–70, one 

commenter requested that the 

regulations be modified to include as 

credit eligible costs incurred to drill 

failed or non-producing wells, and in 

some scenarios, for the margin or 

contingency that a subsidiary contractor 

requires to be paid to perform under an 

engineering, procurement, and 

construction (EPC) contract. While the 

proposed regulation would expand the 

types of wells that may be considered 

production equipment, it would not 

specifically include costs incurred to 

drill failed or non-producing wells. In 

many cases costs incurred to drill failed 

or non-producing geothermal wells are 

already recoverable through intangible 

drilling costs under § 1.612–5. It is also 

unclear whether the margin or 

contingency that a subsidiary contractor 

requires to be paid to perform under an 

EPC contract can be recovered by a 

taxpayer. However, if such costs are 

recoverable, such recovery would likely 

occur through capitalizing the costs to 

the underlying mineral interest and 

claiming depletion deductions under 

section 613(e). Therefore, the Treasury 

Department and the IRS have 

determined that these costs cannot be 

included in the basis of the geothermal 

energy property for purposes of 

calculating the section 48 credit. 

4. Qualified Fuel Cell Property 

Section 48(a)(3)(A)(iv) provides that 

energy property includes qualified fuel 

cell property. As modified by the IRA, 

section 48(c)(1) defines ‘‘qualified fuel 

cell property’’ as a fuel cell power plant 

that has a nameplate capacity of at least 

0.5 kilowatt (kW) (1 kW in the case of 

a fuel cell power plant with a linear 

generator assembly) of electricity using 

an electrochemical process or 

electromechanical process and an 

electricity-only generation efficiency 

greater than 30 percent. Electricity-only 

generation efficiency may be calculated 

by dividing the heat rate of the fuel cell 

(for example, kilowatt-hours (kWh) 

electricity produced per kilogram (kg) of 

fuel consumed) by the higher heating 

value of the fuel (for example, kWh per 

kg). Section 48(c)(1)(C) defines the term 

‘‘fuel cell power plant’’ as an integrated 

system comprised of a fuel cell stack 

assembly, or linear generator assembly, 

and associated balance of plant 

components that converts a fuel into 

electricity using electrochemical or 

electromechanical means. 

The Treasury Department and the IRS 

received few comments regarding 

qualified fuel cell property in response 

to Notice 2022–49. As discussed, the 


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proposed regulations are intended to 

provide a technology-neutral way to 

determine what is included in energy 

property that is broad enough to 

encompass technological changes and 

do not include rules for a particular type 

of product. As a result, proposed § 1.48– 

9(e)(4) would adopt the statutory 

definition of qualified fuel cell property. 

The proposed regulations would also 

apply the functional interdependence 

test as described in part I.D.2 of this 

Summary of Comments and Explanation 

of Provisions to determine whether 

components are included as part of 

qualified fuel property. 

5. Qualified Microturbine Property 

Section 48(a)(3)(A)(iv) provides that 

energy property includes qualified 

microturbine property. Section 48(c)(2) 

defines ‘‘qualified microturbine 

property’’ as a stationary microturbine 

power plant that has a nameplate 

capacity of less than 2,000 kW and an 

electricity-only generation efficiency of 

not less than 26 percent at International 

Standard Organization conditions. 

Section 48(c)(2)(C) provides that a 

‘‘stationary microturbine power plant’’ 

is an integrated system comprised of a 

gas turbine engine, a combustor, a 

recuperator or regenerator, a generator 

or alternator, and associated balance of 

plant components that convert a fuel 

into electricity and thermal energy. A 

stationary microturbine power plant 

also includes all secondary components 

located between the existing 

infrastructure for fuel delivery and the 

existing infrastructure for power 

distribution, including equipment and 

controls for meeting relevant power 

standards, such as voltage, frequency, 

and power factors. 

The Treasury Department and the IRS 

received no comments regarding 

qualified microturbine property in 

response to the request for comment 

published in Notice 2022–49. Therefore, 

proposed § 1.48–9(e)(5) would adopt the 

statutory definition of qualified 

microturbine property. The proposed 

regulations would also apply the 

functional interdependence test as 

described in part I.D.2 of this Summary 

of Comments and Explanation of 

Provisions to determine whether 

components are included as part of 

qualified microturbine property. 

6. Combined Heat and Power System 

Property 

Section 48(a)(3)(A)(v) includes 

combined heat and power system (CHP) 

property as a type of energy property. 

Section 48(c)(3)(A) defines CHP 

property as property comprising a 

system that uses the same energy source 

for the simultaneous or sequential 

generation of electrical power, 

mechanical shaft power, or both, in 

combination with the generation of 

steam or other forms of useful thermal 

energy (including heating and cooling 

applications). Section 48(c)(3)(A) further 

provides, in part, that a CHP property 

must produce at least 20 percent of its 

total useful energy in the form of 

thermal energy that is not used to 

produce electrical or mechanical power 

(or combination thereof), and at least 20 

percent of its total useful energy in the 

form of electrical or mechanical power 

(or combination thereof), and that the 

energy efficiency percentage of the 

system must exceed 60 percent. 

Section 48(c)(3)(B) provides that the 

credit for CHP property is reduced to 

the extent that a CHP property has an 

electrical or mechanical capacity in 

excess of applicable limits. Subject to 

the exception for CHP property that uses 

closed or open-loop biomass as 

feedstock, CHP property with capacity 

in excess of the applicable capacity 

limit (15 MW or a mechanical capacity 

of more than 20,000 horsepower or an 

equivalent combination of electrical and 

mechanical energy capacities) is eligible 

for only a fraction of the otherwise 

allowable section 48 credit. The fraction 

is equal to the applicable capacity limit 

divided by the capacity of the CHP 

property. However, CHP property with 

a capacity in excess of 50 MW or a 

mechanical energy capacity in excess of 

67,000 horsepower or an equivalent 

combination of electrical and 

mechanical energy capacities does not 

qualify for the section 48 credit. 

Section 48(c)(3)(C) provides that the 

energy efficiency percentage of a CHP 

property is the fraction (1) the 

numerator of which is the total useful 

electrical, thermal, and mechanical 

power produced by the system at 

normal operating rates, and expected to 

be consumed in its normal application, 

and (2) the denominator of which is the 

lower heating value of the fuel sources 

for the system. The energy efficiency 

percentage and the percentages under 

section 48(c)(3)(A)(ii) are determined on 

a British thermal unit (Btu) basis. 

Section 48(c)(3)(C)(iii) specifically 

provides that the term ‘‘combined heat 

and power system property’’ does not 

include property used to transport the 

energy source to the facility or to 

distribute energy produced by the 

facility. 

Additionally, section 48(c)(3)(D) 

provides that a CHP property with a fuel 

source that is at least 90 percent from 

closed or open-loop biomass that would 

otherwise qualify for the section 48 

credit but for the failure to meet the 

efficiency standard is eligible for a 

credit reduced in proportion to the 

degree to which the system fails to meet 

the efficiency standard. For example, a 

system that would otherwise be 

required to meet the 60-percent 

efficiency standard, but which only 

achieves 30-percent efficiency, would 

be permitted to claim a credit equal to 

one-half of the otherwise allowable 

credit (that is, a five percent credit). 

In response to Notice 2015–70, several 

commenters requested that the 

definition of CHP property be modified 

by relaxing certain requirements. 

Specifically, commenters requested that 

the definition of CHP property be 

modified by eliminating or reducing the 

requirement that a facility produce at 

least 20 percent of its total useful energy 

in the form of electrical or mechanical 

power (or combination thereof). This 

modification would allow waste heat to 

power (WHP) property, which uses 

waste heat from industrial processes to 

generate electricity, to qualify as CHP 

property despite its inability to meet 

certain statutory requirements. Since the 

comments to Notice 2015–70 were 

received, Congress amended section 48 

by adding waste energy recovery 

property (WERP) as a type of energy 

property in the Consolidated 

Appropriations Act, 2021, Public Law 

116–260, 134 Stat. 1182 (Dec. 27, 2020). 

Additional information on requirements 

for WERP is provided in part I.C.9 of 

this Summary of Comments and 

Explanation of Provisions. 

Proposed § 1.48–9(e)(6)(i) would 

adopt a simplified version of the 

statutory definition of CHP property. 

Additionally, proposed § 1.48–9(e)(6)(ii) 

would provide that CHP property does 

not include property used to transport 

the energy source to the generating 

facility or to distribute energy produced 

by the facility. The proposed regulations 

would also apply the functional 

interdependence test as described in 

part I.D.2 of this Summary of Comments 

and Explanation of Provisions to 

determine whether components are 

included as part of CHP property. 

7. Qualified Small Wind Energy 

Property 

Section 48(a)(3)(A)(vi) provides that 

energy property includes qualified small 

wind energy property. Section 48(c)(4) 

defines qualified small wind energy 

property as property using a qualifying 

small wind turbine (which has a 

nameplate capacity of not more than 

100 kW) to generate electricity. The 

Treasury Department and the IRS 

received no comments regarding 

qualified small wind energy property in 

response to Notice 2015–70. 


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Accordingly, proposed § 1.48–9(e)(7) 

would adopt the statutory definition of 

qualified small wind energy property. 

The proposed regulations would apply 

the functional interdependence test as 

described in part I.D.2 of this Summary 

of Comments and Explanation of 

Provisions to determine whether 

components are included as part of 

qualified small wind energy property. 

8. Geothermal Heat Pump Equipment 

Section 48(a)(3)(A)(vii) provides that 

energy property includes geothermal 

heat pump equipment. The statute 

provides, in part, that geothermal heat 

pump equipment is equipment that uses 

the ground or ground water as a thermal 

energy source to heat a structure or as 

a thermal energy sink to cool a 

structure. The Treasury Department and 

the IRS received no comments regarding 

geothermal heat pump equipment in 

response to Notice 2015–70. As a result, 

proposed § 1.48–9(e)(8) would adopt the 

statutory definition of qualified 

geothermal heat pump equipment while 

providing the modification that in 

addition to the ground and ground 

water, other underground working 

fluids may be used as a thermal energy 

source or as a thermal energy sink. The 

proposed regulations would apply the 

functional interdependence test as 

described in part I.D.2 of this Summary 

of Comments and Explanation of 

Provisions to determine whether 

components are included as part of 

geothermal heat pump equipment. 

Additionally, while section 

48(a)(3)(A)(vii) does not specify energy 

distribution equipment and components 

of a building’s heating and/or cooling 

system as components of geothermal 

heat pump equipment, such equipment 

may be integral to the function of the 

geothermal heat pump equipment, to 

heat or cool a structure. Thus, energy 

distribution equipment may be 

considered geothermal heat pump 

equipment. See section I.E.3. of this 

preamble for a discussion of an integral 

part of energy property. 

9. Waste Energy Recovery Property 

(WERP) 

Section 48(a)(3)(A)(viii) provides that 

energy property includes WERP. Section 

48(c)(5)(A) defines WERP as property 

(with a capacity not in excess of 50 MW) 

that generates electricity solely from 

heat from buildings or equipment if the 

primary purpose of such building or 

equipment is not the generation of 

electricity. Additionally, section 

48(c)(5)(C) prevents taxpayers from 

claiming a double benefit by providing 

that any property that could be treated 

as WERP (determined without regard to 

section 48(c)(5)), which is part of a CHP 

property is not treated as WERP for 

purposes of section 48 unless the 

taxpayer elects not to treat such system 

as a CHP property for purposes of 

section 48. 

Proposed § 1.48–9(e)(9), would adopt 

the statutory definition of WERP. The 

proposed regulations would also apply 

the functional interdependence test as 

described in part I.D.2 of this Summary 

of Comments and Explanation of 

Provisions to determine whether 

components are included as part of 

WERP. Additionally, after consultation 

with the Department of Energy, 

proposed § 1.48–9(e)(9) would provide 

examples of buildings or equipment the 

primary purpose of which is not the 

generation of electricity including, but 

not limited to, manufacturing plants, 

medical care facilities, facilities on 

college campuses, pipeline compressor 

stations, and associated equipment. 

10. Energy Storage Technology 

Section 48(a)(3)(A)(ix) was added by 

the IRA to provide that energy property 

includes energy storage technology. 

Section 48(c)(6)(A)(i) defines energy 

storage technology to mean property 

(other than property primarily used in 

the transportation of goods or 

individuals and not for the production 

of electricity) that receives, stores, and 

delivers energy for conversion to 

electricity (or, in the case of hydrogen, 

that stores energy), and has a nameplate 

capacity of not less than 5 kWh. Section 

48(c)(6)(A)(ii) provides that thermal 

energy storage property is also energy 

storage technology. 

Section 48(c)(6)(B) provides a rule for 

modifications of energy storage 

technology. In the case of any property 

that either was placed in service before 

August 16, 2022, and would be 

described in section 48(c)(6)(A)(i), 

except that such property has a capacity 

of less than 5 kWh and is modified in 

a manner that such property (after such 

modification) has a nameplate capacity 

of not less than 5 kWh, or is energy 

storage technology (as described in 

section 48(c)(6)(A)(i)) and is modified in 

a manner that such property (after such 

modification) has an increase in 

nameplate capacity of not less than 5 

kWh, such property is treated as energy 

storage technology (as described in 

section 48(c)(6)(A)(i)) except that the 

basis of any existing property prior to 

such modification is not taken into 

account for purposes of section 48. 

Section 48(c)(6)(C) defines thermal 

energy storage property, for purposes of 

section 48(c)(6) as property comprising 

a system that: is directly connected to a 

heating, ventilation, or air conditioning 

system; removes heat from, or adds heat 

to, a storage medium for subsequent use; 

and provides energy for the heating or 

cooling of the interior of a residential or 

commercial building. Section 

48(c)(6)(C)(ii) provides that thermal 

energy storage property does not 

include a swimming pool, a combined 

heat and power system property, or a 

building or its structural components. 

The Treasury Department and the IRS 

received comments addressing energy 

storage technologies in response to 

Notice 2022–49. Some comments 

discussed the definition of energy 

storage technology and how broadly 

energy storage technology should be 

interpreted in the regulations. For 

example, a commenter requested that 

guidance define energy storage broadly 

based on its characteristics and 

capabilities, rather than using a 

technology-based definition that could 

unintentionally exclude developing 

technologies. Some commenters 

requested that the definition of energy 

storage technology focus more on 

capability and less on a particular 

technology. Other commenters 

requested confirmation that certain 

specific technologies would be included 

within the definition of energy storage 

technology and that the definition be 

based on the underlying definition for 

the technology provided in section 

48(c)(6), as opposed to the specific 

functionalities of the energy storage 

technology. After consideration of these 

comments, proposed § 1.48–9(e)(10) 

would adopt the statutory definition of 

energy storage technology. 

Commenters also provided input on 

hydrogen storage, including a variety of 

recommendations on what the 

definition of hydrogen storage property 

should include. For example, one 

commenter suggested that ‘‘energy 

storage technology’’ with respect to 

hydrogen storage includes all 

equipment, facilities, storage 

receptacles, dedicated vehicles and 

vessels used to compress, liquify, store, 

and distribute hydrogen and hydrogen 

carriers, such as ammonia, methanol, 

and other forms of hydrogen carriers. 

Another commenter requested that 

regulations include a broad list of 

components of energy storage 

technologies including the storage 

receptacle itself and all pressure vessels, 

piping, valves, and tanks among many 

other components. This commenter also 

suggested that property that facilitates 

use of ammonia, methanol and other 

hydrogen carriers be included as 

hydrogen energy storage technology. 

Another commenter noted that the 

regulations should provide specific use 

limitations for stored hydrogen such as 


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for use solely in energy-related 

activities. 

Section 48(c)(6)(A) already defines 

energy storage technology (including 

hydrogen storage) and thermal energy 

storage property based on the general 

functions of the relevant energy storage 

technology. Hydrogen energy storage 

property must store hydrogen that is 

solely used for the production of energy 

and not for the production of end 

products, such as fertilizer. For 

example, this would include, but is not 

limited to, hydrogen used to produce 

heat, to generate electricity, or to be 

used in a fuel cell vehicle. The type of 

hydrogen storage medium (for example, 

physical based or material based), is not 

limited. Proposed § 1.48–9(e)(10)(iv) 

therefore would adopt that rule. The 

Treasury Department and the IRS 

request comments on alternative 

approaches to assessing limitations on 

the use of hydrogen energy storage 

property, including whether additional 

clarification is needed regarding the 

production of energy from hydrogen, 

and what type of documentation would 

be needed to demonstrate that a 

hydrogen energy storage property was 

used to store hydrogen solely used for 

the production of energy. 

Proposed § 1.48–9(e)(10) would apply 

the functional interdependence test as 

described in part I.D.2 of this Summary 

of Comments and Explanation of 

Provisions to determine whether 

components are included as part of an 

energy storage technology. This 

approach provides a technology-neutral 

way to determine what is considered 

energy storage technology and is broad 

enough to encompass technological 

changes. The proposed regulations 

would, however, provide additional 

guidance in the form of a non-exclusive 

list of examples of different types of 

energy storage technologies. The list is 

non-exclusive because it would be 

impossible to list all the types of 

technologies that could qualify 

currently, and the Treasury Department 

and the IRS acknowledge the 

importance of leaving the language 

broad to allow future technological 

advances in energy storage technologies 

to qualify. 

Additionally, rechargeable 

electrochemical batteries of all types 

meet the functional definition by 

receiving energy in the form of 

electricity, storing electro-chemical 

energy, and producing electricity. A 

commenter requested that re-used or 

‘‘second life’’ batteries should be 

considered ‘‘new energy property.’’ 

Generally, used property cannot be 

considered ‘‘new property’’ for purposes 

of the 80/20 Rule, which is described in 

part III.A. of this Summary of Comments 

and Explanation of Provisions. 

However, proposed § 1.48–9(e)(10)(v) 

would provide that recycled 

components may be used to meet the 

modification rule for energy storage 

technology. The Treasury Department 

and the IRS request comments on 

whether ‘‘second life’’ batteries should 

be considered new components for 

purposes of the 80/20 Rule. 

Additionally, the Treasury Department 

and the IRS request comment on what 

types of components may be used to 

modify an existing energy storage 

technology, and whether there are any 

challenges with recycled components 

being used to meet the modification 

rule. 

Energy storage technology excludes 

property primarily used in the 

transportation of goods or individuals 

and not for the production of electricity 

under section 48(c)(6)(A)(i). The 

Treasury Department and the IRS 

understand that this exclusion, at a 

minimum, would apply to batteries and 

other energy storage technology that are 

incorporated into or otherwise 

physically integrated within motor 

vehicles and other modes of 

transportation of goods or individuals 

and from which an electric motor of 

such vehicle or other mode of 

transportation draws electricity for 

propulsion. The Treasury Department 

and the IRS do not intend that this 

exclusion apply to batteries and other 

energy storage technology that may be 

used to charge or recharge such vehicles 

or other modes of transportation, if the 

batteries and other energy storage 

technologies are physically separate 

from such vehicles or other modes of 

transportation. The Treasury 

Department and the IRS request 

comments as to how the exclusion for 

property primarily used in the 

transportation of goods or individuals 

and not for the production of electricity 

should be defined and the specific types 

of property that may be covered or not 

covered by this exclusion. 

Although the list of examples of 

energy storage technologies that 

proposed § 1.48–9(e)(10) would provide 

is nonexclusive, and therefore many 

other technologies that are not 

addressed would meet these functional 

definitions, there are some examples 

that do not meet the functional 

definition. For example, some 

technologies are marketed as ‘‘virtual 

batteries,’’ which are aggregations of 

controllable electricity demand 

providing similar electrical grid services 

to an electrical grid battery. Such 

‘‘virtual batteries’’ receive energy in the 

form of electricity, but they do not store 

it for later discharge as electricity. The 

function of ‘‘virtual batteries’’ is to shift 

demand to different points in time. 

Because such demand shifting is not a 

storage activity for purposes of section 

48(c)(6), this technology is not an energy 

storage technology. There are other 

technologies for which the 

determination of whether they meet the 

statutory requirements of section 

48(c)(6) is less clear. The Treasury 

Department and the IRS request 

comments on whether these other types 

of technologies should be considered 

energy storage technologies. 

11. Qualified Biogas Property 

Section 48(a)(3)(A)(x) was added by 

the IRA to provide that energy property 

includes qualified biogas property. 

Section 48(c)(7)(A) defines qualified 

biogas property as property comprising 

a system that converts biomass (as 

defined in section 45K(c)(3), as in effect 

on the date of enactment of section 

48(a)(3)(A) (August 16, 2022)) into a gas 

that consists of not less than 52 percent 

methane by volume, or is concentrated 

by such system into a gas that consists 

of not less than 52 percent methane, and 

captures such gas for sale or productive 

use, and not for disposal via 

combustion. Section 48(c)(7)(B) 

provides that qualified biogas property 

includes any property that is part of 

such system that cleans or conditions 

such gas. 

In response to Notice 2022–49, the 

Treasury Department and the IRS 

received several comments regarding 

qualified biogas property. Many 

commenters supported adopting a broad 

definition of qualified biogas property to 

include all the related technologies that 

commenters stated could be utilized in 

qualified biogas property. After 

consideration of these comments, 

proposed § 1.48–9(e)(11) would adopt 

the statutory definition of qualified 

biogas property. 

Additionally, at least one commenter 

stated that when gas is being upgraded 

and injected into a pipeline, upgrading 

equipment is necessary to condition the 

gas into the appropriate mixture for 

injection into the pipeline and should 

be part of the qualified biogas property. 

In the commenter’s view, the eligibility 

of this upgrading equipment hinges on 

the meaning of the phrase ‘‘captures 

such gas for sale or productive use.’’ 

The commenter asserted that the statute 

should encompass such conversion of 

biogas to a more portable product such 

as a compressed or liquified gas. 

Therefore, the commenter asserted that 

upgrading equipment be included in a 

qualified biogas property because it 

captures such biogas for sale or 


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productive use and includes any 

property that is part of such qualified 

biogas property that cleans or 

conditions such gas. 

After consideration of these 

comments, proposed § 1.48–9(e)(11) 

would provide that components of 

property are considered qualified biogas 

property if they are functionally 

interdependent, that is, if the placing in 

service of each component is dependent 

upon the placing in service of each of 

the other components in order to 

perform the intended function of the 

qualified biogas property as described in 

proposed § 1.48–9(e)(11)(i). This 

approach would provide a technologyneutral way to determine what is 

considered included in a qualified 

biogas property and is broad enough to 

encompass technological changes. 

Additionally, proposed § 1.48– 

9(e)(11)(i) provides examples of 

functionally interdependent 

components of the qualified biogas 

property including, but not limited to, a 

waste feedstock collection system, a 

landfill gas collection system, mixing or 

pumping equipment, and an anaerobic 

digester. 

Regarding the upgrading equipment 

that is necessary to condition biogas 

into the appropriate mixture for 

injection into the pipeline, this 

equipment is not functionally 

interdependent with the qualified 

biogas property that converts biomass 

into a gas containing not less than 52 

percent methane and captures such gas 

for sale or productive use as specified in 

the statute. While this upgrading 

equipment makes the injection of biogas 

into a pipeline possible, such upgrading 

equipment is not necessary to satisfy the 

statutory requirements that the biogas 

converted from biomass contain not less 

than 52 percent methane, and that it be 

captured for sale or productive use. In 

support of including upgrading 

equipment necessary to prepare the 

biogas for injection into the pipeline, 

commenters point to the statutory 

language that qualified biogas property 

includes any property that is part of 

such system that cleans or conditions 

such gas. However, unlike upgrading 

equipment that is necessary for injection 

of the biogas into the pipeline, cleaning 

and conditioning equipment is part of 

the necessary process to convert 

biomass into gas that is not less than 52 

percent methane and capture gas for 

sale or productive use. Therefore, 

proposed § 1.48–9(e)(11)(i) would 

clarify that upgrading equipment is not 

a functionally interdependent 

component of qualified biogas property. 

The Treasury Department and the IRS 

request comments regarding what types 

of components may be included within 

the definition of cleaning and 

conditioning property provided in the 

definition of qualified biogas property 

in section 48(c)(7)(B). 

One commenter had 

recommendations about the application 

of the requirement in section 

48(c)(7)(A)(ii) that a qualified biogas 

property captures such gas for sale or 

productive use, and not for disposal via 

combustion. This commenter noted that 

some properties that produce electricity 

from gas using a combustion process, 

may flare waste or tail gas, including 

during commissioning or maintenance 

periods. The commenter recommended 

a de minimis exception so that sale or 

use of gas in this manner will not 

prevent a property that produced such 

gas from being a qualified biogas 

property. The Treasury Department and 

the IRS request additional comments on 

whether such an exception is necessary 

and what should be considered de 

minimis for this purpose. 

Lastly, several comments addressed 

the methane requirements in the 

statutory definition by commenting on 

how and when methane content should 

be measured and whether methane 

monitoring is required. After 

consideration and coordination with the 

Department of Energy, the proposed 

regulations would adopt a rule 

addressing the production point at 

which methane content must be 

measured. Proposed § 1.48–9(e)(11)(ii) 

would provide that the methane 

requirements described in section 

48(c)(7)(A)(i)(I) and section 

48(c)(7)(A)(i)(II) are measured at the 

point at which gas exits the biogas 

production system (which may include 

an anerobic digester, landfill gas 

collectors, or thermal gasification 

equipment) of a qualified biogas 

property. This is the point at which a 

taxpayer generally must determine 

whether it will convert the biogas to fuel 

for sale or use it directly to generate heat 

or fuel an electricity generation unit. 

12. Microgrid Controllers 

Section 48(a)(3)(A)(xi) was added by 

the IRA to provide that energy property 

includes microgrid controllers. Section 

48(c)(8)(A) defines a microgrid 

controller as equipment that is part of a 

qualified microgrid and designed and 

used to monitor and control the energy 

resources and loads on such microgrid. 

Section 48(c)(8)(B) defines a qualified 

microgrid as an electrical system that 

includes equipment that is capable of 

generating not less than 4 kW and not 

greater than 20 MW of electricity; is 

capable of operating in connection with 

the electrical grid and as a single 

controllable entity with respect to such 

electrical grid, and independently (and 

disconnected) from such electrical grid; 

and is not part of a bulk-power system 

(as defined in section 215 of the Federal 

Power Act (16 U.S.C. 824o)). 

In response to Notice 2022–49, the 

Treasury Department and the IRS 

received several comments requesting 

clarification on the definition of 

microgrid controllers, with some 

commenters suggesting a broad 

interpretation and others suggesting a 

narrow interpretation. Additionally, 

several commenters identified certain 

components that should be included as 

part of an eligible microgrid controller. 

Several commenters asserted that the 

focus of the microgrid controller 

definition should be on capability and 

not the availability of an 

interconnection with the utility grid. In 

response to these comments, proposed 

§ 1.48–9(e)(12)(ii) would clarify that an 

eligible microgrid includes an electrical 

system that is capable of operating in 

connection with the larger electrical 

grid whether or not the microgrid is 

physically connected to the electrical 

grid. For example, a microgrid located 

in a remote area that does not have a 

larger electrical grid to which it can 

physically connect can still be a 

qualified microgrid. 

After consideration of these 

comments, proposed § 1.48–9(e)(12)(i) 

would adopt the statutory definition of 

a microgrid controller. The Treasury 

Department and the IRS request 

comments on whether the rules for 

functionally interdependent property 

provided in proposed § 1.48–9(f)(2)(ii) 

would be sufficient to determine the 

components that should be included as 

part of a microgrid controller, or 

whether another test is needed due to 

the specific role of microgrid controllers 

and their components. 

13. Other Property Included in Section 

48 

Because future legislation may add 

additional types of energy property to 

section 48, proposed § 1.48–9(e)(13) 

would provide that any other property 

specified by section 48 as energy 

property is treated as energy property 

for purposes of these proposed 

regulations. The general rules and 

requirements applicable to energy 

property provided in these proposed 

regulations would also apply to such 

property. 

D. Definition of Energy Property and 

Scope of Included Components 

Since shortly after the enactment of 

section 48, energy property eligible for 

the section 48 credit has been 


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interpreted by the Treasury Department 

and the IRS to include, in addition to 

energy generation property, costs related 

to components such as power 

conditioning equipment, transfer 

equipment, and parts related to the 

functioning of that equipment. 

On November 9, 1978, the Energy Tax 

Act of 1978, amended section 48 by 

adding a new subsection (then section 

48(l)) to define ‘‘energy property.’’ 

Public Law 95–816, 92 Stat. 2174. On 

January 23, 1981, the Treasury 

Department and the IRS promulgated 

T.D. 7765 to provide additional 

guidance regarding the definition of 

energy property. 46 FR 7287–01. The 

preamble to T.D. 7765 states that ‘‘[i]n 

response to comments, the definition of 

solar energy property was expanded to 

make it clear that it includes storage 

devices, power conditioning equipment, 

transfer equipment, and property solely 

related to the functioning of those items. 

However, such equipment does not 

include transmission equipment.’’ 

The preamble to T.D. 7765 also 

provides that ‘‘[a] number of comments 

cited specific legislative history to the 

effect that wind energy property 

includes ‘transfer equipment.’ ’’ The 

preamble to T.D. 7765 defines ‘‘transfer 

equipment’’ as including equipment 

that permits the aggregation of 

electricity generated by several 

windmills and equipment that alters 

voltage in order to permit transfer to a 

transmission line. The preamble to T.D. 

7765 concludes that transfer equipment 

is specifically added to the definition of 

wind energy property, however, transfer 

equipment does not include 

transmission lines. 

Existing § 1.48–9(d)(3) defines ‘‘solar 

energy property’’ as equipment that uses 

solar energy to generate electricity, and 

includes storage devices, power 

conditioning equipment, transfer 

equipment, and parts solely related to 

the functioning of those items. This 

section also provides that solar energy 

property used to generate electricity 

includes only equipment up to (but not 

including) the stage that transmits or 

uses electricity. 

Existing § 1.48–9(e) defines ‘‘wind 

energy property’’ as consisting of a 

windmill, wind-driven generator, 

storage devices, power conditioning 

equipment, transfer equipment, and 

parts solely related to the functioning of 

those items. Section 48(a)(3) no longer 

includes wind energy property as a type 

of energy property. However, qualified 

wind facilities (including qualified 

offshore wind facilities) may be 

qualified investment credit facilities 

that a taxpayer may elect to treat as 

energy property if they meet all the 

requirements provided in section 

48(a)(5). 

While not specifically addressed in 

section 48, Internal Revenue Bulletin 

guidance interpreting section 48 has 

provided that functionally 

interdependent components, are 

considered components of energy 

property eligible for the section 48 

credit. In Notice 2018–59, 2018–28 

I.R.B. 196, the Treasury Department and 

the IRS clarified what components are 

considered part of an energy property. 

Section 7.01(1) of Notice 2018–59 states 

that an energy property generally 

includes all components of property 

that are functionally interdependent 

(unless such equipment is an addition 

or modification to an energy property). 

Notice 2018–59 provides that 

components of property are functionally 

interdependent if the placing in service 

of each component is dependent upon 

the placing in service of each of the 

other components in order to generate 

electricity. Further, Notice 2018–59 

relies upon the rationale provided in 

Revenue Ruling 94–31, 1994–1 C.B. 16, 

to provide that functionally 

interdependent components of property 

that can be operated and metered 

together and can begin producing 

electricity separately from other 

components of property within a larger 

energy project will be considered an 

energy property. 

In the context of defining ‘‘section 38 

property,’’ § 1.48–1(d)(4) provides that 

‘‘section 38 property’’ is ‘‘used as an 

integral part of one of the specified 

activities if it is used directly in the 

activity and is essential to the 

completeness of the activity.’’ Section 

1.48–1(d)(4) also provides that 

‘‘[p]roperty shall be considered used as 

an integral part of one of the specified 

activities if so used either by the owner 

of the property or by the lessee of the 

property.’’ Notice 2018–59 incorporates 

the concept of integral property from 

§ 1.48–1(d) to provide that certain 

property that is an integral part of an 

energy property is included in energy 

property for purposes of the section 48 

credit. While Notice 2018–59 explained 

that property that is ‘‘functionally 

interdependent’’ to the generation of 

electricity was treated as a unit of 

energy property, it also provided that 

certain other property that was integral 

to the production of electricity are 

included in determining what costs to 

include in the basis of energy property 

and the date on which construction 

began. Section 7.02(1) of Notice 2018– 

59 includes an example illustrating that, 

while a transmission tower located at a 

site where energy property is located is 

not energy property because 

transmission is not an integral part of 

the activity performed by the energy 

property, a custom-designed transformer 

that steps up the voltage of electricity 

produced at an energy property to the 

voltage needed for transmission is 

power conditioning equipment, which 

is an integral part of the activity 

performed. In addition, section 7.02(2) 

of Notice 2018–59 explains that onsite 

roads used to operate and maintain the 

energy property are integral to the 

production of electricity, but not roads 

used primarily to access the site or 

primarily for employee or visitor 

vehicles. Similarly, sections 7.02(3) and 

(4) of Notice 2018–59 explain that 

fences are not integral to the production 

of electricity nor are buildings, unless 

the building is essentially an item of 

machinery or equipment, or a structure 

that houses property that is integral to 

the activity of an energy property if the 

use of the structure is so closely related 

to the use of the housed energy property 

that the structure clearly can be 

expected to be replaced when the 

energy property it initially houses is 

replaced. 

In response to a request for comments 

regarding the definition and scope of 

energy property in Notice 2015–70, 

several commenters requested that the 

regulations provide a specific list of 

eligible components and define each 

type of component. Commenters 

specifically requested that the 

regulations provide definitions for 

conversion equipment, power 

conditioning equipment, transfer 

equipment, and other property 

commonly used in conjunction with 

energy property. Further, some 

commenters requested that the 

regulations include safety equipment 

such as electrical panels, rapid shutdown equipment, and utility 

disconnection equipment as eligible 

components when used in conjunction 

with energy property. Conversely, 

several commenters recommended that 

the regulations not provide a technical 

definition or list of components because 

innovations in energy property may 

require that such a definition would 

need to be continually updated. 

Commenters requested that the 

regulations be clarified to include as 

energy property all components located 

before the point at which voltage of the 

electricity is increased to the voltage of 

the transmission line, referred to as the 

‘‘separation point,’’ such as step-up 

transformers, dead end structures, 

switches, switch gear buildings, voltage 

regulators, and hardware and software 

used to monitor, operate, and protect 

such property. Additionally, one 

commenter requested that the 


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regulations be clarified to include as 

energy property all components located 

beyond the separation point, such as 

switches, circuit breakers, lighting or 

surge arrestors, and metering 

equipment, if the use of such 

components is primarily related to the 

functioning or protection of components 

located at or before the separation point. 

One challenge in providing 

definitions of what components to 

include in energy property is in 

determining what components are 

common to all energy property, without 

limiting or constraining future 

technological advances. To avoid 

limiting future energy technologies, the 

Treasury Department and the IRS 

consulted with the Department of 

Energy and determined that the best 

option is to adopt a function-oriented 

approach to describe the types of 

components that are considered energy 

property. Accordingly, proposed § 1.48– 

9(f) would adopt the concepts of 

functional interdependence and 

property that is an integral part of an 

energy property as provided in Internal 

Revenue Bulletin guidance issued 

previously by the Treasury Department 

and the IRS. 

1. Unit of Energy Property 

Proposed § 1.48–9(f)(2)(i) would 

provide that a unit of energy property 

consists of all functionally 

interdependent components of property 

(as defined in proposed § 1.48– 

9(f)(2)(ii)) owned by the taxpayer that 

are operated together and that can 

operate apart from other energy 

properties within a larger energy project 

(as defined in proposed § 1.48–13(d) 

and discussed in part II.C of this 

Summary of Comments and Explanation 

of Provisions). 

2. Functional Interdependence 

Proposed § 1.48–9(f)(2)(ii) would 

provide that components of property are 

functionally interdependent if the 

placing in service of each component is 

dependent upon the placing in service 

of each of the other components in order 

to generate or to store electricity, 

thermal energy, or hydrogen, or 

otherwise perform its intended function 

as provided in section 48(c) and as 

described in proposed § 1.48–9(e). 

Energy property, with certain 

exceptions, includes all components 

necessary to generate or store electricity 

or thermal energy for transmission, 

distribution, or use up to (but not 

including) the stage that transmits, 

distributes, or uses electricity or thermal 

energy. In the case of qualified biogas 

property, microgrid controllers, 

electrochromic glass property, and fiberoptic solar energy property, components 

of such energy property are functionally 

interdependent if the placing in service 

of each component is dependent upon 

the placing in service of each of the 

other components in order to perform 

the intended function of the energy 

property as provided by section 48(c) 

and as described in proposed § 1.48– 

9(e). Additionally, energy property 

generally would not include equipment 

that is an addition or modification to an 

existing energy property unless the rules 

regarding retrofitted energy property 

described in proposed § 1.48–14(a) and 

part III.A. of this Summary of Comments 

and Explanation of Provisions apply. 

3. Integral Part of an Energy Property 

Proposed § 1.48–9(f)(3)(i) would 

provide that property owned by a 

taxpayer that is an integral part of an 

energy property owned by that same 

taxpayer is energy property. To be part 

of an energy property, such property 

must be used directly in the intended 

function of the energy property as 

provided by section 48(c) and as 

described in § 1.48–9(e) and be essential 

to the completeness of the intended 

function. Proposed § 1.48–9(f)(3)(ii) 

would describe power conditioning 

equipment and transfer equipment, and 

would provide that such components, 

and parts related to the functioning of 

those components, are energy property 

when they meet the definition of 

integral part provided in § 1.48– 

9(f)(3)(i). 

Many commenters requested 

clarification on the eligible components 

of an offshore wind facility. Proposed 

§ 1.48–9(f)(5)(iii) would provide an 

example that applies the integral part 

rule to include power conditioning and 

transfer equipment as part of a qualified 

offshore wind facility but excludes 

transmission and distribution 

equipment from being part of the 

qualified offshore wind facility. This 

example is consistent with the view of 

the Joint Committee on Taxation in the 

General Explanation of Tax Legislation 

Enacted in the 116th Congress, JCS 1– 

22 (February 2022). According to that 

document, ‘‘[q]ualified offshore wind 

facilities are qualified wind facilities 

. . . and include property owned by the 

taxpayer necessary to condition 

electricity for use on the electrical grid 

such as subsea cables and voltage 

transformers.’’ Id. at 498. 

Furthermore, consistent with Notice 

2018–59, proposed § 1.48–9(f)(3)(iii) 

would provide as further examples of 

integral property onsite roads that are 

used for equipment to operate and 

maintain the energy property. Section 

1.48–9(f)(3)(iii) would also clarify that 

roads primarily for access to the site, or 

roads used primarily for employee or 

visitor vehicles, are not integral parts of 

an energy property. Proposed § 1.48– 

9(f)(3)(iv) and (v) would also provide 

that fences and buildings (also referred 

to as structures) are generally not 

integral parts of an energy property 

because they are not integral to the 

activity of the energy property. 

However, a building may be an integral 

part of a unit of energy property if it is 

essentially an item of machinery or 

equipment, or a structure that houses 

property that is integral to the activity 

of an energy property, if the use of the 

structure is so closely related to the use 

of the housed energy property that the 

structure clearly can be expected to be 

replaced when the energy property it 

initially houses is replaced. The 

Treasury Department and the IRS 

request comments on whether 

additional types of property meet the 

requirements provided in proposed 

§ 1.48–9(f)(3) and could be considered 

an integral part of an energy property. 

4. Location of Energy Property 

Section 48 and the existing 

regulations thereunder are silent 

regarding the credit eligibility of 

components of an energy property 

located in different locations. However, 

the Treasury Department and the IRS 

have provided analogous guidance 

regarding the credit eligibility of offsite 

components for the residential energy 

efficient property tax credit under 

section 25D of the Code (section 25D 

credit). 

In Notice 2013–70, 2013–47 I.R.B. 

528, the Treasury Department and the 

IRS provided guidance addressing the 

eligibility for the section 25D credit for 

offsite components of solar electric 

property. Specifically, Q&A #25 of 

Notice 2013–70 addressed the issue of 

whether a taxpayer that installs solar 

panels as part of solar electric property 

other than directly on the taxpayer’s 

home may claim the section 25D credit. 

Q&A #25 concluded that the taxpayer 

would be able to claim the section 25D 

credit because the solar electric property 

expenditure was made for property that, 

consistent with the requirements of the 

section 25D credit, uses solar energy to 

generate electricity for use in a dwelling 

unit that is used as a residence by the 

taxpayer. The fact that the solar panels 

were not directly located on the 

taxpayer’s home did not change the 

analysis or the eligibility of the 

taxpayer’s expenditure for purposes of 

the section 25D credit. 

Similarly, Q&A #26 of Notice 2013–70 

addressed a scenario in which a 

taxpayer purchases solar panels that are 


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placed on an offsite solar array 

(community solar project) and 

connected to the local public utility’s 

electrical grid that supplies electricity to 

the taxpayer’s residence. The taxpayer 

enters into a direct contractual 

arrangement with the utility to allow the 

taxpayer to provide electricity to the 

electrical grid using a net metering 

system that measures the amount of 

electricity produced by the taxpayer’s 

solar panels and transmitted to the 

electrical grid and the amount of 

electricity used by the taxpayer’s 

residence and drawn from the electrical 

grid. The contract states that the 

taxpayer owns the electricity 

transmitted by the solar panels to the 

electrical grid until drawn from the 

electrical grid at his residence. Q&A #26 

determined that offsite solar panels 

under this type of contractual 

arrangement with a utility that supplies 

electricity to the taxpayer’s residence 

also meet the definition of a solar 

electric property expenditure eligible to 

claim the section 25D credit. In 

response to Notice 2015–70, many 

commenters referenced Notice 2013–70 

when requesting that existing § 1.48–9 

be modified to allow components of 

energy property to be situated in 

different locations without affecting the 

eligibility of the energy property for the 

section 48 credit. 

After consideration of the comments 

received, the Treasury Department and 

the IRS have determined that if property 

is a functionally interdependent part of 

an energy property (as defined in 

§ 1.48–9(f)(2)(ii)), or an integral part of 

an energy property (as defined in 

§ 1.48–9(f)(3)(i)), such property is part of 

an energy property regardless of where 

it is located. Proposed § 1.48–9(f)(4) 

would adopt this position. 

5. Property Excluded From Energy 

Property 

Proposed § 1.48–9(d)(2) would also 

clarify that certain types of intangible 

property, such as power purchase 

agreements, renewable energy 

certificates, goodwill, and going concern 

value, are not energy property because 

they are not functionally interdependent 

with other components of an energy 

property as defined in proposed § 1.48– 

9(f)(2)(ii) and are not an integral part of 

an energy property as defined in 

proposed § 1.48–9(f)(3)(i). 

II. Rules Relating to the Increased 

Credit Amount for Prevailing Wages 

and Apprenticeships 

The IRA amended several sections of 

the Code including section 48 to 

provide increased credit amounts for 

taxpayers who satisfy certain 

requirements, including an increased 

credit amount for satisfying prevailing 

wage and apprenticeship (PWA) 

requirements. This same increased 

credit amount is also generally available 

under certain sections of the Code 

including section 48 with respect to 

energy projects with a maximum net 

output of less than one megawatt (OneMegawatt Exception). Additionally, this 

same increased credit amount is 

available under certain sections of the 

Code including section 48 if beginning 

of installation or beginning of 

construction (BOC) occurs before 

January 29, 2023 (BOC Exception). 

The Treasury Department and the IRS 

issued proposed § 1.48–13 as part of the 

August Proposed Regulations to provide 

guidance concerning the increased 

credit amount available for taxpayers 

satisfying the PWA requirements. This 

notice of proposed rulemaking 

withdraws § 1.48–13 as proposed in the 

August Proposed Regulations and 

reproposes in a new § 1.48–13 

(proposed § 1.48–13) the substance of 

the withdrawn rules with minor 

changes and additional rules with 

respect to the increased credit amount 

available for taxpayers under section 

48(a)(9). 

Proposed § 1.48–13 would provide 

special rules affecting the basis of 

energy property that include: (i) the 

definition of an energy project for 

purposes of the PWA requirements as 

well as other delineated purposes 

discussed in part II.C of this Summary 

of Comments and Explanation of 

Provisions and (ii) guidance concerning 

the One-Megawatt Exception discussed 

in part II.D of this Summary of 

Comments and Explanation of 

Provisions. These proposed regulations 

also provide guidance on the recapture 

rules under section 48(a)(10)(C) 

applicable to failures to satisfy the PWA 

requirements. 

A. General Rules 

For properties placed in service after 

December 31, 2022, the section 48 credit 

is generally six percent of the basis of 

energy property described in section 

48(a)(2)(A)(i) and two percent of the 

basis of energy property described in 

section 48(a)(2)(A)(ii). If a taxpayer 

satisfies the PWA requirements, the 

One-Megawatt Exception, or the BOC 

Exception, then the section 48 credit for 

the basis of each energy property placed 

in service during the taxable year is 

multiplied by five. 

To satisfy the prevailing wage 

requirements under section 48(a)(10)(A) 

and (B) (Prevailing Wage Requirements), 

a taxpayer must ensure that any laborers 

and mechanics employed by the 

taxpayer or any contractor or 

subcontractor in: (i) the construction of 

any energy project, and (ii) the 

alteration or repair of that energy project 

(for the five-year period beginning on 

the date such project is originally placed 

in service), are paid wages at rates not 

less than the prevailing rates for 

construction, alteration, or repair of a 

similar character in the locality in 

which that energy project is located as 

most recently determined by the 

Secretary of Labor, in accordance with 

subchapter IV of chapter 31 of title 40, 

United States Code (Davis-Bacon Act). 

Section 48(a)(10)(B) provides that rules 

similar to the rules of section 45(b)(7)(B) 

apply for purposes of the correction and 

penalty related to the failure to satisfy 

the Prevailing Wage Requirements. 

Section 48(a)(10)(C) provides a 

recapture rule applicable to failures to 

satisfy the Prevailing Wage 

Requirements with respect to alterations 

or repairs that occur during the five-year 

period after the energy project is placed 

in service (section 48(a)(10)(C) 

recapture). Specifically, section 

48(a)(10)(C) instructs the Secretary, by 

regulations or other guidance, to 

provide for recapturing the benefit of 

any increase in the credit allowed by the 

Prevailing Wage Requirements with 

respect to failures to satisfy the 

Prevailing Wage Requirements during 

the five-year period after the energy 

project is placed in service. Section 

48(a)(10)(C) clarifies that the failures 

during the five-year period remain 

subject to the correction and penalty 

provisions in section 45(b)(7)(B) (as 

referenced in section 48(a)(10)(B)) and 

provides that the period and percentage 

of the credit that is recaptured is 

determined under rules similar to the 

rules in section 50(a). Subject to the 

section 48(a)(10)(C) recapture (including 

the correction and penalty provisions in 

section 45(b)(7)(B)), the taxpayer is 

deemed at the time the energy project is 

placed in service to satisfy the 

Prevailing Wage Requirements for 

alterations or repairs for the five-year 

period beginning after such project is 

originally placed in service. Section 

48(a)(11) provides that rules similar to 

the rules of section 45(b)(8) apply for 

purposes of the apprenticeship 

requirements. 

The August Proposed Regulations 

provided guidance for taxpayers 

claiming an increased credit amount 

under section 48(a)(9)(A)(i) with respect 

to an energy project that satisfies the 

PWA requirements, the One-Megawatt 

Exception, or the BOC Exception. The 

August Proposed Regulations provided 

that to satisfy the PWA requirements, 

the energy project must meet the 


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Prevailing Wage Requirements of 

section 48(a)(10)(A) and proposed 

§ 1.45–7(b)–(d), the apprenticeship 

requirements of section 45(b)(8) and 

proposed § 1.45–8, and the 

recordkeeping and reporting 

requirements of proposed § 1.45–12. In 

addition, under the August Proposed 

Regulations, to satisfy the Prevailing 

Wage Requirements with respect to 

section 48(a)(10)(A)(ii), a taxpayer also 

would be required to ensure that any 

laborer and mechanic employed by the 

taxpayer or any contractor or 

subcontractor in the construction of any 

energy project, as well any alteration or 

repair of an energy project in the fiveyear period beginning on the date a 

project is placed in service, are paid 

wages at rates not less than the 

prevailing rates for construction, 

alteration, or repair of a similar 

character in the locality in which the 

energy project is located in accordance 

with the Davis-Bacon Act. The August 

Proposed Regulations also provided that 

the increased credit amount was subject 

to section 48(a)(10)(C) recapture for any 

project that failed to satisfy the 

Prevailing Wage Requirements in 

proposed § 1.45–7 with respect to an 

alteration or repair of such project for 

the five-year period beginning on the 

date such project is originally placed in 

service (but that does not cease to be 

investment credit property within the 

meaning of section 50(a) of the Code). 

B. Section 48(a)(10)(C) Recapture Rules 

The Treasury Department and the IRS 

have determined that additional 

guidance on the section 48(a)(10)(C) 

recapture rules is necessary. Proposed 

§ 1.48–13 would provide additional 

guidance on the section 48(a)(10)(C) 

recapture rules related to the Prevailing 

Wage Requirements. The proposed 

regulations also provide other minor 

technical corrections to the August 

Proposed Regulations. 

In addition to largely restating the 

general rules in the August Proposed 

Regulations, proposed § 1.48–13 would 

clarify that a taxpayer that has claimed 

an increased credit amount under 

section 48(a)(9)(A)(i) and 48(a)(9)(B)(iii) 

but failed to satisfy the Prevailing Wage 

Requirements set forth in proposed 

§ 1.45–7(b)–(d) with respect to any 

period during the five-year period 

beginning on the date a project is placed 

in service is subject to section 

48(a)(10)(C) recapture of a portion (up to 

100 percent) of the increased credit 

amount. Proposed § 1.48–13 would also 

clarify that the failure to satisfy the 

Prevailing Wage Requirements in 

proposed § 1.45–7(b)–(d) with respect to 

any period during the five-year period 

beginning on the date a project is placed 

in service remains subject to the 

correction and penalty provisions in 

proposed § 1.45–7(c)(1). 

Section 48(a)(10)(C) requires that the 

recapture period and percentage of such 

recapture be determined under rules 

similar to the rules of section 50(a). 

Consistent with that requirement, 

proposed § 1.48–13 would also clarify 

that the five-year recapture period under 

section 48(a)(10)(C) would begin on the 

day an energy project is placed in 

service and end on the day that is five 

full years after the placed-in-service 

date. Proposed § 1.48–13 would also 

provide that each 365-day period (366- 

day period in case of a leap year) within 

the recapture period is a separate 

recapture year. The proposed 

regulations would provide that the 

recapture amount is determined 

consistent with the percentages set forth 

in section 50(a) based on the year in 

which the section 48(a)(10)(C) recapture 

event is determined to have occurred. 

The Treasury Department and the IRS 

understand that the five-year recapture 

period is unlikely to align with a 

taxpayer’s taxable year. The proposed 

regulations would provide that whether 

a section 48(a)(10)(C) recapture event 

has occurred is determined at the close 

of taxable year that begins or ends 

within the five-year recapture period. In 

addition to the reporting and 

recordkeeping requirements contained 

in proposed § 1.45–12, the proposed 

regulations would provide for an annual 

information reporting requirement that 

verifies compliance with the Prevailing 

Wage Requirements following the close 

of each recapture year consistent with 

the forms and instructions prescribed by 

the IRS. The IRS anticipates that the 

annual compliance reporting obligation 

will be made at the time the taxpayer 

files its income tax or other annual 

return following the close of each 

recapture year. 

Under proposed § 1.48–13, if the 

increased credit amount is subject to 

section 48(a)(10)(C) recapture, then the 

increase in tax under chapter 1 for the 

recapture of the increased credit amount 

would be assessed with respect to the 

taxable year in which the section 

48(a)(10)(C) recapture event occurred. 

The proposed regulations also clarify 

that a taxpayer whose increased credit 

amount is subject to section 48(a)(10)(C) 

recapture may still be entitled to the 

base amount of the energy credit under 

section 48(a) if they meet the 

requirements to claim the credit. 

Additionally, the proposed regulations 

clarify the application of the 

transferability rules under section 6418 

to a section 48(a)(10)(C) recapture event 

and include a proposed addition to 

§ 1.6418–5 confirming the notification 

requirements for an eligible taxpayer 

and that a transferee taxpayer is 

responsible for any amount of tax 

increase under section 48(a)(10)(C). 

C. Definition of Energy Project 

Under section 48(a)(9)(A)(ii), an 

energy project is a project consisting of 

one or more energy properties that are 

part of a single project. Proposed § 1.48– 

13(d) would provide a definition of 

‘‘energy project’’ for purposes of the 

increased credit amount for the PWA 

requirements (provided by section 

48(a)(9)), the domestic content bonus 

credit amount (provided by section 

48(a)(12)), and the increase in credit rate 

for energy communities (provided in 

section 48(a)(14)). For these purposes, 

the term energy project means one or 

more energy properties that are operated 

as part of a single project. Section 45 

qualified facilities that are co-located 

with section 48 energy property will not 

be considered part of an energy project 

(unless they elect under section 48(a)(5) 

to be treated as energy property). 

Multiple energy properties would be 

treated as one energy project, if at any 

point during the construction of the 

multiple energy properties, they are 

owned by a single taxpayer (subject to 

the related taxpayer rule discussed later 

in this part) and any two or more of the 

following factors (also set forth in 

section 7.01(2)(a) of Notice 2018–59 as 

factors indicating that multiple energy 

properties are operated as part of a 

single project) are present: 

1. The energy properties are 

constructed on contiguous pieces of 

land; 

2. The energy properties are described 

in a common power purchase, thermal 

energy, or other off-take agreement or 

agreements; 

3. The energy properties have a 

common intertie; 

4. The energy properties share a 

common substation, or thermal energy 

off-take point; 

5. The energy properties are described 

in one or more common environmental 

or other regulatory permits; 

6. The energy properties are 

constructed pursuant to a single master 

construction contract; or 

7. The construction of the energy 

properties are financed pursuant to the 

same loan agreement. 

Under proposed § 1.48–13(d)(2), 

related taxpayers would be treated as 

one taxpayer in determining whether 

multiple energy properties are treated as 

an energy project. Related taxpayers 

would be defined as members of a group 

of trades or businesses that are under 


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common control (as defined in § 1.52– 

1(b)). 

Proposed § 1.48–13(d)(3) would also 

provide that if multiple energy 

properties are treated as a single project 

for beginning of construction purposes 

with respect to the section 48 credit, the 

multiple energy properties would also 

be treated as one energy project for 

purposes of the PWA requirements, the 

domestic content bonus credit amount, 

and the increase in section 48 credit rate 

for energy communities. This rule 

would apply to an energy project for 

which construction begins after the date 

final regulations are published in the 

Federal Register. 

D. One-Megawatt Exception 

Section 48(a)(9)(B)(i) and § 1.48–13 of 

the August Proposed Regulations would 

provide that the increased credit 

amount is also available under section 

48 with respect to energy projects with 

a maximum net output of less than 1 

MW of electrical (as measured in 

alternating current) or thermal energy. 

The August Proposed Regulations do 

not address how to determine the 

maximum net output of a project. 

The Department of Energy has 

advised the Treasury Department and 

the IRS that for energy projects that 

generate electricity, the determination of 

an energy project’s nameplate capacity 

will provide the necessary guidance to 

determine the maximum electrical 

generating output in MWs of electrical 

(as measured in alternating current) or 

thermal energy that the unit is capable 

of producing on a steady state basis and 

during continuous operation under 

standard conditions. Proposed § 1.48– 

13(e) would thus provide a rule for the 

determination of nameplate capacity as 

expressed in MWs of electrical (as 

measured in alternating current) or 

thermal energy. Because electrochromic 

glass property, fiber-optic solar, and 

microgrid controllers do not generate 

electricity or thermal energy, these 

energy properties are not eligible for the 

One-Megawatt Exception. The Treasury 

Department and the IRS request 

comments on whether other methods of 

measurement may allow these energy 

properties to use the One-Megawatt 

Exception. 

Under proposed § 1.48–13(e)(1), the 

nameplate capacity for an electrical 

generating unit would mean the 

maximum electrical generating output 

in MWs 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, those rules provide 

that the International Standard 

Organization (ISO) conditions are used 

to measure the maximum electrical 

generating output. 

Proposed § 1.48–13(e)(2) through (4) 

would provide rules for energy storage 

technologies. Generally, electrical 

energy storage property would look to 

the storage device’s nameplate capacity 

in MWs under proposed § 1.48–13(e)(2). 

As with energy properties that generate 

electricity, nameplate capacity for an 

electrical energy storage property would 

mean the maximum electrical 

generating output in MWs 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. 

Proposed § 1.48–13(e)(3) would 

provide that for thermal energy storage 

property, taxpayers must use the 

equivalent value of 3.4 million British 

Thermal Units per hour (mmBtu/hour) 

for heating and 284 tons for cooling to 

determine whether the thermal energy 

storage property satisfies the OneMegawatt Exception (Btu per hour/ 

3,412,140 = MW). The Treasury 

Department and the IRS request 

comments on whether these tests are 

suitable or whether another test should 

apply for measuring the One-Megawatt 

Exception for thermal energy storage 

property. 

Proposed § 1.48–13(e)(4) would 

provide that for hydrogen energy storage 

property, 1 MW is equivalent to 3.4 

mmBtu/hour, and using the higher 

heating value of hydrogen, this can be 

converted to 10,500 scf per hour. 

Therefore, proposed § 1.48–13(e)(4) 

would provide that for a hydrogen 

energy storage property to satisfy the 

One-Megawatt Exception, an eligible 

hydrogen producing, or hydrogen 

storage energy property must be 

designed to have a maximum net output 

of less than 3.4 mmBtu/hour of 

hydrogen or equivalently 10,500 scf per 

hour of hydrogen. 

Proposed § 1.48–13(e)(3) through (5) 

would provide that to apply the OneMegawatt Exception to energy projects 

that produce thermal energy or fuels, 

taxpayers must use the equivalent value 

of 3.4 million British thermal units 

(mmBtus) per hour (Btu per hour/ 

3,412,140 = MW). For certain 

technologies that produce fuels, such as 

qualified biogas property (proposed 

§ 1.48–13(e)(5)), hydrogen energy 

storage property (proposed § 1.48– 

13(e)(4)), and specified hydrogen 

production facilities (as defined in 

section 48(a)(15)(C)) (proposed § 1.48– 

13(e)(4)), taxpayers may use equivalent 

maximum fuel volume flows in 

standard cubic feet (scf) per hour to 

assess the One-Megawatt Exception. 

Taxpayers can use equivalent volume 

flows using the default high heat value 

conversion factors found in Table C–1 to 

Subpart C of Part 98, Title 40 of the 

Greenhouse Gas Reporting Rule 

promulgated by the Environmental 

Protection Agency. Otherwise, taxpayers 

may calculate their own equivalent 

volumetric flow if the heat content of 

the gas is known. 

For property generating thermal 

energy, proposed § 1.48–13(e)(3) would 

provide that the equivalents for 1 MW 

that should be used are 3.4 mmBtu/hour 

for heating and equivalently 284 tons for 

cooling should be used to determine 

whether the energy property satisfies 

the One-Megawatt Exception. Proposed 

§ 1.48–13(e)(3) would also specify that 

for projects delivering thermal energy to 

a building or buildings, the OneMegawatt Exception can be assessed as 

either the aggregate maximum thermal 

output of all individual heating or 

cooling elements within the building or 

buildings or as the maximum thermal 

output that the entire project is capable 

of delivering to a building or buildings 

at any given moment. 

III. Rules Applicable to Energy 

Property 

A. Retrofitted Energy Property (80/20 

Rule) 

The Treasury Department and the IRS 

have published several pieces of 

Internal Revenue Bulletin guidance 

regarding the eligibility of retrofitted 

equipment added to qualified facilities 

and energy property for purposes of the 

section 45 and 48 credits. In Notice 

2016–31, 2016–23 I.R.B. 1025, the 

Treasury Department and the IRS 

considered the application of the Five 

Percent Safe Harbor provided in section 

5.01 of Notice 2013–29, 2013–20 I.R.B. 

1085, to retrofitted qualified facilities 

for purposes of applying the beginning 

of construction requirement to the 

section 45 credit. Section 6.01 of Notice 

2016–31 cites to Revenue Ruling 94–31 

and Notice 2008–60, 2008–2 C.B. 178, 

for the concept that a qualified facility 

may qualify as originally placed in 

service even though it contains some 

used property, provided the fair market 

value of the used property is not more 

than 20 percent of the qualified facility’s 

total value (that is, the cost of the new 

property plus the value of the used 

property). This concept has become 

known as the ‘‘80/20 Rule.’’ 

Similarly, Notice 2018–59 addressed 

the application of the 80/20 Rule to 

retrofitted energy property for purposes 


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of the applying the beginning of 

construction rules to the section 48 

credit. Section 7.05(1) of Notice 2018– 

59 provides that retrofitted energy 

property may qualify as originally 

placed in service even though it 

contains some used components of 

property, provided it satisfies the 80/20 

Rule. Further, this section of the notice 

provided that, for purposes of the 80/20 

Rule, the cost of the new energy 

property includes all properly 

capitalized costs of the new energy 

property. 

In response to requests for comment 

in Notice 2015–70 and Notice 2022–49, 

several commenters requested that the 

regulations address the applicability of 

the 80/20 Rule to energy property for 

purposes of the section 48 credit. After 

consideration of the comments, 

proposed § 1.48–14(a) would apply the 

80/20 Rule to energy property for 

purposes of the section 48 credit. 

B. Dual Use Property 

Existing § 1.48–9 includes a dual use 

equipment rule (Dual Use Rule). The 

preamble to T.D. 8147 notes that the 

regulations prior to amendment by T.D. 

8147 required that equipment must use 

only energy from a single qualifying 

source (solar energy property, wind 

energy property, or geothermal 

equipment) to qualify as energy 

property. In changing from a single 

source rule to the Dual Use Rule, the 

preamble to T.D. 8147 explained that 

the Treasury Department and the IRS 

reconsidered the legislative history of 

the investment tax credit and 

determined that, ‘‘while Congress did 

not intend that property that does not 

use qualified energy be eligible for the 

business energy credit as solar, wind, or 

geothermal property, Congress also did 

not intend to adopt an all or nothing 

rule for dual use solar, wind, or 

geothermal energy property.’’ 

Accordingly, the Dual Use Rule in 

existing § 1.48–9 provides that a solar 

energy property, wind energy property, 

and geothermal equipment are eligible 

for the section 48 credit to the extent of 

the property’s basis or cost allocable to 

its annual use of energy from a qualified 

source, provided the use of energy from 

‘‘non-qualifying’’ sources does not 

exceed 25 percent of the total energy 

input of the property during an annual 

measuring period. Notably, the Dual Use 

Rule provided in § 1.48–9 also 

precludes an energy property from 

receiving and aggregating energy from a 

combination of qualifying sources (solar 

energy property, wind energy property, 

and geothermal equipment). Because the 

Dual Use Rule requires that a solar 

energy property, wind energy property, 

or geothermal equipment must use a 

minimum of 75 percent of energy from 

a qualified source during an annual 

measuring period to qualify for a section 

48 credit. This rule became known as 

the ‘‘75-percent Cliff.’’ 

The Dual Use Rule provided in 

existing § 1.48–9 also provides that, if in 

the first annual measuring period, the 

applicable percentage (based on usage 

from a qualifying source) is between 75 

percent and 100 percent, only a 

proportionate amount of the eligible 

basis of the energy property should be 

taken into account in computing the 

amount of the section 48 credit. If less 

than 75 percent of the energy used is 

from qualifying sources, then the 

eligible basis is zero, and the property 

is not eligible for the section 48 credit. 

1. Alternatives to the 75-Percent Cliff 

In response to Notice 2015–70, many 

commenters requested that the 

regulations be modified to reduce the 

Dual Use Rule’s current 75-percent Cliff 

to a 50-percent Cliff. Commenters cited 

as support for this proposal the statutory 

language of section 25D(d)(1), which 

allows for full credit eligibility if a solar 

water heating property receives at least 

50 percent of its energy inputs from the 

sun. Applying this premise to the 

investment tax credit under section 48 

would allow an energy property to be 

eligible for 100 percent of the section 48 

credit if it receives at least 50 percent of 

its energy input from a qualifying source 

but would render the energy property 

ineligible for the section 48 credit if less 

than 50 percent of its energy input is 

from a qualifying source. Commenters 

asserted that a 50-percent Cliff would be 

more equitable than the 75-percent Cliff. 

Several commenters also 

recommended that the regulations be 

modified to provide that if greater than 

50 percent of energy received by an 

energy property is from a qualifying 

source that the energy property is 

eligible for a full section 48 credit. 

Conversely, if the energy property 

receives less than 50 percent of its 

energy input from a qualifying source, 

the qualifying basis of the energy 

property is reduced incrementally for 

the annual measuring period. 

Importantly, this rule would reduce the 

credit but not disqualify the energy 

property entirely from credit eligibility. 

The benefit of adopting this rule is that 

it would eliminate the ‘‘all or nothing’’ 

dynamic of the current 75-percent Cliff 

and, as a result, would provide certainty 

that an energy property will remain 

credit eligible. The main obstacle to 

adopting this rule is that it would be 

expensive for taxpayers to measure with 

great accuracy the relative amounts of 

energy input from different qualifying 

sources. 

Many commenters suggested changing 

the Dual Use Rule to a ‘‘Primary Use 

Rule’’ modeled on the ‘‘Primary Use’’ 

Test for asset class depreciation 

determinations, changes in use, and for 

asset disposition purposes. According to 

commenters, this approach is popular 

because the Primary Use Test could be 

performed at the same time (on the 

placed in service date) and manner in 

which the taxpayer determines the 

primary use of the asset for depreciation 

purposes. The challenge of this 

approach is that it also depends upon 

taxpayers correctly using the 

depreciation asset class determination 

procedures and reporting any changes 

in primary use to the IRS for recapture. 

Moreover, the scope of the Primary Use 

Test seems inappropriate for the section 

48 credit because the Primary Use Test 

merely serves to determine how the 

property is depreciated rather than 

whether the property can be 

depreciated. Applying this test to 

determine credit eligibility may 

increase, beyond what was intended, 

the credit available to a taxpayer. 

After consideration of the comments, 

the Treasury Department and the IRS 

have determined it would be most 

consistent with statutory intent to 

reduce the applicable threshold of the 

Dual Use Rule to 50 percent resulting in 

the adoption of a 50-percent Cliff. 

Therefore, proposed § 1.48–14(b)(2)(i) 

would require an energy property to 

derive a minimum of 50 percent of 

energy from a qualifying source during 

an annual measuring period. Similar to 

the operation of the 75-percent Cliff in 

existing § 1.48–9, if the energy used 

from qualifying sources is between 50 

percent and 100 percent, only a 

proportionate amount of the eligible 

basis of the energy property will be 

taken into account in computing the 

amount of the section 48 credit. If less 

than 50 percent of the energy used is 

from qualifying sources, then the 

eligible basis is zero, and the property 

is not eligible for the section 48 credit. 

The Treasury Department and the IRS 

recognize that the Dual Use Rule is no 

longer relevant to determining the 

eligibility of energy storage technology 

placed in service after December 31, 

2022, because the IRA added energy 

storage technology as an energy 

property effective for property placed in 

service after December 31, 2022. 

However, the Dual Use Rule may still 

have other applications under section 

48. The Treasury Department and the 

IRS request comments on the 

application of the Dual Use Rule to 


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section 48 after its amendment by the 

IRA. 

2. Aggregation of Energy Inputs 

While T.D. 8147 significantly 

amended existing § 1.48–9 to permit 25 

percent of energy used by energy 

property from non-qualifying sources, it 

did not allow the aggregation of energy 

from multiple energy properties to be 

treated as energy from qualifying 

sources for purposes of the Dual Use 

Rule. 

In response to Notice 2015–70, several 

commenters requested a revised rule to 

permit taxpayers to calculate credit 

basis by aggregating all inputs from 

qualifying sources that would otherwise 

individually qualify for the section 48 

credit (all types of energy property and 

any qualified facilities for which an 

election is made to claim the section 48 

credit as a ‘‘qualified investment credit 

facility’’ under section 48(a)(5)). After 

consideration of the comments received, 

proposed § 1.48–14(b)(2)(ii) would 

revise the Dual Use Rule to permit the 

aggregation of energy inputs from more 

than one energy property. 

3. Measurement Period 

Existing § 1.48–9(c)(10)(iv) and (d)(6) 

provides that an annual measuring 

period is the period during which the 

portion of dual use property’s basis or 

cost allocable to use of energy from a 

qualified source is measured. An annual 

measuring period for an item of dual use 

property is defined as the 365-day 

period beginning with the day it is 

placed in service or a 365-day period 

beginning the day after the last day of 

the immediately preceding annual 

measuring period. 

In response to Notice 2015–70, several 

commenters requested that the 

regulations provide a clarification of the 

annual measurement rules applicable to 

dual use property. Several of these 

commenters’ concerns were tied to 

energy storage technology. Because the 

IRA now includes energy storage 

technology as eligible property, many of 

these specific concerns may have been 

eliminated. However, the proposed 

regulations would still address these 

concerns by adopting these annual 

measurement rules for application to the 

Dual Use Rule. Accordingly, a taxpayer 

may claim the section 48 credit when it 

places an energy property in service, 

and all relevant time periods, including 

depreciation and recapture, begin on 

that date. After consideration of the 

comments, proposed § 1.48–14(b)(2)(iii) 

would provide that an annual 

measuring period for an item of dual use 

property is any period of 365 

consecutive days (366 days in a leap 

year) beginning with the day the dual 

use property is placed in service. 

4. Dual Use Property and Microgrid 

Controllers 

Certain equipment is necessary for a 

microgrid controller to perform its 

functions, but such equipment may also 

have been required to be installed even 

without the presence of a microgrid. An 

example is a communications system 

(for example, a local ethernet network or 

a commercial wireless network). A 

microgrid controller must be connected 

to a communications system to operate 

properly. Such a communications 

system could be considered part of the 

microgrid controller itself. However, the 

communications system could also be 

used for other purposes and may not be 

dedicated to the microgrid system. The 

Dual Use Rule would be inapplicable in 

this scenario because the scenario does 

not involve the use of energy derived 

from both a qualifying source and from 

sources other than a qualifying source 

(non-qualifying source). The Treasury 

Department and the IRS request 

comments on whether a rule is needed 

to address this situation for microgrid 

controllers or other potentially similar 

situations for which the Dual Use Rule 

would not apply. 

C. Energy Property That Could Be 

Eligible for Multiple Credits 

Section 48 and the existing 

regulations thereunder are silent 

regarding the eligibility of components 

of energy property for multiple credits. 

However, in Notice 2013–70, the 

Treasury Department and the IRS 

considered the ability of a single 

taxpayer to claim section 25D and 

section 48 credits for different uses of 

the same energy property. In Q&A #27 

of Notice 2013–70, a taxpayer purchased 

and installed solar electric property to 

generate electricity for the taxpayer’s 

residence. The taxpayer also expected 

the solar electric property to generate 

excess electricity that would be sold to 

a utility. Q&A #27 determined that the 

taxpayer may not claim the section 25D 

credit for the full amount of the solar 

electric property expenditure because 

the property not only generates 

electricity for use in the taxpayer’s 

residence, but it also generates 

electricity for sale by the taxpayer. As a 

result, the taxpayer may only claim the 

section 25D credit for the portion of the 

solar electric property expenditure that 

relates to the electricity generated for 

use in the taxpayer’s home. However, 

the taxpayer may be able to claim the 

section 48 credit for a portion of the 

solar electric property expenditure if the 

requirements of section 48 are satisfied. 

Notice 2013–70 did not separately 

analyze whether the taxpayer had met 

the requirements to claim the section 48 

credit. 

Several commenters requested a 

modification of the regulations to allow 

section 48 credit eligibility in scenarios 

involving different taxpayers that claim 

different credits related to different 

components of an energy property. This 

may also occur in situations in which 

different taxpayers own components of 

energy property as discussed in part 

III.E.1 of this Summary of Comments 

and Explanation of Provisions. After 

consideration of these comments, 

proposed § 1.48–14(c)(1) would provide 

that the same energy property may be 

eligible for both the section 48 credit 

and another credit subject to certain 

limitations that proposed § 1.48–14(c)(2) 

would provide. 

D. Incremental Cost 

Existing guidance under section 48 

provides that only the incremental cost 

of energy property is included in the 

eligible basis for purposes of 

determining the section 48 credit. 

Existing § 1.48–9(k) defines incremental 

cost as the excess of the total cost of 

equipment over the amount that would 

have been expended for the equipment 

if the equipment were not used for a 

qualifying purpose related to the section 

48 credit. The existing regulations 

provide as an example, a scenario in 

which energy property costing $100 

performs a pollution control function as 

well as a non-qualifying function. The 

example states that it would cost $60 

solely to perform the non-qualifying 

function, thus the incremental cost to 

the energy property would be $40. 

The Treasury Department and the IRS 

received no comments regarding the 

incremental cost rule in response to 

Notice 2015–70. Thus, proposed § 1.48– 

14(d)(1) would continue to apply this 

incremental cost approach and would 

provide that only the incremental cost 

of energy property is included in the 

eligible basis of the energy property for 

purposes of computing the section 48 

credit. 

E. Special Rules Concerning Ownership 

1. Separate Ownership of Energy 

Property 

Section 48 and the existing 

regulations thereunder are silent 

regarding whether the components of an 

energy property can be owned by 

multiple taxpayers. In Revenue Ruling 

78–268, 1978–2 C.B. 10, the Treasury 

Department and the IRS addressed a 

situation involving four owners that 

shared a common tenancy in an electric 


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generating facility: two investor-owned 

utilities, a tax-exempt cooperative, and 

a tax-exempt municipality-owned 

utility. The specific issue raised in this 

Revenue Ruling was whether ownership 

by the tax-exempt entities disqualified 

the entire electric generating facility 

from the investment tax credit. Former 

section 48(a)(4) effectively stated that 

property owned by a tax-exempt entity 

could not be investment tax credit 

property. Revenue Ruling 78–268 

concluded that the two investor-owned 

utilities were eligible for the investment 

tax credit despite the fact that the 

electric generating facility was not 

credit-eligible property in the hands of 

the tax-exempt entities. This revenue 

ruling has been interpreted to stand for 

the proposition that fractional interests 

in common tenancies should be treated 

as separate assets for Federal income tax 

purposes. 

Several commenters requested the 

adoption of a rule that separate parties 

that own an interest in energy property 

are eligible for the section 48 credit to 

the extent of their fractional ownership 

interests. Further, these commenters 

also requested the adoption of a rule 

that, if components of energy property 

are owned by separate taxpayers, each 

taxpayer would be eligible for the 

section 48 credit to the extent of their 

cost basis in the components of energy 

property that they own. These 

commenters cite Revenue Ruling 78– 

268 as support for the proposition that 

fractional interests in common tenancies 

should be treated as separate assets for 

Federal income tax purposes. 

Many commenters requested that the 

regulations address situations involving 

energy property with multiple owners, 

such as solar condos and community 

solar facilities. These commenters 

requested that the regulations be 

clarified to state that shared ownership 

does not affect the credit eligibility of an 

energy property, regardless of the 

ownership structure. To support this 

position, several commenters cite to 

section 25C(e)(1) (redesignated as 

section 25C(f)(1) of the Code by the IRA) 

and section 25D(e)(5) that treat a tenantstockholder (as defined in section 216 of 

the Code) in a cooperative housing 

corporation (as defined in section 216) 

as making his or her proportionate share 

(as defined in section 216(b)(3)) of any 

expenditures of such corporation. 

Similarly, sections 25C(f)(1) and 

25D(e)(6) treat an individual member of 

a condominium management 

association as having made the 

individual’s proportionate share of any 

expenditures of such association. As a 

result, a tenant-stockholder in a 

cooperative or a member of a 

condominium association may claim a 

section 25C or 25D credit for their 

proportional share of the expenditure of 

the cooperative or condominium 

association for credit eligible property. 

Several commenters expressed 

concerns about credit eligibility and the 

ownership of offshore wind property. 

For example, a group of commenters 

requested confirmation that certain 

transfer and power conditioning 

equipment necessary to deploy offshore 

wind is eligible for a section 48 credit, 

but also that the transfer and power 

conditioning equipment is eligible for 

section 48 even if owned by a separate 

entity from the entity that owns the 

offshore wind turbines or if the transfer 

and power conditioning equipment is 

shared between multiple offshore wind 

facilities as part of a shared 

transmission solution. 

The Treasury Department and the IRS 

have determined that a taxpayer that 

owns an energy property is eligible for 

the section 48 credit only to the extent 

of the taxpayer’s eligible basis in the 

energy property. In the case of multiple 

parties that hold ownership shares in an 

energy property, each party is eligible 

for the section 48 credit to the extent of 

the party’s fractional ownership interest. 

Proposed § 1.48–14(e)(2) would adopt 

this position. Proposed § 1.48–14(e)(4) 

also would provide examples 

illustrating the treatment of multiple 

owners of an energy property. 

As described in part I.D.3 of this 

Summary of Comments and Explanation 

of Provisions with regard to qualified 

offshore wind property, functionally 

interdependent components do not 

include power conditioning and transfer 

equipment such as subsea cables and 

voltage transformers necessary to 

condition electricity for use on the 

electrical grid. However, the power 

conditioning and transfer equipment are 

integral parts of the qualified offshore 

wind property, and thus, are energy 

property. In contrast, transmission and 

distribution equipment are not 

functionally interdependent 

components of an energy property nor 

are they an integral part of an energy 

property. If the taxpayer owns both the 

unit of energy property and at least a 

portion of the related power 

conditioning and transfer equipment, 

that taxpayer would be able to calculate 

the section 48 credit on the eligible 

basis of the energy property, including 

the taxpayer’s basis in the integral 

power conditioning and transfer 

equipment. In the case of multiple 

parties that hold ownership shares in an 

energy property, each party is eligible 

for the section 48 credit to the extent of 

its fractional ownership interest. If 

power conditioning and transfer 

equipment owned by one taxpayer is an 

integral part of an energy property 

owned by an unrelated taxpayer, the 

taxpayer that owns the power 

conditioning and transfer equipment 

would not be eligible for the section 48 

credit but the taxpayer that owns the 

energy property would be eligible for 

the section 48 credit. 

For example, if Taxpayer A owns only 

power conditioning and transfer 

equipment that is an integral part of an 

energy property owned by unrelated 

Taxpayer B, Taxpayer A would not be 

eligible for the section 48 credit. 

However, this would not prevent 

Taxpayer B from claiming a section 48 

credit on the basis of the energy 

property that it owns. In addition, if 

unrelated taxpayers Taxpayer A and 

Taxpayer B jointly own power 

conditioning and transfer equipment 

that is an integral part of a qualified 

offshore wind facility, but only 

Taxpayer B owns the unit of energy 

property (that is, the qualified offshore 

wind facility), only Taxpayer B may 

claim the section 48 credit. The amount 

of Taxpayer B’s section 48 credit is 

calculated by taking into account both 

Taxpayer B’s share of the basis in the 

power conditioning and transfer 

equipment and Taxpayer B’s basis in the 

unit of energy property (that is, 

Taxpayer B’s basis in qualified offshore 

wind facility). 

2. Related Taxpayers 

Section 48 does not define the term 

‘‘related taxpayers.’’ This term was 

defined in existing § 1.48–9(q)(10)(i) in 

the context of qualified intercity buses. 

This provision states that related 

taxpayers are treated as one taxpayer in 

determining the increase in operating 

capacity of qualifying intercity buses 

and in determining the qualified 

investment in qualified intercity buses 

for the energy credit. Existing § 1.48– 

9(q)(10)(i) also provides that related 

taxpayers are members of a group of 

trades or businesses that are under 

common control (as defined in § 1.52– 

1(b)). The Treasury Department and the 

IRS received no comments regarding the 

related taxpayer rule in response to 

Notice 2015–70. As a result, proposed 

§ 1.48–14(e)(3) would incorporate the 

rule provided in the existing 

regulations. 

F. Coordination With Other Code 

Provisions 

1. Election To Treat Qualified Facilities 

as Energy Property 

Section 48(a)(5) allows a taxpayer that 

owns a qualified facility (as defined in 


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section 45(d)) to elect to claim the 

section 48 credit in lieu of the section 

45 credit. Section 48(a)(5)(A) provides 

that if the taxpayer makes an election, 

the qualified facility will be treated as 

part of a qualified investment credit 

facility, and therefore deemed energy 

property eligible for a section 48 credit. 

A qualified investment credit facility is 

defined in section 48(a)(5)(C) as a 

qualified facility described in section 

45(d)(1)–(4), (6), (7), (9), or (11), with 

respect to which no credit has been 

allowed under section 45, and for which 

the taxpayer makes an irrevocable 

election to claim the section 48 credit in 

lieu of any section 45 credit. Qualified 

facilities for which a taxpayer is eligible 

to make an election under section 

48(a)(5) include wind, closed- and openloop biomass, geothermal, solar, landfill 

gas, trash, hydropower, marine and 

hydrokinetic facilities. 

Only with respect to a qualified 

investment credit facility, section 

48(a)(5)(D) defines ‘‘qualified property’’ 

as tangible personal property or other 

tangible property (not including a 

building or its structural components), 

but only if such property is used as an 

integral part of the qualified investment 

credit facility; with respect to which 

depreciation (or amortization in lieu of 

depreciation) is allowable; that is 

constructed, reconstructed, erected, or 

acquired by the taxpayer; and the 

original use of the property commences 

with the taxpayer. 

Notice 2009–52, 2009–25 I.R.B. 1094, 

provides taxpayers with procedures to 

make an election under section 48(a)(5). 

Proposed § 1.48–14(f)(6) would adopt 

the procedures in Notice 2009–52 and, 

as a result, Notice 2009–52 will be 

obsoleted upon the publication of the 

final regulations in the Federal Register. 

a. Interaction of Section 45 Credit 

Requirements With Section 48 Credit 

In response to Notice 2015–70, several 

commenters requested that the 

regulations address whether and to what 

extent the definition of ‘‘qualified 

investment credit facility’’ provided in 

section 48(a)(5)(C) makes the rules that 

generally apply for determining a 

taxpayer’s section 45 credit applicable 

to qualified facilities for which the 

taxpayer makes an election. 

Additionally, Notice 2022–49 requested 

comments on whether guidance is 

needed to determine whether a qualified 

investment credit facility that elects to 

claim the section 48 credit in lieu of the 

section 45 credit is subject to all of the 

requirements of section 45, including 

the requirement that electricity 

generated by the qualified investment 

credit facility be sold to an unrelated 

person, and what factors the Treasury 

Department and the IRS should consider 

regarding such guidance. Several 

commenters responded and generally 

were not supportive of imposing the 

requirements of section 45 on a 

qualified investment credit facility that 

elects to claim the section 48 credit in 

lieu of the section 45 credit. One 

commenter pointed out, for example, 

that section 48 only cross-references 

specific provisions of section 45(d) and 

not all of section 45(d) nor all of section 

45. This commenter noted that because 

section 48 is an investment tax credit 

rather than a production tax credit, the 

rationale for requiring sales of energy 

from a qualified investment credit 

facility to unrelated persons is 

inapplicable. 

Section 45(a) sets forth the amount of 

the production tax credit for a taxable 

year. It does not determine whether a 

facility is a ‘‘qualified facility’’ (that 

definition is set forth in section 45(d)). 

Section 45(a) specifies the amount of the 

credit for a qualified facility by formula 

(0.3 cents (increased credit amount 

under section 45(a)(6) if the 

requirements of 45(a)(6)(B) are met) 

multiplied by the kWh of electricity 

generated and sold to an unrelated 

person. This statutory structure appears 

to make the requirement that electricity 

be sold to an unrelated person relevant 

only for determining the amount of the 

section 45 tax credit, not eligibility for 

the section 48 tax credit. Therefore, after 

consideration of these comments, the 

Treasury Department and the IRS have 

determined that the requirements of 

section 45 are not imposed on a 

qualified investment credit facility that 

elects to claim the section 48 credit in 

lieu of the section 45 credit. Proposed 

§ 1.48–14(f)(1) would adopt this 

position. 

b. Time and Manner of Making Election 

Section 2 of Notice 2009–52 provides 

that, to make the election with respect 

to a qualified facility, a taxpayer must 

claim the energy credit on a completed 

Form 3468, Investment Credit, and file 

such form with the taxpayer’s income 

tax return for the year in which the 

property is placed in service. The 

taxpayer must make a separate election 

for each qualified facility that is to be 

treated as a qualified investment credit 

facility. Proposed § 1.48–14(f)(6)(i) 

would adopt this procedure with some 

modifications. If any taxpayer owning 

an interest in a qualified investment 

credit facility makes an election under 

section 48(a)(5), that election would be 

binding on all taxpayers that directly or 

indirectly own an interest in the facility. 

Additionally, proposed § 1.48– 

14(f)(6)(ii) would provide a similar 

special rule for partnerships and S 

corporations, which would require that 

the election be made at the entity level 

and is binding on all ultimate credit 

claimants (as defined in § 1.50– 

1(b)(3)(ii)) who must claim the credit in 

proportion to their respective qualified 

investment in the energy property. The 

credit is claimed on each claimant’s 

completed Form 3468, or any successor 

form(s), and filed with a timely filed 

(including extensions) return for the 

taxable year in which the partnership or 

S corporation makes the election. 

2. Coordination Between Section 42 and 

48 Credits 

Section 50(c)(3)(A) provides the 

general rule that a taxpayer’s basis in an 

energy property is reduced by 50 

percent of the amount of a section 48 

credit determined with respect to the 

taxpayer’s investment in the energy 

property. Section 13102(i) of the IRA 

amended section 50(c) to provide an 

exception to that rule for property 

placed in service after December 31, 

2022. As a result, a taxpayer that has 

claimed a section 48 credit with respect 

to its basis in an energy property is not 

required to reduce its basis in the energy 

property when determining eligible 

basis for purposes of calculating a lowincome housing credit under section 42 

of the Code (section 42 credit). 

Accordingly, the basis of energy 

property may be used to determine a 

section 48 credit and may also be 

included in eligible basis when 

determining a section 42 credit. 

G. Rules for Certain Lower-Output 

Energy Properties To Include Qualified 

Interconnection Costs in the Basis of 

Associated Energy Property 

Section 13102(j) of the IRA added 

section 48(a)(8)(A) to the Code, which 

provides that, for purposes of 

determining the section 48 credit with 

respect to energy property (as defined in 

section 48(a)(3)) that has a maximum 

net output of not greater than 5 MW (as 

measured in alternating current) (FiveMegawatt Limitation), a taxpayer may 

include amounts paid or incurred by the 

taxpayer for qualified interconnection 

property in connection with the 

installation of the energy property to 

provide for the transmission or 

distribution of the electricity produced 

or stored by such energy property. 

Additionally, these costs must be 

properly chargeable to the capital 

account of the taxpayer. 

Section 48(a)(8)(B) defines ‘‘qualified 

interconnection property’’ to mean, with 

respect to an energy project that is not 


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a microgrid controller, any tangible 

property that is part of an addition, 

modification, or upgrade to a 

transmission or distribution system that 

is required at or beyond the point at 

which the energy project interconnects 

to such transmission or distribution 

system in order to accommodate such 

interconnection; either that is 

constructed, reconstructed, or erected 

by the taxpayer, or for which the cost 

with respect to the construction, 

reconstruction, or erection of such 

property is paid or incurred by such 

taxpayer; and the original use of which, 

pursuant to an interconnection 

agreement, commences with a utility. 

Section 48(a)(8)(C) defines an 

‘‘interconnection agreement’’ as an 

agreement with a utility for the 

purposes of interconnecting the energy 

property owned by such taxpayer to the 

transmission or distribution system of 

such utility. 

Section 48(a)(8)(D) defines the term 

‘‘utility’’ for purposes of section 48(a)(8) 

as the owner or operator of an electrical 

transmission or distribution system that 

is subject to the regulatory authority of 

a State or political subdivision thereof, 

any agency or instrumentality of the 

United States, a public service or public 

utility commission or other similar body 

of any State or political subdivision 

thereof, or the governing or ratemaking 

body of an electric cooperative. 

Section 48(a)(8)(E) provides a special 

rule for interconnection property. In the 

case of expenses paid or incurred for 

interconnection property, amounts 

otherwise chargeable to capital account 

with respect to such expenses must be 

reduced under rules similar to the rules 

of section 50(c). 

1. Qualified Interconnection Property 

Notice 2022–49 requested comments 

on several aspects of the treatment of 

qualified interconnection property, 

specifically the types of eligible costs, 

the required documentation, and the 

Five-Megawatt Limitation. 

Qualified interconnection property 

costs arise from installation of tangible 

property that is part of an addition, 

modification, or upgrade to a 

transmission or distribution system at or 

beyond the point of interconnection. 

Energy property includes all 

functionally interdependent property 

owned by the taxpayer. Additionally, 

property owned by the taxpayer that is 

an integral part of such energy property 

is energy property. This may include 

power conditioning equipment owned 

by the taxpayer and used to condition 

electricity into a form suitable for use or 

transmission. However, qualified 

interconnection property, which is most 

similar in function to transmission and 

distribution property, is neither 

property that is a functionally 

interdependent component of an energy 

property nor an integral part of an 

energy property. Therefore, qualified 

interconnection property is not energy 

property. Accordingly, proposed § 1.48– 

14(g)(2) would clarify that qualified 

interconnection property is not taken 

into account in determining whether an 

energy property satisfies the 

requirements for the domestic content 

bonus credit amount referenced in 

section 48(a)(12)(B) and the increase in 

credit rate for energy communities 

provided in section 48(a)(14). 

Consistent with section 48(a)(8)(A), 

however, proposed § 1.48–14(g) would 

clarify that, in connection with the 

installation by a taxpayer of energy 

property (as defined in section 48(a)(3)) 

that has a maximum net output of not 

greater than 5 MW (as measured in 

alternating current), amounts paid or 

incurred by the taxpayer for qualified 

interconnection property that is 

required to accommodate the 

interconnection are included in the 

basis of a related energy property. 

Additionally, proposed § 1.48–14(g)(3) 

would provide that the maximum net 

output of an energy property is 

measured only by nameplate generating 

capacity of the unit of energy property 

(or, in the case of energy storage 

technology, the nameplate capacity of 

such energy storage technology) at the 

time the energy property is placed in 

service. 

2. Costs Included in Basis of Related 

Energy Property 

Proposed § 1.48–14(g)(1) would 

provide that only amounts paid or 

incurred by a taxpayer for property that 

is constructed, reconstructed, or erected 

by the taxpayer, or for which the cost 

with respect to the construction, 

reconstruction, or erection of such 

property is paid or incurred by such 

taxpayer, will be included in the basis 

of a related energy property. A taxpayer 

that is reimbursed for these costs may 

not include such reimbursed costs in 

the amount paid or incurred by the 

taxpayer for qualified interconnection 

property. Proposed § 1.48–14(g)(6) 

would adopt this rule. In the case of a 

utility reimbursing a taxpayer for costs 

the taxpayer pays or incurs for qualified 

interconnection property, the utility 

should provide the taxpayer with 

information regarding such costs by the 

date on which the project is placed in 

service. 

The Treasury Department and the IRS 

are aware of common situations where 

a taxpayer could ultimately receive a 

payment, credit, or service from another 

entity, including a utility, related to the 

costs the taxpayer pays or incurs for 

qualified interconnection property. For 

example, one taxpayer may place in 

service energy property and make 

payments to a utility with respect to 

qualified interconnection property 

involving the addition, modification, or 

upgrade to the utility’s transmission 

system related to such energy property. 

Subsequently, a different taxpayer may, 

at a later date, place in service energy 

property and make payments to the 

same utility related to the same 

additions, modifications, or upgrades to 

the utility’s transmission system that 

were made in response to the first 

taxpayer’s interconnection. The utility 

may pay, credit, or provide services to 

the first taxpayer in an amount related 

to the costs paid by the second taxpayer. 

The likely amount or timing of any such 

payment, credit, or service would not be 

known at the time the first taxpayer 

interconnects to the utility’s 

transmission system. 

The Treasury and the IRS request 

comment on whether such payment, 

credit, or service received by the first 

taxpayer, as the result of subsequent 

payments made to a utility by other 

parties, should be treated as a 

reimbursement to the first taxpayer and 

impact the amount of the costs of 

qualified interconnection property that 

the first taxpayer may include in its 

basis for purposes of the section 48 

credit. The Treasury and the IRS also 

request comment on whether the costs 

paid by the second taxpayer should be 

treated as amounts paid or incurred for 

qualified interconnection property in 

connection with the installation of the 

second taxpayer’s energy property. The 

Treasury and IRS request comment on 

industry practices relevant to the 

determination of costs paid or incurred 

for qualified interconnection property, 

including the accounting treatment of 

costs paid or incurred for qualified 

interconnection property. The Treasury 

and the IRS also request comment on 

whether any clarifications are needed 

regarding the tax treatment of amounts 

paid or incurred for qualified 

interconnection property, including 

reimbursement of costs paid or incurred 

by a taxpayer for qualified 

interconnection costs. 

In section 3.02(1)(b)(ii) of Notice 

2022–49, the Treasury Department and 

the IRS requested comments concerning 

what type of documentation, in addition 

to interconnection agreements and cost 

certification reports, is readily available 

for a taxpayer to demonstrate that they 

have paid or incurred interconnection 

costs. Taxpayers must retain 


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documentation in compliance with 

section 6001 of the Code. The proposed 

regulations do not provide any specific 

type of required documentation, and 

any documentation that satisfies section 

6001 will suffice to substantiate that a 

taxpayer has paid or incurred qualified 

interconnection costs. Commenters to 

Notice 2022–49 provided feedback on 

the documentation that taxpayers may 

use to substantiate costs paid or 

incurred for qualified interconnection 

property. 

Qualified interconnection property is 

either constructed, reconstructed, or 

erected by the taxpayer, or the taxpayer 

pays or incurs the cost with respect to 

the construction, reconstruction, or 

erection of such property; and the 

original use of which, pursuant to an 

interconnection agreement, commences 

with a utility. Therefore, in some cases, 

taxpayers will have the necessary 

information and documentation on 

these costs. In other cases, the taxpayers 

will need to receive this information 

from the utility, which, the Treasury 

Department and the IRS understand, 

will be a common scenario. For 

situations in which property is 

constructed, reconstructed, or erected 

by a party other than the taxpayer, final 

information with conclusive details 

such as a true-up report with the actual 

costs, final invoices, proof of payment 

or reimbursement, and permission to 

operate documentation or any other 

final project accounting documentation 

should be maintained. Other examples 

of cost documentation records include, 

but are not limited to, the 

interconnection agreement, 

interconnection study, signed customer 

contracts, and cost certification reports. 

3. Five-Megawatt Limitation 

Under section 48(a)(8)(A), energy 

property includes amounts paid or 

incurred by the taxpayer for qualified 

interconnection property in connection 

with the installation of energy property 

only if it has a maximum net output of 

not greater than 5 MW (as measured in 

alternating current). The addition of 

amounts paid or incurred by the 

taxpayer for qualified interconnection 

property in section 48(a)(8)(A) is tied to 

the installation of ‘‘energy property.’’ 

The statute clearly ties the 5 MW 

limitation to the energy property; 

therefore, as long as an energy property 

is 5 MW or less, the statute is satisfied. 

Additionally, measurement at the level 

of the energy property provides 

certainty for taxpayers and the IRS 

because it is measured by the energy 

property’s maximum net output when it 

is placed in service. Therefore, proposed 

§ 1.48–14(g)(3) would provide that the 

Five-Megawatt Limitation must be 

measured at the level of the energy 

property. Proposed § 1.48–14(g)(7) also 

would provide examples illustrating the 

application of this rule. 

In accordance with proposed § 1.48– 

14(g)(3), if an energy project comprised 

of multiple energy properties has a 

combined nameplate capacity in excess 

of 5 MW, each of the energy properties 

would nonetheless be eligible to include 

amounts paid or incurred by the 

taxpayer for qualified interconnection 

property if each energy property 

satisfies the Five-Megawatt Limitation. 

The Treasury Department and the IRS 

request comments regarding the 

application of the Five-Megawatt 

Limitation to a single energy property, 

including whether the definition of an 

energy property is sufficiently clear for 

this purpose. In addition, the Treasury 

Department and the IRS request 

comments regarding the circumstances 

under which multiple energy properties 

each with a nameplate capacity of less 

than 5 MW would utilize common 

power conditioning equipment for 

economic or regulatory reasons and/or 

common interconnection agreements, or 

would instead utilize separate power 

conditioning equipment and/or 

interconnection agreements. 

4. Non-Application to Certain Types of 

Energy Properties 

The definition of qualified 

interconnection property specifically 

excludes interconnection property 

installed with respect to an energy 

project that is a microgrid controller. 

Additionally, taxpayers may not include 

the costs of qualified interconnection 

property in the basis of electrochromic 

glass property and fiber optic solar 

energy property because these types of 

energy property do not require 

additions, modifications, or upgrades to 

a transmission or distribution system. 

Similarly, in the case of energy 

properties that generate thermal energy, 

such as certain geothermal property and 

qualified biogas property, this provision 

is inapplicable. 

Effect on Other Documents 

Notice 2009–52 will be obsoleted 

upon publication of the final regulations 

in the Federal Register. Notice 2009–52, 

in relevant part, provides procedures for 

taxpayers to make an irrevocable 

election under section 48(a)(5) to treat 

qualified property that is part of a 

qualified investment credit facility as 

energy property eligible for a section 48 

credit in lieu of a section 45 credit. 

Proposed Applicability Dates 

Except for the provisions of proposed 

§§ 1.48–13 and 1.6418–5(f), these 

regulations generally are proposed to 

apply with respect to property that is 

placed in service after December 31, 

2022, and during a taxable year 

beginning after the date final regulations 

are published in the Federal Register. 

Proposed § 1.6418–5(f) is proposed to 

apply to taxable years ending on or after 

the date final regulations are published 

in the Federal Register. A taxpayer may 

rely on proposed §§ 1.48–9, 1.48–14, 

and 1.6418–5(f) with respect to property 

that is placed in service after December 

31, 2022, and during a taxable year 

beginning on or before the date final 

regulations are published in the Federal 

Register, provided the taxpayer and all 

related persons (within the meaning of 

sections 267(b) and 707(b) of the Code) 

apply proposed §§ 1.48–9 and 1.48–14 

in their entirety and in a consistent 

manner. 

Proposed § 1.48–13 is proposed to 

apply to projects placed in service in 

taxable years ending after the date final 

regulations are published in the Federal 

Register, and the construction of which 

begins after the date final regulations are 

published in the Federal Register. 

However, proposed § 1.48–13(d) is 

proposed to apply to energy projects the 

construction of which begins after 

November 22, 2023. Taxpayers may rely 

on § 1.48–13 with respect to 

construction of a property or project 

beginning on or after January 29, 2023, 

and on or before the date these 

regulations are published as final 

regulations in the Federal Register, 

provided, that beginning after the date 

that is 60 days after August 29, 2023, 

taxpayers follow proposed § 1.48–13 in 

its entirety and in a consistent manner. 

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 Office of Management and 

Budget (OMB) before collecting 

information from the public, whether 

such collection of information is 


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mandatory, voluntary, or required to 

obtain or retain a benefit. 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 collections of information in 

these proposed regulations contain 

reporting and recordkeeping 

requirements that are required to verify 

the eligibility of the property for the 

credit. These collections of information 

would generally be used by the IRS for 

tax compliance purposes and by 

taxpayers to facilitate proper reporting 

and compliance. 

The reporting requirement mentioned 

within this proposed regulations with 

respect to section 48 are in proposed 

§ 1.48–14(f)(6), which provides the time 

and manner for a taxpayer to make a 

section 48(a)(5)(C) an election to have 

qualified investment credit facility 

property that was placed in service after 

December 31, 2008, treated as a 

qualified investment credit facility for 

purposes of claiming the section 48 

credit. These requirements are 

considered general tax records under 

§ 1.6001–1. 

A taxpayer must make a section 

48(a)(5)(C) election on a completed 

Form 3468 (Investment Credit) (or 

successor forms, or pursuant to 

instructions and other guidance) with 

the taxpayer’s timely filed return 

(including extensions) for the taxable 

year in which the energy property is 

placed in service. The taxpayer must 

make a separate section 48(a)(5)(C) 

election for each qualified facility that is 

to be treated as a qualified investment 

credit facility. These collections are 

included in Notice 2009–52, 2009–1 

C.B. 1094, which is already approved 

under OMB Control Number 1545–2145 

for all filers. Also, the election selection 

is included on, Form 3468, which is 

already approved in OMB Control 

Numbers 1545–0155 for trust and estate 

filers, 1545–0074 for individual filers, 

and 1545–0123 for business filers. This 

proposed regulation is not changing the 

collection requirements already 

approved by OMB. 

These proposed regulations would 

also include reporting requirements, in 

addition to the general reporting 

requirements set forth in in § 1.45–12 of 

the August Proposed Regulations, for 

taxpayers that claim an increased credit 

amount under section 48(a)(9)(B)(iii). 

These proposed regulations would 

require taxpayers to verify compliance 

with the Prevailing Wage Requirements 

by providing information that includes 

the aggregate information detailed in 

§ 1.45–12 of the August Proposed 

Regulations during the five-year 

recapture period after an energy project 

is placed in service. The Secretary may 

issue forms and instructions in future 

guidance for the purpose of meeting 

these reporting requirements. As set 

forth in the preamble to the August 

Proposed Regulations, these reporting 

requirements will be covered under 

OMB control numbers 1545–0074 for 

individuals/sole proprietors and 1545– 

0123 for business entities. The IRS has 

solicited public comments on these 

requirements and the associated 

burdens for trusts and estates and has 

sought OMB approval under a new 

OMB control number (1545–NEW) for 

trust and estate filers. This proposed 

regulation is not changing or creating 

new collection requirements not already 

approved by, or will be approved by, 

OMB for the § 1.45–12. 

These proposed regulations also 

describe recapture procedures as 

detailed in proposed § 1.6418–5. The 

reporting of a section 48(a)(10)(C) 

recapture event will still be required to 

be reported using Form 4255, Recapture 

of Investment Credit. This form is 

approved under OMB control numbers 

1545–0074 for individuals, 1545–0123 

for business entities, and 1545–0166 for 

trust and estate filers. The proposed 

regulation is not changing or creating 

new collection requirements not already 

approved by OMB. 

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 is not 

likely to have a significant economic 

impact on a substantial number of small 

entities, section 603 of the RFA requires 

the agency to present an initial 

regulatory flexibility analysis (IRFA) of 

the proposed rule. 

The Treasury Department and the IRS 

have not determined whether the 

proposed rule, when finalized, will 

likely have a significant economic 

impact on a substantial number of small 

entities. This determination requires 

further study. However, because there is 

a possibility of significant economic 

impact on a substantial number of small 

entities, an IRFA is provided in these 

proposed regulations. The Treasury 

Department and the IRS invite 

comments on both the number of 

entities affected and the economic 

impact on small entities. 

Pursuant to section 7805(f), this 

notice of proposed rulemaking has been 

submitted to the Chief Counsel of 

Advocacy of the Small Business 

Administration for comment on its 

impact on small business. 

A. Need for and Objectives of the Rule 

The proposed regulations will provide 

greater clarity to taxpayers for purposes 

of claiming the section 48 credit for 

energy property. The proposed rule is 

expected to encourage taxpayers to 

invest in developing new energy 

properties, including qualified facilities 

otherwise eligible for the section 45 

credit for which a taxpayer makes a 

section 48(a)(5)(C) election. Thus, the 

Treasury Department and the IRS intend 

and expect that the proposed rule will 

deliver benefits across the economy that 

will beneficially impact various 

industries. 

B. Affected Small Entities 

The Small Business Administration 

estimated in its 2018 Small Business 

Profile that 99.9 percent of United States 

businesses meet its definition of a small 

business. The applicability of these 

proposed regulations does not depend 

on the size of the business, as defined 

by the Small Business Administration. 

As described more fully in the preamble 

to these proposed regulations and in 

this IRFA, these rules may affect a 

variety of different businesses across 

several different industries. 

The section 48 credit incentivizes the 

development of energy property. 

Because the potential credit claimants 

can vary widely, it is difficult to 

estimate at this time the impact of these 

proposed regulations, if any, on small 

businesses. 

The Treasury Department and the IRS 

expect to receive more information on 

the impact on small businesses through 

comments on this proposed rule and 

again when taxpayers start to claim the 

section 48 credit using the guidance and 

procedures provided in these proposed 

regulations. 

C. Impact of the Rule 

The proposed regulations will allow 

taxpayers to plan investments and 

transactions based on the ability to 

claim the section 48 credit. The 

increased use of the section 48 credit 

will incentivize the development of 

technologies for energy generation and 

storage. The use of the section 48 credit 

may also lead to additional investment 

in electrical grid infrastructure to 

transport electricity. 


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Because the statutory changes that are 

reflected in the proposed rules have 

already been accounted for by Form 

3468, the recordkeeping and reporting 

requirements should not increase for 

taxpayers that already claim the section 

48 credit. The Form 3468 already 

provides the procedures for taxpayers to 

make a section 48(a)(5)(C) election. To 

make the election, a taxpayer must 

claim the energy credit with respect to 

a qualified investment credit facility 

property on a completed Form 3468 

(Investment Credit) (or successor forms, 

or pursuant to instructions and other 

guidance) and file such form with the 

taxpayer’s timely filed return (including 

extensions) for the taxable year in which 

the property is placed in service. 

Although the Treasury Department and 

the IRS do not have sufficient data to 

precisely determine 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 the 

preamble. 

D. Duplicative, Overlapping, or 

Conflicting Federal Rules 

The proposed rule would not 

duplicate, overlap, or conflict with any 

relevant Federal rules. As discussed 

above, the proposed rule would merely 

provide procedures and definitions to 

allow taxpayers to claim the section 48 

credit. 

IV. Unfunded Mandates Reform Act 

Section 202 of the Unfunded Mandate 

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 (updated annually for 

inflation). These proposed regulations 

do 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 proposed 

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. This 

proposed rule does not have substantial 

direct effects on one or more Federally 

recognized Indian Tribes and does not 

impose substantial direct compliance 

costs on Indian Tribal governments 

within the meaning of the Executive 

order. 

Statement of Availability of IRS 

Documents 

IRS notices and other guidance cited 

in this preamble are published in the 

Internal Revenue Bulletin (or 

Cumulative Bulletin) and are 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. 

Comments and Public Hearing 

Before these proposed amendments to 

the regulations are adopted as final 

regulations, consideration will be given 

to any comments regarding the notice of 

proposed rulemaking and partial 

withdrawal of notice of proposed 

rulemaking that are submitted timely to 

the IRS in the preamble under the 

ADDRESSES section. The Treasury 

Department and the IRS request 

comments on all aspects of the proposed 

regulations. All comments submitted 

will be made available at http://

www.regulations.gov or upon request for 

public inspection and copying. 

A public hearing has been scheduled 

for February 20, 2024, at 10 a.m. ET, in 

the Auditorium at the Internal Revenue 

Building, 1111 Constitution Ave. NW, 

Washington, DC. Because of access 

restrictions, visitors will not be 

admitted beyond the immediate 

entrance area more than 30 minutes 

before the hearing starts. Participants 

may alternatively attend the public 

hearing by telephone. 

The rules of 26 CFR 601.601(a)(3) 

apply to the public hearing. Persons 

who wish to present oral comments at 

the public hearing must submit an 

outline of the topics to be discussed and 

the time to be devoted to each topic by 

January 22, 2024. A period of 10 

minutes will be allotted to each person 

for making comments. An agenda 

showing the scheduling of the speakers 

will be prepared after the deadline for 

receiving outlines has passed. Copies of 

the agenda will be available free of 

charge at the public hearing. If no 

outline of the topics to be discussed at 

the public hearing is received by 

January 22, 2024, the public hearing 

will be cancelled. If the public hearing 

is cancelled, a notice of cancellation of 

the public hearing will be published in 

the Federal Register. 

Individuals who want to testify in 

person at the public hearing must send 

an email to publichearings@irs.gov to 

have your name added to the building 

access list. The subject line of the email 

must contain the regulation number 

REG–132569–17 and the language 

TESTIFY In Person. For example, the 

subject line may say: Request to 

TESTIFY In Person at Hearing for 

regulation number REG–132569–17. 

Individuals who want to testify by 

telephone at the public hearing must 

send an email to publichearings@irs.gov 

to receive the telephone number and 

access code for the hearing. The subject 

line of the email must contain the 

regulation number REG–132569–17 and 

the language TESTIFY Telephonically. 

For example, the subject line may say: 

Request to TESTIFY Telephonically at 

Hearing for REG–132569–17. 

Individuals who want to attend the 

public hearing in person without 

testifying must also send an email to 

publichearings@irs.gov to have your 

name added to the building access list. 

The subject line of the email must 

contain the regulation number REG– 

132569–17 and the language ATTEND 

In Person. For example, the subject line 

may say: Request to ATTEND Hearing in 

Person for REG–132569–17. Requests to 

attend the public hearing must be 

received by 5:00 p.m. on February 15, 

2024. 

Hearings will be made accessible to 

people with disabilities. To request 

special assistance during a hearing 

please contact the Publications and 

Regulations Branch of the Office of 

Associate Chief Counsel (Procedure and 

Administration) by sending an email to 

publichearings@irs.gov (preferred) or by 

telephone at (202) 317–6901 (not a tollfree number) by at least 5:00 p.m. on 

February 14, 2024. 

Drafting Information 

The principal authors of these 

proposed rules are Martha M. Garcia 


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and Boris Kukso of the Office of 

Associate Chief Counsel (Passthroughs 

& Special Industries). 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. 

Partial Withdrawal of Notice of 

Proposed Rulemaking 

Under the authority of 26 U.S.C. 7805, 

proposed § 1.48–13 contained in the 

notice of proposed rulemaking (REG– 

100908–23) that was published in the 

Federal Register on August 30, 2023 (88 

FR 60018), is withdrawn. 

Proposed Amendments to the 

Regulations 

Accordingly, the Treasury Department 

and the IRS propose to amend 26 CFR 

part 1 as follows: 

PART 1—INCOME TAXES 

■ Paragraph 1. The authority citation 

for part 1 is amended by: 

■ a. Revising the entry for § 1.48–9; and 

■ b. Adding entries in numerical order 

for §§ 1.48–13, 1.48–14, and 1.6418–5. 

The revision and additions read in 

part as follows: 

Authority: 26 U.S.C. 7805 * * * 

* * * * * 

Section 1.48–9 also issued under 26 U.S.C. 

48(a)(3)(D)(i) and (16). * * * 

Section 1.48–13 also issued under 26 

U.S.C. 48(a)(10)(C) and (16). * * * 

Section 1.48–14 also issued under 26 

U.S.C. 48(a)(16). * * * 

* * * * * 

Section 1.6418–5 also issued under 26 

U.S.C. 48(a)(10)(C) and 6418(g) and (h). 

* * * * * 

■ Par. 2. Revise § 1.48–9 to read as 

follows: 

§ 1.48–9 Definition of energy property. 

(a) In general. For purposes of the 

energy credit determined under section 

48 of the Internal Revenue Code (Code), 

the term energy property means 

property that, taking into account the 

definition of the term unit of energy 

property (defined in paragraph (f)(2)(i) 

of this section) and of other terms 

defined in paragraph (b) and other 

provisions of this section, meets the 

requirements of paragraph (c) of this 

section and is of a type of energy 

property set forth in paragraph (e) of 

this section. Paragraph (d) of this 

section provides rules for property 

excluded from energy property. 

Paragraph (f) of this section provides 

rules for components included in an 

energy property. Paragraph (g) of this 

section provides the applicability date 

for this section. 

(b) Definitions related to requirements 

for energy property. For purposes of 

section 48 of the Code, this section, 

§§ 1.48–13 and 1.48–14, and any 

provision of the Code or this chapter 

that expressly refers to any of the 

foregoing, the following definitions 

apply: 

(1) Construction, reconstruction, or 

erection of energy property. The term 

construction, reconstruction, or erection 

of energy property means work 

performed to construct, reconstruct, or 

erect energy property either by the 

taxpayer or for the taxpayer in 

accordance with the taxpayer’s 

specifications. 

(2) Acquisition of energy property. 

The term acquisition of energy property 

means a transaction by which a taxpayer 

obtains rights and obligations with 

respect to energy property, including— 

(i) Title to the energy property under 

the law of the jurisdiction in which the 

energy property is placed in service, 

unless the property is possessed or 

controlled by the taxpayer as a lessee, 

and 

(ii) Physical possession or control of 

the energy property. 

(3) Original use of energy property— 

(i) In general. The term original use of 

energy property means the first use to 

which a unit of energy property is put, 

whether or not such use is by the 

taxpayer. 

(ii) Retrofitted units of energy 

property. A retrofitted unit of energy 

property acquired by the taxpayer will 

not be treated as being put to original 

use by the taxpayer unless the rules in 

§ 1.48–14(a) regarding retrofitted energy 

property (80/20 Rule) or paragraph 

(e)(10)(v) of this section regarding 

modifications of certain energy storage 

technology apply. The question of 

whether a unit of energy property meets 

the 80/20 Rule or is modified (as 

described in paragraph (e)(10)(v) of this 

section) is a facts and circumstances 

determination. 

(4) Allowable—(i) In general. For 

purposes of applying paragraph (c)(1)(ii) 

of this section, depreciation (or 

amortization in lieu of depreciation) is 

allowable with respect to energy 

property if such property is of a 

character subject to the allowance for 

depreciation under section 167 of the 

Code and the basis or cost of such 

property is recovered using a method of 

depreciation (for example, the straight 

line method), which includes any 

additional first year depreciation 

deduction method of depreciation (for 

example, under section 168(k) of the 

Code). Further, if an Internal Revenue 

Service adjustment with respect to the 

Federal income tax or information 

return for such taxable year requires the 

basis or cost of such energy property to 

be recovered using a method of 

depreciation, depreciation is allowable 

to the taxpayer with respect to energy 

property. 

(ii) Exclusions from allowable. For 

purposes of paragraph (b)(4)(i) of this 

section, depreciation is not allowable 

with respect to energy property if the 

basis or cost of such property is not 

recovered through a method of 

depreciation but, instead, such basis or 

cost is recovered through a deduction of 

the full basis or cost of the energy 

property in one taxable year (for 

example, under section 179 of the 

Code). 

(5) Placed in service—(i) In general. 

Energy property is considered placed in 

service in the earlier of: 

(A) The taxable year in which, under 

the taxpayer’s depreciation practice, the 

period for depreciation with respect to 

such energy property begins; or 

(B) The taxable year in which the 

energy 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. Energy property 

in a condition or state of readiness and 

availability for a specifically assigned 

function includes, but is not limited to, 

components that are acquired and set 

aside during the taxable year for use as 

replacements for a particular energy 

property (or energy properties) in order 

to avoid operational time loss and 

equipment that is acquired for a 

specifically assigned function and is 

operational but is undergoing testing to 

eliminate any defects. However, 

components acquired to be used in the 

construction of an energy property will 

not be considered in a condition or state 

of readiness and availability for a 

specifically assigned function. 

(ii) Energy property subject to § 1.48– 

4 election to treat lessee as purchaser. 

Notwithstanding paragraph (b)(5)(i) of 

this section, energy property with 

respect to which an election is made 

under § 1.48–4 to treat the lessee as 

having purchased such energy property 

is considered placed in service by the 

lessor in the taxable year in which 

possession is transferred to such lessee. 

(6) Unit of energy property. The term 

unit of energy property is defined in 

paragraph (f)(2)(i) of this section. No 

provision of this section or § 1.48–13 or 

§ 1.48–14 uses the term unit in respect 

of energy property with any meaning 

other than that provided in paragraph 

(f)(2)(i) of this section. 


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(7) Claim. With respect to a section 48 

credit determined with respect to energy 

property of a taxpayer, the term claim 

means filing a completing Form 3468, 

Investment Credit, or any successor 

form(s), with the taxpayer’s timely filed 

(including extensions) Federal income 

tax return for the taxable year in which 

the energy property is placed in service, 

and includes the making of an election 

under section 6417 or 6418 of the Code 

and corresponding regulations with 

respect to such section 48 credit and 

made on the taxpayer’s Federal income 

tax return or annual information return. 

(c) Requirements for energy 

property—(1) In general. Energy 

property must satisfy each of the 

requirements of paragraphs (c)(1)(i) 

through (v) of this section: 

(i) The taxpayer constructs, 

reconstructs, or erects the property, or, 

if the original use of the property 

commences with the taxpayer, acquires 

the property; 

(ii) Depreciation (or amortization in 

lieu of depreciation) is allowable with 

respect to the property; 

(iii) The property meets the 

performance and quality standards as 

provided in paragraph (c)(2) of this 

section; 

(iv) The construction of the property 

begins before the date provided in 

section 48 of the Code (if any such date 

is provided); and 

(v) The property is placed in service 

by the taxpayer by the date provided in 

section 48 (if any such date is provided). 

(2) Performance and quality 

standards—(i) In general. Energy 

property must meet performance and 

quality standards, if any, which have 

been prescribed by the Secretary of the 

Treasury or her delegate (after 

consultation with the Secretary of 

Energy) and are in effect at the time of 

acquisition of the energy property. 

(ii) Special rules for performance and 

quality standards—(A) Small wind 

energy property. Small wind energy 

property must meet the performance 

and quality standards in effect at the 

time of acquisition of the small wind 

turbine set forth in the American Wind 

Energy Association Small Wind Turbine 

Performance and Safety Standard 9.1– 

2009, or subsequent revisions (AWEA); 

International Electrotechnical 

Commission 61400–1, 61400–2, 61400– 

11, 61400–12, or subsequent revisions 

(IEC); or the ANSI/ACP 101–1–2021, the 

Small Wind Turbine Standard, or 

subsequent revisions (ACP). The 

certification requirements applicable to 

such performance and quality standards 

are provided in guidance published in 

the Internal Revenue Bulletin. See 

§ 601.601 of this chapter. 

(B) Electrochromic glass property. To 

be eligible for the section 48 credit, 

electrochromic windows must be rated 

in accordance with the National 

Fenestration Rating Council (NFRC) and 

secondary glazing systems must be rated 

in accordance with the Attachments 

Energy Rating Council (AERC) Rating 

and Certification Process, or subsequent 

revisions. See paragraph (e)(2)(ii) of this 

section for the definition of 

electrochromic glass property. 

(iii) Time of acquisition. For purposes 

of applying performance and quality 

standards, the time of acquisition is the 

date the taxpayer enters into a binding 

contract (as defined in paragraph 

(c)(2)(iv) of this section) to acquire the 

property, or, in the case of property 

constructed, reconstructed, or erected 

by the taxpayer, the earlier of the date 

that— 

(A) The taxpayer begins construction, 

reconstruction, or erection of the 

property, or 

(B) The taxpayer and another person 

enter into a binding contract (as defined 

in paragraph (c)(2)(iv) of this section) 

requiring the other person to construct, 

reconstruct, or erect property and to 

place the property in service for an 

agreed upon use. 

(iv) Binding contract. For purposes of 

this paragraph (c)(2), a contract is 

binding only if it is enforceable under 

State law against the taxpayer or a 

predecessor and does not limit damages 

to a specified amount (for example, by 

use of a liquidated damages provision). 

For this purpose, a contractual 

provision that limits damages to an 

amount equal to at least five percent of 

the total contract price will not be 

treated as limiting damages to a 

specified amount. For additional 

guidance regarding the definition of a 

binding contract, see § 1.168(k)– 

2(b)(5)(iii)(A). 

(d) Property that is not energy 

property—(1) Interaction with section 

45. Energy property does not include 

any property that is part of a qualified 

facility the production from which is 

allowed as a credit determined under 

section 45 of the Code (section 45 

credit) for the taxable year or any prior 

taxable year. However, see paragraph 

(f)(3) of this section for rules regarding 

property that is an integral part of an 

energy property that is also used by a 

qualified facility. See § 1.48–14(f)(1) for 

rules regarding making an election 

under section 48(a)(5) of the Code to 

treat a qualified facility as an energy 

property. 

(2) Other property. Energy property 

also does not include power purchase 

agreements, goodwill, going concern 

value, or renewable energy certificates. 

(e) Types of energy property. The 

types of energy property eligible for a 

section 48 credit are: 

(1) Solar energy property—(i) In 

general. Solar energy property is 

equipment that uses solar energy to 

generate electricity, to heat or cool (or 

provide hot water for use in) a structure, 

or to provide solar process heat, 

excepting property used to generate 

energy for the purposes of heating a 

swimming pool. Solar energy property 

includes solar electric generation 

equipment (as defined in paragraph 

(e)(1)(ii) of this section), solar process 

heat equipment (as defined in paragraph 

(e)(1)(iii) of this section), and equipment 

that uses solar energy to heat or cool a 

structure or provide hot water for use in 

a structure, and parts related to the 

functioning of all such equipment. 

(ii) Solar electric generation 

equipment. Solar electric generation 

equipment is equipment that converts 

sunlight into electricity through the use 

of devices such as solar cells or other 

collectors. 

(iii) Solar process heat equipment. 

Solar process heat equipment is 

equipment that uses solar energy to 

generate steam at high temperatures for 

use in industrial or commercial 

processes. 

(2) Fiber-optic solar energy property 

and electrochromic glass property—(i) 

Fiber-optic solar energy property. Fiberoptic solar energy property is equipment 

that uses solar energy to illuminate the 

inside of a structure using fiber-optic 

distributed sunlight. 

(ii) Electrochromic glass property. 

Electrochromic glass energy property 

uses electricity to change its light 

transmittance properties (both visible 

and near infrared light) in order to heat 

or cool a structure. For purposes of 

section 48, windows, including 

secondary windows (also referred to as 

secondary glazings), that incorporate 

electrochromic glass are treated as 

electrochromic glass property. 

(3) Geothermal energy property—(i) In 

general. Geothermal energy property is 

equipment used to produce, distribute, 

or use energy derived from a geothermal 

deposit (within the meaning of section 

613(e)(2) of the Code), but only, in the 

case of electricity generated by 

geothermal power, up to (but not 

including) the electrical transmission 

stage. Geothermal equipment includes 

production equipment (as defined in 

paragraph (e)(3)(ii) of this section) and 

distribution equipment (as defined in 

paragraph (e)(3)(iii) of this section). 

(ii) Production equipment. For 

purposes of paragraph (e)(3)(i) of this 

section, production equipment is 

equipment necessary to bring 


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geothermal energy from the 

subterranean deposit to the surface, 

including well-head and downhole 

equipment (such as screening or slotting 

liners, tubing, downhole pumps, and 

associated equipment). Production, 

injection, and monitoring wells required 

for production of the geothermal deposit 

qualify as production equipment. If 

geothermal energy is used to generate 

electricity, production equipment also 

includes the property necessary to 

produce electricity. Production 

equipment does not include equipment 

used for exploration and development 

of geothermal deposits. 

(iii) Distribution equipment. For 

purposes of paragraph (e)(3)(i) of this 

section, distribution equipment is 

equipment that transports geothermal 

energy from a geothermal deposit to the 

site of ultimate use. If geothermal energy 

is used to generate electricity, 

distribution equipment includes 

equipment that transports geothermal 

fluids between the geothermal deposit 

and the power plant. Distribution 

equipment also includes components of 

a building’s heating and/or cooling 

system, such as pipes and ductwork that 

distribute within a building the energy 

derived from the geothermal deposit. 

(4) Qualified fuel cell property. 

Qualified fuel cell property is a fuel cell 

power plant that has a nameplate 

capacity of at least 0.5 kilowatts (kW) (1 

kW in the case of a fuel cell power plant 

with a linear generator assembly) of 

electricity using an electrochemical or 

electromechanical process, and an 

electricity-only generation efficiency 

greater than 30 percent. For this 

purpose, electricity-only generation 

efficiency may be calculated by dividing 

the heat rate of the fuel cell (for 

example, kilowatt-hours (kWh) 

electricity produced per kilogram (kg) of 

fuel consumed) by the higher heating 

value of the fuel (for example, kWh per 

kg). A fuel cell power plant is an 

integrated system comprised of a fuel 

cell stack assembly, or linear generator 

assembly, and associated balance of 

plant components that converts a fuel 

into electricity using electrochemical or 

electromechanical means. A linear 

generator assembly does not include any 

assembly that contains rotating parts. 

(5) Qualified microturbine property. 

Qualified microturbine property is a 

stationary microturbine power plant 

that has a nameplate capacity of less 

than 2,000 kW and an electricity-only 

generation efficiency of not less than 26 

percent at International Standard 

Organization conditions. A stationary 

microturbine power plant is an 

integrated system comprised of a gas 

turbine engine, a combustor, a 

recuperator or regenerator, a generator 

or alternator, and associated balance of 

plant components that converts a fuel 

into electricity and thermal energy. A 

stationary microturbine power plant 

also includes all secondary components 

located between the existing 

infrastructure for fuel delivery and the 

existing infrastructure for power 

distribution, including equipment and 

controls for meeting relevant power 

standards, such as voltage, frequency, 

and power factors. 

(6) Combined heat and power system 

(CHP) property—(i) In general. CHP 

property is property comprising a 

system that uses the same energy source 

for the simultaneous or sequential 

generation of electrical power, 

mechanical shaft power, or both, in 

combination with the generation of 

steam or other forms of useful thermal 

energy (including heating and cooling 

applications). CHP property must 

produce at least 20 percent of its total 

useful energy in the form of thermal 

energy that is not used to produce 

electrical or mechanical power (or 

combination thereof), and at least 20 

percent of its total useful energy in the 

form of electrical or mechanical power 

(or combination thereof). The energy 

efficiency percentage of CHP property 

must exceed 60 percent (except in the 

case of CHP systems that use biomass 

within the meaning of section 45 of the 

Code). CHP property does not include 

any property comprising a system if 

such system has a capacity in excess of 

50 MW or a mechanical energy capacity 

in excess of 67,000 horsepower or an 

equivalent combination of electrical and 

mechanical energy capacities. 

(ii) Components excluded. CHP 

property does not include property used 

to transport the energy source to the 

generating facility or to distribute 

energy produced by the facility. 

(7) Qualified small wind energy 

property. Qualified small wind energy 

property is property that uses a 

qualifying small wind turbine to 

generate electricity. A qualifying small 

wind turbine means a wind turbine that 

has a nameplate capacity of not more 

than 100 kW. 

(8) Geothermal heat pump equipment. 

Geothermal heat pump equipment is 

equipment that uses the ground, ground 

water, or other underground fluids as a 

thermal energy source to heat a 

structure or as a thermal energy sink to 

cool a structure. 

(9) Waste energy recovery property 

(WERP)—(i) In general. WERP is 

property that generates electricity solely 

from heat from buildings or equipment 

if the primary purpose of such building 

or equipment is not the generation of 

electricity. Examples of buildings or 

equipment the primary purpose of 

which is not the generation of electricity 

include, but are not limited to, 

manufacturing plants, medical care 

facilities, facilities on college campuses, 

pipeline compressor stations, and 

associated equipment. WERP does not 

include any property that has a capacity 

in excess of 50 MW. 

(ii) Coordination with CHP property. 

Any WERP that is part of a system that 

is a CHP property is not treated as 

WERP for purposes of section 48 of the 

Code unless the taxpayer elects to not 

treat such system as a CHP property for 

purposes of section 48. 

(10) Energy storage technology—(i) In 

general. Energy storage technology 

includes electrical energy storage 

property described in paragraph 

(e)(10)(ii) of this section, thermal energy 

storage property described in paragraph 

(e)(10)(iii) of this section, and hydrogen 

energy storage property described in 

paragraph (e)(10)(iv) of this section. 

(ii) Electrical energy storage property. 

Electrical energy storage property is 

property (other than property primarily 

used in the transportation of goods or 

individuals and not for the production 

of electricity) that receives, stores, and 

delivers energy for conversion to 

electricity, and has a nameplate capacity 

of not less than 5 kWh. For example, 

subject to the exclusion for property 

primarily used in the transportation of 

goods or individuals, electrical energy 

storage property includes but is not 

limited to rechargeable electrochemical 

batteries of all types (such as lithium 

ion, vanadium flow, sodium sulfur, and 

lead-acid); ultracapacitors; physical 

storage such as pumped storage 

hydropower, compressed air storage, 

flywheels; and reversible fuel cells. 

(iii) Thermal energy storage property. 

Thermal energy storage property is 

property comprising a system that is 

directly connected to a heating, 

ventilation, or air conditioning (HVAC) 

system; removes heat from, or adds heat 

to, a storage medium for subsequent use; 

and provides energy for the heating or 

cooling of the interior of a residential or 

commercial building. Thermal energy 

storage property includes equipment 

and materials, and parts related to the 

functioning of such equipment, to store 

thermal energy for later use to heat or 

cool, or to provide hot water for use in 

heating a residential or commercial 

building. It does not include a 

swimming pool, CHP property, or a 

building or its structural components. 

For example, thermal energy storage 

includes, but is not limited to, thermal 

ice storage systems that use electricity to 

run a refrigeration cycle to produce ice 


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that is later connected to the HVAC 

system as an exchange medium for air 

conditioning the building, heat pump 

systems that store thermal energy in an 

underground tank or borehole field to be 

extracted for later use for heating and/ 

or cooling, and electric furnaces that use 

electricity to heat bricks to high 

temperatures and later use this stored 

energy to heat a building through the 

HVAC system. 

(iv) Hydrogen energy storage property. 

Hydrogen energy storage property is 

property (other than property primarily 

used in the transportation of goods or 

individuals and not for the production 

of electricity) that stores hydrogen and 

has a nameplate capacity of not less 

than 5 kWh, equivalent to 0.127 kg of 

hydrogen or 52.7 standard cubic feet 

(scf) of hydrogen. Hydrogen energy 

storage property must store hydrogen 

that is solely used as energy and not for 

other purposes such as for the 

production of end products such as 

fertilizer. For example, hydrogen energy 

storage property includes, but is not 

limited to, a hydrogen compressor and 

associated storage tank and an 

underground storage facility and 

associated compressors. 

(v) Modifications of energy storage 

energy property. With respect to 

electrical energy storage property and 

hydrogen energy storage property 

placed in service after December 31, 

2022, energy storage technology that is 

modified as set forth in this paragraph 

(e)(10)(v) is treated as electrical energy 

storage property described in paragraph 

(e)(10)(ii) of this section or hydrogen 

energy storage property described in 

paragraph (e)(10)(iv) of this section, 

except that the basis of any existing 

property prior to such modification is 

not taken into account for purposes of 

this section and section 48. This 

paragraph (e)(10)(v) applies to any 

electrical energy storage property and 

hydrogen energy storage property that 

either: 

(A) Was placed in service before 

August 16, 2022, and would be 

described in section 48(c)(6)(A)(i) of the 

Code, except that such property had a 

capacity of less than 5 kWh and is 

modified in a manner that such property 

(after such modification) has a 

nameplate capacity (after such 

modification) of not less than 5 kWh; or 

(B) Is described in section 

48(c)(6)(A)(i) of the Code and is 

modified in a manner that such property 

(after such modification) has an increase 

in nameplate capacity of not less than 

5 kWh. 

(11) Qualified biogas property—(i) In 

general. Qualified biogas property is 

property comprising a system that 

converts biomass (as defined in section 

45K(c)(3) of the Code, as in effect on 

August 16, 2022) into a gas that consists 

of not less than 52 percent methane by 

volume (tested at the point described in 

paragraph (e)(11)(ii) of this section), or 

is concentrated by such system into a 

gas that consists of not less than 52 

percent methane (tested at the point 

described in paragraph (e)(11)(ii) of this 

section), and captures such gas for sale 

or productive use and not for disposal 

via combustion. Qualified biogas 

property also includes any property that 

is part of such system that cleans or 

conditions such gas. For example, 

qualified biogas property includes, but 

is not limited to, a waste feedstock 

collection system, a landfill gas 

collection system, mixing or pumping 

equipment, and an anaerobic digester. 

However, gas upgrading equipment 

necessary to concentrate the gas into the 

appropriate mixture for injection into a 

pipeline through removal of other gases 

such as carbon dioxide, nitrogen, or 

oxygen is not included in qualified 

biogas property. 

(ii) Methane content requirement. The 

methane content requirement described 

in section 48(c)(7)(A)(i) of the Code and 

paragraph (e)(11)(i) of this section is 

measured at the point at which gas exits 

the biogas production system, which 

may include an anerobic digester, 

landfill gas collection system, or 

thermal gasification equipment. This is 

the point at which a taxpayer generally 

must determine whether it will convert 

the biogas to fuel for sale or use it 

directly to generate heat or to fuel an 

electricity generation unit. 

(12) Microgrid controllers—(i) In 

general. A microgrid controller is 

equipment that is part of a qualified 

microgrid and is designed and used to 

monitor and control the energy 

resources and loads on such microgrid. 

A qualified microgrid is an electrical 

system that includes equipment that is 

capable of generating not less than 4 kW 

and not greater than 20 MW of 

electricity; is capable of operating in 

connection with the electrical grid and 

as a single controllable entity with 

respect to such electrical grid, and 

independently (and disconnected) from 

such electrical grid; and is not part of a 

bulk-power system (as defined in 

section 215 of the Federal Power Act (16 

U.S.C. 824o)). 

(ii) Capable of operating in 

connection with the electrical grid. For 

purposes of this paragraph, a qualified 

microgrid includes an electrical system 

that is capable of operating in 

connection with the larger electrical 

grid, regardless of whether a connection 

to the larger electrical grid exists. 

(13) Other property included in 

section 48. Any other property specified 

by section 48 as energy property is 

energy property for purposes of this 

section and §§ 1.48–13 and § 1.48–14. 

(f) Property included in energy 

property—(1) In general. An energy 

property includes a unit of energy 

property (as defined in paragraph 

(f)(2)(i) of this section) that meets the 

requirements of paragraph (c) of this 

section, that is not excluded from 

energy property as provided in 

paragraph (d) of this section, and is of 

a type of energy property included in 

paragraph (e) of this section. Property 

owned by the taxpayer that is an 

integral part of an energy property (as 

defined in paragraph (f)(3) of this 

section) is treated as energy property. 

Energy property does not include any 

electrical transmission equipment, such 

as transmission lines and towers, or any 

equipment beyond the electrical 

transmission stage. Energy property also 

generally does not include equipment 

that is an addition or modification to an 

existing energy property. However, see 

§ 1.48–14(a) for rules regarding 

retrofitted energy property (80/20 Rule) 

and paragraph (e)(10)(v) of this section 

for rules regarding modifications of 

certain types of energy storage 

technology. 

(2) Unit of energy property—(i) 

Definition. The term unit of energy 

property means all functionally 

interdependent components of property 

(as defined in paragraph (f)(2)(ii) of this 

section) owned by the taxpayer that are 

operated together and that can operate 

apart from other energy properties 

within a larger energy project (as 

defined in § 1.48–13(d)). For rooftop 

solar energy property, all components of 

property that are installed on a single 

rooftop are considered a single unit of 

energy property. See § 1.48–13(d) for 

rules regarding when multiple energy 

properties will be treated as an energy 

project for certain purposes. 

(ii) Functionally interdependent—(A) 

In general. Except as provided in 

paragraph (f)(3)(ii)(B) of this section, 

with respect to components of a unit of 

energy property, the term functionally 

interdependent means that the placing 

in service of each component is 

dependent upon the placing in service 

of each of the other components in order 

to generate or store electricity, thermal 

energy, or hydrogen as provided by 

section 48(c) of the Code and as 

described in paragraph (e) of this 

section. 

(B) Components of certain energy 

property. In the case of solar process 

heat equipment, fiber-optic solar energy 

property, electrochromic glass property, 


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geothermal heat pump equipment, 

qualified biogas property, and microgrid 

controllers, with respect to components 

of such property, the term functionally 

interdependent means that the placing 

in service of each component is 

dependent upon the placing in service 

of each of the other components in order 

to perform the intended function of the 

energy property as provided by section 

48(c) of the Code and as described in 

paragraph (e) of this section. 

(3) Integral part—(i) In general. For 

purposes of the section 48 credit, 

property owned by a taxpayer is an 

integral part of an energy property 

owned by the same taxpayer if it is used 

directly in the intended function of the 

energy property as provided by section 

48(c) of the Code and as described in 

paragraph (e) of this section and is 

essential to the completeness of the 

intended function. Property that is an 

integral part of an energy property is 

energy property. A taxpayer may not 

claim the section 48 credit for any 

property that is an integral part of the 

taxpayer’s energy property that is not 

owned by the taxpayer. Multiple energy 

properties (whether owned by one or 

more taxpayers) may include shared 

property that may be considered an 

integral part of each energy property so 

long as the cost basis for the shared 

property is properly allocated to each 

energy property. The total cost basis of 

such shared property divided among the 

energy properties may not exceed 100 

percent of the cost of such shared 

property. In addition, property that is 

shared by a qualified facility (as defined 

in section 45(d) of the Code) and an 

energy property that is an integral part 

of the energy property will not be 

considered property that is not energy 

property under paragraph (d) of this 

section. 

(ii) Power conditioning and transfer 

equipment. Property that is an integral 

part of energy property includes power 

conditioning equipment and transfer 

equipment used to perform the intended 

function of the energy property as 

provided by section 48(c) and as 

described in paragraph (e) of this 

section. Power conditioning equipment 

includes, but is not limited to, 

transformers, inverters, and converters, 

which modify the characteristics of 

electricity or thermal energy into a form 

suitable for use or transmission or 

distribution. Parts related to the 

functioning or protection of power 

conditioning equipment are also treated 

as power conditioning equipment and 

include, but are not limited to, switches, 

circuit breakers, arrestors, and hardware 

and software used to monitor, operate, 

and protect power conditioning 

equipment. Transfer equipment 

includes equipment that permits the 

aggregation of energy generated by 

components of energy properties and 

equipment that alters voltage in order to 

permit transfer to a transmission or 

distribution line. Transfer equipment 

does not include transmission or 

distribution lines. Examples of transfer 

equipment include, but are not limited 

to, wires, cables, and combiner boxes 

that conduct electricity. Parts related to 

the functioning or protection of transfer 

equipment are also treated as transfer 

equipment and may include items such 

as current transformers used for 

metering, electrical interrupters (such as 

circuit breakers, fuses, and other 

switches), and hardware and software 

used to monitor, operate, and protect 

transfer equipment. Power conditioning 

equipment and transfer equipment that 

are integral to an energy property may 

be integral to another energy property or 

used by a qualified facility (as defined 

in section 45(d) of the Code), so long as 

the total cost basis of the integral 

property is properly allocated across the 

energy property and qualified facility 

that share such property. 

(iii) Roads. Roads that are an integral 

part of an energy property are integral 

to the activity performed by the energy 

property such as onsite roads that are 

used for equipment to operate and 

maintain the energy property. Roads 

primarily for access to the site, or roads 

used primarily for employee or visitor 

vehicles, are not integral to the activity 

performed by an energy property. 

(iv) Fences. Fencing is not an integral 

part of an energy property because it is 

not integral to the activity performed by 

the energy property. 

(v) Buildings. Generally, buildings are 

not integral parts of an energy property 

because they are not integral to the 

activity of the energy property. 

However, the following structures are 

not treated as buildings for this purpose: 

(A) A structure that is essentially an 

item of machinery or equipment; and 

(B) A structure that houses property 

that is integral to the activity of an 

energy property if the use of the 

structure is so closely related to the use 

of the housed energy property that the 

structure clearly can be expected to be 

replaced when the energy property it 

initially houses is replaced. 

(4) Location of energy property. Any 

property that meets the requirements of 

paragraphs (f)(2) and (3) of this section 

is part of an energy property regardless 

of where such property is located. 

(5) Examples. This paragraph 

provides examples illustrating property 

included in energy property. 

(i) Example 1. Solar energy property. 

X constructs a solar energy property 

(Property) comprised of 500 separate 

solar panels. The solar panels are 

connected by wires, cables, and 

combiner boxes. Generated electricity is 

conditioned for subsequent use through 

an inverter and eventually carried to a 

substation that houses a transformer 

where the electricity is stepped up to 

electrical grid voltage before being 

transmitted to the electrical grid through 

an intertie. All components of the 

Property, up to and including the 

transformer are either functionally 

interdependent components of the 

Property or are integral parts of the 

Property. Therefore, the Property is an 

energy property for purposes of the 

section 48 credit. When X places the 

Property in service, the cost of the 

components up to and including the 

transformer is included in the basis of 

the Property for purposes of computing 

the section 48 credit. 

(ii) Example 2. Co-located energy 

properties. Assume the same facts as in 

Example 1, except that Y constructs a 

wind energy property (Wind Property) 

near X’s solar energy property (Solar 

Property). X’s Solar Property and Y’s 

Wind Property each connect to a 

substation that houses a transformer 

where the electricity is stepped up to 

electrical grid voltage before being 

transmitted to the electrical grid through 

the intertie. X and Y each pay 50% of 

the cost of the transformer and related 

power conditioning equipment housed 

therein. X’s Solar Property and Y’s 

Wind Property are separate energy 

properties. When X and Y place their 

respective energy properties in service, 

the cost of the components up to and 

including 50% of the cost of the 

transformer and related power 

conditioning equipment is included in 

X’s and Y’s basis in their respective 

energy properties for purposes of 

computing the section 48 credit. 

(iii) Example 3. Qualified offshore 

wind facility. Z constructs a qualified 

offshore wind facility (Offshore Wind 

Facility) comprised of 150 turbines for 

which Z makes a valid election under 

section 48(a)(5) of the Code to claim the 

section 48 credit in lieu of the section 

45 credit. The alternating current 

electricity generated by the individual 

wind turbines will be carried by interarray cables to an offshore substation 

where a transformer will step up the 

voltage of the electricity and a converter 

will convert it to direct current so it may 

be transported by subsea export cables 

to an onshore substation adjacent to the 

point of interconnection with the 

electrical grid. When the electricity 

reaches the onshore substation, it will 


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flow into another converter where it 

will be converted back to alternating 

current, and then through a transformer 

and associated switchgear where it will 

be converted to electrical grid voltage 

and where the Offshore Wind Facility 

can be electrically isolated from the 

grid. The electricity will then pass 

through an intertie that will take the 

electricity from the substation to the 

point of interconnection with the 

electrical grid. All components of the 

Offshore Wind Facility, up to and 

including the transformer and 

switchgear housed in the onshore 

substation, are either functionally 

interdependent components of an 

energy property or integral parts of an 

energy property. Therefore, the Offshore 

Wind Facility is an energy property, and 

when Z places the Offshore Wind 

Facility in service, the cost of the 

components up to and including the 

transformer and switchgear housed in 

the onshore substation are included in 

the basis of the Offshore Wind Facility 

for purposes of computing the section 

48 credit. 

(iv) Example 4. Co-located energy 

property and qualified facility. X 

constructs a wind facility (Wind 

Facility) that is co-located with an 

energy storage technology (Energy 

Storage). The Wind Facility and Energy 

Storage share power conditioning and 

transfer equipment. X assigns 50% of 

the cost of the shared power 

conditioning and transfer equipment to 

the Wind Facility and 50% of the cost 

to the Energy Storage. The power 

conditioning and transfer equipment are 

integral parts of the Energy Storage, and 

are therefore, considered energy 

property. Therefore, X will include 50% 

of the cost of the power conditioning 

and transfer equipment when 

determining the section 48 credit for the 

Energy Storage. Because the shared 

power conditioning and transfer 

equipment are not considered part of 

the Wind Facility, if the Wind Facility 

otherwise satisfies the requirements of 

the section 45 credit, X can claim the 

section 45 credit for the Wind Facility. 

(g) Applicability date. This section 

applies with respect to property placed 

in service after December 31, 2022, and 

during a taxable year beginning after 

[DATE OF PUBLICATION OF FINAL 

RULE]. 

■ Par. 3. Section 1.48–13 is added to 

read as follows: 

§ 1.48–13 Rules relating to the increased 

credit amount for prevailing wage and 

apprenticeship. 

(a) In general. If a qualified energy 

project satisfies the requirements in 

paragraph (b) of this section, the amount 

of the energy credit determined under 

section 48(a) of the Internal Revenue 

Code (Code), after the application of 

sections 48(a)(1) through (8), and 

48(a)(15), is equal to the credit 

determined under section 48(a) (section 

48 credit) multiplied by five. 

(b) Requirements. A qualified energy 

project satisfies the requirements of this 

paragraph (b) if it is one of the 

following— 

(1) A project with a maximum net 

output of less than one megawatt (MW) 

of electrical (as measured in alternating 

current) or thermal energy determined 

based on the nameplate capacity as 

provided in paragraph (e) of this section 

(One-Megawatt Exception); 

(2) A project the construction of 

which began prior to January 29, 2023; 

or 

(3) A project that meets the prevailing 

wage requirements of section 

48(a)(10)(A) of the Code, § 1.45–7(b)–(d), 

and paragraph (c) of this section, the 

apprenticeship requirements of section 

45(b)(8) of the Code and § 1.45–8, and 

the recordkeeping and reporting 

requirements of § 1.45–12. 

(c) Special rule applicable to general 

prevailing wage requirements—(1) In 

general. In addition to satisfying the 

prevailing wage requirements under 

§ 1.45–7(b) through (d), a taxpayer must 

ensure that any laborers and mechanics 

employed (within the meaning of 

§ 1.45–7) by the taxpayer or any 

contractor or subcontractor in the 

construction of such energy project, and 

for the five-year period beginning on the 

date such project is placed in service, 

the alteration or repair of such project, 

are paid wages at rates not less than the 

prevailing rates for construction, 

alteration, or repair of a similar 

character in the locality in which such 

project is located as most recently 

determined by the Secretary of Labor, in 

accordance with 40 U.S.C. chapter 31, 

subchapter IV. Subject to section 

48(a)(10)(C) of the Code and this 

paragraph (c), for purposes of 

determining the increased credit 

amount under section 48(a)(9)(B)(iii) of 

the Code, the taxpayer is deemed to 

satisfy the prevailing wage requirements 

of section 48(a)(10)(A)(ii) of the Code at 

the time such project is placed in 

service. 

(2) Exception. For purposes of 

satisfying the prevailing wage 

requirements of paragraph (b)(3) of this 

section, § 1.45–7(a) does not apply. 

(3) Recapture—(i) In general. The 

increased credit amount under 

paragraph (b)(3) of this section is subject 

to recapture for any project that does not 

satisfy the prevailing wage requirements 

in § 1.45–7(b) through (d) and paragraph 

(c)(1) of this section for any period with 

respect to an alteration or repair of such 

project during the five-year period 

beginning on the date such project is 

originally placed in service (five-year 

recapture period) (but that does not 

cease to be investment credit property 

within the meaning of section 50(a) of 

the Code). 

(ii) Recapture event—(A) In general. 

Any failure to satisfy the prevailing 

wage requirements in § 1.45–7(b) 

through (d) and paragraph (c)(1) of this 

section for any period with respect to 

the alteration or repair of any project 

during the five-year recapture period is 

a recapture event. Any failure to satisfy 

the prevailing wage requirements in 

§ 1.45–7(b) through (d) and paragraph 

(c)(1) of this section for any period 

remain subject to the correction and 

penalty provisions in § 1.45–7(c), 

including the waiver provisions in 

§ 1.45–7(c)(6). Subject to § 1.45–7(c)(5) 

and (6), if the correction and penalty 

payments described in § 1.45–7(c) are 

not made by the taxpayer on or before 

the date that is 180 days after the date 

of a final determination by the IRS (as 

defined in § 1.45–7(c)(4)(ii)), the cure 

provision in § 1.45–7(c) does not apply 

and the increased credit amount is 

subject to recapture. 

(B) Yearly determination. A 

determination of whether a recapture 

event has occurred under paragraph 

(c)(3)(ii) of this section must be made for 

each taxable year (or portion thereof) 

occurring within the five-year recapture 

period, beginning with the taxable year 

ending after the date the energy project 

is placed in service. Thus, for each 

taxable year beginning or ending within 

the five-year recapture period, the 

taxpayer must determine whether the 

prevailing wage requirements of section 

48(a)(10)(A) of the Code, § 1.45–7(b)–(d), 

and paragraph (c)(1) of this section are 

satisfied for the recapture year(s) 

occurring during each taxable year. 

(C) Carrybacks and carryforward 

adjusted. In the case of any recapture 

event described in paragraph 

(c)(3)(ii)(A) of this section, the 

carrybacks and carryforwards under 

section 39 must be adjusted by reason 

of such recapture event. 

(iii) Correction and penalty payments 

not required if taxpayer is subject to 

recapture under section 48(a)(10)(C) of 

the Code. If the IRS determines that a 

taxpayer that claimed the increased 

credit amount under section 

48(a)(9)(B)(iii) of the Code or transferred 

a specified credit portion under section 

6418 of the Code that includes the 

increased credit amount under section 

48(a)(9)(B)(iii) failed to satisfy the 

prevailing wage requirements in § 1.45– 


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7(b) through (d) and paragraph (c)(1) of 

this section for any period with respect 

to the alteration or repair of any project 

during the five-year recapture period 

and the taxpayer does not make the 

correction and penalty payments 

provided in § 1.45–7(c), then no penalty 

is assessed under § 1.45–7, and the 

increased credit amount is subject to 

recapture. Taxpayers whose increased 

credit amount is subject to recapture 

under this section may still be entitled 

to the base amount of the energy credit 

under section 48(a) of the Code if such 

taxpayers meet the requirements to 

claim the credit. 

(4) Recapture amount—(i) In general. 

If a recapture event has occurred as 

described in paragraph (c)(3)(ii) of this 

section and the taxpayer fails to make 

the correction and penalty payments 

described in § 1.45–7(c)(1) within 180 

days after the date of a final 

determination by the IRS, the tax under 

chapter 1 of the Code for the taxable 

year in which the recapture event 

occurs is increased by the applicable 

recapture percentage multiplied by the 

increased credit amount that was 

claimed by the taxpayer under 

paragraph (b)(3) of this section. 

(ii) Applicable recapture percentage. 

If the recapture event occurs: 

(A) Within one full year after the 

property is placed in service, the 

recapture percentage is 100; 

(B) Within one full year after the close 

of the period described in paragraph 

(c)(4)(ii)(A) of this section, the recapture 

percentage is 80; 

(C) Within one full year after the close 

of the period described in paragraph 

(c)(4)(ii)(B) of this section, the recapture 

percentage is 60; 

(D) Within one full year after the close 

of the period described in paragraph 

(c)(4)(ii)(C) of this section, the recapture 

percentage is 40; 

(E) Within one full year after the close 

of the period described in paragraph 

(c)(4)(ii)(D) of this section, the recapture 

percentage is 20. 

(5) Recapture period. The five-year 

recapture period begins on the date the 

project is placed in service and ends on 

the date that is five full years after the 

placed-in-service date. Each 365-day 

period (366-day period in case of a leap 

year) within the five-year recapture 

period is a separate recapture year for 

recapture purposes. 

(6) Increase in tax for recapture. The 

increase in tax under chapter 1 of the 

Code for the recapture of an increased 

credit amount claimed under paragraph 

(b)(3) occurs in the year of the recapture 

event. 

(7) Annual prevailing wage 

compliance report. In addition to the 

general reporting requirements in 

§ 1.45–12, a taxpayer that has claimed 

an increased credit amount under 

paragraph (b)(3) of this section or 

transferred a specified credit portion 

under section 6418 of the Code that 

includes an increased credit amount 

under paragraph (b)(3) of this section is 

required to provide to the IRS, 

information on the payment of 

prevailing wages with respect to any 

alteration or repair of the project during 

the recapture period at the time and in 

the form and manner prescribed in IRS 

forms or instructions or in publications 

or guidance published in the Internal 

Revenue Bulletin. See § 601.601 of this 

chapter. 

(8) Transferred specified credit 

portions. In the case of a transferred 

specified credit portion under section 

6418, to which recapture of an increased 

credit amount under this paragraph (c) 

applies, the eligible taxpayer is required 

to notify the transferee taxpayer of the 

recapture event in accordance with the 

provisions of § 1.6418–5(f)(2) and the 

transferee taxpayer is responsible for 

any amount of increase in tax under 

section 48(a)(10)(C) of the Code and this 

paragraph (c) in accordance with the 

provisions of § 1.6418–5(f)(3). 

(9) Coordination with recapture rules 

under section 50(a). If any increased 

credit amount was recaptured with 

respect to investment credit property in 

a prior year under section 48(a)(10)(C) of 

the Code and this paragraph (c), then, 

such increased credit amount is not 

included in determining the aggregate 

decrease in the credits allowed under 

section 38 of the Code for all prior 

taxable years which would have 

resulted solely from reducing to zero the 

credit determined under subparts D and 

E of part IV of subchapter A of chapter 

1 of the Code (that is, sections 38–50 of 

the Code) with respect to the property. 

(d) Energy project defined—(1) In 

general. For purposes of the increased 

credit amount provided by section 

48(a)(9) of the Code and paragraphs (b) 

and (c) of this section, the domestic 

content bonus credit amount provided 

by section 48(a)(12) of the Code, and the 

increase in credit rate for energy 

communities provided in section 

48(a)(14) of the Code, the term energy 

project means one or more energy 

properties (multiple energy properties) 

that are operated as part of a single 

energy project. Multiple energy 

properties will be treated as one energy 

project if, at any point during the 

construction of the multiple energy 

properties, they are owned by a single 

taxpayer (subject to the related taxpayer 

rule provided in paragraph (d)(2) of this 

section) and any two or more of the 

following factors are present: 

(i) The energy properties are 

constructed on contiguous pieces of 

land; 

(ii) The energy properties are 

described in a common power purchase, 

thermal energy, or other off-take 

agreement or agreements; 

(iii) The energy properties have a 

common intertie; 

(iv) The energy properties share a 

common substation, or thermal energy 

off-take point; 

(v) The energy properties are 

described in one or more common 

environmental or other regulatory 

permits; 

(vi) The energy properties are 

constructed pursuant to a single master 

construction contract; or 

(vii) The construction of the energy 

properties are financed pursuant to the 

same loan agreement. 

(2) Related taxpayers—(i) Definition. 

For purposes of this section, the term 

related taxpayers means members of a 

group of trades or businesses that are 

under common control (as defined in 

§ 1.52–1(b)). 

(ii) Related taxpayer rule. For 

purposes of this section, related 

taxpayers are treated as one taxpayer in 

determining whether multiple energy 

properties are treated as an energy 

project with respect to which a section 

48 credit may be determined. 

(3) Consistent treatment as an energy 

project. If multiple energy properties are 

treated as a single energy project for 

beginning of construction purposes with 

respect to the section 48 credit, the 

multiple energy properties will also be 

treated as a single energy project for 

purposes of the prevailing wage and 

apprenticeship requirements, the 

domestic content bonus credit amount, 

and the increase in section 48 credit rate 

for energy communities. 

(e) Nameplate capacity for purposes 

of the One-Megawatt Exception. For 

purposes of paragraph (b)(1) of this 

section, the determination of whether an 

energy project has a maximum net 

output of less than 1 MW of electrical 

(as measured in alternating current) or 

thermal energy is determined based on 

the nameplate capacity. Where 

applicable, taxpayers should use the 

International Standard Organization 

(ISO) conditions to measure the 

maximum electrical generating output 

or usable energy capacity of an energy 

project. Paragraphs (e)(1) through (5) of 

this section provide rules for applying 

the One-Megawatt Exception (as 

provided in paragraph (b)(1) of this 

section) to different types of energy 

properties. Because electrochromic glass 


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property (as defined in § 1.48– 

9(e)(2)(ii)), fiber-optic solar energy 

property (as defined in § 1.48–9(e)(2)(i)), 

and microgrid controllers (as defined in 

§ 1.48–9(e)(12)) do not generate 

electricity or thermal energy, these 

energy properties are not eligible for the 

One-Megawatt Exception. 

(1) Electrical generating energy 

property. In the case of an electrical 

generating energy property, the 

maximum electrical generating output 

in MW that the unit of energy property 

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 of nameplate capacity 

provided in 40 CFR 96.202. 

(2) Electrical energy storage property. 

In the case of electrical energy storage 

property (as defined in § 1.48– 

9(e)(10)(ii)), the storage device’s 

maximum net output. 

(3) Thermal energy storage property 

and other property generating thermal 

energy. In the case of thermal energy 

storage property (as defined in § 1.48– 

9(e)(10)(iii)) and other energy property 

that generates thermal energy for 

productive use (for example, direct 

geothermal use, geothermal heat pumps, 

solar process heating), a taxpayer must 

use the equivalent of 3.4 million British 

Thermal Units per hour (mmBtu/hour) 

for heating and 284 tons for cooling can 

be used to determine if the thermal 

storage property satisfies the OneMegawatt Exception (Btu per hour/ 

3,412,140 = MW). For projects 

delivering thermal energy to a building 

or buildings, this can be assessed as 

either the aggregate maximum thermal 

output of all individual heating or 

cooling elements within the building or 

buildings, or as the maximum thermal 

output that the entire project is capable 

of delivering to a building or buildings 

at any given moment. 

(4) Hydrogen energy storage property 

and specified clean hydrogen 

production facilities. A hydrogen energy 

storage property (as defined in § 1.48– 

9(e)(10)(iv)) or a specified clean 

hydrogen production facility (as defined 

in section 48(a)(15)(C) of the Code) must 

have a maximum net output of less than 

3.4 mmBtu/hour of hydrogen or 

equivalently 10,500 standard cubic feet 

(scf) per hour of hydrogen to satisfy the 

One-Megawatt Exception. 

(5) Qualified biogas property. In the 

case of qualified biogas property, 3.4 

mmBtu/hour can be used as equivalent 

to the One-Megawatt Exception. 

Taxpayers may convert the maximum 

net output of 3.4 mmBtu/hour into an 

equivalent maximum net volume flow 

in scf per hour using the appropriate 

high heat value conversion factors 

found in the EPA GHGRR at table C–1 

to subpart C of part 98 (40 CFR part 98). 

Otherwise, taxpayers may calculate 

their own equivalent volumetric flow if 

the heat content of the gas is known. 

(f) Applicability date—(1) In general. 

Except as provided in paragraph (f)(2) of 

this section, this section applies to 

projects placed in service in taxable 

years ending on or after the date final 

regulations are published in the Federal 

Register, and the construction of which 

begins after the date final regulations are 

published in the Federal Register. 

(2) Exception. Paragraph (d) of this 

section applies to energy projects the 

construction of which begins after 

November 22, 2023. 

■ Par. 4. Section 1.48–14 is added to 

read as follows: 

§ 1.48–14 Rules applicable to energy 

property. 

(a) Retrofitted energy property—(1) In 

general. For purposes of section 

48(a)(3)(B)(ii), (a)(5)(D)(iv), and 

(a)(8)(B)(iii) of the Internal Revenue 

Code (Code), a retrofitted energy 

property may be originally placed in 

service even though it contains some 

used components of the unit of energy 

property only if the fair market value of 

the used components of the unit of 

energy property is not more than 20 

percent of the total value of the unit of 

energy property taking into account the 

cost of the new components of property 

plus the value of the used components 

of the unit of energy property (80/20 

Rule). Only expenditures paid or 

incurred that relate to the new 

components of the unit of energy 

property are taken into account for 

purposes of computing the energy credit 

determined under section 48 (section 48 

credit) with respect to the unit of energy 

property. The cost of new components 

of the unit of energy property includes 

all costs properly included in the 

depreciable basis of the new 

components. If the taxpayer satisfies the 

80/20 Rule with regard to the unit of 

energy property and the taxpayer pays 

or incurs new costs for property that is 

an integral part of the energy property 

(as defined in § 1.48–9(f)(3)(i)), the 

taxpayer may include the new costs 

paid or incurred for property that is an 

integral part of the energy property (as 

defined in § 1.48–9(f)(3)(i)) in the basis 

of the energy property for purpose of the 

section 48 energy credit. Further, in the 

case of an energy project (as defined in 

§ 1.48–13(d)), the 80/20 Rule is applied 

to each unit of energy property 

comprising an energy project. 

(2) Excluded costs. Costs incurred for 

new components of property added to 

used components of a unit of energy 

property may not be taken into account 

for purposes of the section 48 credit 

unless the taxpayer satisfies the 80/20 

Rule (as provided in paragraph (a)(1) of 

this section) by placing into service a 

unit of energy property for which the 

fair market value of the used 

components of property is not more 

than 20 percent of the total value of the 

unit of energy property taking into 

account the cost of the new components 

of property plus the value of the used 

components of property. 

(3) Examples. This paragraph (a)(3) 

provides examples illustrating the 

provisions of this paragraph (a): 

(i) Example 1. Retrofitted solar energy 

property that satisfies the 80/20 Rule. Z 

owns an existing solar energy property 

for which the section 48 credit has been 

claimed and the recapture period for the 

section 48 credit has elapsed. Z replaces 

used components of the solar energy 

property with new components of 

property at a cost of $1.4 million. The 

retrofitted solar energy property 

constitutes a unit of energy property. 

The fair market value of the remaining 

original components of the retrofitted 

solar energy property is $100,000, 

which is not more than 20% of the 

retrofitted solar energy property’s total 

value of $1.5 million (the cost of the 

new components ($1.4 million) + the 

value of the remaining original 

components ($100,000)). The value of 

the old components of the retrofitted 

solar energy property is $100,000/$1.5 

million (7% of the value of total value 

of the retrofitted solar energy property), 

thus the retrofitted solar energy property 

will be considered newly placed in 

service for purposes of section 48, and 

Z will be able to claim a section 48 

credit based on the cost of the new 

components ($1.4 million). 

(ii) Example 2. Capital improvements 

to an existing energy property that do 

not satisfy the 80/20 Rule. X owns an 

existing unit of energy property for 

which the section 48 credit has been 

claimed and the recapture period for the 

section 48 credit has elapsed. The fair 

market value of the unit of energy 

property is $1 million. During the tax 

year, X makes capital improvements to 

the unit of energy property. The 

expenditures for such capital 

improvements total $300,000. X may not 

claim a section 48 credit for the 

$300,000 spent on capital improvements 

during the tax year because the capital 

improvements did not satisfy the 80/20 

Rule. 

(b) Dual use property—(1) Definition. 

For purposes of section 48, the term 

dual use property means property that 

uses energy derived from both a 


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qualifying source (that is, from an 

energy property defined in § 1.48–9(a) 

(including a qualified facility for which 

an election has been made as provided 

by paragraph (f)(1) of this section)) and 

from a non-qualifying source (that is, 

sources other than an energy property 

defined in § 1.48–9(a) (including a 

qualified facility for which an election 

has been made as provided by 

paragraph (f)(1) of this section)). 

(2) Qualification as energy property— 

(i) In general. If dual use property meets 

each of the requirements of this 

paragraph (b), it will qualify as energy 

property if its use of energy from nonqualifying sources does not exceed 50 

percent of its total energy input (as 

determined under the rules of paragraph 

(b)(2)(ii) of this section) during an 

annual measuring period (as defined in 

paragraph (b)(2)(iii) of this section). If 

the energy used from qualifying sources 

is between 50 percent and 100 percent, 

only a proportionate amount of the 

eligible basis of the energy property will 

be taken into account in computing the 

amount of the section 48 credit (for 

example, if 80 percent of the energy 

used by a dual use property is from 

qualifying sources, 80 percent of the 

basis of the dual use property will be 

taken into account in computing the 

amount of the section 48 credit). 

(ii) Aggregation of energy inputs. The 

measurement of energy use required for 

purposes of paragraph (b)(2)(i) of this 

section may be made by comparing, on 

the basis of British thermal units (Btus), 

energy input to dual use property from 

all qualifying sources with energy input 

from all non-qualifying sources. The 

Commissioner may also accept any 

other method that accurately establishes 

the relative annual use of energy 

derived from all qualifying sources and 

of energy input from all non-qualifying 

sources by dual use property. 

(iii) Annual measuring period. For 

purposes of paragraph (b)(2)(i) of this 

section, the term annual measuring 

period means with respect to an item of 

dual use property the 365-day period 

(366-day period in case of a leap year) 

beginning with the day the dual use 

property is placed in service or a 365- 

day period (366-day period in case of a 

leap year) beginning the day after the 

last day of the immediately preceding 

annual measuring period. 

(iv) Recapture. If, for a taxable year 

(within the recapture period specified in 

section 50(a) of the Code) subsequent to 

the taxable year that a dual use property 

was placed in service, the equipment’s 

use of energy from all qualifying sources 

is reduced below 50 percent of its total 

energy input (as determined under the 

rules of paragraph (b)(2)(i) of this 

section), then recapture of the section 48 

credit is required under section 50(a). 

(c) Energy property eligible for 

multiple Federal income tax credits—(1) 

In general. For purposes of this section, 

the basis of energy property may be 

eligible for calculating both the section 

48 credit and another Federal income 

tax credit, subject to the limitation 

provided in paragraph (c)(2) of this 

section. 

(2) Limitation. A taxpayer that owns 

energy property that is eligible for both 

the section 48 credit and another 

Federal income tax credit is eligible for 

the section 48 credit only to the extent 

the other Federal income tax credit was 

not claimed with respect to the 

taxpayer’s eligible basis in the energy 

property. Except as provided in 

paragraph (f)(2) of this section, in no 

event may a taxpayer claim both a 

section 48 credit and another Federal 

income tax credit with respect to the 

same eligible basis in an energy 

property. See paragraph (e) of this 

section for special rules regarding 

ownership of energy property. 

(d) Incremental cost—(1) In general. 

For purposes of this section, only the 

incremental cost of energy property is 

included in the eligible basis of the 

energy property. The term incremental 

cost means the excess of the total cost 

of energy property over the amount that 

would have been expended for the 

energy property if the energy property 

were not used for a qualifying purpose. 

(2) Example. A installs solar energy 

property above the surface of an existing 

roof of a building that A owns. The solar 

energy property uses bifacial panels that 

convert to energy the light that strikes 

both the front and back of the panels if 

installed over a highly reflective surface 

that is affixed to a roof (reflective roof). 

The cost of the reflective roof is $15,000 

whereas the cost of a standard roof for 

the building would be $10,000. The 

reflective roof does not include the 

portions of the existing roof that will be 

replaced, and any features of the roof 

not directly related to establishing, 

improving, and maintaining the 

efficiency of the reflective roof. 

Accordingly, the reflective roof, if 

installed in connection with the solar 

energy property, constitutes energy 

property under section 48. The 

incremental cost of the reflective roof is 

$5,000, and that amount is A’s eligible 

basis in the solar energy property for 

purposes of the section 48 credit. 

(e) Special rules concerning 

ownership—(1) Eligible basis. For 

purposes of this section, a taxpayer that 

owns an energy property is eligible for 

the section 48 credit only to the extent 

of the taxpayer’s eligible basis in the 

energy property. In the case of multiple 

taxpayers holding direct ownership in 

an energy property, each taxpayer 

determines its eligible basis based on its 

fractional ownership interest in the 

energy property. 

(2) Multiple owners. A taxpayer must 

directly own at least a fractional interest 

in the entire unit of energy property for 

a section 48 credit to be determined 

with respect to such taxpayer’s interest. 

No section 48 credit may be determined 

with respect to a taxpayer’s ownership 

of one or more separate components of 

an energy property if the components do 

not constitute a unit of energy property. 

However, the use of property owned by 

one taxpayer that is an integral part of 

an energy property owned by a second 

taxpayer will not prevent a section 48 

credit from being determined with 

respect to the second taxpayer’s energy 

property. 

(3) Related taxpayers—(i) Definition. 

For purposes of this section, the term 

related taxpayers means members of a 

group of trades or businesses that are 

under common control (as defined in 

§ 1.52–1(b)). 

(ii) Related taxpayer rule. For 

purposes of this section, related 

taxpayers are treated as one taxpayer in 

determining whether a taxpayer has 

made an investment in an energy 

property with respect to which a section 

48 credit may be determined. 

(4) Examples. The following examples 

illustrate the rules in this paragraph (e). 

In each example, X and Y are unrelated 

taxpayers. 

(i) Example 1. Fractional ownership 

required to satisfy section 48. X and Y 

own fractional ownership interests in a 

geothermal heat pump equipment that is 

a unit of energy property. Because X and 

Y each own a fractional ownership 

interest in a unit of energy property, a 

section 48 credit may be determined 

with respect to X’s and Y’s fractional 

ownership interests in the unit of energy 

property. 

(ii) Example 2. Ownership of separate 

components. X and Y own separate 

components of a geothermal heat pump 

equipment, which taken together is a 

unit of energy property. X owns the 

coils in the ground and Y owns the heat 

pump. No section 48 credit may be 

determined with respect to either X or 

Y because each owns a separate 

component of energy property that does 

not constitute a unit of energy property 

as defined in § 1.48–9(f)(2). 

(iii) Example 3. Shared ownership of 

property that is an integral part of 

separate energy properties. X owns a 

wind energy property that is a unit of 

energy property and Y owns a solar 

energy property that is a unit of energy 


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property that are co-located. Both X’s 

wind energy property and Y’s solar 

energy property connect to a substation 

that houses a step-up transformer where 

the electricity is stepped up to electrical 

grid voltage before being transmitted to 

the electrical grid through an intertie. X 

and Y each own a 50% fractional 

ownership interest in the step-up 

transformer. The step-up transformer is 

an integral part of both the wind energy 

property and the solar energy property 

(as defined in § 1.48–9(f)(3)(i). As a 

result, X and Y may both compute a 

section 48 credit for their respective 

energy properties by including 50% of 

the costs of the step-up transformer. 

(iv) Example 4. Separate ownership of 

property that is an integral part of 

separate energy property. X owns a 

wind energy property that is a unit of 

energy property and property that is an 

integral part of the wind energy 

property, specifically a transformer 

where the electricity is stepped up to 

electrical grid voltage before being 

transmitted to the electrical grid through 

an intertie. Y owns a solar energy 

property that is a unit of energy 

property that connects to X’s 

transformer. Because Y does not hold an 

ownership interest in the transformer, Y 

may compute its section 48 credit for its 

solar energy property but it will not 

include any costs relating to the 

transformer. 

(f) Coordination with other Code 

provisions. Paragraphs (f)(1) through (7) 

of this section provide rules applicable 

to the election under section 48(a)(5)(C) 

to treat certain facilities as energy 

property eligible for a section 48 credit 

in lieu of a renewable electricity 

production credit under section 45 of 

the Code (section 45 credit). Paragraph 

(f)(8) of this section provides a 

coordination rule for property with 

respect to which both a section 48 credit 

and a low-income housing credit under 

section 42 of the Code (section 42 

credit) may be determined. 

(1) Election to treat qualified facilities 

as energy property. If a taxpayer makes 

an election under section 48(a)(5)(C) of 

the Code (pursuant to the requirements 

in paragraph (f)(6) of this section) to 

treat qualified property (as defined in 

paragraph (f)(2) of this section) that is 

part of a qualified investment credit 

facility (as defined in paragraph (f)(4) of 

this section) as energy property with 

respect to which a section 48 credit may 

be determined, such property will be 

treated as energy property for purposes 

of section 48. No section 45 credit may 

be determined with respect to any such 

qualified investment credit facility and 

the requirements of section 45 are not 

imposed on a qualified investment 

credit facility. No credit under sections 

45Q or 45V of the Code may be 

determined with respect to either any 

carbon capture equipment included in a 

qualified investment credit facility or 

any specified clean hydrogen 

production facility. 

(2) Qualified property. For purposes 

of this paragraph (f), the term qualified 

property means property that meets 

each of the requirements of paragraphs 

(f)(2)(i) through (iii) of this section: 

(i) The property is tangible personal 

property (as defined in paragraph 

(f)(3)(i) of this section) or other tangible 

property (not including a building or its 

structural components) (as defined in 

paragraph (f)(3)(ii) of this section), but 

only if such other tangible property is 

used as an integral part (as defined 

paragraph (f)(3)(iii) of this section) of 

the qualified investment credit facility 

(as defined in paragraph (f)(4) of this 

section). 

(ii) Depreciation (or amortization in 

lieu of depreciation) is allowable (as 

defined in § 1.48–9(b)(4)) with respect to 

the property. 

(iii) The taxpayer constructs, 

reconstructs, or erects the property (as 

defined in § 1.48–9(b)(1)) or acquires the 

property (as defined in § 1.48–9(b)(2)) if 

the original use of the property (as 

defined in § 1.48–9(b)(3)) commences 

with the taxpayer. 

(3) Definitions related to requirements 

for qualified property. For purposes of 

section 48 of the Code and this 

paragraph (f), the definitions of this 

paragraph (f)(3) apply: 

(i) Tangible personal property. The 

term tangible personal property means 

any tangible property except land and 

improvements thereto, such as buildings 

or other inherently permanent 

structures (including items that are 

structural components of such buildings 

or structures). Tangible personal 

property includes all property (other 

than structural components) that is 

contained in or attached to a building. 

Further, all property that is in the nature 

of machinery (other than structural 

components of a building or other 

inherently permanent structure) is 

considered tangible personal property 

even though located outside a building. 

Local law is not controlling for purposes 

of determining whether property is or is 

not tangible property or tangible 

personal property. Thus, tangible 

property may be personal property for 

purposes of the energy credit even 

though under local law the property is 

considered to be a fixture and therefore 

real property. 

(ii) Other tangible property. The term 

other tangible property means tangible 

property other than tangible personal 

property (not including a building and 

its structural components), that is used 

as an integral part of furnishing 

electrical energy by a person engaged in 

a trade or business of furnishing any 

such service. 

(iii) Integral part—(A) In general. 

Property owned by a taxpayer is an 

integral part of a qualified investment 

credit facility owned by the same 

taxpayer if it is used directly in the 

intended function of the qualified 

investment credit facility and is 

essential to the completeness of the 

intended function of the qualified 

investment credit facility. A taxpayer 

may not claim the section 48 credit for 

any property that is an integral part of 

the taxpayer’s qualified investment 

credit facility that is not owned by the 

taxpayer. 

(B) Power conditioning and transfer 

equipment. Property that is an integral 

part of a qualified investment credit 

facility includes power conditioning 

equipment and transfer equipment used 

to perform the intended function of the 

qualified investment credit facility. 

Power conditioning equipment 

includes, but is not limited to, 

transformers, inverters, and converters, 

which modify the characteristics of 

electricity or thermal energy into a form 

suitable for use or transmission or 

distribution. Parts related to the 

functioning or protection of power 

conditioning equipment are also treated 

as power conditioning equipment and 

include, but are not limited to, switches, 

circuit breakers, arrestors, and hardware 

and software used to monitor, operate, 

and protect power conditioning 

equipment. Transfer equipment 

includes equipment that permits the 

aggregation of energy generated by 

components of energy properties and 

equipment that alters voltage in order to 

permit transfer to a transmission or 

distribution line. Transfer equipment 

does not include transmission or 

distribution lines. Examples of transfer 

equipment include, but are not limited 

to, wires, cables, and combiner boxes 

that conduct electricity. Parts related to 

the functioning or protection of transfer 

equipment are also treated as transfer 

equipment and may include items such 

as current transformers used for 

metering, electrical interrupters (such as 

circuit breakers, fuses, and other 

switches), and hardware and software 

used to monitor, operate, and protect 

transfer equipment. 

(C) Roads. Roads that are an integral 

part of a qualified investment credit 

facility are integral to the activity 

performed by the qualified investment 

credit facility; these include onsite 

roads that are used for equipment to 


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operate and maintain the qualified 

investment credit facility. Roads 

primarily for access to the site, or roads 

used primarily for employee or visitor 

vehicles, are not integral to the activity 

performed by a qualified investment 

credit facility. 

(D) Fences. Fencing is not an integral 

part of an energy property because it is 

not integral to the activity performed by 

the energy property. 

(E) Buildings. Generally, buildings are 

not integral parts of a qualified 

investment credit facility because they 

are not integral to the activity of the 

qualified investment credit facility. 

However, the following structures are 

not treated as buildings for this purpose: 

(1) A structure that is essentially an 

item of machinery or equipment. 

(2) A structure that houses property 

that is integral to the activity of a 

qualified investment credit facility if the 

use of the structure is so closely related 

to the use of the housed qualified 

investment credit facility that the 

structure clearly can be expected to be 

replaced when the qualified investment 

credit facility it initially houses is 

replaced. 

(4) Qualified investment credit 

facility. The term qualified investment 

credit facility means any facility— 

(i) That is a qualified facility (within 

the meaning of section 45) described in 

section 45(d)(1) through (4), (6), (7), (9) 

or (11) of the Code; 

(ii) That meets the placed in service 

and beginning of construction 

requirements (if any) provided in 

section 48 of the Code; 

(iii) With respect to which no credit 

has been allowed under section 45 of 

the Code; and 

(iv) For which the taxpayer makes an 

irrevocable election under section 

48(a)(5) of the Code and paragraph (f)(1) 

of this section. 

(5) Intangibles excluded. Intangible 

property is not qualified property for 

purposes of section 48(a)(5)(D) of the 

Code and paragraph (f) of this section. 

(6) Time and manner of making 

election—(i) In general. To make an 

election under section 48(a)(5) of the 

Code and paragraph (f)(1) of this section 

to treat a qualified facility as a qualified 

investment credit facility, a taxpayer 

must claim the section 48 credit with 

respect to such qualified investment 

credit facility on a completed Form 

3468, Investment Credit, or any 

successor form(s), and file such form 

with the taxpayer’s timely filed 

(including extensions) Federal income 

tax return for the taxable year in which 

the qualified investment credit facility 

is placed in service. The taxpayer must 

also attach a statement to its Form 3468, 

or any successor forms(s), filed with its 

timely filed Federal income tax return 

(including extensions) that includes all 

of the information required by the 

instructions to Form 3468, or any 

successor form(s) for each qualified 

investment credit facility subject to an 

election under section 48(a)(5) and 

paragraph (f)(1) of this section. A 

separate election must be made for each 

qualified facility that meets the 

requirements provided in paragraph 

(f)(2) of this section to be treated as a 

qualified investment credit facility. If 

any taxpayer owning an interest in a 

qualified facility makes an election with 

respect to such qualified facility, that 

election is binding on all taxpayers that 

directly or indirectly own an interest in 

the qualified facility. 

(ii) Special rule for partnerships and 

S corporations. In the case of a qualified 

facility owned by a partnership or an S 

corporation, the election under 

paragraph (f)(1) of this section is made 

by the partnership or S corporation and 

is binding on all ultimate section 48 

credit claimants (as defined in § 1.50– 

1(b)(3)(ii)). The partnership or S 

corporation must file a Form 3468, or 

any successor forms(s), with its timely 

filed partnership or S corporation return 

(including extensions) with respect to 

Federal income tax for the taxable year 

in which the qualified investment credit 

facility is placed in service to indicate 

that it is making the election and attach 

a statement that includes all of the 

information required by the instructions 

to Form 3468, or any successor form(s) 

for each qualified facility subject to the 

election. The ultimate credit claimants 

must claim the section 48 credit on a 

completed Form 3468, or any successor 

form(s), and file such form with a timely 

filed (including extensions) Federal 

income tax return for the taxable year 

that ends with or within the taxable year 

in which the partnership or S 

corporation made the election. The 

partnership or S corporation making the 

election must provide the ultimate 

credit claimants with the necessary 

information to complete Form 3468, or 

any successor form(s), to claim the 

energy credit. 

(7) Election irrevocable. The election 

under section 48(a)(5) of the Code and 

paragraph (f)(1) of this section to treat a 

qualified facility as an energy property 

is irrevocable. 

(8) Coordination rule for sections 42 

and 48 credits. As provided under 

section 50(c)(3)(C) of the Code, in the 

case of a taxpayer determining eligible 

basis for purposes of calculating a 

section 42 credit, a taxpayer is not 

required to reduce its basis in an energy 

property by the amount of the section 48 

credit determined with respect to the 

property. The basis of an energy 

property may be used to determine a 

section 48 credit and may also be 

included in eligible basis when 

determining a section 42 credit. See 

paragraph (e) of this section for special 

rules regarding ownership of energy 

property. 

(g) Rules for certain lower-output 

energy properties to include qualified 

interconnection costs in the basis of 

associated energy property—(1) In 

general. For purposes of determining 

the section 48 credit, energy property 

includes amounts paid or incurred by 

the taxpayer for qualified 

interconnection property (as defined in 

paragraph (g)(2) of this section), in 

connection with the installation of 

energy property (as defined in § 1.48– 

9(a)) that has a maximum net output of 

not greater than 5 MW (as measured in 

alternating current) (as described in 

paragraph (g)(3) of this section). The 

qualified interconnection property must 

provide for the transmission or 

distribution of the electricity produced 

or stored by such energy property and 

must be properly chargeable to the 

capital account of the taxpayer as 

reduced by paragraph (g)(6) of this 

section. 

(2) Qualified interconnection 

property. The term qualified 

interconnection property means, with 

respect to an energy project that is not 

a microgrid controller, any tangible 

property that is part of an addition, 

modification, or upgrade to a 

transmission or distribution system that 

is required at or beyond the point at 

which the energy project interconnects 

to such transmission or distribution 

system in order to accommodate such 

interconnection; is either constructed, 

reconstructed, or erected by the 

taxpayer, (as defined in § 1.48–9(b)(1)), 

or for which the cost with respect to the 

construction, reconstruction, or erection 

of such property is paid or incurred by 

such taxpayer; and the original use (as 

defined in § 1.48–9(b)(3)), of which, 

pursuant to an interconnection 

agreement (as defined in paragraph 

(g)(4) of this section), commences with 

a utility (as defined in paragraph (g)(5) 

of this section). Qualified 

interconnection property is not part of 

an energy property. As a result, 

qualified interconnection property is 

not taken into account in determining 

whether an energy property satisfies the 

requirements for the domestic content 

bonus credit amount referenced in 

section 48(a)(12) of the Code and the 

increase in credit rate for energy 

communities provided in section 

48(a)(14) of the Code. 


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(3) Five-Megawatt Limitation—(i) In 

general. The Five-Megawatt Limitation 

is measured at the level of the energy 

property in accordance with section 

48(a)(8)(A) of the Code. The maximum 

net output of an energy property is 

measured only by nameplate generating 

capacity of the unit of energy property 

at the time the energy property is placed 

in service. 

(ii) Nameplate capacity for purposes 

of the Five-Megawatt Limitation. The 

determination of whether an energy 

property has a maximum net output of 

not greater than 5 MW (as measured in 

alternating current) is based on the 

nameplate capacity for purposes of 

paragraph (g)(1) of this section. Where 

applicable, taxpayers should use the 

International Standard Organization 

(ISO) conditions to measure the 

maximum electrical generating output 

or usable energy capacity of an energy 

property. Paragraphs (g)(3)(i)(A) and (B) 

of this section, provide rules for 

applying the Five-Megawatt Limitation 

(as provided in paragraph (g)(1) of this 

section) to electrical generating energy 

property and electrical energy storage 

property, respectively. 

(A) Electrical generating energy 

property. In the case of an electrical 

generating energy property, the 

maximum electrical generating output 

in MW that the unit of energy property 

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 of nameplate capacity 

provided in 40 CFR 96.202. 

(B) Electrical energy storage property. 

In the case of electrical energy storage 

property (as defined in § 1.48– 

9(e)(10)(ii)), the storage device’s 

maximum net output is its nameplate 

capacity. 

(4) Interconnection agreement. The 

term interconnection agreement means 

an agreement with a utility for the 

purposes of interconnecting the energy 

property owned by such taxpayer to the 

transmission or distribution system of 

the utility. 

(5) Utility. For purposes of section 

48(a)(8) of the Code and this paragraph 

(g), the term utility means the owner or 

operator of an electrical transmission or 

distribution system that is subject to the 

regulatory authority of a State or 

political subdivision thereof, any agency 

or instrumentality of the United States, 

a public service or public utility 

commission or other similar body of any 

State or political subdivision thereof, or 

the governing or ratemaking body of an 

electric cooperative. 

(6) Reduction to amounts chargeable 

to capital account. In the case of 

expenses paid or incurred for qualified 

interconnection property as defined in 

paragraph (g)(2) of this section, amounts 

otherwise chargeable to capital account 

with respect to such expenses must be 

reduced under rules similar to the rules 

of section 50(c) of the Code. In addition, 

the taxpayer must pay or incur the 

interconnection property costs; 

therefore, any reimbursement, including 

by a utility, must be accounted for by 

reducing taxpayers’ expenditure when 

determining eligible costs. 

(7) Examples. This subparagraph 

provides examples illustrating the 

application of the Five-Megawatt 

Limitation provided in this paragraph 

(g). 

(i) Example 1. Application of FiveMegawatt Limitation to an 

interconnection agreement for energy 

properties owned by separate taxpayers. 

X places in service a solar energy 

property (Solar Property) with a 

maximum net output of 5 MW (as 

measured in alternating current). Y 

places in service a qualified wind 

facility (Wind Facility), for which Y has 

made a valid election under section 

48(a)(5) of the Code to elect the section 

48 credit in lieu of the section 45 credit, 

with a maximum net output of 5 MW (as 

measured in alternating current). The 

Solar Property and the Wind Facility are 

separate units of energy property 

installed on contiguous pieces of land 

and connect to the grid through a 

common intertie. As part of the 

development of the Solar Property and 

Wind Facility, interconnection costs are 

required by the utility to modify and 

upgrade the transmission system at or 

beyond the common intertie to the 

utility’s transmission system to 

accommodate such interconnection. X 

and Y are party to the same 

interconnection agreement with the 

utility that allows for a maximum 

output of 10 MW (as measured in 

alternating current). The 

interconnection agreement provides the 

total cost of the qualified 

interconnection property. X and Y may 

include the costs paid or incurred by X 

and Y, respectively, for qualified 

interconnection property subject to the 

terms of the interconnection agreement, 

when calculating their respective 

section 48 credits for the Solar Property 

and the Wind Facility because each has 

a maximum net output of not greater 

than 5 MW. 

(ii) Example 2. Application of FiveMegawatt Limitation to an 

interconnection agreement for a single 

energy property. X develops three solar 

energy properties located in close 

proximity. The three solar energy 

properties are not considered an energy 

project pursuant to the definition in 

§ 1.48–13(d). Each of the solar energy 

properties is a unit of energy property 

and has a maximum net output of 4 MW 

(as measured in alternating current). 

Electricity that is suitable for use or 

transmission (and is not further 

conditioned) from the three solar energy 

properties feeds into a single gen-tie line 

and a common intertie. X is party to a 

separate interconnection agreement 

with the utility for each solar energy 

property and each interconnection 

agreement allows for a maximum output 

of 4 MW (as measured in alternating 

current). X may include the costs it paid 

or incurred for qualified interconnection 

property for each solar energy property 

when calculating its section 48 credit 

for each of the three solar energy 

properties, subject to the terms of each 

interconnection agreement, because 

each of the solar energy properties has 

a maximum net output of not greater 

than 5 MW. 

(iii) Example 3. Application of FiveMegawatt Limitation to a single 

interconnection agreement for multiple 

energy properties. The facts are the same 

as Example 2, except that X is party to 

one interconnection agreement with the 

utility with respect to the three solar 

energy properties and the 

interconnection agreement allows for a 

maximum output of 12 MW (as 

measured in alternating current). With 

respect to each of the three solar energy 

properties, X may include the costs it 

paid or incurred for qualified 

interconnection property for each solar 

energy property when calculating its 

section 48 credit for each of the three 

solar energy properties, subject to the 

terms of the interconnection agreement, 

because each of the solar energy 

properties has a maximum net output of 

not greater than 5 MW. 

(iv) Example 4. Application of FiveMegawatt Limitation to an Energy 

Project. The facts are the same as 

Example 3, except that the three solar 

energy properties are also subject to a 

common power purchase agreement and 

as a result, are considered an energy 

project (as defined in § 1.48–13(d)). 

With respect to each of the three solar 

energy properties, X may include the 

costs it paid or incurred for qualified 

interconnection property when 

calculating its section 48 credit for each 

of the three solar energy properties, 

subject to the terms of the 

interconnection agreement, because 

each of the solar energy properties has 

a maximum net output of no greater 

than 5 MW. 

(h) Cross references. (1) For rules 

regarding the coordination of the section 


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42 credit and section 48 credit, see 

section 50(c)(3) of the Code. 

(2) For rules regarding the denial of 

double benefit for qualified biogas 

property, see section 45(e) of the Code. 

(3) To determine applicable recapture 

rules, see section 50(a) of the Code. 

(4) For rules regarding the credit 

eligibility of property used outside the 

United States, see section 50(b)(1) of the 

Code. 

(5) For rules regarding the credit 

eligibility of property used by certain 

tax-exempt organizations, see section 

50(b)(3) of the Code. See section 

6417(d)(2) of the Code for an exception 

to this rule in the case of an applicable 

entity making an elective payment 

election. 

(6) For application of the 

normalization rules to the section 48 

credit when taken by certain regulated 

companies, including rules regarding 

the election not to apply the 

normalization rules to energy storage 

technology (as defined in section 

48(c)(6) of the Code), see section 

50(d)(2) of the Code. 

(i) Applicability date. This section 

applies with respect to property placed 

in service after December 31, 2022, and 

during a taxable year beginning after 

[DATE OF PUBLICATION OF FINAL 

RULE]. 

■ Par. 5. Section 1.6418–5, as proposed 

to be added at 88 FR 40496, June 21, 

2023, is amended by: 

■ 1. Redesignating paragraphs (f) 

through (h) as paragraphs (g) through (i). 

■ 2. Adding new paragraph (f). 

The addition reads as follows: 

§ 1.6418–5 Special rules. 

* * * * * 

(f) Notification and impact of 

recapture under section 48(a)(10)(C) of 

the Code—(1) In general. In the case of 

any election under § 1.6418–2 or 

§ 1.6418–3 with respect to any specified 

credit portion described in § 1.6418– 

1(c)(2)(iii), if, during any taxable year, 

there is recapture under section 

48(a)(10)(C) of the Code and § 1.48– 

13(c)(3) of any increased credit amount 

under section 48(a)(9)(B)(iii) before the 

close of the recapture period (as 

described in § 1.48–13(c)(3)(E)), such 

eligible taxpayer and the transferee 

taxpayer must follow the notification 

process in paragraph (f)(2) of this 

section with recapture impacting the 

transferee taxpayer as described in 

paragraph (f)(3) of this section. 

(2) Notification requirements. The 

notification requirements for the eligible 

taxpayer are the same as for an eligible 

taxpayer that must report a recapture 

event as described in paragraph (d)(2)(i) 

of this section, except that the recapture 

amount that must be computed is 

defined in § 1.48–13(c)(3)(D). 

(3) Impact of recapture. The transferee 

taxpayer is responsible for any amount 

of tax increase under section 

48(a)(10)(C) of the Code and § 1.48– 

13(c)(3) upon the occurrence of a 

recapture event under § 1.48– 

13(c)(3)(B). 

(4) Applicability date. This section 

applies to taxable years ending on or 

after [DATE OF PUBLICATION OF 

FINAL RULE]. 

* * * * * 

Douglas W. O’Donnell, 

Deputy Commissioner for Services and 

Enforcement. 

[FR Doc. 2023–25539 Filed 11–17–23; 8:45 am] 

BILLING CODE 4830–01–P 


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