`[Federal Register Volume 90, Number 7 (Monday, January 13, 2025)]
[Rules and Regulations]
[Pages 2842-2871]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-00331]



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Vol. 90

Monday,

No. 7

January 13, 2025

Part III





 Department of the Treasury





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Internal Revenue Service





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26 CFR Part 1





Guidance on Clean Electricity Low-Income Communities Bonus Credit 
Amount Program; Final Rule

  Federal Register / Vol. 90 , No. 7 / Monday, January 13, 2025 / Rules 
and Regulations  

[[Page 2842]]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 10025]
RIN 1545-BR26


Guidance on Clean Electricity Low-Income Communities Bonus Credit 
Amount Program

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations concerning the 
program to allocate clean electricity low-income communities bonus 
credit amounts established pursuant to the Inflation Reduction Act of 
2022 for calendar years 2025 and succeeding years. Applicants investing 
in certain clean electricity generation facilities that produce 
electricity without combustion and gasification may apply for an 
allocation of capacity limitation to increase the amount of the clean 
electricity investment credit for the taxable year in which the 
facility is placed in service. This document provides definitions and 
requirements that are applicable for the program. The final regulations 
affect taxpayers seeking allocations of capacity limitation to claim an 
increased clean electricity investment credit.

DATES: These regulations are effective on January 13, 2025.

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

SUPPLEMENTARY INFORMATION: 

Authority

    This document amends the Income Tax Regulations (26 CFR part 1) by 
adding regulations authorized to be issued by the Secretary of the 
Treasury or her delegate (Secretary) under sections 48E(i) and 7805(a) 
of the Internal Revenue Code (Code) regarding the application of 
section 48E(h) of the Code (final regulations).
    Section 48E(i) provides an express delegation of authority to the 
Secretary to provide guidance regarding the implementation of section 
48E, stating, ``[n]ot later than January 1, 2025, the Secretary shall 
issue guidance regarding implementation of this section.''
    The final regulations are also issued under the express delegation 
of authority under section 7805(a), which provides that ``the Secretary 
shall prescribe all needful rules and regulations for the enforcement 
of [the Code], including all rules and regulations as may be necessary 
by reason of any alteration of law in relation to internal revenue.''

Background

I. Overview

    Section 13702 of Public Law 117-169, 136 Stat. 1818, 1921 (August 
16, 2022), commonly known as the Inflation Reduction Act of 2022 (IRA), 
added new section 48E(h) to the Code to authorize the Secretary to 
establish a program for calendar years 2025 and succeeding years to 
award allocations of capacity limitation (Capacity Limitation) that 
increase the amount of the new clean electricity investment credit 
determined under section 48E(a) (section 48E credit) with respect to 
eligible property that is part of an applicable facility. This document 
contains final definitions and rules relating to the allocation of 
Capacity Limitation for calendar year 2025 and succeeding years, 
requirements related to claiming the increase under section 48E(h), and 
recapture provisions.

II. Increase to Section 48E Credit

    The amount of section 48E credit for a taxable year generally is 
calculated by multiplying the qualified investment for such taxable 
year with respect to any qualified facility placed in service during 
that taxable year by the applicable percentage (as defined in section 
48E(a)(2)). If an applicable facility is awarded an allocation of 
Capacity Limitation, section 48E(h) increases the amount of the section 
48E credit with respect to the applicable facility by increasing the 
applicable percentage used to calculate the amount of the section 48E 
credit (section 48E(h) Increase). The term applicable facility is 
defined in section 48E(h)(2) to mean any qualified facility that (i) is 
not described in section 45Y(b)(2)(B) of the Code (relating to 
combustion and gasification facilities); (ii) has a maximum net output 
of less than five megawatts (MW) (as measured in alternating current 
(AC)); and (iii) is described in at least one of four categories in 
section 48E(h)(2)(A)(iii) (as further described in part III of this 
Background).

III. Clean Electricity Low-Income Communities Bonus Credit Amount 
Program

A. In General

    Section 48E(h)(4)(A) directs the Secretary to establish a program, 
not later than January 1, 2025, to allocate amounts of Capacity 
Limitation to applicable facilities. Section 48E(h)(4) also provides 
that in establishing a program the Secretary establish procedures for 
an efficient allocation process. Section 48E(h)(4) contemplates the 
collection and review of applications to consider facilities for an 
allocation.

B. Facility Categories and Increase Amount

    Depending on the category of the facility, an allocation of 
Capacity Limitation may result in a section 48E(h) Increase equal to 
either 10 percentage points or 20 percentage points. Section 
48E(h)(1)(A)(i) provides for a section 48E(h) Increase of 10 percentage 
points for eligible property that is located in a low-income community, 
as defined in section 45D(e) of the Code (Category 1 facility), or on 
Indian land, as defined in section 2601(2) of the Energy Policy Act of 
1992 (25 U.S.C. 3501(2)) (Category 2 facility). Section 
48E(h)(1)(A)(ii) provides for a section 48E(h) Increase of 20 
percentage points for eligible property that is part of a qualified 
low-income residential building project (Category 3 facility) or a 
qualified low-income economic benefit project (Category 4 facility).

C. Capacity Limitation

    Under section 48E(h)(4)(C), the total annual Capacity Limitation 
that may be allocated is 1.8 gigawatts of direct current capacity for 
each of the calendar years during the period beginning on January 1, 
2025, and ending on December 31 of the applicable year (as defined in 
section 45Y(d)(3)), and zero thereafter. Under section 48E(h)(4)(D)(i), 
if the annual Capacity Limitation for any calendar year exceeds the 
aggregate amount allocated for such year, the excess is carried forward 
to the next year. No amount of Capacity Limitation may be carried to 
any calendar year after the third calendar year following the 
applicable year (as defined in section 45Y(d)(3)). Under section 
48E(h)(4)(D)(ii), if the annual Capacity Limitation for calendar year 
2024 under section 48(e)(4)(D) of the Code exceeds the aggregate amount 
allocated for such year, the excess amount may be carried over and 
applied to the annual Capacity Limitation under section 48E(h) for 
calendar year 2025. The annual Capacity Limitation for calendar year 
2025 shall be increased by the amount of such excess.

D. Allocation Amount

    Section 48E(h)(1)(B) provides that any section 48E(h) Increase for 
any taxable year with respect to all eligible property

[[Page 2843]]

that is part of a facility shall not exceed the amount which bears the 
same ratio to the amount of such increase as the amount of the Capacity 
Limitation allocated to such facility bears to the total megawatt 
nameplate capacity of such facility, as measured in direct current. 
Therefore, if an allocation is made to a particular applicable 
facility, the Capacity Limitation amount allocated is based on the 
nameplate capacity of that applicable facility.

E. Claiming the Section 48E(h) Increase

    Taxpayers that own an applicable facility which received an 
allocation may claim the section 48E(h) Increase once the applicable 
facility has been placed in service, as part of its claim for the 
section 48E credit. For a taxpayer to claim the section 48E(h) Increase 
for any property which is part of the applicable facility, section 
48E(h)(4)(E)(i) requires that the eligible property be placed in 
service within 4 years after the date of allocation.

IV. Notice of Proposed Rulemaking

    On September 3, 2024, the Department of the Treasury (Treasury 
Department) and the IRS published in the Federal Register (89 FR 71193) 
a notice of proposed rulemaking (REG-108920-24, 2024-38 I.R.B. 607), 
corrected in 89 FR 77467 on September 23, 2024, under section 48E(h) 
(Proposed Regulations) relating to the Program. Comments were requested 
in response to the Proposed Regulations by October 3, 2024, and a 
public hearing on the Proposed Regulations was held on October 17, 
2024. On September 27, 2024, the Treasury Department held a 
consultation with Tribal leaders on the Proposed Regulations.
    The areas of comment and the revisions to the Proposed Regulations 
are discussed in the following Summary of Comments and Explanation of 
Revisions section of this preamble. Other minor, editorial, and 
clarifying revisions made to the Proposed Regulations as adopted in 
these final regulations are not discussed in the Summary of Comments 
and Explanation of Revisions section of this preamble.

V. Additional Guidance

    As announced in the Proposed Regulations, the Treasury Department 
and the IRS are also providing procedural guidance applicable to the 
Program opening in calendar year 2025 and future Program years which 
will be provided in guidance published in the Internal Revenue 
Bulletin. These procedural rules provide guidance necessary to 
implement the Program, including, in relevant part, information an 
applicant must submit, the application review process, and the manner 
of obtaining an allocation. Many of the procedural aspects of the 
Program will be similar to the Low-Income Communities Bonus Credit 
Program established under section 48(e) available for calendar years 
2023 and 2024.

Summary of Comments and Explanation of Revisions

I. Overview

    The Treasury Department and the IRS received 45 written comments in 
response to the Proposed Regulations. The comments are available for 
public inspection at https://www.regulations.gov or upon request. After 
full consideration of all comments received, the testimony heard at the 
public hearing, and the consultation with Tribal leaders, these final 
regulations adopt the Proposed Regulations with modifications in 
response to the comments and testimony as described in this Summary of 
Comments and Explanation of Revisions.
    Comments summarizing the statute or the Proposed Regulations, 
recommending statutory revisions, grammatical edits, and addressing 
issues that are outside the scope of this rulemaking (such as revising 
other Federal regulations, recommending changes to tax forms, website 
portals, or procedural guidance published in the Internal Revenue 
Bulletin) are generally not addressed in this Summary of Comments and 
Explanation of Revisions or adopted in these final regulations. In 
addition to addressing the comments received in response to the 
Proposed Regulations, the final regulations also include non-
substantive grammatical or stylistic changes to the Proposed 
Regulations. Unless otherwise indicated in this Summary of Comments and 
Explanation of Revisions, provisions of the Proposed Regulations with 
respect to which no comments were received are adopted without 
substantive change.

II. General Rules

A. In General

    Consistent with section 48E(h)(1), proposed Sec.  1.48E(h)-1(a)(1) 
would provide that for purposes of section 46 of the Code, if an 
allocation of Capacity Limitation is made with respect to eligible 
property (as defined in proposed Sec.  1.48E(h)-1(c)) that is part of 
any applicable facility (as defined in proposed Sec.  1.48E(h)-1(b)) 
placed in service in connection with low-income communities under the 
Program established under section 48E(h)(4), the applicable percentage 
used to calculate the amount of the section 48E credit is increased 
under section 48E(h)(1). The final regulations adopt this rule.

B. Certain Terms

    Proposed Sec.  1.48E(h)-1(a)(2) would describe certain terms used 
in the Proposed Regulations. Proposed Sec.  1.48E(h)-1(a)(2)(i) would 
explain that the term applicant would be used interchangeably with 
taxpayer in accordance with the context of a particular rule. Proposed 
Sec.  1.48E(h)-1(a)(2)(ii) would explain that the term Internal Revenue 
Bulletin has the meaning provided in Sec.  601.601. The final 
regulations adopt these terms and descriptions with certain additions 
to define the term applicant. Section 1.48E(h)-1(a)(2)(i) of the final 
regulations adds language to clarify that the owner of the facility, 
and the taxpayer which intends to claim the section 48E credit, is the 
applicant. The final regulations further clarify that disregarded 
entities are not eligible applicants and may not apply for an 
allocation. Instead, the regarded taxpayer that owns the disregarded 
entity is the applicant for purposes of the Program.

III. Applicable Facility

A. Definition of Applicable Facility

    The term applicable facility is defined in section 48E(h)(2)(A) to 
mean any qualified facility (as defined in section 48E(b)(3)) that (i) 
is not described in section 45Y(b)(2)(B) (related to combustion and 
gasification facilities); (ii) has a maximum net output of less than 5 
MW (as measured in AC); and (iii) is described in at least one of the 
four categories described in section 48E(h)(2)(A)(iii). Consistent with 
section 48E(h)(2)(A), proposed Sec.  1.48E(h)-1(b)(1) would define an 
applicable facility to mean any qualified facility (as defined in 
section 48E(b)(3)) that (i) is a non-combustion and gasification 
facility for which the Secretary has determined has a greenhouse gas 
(GHG) emissions rate of not greater than zero in guidance published 
either in the Federal Register or in the Internal Revenue Bulletin as 
of the opening date for a Program year; (ii) has a maximum net output 
of less than 5 MW (as measured in AC); and (iii) is described in at 
least one of the four categories described in section 48E(h)(2)(A)(iii) 
and proposed Sec.  1.48E(h)-1(b)(2).
    Several commenters requested the final regulations revise the 
definition of applicable facility to include additional types of 
technologies that do not otherwise meet the definition of an applicable 
facility as defined under

[[Page 2844]]

section 48E(h)(2)(A). Section 48E(h)(2)(A) defines applicable facility 
by referencing the section 48E(b)(3) definition of qualified facility. 
Section 48E(h)(2)(A) provides that a qualified facility that is a 
combustion and gasification (C&G) facility is not eligible for the 
Program. However, whether a qualified facility is a C&G facility or not 
is beyond the scope of these regulations under section 48E(h). On June 
3, 2024, the Treasury Department and the IRS published in the Federal 
Register (89 FR 47792) a notice of proposed rulemaking (REG-119283-23) 
under sections 45Y and 48E (48E Proposed Regulations) that would 
provide definitions and rules for section 48E generally, including the 
types of qualified facilities that are C&G and the types of qualified 
facilities that are non-C&G. The 48E Proposed Regulations requested 
comments on types of qualified facilities, and such comments will be 
addressed in the final regulations under section 48E. A facility must 
first be a qualified facility that is eligible to claim the investment 
credit under section 48E for the facility to be considered an 
applicable facility under the Program. Information and rules for 
qualified facilities and the types of categories of non-C&G-facilities 
will be included in other guidance, under section 48E, published in the 
Federal Register or the Internal Revenue Bulletin. Consistent with the 
statute, final Sec.  1.48E(h)-1(b)(1) adopts the proposed rule without 
revision.

B. Four Categories of Applicable Facilities

    Section 48E(h)(2)(A)(iii) establishes four categories of applicable 
facilities as facilities that are located in a low-income community (as 
defined in section 45D(e)) or on Indian land (as defined in section 
2601(2) of the Energy Policy Act of 1992 (25 U.S.C. 3501(2))), or 
facilities that are part of a qualified low-income residential building 
project or a qualified low-income economic benefit project. The amount 
of the section 48E(h) Increase is 10 percentage points for facilities 
located in a low-income community or on Indian land, and 20 percentage 
points for facilities which are part of a qualified low-income 
residential building project or part of a qualified low-income economic 
benefit project.
    Proposed Sec.  1.48E(h)-1(b)(2) would generally adopt the statutory 
language to define each of the four facility categories, with minimal 
modifications to shorten references to the categories as Category 1, 2, 
3, or 4, and to clarify specific category requirements.
    Proposed Sec.  1.48E(h)-1(b)(2)(i) would provide that a facility is 
a Category 1 facility if it is located in a low-income community (as 
defined in section 45D(e)). Proposed Sec.  1.48E(h)-1(b)(2)(i) would 
also provide clarifying language to explain the term low-income 
community generally is defined under section 45D(e)(1) as any 
population census tract for which the poverty rate for such tract is at 
least 20 percent, or, in the case of a tract not located within a 
metropolitan area, the median family income for such tract does not 
exceed 80 percent of statewide median family income, or in the case of 
a tract located within a metropolitan area, the median family income 
for such tract does not exceed 80 percent of the greater of statewide 
median family income or the metropolitan area median family income.
    Proposed Sec.  1.48E(h)-1(b)(2)(i) additionally would explain that 
the term low-income community also includes the modifications in 
sections 45D(e)(4) and (5) for tracts with low population and 
modification of the income requirement for census tracts with high 
migration rural counties. Proposed Sec.  1.48E(h)-1(b)(2)(i) also would 
provide that low-income community information for the New Markets Tax 
Credit (NMTC) can be found at the U.S. Department of Treasury, 
Community Development Financial Institutions (CDFI) Fund website and 
its web page mapping tool, https://www.cdfifund.gov/cims. Proposed 
Sec.  1.48E(h)-1(b)(2)(i) then would clarify that the poverty rate for 
a census tract generally is based on the most recently released ACS 
low-income community data for the NMTC. Proposed Sec.  1.48E(h)-
1(b)(2)(i) would provide, however, if updated data is released, a 
taxpayer, in its application, can choose to base the poverty rate for 
any population census tract on either the prior version of the ACS low-
income community data or the updated ACS low-income community data for 
a period of 1 year following the date of the release of the updated 
data. Proposed Sec.  1.48E(h)-1(b)(2)(i) would provide that after the 
1-year transition period, the updated ACS low-income community data 
must be used.
    Additionally, proposed Sec.  1.48E(h)-1(b)(2)(i) would provide that 
population census tracts that satisfy the definition of low-income 
community at the time of application are considered to continue to meet 
the definition of low-income community for the duration of the 
recapture period unless the location of the facility changes.
    One commenter opposed reliance on the NMTC definitions to identify 
communities. This commenter cautioned that the NMTC definition may 
inadvertently exclude certain disadvantaged areas due to changes in 
census tracts and reliance on outdated data. This commenter suggested 
that, instead, the Program should use alternative metrics to identify 
low-income communities like the Climate and Economic Justice Screening 
Tool (CEJST) and allowing for case-by-case evaluations for community-
level qualifications.
    Section 48E(h)(2)(A)(iii)(I) requires that a Category 1 facility be 
located in a low-income community census tract as defined under section 
45D(e) for purposes of the NMTC. Therefore, the section 45D(e) 
definition of low-income community census tracts must be used to 
determine whether a facility is located in a low-income community 
census tract for purposes of determining Category 1 eligibility under 
this Program. The statute does not permit another metric to identify 
communities as low-income that have not been identified as low-income 
community census tracts by the CDFI Fund, for purposes of NMTC. 
Finally, the Program includes the use of CEJST data under the 
Additional Selection Criteria Geographic Criteria. These comments are 
not adopted and final Sec.  1.48E(h)-1(b)(2)(i) retains the language 
from the proposed rule.
    One commenter expressed support for the ability of a developer to 
choose to base the poverty rate for any population census tract on 
either the prior version of the ACS low-income community data or the 
updated ACS low-income community data. The CDFI Fund uses the ACS five-
year data to determine the low-income community census tracts for 
purposes of the NMTC. When the CDFI Fund updates the low-income census 
tract determination based on the most recent 5-year ACS data, the CDFI 
Fund allows for a one-year transition period for reliance purposes. The 
final regulations adopt the CDFI Fund's one-year transition period to 
allow for the same reliance; however, the final regulations clarify 
that Sec.  1.48E(h)-1(b)(2)(i) does not provide a blanket ability for 
applicants to select between prior and current official ACS data. The 
last update to the low-income community census tracts for the NMTC 
occurred on September 1, 2023. The transition period, and, therefore, 
the ability to utilize either the prior or updated data to claim that a 
facility is located in a low-income area also ended on September 1, 
2024. The Treasury Department anticipates the next update will occur in 
2028. When a subsequent update occurs, the transition period will

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again allow for taxpayers to use either the prior or updated data to 
determine whether their facility is located in a low-income community 
census tract.
    Proposed Sec.  1.48E(h)-1(b)(2)(ii) would provide that, consistent 
with section 48E(h)(2)(A)(iii)(I), a facility is a Category 2 facility 
if it is located on Indian land as defined in section 2601(2) of the 
Energy Policy Act of 1992 (25 U.S.C. 3501(2)). No comments were 
received on this rule, and, accordingly, the final regulations adopt 
this rule without modification.
    Section 48E(h)(2)(A)(iii)(II) defines an applicable facility in 
part to include a qualified facility that is part of a qualified low-
income residential building project. Section 48E(h)(2)(B) further 
describes a facility as part of a ``qualified low-income residential 
building project'' if it is installed on a residential building that 
participates in a covered housing program (as defined in section 
41411(a) of the Violence Against Women Act of 1994 (34 U.S.C. 
12491(a)(3)) (VAWA), a housing assistance program administered by the 
Department of Agriculture under title V of the Housing Act of 1949, a 
housing program administered by a tribally designated housing entity 
(as defined in section 4(22) of the Native American Housing Assistance 
and Self-Determination Act of 1996 (25 U.S.C. 4103(22))), or such other 
affordable housing programs as the Secretary may provide, and requires 
that the financial benefits of the electricity produced by such 
facility are allocated equitably among the occupants of the dwelling 
units of such building.
    Consistent with the statute, proposed Sec.  1.48E(h)-1(b)(2)(iii) 
would define a facility as a Category 3 facility if it is part of a 
qualified low-income residential building project, and further would 
provide that a facility will be treated as part of a qualified low-
income residential building project if such facility is installed on a 
residential rental building that participates in a covered housing 
program or other affordable housing program described in section 
48E(h)(2)(B)(i) and the financial benefits of the electricity produced 
by such facility are allocated equitably among the occupants of the 
dwelling units of such building as provided in proposed Sec.  1.48E(h)-
1(e). Proposed Sec.  1.48E(h)-1(b)(2)(iii) also would include the term 
Qualified Residential Property to separately refer to the residential 
rental building (as opposed to the Category 3 facility). Proposed Sec.  
1.48E(h)-1(b)(2)(iii) additionally would clarify that the Qualified 
Residential Property, and not just its tenants, must participate in a 
covered housing program or other affordable housing program described 
in section 48E(h)(2)(B)(i). Proposed Sec.  1.48E(h)-1(b)(2)(iii) would 
further clarify that a Qualified Residential Property could either be a 
multifamily rental property or single-family rental property. 
Additionally, proposed Sec.  1.48E(h)-1(b)(2)(iii) would clarify that a 
facility does not need to be installed directly on the building to be 
considered installed on a Qualified Residential Property if the 
facility is installed on the same or an adjacent parcel of land as the 
Qualified Residential Property and the other requirements to be a 
Category 3 facility are satisfied. No comments were submitted on this 
definition. These final regulations adopt the proposed rule without 
modification.
    The preamble to the Proposed Regulations would include an 
illustrative list of eligible Federal housing programs for Category 3. 
The Treasury Department and the IRS, in consultation with other Federal 
agencies, developed the illustrative list of Federal housing programs 
and policies that meet the requirements in section 48E(h)(2)(B)(i) of 
being covered under section 41411(a) of VAWA, administered by the 
Department of Agriculture under title V of the Housing Act of 1949, or 
administered by a tribally designated housing entity (as defined in 
section 4(22) of the Native American Housing Assistance and Self-
Determination Act of 1996). The eligible Federal housing program list 
will be included in guidance published in the Internal Revenue 
Bulletin, and the list may be updated in future guidance published in 
the Internal Revenue Bulletin.
    Section 48E(h)(2)(B)(i) also authorizes the Secretary to add other 
affordable housing programs to the list of eligible programs. The 
Proposed Regulations requested comment on whether other affordable 
housing programs should be added to the list of eligible programs, and 
specifically whether and under what conditions certain state programs 
should be added to the list.
    Several commenters named specific state housing programs and 
requested addition of those programs as eligible Category 3 housing 
programs. However, those commenters did not explain why the specific 
program should be included and what comprehensive set of criteria 
warrant the inclusion of these specific programs over others. One 
commenter suggested that any property with a 100 percent affordability 
covenant that has a minimum of 10 years remaining should be included as 
an eligible program. Similarly, another commenter recommended that 
state-subsidized affordability restricted housing programs that have 
affordability restrictions equal to or greater than federal programs 
listed in the Proposed Regulations, should qualify for Category 3. As 
an additional recommendation, this commenter suggested guidelines for 
Naturally Occurring Affordable Housing (NOAH), and provided an example 
stating that eligibility could be considered if the housing is owned by 
a non-profit or a LLC with a non-profit as the single member and the 
property is located in a Justice 40 community or where the average rent 
does not exceed Department of Housing and Urban Development (HUD) fair 
market rent. Another commenter urged expansion of the list of 
affordable housing programs eligible to include state and local 
programs that provide rental assistance and/or capital investments in 
affordable housing. This commenter also suggested that state and local 
programs with affordability and compliance requirements like the 
Federal programs currently qualifying for Category 3 should be 
eligible. Similarly, another commenter suggested the inclusion of any 
state-funded low-income housing or transitional housing program where 
eligibility for assistance under such program is equivalent to 
eligibility criteria for any of the enumerated federal covered housing 
programs.
    At this time, the Treasury Department and the IRS have determined 
that the list of eligible housing programs should only include Federal 
housing programs, not State and local programs. The statute requires 
the building participate in a covered hosing program or other 
affordable housing program; it is not sufficient that the building has 
certain characteristics, such as being owned by a tax-exempt entity. 
Additionally, the statute enumerates programs that are eligible based 
only on their inclusion under VAWA or because the programs are 
administered by the USDA or a Tribally designated housing entity. There 
are no standard criteria across these eligible programs which can be 
applied to objectively consider other programs. Additionally, comments 
did not provide a comprehensive set of criteria that could be used to 
determine what additional affordable housing programs should be 
included. The Treasury Department, under the authority granted under 
section 48E(h)(2)(B)(i), may decide in the future to include additional 
programs for Category 3. If additional, specific housing programs are 
deemed eligible, or if a process is later developed to consider housing 
programs for inclusion, that information will be

[[Page 2846]]

announced through guidance published in the Internal Revenue Bulletin.
    Regarding Federal housing programs, commenters recommended 
additional housing programs, including programs administered by the 
Department of Hawaiian Home Lands, Native Hawaiian Organizations, and 
Hawaiian Homestead Associations. In consultation with HUD, the Treasury 
Department and the IRS have adopted changes to the list of eligible 
housing programs for Category 3. For the Program year beginning in 
calendar year 2025, HUD project based vouchers under Section 8 of the 
United States Housing Act of 1937 and housing programs administered by 
the Department of Hawaiian Home Lands as defined in Title VIII of the 
Native American Housing Assistance and Self-Determination Act of 1996 
(24 CFR 1006.10), Hawaiian Homestead Associations (HHA) as defined in 
43 CFR 48.6, and DHHL or HHA lands administered by Native Hawaiian 
Organizations as defined in 13 CFR 124.3, have been added to the list 
of eligible housing programs. Guidance published in the Internal 
Revenue Bulletin, as updated, will contain the complete list of 
eligible housing programs for Category 3.
    Section 48E(h)(2)(A)(iii)(II) defines an applicable facility in 
part to include a qualified facility that is part of a qualified low-
income economic benefit project. Section 48E(h)(2)(C) provides that a 
facility will be treated as part of a qualified low-income economic 
benefit project if at least 50 percent of the financial benefits of the 
electricity produced by such facility are provided to households with 
income of less than 200 percent of the poverty line (as defined in 
section 36B(d)(3)(A) of the Code) applicable to a family of the size 
involved, or less than 80 percent of area median gross income (as 
determined under section 142(d)(2)(B) of the Code).
    Consistent with section 48E(h)(2)(A)(iii)(II), proposed Sec.  
1.48E(h)-1(b)(2)(iv), would define a Category 4 facility as a facility 
that is part of a qualified low-income economic benefit project. 
Proposed Sec.  1.48E(h)-1(b)(2)(iv) would further provide that a 
facility will be treated as part of a qualified low-income economic 
benefit project if at least 50 percent of the financial benefits of the 
electricity produced by the facility are provided to households with 
income of less than 200 percent of the poverty line (as defined in 
section 36B(d)(3)(A)) applicable to a family of the size involved, or 
80 percent of area median gross income (as determined under section 
142(d)(2)(B)).
    No comments were submitted regarding proposed Sec.  1.48E(h)-
1(b)(2)(iv). The final regulations adopt the proposed rule without 
modification.

C. Less Than Five Megawatts Requirement

    Section 48E(h)(2)(A)(ii) requires that an applicable facility have 
a maximum net output of less than 5 megawatts (as measured in AC), 
referred to in this preamble as the less than five megawatts 
requirement. Proposed Sec.  1.48E(h)-1(b)(3)(i) would provide that the 
less than five megawatts requirement is measured at the level of the 
applicable facility in accordance with section 48E(h)(2)(A)(ii). 
Proposed Sec.  1.48E(h)-1(b)(3)(i) additionally would clarify that the 
maximum net output of an applicable facility is measured only by 
nameplate generating capacity of the applicable facility, which 
includes only functionally interdependent components of the applicable 
facility, at the time the applicable facility is placed in service. 
Proposed Sec.  1.48E(h)-1(b)(3)(i) would provide that components of 
property are functionally interdependent if the placing in service of 
each component is dependent upon placing in service other components to 
produce electricity.
    Proposed Sec.  1.48E(h)-1(b)(3)(ii) would further provide that the 
determination of whether an applicable facility has a maximum net 
output of less than 5 megawatts (MW) (as measured in AC) is based on 
the nameplate capacity of the applicable facility. Proposed Sec.  
1.48E(h)-1(b)(3)(ii) would additionally state that the nameplate 
capacity for purposes of the less than five megawatts requirement is 
the maximum electrical generating output in MW that the applicable 
facility 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. Proposed Sec.  1.48E(h)-1(b)(3)(ii) would 
also state that if applicable, the International Standard Organization 
conditions should be used to measure the maximum electrical generating 
output of an applicable facility.
    The Proposed Regulations requested comments on other approaches to 
address this statutory requirement that would further the purpose of 
efficient allocation of a Federal tax credit program with a national 
impact and would advance the goals of the Program to incentivize 
additional deployment of qualified facilities in low-income 
communities. The preamble to the Proposed Regulations stated that these 
approaches could include rules that would aggregate the capacity of 
qualified facilities with integrated operations (that is, qualified 
facilities that are owned by the same taxpayer, placed in service in 
the same taxable year, and transmit electricity generated by the 
facilities through the same point of interconnection or, if the 
facilities are not grid-connected, to the same end user(s)) solely for 
the purposes of whether an application meets the less than five 
megawatts requirement under section 48E(h)(2)(A)(ii).
    Further, the preamble to the Proposed Regulations explained that 
the Treasury Department and the IRS intended to deprioritize review of 
applications for an applicable facility that together with other 
qualified facilities (1) share a point of interconnection, (2) produce 
electricity using the same technology, (3) are owned by the same 
taxpayer, and (4) have an aggregate total maximum net output (as 
determined by the sum of the maximum net output of the applicable 
facility and each qualified facility under proposed Sec.  1.48E(h)-
1(b)(3)(ii)) equal to or greater than five megawatts (as measured in 
AC). Deprioritized applications would be considered after other 
applications in the current allocation round, or a subsequent 
allocation round at the Secretary's discretion.
    One commenter stated that the proposed less than 5 MW requirement 
may allow larger projects to be deceptively segmented into smaller ones 
to manufacture a false qualification for the bonus credit. This 
commenter supported the inclusion of stricter aggregation rules to 
prevent developers from dividing larger projects to monopolize 
allocations intended for genuinely small facilities. Another commenter 
expressed support for the proposal to aggregate capacity of qualified 
facilities with integrated operations. This commenter, however, 
recommended using only one factor to aggregate facilities, a common 
point of interconnection. Another commenter suggested that, in 
evaluating related qualified facilities, the final regulations should 
consider whether an application is for a project where the developer 
and its affiliates have multiple interconnection agreements on the same 
property.
    Section 48E(h)(4)(A) provides that ``[i]n establishing such program 
and to carry out the purposes of this subsection, the Secretary shall 
provide procedures to allow for an efficient allocation process.'' To 
further the aims of an efficient allocation process, the Treasury 
Department and the IRS agree with commenters that the final

[[Page 2847]]

regulations should include an aggregation rule to clarify the scope of 
applications. Clear parameters of what constitutes an ``applicable 
facility'' for purposes of an application to the Program provides 
certainty for applicants preparing and submitting applications and for 
the IRS in its review of applications. For example, the definition of a 
qualified facility, as defined under the 48E Proposed Regulations, may 
give the impression to the taxpayer that they must submit multiple 
applications for a 3 MW solar facility with multiple inverters. Such a 
result would not create an efficient allocation process. Furthermore, 
because section 48E(h) is subject to a finite annual Capacity 
Limitation, the Treasury Department and the IRS believe allocating 
amounts of Capacity Limitation to a group of related qualified 
facilities with an aggregate total maximum net output equal to or 
greater than 5 MW (as measured in AC) could concentrate allocations 
(and the benefits of clean energy development) in a smaller number of 
communities, rather than making them more broadly available, which 
would not further the purpose of an efficient allocation of a Federal 
tax credit. Accordingly, the final regulations revise the nameplate 
capacity measurement test to determine whether an applicable facility 
has a maximum net output of less than 5 MW (as measured in AC).
    Solely for the purposes of the less than five megawatts requirement 
for the Program, if an applicable facility has integrated operations 
with one or more other qualified facilities of the same technology 
type, then the aggregate nameplate capacity of the applicable facility 
and other qualified facility must be used to determine the maximum net 
output of an applicable facility, including in determining eligibility 
for an allocation of Capacity Limitation. This approach provides 
clarity to applicants, creates a more efficient allocation process 
relative to other approaches because it streamlines application intake 
and processing, and helps address commenters' concerns about fairness 
in the allocation process.
    The final regulations provide at newly added Sec.  1.48E-
1(b)(3)(iv) that solely for the purposes of the less than five 
megawatts requirement for the Program, an applicable facility is 
treated as having integrated operations with one or more other 
qualified facilities of the same technology type, if the facilities 
are: (i) owned by the same or related taxpayers; (ii) placed in service 
in the same taxable year; and (iii) transmit electricity generated by 
the facilities through the same point of interconnection or, if the 
facilities are not grid-connected or are delivering electricity 
directly to an end user behind a utility meter, are able to support the 
same end user. The final regulations also provide a definition for 
related taxpayers in newly added Sec.  1.48E-1(b)(4). For purposes of 
the less than five megawatts requirement, the term related taxpayers 
means members of a group of trades or businesses that are under common 
control (as defined in Sec.  1.52-1(b)). Related taxpayers are treated 
as one taxpayer in determining whether an applicable facility has 
integrated operations.
    One commenter requested clarification as to whether facilities with 
exactly 5 MW are eligible for the Program, or whether projects must 
restrict their inverter output to 4.99 MW (as measured in AC) to 
qualify. The statutory language requires that an applicable facility 
have a maximum net output of less than 5 MW (as measured in AC), and 
the final regulations provide a nameplate capacity test to determine 
whether an applicable facility satisfies the statutory requirement. 
Accordingly, facilities with a maximum net output of 5 MW (as measured 
in AC) or greater are not applicable facilities and are not eligible. 
Furthermore, derating or restricting an inverter to get below 5 MW (as 
measured in AC) would only change the output of the facility but would 
not change the maximum net output (or nameplate capacity) of the 
facility.
    The Treasury Department and the IRS are aware that certain 
technologies generate electricity in direct current, not alternating 
current, and therefore, it is unclear how to determine whether an 
applicable facility has a maximum net output of less than 5 MW (as 
measured in AC).
    For applicable facilities that generate electrical output in direct 
current, the final regulations provide an alternative nameplate 
capacity measurement at newly added Sec.  1.48E-1(b)(3)(iii). Only for 
qualified facilities that generate electricity in direct current, the 
taxpayer may choose to determine the maximum net output (in alternating 
current) of the applicable facility by using the lesser of: (i) 
nameplate generating capacity of the applicable facility in direct 
current, which is deemed the nameplate generating capacity of the 
applicable facility in alternating current; or (ii) the nameplate 
capacity of the first component of property that inverts the direct 
current electricity into alternating current.

D. Eligible Property

    Section 48E(h)(3) defines eligible property as a qualified 
investment with respect to any applicable facility. Section 48E(b) 
describes a qualified investment with respect to a qualified facility. 
Generally, for purposes of section 48E(a), section 48E(b)(1)(A) and 
(b)(1)(B) provide that the qualified investment with respect to a 
qualified facility for any taxable year is the sum of the basis of any 
qualified property placed in service by the taxpayer during such 
taxable year that is part of a qualified facility, plus the amount of 
expenditures that are paid or incurred by the taxpayer for qualified 
interconnection property.
    Consistent with section 48E(h)(3), proposed Sec.  1.48E(h)-1(c) 
would define eligible property as a qualified investment (as defined in 
section 48E(b)) \1\ with respect to any applicable facility. The 
preamble to the Proposed Regulations explained that pursuant to section 
48E(h)(3), eligible property does not include any qualified investment 
with respect to energy storage technology.
---------------------------------------------------------------------------

    \1\ See proposed Sec.  1.48E-2(d), as proposed in the notice of 
proposed rulemaking (REG-119283-23) published in the Federal 
Register (89 FR 47792) on June 3, 2024, and corrected on July 18, 
2024 at 89 FR 58305, for more information regarding the definition 
of ``qualified investment.''
---------------------------------------------------------------------------

    Several commenters objected to the exclusion of energy storage 
technology as eligible property for purposes of the section 48E(h) 
Increase. Some commenters requested that the final regulations should 
include energy storage technology as eligible property for purposes of 
the Program. These commenters cited to the inclusion of co-located 
energy storage technology as eligible property for purposes of the 
predecessor program under section 48(e). One commenter asserted that 
the proposed rule was wrong, and that certain energy storage technology 
should be includable as a qualified investment by distinguishing 
between stand-alone energy storage technology and energy storage 
technology associated with a qualified facility. This commenter 
asserted that associated energy storage technology is an integral part 
of the qualified facility and should be includable as a qualified 
investment. Another commenter similarly requested that the final 
regulations under sections 48E and 45Y classify energy storage 
technology as an integral part of the qualified facility, and 
therefore, further requested that energy storage technology be eligible 
for the section 48E(h) Increase. Alternatively, this commenter 
suggested that the final regulations

[[Page 2848]]

clarify that facilities that include energy storage technology remain 
eligible for the bonus credit for the portion of the system that is a 
qualified facility.
    Section 48E(a) defines and provides an investment credit for energy 
storage technology distinct and separate from a credit for a qualified 
facility. Eligible property under section 48E(h) only includes a 
qualified investment with respect to an applicable facility, and 
therefore, the statute does not support inclusion of energy storage 
technology in the section 48E(h) Program. If an applicant has a system 
that includes both an applicable facility and energy storage 
technology, the applicable facility would still be eligible for a 
credit under section 48E and the section 48E(h) Increase. Accordingly, 
the final regulations do not adopt these comments.

E. Location

    Proposed Sec.  1.48E(h)-1(d)(1) would treat an applicable facility 
as located in a low-income community or on Indian land under section 
48E(h)(2)(A)(iii)(I) or located in a geographic area under the 
Additional Selection Criteria (see part VI.B. of this Summary of 
Comments and Explanation of Revisions) if the facility satisfies the 
nameplate capacity test (Nameplate Capacity Test for Location) provided 
in proposed Sec.  1.48E(h)-1(d)(2). Proposed Sec.  1.48E(h)-1(d)(2) 
would describe the Nameplate Capacity Test for Location, which provides 
that an applicable facility would be considered located in or on the 
relevant geographic area described in proposed Sec.  1.48E(h)-1(d)(1) 
if 50 percent or more of the applicable facility's nameplate capacity 
is in a qualifying area. The purpose of this proposed rule is to 
provide applicants that have an applicable facility that is not 
entirely located in a qualifying area a means to evaluate eligibility. 
For example, if an applicant's applicable facility is sited on the 
boundary of a qualifying area, the Nameplate Capacity Test for Location 
is used to determine if the applicable facility is deemed located in 
the qualifying area.
    One commenter recommended that devices that are offshore but are 
eligible for section 48E and can attribute their nameplate capacity to 
where their power conditioning equipment is onshore should be able to 
satisfy the Nameplate Capacity Test for Location. This commenter noted 
that this recommendation is consistent with the Nameplate Capacity 
Attribution Rule found in Notice 2024-30, 16 I.R.B. 878. The final 
regulations do not adopt this comment because it is not in accordance 
with the Program's requirements. The commenter's suggestion stems from 
guidance issued for an increased credit rate for qualifying facilities 
located in specific energy communities. The statutory requirements for 
the location of an applicable facility eligible for the Program are 
different than for a qualifying facility eligible for the energy 
communities bonus. Moreover, the Treasury Department and the IRS do not 
expect applicable facilities to be located offshore outside of the 
boundaries of a qualifying area. Accordingly, for the purposes of the 
Program, the Nameplate Capacity Test for Location requires that an 
applicable facility be located in a qualifying area. The final 
regulations adopt Sec.  1.48E(h)-1(d)(1) as proposed.

IV. Financial Benefits for Category 3 and Category 4 Allocations

A. In General

    Section 48E(h)(2)(D) provides that electricity acquired at a below-
market rate will not fail to be taken into account as a financial 
benefit. The Proposed Regulations would propose definitions and 
requirements related to the term financial benefit under section 
48E(h)(2)(D), as well as a manner to apply such definitions and 
requirements, appropriately, to qualified low-income residential 
building projects (section 48E(h)(2)(B)) and qualified low-income 
economic benefit projects (section 48E(h)(2)(C)). The proposed 
definitions and requirements for financial benefits were different for 
an allocation under Category 3 (section 48E(h)(2)(B)) and Category 4 
(section 48E(h)(2)(C)) and these definitions remain different for each 
respective category in the final regulations, because the statutory 
language provides distinct financial benefit requirements for these 
categories. A Summary of Comments and Explanation of Revisions for 
financial benefits for Category 3 facilities is presented below in 
section IV.C. and for Category 4 in section IV.D.

B. Renewable Energy Certificates (RECs)

    For both Category 3 and Category 4, commenters requested clarity on 
whether RECs are included in the determination of financial benefits. 
Commenters generally opposed including RECs as part of the financial 
benefits determination. Section 48E(h)(2)(B)(ii) and (C) both require 
distribution of the ``financial benefits of the electricity produced'' 
by a facility. The Treasury Department and the IRS, understand that 
accessibility and inclusion of RECs vary across the U.S. depending on 
the relevant region or state's regulations and overall market. RECs 
represent environmental or renewable ``attributes'' or ``benefits'' 
associated with renewable energy generation and RECs are environmental 
commodities that can be traded separately from wholesale electricity 
markets. RECs are issued in situations when electricity is generated 
from a renewable facility and the ability of the owner of the renewable 
facility to sell RECs has the potential to generate revenue and a 
financial benefit for the owner. For this reason, any revenue generated 
by the sale of RECs should be included in determining financial 
benefits for both Category 3 and Category 4. Similarly, any other 
certificates or credits (excluding Federal tax credits) that are 
related to electricity production and that yield revenue to the owner 
as a result of electricity generated should be included in determining 
financial benefits. This clarification does not impact any of the 
Proposed Regulations under Category 3. There were additional comments 
regarding RECs and the manner by which RECs must be included in 
determining the bill credit discount rate for Category 4. These 
comments are summarized and addressed in section IV.D. of this Summary 
of Comments and Explanations of Revisions.

C. Financial Benefits for Qualified Low-Income Residential Building 
Projects

    For a facility to be treated as part of a qualified low-income 
residential building project (Category 3 facility), section 
48E(h)(2)(B)(ii) provides that the financial benefits of the 
electricity produced by such facility must be allocated equitably among 
the occupants of the dwelling units of a Qualified Residential 
Property.
    Consistent with the statute, proposed Sec.  1.48E(h)-1(e)(1) would 
provide that, to satisfy the requirements of a Category 3 facility, the 
financial benefits of the electricity produced by the facility must be 
allocated equitably among the occupants of the dwelling units of the 
Qualified Residential Property. Proposed Sec.  1.48E(h)-1(e)(1) would 
also clarify that the same rules for financial benefits for Category 3 
facilities apply to both multi-family and single-family Qualified 
Residential Property. No comments were submitted regarding this 
proposed rule, and the final regulations adopt this proposed rule for 
Category 3 financial benefits without modification.
    Proposed Sec.  1.48E(h)-1(e)(2) would require that at least 50 
percent of the financial value of the electricity produced by the 
facility (as defined in proposed Sec.  1.48E(h)-1(e)(3)) must be 
equitably allocated to the Qualified Residential Property's occupants 
that

[[Page 2849]]

are designated as low-income occupants under the housing program. 
Proposed Sec.  1.48E(h)-1(e)(3) would further define the financial 
value of the electricity produced by the applicable facility as the 
greater of: (i) 25 percent of the gross financial value (as defined in 
proposed Sec.  1.48E(h)-1(e)(4)) of the annual electricity produced by 
the applicable facility, or (ii) the net financial value (as defined in 
proposed Sec.  1.48E(h)-1(e)(5)) of the annual electricity produced by 
the applicable facility. These requirements recognize that not all the 
financial value of the electricity produced can be passed on to 
building occupants because a certain percentage can be assumed to be 
dedicated to lowering the operational costs of electricity consumption 
for common areas, which benefits all building occupants.
    Proposed Sec.  1.48E(h)-1(e)(4) would then provide that the gross 
financial value of the annual electricity produced by the applicable 
facility is the sum of: (i) the total self-consumed kilowatt-hours 
produced by the applicable facility multiplied by the Qualified 
Residential Property's metered volumetric price of electricity, (ii) 
the total exported kilowatt-hours produced by the applicable facility 
multiplied by the Qualified Residential Property's volumetric export 
compensation rate for kilowatt-hours of electricity, and (iii) the sale 
of any attributes associated with the applicable facility's production 
(including, for example, any Federal, State or Tribal renewable energy 
certificates or incentives), if separate from the metered price of 
electricity or export compensation rate.
    Additionally, the proposed definition of net financial value in 
Sec.  1.48E(h)-1(e)(5) would account for the specific nature of 
facilities serving low-income residential buildings and facility 
ownership. In the case of common ownership, when the facility owner is 
also the Qualified Residential Property owner, proposed Sec.  1.48E(h)-
1(e)(5)(i) would define net financial value as the gross financial 
value of the annual electricity produced minus the annual average (or 
levelized) cost of the applicable facility over the useful life of the 
facility (including debt service, maintenance, replacement reserve, 
capital expenditures, and any other costs associated with constructing, 
maintaining, and operating the facility). For third-party ownership, 
when the facility and the Qualified Residential Property are not 
commonly owned and the facility owner enters into a power purchase 
agreement or other contract for electricity services with the Qualified 
Residential Property owner and/or building occupants, proposed Sec.  
1.48E(h)-1(e)(5)(ii) would define net financial value as the gross 
financial value of the annual electricity produced minus any payments 
made by the building owner and/or building occupants to the applicable 
facility owner for electricity services associated with the applicable 
facility in a given year.
    A commenter stated that the proposed methodology and calculations 
established to calculate net financial value and gross financial value 
are too restrictive and hinder the ability for qualified low-income 
residential buildings to participate. This commenter also asserted that 
the required financial benefits would exceed the value of the credit. 
Two commenters requested that the final regulations eliminate the 
``greater of'' language in proposed Sec.  1.48E(h)-1(e)(3) and replace 
it with ``either'' to allow applicants to choose between using the 
gross financial value or the net financial value. These commenters 
asserted that using either method would still result in the 50 percent 
minimum requirement under the Proposed Regulations to be met.
    The Treasury Department and the IRS do not agree with comment 
observing that the calculations for Category 3 financial benefits will 
hinder the ability for qualified low-income residential buildings to 
participate. No other comments were submitted suggesting that the 
calculations will restrict the participation of low-income residential 
buildings. The calculations provide clear parameters for applicants and 
financial benefits to residents. This comment is not adopted with 
respect to eliminating the ``greater of'' requirement. The ``greater 
of'' language helps implement the statutory requirement for the 
equitable distribution of financial benefits to tenants and supports 
the Program's objectives of providing financial benefits directly to 
households. Additionally, while the statute requires that the financial 
benefits of the electricity produced be shared with occupants, the 
final regulations already recognize that not all the financial value of 
the electricity produced can be passed on to building occupants, and 
that a certain portion can be used for lowering the operational costs 
of electricity consumption for common areas, which benefits all 
building occupants.
    Proposed Sec.  1.48E(h)-1(e)(5)(iii) would provide different rules 
to ensure an equitable allocation of financial benefits regardless of 
whether the financial value is distributed to building occupants via 
utility bill savings or through some other means. If financial value is 
distributed via utility bill savings, proposed Sec.  1.48E(h)-
1(e)(5)(iii)(A) would provide that financial benefits will be 
considered to be allocated equitably if at least 50 percent of the 
financial value of the electricity produced by the applicable facility 
is distributed as utility bill savings in equal shares to each building 
dwelling unit among the Qualified Residential Property's occupants that 
are designated as low-income under the covered housing program or other 
affordable housing program (described in section 48E(h)(2)(B)(i)) or 
alternatively distributed in proportional shares based on each low-
income dwelling unit's square footage, or each low-income dwelling 
unit's number of occupants. Proposed Sec.  1.48E(h)-1(e)(5)(iii)(A) 
also would provide that for any occupant(s) who chooses to not receive 
utility bill savings, the portion of the financial value that would 
otherwise be distributed to non-participating occupants must be instead 
distributed to all participating occupants. Proposed Sec.  1.48E(h)-
1(e)(5)(iii)(A) would further clarify that no less than 50 percent of 
the Qualified Residential Property's occupants that are designated as 
low-income must participate and receive utility bill savings for the 
applicable facility to use this method of benefit distribution.
    Additionally, proposed Sec.  1.48E(h)-1(e)(5)(iii)(A) would provide 
that in the case of a solar facility, applicants must follow the HUD 
guidance on Treatment of Financial Benefits to HUD-Assisted Tenants 
Resulting from Participation in Solar Programs Notice (Housing Notice 
2023-09), located at https://www.hud.gov/sites/dfiles/OCHCO/documents/2023-09hsgn.pdf, or future HUD guidance, or other guidance or notices 
from the Federal agency that oversees the applicable housing program 
identified in section 48E(h)(2)(B) to ensure that tenants' annual 
income for rent calculations or other requirements impacting total 
tenant payment are not impacted negatively by the distribution of 
financial value. In the case of any other applicable facility, 
applicants must follow future HUD guidance, or other guidance from the 
Federal agency that oversees the applicable housing program. In the 
absence of future guidance from a Federal agency, applicants should 
apply principles similar to those articulated in the HUD guidance in 
the case of any other applicable facility.
    Proposed Sec.  1.48E(h)-1(e)(5)(iii)(B) would provide that if 
financial value is

[[Page 2850]]

not distributed via utility bill savings, financial benefits will be 
considered to be allocated equitably if at least 50 percent of the 
financial value of the electricity produced by the applicable facility 
is distributed to occupants using one or more methods described in 
Housing Notice 2023-09 located at https://www.hud.gov/sites/dfiles/OCHCO/documents/2023-09hsgn.pdf, or future HUD guidance, or other 
guidance or notices from the Federal agency that oversees the 
applicable housing program identified in section 48E(h)(2)(B). In the 
case of a solar facility, applicants must comply with HUD guidance, or 
future HUD guidance, for how residents of master-metered HUD-assisted 
housing can benefit from owners' sharing of financial benefits accrued 
from an investment in solar electricity generation to ensure that 
tenants' utility allowances and annual income for rent calculations are 
not negatively impacted. Applicants should apply principles similar to 
those articulated in the HUD guidance in the case of any other 
applicable facility.
    No comments were submitted regarding the required methods of 
delivery of financial benefits for Category 3 facilities. The Proposed 
Regulations would cite to specific HUD guidance on benefits sharing. In 
consultation with HUD, the Treasury Department and the IRS understand 
that HUD's Office of Multifamily Housing, Office of Public and Indian 
Housing, Office of Native American Programs, and other offices may 
publish guidance on benefits sharing relevant Category 3 applicable 
facilities. Accordingly, the final regulations adopt Sec.  1.48E(h)-
1(e)(5)(iii)(A) and (B) as proposed with minor clarifications to 
reflect HUD guidance on benefits sharing.
    To strengthen Program compliance and to provide clarity to 
applicants regarding how they can demonstrate that statutory 
requirements are met, proposed Sec.  1.48E(h)-1(e)(6)(i) would provide 
that a Category 3 facility owner must prepare a Benefits Sharing 
Statement. Proposed Sec.  1.48E(h)-1(e)(6)(i) would further state that 
the Benefits Sharing Statement is required to include (A) a calculation 
of the facility's gross financial value using the method described in 
proposed Sec.  1.48E(h)-1(e)(4), (B) a calculation of the facility's 
net financial value using the method described in proposed Sec.  
1.48E(h)-1(e)(5), (C) a calculation of the financial value required to 
be distributed to building occupants using the method described in 
proposed Sec.  1.48E(h)-1(e)(3), (D) a description of the means through 
which the required financial value will be distributed to building 
occupants, and (E) if the facility and Qualified Residential Property 
are separately owned, an indication of which entity will be responsible 
for the distribution of benefits to the occupants.
    Proposed Sec.  1.48E(h)-1(e)(6)(ii) would provide that the 
Qualified Residential Property owner must formally notify the occupants 
of units in the Qualified Residential Property of the development of 
the facility and planned distribution of benefits.
    No comments were received on the Benefits Sharing Statement or the 
requirement to notify. Accordingly, the final regulations adopt these 
rules without modification.

D. Financial Benefits in Qualified Low-Income Economic Benefit Projects

    For a facility to be treated as part of a qualified low-income 
economic benefit project, section 48E(h)(2)(C) requires that at least 
50 percent of the financial benefits of the electricity produced by the 
facility be provided to qualifying low-income households.
    Proposed Sec.  1.48E(h)-1(f)(1) would add the term Qualifying 
Households to refer to households which meet the income requirements 
under section 48E(h)(2)(C)(i) or (ii) and would provide that to satisfy 
the requirements of a Category 4 facility:
    (i) The facility must serve multiple Qualifying Households under 
section 48E(h)(2)(C)(i) or (ii);
    (ii) At least 50 percent of the facility's total output in 
kilowatts (kW) must be assigned to Qualifying Households; and
    (iii) Each Qualifying Household must be provided a bill credit 
discount rate (as defined in proposed Sec.  1.48E(h)-1(f)(2)) of at 
least 30 percent.
    Proposed Sec.  1.48E(h)-1(f)(2)(i) would additionally define a bill 
credit discount rate as the difference between the financial benefit 
provided to a Qualifying Household (including utility bill credits, 
reductions in a Qualifying Household's electricity rate, or other 
monetary benefits accrued by the Qualifying Household on its utility 
bill) and the cost of participating in the energy purchasing program 
(including subscription payments for zero-carbon energy and any other 
fees or charges), expressed as a percentage of the financial benefit 
distributed to the Qualifying Household. Proposed Sec.  1.48E(h)-
1(f)(2)(i) also would clarify that the bill credit discount rate can be 
calculated by starting with the financial benefit provided to the 
Qualifying Household, subtracting all payments made by the Qualifying 
Household (or payments remitted on behalf of the Qualifying Household 
through net crediting, consolidated billing, or similar arrangements) 
to the facility owner and any related third parties as a condition of 
receiving that financial benefit, then dividing that difference by the 
financial benefit distributed to the Qualifying Household.
    While several commenters supported the proposed bill credit 
discount rate of 30 percent, many commenters opposed the increase from 
the 20 percent bill credit discount rate under the predecessor program. 
These commenters asserted that the market and industry have not 
sufficiently evolved to account for a bill credit discount rate of 30 
percent. Several comments stated that an increase in the bill credit 
discount rate would favor States with higher utility rates and already 
established solar markets, while having a negative impact on States 
with already low electricity prices, or with no or emerging clean 
energy programs. Commenters who opposed the 30 percent bill credit 
discount rate generally supported reinstating the 20 percent rate from 
the predecessor program. Several commenters stated that projects are 
already in development based on the 20 percent bill credit discount 
rate from the predecessor program under section 48(e), and the 
commentors contended that the bill credit discount rate should remain 
the same. Some commenters also opposed a phased-in approach to 
increasing the bill credit discount rate citing a lack of Program data 
to support any increase. Two commenters, however, expressed support for 
a phased-in approach. Alternatively, some commenters suggested a tiered 
approach to the bill credit discount rate within Category 4 by 
adjusting the required bill credit discount rate based on regional 
market conditions.
    After consideration of the comments, the final regulations adopt a 
bill credit discount rate of 20 percent. The 20 percent bill credit 
discount rate--as opposed to a 30 percent bill credit discount rate--
supports the Program's goal of national impact by allowing a broader 
range of facilities to apply under Category 4. Given the uncertainty of 
how the market will evolve and yearslong industry development 
timelines, the final regulations do not adjust the bill credit discount 
rate over time. Therefore, as finalized, Sec.  1.48E(h)-1(f)(1)(iii) 
provides ``[e]ach Qualifying Household must be provided a bill credit 
discount rate (as defined in Sec.  1.48E(h)-1(f)(2)) of at least 20 
percent.'' The final regulations adopt the rest of the proposed Sec.  
1.48E(h)-1(f)(1)(i) and (ii) without modification.

[[Page 2851]]

    Proposed Sec.  1.48E(h)-1(f)(2)(ii) would provide that in cases in 
which the Qualifying Household has no or only a nominal cost of 
participation, and financial benefits are delivered through a utility 
or government body, the bill credit discount rate should be calculated 
as the financial benefit provided to a Qualifying Household (including 
utility bill credits, reductions in a Qualifying Household's 
electricity rate, or other monetary benefits accrued by a Qualifying 
Household on their utility bill) divided by the total value of the 
electricity produced by the facility and assigned to the Qualifying 
Household (including any electricity services, products, and credits 
provided in conjunction with the electricity produced by such 
facility), as measured by the utility, independent system operator 
(ISO), or other off-taker procuring electricity (and related services, 
products, and credits) from the facility. Proposed Sec.  1.48E(h)-
1(f)(2)(iv) would clarify that the bill credit discount rate is 
calculated on an annual basis. Proposed Sec.  1.48E(h)-1(f)(2)(v) would 
provide examples to clarify the application of proposed Sec.  1.48E(h)-
1(f)(2).
    Proposed Sec.  1.48E(h)-1(f)(2)(iii) would provide that if the 
facility derives financial value from the production of electricity in 
a manner such that this value cannot be directly applied to the 
Qualifying Household's utility bill (for example, renewable energy 
certificate payments made directly to the facility owner), then no less 
than 30 percent of that monetary value must also be provided to the 
Qualifying Household, either through a greater bill credit discount on 
the Qualifying Household's utility bill than would otherwise be derived 
from the method described in proposed Sec.  1.48E(h)-1(f)(1)(i) or 
through other means.
    As previously addressed in section IV, generally, of this Summary 
of Comments and Explanation of Revisions, the final regulations clarify 
that RECs are included in the financial benefits calculation for both 
Category 3 and Category 4. Commenters stated that any RECs would 
already be included in the general bill credit discount calculation 
provided for under proposed Sec.  1.48E(h)-1(f)(1). Commenters, 
therefore, questioned why proposed Sec.  1.48E(h)-1(f)(2)(iii) would 
separate out any RECs, when the RECs would generally be included in 
determining the pool of financial benefits. The Treasury Department and 
the IRS understand commenters' concern and agree that clarity is 
warranted. The final regulations do not adopt proposed Sec.  1.48E(h)-
1(f)(2)(iii). Rather, the final regulations clarify that the value 
derived from the sale of RECs (if any) are included within the 
financial value calculation associated with the requirement that at 
least 50 percent of the total financial value of the facility's total 
production in kilowatts must be assigned to Qualifying Households. 
Specifically, Sec.  1.48E(h)-1(f)(1) is revised to clarify that the 
financial value calculation associated with the 50 percent requirement 
must include other values from electricity production (including any 
electricity services, products, and credits or certificates such as 
RECs provided in connection with the electricity produced by such 
facility, but excluding Federal tax credits), as measured by the 
utility, independent system operator, or other off-taker procuring 
electricity (and related services, products, and credits of 
certificates) from the facility.
    Notwithstanding that provision, the Treasury Department and the IRS 
agree with commenters that any monetary value from the sale of RECs (if 
any) would already be included in the financial benefits value and 
general bill credit discount described under Sec.  1.48E(h)-1(f)(2)(i). 
As such, there is no reason to separately identify such possible REC 
value in the general bill credit discount rate described therein. 
However, the value from the sale of RECs is appropriately included 
under Sec.  1.48E(h)-1(f)(2)(ii) related to the bill credit discount 
requirements when there is no or nominal cost of participation, in this 
case focused on the total financial value of the electricity produced 
by the facility. Specifically, as described in Sec.  1.48E(h)-
1(f)(2)(ii), the financial value of electricity produced by the 
facility includes the sale of any attributes associated with the 
applicable facility's production (including, for example, any Federal, 
State, Tribal, or utility incentives or renewable energy certificates 
but excluding any Federal tax credits). In recognition that utilities 
may have incentives associated with the production of electricity, the 
final regulations revise proposed Sec.  1.48E(h)-1(e)(4) to include 
utility incentives in the parenthetical examples of attributes with 
financial value. The final regulations at Sec.  1.48E(h)-1(f)(2) also 
include minor edits for clarity, including revisions to Sec.  1.48E(h)-
1(f)(2)(iv)(C) (Example 3), to clarify the calculation of financial 
benefits for Category 4 facilities when there is no or nominal cost of 
participation.
    The preamble to the Proposed Regulations also stated that the 
Treasury Department and the IRS were considering adding other methods, 
apart from bill credit discounts, for financial benefits to be shared 
with Qualifying Households. The Proposed Regulations requested comments 
on alternative methods for delivering financial benefits in cases in 
which bill credit discounts are not available or are not feasible for 
covered technologies. The Proposed Regulations also requested comment 
on how alternative financial benefits could be verified and how to 
limit the potential impact of financial benefits on potential 
recipients' income taxes and eligibility for public assistance 
programs.
    Comments were mixed regarding the inclusion of alternative 
financial benefits, other than the bill credit discount rate in 
Category 4. Although several commenters opposed alternative financial 
benefit delivery methods, many commenters supported alternatives and 
requested that the framework for other methods allowed under Category 3 
be applied to Category 4. A commenter stated that some Federally 
assisted housing is not able to apply under Category 3 because the 
housing does not have the proper roof or adequate parcel size to 
support the facility. In these situations, the commenter stated that 
households in master-metered buildings should be able to benefit as a 
Category 4 project and the financial benefits should be applied as they 
are in Category 3. A commenter suggested that Category 4 benefits could 
be defined and distributed using the same HUD documents, verification 
protocols, and Benefit Sharing Statement as used in Category 3. Another 
commenter similarly suggested that HUD regulations should be 
promulgated to allow for building improvements, and list, as an 
example, adding wi-fi service for tenants. Regarding the tax treatment 
of financial benefits for the residents of the Qualifying Households, 
one commenter requested that the final regulations provide that 
financial benefits are not taxable.
    The statutory requirements for a Category 4 facility are distinctly 
different than Category 3 facility requirements. For example, the 
statutory language under section 48E(h)(2)(C) requires Category 4 
financial benefits be ``provided to households'' that meet specific 
income limits. An applicant is required to demonstrate that the 
participating households meet the statutory income limits, and further, 
prove that a minimum of fifty percent of the financial benefits of the 
electricity produced by the facility are distributed to Qualifying 
Households. In contrast, the statutory language for Category 3 requires 
that the financial benefits be allocated equitably to the occupants of

[[Page 2852]]

the residential rental building with which this energy facility is 
associated. The alternative financial benefit options to bill credit 
discount that are provided under Category 3 may be provided indirectly 
to the building as a whole as long as the benefit is equitably 
distributed among the occupants of the dwelling units of the building. 
Because of this requirement, alternative financial delivery methods 
that serve the whole building can be easily distributed for Category 3 
facilities because all occupants must be within the residential rental 
building.
    Further, investments in applicable facilities may require other 
investments, such as a new roof that can support a solar installation. 
Whether an applicant chooses to make such investments in order to be 
eligible for to apply under a certain category is a decision that is 
unique to each applicant and is outside the scope of these final 
regulations.
    Therefore, Sec.  1.48E(h)-1(f) of the final regulations do not 
adopt these comments. The final regulations also do not adopt the 
comments related to promulgating HUD regulations because such 
regulations are issued pursuant to HUD's authority. Lastly, the final 
regulations do not adopt comments regarding the tax treatment of 
financial benefits because that is outside of the scope of these 
regulations.
    Proposed Sec.  1.48E(h)-1(f)(3)(i) would require applicants to 
establish that financial benefits are provided to Qualifying Households 
as defined in proposed Sec.  1.48E(h)-1(f)(1), by submitting 
documentation in accordance with guidance published in the Internal 
Revenue Bulletin. The Proposed Regulations also would provide that a 
Qualifying Household's low-income status is determined at the time the 
household enrolls in the subscription program and does not need to be 
re-verified.
    Proposed Sec.  1.48E(h)-1(f)(3)(ii) would further provide methods 
that applicants could use to establish that a household is a Qualifying 
Household, including the ability to use categorical eligibility or 
other income verification methods. Proposed Sec.  1.48E(h)-
1(f)(3)(ii)(A) would provide that categorical eligibility consists of 
obtaining proof of the household's participation in a needs-based 
Federal, State, Tribal, or utility program with income limits at or 
below the qualifying income level required to be a Qualifying 
Household, and included a non-exclusive list of Federal programs which 
could be used for categorical eligibility verification. Proposed Sec.  
1.48E(h)-1(f)(3)(ii)(A) would also clarify that the qualifying income 
level for a Qualifying Household is based on where such household is 
located.
    Proposed Sec.  1.48E(h)-1(f)(3)(ii)(B) would provide other income 
verification methods including paystubs, Federal or State tax returns, 
or income verification through crediting agencies and commercial data. 
Proposed Sec.  1.48E(h)-1(f)(3)(ii)(C) would provide that a self-
attestation from a household is not a permissible method to establish a 
household is a Qualifying Household but clarified that this prohibition 
on direct self-attestation from a household did not extend to 
categorical eligibility for needs-based programs with income limits 
that rely on self-attestation for verification of income.
    Commenters requested clarifications of and additions to the income 
verification methods. One commenter observed that, without 
clarification or modification, the requirements set forth in Proposed 
Regulations will not lead to verification methods that demonstrate that 
a particular household necessarily meets the income parameters of 
section 48(e)(2)(C).
    In response to these comments, the documentation requirements have 
been modified in the final regulations for Category 4. The predecessor 
program under section 48(e) required taxpayers who had been awarded an 
allocation for a Category 4 facility to submit a spreadsheet showing a 
calculation of the projected financial benefits for the facility and a 
list of subscribers with the method used to verify income for each 
subscriber. The final regulations eliminate the subscriber list as a 
Category 4 documentation requirement under the section 48E(h) Program 
and modify the spreadsheet documentation rule to instead require the 
submission of a statement by the applicant to demonstrate how the 
applicant will fulfill the financial benefits distribution 
requirements.
    The final regulations provide at Sec.  1.48E-1(f)(3) that a 
Demonstration of Financial Benefits statement is required, which 
includes certain information to demonstrate that the financial benefits 
requirements will be met based on the expected annual energy produced 
by the as-built facility at the time it is placed in service and during 
the recapture period under section 48E(h)(5) and Sec.  1.48E(h)-1(n). 
The statement must include a calculation of the total financial value 
of annual electricity production, the bill credit discount rate 
calculation, and a description of the means of distributing the 
required benefits to Qualifying Households. With the Demonstration of 
Financial Benefits statement, the taxpayer must provide documentation 
showing the facility is enrolled in a utility tariff, program, or other 
arrangement to distribute financial benefits to Qualifying Households. 
Additional information regarding the Demonstration of Financial 
Benefits statement will be included in guidance published in the 
Internal Revenue Bulletin to explain submission requirements at 
application and at placed in service reporting.
    Section 1.48E(h)-1(f)(4) of the final regulations retains portions 
of the income verification rules as a recordkeeping requirement. With 
the decision to exclude the predecessor program subscriber list 
requirement from the Program under section 48E(h), taxpayers will not 
be required to directly report the method of verification used for each 
household as part of placed in service reporting. However, to submit an 
accurate application and Demonstration of Financial Benefits 
statements, and to appropriately claim the section 48E(h) Increase, 
taxpayers must have a process to verify that the requisite percentage 
of their subscribers are Qualifying Households, so that the taxpayer 
will be able to fulfill the Category 4 financial benefits requirements 
under section 48E(h)(2)(C) and Sec.  1.48E(h)-1(f)(1) and (2). 
Moreover, in the event of an audit, taxpayers must be able to provide 
documentation to prove, that, for each year of the recapture period, 
the taxpayer has fulfilled the financial benefits requirements under 
section 48E(h)(2)(C) and Sec.  1.48E(h)-1(f)(1) and (2), validly 
claimed the credit, and is qualified to retain the section 48E(h) 
Increase. See the recapture rules under Sec.  1.48E(h)-1(n) and section 
48E(h)(5).
    Regarding comments requesting more clarity and additions to the 
list of needs-based programs which can be used for categorical 
eligibility verification, the final regulations will not provide an 
exhaustive list of Federal or Tribal programs and will not provide any 
list regarding State or utility programs. The list included in the 
Proposed Regulations was limited to examples where it could readily be 
established that the Federal programs have the same income limit 
requirements as this Program does for Category 4 Qualifying Households. 
The illustrative list was intended to provide examples of types of 
programs which are need-based and that would demonstrate that the 
household is a Qualifying Household based on participation in that 
program. To prevent further confusion, the illustrative list of Federal 
programs is not included in the final regulations. For reference 
purposes, the illustrative list of Federal programs from the Proposed 
Regulations will be included

[[Page 2853]]

in procedural guidance for the Program that will be published in the 
Internal Revenue Bulletin.
    Regarding a list of State or utility level eligible programs, such 
programs are too numerous and varied for the Treasury Department and 
the IRS to provide a list, even just for illustrative purposes. 
Moreover, whether a household meets the income limits is dependent on 
the location of that household. Therefore, it is the responsibility of 
the taxpayer seeking the section 48E(h) Increase, to determine whether 
a program, Federal or otherwise, has the same income limitations as 
required for Qualifying Households, and, if documentation proving that 
a member or members of a household participate in such is sufficient to 
qualify that household as a Qualifying Household.
    The final regulations also do not adopt the proposed rule regarding 
state agency documentation. The proposed rule was only intended to 
clarify that documentation from State agencies may be acceptable 
provided the program associated with the documentation had the same 
income limit requirements. However, the general rule already provides 
that State program documentation is acceptable for categorical 
eligibility, and therefore this additional rule was unnecessary.
    Section 1.48E(h)-1(f)(4)(ii) provides that applicants may use 
categorical eligibility verification or direct income verification 
methods to establish that a household is a Qualifying Household. 
Section 1.48E(h)-1(f)(4)(ii) provides that applicants may use 
categorical eligibility verification or direct income verification 
methods to establish that a household is a Qualifying Household. 
Section 1.48E(h)-1(f)(4)(ii)(A) defines categorical eligibility 
consistent with the general definition from the Proposed Regulations, 
excluding the illustrative list of Federal programs and the discussion 
of state agencies. Section 1.48E(h)-1(f)(4)(ii) also includes language 
that an individual in the household must currently be approved for 
assistance from or participation in a program with an award letter or 
other written documentation within the last 12 months for enrollment in 
that program to establish categorical eligibility of the household. 
This language was adopted from another paragraph in the same section of 
the Proposed Regulations. Finally, the term other income verification 
methods, from the Proposed Regulations has been revised to direct 
income verification, but otherwise Sec.  1.48E(h)-1(f)(4)(ii) adopts 
the language from the Proposed Regulations.

V. Annual Capacity Limitation

    Under section 48E(h)(4)(C), the total annual Capacity Limitation is 
1.8 gigawatts of DC capacity for each calendar year during the period 
beginning on January 1, 2025, and ending on December 31 of the 
applicable year (as defined in section 45Y(d)(3)), and zero thereafter. 
Proposed Sec.  1.48E(h)-1(g)(1) would provide that the Capacity 
Limitation would be divided across the four facility categories 
described in section 48E(h)(2)(A)(iii) and proposed Sec.  1.48E(h)-
1(b)(2), and that the distribution of the annual Capacity Limitation 
would be announced in future guidance published in the Internal Revenue 
Bulletin.
    Some commenters requested that the Program retain the Capacity 
Limitation distributions established for the predecessor program under 
section 48(e). These commenters observed that maintaining the 
distribution will encourage facility development in categories that 
were undersubscribed in the predecessor program. To promote facility 
development in categories that were undersubscribed in the predecessor 
program and to provide greater certainty in the Program, the Treasury 
Department and the IRS revise proposed Sec.  1.48E(h)-1(g)(1), and 
Sec.  1.48E(h)-1(g)(1) of the final regulations provides, in added 
Table 1, the annual Capacity Limitation distribution across facility 
categories for each Program year. Additionally, Table 2 has been added 
to new Sec.  1.48E(h)-1(g)(2) to provide the distribution of Capacity 
Limitation within Category to the Category 1 sub-reservations 
(described in Sec.  1.48E(h)-1(i) of the final regulations and Section 
VII of these Summary of Comments and Explanation of Revisions).
    Proposed Sec.  1.48E(h)-1(g)(1) would also provide that, after the 
Capacity Limitation for each facility category is established in 
guidance published in the Internal Revenue Bulletin, it may be 
reallocated later across facility categories and sub-reservation in the 
event one category or sub-reservation is oversubscribed and another has 
excess capacity. Proposed Sec.  1.48E(h)-1(g)(1) would also clarify 
that a facility category or sub-reservation is oversubscribed if it 
receives qualified applications in excess of Capacity Limitation 
reserved for the facility category or sub-reservation.
    To provide clarity on the redistribution process of Capacity 
Limitation during a Program year, the final regulations add procedural 
rules to Sec.  1.48E(h)-1(g)(2)(i) through (iv). These procedural rules 
detail the process by which the annual Capacity Limitation described in 
Sec.  1.48E(h)-1(g)(1) will be redistributed in the event that some 
categories are undersubscribed and others oversubscribed. Additionally, 
Sec.  1.48E(h)-1(g)(3) includes the definition for oversubscribed that 
was proposed in Sec.  1.48E(h)-1(g)(1) and adds a coordinating 
definition for the term undersubscribed.
    Proposed Sec.  1.48E(h)-1(g)(2) would provide that if the annual 
Capacity Limitation for any calendar year exceeds the aggregate amount 
of annual Capacity Limitation allocated for a calendar year under 
proposed Sec.  1.48E(h)-1(g)(1), then the annual Capacity Limitation 
for the succeeding calendar year shall be increased by the amount of 
such excess. No comments were received on this proposed rule. The final 
regulations adopt this rule with some clarifications at Sec.  1.48E(h)-
1(g)(4). The final regulations provide that any unallocated Capacity 
Limitation carried over from the preceding year will be equally 
distributed across Category 1, 2, 3, and 4, and further equally 
distributed across non-Additional Selection Criteria and Additional 
Selection Criteria reservations. Section 1.48E(h)-1(g)(3) also provides 
that within Category 1, the portion distributed from the carried over 
Capacity Limitation will be equally distributed across Category 1 sub-
reservations and further across the reserves for Additional Selection 
Criteria within those sub-reservations.
    Finally, Sec.  1.48E(h)-1(g)(5) has been added to the final 
regulations to clarify how allocations of Capacity Limitation in DC, 
which is stipulated in section 48E(h)(4)(C), are made to facilities 
which have a nameplate capacity measured in AC. Section 1.48E(h)-
1(g)(5) provides that applicable facilities that have a nameplate 
capacity in AC and that are awarded an allocation, will be awarded an 
amount of Capacity Limitation in DC that is equal to the facility's 
reported nameplate capacity in AC.

VI. Additional Selection Criteria

    Proposed Sec.  1.48E(h)-1(h)(1) would provide that at least 50 
percent of the total Capacity Limitation in each facility category will 
be reserved for facilities meeting criteria described in proposed Sec.  
1.48E(h)-1(h)(2) (relating to ownership criteria) and proposed Sec.  
1.48E(h)-1(h)(3) (relating to geographic criteria). In the Proposed 
Regulations and in these final regulations the ownership criteria and 
the geographic criteria are collectively referred to as Additional 
Selection Criteria.

[[Page 2854]]

    Proposed Sec.  1.48E(h)-1(h)(1) would also provide that, after the 
reservation of Capacity Limitation for qualified facilities meeting the 
Additional Selection Criteria described in proposed Sec.  1.48E(h)-
1(h)(2) and (3) is established in guidance published in the Internal 
Revenue Bulletin, it may be reallocated later across facility 
categories and sub-reservations in the event one category or sub-
reservation within a category is oversubscribed and another has excess 
capacity.
    No comments were submitted directly addressing these general 
Proposed Regulations for Additional Selection Criteria. However, one 
commenter encouraged consideration of other potential Additional 
Selection Criteria, such as facilities that provide increased financial 
benefits to qualifying low-income households or that are located on 
previously developed sites, such as building rooftops, at brownfield 
sites, and co-located with other infrastructure, because projects that 
meet these criteria could create greater community impact.
    The final regulations do not adopt this recommendation because the 
commenter did not establish how other potential Additional Selection 
Criteria could potentially create greater community impact. Further, 
apart from Additional Selection Criteria, the Program reserves Capacity 
Limitation for BTM facilities located on rooftops. The Additional 
Selection Criteria established under proposed Sec.  1.48E(h)-1(h) 
allows applicants to be evaluated for eligibility under the Additional 
Selection Criteria, and therefore, an increased chance for an 
allocation award based on characteristics of the applicant and 
facility, and without the need to compare applicants.
    The final regulations generally adopt proposed Sec.  1.48E(h)-
1(h)(1) with the addition that if eligible applications for facilities 
that meet at least one of the two Additional Selection Criteria 
categories received during the initial 30-day period total less than 50 
percent of the Capacity Limitation for a category, then additional 
Capacity Limitation would be reserved during the rolling application 
period such that 50 percent of the total Capacity Limitation in the 
category would be reserved for these facilities.
    However, the final regulations revise Sec.  1.48E(h)-1(h)(1) to 
account for the inclusion of the distribution of annual Capacity 
Limitation across categories and the redistribution within a Program 
year in these final regulations under Sec.  1.48E(h)-1(g). The final 
regulations clarify that, at the beginning of an application period, 
the reservation for Additional Selection Criteria applicants is 50 
percent of the Capacity Limitation reserved for each category or 
Category 1 sub-reservation. The final regulations retain the 
informational language that specific procedures under Additional 
Selection Criteria will be provided in guidance published in the 
Internal Revenue Bulletin.
    Comments regarding specific criteria under either the Ownership 
Criteria category or the Geographic Criteria category are summarized 
and addressed where appropriate in the sections following this 
paragraph.

A. Ownership Criteria

1. In General
    Proposed Sec.  1.48E(h)-1(h)(2)(i) would provide criteria based on 
ownership (Ownership Criteria), stating that the Ownership Criteria 
category is based on characteristics of the applicant that owns the 
applicable facility. Proposed Sec.  1.48E(h)-1(h)(2)(i) would provide 
that an applicable facility meets the Ownership Criteria if it is owned 
by a Tribal enterprise, an Alaska Native Corporation, a Native Hawaiian 
Organization, a renewable energy cooperative, or a qualified tax-exempt 
entity.
    No comments were submitted regarding this general definition, and, 
therefore, the final regulations adopt this general rule without 
modification.
2. Indirect Ownership
    Proposed Sec.  1.48E(h)-1(h)(2)(ii)(A) would provide that if an 
applicant wholly owns an entity that is the owner of an applicable 
facility, and the entity is disregarded as separate from its owner for 
Federal income tax purposes (disregarded entity), then the applicant, 
and not the disregarded entity, is treated as the owner of the 
applicable facility for purposes of the Ownership Criteria. No comments 
were submitted on this proposed rule. Section 1.48E(h)-1(h)(2)(ii)(A) 
of the final regulations adopts the proposed rule with a clarification 
that disregarded entities are not eligible for an award and may not 
submit an application. The final regulations at Sec.  1.48E(h)-
1(h)(2)(ii)(A) also provide that for entities wholly owned and 
chartered under Tribal law and corporations incorporated under the 
authority of either section 17 of the Indian Reorganization Act of 
1934, 25 U.S.C. 5124 or section 3 of the Oklahoma Indian Welfare Act, 
25 U.S.C. 5203, an application may be made as a Tribal Enterprise.
3. Partner Qualifying Partnership
    Proposed Sec.  1.48E(h)-1(h)(2)(ii)(B) would provide that if an 
applicant is an entity classified as a partnership for Federal income 
tax purposes, and an entity described in proposed Sec.  1.48E(h)-
1(h)(2)(i)(A) through (E) owns at least a one percent interest (either 
directly or indirectly) in each material item of partnership income, 
gain, loss, deduction, and credit and is a managing member or general 
partner (or similar title) under State or Tribal law of the partnership 
(or directly owns 100 percent of the equity interests in the managing 
member or general partner) at all times during the existence of the 
partnership, the applicable facility will be deemed to meet the 
ownership criteria. Proposed Sec.  1.48E(h)-1(h)(2)(ii)(B) would 
provide that if the partnership becomes the owner of the facility after 
an allocation is made to an entity described in proposed Sec.  
1.48E(h)-1(h)(2)(i)(A) through (E), the transfer of the facility to the 
partnership is not a disqualification event for purposes of proposed 
Sec.  1.48E(h)-1(m)(5), so long as the requirements of proposed Sec.  
1.48E(h)-1(m)(5) are satisfied. Proposed Sec.  1.48E(h)-1(h)(2)(ii)(B) 
would provide that the original applicant and the successor partnership 
should refer to guidance published in the Internal Revenue Bulletin for 
the procedures to request a transfer of the Capacity Limitation 
allocation to the successor partnership.
    No comments were received on this proposed rule. The final 
regulations adopt the proposed rules without modification at Sec.  
1.48E(h)-1(h)(2)(ii)(B).
4. Definitions
i. Tribal Enterprise
    Proposed Sec.  1.48E(h)-1(h)(2)(iii) would provide that a ``Tribal 
enterprise'' for purposes of the Ownership Criteria is an entity that 
is (1) owned at least 51 percent directly by an Indian Tribal 
government (as defined in section 30D(g)(9) of the Code), or owned at 
least 51 percent indirectly through an entity that is wholly owned by 
the Indian Tribal government and is created either under the Tribal 
laws of the Indian Tribal government or through a corporation 
incorporated under the authority of either section 17 of the Indian 
Reorganization Act of 1934, 25 U.S.C. 5124, or section 3 of the 
Oklahoma Indian Welfare Act, 25 U.S.C. 5203, and (2) subject to Tribal 
government rules, regulations, and/or codes that regulate the 
operations of the entity.
ii. Alaska Native Corporation
    Proposed Sec.  1.48E(h)-1(h)(2)(iv) would provide that an ``Alaska 
Native Corporation'' for purposes of the

[[Page 2855]]

Ownership Criteria is defined in section 3 of the Alaska Native Claims 
Settlement Act, 43 U.S.C. 1602(m).
iii. Native Hawaiian Organization
    Proposed Sec.  1.48E(h)-1(h)(2)(v) would provide that a ``Native 
Hawaiian Organization'' for purposes of the Ownership Criteria is 
defined in 13 CFR 124.3.
iv. Renewable Energy Cooperative
    Proposed Sec.  1.48E(h)-1(h)(2)(vi) would provide that a 
``renewable energy cooperative'' for purposes of the Ownership Criteria 
is an entity that develops applicable facilities and is either (1) a 
consumer or purchasing cooperative controlled by its members with each 
member having an equal voting right and with each member having rights 
to profit distributions based on patronage as defined by proportion of 
volume of energy or energy credits purchased (kWh), volume of financial 
benefits delivered ($), or volume of financial payments made ($), and 
in which at least 50 percent of the patronage in the qualified facility 
is by cooperative members who are low-income households (as defined in 
section 48E(h)(2)(C)); or (2) a worker cooperative controlled by its 
worker-members with each member having an equal voting right.
v. Qualified Tax-Exempt Entity
    Proposed Sec.  1.48E(h)-1(h)(2)(vii) would provide that a 
``qualified tax-exempt entity'' for purposes of the Ownership Criteria 
is:
    (1) An organization exempt from the tax imposed by subtitle A of 
the Code by reason of being described in section 501(c)(3) or (d) of 
the Code;
    (2) Any State, the District of Columbia, or political subdivision 
thereof, or any agency or instrumentality of any of the foregoing;
    (3) An Indian Tribal government (as defined in section 30D(g)(9)), 
a political subdivision thereof, or any agency or instrumentality of 
any of the foregoing; or
    (4) Any corporation described in section 501(c)(12) operating on a 
cooperative basis that is engaged in furnishing electric energy to 
persons in rural areas.
    No comments were submitted regarding the proposed definitions of 
Tribal Enterprise, Alaska Native Corporation, Native Hawaiian 
Organization, and Renewable Energy Cooperative. The final regulations 
adopt the proposed definitions without change, except that corporation 
in the definition of Tribal enterprise is replaced with ``entity.''
    However, several commenters representing the low-income housing 
credit (commonly referred to as LIHTC) industry stated that the 
definition of qualified tax-exempt entity should be revised to reflect 
LIHTC partnership structure. According to these commenters, a LIHTC 
partnership generally has an investor with a 99.9 percent ownership 
interest and the tax-exempt or nonprofit entity has an 0.01 percent 
ownership interest. Because the Proposed Regulations require that a 
qualified tax-exempt entity own a one percent interest in each material 
item of the partnership to qualify the partnership for Additional 
Selection Criteria, these commenters asserted that this requirement is 
incompatible with the ownership structure commonly used for LIHTC 
financed developments. These commenters alternatively requested the 
final regulations clarify that a special allocation of depreciation and 
any associated credits would not be considered to be a ``material 
item'' in determining one percent ownership.
    The Treasury and the IRS understand commenters' concerns and the 
unintended impacts to LIHTC applicants that are seeking to install 
clean energy facilities on their qualified low-income residential 
building projects. Accordingly, the final regulations at Sec.  1.48E-
1(h)(2)(ii)(C) revise the Ownership Criteria to allow an applicant to 
include any partnership that (1) owns an applicable facility connected 
to a residential building to which credits under section 42 of the Code 
are reasonably anticipated or have been determined and (2) has a 
partner for Federal income tax purposes that is a qualified tax-exempt 
(or another eligible entity identified Sec.  1.48E(h)-1(h)(2)(i)(A) 
through (E)) to qualify the partnership for the purposes of Ownership 
Criteria. Section 1.48E-1(h)(2)(ii)(C) of the final regulations 
provides that the transfer of the facility to the partnership is not a 
disqualification event for purposes of Sec.  1.48E(h)-1(m)(5) or 
subject to recapture for purposes of Sec.  1.48E(h)-1(m), so long as 
the requirements of Sec.  1.48E(h)-1(m)(5) are satisfied. This 
modification is limited only to applicable facilities that are part of 
a section 42 LIHTC building.
5. Emerging Market Business
    The preamble to the Proposed Regulations indicated that the 
Treasury Department and the IRS were proposing not to carry over to the 
Program under section 48E(h), the qualified renewable energy company 
(QREC) category of Ownership Criteria described in Sec.  1.48(e)-
1(h)(2)(vi) from the predecessor program under section 48(e). However, 
the preamble further stated that the Treasury Department and the IRS 
considered including a category for emerging market businesses, defined 
as those businesses that do not have large market shares that could be 
demonstrated by the number of employees, annual revenue, and other 
factors, similar to the QREC category from the predecessor Program 
under section 48(e). The Proposed Regulations requested comment on 
options to include an Ownership Criteria category for emerging market 
businesses, similar to the former QREC category. This request 
specifically asked for comments on how an administrable emerging market 
business Ownership Criteria category could be structured, including 
what thresholds a definition should include to define market share and 
size, age of business, the number of employees (both minimum and 
maximum) and/or annual gross receipts generated by an emerging market 
business, and the supporting documentation that could be provided as 
part of the application to verify an applicant meets such criteria.
    Some commenters expressed general support for including an emerging 
market business category but offered no further detail or advice. 
Several other commenters noted that they qualified as QRECs under the 
section 48(e) program and asked that the final regulations use the same 
criteria for ``emerging market business'' Ownership Criteria. One 
commenter stated that they understood that this particular Ownership 
Criteria might be more burdensome than the other criteria in the 
Ownership Criteria category but asked that the QREC criteria be 
retained in the section 48E(h) Program and final regulations. This 
commenter seemed focused on burden to the potential applicants by 
stating that the QREC requirements for majority ownership by 
individuals and company size thresholds were workable, and that it 
would not be an undue burden for companies in the QREC size range to 
provide tax returns, financial statements, operating agreements, and 
other business organizational documents.
    The QREC category, as with all Additional Selection Criteria, was 
intended to help create a more efficient allocation process and help 
ensure that allocations were made to the types of applicants and 
projects that support the purposes of the Program. However, the QREC 
criteria instead resulted in a disproportionate administrative burden. 
Applicants frequently applied as QRECs that did not meet the criteria 
or failed to submit complete information, causing

[[Page 2856]]

delays in the allocation process across the program. In response to 
these comments and in part based on their administration of the 
predecessor program under section 48(e), the Treasury Department and 
the IRS have clarified and streamlined the QREC definition used in the 
predecessor section 48(e) program to make this criterion more 
administrable. Specifically, the QREC definition was revised to provide 
more detail on affiliated entities so as to provide taxpayer certainty 
and promote sound tax administration. Section 1.48E(h)-1(h)(2)(i)(F) 
has been added to the final regulations to include QREC as an eligible 
Ownership Criteria category, and Sec.  1.48E(h)-1(h)(2)(viii) has been 
added to the final regulations to define QREC. The final regulations 
provide several changes from the section 48(e) program QREC definition.
    First, the definition provided in the final regulations clarifies 
that QRECs must have a general business purpose to serve low-income 
communities or low-income households. Second, the final regulations 
remove the option that at least 51 percent of the entity's ownership 
interest are owned or controlled by a Community Development Corporation 
(as defined in 13 CFR 124.3), an agricultural or horticultural 
cooperative (as defined in section 199A(g)(4)(A) of the Code), an 
Indian Tribal government (as defined in section 30D(g)(9)), an Alaska 
Native corporation (as defined in section 3 of the Alaska Native Claims 
Settlement Act, 43 U.S.C. 1602(m)), or a Native Hawaiian organization 
(as defined in 13 CFR 124.3). These entities are removed from the 
definition because they are eligible for Additional Selection Criteria 
as other Ownership criteria. Therefore, the final regulations provide 
that at least 51 percent of the entity's equity interests are owned and 
controlled by one or more individuals. Third, the final regulations 
clarify that entity affiliation for the purposes of determining both 
the number of full-time equivalent employees and annual gross receipts 
is defined as: (1) 25 percent or more of an entity's board seats, 
voting rights, or equity interests, are cumulatively held by another 
entity and related entities (as described in described in sections 
267(b) or 707(b)(1) of the Code); or (2) one or more of an entities' 
officers, directors, managing members or partners with authority over 
the board of directors or management and operations also have authority 
over the board of directors or management and operations of another 
entity. Lastly, the final regulations remove the requirement included 
in the section 48(e) program that a QREC must have provided solar 
services as a contractor or subcontractor to qualified solar or wind 
facilities as defined in section 48(e)(2)(A) with at least 100 kW of 
cumulative nameplate capacity located in one or more low-income 
communities as defined in section 48(e)(2)(A)(iii)(I).
    Proposed Sec.  1.48E(h)-1(h)(2)(ii)(B), regarding a partner 
qualifying a partnership for purposes of the Ownership Criteria, has 
also been revised to note that this paragraph is not applicable to QREC 
applicants. Under the regulations for the predecessor program under 
section 48(e), a partner that qualified as a QREC and held the 
requisite interest amount in the partnership could qualify the 
partnership as a QREC. Moreover, a QREC that received an allocation was 
permitted to transfer the allocation to a partnership without 
triggering disqualification if the original applicant that qualified as 
a QREC remained in the partnership and met the requisite interest 
requirements in the partnership. This inclusion of QRECs under Sec.  
1.48(e)-1(h)(2)(ii)(B) (the regulations for the predecessor program 
under section 48(e)), at times, proved to be incompatible with the 
purpose of establishing QRECs as an Ownership Criteria category, which 
was to prioritize small, emerging market businesses for an allocation. 
Instead, some applicants utilized the presence of a small business 
partner to then qualify a partnership that is not a small business. 
Moreover, the inclusion of QRECs to qualify a partnership was often in 
conflict with the QREC affiliated entities threshold requirements. 
Therefore, to eliminate confusion and any conflict between the 
Ownership Criteria provision, these final regulations for the program 
under section 48E(h) exclude QRECs from the partner qualifying a 
partnership provisions under Sec.  1.48E(h)-1(h)(2)(ii)(B).

B. Geographic Criteria

    Proposed Sec.  1.48E(h)-1(h)(3) would provide criteria based on 
geography (Geographic Criteria). As described in the preamble of the 
Proposed Regulations, the Geographic Criteria category is based on 
where the facility will be placed in service. Geographic Criteria do 
not apply to Category 2 facilities. To meet the Geographic Criteria, a 
facility needs to be located in a Persistent Poverty County (PPC) \2\ 
as described in proposed Sec.  1.48E(h)-1(h)(3)(ii) or in certain 
census tracts identified on the CEJST \3\ and as described in proposed 
Sec.  1.48E(h)-1(h)(3)(iii).
---------------------------------------------------------------------------

    \2\ https://www.ers.usda.gov/data-products/county-typology-codes/.
    \3\ https://screeningtool.geoplatform.gov/en/#3/33.47/-97.5, or 
a successor website such as IRS.gov.
---------------------------------------------------------------------------

    Proposed Sec.  1.48E(h)-1(h)(3)(ii) would describe a PPC as any 
county where 20 percent or more of residents have experienced high 
rates of poverty over the past 30 years. Proposed Sec.  1.48E(h)-
1(h)(3)(ii) would provide that for purposes of the Program, the 
Proposed Regulations would use the PPC measure adopted by the United 
States Department of Agriculture (USDA) to make this determination.
    No comments were received recommending modification of these rules, 
and the Proposed Regulations related to Geographic Criteria are adopted 
in the final regulations at Sec.  1.48E(h)-1(h)(3)(ii) without 
modification.

VII. Sub-Reservations of Allocation for Facilities Located in a Low-
Income Community

    Proposed Sec.  1.48E(h)-1(i)(1) would subdivide the Capacity 
Limitation reservation for facilities seeking a Category 1 allocation 
with a portion of the Capacity Limitation specifically reserved for 
eligible residential behind the meter (BTM) facilities, including 
rooftop solar. This is because the sub-reservation of a substantial 
portion of the allocation in Category 1 for eligible residential BTM 
facilities would help ensure that allocations predominantly are awarded 
to facilities serving residences and consumers, rather than facilities 
serving businesses. Proposed Sec.  1.48E(h)-1(i)(1) would reserve the 
remaining Capacity Limitation in Category 1 for applicants with front 
of the meter (FTM) facilities as well as non-residential BTM 
facilities. Proposed Sec.  1.48E(h)-1(i)(1) would clarify that the 
specific amounts of the Category 1 sub-reservations will be provided in 
future guidance published in the Internal Revenue Bulletin that is 
applicable to a Program year based on factors such as promoting 
efficient allocation of Capacity Limitation and allowing like-projects 
to compete for an allocation. Proposed Sec.  1.48E(h)-1(i)(1) would 
provide that after the sub-reservation is established in guidance 
published in the Internal Revenue Bulletin, it may be reallocated later 
in the event it has excess capacity.
    One commenter generally supported the proposal contained in the 
Proposed Regulations to create a sub-reservation of Category 1 Capacity 
Limitation for

[[Page 2857]]

residential BTM facilities under proposed Sec.  1.48E(h)-1(i). No other 
comments were submitted on this proposal. The final regulations under 
Sec.  1.48E(h)-1(i) adopt the proposed rule without modification.

VIII. Application and Selection Process

    Section 48E(h)(4)(A) provides that ``[i]n establishing such program 
and to carry out the purposes of this subsection, the Secretary shall 
provide procedures to allow for an efficient allocation process.'' In 
part based on their administration of the predecessor program under 
section 48(e), the Treasury Department and the IRS anticipate that the 
number of eligible applicants within any given category seeking an 
allocation may exceed the total Capacity Limitation allocation 
available to be allocated. Accordingly, the Treasury Department and the 
IRS are designing an application process that both ensures that 
allocations are awarded to facilities that advance the program goals 
and facilitates an efficient allocation process.
    Proposed Sec.  1.48E(h)-1(j)(1) would provide that applications for 
a Capacity Limitation allocation will be evaluated according to the 
procedures specified in guidance published in the Internal Revenue 
Bulletin. Based on feedback received with respect to the section 48(e) 
predecessor program and an assessment of operational capabilities set 
up to administer the Program under section 48E(h), the preamble to the 
Proposed Regulations explained that the expected process would include 
one or more initial application windows in which applications received 
by a certain time and date would be evaluated together, followed by a 
rolling application process. The final regulations add Sec.  1.48E(h)-
1(j)(4) to establish the annual application period. Section 1.48E(h)-
1(j)(4) also adds certain procedural rules to explain the initial 30-
day application window in which applications received by a certain time 
and date would be evaluated together, followed by a rolling application 
process. Additionally, Sec.  1.48E(h)-1(j)(4) explains the process by 
which Additional Selection Criteria applications are prioritized for 
review and allocations from a particular reservation of Capacity 
Limitation.
    Section 48E(h)(4)(A) directs the Secretary to provide procedures to 
allow for an efficient allocation process. Additionally, section 
48E(h)(4)(E)(i) requires that facilities allocated an amount of 
Capacity Limitation be placed in service within four years of the date 
of allocation. To promote efficient allocation, and to ensure that 
allocations will be awarded to facilities that are sufficiently viable 
and well defined to allow for a review for an allocation, and 
sufficiently advanced such that they are likely to meet the four-year 
placed in service deadline, proposed Sec.  1.48E(h)-1(j)(2) would 
require applicants, when applying for an allocation, to submit certain 
information, documentation, and attestations that demonstrate project 
eligibility and viability. Proposed Sec.  1.48E(h)-1(j)(2) would 
clarify that the specific information, documentation, and attestations 
to be submitted will be provided in guidance published in the Internal 
Revenue Bulletin that is applicable to a Program year.
    Several comments discussed documentation requirements and related 
procedural requirements. These comments specifically requested 
exemptions from having to provide documentation or requested the 
ability to provide alternate documentation due to circumstances 
specific to that commenter or specific to a State or utility. Comments 
regarding specific documentation or procedural requirements are outside 
the scope of these regulations. State and local rules for energy-
generating facilities and low-income clean energy programs vary 
considerably, and procedures for those rules may not be relevant to or 
compatible with the requirements under section 48E(h). Consistent with 
the statute, the Treasury Department and the IRS seek to establish an 
efficient application and allocation process, as well as promote 
certainty for applicants as to how their application is being reviewed. 
To do so, documentation and procedural requirements must be 
standardized to the extent appropriate and possible, and it would not 
promote sound tax administration to create separate requirements for 
each applicant based on their specific circumstances. The Treasury 
Department and the IRS will periodically assess the Program to 
determine whether to make any changes to the Program's application 
process. Specific information related to documentation and procedural 
requirements will be provided in guidance published in the Internal 
Revenue Bulletin. The Treasury Department and the IRS expect that the 
specific application information, documentation, and attestation 
requirements provided in procedural guidance applicable to the Program 
published in the Internal Revenue Bulletin will be substantially 
similar to requirements applicable the section 48(e) Low-Income 
Communities Bonus Program provided in Revenue Procedure 2024-19, 2024-
16 I.R.B. 899. Like the section 48(e) program, some requirements may 
differ for FTM and BTM facilities and other requirements may differ by 
facility category and Additional Selection Criteria. The final 
regulations under Sec.  1.48E(h)-1(j)(1) through (2) adopt the proposed 
rules without modification.
    Although no specific comments were submitted in response to the 
Proposed Regulations regarding recordkeeping, the Treasury Department 
and the IRS determined that, in the interest of sound tax 
administration, a record retention rule is necessary in addition to the 
specific information, documentation, and attestation requirements set 
forth in the Proposed Regulations. Consistent with the current 
applicable periods of limitations under section 6501 of the Code on 
assessment and collection of tax under chapter 1 with respect to the 
applicable taxpayer's return filed for the taxable year, Sec.  
1.48E(h)-1(o) of the final regulations provide that the applicant is 
required to retain records and materials related to the application for 
the following periods: (1) for at least 6 years after the due date 
(with extensions) for filing the Federal income tax return after the 
tax year that return is filed to claim the increase in the section 48E 
credit; and (2) for at least 6 years after the due date (with 
extensions) for filing the Federal income tax return for the last year 
that the applicant could be subject to recapture as described in Sec.  
1.48E(h)-1(n). These records are considered general tax records under 
Sec.  1.6001-1(e), and they are required for the IRS to validate that 
taxpayers have met the regulatory requirements and are entitled to 
receive the section 48E(h) Increase.
    Proposed Sec.  1.48E(h)-1(j)(3) would provide that there is no 
administrative appeal of Capacity Limitation allocation decisions. No 
comments were submitted on this provision, and the final regulations at 
Sec.  1.48E(h)-1(j)(3) adopt this rule without modification.

IX. Placed in Service

A. Documentation and Attestations To Be Submitted When Facility Is 
Placed in Service

    Proposed Sec.  1.48E(h)-1(k)(1) would require facilities that 
received a Capacity Limitation allocation to report to the Department 
of Energy (DOE) the date the applicable facility was placed in service. 
Proposed Sec.  1.48E(h)-1(k)(2) would require facilities that received 
a Capacity Limitation to submit additional documentation or complete 
additional attestations with this reporting. At the time of 
application, applicants would not necessarily be able

[[Page 2858]]

to demonstrate compliance with certain eligibility requirements, as the 
facility would not yet be operating at that time. Requiring placed in 
service reporting will allow for final verification that the facilities 
that were awarded a Capacity Limitation Allocation have met certain 
eligibility requirements under the Program. Therefore, proposed Sec.  
1.48E(h)-1(k)(2) would require facilities awarded a Capacity Limitation 
to submit final eligibility information at the time of placed in 
service.
    Proposed Sec.  1.48E(h)-1(k)(3) would provide that the DOE will 
review the placed in service documentation and attestations to 
determine if the facility meets the eligibility criteria for the owner 
to claim an increased applicable percentage. Proposed Sec.  1.48E(h)-
1(k)(3) would provide that the DOE then provides a recommendation to 
the IRS regarding whether the facility continues to meet the 
eligibility requirements for the facility to retain its allocation or 
if the facility should be disqualified (as provided in proposed Sec.  
1.48E(h)-1(m)). Proposed Sec.  1.48E(h)-1(k)(3) would generally provide 
that the IRS reviews recommendations, and if deemed appropriate, issues 
the final eligibility letter.
    No comments were submitted regarding documentation and attestations 
to be submitted when placed in service. The final regulations adopt 
proposed Sec.  1.48E(h)-1(k) with minor edits to clarify technical 
procedures.

B. Placed in Service Prior to Allocation Award

    Proposed Sec.  1.48E(h)-1(l)(1) would provide that facilities that 
are placed in service prior to being awarded an allocation of Capacity 
Limitation will not be eligible to receive an allocation. Proposed 
Sec.  1.48E(h)-1(l)(2) would provide that if a facility is placed in 
service after the application is submitted, but prior to the allocation 
of Capacity Limitation, and the facility is awarded an allocation, the 
allocation will be rescinded.
    Several commenters recommend that Sec.  1.48E(h)-1(l)(2) be 
modified so that an award is not rescinded if a Category 1 facility is 
placed in service after submitting an application but prior to 
receiving the allocation award. These commenters asserted that this 
rule is problematic and disruptive in practice for residential-serving 
rooftop solar projects that have shorter development timelines.
    The Treasury Department and the IRS do not adopt this 
recommendation, and Sec.  1.48E(h)-1(l)(2) is adopted without 
modification. Awarding an allocation to facilities that have already 
been placed in service would be inconsistent with the statute and the 
goal of the Program to promote investment in new clean electricity 
facilities. Section 48E(h)(4)(E)(i) provides that a facility must be 
placed in service within four years of receiving an allocation of 
Capacity Limitation, indicating that allocations should be made to new 
facilities that have not yet been placed in service. Accordingly, 
facilities placed in service prior to being awarded an allocation of 
Capacity Limitation are ineligible to receive an allocation. The final 
regulations maintain the use of a Category 1 sub-reservation for 
facilities that serve BTM facilities to support timely review of 
applications serving residential-serving rooftop solar projects that 
have shorter development timelines.

X. Post-Allocation Compliance

A. Disqualification After Receiving an Allocation

    Proposed Sec.  1.48E(h)-1(m) would provide that a facility that was 
awarded a Capacity Limitation allocation is disqualified and loses its 
allocation if prior to or upon the facility being placed in service: 
(1) the location where the facility will be placed in service changes; 
(2) the maximum net output of the facility increases such that it 
exceeds the less than five megawatt requirement provided in section 
48E(h)(2)(A)(ii) or the nameplate capacity decreases by the greater of 
2 kW or 25 percent of the Capacity Limitation awarded in the 
allocation; (3) the facility cannot satisfy the financial benefits 
requirements under section 48E(h)(2)(B)(ii) and proposed Sec.  
1.48E(h)-1(e) as planned (if applicable) or cannot satisfy the 
financial benefits requirements under section 48E(h)(2)(C) and proposed 
Sec.  1.48E(h)-1(f) as planned (if applicable); (4) the eligible 
property that is part of the facility that received the Capacity 
Limitation allocation is not placed in service within four years after 
the date the applicant was notified of the allocation of Capacity 
Limitation to the facility or the facility that received the Capacity 
Limitation allocation is placed in service ahead of allocation of 
award; or (5) the facility received a Capacity Limitation allocation 
based, in part, on meeting the Ownership Criteria and ownership of the 
facility changes prior to the facility being placed in service, unless 
the original applicant transfers the facility to an entity classified 
as a partnership for Federal income tax purposes and retains at least a 
one percent interest (either directly or indirectly) in each material 
item of partnership income, gain, loss, deduction, and credit of such 
partnership and is a managing member or general partner (or similar 
title) under State or Tribal law of the partnership (or directly owns 
100 percent of the equity interests in the managing member or general 
partner) at all times during the existence of the partnership. No 
comments were received related to proposed Sec.  1.48E(h)-1(m), and 
this rule is adopted without modification.

B. Recapture of Section 48E(h) Increase

    Section 48E(h)(5) requires the Secretary, by regulations or other 
guidance, to provide rules for recapturing the benefit of any section 
48E(h) Increase with respect to any property that ceases to be property 
eligible for such section 48E(h) Increase (but that does not cease to 
be investment credit property within the meaning of section 50(a) of 
the Code). The period and percentage of such recapture is determined 
under rules similar to the rules of section 50(a). To the extent 
provided by the Secretary, such recapture may not apply with respect to 
any property if, within 12 months after the date the applicant becomes 
aware (or reasonably should have become aware) of such property ceasing 
to be property eligible for such section 48E(h) Increase, the 
eligibility of such property for such section 48E(h) Increase is 
restored. Such restoration of a section 48E(h) Increase is not 
available more than once with respect to any facility.
    Proposed Sec.  1.48E(h)-1(n)(1) would provide that if, at any time 
during the five year recapture period beginning on the date that an 
applicable facility under section 48E(h) is placed in service, there is 
a recapture event under proposed Sec.  1.48E(h)-1(n)(3) with respect to 
such property, then the Federal income tax imposed on the taxpayer by 
chapter 1 of the Code for the taxable year in which the recapture event 
occurs is increased by the recapture percentage of the benefit of the 
increase in the section 48E credit. Proposed Sec.  1.48E(h)-1(n)(1) 
would provide that the recapture percentage is determined according to 
the table provided in section 50(a)(1)(B).
    Proposed Sec.  1.48E(h)-1(n)(2) would provide that recapture under 
proposed Sec.  1.48E(h)-1(n)(1) may not have applied with respect to 
any property if, within 12 months after the date the applicant becomes 
aware (or reasonably should have become aware) of such property ceasing 
to be property eligible for such increase in the credit allowed under 
section 48E(a), the eligibility of such property for such increase 
pursuant to section 48E(h) is restored. Proposed

[[Page 2859]]

Sec.  1.48E(h)-1(n)(2) would provide that such restoration of an 
increase pursuant to section 48E(h) is not available more than once 
with respect to any facility.
    Proposed Sec.  1.48E(h)-1(n)(3) would describe that the following 
circumstances result in a recapture event if the property ceases to be 
eligible for the increased credit under section 48E(h): (1) property 
described in section 48E(h)(2)(A)(iii)(II) fails to provide financial 
benefits over the 5-year period after its original placed in service 
date; (2) property described under section 48E(h)(2)(B) ceases to 
allocate the financial benefits equitably among the occupants of the 
dwelling units, such as not passing on to residents the required net 
energy savings of the electricity; (3) property described under section 
48E(h)(2)(C) ceases to provide at least 50 percent of the financial 
benefits of the electricity produced to Qualifying Households as 
described under section 48E(h)(2)(C)(i) or (ii), or fails to provide 
those households the required minimum 30 percent bill credit discount 
rate; (4) for property described under section 48E(h)(2)(B), the 
residential rental building the facility is a part of ceases to 
participate in a covered housing program or any other housing program 
described in section 48E(h)(2)(B)(i), if applicable; and (5) a facility 
increases its maximum net output such that the facility's maximum net 
output is 5 MW AC or greater.
    Proposed Sec.  1.48E(h)-1(n)(4) would provide that any event that 
results in recapture under section 50(a) also will result in recapture 
of the benefit of the increase in the section 48E credit by reason of 
section 48E(h). Proposed Sec.  1.48E(h)-1(n)(4) would provide that the 
exception to the application of recapture provided in proposed Sec.  
1.48E(h)-1(n)(2) did not apply in the case of a recapture event under 
section 50(a).
    No comments were received related to the recapture provisions 
contained in the Proposed Regulations. Accordingly, these recapture 
provisions are adopted in the final regulations without modification.

Applicability Date

    The final regulations set forth apply to applicable facilities that 
are placed in service after December 31, 2024, and during taxable years 
ending on or after January 13, 2025.

Special Analyses

I. Regulatory Planning and Review--Economic Analysis

    Pursuant to the Memorandum of Agreement, Review of Treasury 
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory 
actions issued by the IRS are not subject to the requirements of 
section 6 of Executive Order 12866, as amended. Therefore, a regulatory 
impact assessment is not required.

II. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA) 
requires that a Federal agency obtain the approval of OMB before 
collecting information from the public, whether such collection of 
information is mandatory, voluntary, or required to obtain or retain a 
benefit. The collections of information in these final regulations 
contain reporting and recordkeeping requirements that are required to 
obtain the section 48E(h) Increase. This information in the collections 
of information would generally be used for tax compliance purposes and 
by taxpayers to facilitate proper reporting and compliance. A Federal 
agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless the collection of 
information displays a valid control number.
    The recordkeeping requirements mentioned within this final 
regulation are considered general tax records under Sec.  1.6001-1(e). 
These records are required for IRS to validate that taxpayers have met 
the regulatory requirements and are entitled to receive the section 
48E(h) Increase. For PRA purposes, general tax records are already 
approved by OMB under 1545-0123 for business filers, 1545-0074 for 
individual filers, and 1545-0047 for tax-exempt organizations.
    The final regulations also provide reporting requirements related 
to providing attestations and supporting documentation for initial 
application, supplemental documentation for specific facilities, and to 
confirm a facility is placed in service as detailed in these final 
regulations. These attestations and documentation would allow IRS to 
allocate Capacity Limitation and ensure taxpayers keep and maintain 
compliance for the credits. To assist with the collections of 
information, the IRS will procure certain administration services for 
the Program. Among other things, these administration services will 
include establishing a website portal to review the applications for 
eligibility criteria and providing recommendations to the IRS regarding 
the selection of applications for an allocation of Capacity Limitation. 
These collection requirements will be submitted to the Office of 
Management and Budget (OMB) under 1545-2327 for review and approval in 
accordance with 5 CFR 1320.11. The likely respondents are business 
filers, individual filers, and tax-exempt organization filers. A 
summary of paperwork burden estimates for the application and 
attestations is as follows:
    Estimated number of respondents: 70,000.
    Estimated burden per response: 60 minutes.
    Estimated frequency of response: 1 for initial applications, 1 for 
follow-up documentation, and 1 for projects placed in service.
    Estimated total burden hours: 210,000 burden hours.
    The IRS solicited feedback on the collection requirements for the 
application, supporting documentation, and attestations. Although no 
public comments received by the IRS were directed specifically at the 
PRA or on the collection requirements, several commenters generally 
expressed concerns about the burdens associated with the documentation 
requirements contained in the Proposed Regulations. As described in the 
relevant portions of this preamble, the Treasury Department and the IRS 
believe that the documentation requirements are necessary to administer 
the Program.

III. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to Federal rules that are subject to 
the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely 
to have a significant economic impact on a substantial number of small 
entities. Unless an agency determines that a proposal will not have a 
significant economic impact on a substantial number of small entities, 
section 604 of the RFA requires the agency to present a final 
regulatory flexibility analysis (FRFA) of the final regulations. The 
Treasury Department and the IRS have not determined whether the final 
regulations will likely have a significant economic impact on a 
substantial number of small entities. This determination requires 
further study and an FRFA is provided in these final regulations.
    Pursuant to section 7805(f) of the Code, these final regulations 
were submitted to the Chief Counsel of Advocacy of the Small Business 
Administration, and no comments were received.

[[Page 2860]]

1. Need for and Objectives of the Rule

    The final regulations provide guidance to potential applicants to 
determine eligibility to apply for an allocation of Capacity Limitation 
under section 48E(h), and, in general, to taxpayers awarded an 
allocation of Capacity Limitation to understand the requirement to 
claim the section 48E(h) Increase. The final regulations are expected 
to encourage applicants to invest in applicable facilities. Thus, the 
Treasury Department and the IRS intend and expect that the final rule 
will deliver benefits across the economy and environment that will 
beneficially impact various industries.

2. Significant Issues Raised by Public Comments in Response to the IRFA

    There were no comments filed that specifically addressed the 
Proposed Regulations and policies presented in the IRFA. Additionally, 
no comments were filed by the Chief Counsel of Advocacy of the Small 
Business Administration.

3. Affected Small Entities

    The Small Business Administration estimates in its 2018 Small 
Business Profile that 99.9 percent of United States businesses meet its 
definition of a small business. The applicability of the final 
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 this final regulation and in the FRFA, these rules may 
affect a variety of different businesses across serval different 
industries.

4. Impact of the Rules

    The recordkeeping and reporting requirements would increase for 
applicants that participate in the Program. Although the Treasury 
Department and the IRS do not have sufficient data to determine 
precisely the likely extent of the increased costs of compliance, the 
estimated burden of complying with the recordkeeping and reporting 
requirements are described in section II. (Paperwork Reduction Act) of 
the Special Analyses. In particular, section II. of the Special 
Analyses contains a summary of paperwork burden estimates for the 
application, supporting documentation, and submissions when projects 
are placed in service. The IRS solicited feedback on the collection 
requirements for the application, supporting documentation, and 
attestations. Although no public comments received by the IRS were 
directed specifically at the PRA or on the collection requirements, 
several commenters generally expressed concerns about the burdens 
associated with the documentation requirements contained in the 
Proposed Rule. As described in the relevant portions of this preamble, 
the Treasury Department and the IRS believe that the documentation 
requirements are necessary to administer the Program.

5. Steps Taken To Minimize Impacts on Small Entities and Alternatives 
Considered

    The Treasury Department and the IRS considered alternatives to the 
final regulations. For example, the Treasury Department and the IRS 
considered requests from stakeholders that potential applicants be able 
to place a facility in service before applying for or receiving an 
allocation of Capacity Limitation. The Treasury Department and the IRS 
determined it would not be possible to accommodate this request in the 
final regulations because the statutory language under section 
48E(h)(4)(E)(i) requires that the facility be placed in service by a 
date that is 4 years after the date of the allocation. Moreover, 
facilities that were placed in service prior to the allocation process 
do not increase adoption of and access to renewable energy facilities, 
as compared to the absence of the Program, and so do not further 
Program goals.
    Another example is the revisions to the list of eligible housing 
programs that can be found in the Summary of Comments and Explanation 
of Revisions section of this document. In the preamble to Treasury 
Decision 9979, applicable to the Low-Income Communities Bonus Credit 
Program established under section 48(e), the HUD tenant-based rental 
assistance under section 8 of the United States Housing Act of 1937 was 
included as eligible housing program. The Treasury Department and the 
IRS considered retaining tenant-based housing assistance programs. 
However, after consulting with HUD, it was determined that tenant-based 
assistance is assistance that can only be attributed to a particular 
tenant, and not a building. Under section 48E(h)(2)(B), for a facility 
to qualify as a being part of a qualified low-income residential 
building project, the facility must be installed on a residential 
rental building that participates in a covered housing program or other 
affordable housing program (that is, a Qualified Residential Property). 
Tenant-based housing assistance programs applicable to a particular 
tenant do not qualify the building in which the tenant resides as 
participating in a covered housing program or other affordable housing 
program. Therefore, because tenant-based assistance under Section 8 
does not comport with the requirements under section 48E(h)(2)(B), 
tenant-based housing assistance programs under Section 8 have been 
removed as an eligible housing program for purposes of the Program 
under section 48E(h).
    Additionally, the Treasury Department and the IRS considered 
excluding the sub-reservation for Category 1 facilities for eligible 
residential BTM facilities but concluded that this sub-reservation 
should be included in the Program. The sub-reservation of a substantial 
portion of the allocation in Category 1 for eligible residential BTM 
facilities would help ensure that allocations are predominantly awarded 
to facilities serving residences and consumers, rather than facilities 
serving businesses.

IV. Unfunded Mandates Reform Act

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

V. Executive Order 13132: Federalism

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

[[Page 2861]]

law, unless the agency meets the consultation and funding requirements 
of section 5 of the Executive order. These regulations do not have 
substantial direct effects on one or more Federally recognized Indian 
tribes and does not impose substantial direct compliance costs on 
Indian Tribal governments within the meaning of the Executive order.
    Nevertheless, on September 27, 2024, the Treasury Department and 
the IRS held a consultation with Tribal leaders requesting assistance 
in addressing questions related to Low-Income Communities Bonus Credit 
Amount Program, which informed the development of these regulations.

VII. Congressional Review Act

    Pursuant to the Congressional Review Act (CRA) (5 U.S.C. 801 et 
seq.), the Office of Information and Regulatory Affairs has determined 
that this rule meets the criteria set forth in 5 U.S.C. 804(2).

VIII. Immediate Effective Date

    These final regulations have an effective date of January 13, 2025. 
To the extent that a good cause statement is necessary under any 
provision of law, the Treasury Department and the IRS find that there 
would be good cause to make this rule immediately effective upon 
publication in the Federal Register. The IRA added the section 48E 
credit to the Code, and provided that the section 48E credit applies to 
property placed in service after December 31, 2024. Pursuant to the 
IRA, section 48E(h)(4)(A) directs the Secretary, not later than January 
1, 2025, to establish a program to allocate amounts of Capacity 
Limitation to applicable facilities and to ``provide procedures to 
allow for an efficient allocation'' of Capacity Limitation to 
applicable facilities. In addition, the public already has been 
provided notice of the general contents of the rules in the proposed 
regulations and their proposed applicability to applicable facilities 
placed in service after December 31, 2024, and during taxable years 
ending on or after the date of publication of these final regulations. 
As provided in the IRA, section 48E(h) replaces the existing low-income 
communities bonus credit program for applicable facilities placed in 
service after December 31, 2024. The statute and proposed regulations, 
therefore, provide notice that the rules will apply to applicable 
facilities placed in service beginning in 2025, and provide notice of 
the qualification requirements being promulgated in this final rule.
    The Treasury Department and the IRS have determined that an 
expedited effective date of the final regulations is appropriate here 
because of the January 1, 2025, deadline to establish the Program and 
to provide certainty to taxpayers.
    Consistent with Executive Order 14008 (January 27, 2021), and 
commenters' requests for final rules, the Treasury Department and the 
IRS have determined that an expedited effective date of the final 
regulations is appropriate here given the statutory deadline to 
establish the Program and to provide certainty to taxpayers. The final 
regulations provide needed rules on what the law requires for taxpayers 
to begin job-generating construction of capital-intensive projects 
qualifying for section 48E(h). Making the final regulations effective 
as soon as possible will also prevent delays in enabling low-income 
households to access cost-saving clean electricity in 2025 given the 
transition from section 48(e) to section 48E(h). Accordingly, to the 
extent that a finding of good cause is necessary, the Treasury 
Department and the IRS have found good cause for the rules in this 
Treasury decision to take effect on the date of publication in the 
Federal Register.

Statement of Availability of IRS Documents

    Guidance cited in this preamble is published in the Internal 
Revenue Bulletin and is available from the Superintendent of Documents, 
U.S. Government Publishing Office, Washington, DC 20402, or by visiting 
the IRS website at https://www.irs.gov.

Drafting Information

    The principal author of these regulations is the Office of the 
Associate Chief Counsel (Passthroughs and Special Industries), IRS. 
However, other personnel from the Treasury Department and the IRS 
participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Amendments to the Regulations

    Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by adding an 
entry for Sec.  1.48E(h)-1 in numerical order to read in part as 
follows:

    Authority:  26 U.S.C. 7805 * * *
* * * * *
    Section 1.48E(h)-1 also issued under 26 U.S.C. 48E(i).
* * * * *

0
Par. 2. Sections 1.48E(h)-0 and 1.48E(h)-1 are added to read as 
follows:


Sec.  1.48E(h)-0  Table of contents.

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

    Sec.  1.48E(h)-1 Clean Electricity Low-Income Communities Bonus 
Credit Amount Program.

    (a) Overview.
    (1) General rule.
    (2) Certain terms used in this section.
    (i) Applicant.
    (ii) Disregarded entity.
    (iii) Internal Revenue Bulletin.
    (b) Applicable facility defined.
    (1) In general.
    (2) Facility categories.
    (i) Category 1 facility.
    (ii) Category 2 facility.
    (iii) Category 3 facility.
    (iv) Category 4 facility.
    (3) Less than five megawatts requirement.
    (i) In general.
    (ii) Nameplate capacity for purposes of the less than five 
megawatts requirement.
    (iii) Nameplate capacity for an applicable facility that 
generates in direct current for purposes of the less than five 
megawatts requirement.
    (iv) Integrated operations.
    (4) Related taxpayers.
    (c) Eligible property.
    (d) Location.
    (1) In general.
    (2) Nameplate Capacity Test for Location.
    (3) Nameplate capacity for purpose of Nameplate Capacity Test 
for Location.
    (e) Financial benefits for a Category 3 facility.
    (1) In general.
    (2) Threshold requirement.
    (3) Financial value of the electricity produced by the facility.
    (4) Gross financial value defined.
    (5) Net financial value defined.
    (i) Common ownership.
    (ii) Third-party ownership.
    (iii) Equitable allocation of financial benefits.
    (A) If financial value distributed via utility bill savings.
    (B) If financial value is not distributed via utility bill 
savings.
    (6) Benefits sharing statement.
    (i) In general.
    (ii) Notification requirement.
    (f) Financial benefits for a Category 4 facility.
    (1) In general.
    (2) Bill credit discount rate.
    (i) With cost to participate.
    (ii) No or nominal cost of participation.
    (iii) Calculation on annual basis.
    (iv) Examples.
    (A) Example 1.
    (B) Example 2.
    (C) Example 3.
    (3) Demonstration of financial benefits statement.
    (4) Low-income verification and recordkeeping.

[[Page 2862]]

    (i) In general.
    (ii) Methods of verification.
    (A) Categorical eligibility.
    (B) Direct income verification methods.
    (C) Impermissible verification method.
    (g) Annual Capacity Limitation.
    (1) In general.
    (2) Sub-reservations.
    (3) Redistribution within Program year.
    (4) Carryover of unallocated Annual Capacity Limitation.
    (5) Allocations to applicable facilities with nameplate capacity 
in alternating current.
    (h) Reservations of Capacity Limitation allocation for 
facilities that meet certain Additional Selection Criteria.
    (1) In general.
    (2) Ownership criteria.
    (i) In general.
    (ii) Indirect ownership.
    (A) Disregarded entities.
    (B) Partner qualifying partnership under ownership criteria.
    (C) Partner qualifying partnership involving low-income housing 
credit under ownership criteria.
    (iii) Tribal enterprise.
    (iv) Alaska Native Corporation.
    (v) Native Hawaiian Organization.
    (vi) Renewable energy cooperative.
    (vii) Qualified tax-exempt entity.
    (viii) Qualified renewable energy company.
    (3) Geographic criteria.
    (i) In general.
    (ii) Persistent Poverty County.
    (iii) Certain census tracts under Climate and Economic Justice 
Screening Tool.
    (A) Energy burden.
    (B) PM2.5.
    (C) Low-income.
    (i) Sub-reservations of allocation for Category 1 facilities.
    (1) In general.
    (2) Definitions.
    (i) Behind the meter (BTM) facility.
    (ii) Eligible residential BTM facility.
    (iii) FTM facility.
    (j) Process of application evaluation.
    (1) In general.
    (2) Information required as part of application.
    (3) No administrative appeal of Capacity Limitation allocation 
decisions.
    (4) Application period.
    (i) Opening and closing dates.
    (ii) Initial 30-day period.
    (iii) Applications submitted after the initial 30-day period.
    (A) In general.
    (B) Additional Selection Criteria Applications submitted after 
the initial 30-day period.
    (k) Placed in service.
    (1) Requirement to report date placed in service.
    (2) Requirement to submit final eligibility information at 
placed in service time.
    (3) Confirmation.
    (4) Definition of placed in service.
    (l) Facilities placed in service prior to an allocation award.
    (1) In general.
    (2) Rejection or rescission.
    (m) Disqualification.
    (n) Recapture of section 48E(h) Increase to the section 48E(a) 
credit.
    (1) In general.
    (2) Exception to application of recapture.
    (3) Recapture events.
    (4) Section 50(a) recapture.
    (o) Record retention.
    (p) Applicability date.


Sec.  1.48E(h)-1  Clean Electricity Low-Income Communities Bonus Credit 
Amount Program.

    (a) Overview--(1) General rule. For purposes of section 46 of the 
Internal Revenue Code (Code), if an allocation of the capacity 
limitation (Capacity Limitation) is made with respect to eligible 
property (as defined in paragraph (c) of this section) that is part of 
any applicable facility (as defined in paragraph (b) of this section) 
placed in service in connection with low-income communities under the 
Clean Electricity Low-Income Communities Bonus Credit Amount Program 
(Program) established under section 48E(h)(4), the applicable 
percentage used to calculate the amount of the clean electricity 
investment credit determined under section 48E(a) (section 48E credit) 
is increased under section 48E(h)(1).
    (2) Certain terms used in this section. In this section:
    (i) Applicant. The terms applicant and taxpayer are used 
interchangeably as the context may require. An applicant is the 
taxpayer that owns the applicable facility and that intends to claim 
the section 48E credit and will be applying for an allocation of 
Capacity Limitation for purposes of the section 48E(h) Increase. A 
disregarded entity is not eligible to be an applicant. The regarded 
taxpayer that owns the disregarded entity is the owner of the 
applicable facility and, therefore, the applicant, for purposes of the 
Program and this section.
    (ii) Disregarded entity. The term disregarded entity means an 
entity that is disregarded as separate from its owner for Federal 
income tax purposes.
    (iii) Internal Revenue Bulletin. The term Internal Revenue Bulletin 
has the meaning provided in Sec.  601.601 of this chapter.
    (b) Applicable facility defined--(1) In general. An applicable 
facility means any qualified facility (as defined in section 48E(b)(3)) 
that--
    (i) Is a non-combustion and gasification facility for which the 
Secretary of the Treasury or her delegate has determined has a 
greenhouse gas (GHG) emissions rate of not greater than zero and 
announced in guidance published either in the Federal Register or in 
the Internal Revenue Bulletin as of the opening date for a Program 
year;
    (ii) Has a maximum net output of less than five megawatts (MW) (as 
measured in alternating current (AC)); and
    (iii) Is described in at least one of the four categories described 
in section 48E(h)(2)(A)(iii) and paragraph (b)(2) of this section.
    (2) Facility categories--(i) Category 1 facility. A facility is a 
Category 1 facility if it is located in a low-income community. The 
term low-income community is defined under section 45D(e)(1) of the 
Code as any population census tract for which the poverty rate is at 
least 20 percent based on the most recently released American Community 
Survey (ACS) low-income community data currently used for the New 
Markets Tax Credit (NMTC) under section 45D, or, in the case of a tract 
not located within a metropolitan area, the median family income for 
such tract does not exceed 80 percent of statewide median family 
income, or, in the case of a tract located within a metropolitan area, 
the median family income for such tract does not exceed 80 percent of 
the greater of statewide median family income or the metropolitan area 
median family income. The term low-income community also includes the 
modifications in section 45D(e)(4) and (5) for tracts with low 
population and modification of the income requirement for census tracts 
with high migration rural counties. Low-income community information 
for NMTC can be found at https://www.cdfifund.gov/cims3. For purposes 
of this paragraph (b)(2)(i), if updated ACS low-income community data 
is released for the NMTC, a taxpayer can choose to base the poverty 
rate for any population census tract on either the prior version of the 
ACS low-income community data for the NMTC program or the updated ACS 
low-income community data for the NMTC program for a period of 1 year 
following the date of the release of the updated data. After the 1-year 
transition period, the updated ACS low-income community data for the 
NMTC program must be used to determine the poverty rate for any 
population census tract. Population census tracts that satisfy the 
definition of low-income community at the time of application are 
considered to continue to meet the definition of low-income community 
for the duration of the recapture period described in paragraph (n)(1) 
of this section unless the location of the facility changes.
    (ii) Category 2 facility. A facility is a Category 2 facility if it 
is located on Indian land. The term Indian land is defined in section 
2601(2) of the Energy Policy Act of 1992 (25 U.S.C. 3501(2)).
    (iii) Category 3 facility. A facility is a Category 3 facility if 
it is part of a qualified low-income residential building project. A 
facility will be treated as part of a qualified low-income

[[Page 2863]]

residential building project if such facility is installed on a 
residential rental building that participates in a covered housing 
program or other affordable housing program as described in section 
48E(h)(2)(B)(i) (Qualified Residential Property) and the financial 
benefits of the electricity produced by such facility are allocated 
equitably among the occupants of the dwelling units of such building as 
provided in paragraph (e) of this section. A Qualified Residential 
Property could either be a multifamily rental property or single-family 
rental property. However, the building, and not merely the tenants, 
must participate in a covered housing program or other affordable 
housing program described in section 48E(h)(2)(B)(i). A facility does 
not need to be installed directly on the building to be considered 
installed on a Qualified Residential Property if the facility is 
installed on the same or an adjacent parcel of land as the Qualified 
Residential Property, and the other requirements to be a Category 3 
facility are satisfied.
    (iv) Category 4 facility. A facility is a Category 4 facility if it 
is part of a qualified low-income economic benefit project. A facility 
will be treated as part of a qualified low-income economic benefit 
project if, as provided in paragraph (f) of this section, at least 50 
percent of the financial benefits of the electricity produced by such 
facility are provided to households with income of less than--
    (A) Two-hundred percent of the poverty line (as defined in section 
36B(d)(3)(A) of the Code) applicable to a family of the size involved; 
or
    (B) Eighty percent of area median gross income (as determined under 
section 142(d)(2)(B) of the Code).
    (3) Less than five megawatts requirement--(i) In general. For 
purposes of this paragraph (b), the less than five megawatts 
requirement in paragraph (b)(1)(ii) of this section is measured at the 
level of the applicable facility in accordance with section 
48E(h)(2)(A)(ii). The maximum net output of an applicable facility is 
measured only by nameplate generating capacity of the applicable 
facility, which includes only functionally interdependent components of 
the applicable facility, at the time the applicable facility is placed 
in service. Components of property are functionally interdependent if 
the placing in service of each component is dependent upon placing in 
service other components to produce electricity.
    (ii) Nameplate capacity for purposes of the less than five 
megawatts requirement. The determination of whether an applicable 
facility has a maximum net output of less than 5 MW (as measured in AC) 
is based on the nameplate capacity of the applicable facility. If an 
applicable facility has integrated operations with one or more other 
qualified facilities of the same technology type, then the aggregate 
nameplate capacity of the applicable facility and each other qualified 
facility is used to determine whether the less than five megawatts 
requirement in paragraph (b)(1)(ii) of this section is met. If an 
applicable facility has a maximum net output equal to or more than 5MW 
(as measured in AC), it is not eligible for the Program. The nameplate 
capacity for purposes of the less than five megawatts requirement in 
paragraph (b)(1)(ii) of this section is the maximum electrical 
generating output in MW that the applicable facility 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. If 
applicable, the International Standard Organization conditions should 
be used to measure the maximum electrical generating output of an 
applicable facility.
    (iii) Nameplate capacity for an applicable facility that generates 
in direct current for purposes of the less than five megawatts 
requirement. Only for applicable facilities that generate electricity 
in direct current, the taxpayer may choose to determine the maximum net 
output (in alternating current) of the applicable facility by using the 
lesser of:
    (A) The nameplate generating capacity of the applicable facility in 
direct current, which is deemed the nameplate generating capacity of 
the applicable facility in alternating current; or
    (B) The nameplate capacity of the first component of property that 
inverts the direct current electricity into alternating current.
    (iv) Integrated operations. For the purposes of the less than five 
megawatts requirement in paragraph (b)(1)(ii) of this section, an 
applicable facility is treated as having integrated operations with one 
or more other qualified facilities of the same technology type if the 
facilities are:
    (A) Owned by the same or related taxpayers;
    (B) Placed in service in the same taxable year; and
    (C) Transmit electricity generated by the facilities through the 
same point of interconnection or, if the facilities are not grid-
connected or are delivering electricity directly to an end user behind 
a utility meter, are able to support the same end user.
    (4) Related taxpayers--(i) Definition. For purposes of this 
paragraph (b), the term related taxpayers means members of a group of 
trades or businesses that are under common control (as defined in Sec.  
1.52-1(b)).
    (ii) Related taxpayer rule. For purposes of this paragraph (b), 
related taxpayers are treated as one taxpayer in determining whether an 
applicable facility has integrated operations.
    (c) Eligible property. Eligible property means a qualified 
investment (as defined in section 48E(b)) with respect to any 
applicable facility.
    (d) Location--(1) In general. An applicable facility is treated as 
located in a low-income community or located on Indian land under 
section 48E(h)(2)(A)(iii)(I) if the applicable facility satisfies the 
requirements of the Nameplate Capacity Test for Location of paragraph 
(d)(2) of this section. Similarly, an applicable facility is treated as 
located in a geographic area under the Additional Selection Criteria 
described in paragraph (h) of this section if it satisfies the 
Nameplate Capacity Test for Location.
    (2) Nameplate Capacity Test for Location. An applicable facility 
satisfies the requirements of the Nameplate Capacity Test for Location 
of this paragraph (d)(2) and is considered located in or on the 
relevant geographic area described in paragraph (d)(1) of this section 
if 50 percent or more of the applicable facility's nameplate capacity 
is in a qualifying area. The percentage of an applicable facility's 
nameplate capacity (as defined in paragraph (d)(3) of this section) 
that is in a qualifying area is determined by dividing the nameplate 
capacity of the applicable facility's electricity-generating units that 
are located in the qualifying area by the total nameplate capacity of 
all the electricity-generating units of the applicable facility.
    (3) Nameplate capacity for purpose of Nameplate Capacity Test for 
Location. Nameplate capacity for an electricity generating unit means 
the maximum electrical output that the applicable facility 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. If applicable, the International Standard Organization 
conditions should be used to measure the maximum electrical generating 
output. For purposes of assessing the Nameplate Capacity Test, 
electricity-generating units that generate direct current (DC)

[[Page 2864]]

power before converting to AC (for example, solar photovoltaic), should 
use nameplate capacity in DC, otherwise the nameplate capacity in AC 
should be used.
    (e) Financial benefits for a Category 3 facility--(1) In general. 
To satisfy the requirements of a Category 3 facility as provided in 
paragraph (b)(2)(iii) of this section, the financial benefits of the 
electricity produced by the facility must be allocated equitably among 
the occupants of the dwelling units of the Qualified Residential 
Property. The same rules for financial benefits for Category 3 
facilities apply to both multi-family property and single-family 
Qualified Residential Property.
    (2) Threshold requirement. At least 50 percent of the financial 
benefits of the electricity produced by the applicable facility (as 
defined in paragraph (e)(3) of this section) must be allocated 
equitably to the Qualified Residential Property's occupants that are 
designated as low-income occupants under the covered housing program or 
other affordable housing program.
    (3) Financial value of the electricity produced by the facility. 
Financial benefits are calculated as the financial value of the 
electricity produced by the applicable facility. For purposes of this 
paragraph (e), financial value of the electricity produced by the 
facility means the greater of:
    (i) 25 percent of the gross financial value (as defined in 
paragraph (e)(4) of this section) of the annual electricity produced by 
the applicable facility; or
    (ii) The net financial value (as defined in paragraph (e)(5) of 
this section) of the annual electricity produced by the applicable 
facility.
    (4) Gross financial value defined. For purposes of this paragraph 
(e), gross financial value of the annual electricity produced by the 
applicable facility means the sum of:
    (i) The total self-consumed kilowatt-hours produced by the 
applicable facility multiplied by the Qualified Residential Property's 
metered volumetric price of electricity;
    (ii) The total exported kilowatt-hours produced by the applicable 
facility multiplied by the Qualified Residential Property's volumetric 
export compensation rate for the type of electricity produced by the 
applicable facility per kilowatt-hour; and
    (iii) The sale of any attributes associated with the applicable 
facility's production (including, for example, any Federal, State, 
Tribal, or utility incentives or renewable energy certificates), if 
separate from the metered price of electricity or export compensation 
rate.
    (5) Net financial value defined--(i) Common ownership. For purposes 
of this paragraph (e), if the facility and Qualified Residential 
Property are commonly owned, net financial value means:
    (A) The gross financial value of the annual electricity produced; 
minus
    (B) The annual average (or levelized) cost of the applicable 
facility over the useful life of the facility (including debt service, 
maintenance, replacement reserve, capital expenditures, and any other 
costs associated with constructing, maintaining, and operating the 
facility).
    (ii) Third-party ownership. For purposes of this paragraph (e), if 
the facility and the Qualified Residential Property are not commonly 
owned and the facility owner enters into a power purchase agreement or 
other contract for electricity services with the Qualified Residential 
Property owner and/or building occupants, net financial value means:
    (A) The gross financial value of the annual electricity produced; 
minus
    (B) Any payments made by the building owner and/or building 
occupants to the facility owner for electricity services associated 
with the facility in a given year.
    (iii) Equitable allocation of financial benefits. Paragraphs 
(e)(5)(iii)(A) and (B) of this section provide rules regarding an 
equitable allocation of financial benefits in circumstances where 
financial value is distributed to building occupants via utility bill 
savings or via different means, respectively. Distributed financial 
benefits or investments previously made to the Qualified Residential 
Property are not considered eligible financial benefits for this 
purpose.
    (A) If financial value distributed via utility bill savings. If 
financial value is distributed via utility bill savings, financial 
benefits will be considered to be allocated equitably if at least 50 
percent of the financial value of the electricity produced by the 
facility is distributed as utility bill savings in equal shares to each 
building dwelling unit among the Qualified Residential Property's 
occupants that are designated as low-income under the covered housing 
program or other affordable housing program (described in section 
48E(h)(2)(B)(i)) or alternatively distributed in proportional shares 
based on each low-income dwelling unit's square footage, or each low-
income dwelling unit's number of occupants. For any occupant(s) who 
choose to not receive utility bill savings (for example, who exercise 
their right to not participate in or to opt out of a community solar 
subscription in their applicable jurisdictions), the portion of the 
financial value that would otherwise be distributed to non-
participating occupants must be distributed instead to all 
participating occupants. No less than 50 percent of the Qualified 
Residential Property's occupants that are designated as low-income must 
participate and receive utility bill savings for the facility to use 
this method of benefit distribution. In the case of a solar facility, 
applicants must follow guidance published by the Department of Housing 
and Urban Development (HUD) regarding benefits sharing, such as 
Treatment of Financial Benefits to HUD-Assisted Tenants Resulting from 
Participation in Solar Programs Notice (Housing Notice 2023-09), 
located at https://www.hud.gov/sites/dfiles/OCHCO/documents/2023-09hsgn.pdf, or other applicable HUD guidance, or other guidance or 
notices from the Federal agency that oversees the applicable housing 
program identified in section 48E(h)(2)(B) to ensure that tenants' 
annual income for rent calculations or other requirements impacting 
total tenant payment are not negatively impacted by the distribution of 
financial value. In the case of any other applicable facility, 
applicants must follow applicable HUD guidance on benefits sharing, or 
other guidance from the Federal agency that oversees the applicable 
housing program. In the absence of applicable guidance from a Federal 
agency, applicants should apply principles similar to those articulated 
in HUD guidance in the case of any other applicable facility.
    (B) If financial value is not distributed via utility bill savings. 
If financial value is not distributed via utility bill savings, 
financial benefits will be considered to be allocated equitably if at 
least 50 percent of the financial value of the electricity produced by 
the facility is distributed to occupants using one or more methods 
described in HUD guidance regarding benefits sharing for master-metered 
HUD-assisted housing, such as the Treatment of Financial Benefits to 
HUD-Assisted Tenants Resulting from Participation in Solar Programs 
Notice (Housing Notice 2023-09) located at https://www.hud.gov/sites/dfiles/OCHCO/documents/2023-09hsgn.pdf, or other applicable HUD 
guidance, or other guidance or notices from the Federal agency that 
oversees the applicable housing program identified in section 
48E(h)(2)(B). In the case of a solar facility, applicants must comply 
with applicable HUD guidance for how residents of master-metered HUD-
assisted housing can benefit from owners' sharing of financial benefits

[[Page 2865]]

accrued from an investment in solar electricity generation to ensure 
that HUD-assisted tenants' calculations for utility allowances and 
annual income for rent are not negatively impacted. In the absence of 
applicable guidance from a Federal agency, applicants should apply 
principles similar to those articulated in HUD guidance in the case of 
any other applicable facility.
    (6) Benefits sharing statement--(i) In general. The facility owner 
must prepare a Benefits sharing statement to submit at placed in 
service reporting, which must include:
    (A) A calculation of the facility's gross financial value using the 
method described paragraph (e)(4) of this section;
    (B) A calculation of the facility's net financial value using the 
method described in paragraph (e)(5) of this section;
    (C) A calculation of the financial value required to be distributed 
to building occupants using the method described in paragraph (e)(3) of 
this section;
    (D) A description of the means through which the required financial 
value will be distributed to building occupants; and
    (E) If the facility and Qualified Residential Property are 
separately owned, specify which entity will be responsible for the 
distribution of benefits to the occupants.
    (ii) Notification requirement. The Qualified Residential Property 
owner must formally notify the occupants of units in the Qualified 
Residential Property of the development of the facility and planned 
distribution of benefits.
    (f) Financial benefits for a Category 4 facility--(1) In general. 
The requirements of each of paragraph (f)(1)(i) through (iii) of this 
section must be met to satisfy the requirements of a Category 4 
facility as provided in paragraph (b)(2)(iv) of this section.
    (i) The facility must serve multiple qualifying low-income 
households under section 48E(h)(2)(C)(i) or (ii) (Qualifying 
Household).
    (ii) At least 50 percent of the total financial benefits of the 
electricity produced by the applicable facility must be assigned to 
Qualifying Households. Total financial benefits is calculated as the 
sum of all value from electricity production as measured by the 
utility, independent system operator, or other off-taker procuring 
electricity, and any additional value (including, for example, any 
electricity services, products, and credits or certificates such as 
RECs provided in connection with the electricity produced by such 
facility, but excluding any Federal tax credits), from the facility.
    (iii) Each Qualifying Household must be provided a bill credit 
discount rate (as defined in paragraph (f)(2) of this section) of at 
least 20 percent.
    (2) Bill credit discount rate--(i) With cost to participate. A bill 
credit discount rate is the difference between the amount of the total 
financial benefits provided to a Qualifying Household (including 
utility bill credits, reductions in a Qualifying Household's 
electricity rate, or other monetary benefits accrued by the Qualifying 
Household on their utility bill) and the cost by a Qualifying Household 
for participating in the program (including, but not limited to 
subscription payments for zero carbon and any other fees or charges, 
such as consolidated billing fees), expressed as a percentage of the 
amount of the total financial benefits provided to a Qualifying 
Household. The bill credit discount rate must be calculated by starting 
with the amount of the total financial benefits provided to a 
Qualifying Household, subtracting all payments made by a Qualifying 
Household (or payments remitted on behalf of the Qualifying Household 
through net crediting, consolidated billing, or similar arrangements) 
to the facility owner and any related third parties as a condition of 
receiving that financial benefit to determine the net financial benefit 
(cost savings) to a Qualified Household, then dividing that difference 
by the amount of the total financial benefit provided to the Qualifying 
Household.
    (ii) No or nominal cost of participation. In cases in which the 
Qualifying Household has no or only a nominal cost of participation, 
and financial benefits are delivered through a utility or government 
body, the bill credit discount rate must be calculated as the net 
financial benefits (cost savings) provided to a Qualifying Household 
(including utility bill credits, reductions in a Qualifying Household's 
electricity rate, or other monetary benefits accrued by a Qualifying 
Household on their utility bill) divided by the amount of the total 
financial benefit assigned to a Qualifying Household.
    (iii) Calculation on annual basis. In all instances, the bill 
credit discount rate is calculated on an annual basis.
    (iv) Examples. The provisions of this paragraph (f)(2) may be 
illustrated by the following examples:
    (A) Example 1. A Qualifying Household signs a community solar 
subscription agreement with the facility owner. Each month, the 
facility owner will assign a portion of the electricity generated (or 
its value) by the facility to the household's utility bill, and the 
household will pay the facility owner. The amount the household pays 
the facility owner cannot exceed 80 percent of the monetary value of 
the assigned generation. The remaining 20 percent is a cost savings to 
the household on electricity. In this example, over the course of the 
first year the facility owner or their agent cause $180 in utility bill 
credits to be placed on the Qualifying Household's bill, and the 
Qualifying Household pays $144, inclusive of any upfront fees. The 
subsequent year, due to variation in solar generation and/or the 
compensation paid by the utility for solar generation, the facility 
owner, in accordance with the community solar subscription agreement, 
causes $240 in bill credits to be provided to the Qualifying 
Household's bill and the household pays $192. In each year of facility 
operation described within this example, a bill credit discount rate of 
20 percent is maintained (($180-$144)/$180 = 20%) and (($240-$192)/$240 
= 20%), respectively.
    (B) Example 2. Due to the regulatory structure of the applicable 
jurisdiction or program, the terms of the community solar subscription, 
the use of a net-crediting mechanism, or other reason, the Qualifying 
Household does not make a direct payment to the facility owner, but 
rather payment is remitted on their behalf by the utility. In this 
example, over the course of the first year the facility owner or their 
agent cause $200 in utility bill credits to be placed on the Qualifying 
Household's bill, and the Qualifying Household's utility remits $160 to 
the facility owner, inclusive of any upfront fees. The subsequent year, 
due to variation in solar generation and/or the compensation paid by 
the utility for solar generation, the facility owner, in accordance 
with the community solar subscription agreement, causes $240 in bill 
credits to be provided to the Qualifying Household's bill and the 
utility remits $192 to the facility owner. In each year of facility 
operation described within this example, a bill credit discount rate of 
20 percent is maintained (($200-$160)/$200 = 20%) and (($240-$192)/$240 
= 20%), respectively.
    (C) Example 3. Assume the facility is part of a program by which 
the financial benefits are delivered to 100 Qualifying Households 
through a utility or government body, and each Qualifying Household 
pays no cost to participate. Assume that the financial value of the 
electricity produced by the facility's total output is $120,000 in the 
first year and $160,000 in the second year.

[[Page 2866]]

Assume that 50% of the facility's financial value of the electricity is 
assigned to Qualifying Households and is therefore calculated as 
$60,000 in the first year ($120,000 x 50% = $60,000) and $80,000 in the 
second year ($160,000 x 50% = $80,000). Assume further that each 
Qualifying Household is assigned the same total financial benefit ($600 
in the first year and $800 in the second year). If the bill credit 
discount rate for each Qualifying Household is 20 percent in each year, 
the net financial benefits (or cost savings) provided to each 
Qualifying Household is $120 in the first year ($120/$600 = 20%) and 
$160 in the second year ($160/$800 = 20%).
    (3) Demonstration of financial benefits statement. The facility 
owner must prepare a Demonstration of Financial Benefits Statement, 
which must include:
    (i) A calculation of the total financial benefits of annual 
electricity production, as described in paragraph (f)(1)(ii) of this 
section;
    (ii) The percent of the total financial benefits provided and/or 
assigned to Qualifying Households;
    (iii) The bill credit discount rate method used (with cost to 
participate or no or nominal cost of participation);
    (iv) A calculation of the bill credit discount rate;
    (v) A description of the means of distributing the required 
benefits to Qualifying Households; and
    (vi) Documentation that the facility is enrolled in the applicable 
utility tariff, program, or other arrangement used to distribute 
financial benefits to Qualifying Households.
    (4) Low-income verification and recordkeeping--(i) In general. 
Taxpayers must verify that a household meets the income limits under 
section 48E(h)(2)(C)(i) or (ii), whichever is applicable to the 
household based on the household's location, for the household to be a 
Qualifying Household under paragraph (f)(1)(i) of this section. A 
household's low-income status is determined at the time the household 
enrolls in the subscription program and does not need to be re-
verified. The qualifying income level for a Qualifying Household is 
based on where such household is located. Taxpayers must additionally 
maintain records of the verification for each household that prove the 
taxpayer has provided requisite percentage of financial benefits to 
Qualifying Households.
    (ii) Methods of verification. Applicants may use categorical 
eligibility verification or direct income verification methods, but not 
an impermissible verification method described in paragraph 
(f)(4)(ii)(C) of this section, to establish that a household is a 
Qualifying Household.
    (A) Categorical eligibility. Categorical eligibility consists of 
obtaining proof of the household's participation in a needs-based 
Federal, State, Tribal, or utility program with income limits at or 
below the qualifying income level required to be a Qualifying 
Household. An individual in the household must currently be approved 
for assistance from or participation in a program with an award letter 
or other written documentation within the last 12 months for enrollment 
in that program to establish categorical eligibility of the household.
    (B) Direct income verification methods. Documentation like 
paystubs, Federal or State tax returns, or income verification through 
crediting agencies and commercial data sources can be used to establish 
that a household is a Qualifying Household.
    (C) Impermissible verification method. A self-attestation from a 
member or members of a household is not a permissible method to 
establish a household is a Qualifying Household. This prohibition on 
direct self-attestation from a household, for purposes of this Program, 
does not extend to categorical eligibility verification where the 
eligible needs-based Federal, State, Tribal, or utility programs with 
income limits rely on self-attestation for verification of income, and 
the taxpayer has obtained proof of a member or members of a household's 
participation in such a program.
    (g) Annual Capacity Limitation--(1) In general. Under section 
48E(h)(4)(C), the total annual Capacity Limitation is 1.8 gigawatts of 
DC capacity (Annual Capacity Limitation) for each calendar year of the 
Program. The Annual Capacity Limitation for each Program year is 
divided across the four facility categories described in section 
48E(h)(2)(A)(iii) and paragraph (b)(2) of this section based on factors 
such as the anticipated number of applications that are expected for 
each category and the amount of Capacity Limitation that needs to be 
reserved for each category to encourage market participation in each 
category. The initial distribution of the Annual Capacity Limitation 
for each Program year is:

               Table 1 to Paragraph (g)(1) of This Section
------------------------------------------------------------------------
                  Category                     Capacity limitation (DC)
------------------------------------------------------------------------
1: Located in a Low-Income Community.......  600 MW.
2: Located on Indian Land..................  200 MW.
3: Qualified Low-Income Residential          200 MW.
 Building Project.
4: Qualified Low-Income Economic Benefit     800 MW.
 Project.
------------------------------------------------------------------------

    (2) Sub-reservations. The reservation of Capacity Limitation for 
Category 1 is further divided into Category 1 sub-reservations, which 
are described in paragraph (i) of this section. The category 1 sub-
reservation distribution of Capacity Limitation is:

               Table 2 to Paragraph (g)(2) of This Section
------------------------------------------------------------------------
    Eligible Residential BTM facilities                400 MW.
------------------------------------------------------------------------
Eligible FTM facilities and non-residential  200 MW.
 BTM facilities.
------------------------------------------------------------------------

    (3) Redistribution within Program year. At the close of the 
application period for a Program year, if some categories or sub-
reservations are undersubscribed, while others are oversubscribed, 
capacity will be redistributed within the Program year for allocation 
to applicants in another Category or sub-reservation. A category or 
sub-reservation is undersubscribed if the amount of capacity applied 
for in all eligible applications within a reservation is less than the 
amount of the Capacity Limitation portion distributed to that 
reservation. A category or sub-reservation is oversubscribed if the 
amount of capacity applied for in all eligible applications within a 
particular reservation is in excess of the Capacity Limitation portion 
distributed to that reservation. Capacity Limitation will be 
redistributed within a Program year in the following manner:
    (i) Capacity will first be redistributed within a category from the 
undersubscribed reservation to the oversubscribed reservation. For 
example, if the Additional Selection Criteria reservation is 
undersubscribed while the non-Additional Selection Criteria reservation 
is oversubscribed, the remaining capacity reservation for the 
Additional Selection Criteria will be redistributed to and increase the 
non-Additional Selection Criteria reservation or sub-reservation in the 
same category.
    (ii) If there is remaining capacity in a category after 
redistribution under paragraph (g)(3)(i) of this section, or, in 
general, if a category is, as a whole,

[[Page 2867]]

undersubscribed such that paragraph (g)(3)(i) of this section does not 
apply to that category, then, any remaining capacity in any category 
will be redistributed to and increase the reservation for Category 1 
residential BTM facilities, but only if Category 1 residential BTM is 
oversubscribed. If both the Additional Selection Criteria and non-
Additional Section Criteria reservations are oversubscribed for 
Category 1 residential BTM, then consistent with paragraph (h)(1) of 
this section, the redistributed capacity limitation will first increase 
the reservation for Additional Selection Criteria applications, and 
then if any capacity is remaining it will be added to the reservation 
for non-Additional Selection Criteria applications.
    (iii) If there is remaining capacity after redistribution under 
paragraphs (g)(3)(i) and (ii) of this section, or if redistribution 
under paragraph (g)(3)(ii) of this section is inapplicable due to 
undersubscription in Category 1 residential BTM, then the remaining 
capacity will be redistributed to and increase the reservation for 
Category 4. If both the Additional Selection Criteria and the non-
Additional Selection Criteria reservations under Category 4 are 
oversubscribed, then consistent with paragraph (j)(4)(ii) of this 
section, the redistributed capacity limitation will first increase the 
reservation for Additional Selection Criteria applications, and then if 
any capacity is remaining it will be added to the reservation for non-
Additional Selection Criteria applications.
    (iv) If there is remaining capacity after redistribution under 
paragraphs (g)(3)(i) through (iii) of this section, or if 
redistribution under paragraph (g)(3)(iii) of this section is 
inapplicable due to undersubscription in Category 1 residential BTM and 
Category 4, then the remaining capacity will be redistributed to and 
increase the reservation for Category 3. If both the Additional 
Selection Criteria and the non-Additional Selection Criteria 
reservations under Category 3 are oversubscribed, then consistent with 
paragraph (j)(4)(ii) of this section, the redistributed capacity 
limitation will first increase the reservation for Additional Selection 
Criteria applications, and then if any capacity is remaining it will be 
added to the reservation for non-Additional Selection Criteria 
applications.
    (v) If there is remaining capacity after redistribution under 
paragraphs (g)(3)(i) through (iv) of this section, or if redistribution 
under paragraph (g)(3)(iv) of this section is inapplicable due to 
undersubscription in Category 1 residential BTM, Category 4, and 
Category 3 then the remaining capacity will be redistributed to and 
increase the reservation for Category 2. If both the Additional 
Selection Criteria and the non-Additional Selection Criteria 
reservations under Category 2 are oversubscribed, then consistent with 
paragraph (j)(4)(ii) of this section, the redistributed capacity 
limitation will first increase the reservation for Additional Selection 
Criteria applications, and then if any capacity is remaining it will be 
added to the reservation for non-Additional Selection Criteria 
applications.
    (vi) If there is remaining capacity after redistribution under 
paragraphs (g)(3)(i) through (v) of this section, or if redistribution 
under paragraph (g)(3)(iv) of this section is inapplicable due to 
undersubscription in Category 1 residential BTM, Category 4, Category 
3, and Category 2, then the remaining capacity will be redistributed to 
and increase the reservation for Category 1 Eligible FTM facilities and 
non-residential BTM facilities. If both the Additional Selection 
Criteria and the non-Additional Selection Criteria reservations under 
Category 1 Eligible FTM facilities and non-residential BTM facilities 
are oversubscribed, then consistent with paragraph (j)(4)(ii) of this 
section, the redistributed capacity limitation will first increase the 
reservation for Additional Selection Criteria applications, and then if 
any capacity is remaining it will be added to the reservation for non-
Additional Selection Criteria applications.
    (vii) If after redistribution under paragraphs (g)(3)(i) through 
(vi) of this section, there is remaining Capacity Limitation at the 
close of a Program year, the unallocated amount of Capacity Limitation 
will be carried forward to the succeeding year as described in 
paragraph (g)(4) of this section.
    (4) Carryover of unallocated Annual Capacity Limitation. If the 
Annual Capacity Limitation, as described in paragraph (g)(1) of this 
section, for any calendar year exceeds the aggregate amount of Annual 
Capacity Limitation allocated for a given calendar year, the Annual 
Capacity Limitation for the succeeding calendar year will be increased 
by the amount of such excess or remainder from previous Program Year. 
No amount of Capacity Limitation may be carried to any calendar year 
after the third calendar year following the applicable year (as defined 
in section 45Y(d)(3) of the Code). Any unallocated Capacity Limitation 
carried over from the preceding year will be equally distributed across 
Category 1, 2, 3, and 4. Within Category 1, the portion distributed 
from the carried over Capacity Limitation will be equally distributed 
across Category 1 sub-reservations and further across the reservation 
for Additional Selection Criteria within those sub-reservations. The 
portion of the carried over Capacity Limitation distributed to each of 
Category 2, 3, and 4 will be equally distributed within each category 
to the Additional Selection Criteria reservation and the non-Additional 
Selection Criteria reservation.
    (5) Allocations to applicable facilities with nameplate capacity in 
alternating current. For applicable facilities which have a nameplate 
capacity in AC, and which are awarded an allocation, such an applicable 
facility will be awarded an amount of Capacity Limitation in direct 
current that is equal to the applicable facility's reported nameplate 
capacity in alternating current.
    (h) Reservations of Capacity Limitation allocation for facilities 
that meet certain Additional Selection Criteria--(1) In general. 50 
percent of the total Capacity Limitation in each facility category 
described in paragraph (b) of this section and Category 1 sub-
reservation (described in paragraph (i) of this section) will be 
reserved at the beginning of an application period for applicable 
facilities meeting the Additional Selection Criteria described in 
paragraph (h)(2) of this section (relating to ownership criteria) and 
paragraph (h)(3) of this section (relating to geographic criteria). The 
reservation of Capacity Limitation for applicable facilities meeting 
the Additional Selection Criteria may be redistributed across facility 
categories and sub-reservations as described in paragraph (g)(3) of 
this section. If after the initial 30-day period an Additional 
Selection Criteria reservation for a category or Category 1 sub-
reservation is undersubscribed, such Additional Selection Criteria 
reservation of 50 percent is maintained. The procedures for applying 
under these Additional Selection Criteria are provided in guidance 
published in the Internal Revenue Bulletin.
    (2) Ownership criteria--(i) In general. The ownership criteria are 
based on characteristics of the applicant that owns the applicable 
facility. An applicable facility will meet the ownership criteria if it 
is owned by one of the following:
    (A) A Tribal enterprise (as defined in paragraph (h)(2)(iii) of 
this section);
    (B) An Alaska Native Corporation (as defined in paragraph 
(h)(2)(iv) of this section);

[[Page 2868]]

    (C) A Native Hawaiian Organization (as defined in paragraph 
(h)(2)(v) of this section);
    (D) A renewable energy cooperative (as defined in paragraph 
(h)(2)(vi) of this section); or
    (E) A qualified tax-exempt entity (as defined in paragraph 
(h)(2)(vii) of this section).
    (F) A qualified renewable energy company (as defined in paragraph 
(h)(2)(viii) of this section).
    (ii) Indirect ownership--(A) Disregarded entities. If an applicant 
wholly owns a disregarded entity that is the owner of an applicable 
facility, then the applicant, and not the disregarded entity, is 
treated as the owner of the applicable facility for purposes of the 
ownership criteria. For entities wholly owned and chartered under 
Tribal law and corporations incorporated under the authority of either 
section 17 of the Indian Reorganization Act of 1934, 25 U.S.C. 5124, or 
section 3 of the Oklahoma Indian Welfare Act, 25 U.S.C. 5203, an 
application may be made as a Tribal Enterprise. Disregarded entities 
are not eligible for an award and may not submit an application.
    (B) Partner qualifying partnership under ownership criteria. Except 
as described in paragraph (h)(2)(ii)(C) of this section, if an 
applicant is an entity classified as a partnership for Federal income 
tax purposes, and an entity described in paragraphs (h)(2)(i)(A) 
through (E) of this section owns at least a one percent interest 
(either directly or indirectly) in each material item of partnership 
income, gain, loss, deduction, and credit of the partnership and is 
also a managing member or general partner (or similar title) under 
State or Tribal law of the partnership (or directly owns 100 percent of 
the equity interests in the managing member or general partner) at all 
times during the existence of the partnership, the applicable facility 
will be deemed to meet the ownership criteria. If the partnership 
described in the preceding sentence becomes the owner of the facility 
after an allocation is made to an entity described in paragraphs 
(h)(2)(i)(A) through (E) of this section, then the transfer of the 
facility to the partnership is not a disqualification event for 
purposes of paragraph (m)(5) of this section, so long as the 
requirements of paragraph (m)(5) of this section are satisfied. Nothing 
in this paragraph (h)(2)(ii)(B) applies to an applicant described in 
paragraph (h)(2)(i)(F) of this section.
    (C) Partner qualifying partnership involving low-income housing 
credit under ownership criteria. If an applicant is an entity 
classified as a partnership for Federal income tax purposes and is the 
owner of an applicable facility connected to a residential building to 
which credits under section 42 of the Code are reasonably anticipated 
or have been determined and has a partner for Federal income tax 
purposes that is an entity described in paragraphs (h)(2)(i)(A) through 
(E) of this section, the applicable facility will be deemed to meet the 
ownership criteria. If the partnership becomes the owner of the 
facility after an allocation is made to an entity described in 
paragraph (h)(2)(i)(E) of this section, and complete ownership is 
transferred to a partnership that owns a qualified low-income building 
within the meaning of section 42(c)(2) (including, through a 
disregarded entity owned by the partnership), then the transfer of the 
facility to the partnership is not a disqualification event for 
purposes of paragraph (m)(5) of this section or subject to recapture 
for purposes of paragraph (n) of this section, so long as the 
requirements of paragraph (m)(5) of this section are satisfied.
    (iii) Tribal enterprise. A Tribal enterprise for purposes of the 
ownership criteria is an entity that is:
    (A) Owned at least 51 percent directly by an Indian Tribal 
government (as defined in section 30D(g)(9) of the Code), or owned at 
least 51 percent indirectly through an entity that is wholly owned by 
the Indian Tribal government and is created under either the Tribal 
laws of the Indian Tribal government or through a corporation 
incorporated under the authority of either section 17 of the Indian 
Reorganization Act of 1934, 25 U.S.C. 5124, or section 3 of the 
Oklahoma Indian Welfare Act, 25 U.S.C. 5203; and
    (B) Subject to Tribal government rules, regulations, and/or codes 
that regulate the operations of the entity.
    (iv) Alaska Native Corporation. An Alaska Native Corporation for 
purposes of the ownership criteria is defined in section 3 of the 
Alaska Native Claims Settlement Act, 43 U.S.C. 1602(m).
    (v) Native Hawaiian Organization. A Native Hawaiian Organization 
for purposes of the ownership criteria is defined in 13 CFR 124.3.
    (vi) Renewable energy cooperative. A renewable energy cooperative 
for purposes of the ownership criteria is an entity that develops 
applicable facilities and is either:
    (A) A consumer or purchasing cooperative controlled by its members 
with each member having an equal voting right and with each member 
having rights to profit distributions based on patronage as defined by 
proportion of volume of electricity or energy credits purchased (kWh), 
volume of financial benefits delivered (in United States dollars), or 
volume of financial payments made (in United States dollars); and in 
which at least 50 percent of the patronage in the qualified facility is 
by cooperative members who are low-income households (as defined in 
section 48E(h)(2)(C)); or
    (B) A worker cooperative controlled by its worker-members with each 
member having an equal voting right.
    (vii) Qualified tax-exempt entity. A qualified tax-exempt entity 
for purposes of the ownership criteria is:
    (A) An organization exempt from the tax imposed by subtitle A of 
the Code by reason of being described in section 501(c)(3) or (d) of 
the Code;
    (B) Any State, the District of Columbia, or political subdivision 
thereof, or any agency or instrumentality of any of the foregoing;
    (C) An Indian Tribal government (as defined in section 30D(g)(9)), 
a political subdivision thereof, or any agency or instrumentality of 
any of the foregoing; or
    (D) Any corporation described in section 501(c)(12) operating on a 
cooperative basis that is engaged in furnishing electric energy to 
persons in rural areas.
    (viii) Qualified renewable energy company. A qualified renewable 
energy company (QREC) for purposes of the ownership criteria is an 
entity that serves low-income communities and provides pathways for the 
adoption of clean energy by low-income households. To be a QREC, an 
entity must meet all of the requirements in paragraphs (h)(2)(vii)(A) 
through (D) of this section.
    (A) The entity's business purpose must be to serve low-income 
households or low-income communities, and this purpose must be stated 
in governing documents and dated at least two years prior to 
application submission;
    (B) At least 51 percent of the entity's equity interests must be 
owned and controlled by one or more individuals;
    (C) The entity must have first installed, operated, or provided 
services as a contractor or subcontractor to an applicable facility two 
or more years prior to the date of application; and
    (D) The entity must have at least one but less than 10 full-time 
equivalent employees (as determined under section 4980H(c)(2)(E) and 
(c)(4) of the Code) and less than $20 million in annual gross receipts 
in the previous two calendar years. The number of full-time equivalent 
employees and amount in annual gross receipts must include the full-
time equivalent employees and

[[Page 2869]]

annual gross receipts of all affiliated entities. An entity is 
considered to be an affiliated entity if--
    (1) 25 percent or more of an entity's board seats, voting rights, 
or equity interests, are cumulatively held by another entity and 
related entities (as described in described in section 267(b) or 
section 707(b)(1) of the Code); or
    (2) One or more of an entities' officers, directors, managing 
members or partners with authority over the board of directors or 
management and operations also have authority over the board of 
directors or management and operations of another entity.
    (3) Geographic criteria--(i) In general. Geographic criteria do not 
apply to Category 2 facilities. To meet the geographic criteria, a 
facility must be located in a county or census tract that is described 
in paragraph (h)(3)(ii) or (iii) of this section. Applicants who meet 
the geographic criteria at the time of application are considered to 
continue to meet the geographic criteria for the duration of the 
recapture period unless the location of the facility changes.
    (ii) Persistent Poverty County. A Persistent Poverty County (PPC), 
which is, generally, described as any county where 20 percent or more 
of residents have experienced high rates of poverty over the past 30 
years. For purposes of the Program and this section, the PPC measure 
adopted by the USDA is used to make this determination. If updated data 
is released by USDA, a taxpayer will have a 1-year period following the 
date of the release of the updated data to be eligible under the 
previous data. After the 1-year transition period, the updated data 
must be used to determine eligibility.
    (iii) Certain census tracts under Climate and Economic Justice 
Screening Tool. A census tract that is described in the latest official 
Climate and Economic Justice Screening Tool (CEJST), as greater than or 
equal to the 90th percentile for energy burden and greater than or 
equal to the 65th percentile for low income, or as greater than or 
equal to the 90th percentile for PM2.5 exposure and greater 
than or equal to the 65th percentile for low income.
    (A) Energy burden. Energy burden is defined as average household 
annual energy cost in dollars divided by the average household income.
    (B) PM2.5. PM2.5 is defined as fine inhalable 
particles with 2.5 or smaller micrometer diameters. The percentile is 
the weight of the particles per cubic meter.
    (C) Low-income. Low income, for purposes of this section, is 
defined as the percent of a census tract's population in households for 
which household income is at or below 200 percent of the Federal 
poverty level, not including students enrolled in higher education.
    (i) Sub-reservations of allocation for Category 1 facilities--(1) 
In general. Capacity Limitation reserved for Category 1 facilities will 
be subdivided each Program year for facilities seeking a Category 1 
allocation with Capacity Limitation reserved specifically for eligible 
residential behind the meter (BTM) facilities, including rooftop solar. 
The remaining Capacity Limitation is available for applicants with 
front of the meter (FTM) facilities as well as non-residential BTM 
facilities. The specific sub-reservation for eligible residential BTM 
facilities in Category 1 is provided in guidance published in the 
Internal Revenue Bulletin and is established based on factors such as 
promoting efficient allocation of Capacity Limitation and allowing 
like-projects to compete for an allocation. After the sub-reservation 
is established in guidance published in the Internal Revenue Bulletin, 
the sub-reservation may be reallocated later in the event it has excess 
capacity.
    (2) Definitions--(i) Behind the meter (BTM) facility. For purposes 
of the Program and this section, an applicable facility is BTM if:
    (A) It is connected with an electrical connection between the 
facility and the panelboard or sub-panelboard of the site where the 
facility is located;
    (B) It is to be connected on the customer side of a utility service 
meter before it connects to a distribution or transmission system (that 
is, before it connects to the electricity grid); and
    (C) Its primary purpose is to provide electricity to the utility 
customer of the site where the facility is located. This also includes 
systems not connected to a grid and that may not have a utility service 
meter, and whose primary purpose is to serve the electricity demand of 
the owner of the site where the system is located.
    (ii) Eligible residential BTM facility. For purposes of paragraph 
(i)(1) of this section, an eligible residential BTM facility is defined 
as a single-family or multi-family residential applicable facility that 
does not meet the requirements for a Category 3 facility and is BTM. An 
applicable facility is residential if it uses energy to generate 
electricity for use in a dwelling unit that is used as a residence.
    (iii) FTM facility. For purposes of the Program and this section, 
an applicable facility is FTM if it is directly connected to a grid and 
its primary purpose is to provide electricity to one or more offsite 
locations via such grid or utility meters with which it does not have 
an electrical connection; alternatively, a FTM facility is defined as a 
facility that is not a BTM facility. For the purpose of Category 4 
facilities, an applicable facility is also FTM if 50 percent or more of 
its electricity generation on an annual basis is exported physically to 
the broader electricity grid.
    (j) Process of application evaluation--(1) In general. Applications 
for a Capacity Limitation allocation will be evaluated according to the 
procedures specified in guidance published in the Internal Revenue 
Bulletin.
    (2) Information required as part of application. With each 
application for a Capacity Limitation allocation, applicants are 
required to submit information, documentation, and attestations to 
demonstrate eligibility for an allocation and project viability as 
specified in guidance published in the Internal Revenue Bulletin.
    (3) No administrative appeal of Capacity Limitation allocation 
decisions. An applicant may not administratively appeal decisions 
regarding Capacity Limitation allocations.
    (4) Application period--(i) Opening and closing dates. For calendar 
year 2026 and each succeeding calendar year of the Program, the 
application period will open the first Monday of February at 9 a.m. EST 
and close the first Friday of August at 11:59 p.m. EST. The application 
period for calendar year 2025 will be announced in guidance published 
in the Internal Revenue Bulletin.
    (ii) Initial 30-day period. For each year, there will be an initial 
30-day period during which all applications submitted will be 
considered to be submitted at the same time and date. The initial 30-
day period will begin on the opening day of the application period 
described in paragraph (j)(4)(i) of this section, and end at 11:59 p.m. 
EST on the 30th calendar day after the opening day of the application 
period. The opening day is included in calculating the 30-day period. 
All applications submitted within the 30-day period will be ordered for 
review and consideration of an allocation of Capacity Limitation within 
the same category based on a process described in procedural guidance 
published in the Internal Revenue Bulletin. If during the initial 30-
day period, an Additional Selection Criteria reservation for a category 
or Category 1 sub-reservation is oversubscribed with Additional 
Selection Criteria applications, Capacity Limitation from the 
applicable category or sub-reservation may be reallocated to

[[Page 2870]]

prioritize review and consideration of Additional Selection Criteria 
applications. Additional Selection Criteria applications received 
during the initial 30-day period receive priority over other 
applications received during the initial 30-day period.
    (iii) Applications submitted after the initial 30-day period--(A) 
In general. Applications submitted after the close of the initial 30-
day period will be held for review and consideration of an allocation 
of Capacity Limitation after the applications in the same category or 
Category 1 sub-reservation which were submitted during the initial 30-
day period. Review of such applications will occur only if sufficient 
Capacity Limitation remains to be allocated in a given category or 
Category 1 sub-reservation, and in conjunction with the redistribution 
provisions described under paragraph (g)(2) of this section. Provided 
sufficient Capacity Limitation remains in a given category or Category 
1 sub-reservation, these applications submitted after the initial 30-
day period will be reviewed and considered for an allocation in the 
order in which they are received.
    (B) Additional Selection Criteria Applications submitted after the 
initial 30-day period. If the Additional Selection Criteria reservation 
for a category or Category 1 sub-reservation is undersubscribed after 
the initial 30-day period ends, then the Additional Selection Criteria 
reservation of 50 percent is maintained. Additional Selection Criteria 
applications submitted after the initial 30-day period will be 
prioritized for review and consideration of an allocation of Capacity 
Limitation from the Additional Selection Criteria reservation in the 
applicable category or Category 1 sub-reservation until such Additional 
Selection Criteria reservation is allocated or is reallocated.
    (k) Placed in service--(1) Requirement to report date placed in 
service. For any facility that receives an allocation of Capacity 
Limitation, the owner of the facility must report the date the eligible 
property was placed in service.
    (2) Requirement to submit final eligibility information at placed 
in service time. At the time that the owner reports that eligible 
property has been placed in service, the owner also must confirm 
information about the facility and submit additional documentation to 
demonstrate the facility is still eligible to maintain the allocation 
and claim the increased applicable percentage under section 48E(h)(1) 
as specified in guidance published in the Internal Revenue Bulletin.
    (3) Confirmation. The placed in service documentation and 
attestations demonstrating that the facility meets the eligibility 
criteria for the owner to claim an increased applicable percentage will 
be reviewed. A recommendation will then be considered by the IRS 
regarding whether the facility continues to meet the eligibility 
requirements for the facility to retain its allocation or if the 
facility should be disqualified (as provided in paragraph (m) of this 
section). Based on this recommendation and underlying facts and 
circumstances analysis, the IRS will decide whether the facility should 
retain its allocation or if the facility should be disqualified. 
Eligibility is determined, prior to the owner (or a partner or 
shareholder in the case of a partnership or S corporation) claiming the 
increased credit amount on Form 3468, Investment Credit (or Form 3800, 
General Business Credit), or successor form, or, if eligible, making a 
transfer election under section 6418 of the Code, or an elective 
payment election under section 6417 of the Code.
    (4) Definition of placed in service. For purposes of this section, 
eligible property is considered placed in service in the earlier of the 
following taxable years:
    (i) The taxable year in which, under the taxpayer's depreciation 
practice, the period for depreciation with respect to such eligible 
property begins; or
    (ii) The taxable year in which the eligible property is placed in a 
condition or state of readiness and availability for a specifically 
assigned function, whether in a trade or business or in the production 
of income.
    (l) Facilities placed in service prior to an allocation award--(1) 
In general. Applicable facilities must be placed in service after being 
awarded an allocation of Capacity Limitation.
    (2) Rejection or rescission. An application for an applicable 
facility that is placed in service prior to submission of the 
application will be rejected. If a facility is placed in service after 
the application is submitted, but prior to the allocation of Capacity 
Limitation, and the facility is awarded an allocation, the allocation 
will be rescinded.
    (m) Disqualification. A facility will be disqualified and lose its 
allocation if prior to or upon the facility being placed in service an 
occurrence described in one of paragraphs (m)(1) through (5) of this 
section takes place.
    (1) The location where the facility will be placed in service 
materially changes or is in a different census tract.
    (2) The maximum net output of the facility increases such that it 
exceeds the less than five megawatts AC requirement provided in section 
48E(h)(2)(A)(ii) or the nameplate capacity decreases by the greater of 
2 kW or 25 percent of the Capacity Limitation awarded in the 
allocation. However, the amount of bonus credit capacity allocated will 
not be exceeded from the original allocation amount.
    (3) The facility either cannot or did not satisfy the financial 
benefits requirements under section 48E(h)(2)(B)(ii) and paragraph (e) 
of this section as planned, if applicable, or cannot satisfy the 
financial benefits requirements under section 48E(h)(2)(C) or paragraph 
(f) of this section as planned, if applicable.
    (4) The eligible property that is part of the facility that 
received the Capacity Limitation allocation is not placed in service 
within four years after the date the applicant was notified of the 
allocation of Capacity Limitation to the facility.
    (5) The facility received a Capacity Limitation allocation based, 
in part, on meeting the ownership criteria and ownership of the 
facility changes prior to the facility being placed in service, unless 
the original applicant transfers the facility to an entity classified 
as a partnership for Federal income tax purposes and retains at least a 
one percent interest (either directly or indirectly) in each material 
item of partnership income, gain, loss, deduction, and credit of such 
partnership and is a managing member or general partner (or similar 
title) under State or Tribal law of the partnership (or directly owns 
100 percent of the equity interests in the managing member or general 
partner) at all times during the existence of the partnership.
    (n) Recapture of section 48E(h) Increase to the section 48E(a) 
credit--(1) In general. Section 48E(h)(5) provides for recapturing the 
benefit of any increase in the credit allowed under section 48E(a) by 
reason of section 48E(h) with respect to any property that ceases to be 
property eligible for such increase (but that does not cease to be 
investment credit property within the meaning of section 50(a) of the 
Code). Section 48E(h) provides that the period and percentage of such 
recapture must be determined under rules similar to the rules of 
section 50(a). Therefore, if, at any time during the five year 
recapture period beginning on the date that an applicable facility 
under section 48E(h) is placed in service, there is a recapture event 
under paragraph (n)(3) of this section with respect to such property, 
then the Federal income tax imposed on the taxpayer by chapter 1 of the 
Code for the taxable year in which the recapture

[[Page 2871]]

event occurs is increased by the recapture percentage of the benefit of 
the increase in the section 48E credit. The recapture percentage is 
determined according to the table provided in section 50(a)(1)(B).
    (2) Exception to application of recapture. Such recapture may not 
apply with respect to any property if, within 12 months after the date 
the applicant becomes aware (or reasonably should have become aware) of 
such property ceasing to be property eligible for such increase in the 
credit allowed under section 48E(a), the eligibility of such property 
for such increase pursuant to section 48E(h) is restored. Such 
restoration of an increase pursuant to section 48E(h) is not available 
more than once with respect to any facility.
    (3) Recapture events. Any of the following circumstances result in 
a recapture event if the property ceases to be eligible for the 
increased credit under section 48E(h):
    (i) Property described in section 48E(h)(2)(A)(iii)(II) fails to 
provide financial benefits;
    (ii) Property described under section 48E(h)(2)(B) ceases to 
allocate the financial benefits equitably among the occupants of the 
dwelling units as described under section 48E(h)(2)(B)(ii), such as not 
allocating to residents the required net electricity savings of the 
electricity, as required by paragraph (e) of this section;
    (iii) Property described under section 48E(h)(2)(C) ceases to 
provide at least 50 percent of the financial benefits of the 
electricity produced to Qualifying Households as described under 
section 48E(h)(2)(C)(i) or (ii), or fails to provide those households 
the required minimum 20 percent bill credit discount rate, as required 
by paragraph (f) of this section;
    (iv) For property described under section 48E(h)(2)(B), the 
residential rental building the facility is a part of ceases to 
participate in a covered housing program or any other affordable 
housing program described in section 48E(h)(2)(B)(i), as applicable; or
    (v) A facility increases its maximum net output or nameplate 
capacity such that the facility's maximum net output or nameplate 
capacity is 5 MW AC or greater.
    (4) Section 50(a) recapture. Any event that results in recapture 
under section 50(a) also will result in recapture of the benefit of the 
increase in the section 48E credit by reason of section 48E(h). The 
exception to the application of recapture provided in paragraph (n)(2) 
of this section does not apply in the case of a recapture event under 
section 50(a).
    (o) Record retention. The applicant is required to retain records 
and materials related to the application for the following periods:
    (1) For at least 6 years after the due date (with extensions) for 
filing the Federal income tax return after the tax year that return is 
filed to claim the increase in the section 48E credit; and
    (2) For at least 6 years after the due date (with extensions) for 
filing the Federal income tax return for the last year that the 
applicant could be subject to recapture as described in paragraph (n) 
of this section.
    (p) Applicability date. This section applies to applicable 
facilities placed in service after December 31, 2024, and during 
taxable years ending on or after January 13, 2025.

Douglas W. O'Donnell,
Deputy Commissioner.
    Approved: December 26, 2024.

Aviva R. Aron-Dine,
Deputy Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2025-00331 Filed 1-8-25; 8:45 am]
BILLING CODE 4830-01-P`