Section 1.48(e)-1 - Low-Income Communities Bonus Credit Program(a)In general. For purposes of section 48 of the Internal Revenue Code (Code), the energy percentage used to calculate the amount of the energy investment credit determined under section 48(a) (section 48 credit) is increased under section 48(e)(1) in the case of eligible property (as defined in paragraph (c) of this section) that is part of any qualified solar or wind facility (as defined in paragraph (b) of this section) placed in service in connection with low-income communities with respect to which an allocation of the environmental justice solar and wind capacity limitation (Capacity Limitation) is made under the Low-Income Communities Bonus Credit Program (Program) established under section 48(e)(4) of the Code on February 13, 2023. See Notice 2023-17, 2023-10 I.R.B. 505. In this section, the terms applicant and taxpayer are used interchangeably as the context may require.(b)Qualified solar or wind facility defined -(1)In general. A qualified solar or wind facility means any facility that- (i) Generates electricity solely from a wind facility (described in section 45(d)(1) of the Code) for which an election to treat the facility as energy property was made under section 48(a)(5) (wind facility), solar energy property (described in section 48(a)(3)(A)(i)) (solar energy property), or small wind energy property (described in section 48(a)(3)(A)(vi)) (small wind energy property);(ii) Has a maximum net output of less than 5 megawatts (MW) (as measured in alternating current (AC)); and(iii) Is described in at least one of the four categories described in section 48(e)(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 generally defined under section 45D(e)(1) of the Code as any population census tract if the poverty rate for such tract is at least 20 percent based on the 2011-2015 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 program, a taxpayer can choose to base the poverty rate for any population census tract on either the 2011-2015 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. Populations 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 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 48(e)(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 facility is considered installed on a Qualified Residential Property even if not on the building 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)Single project treated as single facility. Multiple solar or wind facilities or energy properties that are operated as part of a single project are aggregated and treated as a single facility or energy property for purposes of determining if it is a qualified solar or wind facility under paragraph (b)(1) of this section. Any facility or energy property treated as part of a single facility under this paragraph (b)(3) will also be treated as a single facility for all other purposes under this section and all other guidance applicable to section 48(e) published in the Internal Revenue Bulletin. See§ 601.601 of this chapter. Whether multiple facilities or energy properties are operated as part of a single project will depend on the relevant facts and circumstances and a single factor may not be dispositive. Factors indicating that multiple facilities or energy properties are operated as part of a single project may include- (i) The facilities or energy properties are owned by a single legal entity;(ii) The facilities or energy properties are constructed on contiguous pieces of land;(iii) The facilities or energy properties are described in a common power purchase agreement (PPA) or more than one common power purchase agreements (PPAs);(iv) The facilities or energy properties have a common interconnection;(v) The facilities or energy properties share a common substation;(vi) The facilities or energy properties are described in one or more common environmental or other regulatory permits;(vii) The facilities or energy properties were constructed pursuant to a single master construction contract; or(viii) The facilities or construction of the energy properties was financed pursuant to the same loan agreement.(c)Eligible property -(1)In general. Eligible property is energy property that is part of a qualified solar or wind facility described in paragraph (b) of this section. Eligible property also includes energy storage technology (as described in section 48(a)(3)(A)(ix)) installed in connection with such qualifying energy property.(2)Energy storage technology installed in connection with qualified solar or wind facility. Energy storage technology is installed in connection with other eligible property if the requirements of both paragraph (c)(2)(i) of this section and paragraph (c)(2)(ii) of this section (including by reason of paragraph (c)(3) of this section) are satisfied. (i) The requirements of this paragraph (c)(2)(i) are satisfied if the energy storage technology and other eligible property are considered part of a single qualified solar or wind facility based on the energy storage technology and other eligible property being: (A) Owned by a single legal entity,(B) Located on the same or contiguous pieces of land,(C) Having a common interconnection point, and(D) Described in one or more common environmental or other regulatory permits.(ii) The requirement of this paragraph (c)(2)(ii) is satisfied if the energy storage technology is charged no less than an annual average of 50 percent by the other eligible property.(3)Safe harbor for requirement of paragraph (c)(2)(ii) of this section. For purposes of paragraph (c)(2)(ii) of this section, energy storage technology is deemed to be charged at least 50 percent by the facility if the power rating of the energy storage technology (in kW) is less than 2 times the capacity rating of the connected wind facility (in kW AC) or solar facility (in kW direct current (DC)).(d)Location - (1)In general. A qualified solar or wind facility is treated as located in a low-income community or located on Indian land under section 48(e)(2)(A)(iii)(I) if the qualified solar or wind facility satisfies the Nameplate Capacity Test of paragraph (d)(2) of this section. Similarly, a qualified solar or wind 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.(2)Nameplate Capacity Test. A qualified solar or wind facility 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 facility's nameplate capacity is in a qualifying area. The percentage of a facility's nameplate capacity (as defined in paragraph (d)(2)(i) of this section) that is in a qualifying area is determined by dividing the nameplate capacity of the facility's energy-generating units that are located in the qualifying area by the total nameplate capacity of all the energy-generating units of the facility.(i)Nameplate capacity for purpose of Nameplate Capacity Test. Nameplate capacity for an electricity generating unit means the maximum electricity generating output that the unit is capable of producing on a steady state basis and during continuous operation under standard conditions, as measured by the manufacturer and consistent with the definition provided in 40 CFR 96.202 . Where applicable, the International Standard Organization conditions are used to measure the maximum electricity generating output or usable energy capacity. For purposes of assessing the Nameplate Capacity Test, qualified solar facilities use the nameplate capacity in DC and qualified wind facilities use the nameplate capacity in AC.(ii)Exclusion of energy storage technology. The nameplate capacity of any energy storage technology installed in connection with the qualified solar or wind facility is disregarded in applying the Nameplate Capacity Test.(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. A Qualified Residential Property could either be a multifamily rental property or single-family rental property. The same rules for financial benefits for Category 3 Facilities apply to both types of Qualified Residential Property.(2)Threshold requirement. At least 50 percent of the financial value of the energy produced by the facility (as defined in paragraph (e)(3) of this section) must be equitably allocated 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 energy produced by the facility. For purposes of this paragraph (e), the financial value of the energy produced by the facility is defined as the greater of: (i) Twenty-five percent of the gross financial value (as defined in paragraph (e)(4) of this section) of the annual energy produced by the energy property, or(ii) The net financial value (as defined in paragraph (e)(5) of this section) of the annual energy produced by the energy property.(4)Gross financial value. For purposes of this paragraph (e), gross financial value of the annual energy produced by the facility is calculated as the sum of:(i) The total self-consumed kilowatt-hours produced by the qualified solar or wind facility multiplied by the applicable building's metered volumetric price of electricity,(ii) The total exported kilowatt-hours produced by the qualified solar or wind facility multiplied by the applicable building's volumetric export compensation rate for solar or wind kilowatt-hours, and(iii) The sale of any attributes associated with the facility's production (including, for example, any Federal, State, or Tribal renewable energy tax credits or incentives), 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 is defined as the gross financial value of the annual energy produced minus the annual average (or levelized) cost of the qualified solar or wind 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 PPA or other contract for energy services with the Qualified Residential Property owner and/or building occupants, net financial value is defined as the gross financial value of the annual energy produced minus any payments made by the building owner and/or building occupants to the facility owner for energy services associated with the facility in a given year.(iii)Equitable allocation of financial benefits. There are different rules to ensure an equitable allocation of financial benefits depending on whether or not financial value is distributed to building occupants via utility bill savings or through different means.(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 equitably allocated if at least 50 percent of the financial value of the energy 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 48(e)(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, exercise their right to not participate in or to opt out of a community solar subscription in applicable jurisdictions), the portion of the financial value that would otherwise be distributed to non-participating occupants must be instead distributed 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 utilize this method of benefit distribution. In the case of a solar facility, applicants must follow the Department of Housing and Urban Development (HUD) guidance on the Treatment of Community Solar Credits on Tenant Utility Bills (July 2022), located at https://www.hud.gov/sites/dfiles/Housing/documents/MF_Memo_Community_Solar_Credits_signed.pdf, Community Solar Credits in PIH Programs (August 2022), located at https://www.hud.gov/sites/dfiles/documents/Solar%20Credits_PH_HCV.pdf, or future HUD guidance, or other guidance or notices from the Federal agency that oversees the applicable housing program identified in section 48(e)(2)(B) to ensure that tenants' utility allowances and annual income for rent calculations are not negatively impacted. Applicants should apply similar principles in the case of a wind 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 equitably allocated if at least 50 percent of the financial value of the energy produced by the facility is distributed to occupants using one of the methods described in HUD guidance on the Treatment of Solar Benefits in Master-metered Building (May 2023) located at https://www.hud.gov/sites/dfiles/Housing/documents/MF_Memo_re_Community_Solar_Credits_in_MM_Buildings.pdf, or future HUD guidance, or other guidance or notices from the Federal agency that oversees the applicable housing program identified in section 48(e)(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 energy generation to ensure that tenants' utility allowances and annual income for rent calculations are not negatively impacted. Applicants should apply similar principles in the case of a wind facility.(6)Benefits Sharing Statement - (i)In general. The facility owner must prepare a Benefits Sharing Statement, 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, indication of 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. 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 48(e)(2)(C)(i) or (ii) (Qualifying Household),(ii) At least 50 percent of the facility's total output in kW must be assigned to Qualifying Households, and(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)In general. A bill credit discount rate is 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 their utility bill) and the cost of participating in the community program (including subscription payments for renewable energy and any other fees or charges), expressed as a percentage of the financial benefit distributed to the Qualifying Household. 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 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.(ii)No or nominal cost of participation. In cases where the Qualifying Household has no or only a nominal cost of participation, 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.(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 that (1) requires the facility owner to cause a portion of the electricity generated (or its value) to be assigned to the utility bill of the Qualifying Household on a monthly basis, and (2) requires the Qualifying Household to pay the facility owner the equivalent of 80 percent of the monetary value of the assigned generation (that is, 80 percent of the value of bill credits provided to the Qualifying Household's utility bill) on a monthly basis. 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 pays $160, 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, cause $220 in bill credits to be provided to the Qualifying Household's bill and the household pays $176. In each year of facility operation described within this example, a bill credit discount rate of 20 percent is maintained.(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. Assume that the total value of the electricity produced by the facility and assigned to the household, as measured by the utility, ISO, or other off-taker procuring the electricity, is $500 in the first year and $600 in the second year. Assume further that the Qualifying Household receives a "net" bill credit of $100 in the first year and $120 in the second year. In this case, the bill credit discount rate is 20 percent in each year ($500 * .2 = $100) and ($600 * .2 = $120), respectively.(3)Low-income verification -(i)In general. To establish that financial benefits are provided to Qualifying Households as provided in paragraph (f)(1) of this section, applicants must, in accordance with guidance published in the Internal Revenue Bulletin (see§ 601.601 of this chapter), submit documentation upon placing the qualified solar or wind facility in service that identifies each Qualifying Household, the output from the facility allocated to each Qualifying Household in kW, and the method of income verification utilized for each Qualifying Household. 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.(ii)Methods of verification. Applicants may use categorical eligibility or other income verification methods 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. Federal programs may include, but are not limited to: Medicaid, Low-Income Home Energy Assistance Program (LIHEAP) administered by the Department of Health and Human Services, Weatherization Assistance Program (WAP) administered by the Department of Energy (DOE), Supplemental Nutrition Assistance Program (SNAP) administered by the Department of Agriculture (USDA), Section 8 Project-Based Rental Assistance, the Housing Choice Voucher Program administered by HUD, the Federal Communication Commission's Lifeline Support for Affordable Communications, the National School Lunch Program administered by the USDA, the Supplemental Security Income Program administered by the Social Security Administration, and any verified government or non-profit program serving Asset Limited Income Constrained Employed (ALICE) persons or households. With respect to the Federal programs listed previously an individual in the household must currently be approved for assistance from or participation in the 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. State agencies can also provide verification that a household is a Qualifying Household if the household participates in a State's solar or other program and income limits for such program are at or below the qualifying income level required to be a Qualifying Household. The qualifying income level for a Qualifying Household is based on where such household is located.(B)Other income verification methods. 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 household is not a permissible method to establish a household is a Qualifying Household. This prohibition on direct self-attestation from a household does not extend to categorical eligibility for needs-based Federal, State, Tribal, or utility programs with income limits that rely on self-attestation for verification of income.(g)Annual Capacity Limitation. Under section 48(e)(4)(C), the total annual capacity limitation is 1.8 gigawatts of DC capacity for the calendar year 2023 and 2024 Program. The annual Capacity Limitation for each Program year is divided across the four facility categories described in section 48(e)(2)(A)(iii) and paragraph (b)(2) of this section as provided in guidance published in the Internal Revenue Bulletin. See§ 601.601 of this chapter. The Capacity Limitation for each Program year is divided across the four facility categories 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 consistent with statutory intent and the goals of the Program. After the Capacity Limitation for each facility category is established in guidance published in the Internal Revenue Bulletin, it may later be re-allocated across facility categories and sub-reservation in the event one category or sub-reservation is oversubscribed and another has excess capacity. A facility category or sub-reservation is oversubscribed if it receives applications in excess of Capacity Limitation reserved for the facility category or sub-reservation.(h)Reservations of Capacity Limitation allocation for facilities that meet certain additional selection criteria - (1)In general. At least 50 percent of the total Capacity Limitation in each facility category described in paragraph (b)(2) of this section will be reserved for qualified 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) as provided in guidance published in the Internal Revenue Bulletin. See§ 601.601 of this chapter. Revenue Procedure 2023-27, 2023-35 I.R.B. provides the specific amounts reserved for 2023 and future guidance published in the Internal Revenue Bulletin will provide the amounts reserved for future years. The procedure for utilizing these additional selection criteria is provided in guidance published in the Internal Revenue Bulletin. After the reservation of Capacity Limitation for qualified facilities meeting the additional selection criteria described in paragraphs (h)(2) and (3) of this section is established in guidance published in the Internal Revenue Bulletin, it may later be re-allocated across facility categories and sub-reservations in the event one category or sub-reservation within a category is oversubscribed and another has excess capacity.(2)Ownership criteria - (i)In general. The ownership criteria is based on characteristics of the applicant that owns the qualified solar or wind facility. A qualified solar or wind 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),(C) A renewable energy cooperative (as defined in paragraph (h)(2)(v) of this section),(D) A qualified renewable energy company meeting certain characteristics (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).(ii)Indirect ownership -(A)Disregarded entities. If an applicant wholly owns an entity that is the owner of a qualified solar or wind facility, and the entity is disregarded as separate from its owner for Federal income tax purposes (disregarded entity), the applicant, and not the disregarded entity, is treated as the owner of the qualified solar or wind facility for purposes of the ownership criteria.(B)Partnership. If an applicant is an entity treated 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 and is a managing member or general partner (or similar title) under State 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 qualified solar or wind 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 paragraphs (h)(2)(i)(A) through (E) of this section, 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. 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.(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 Internal Revenue Code (Code)), or owned at least 51 percent indirectly through a corporation 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)Renewable energy cooperative. A renewable energy cooperative for purposes of the ownership criteria is an entity that develops qualified solar and/or wind 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 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 48(e)(2)(C)), or(B) A worker cooperative controlled by its worker-members with each member having an equal voting right.(vi)Qualified renewable energy company. A qualified renewable energy company 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. In addition to its general business purpose, a qualified renewable energy company must satisfy the ownership requirements described in one of paragraphs (h)(2)(vi)(A) through (F) of this section and each of the requirements in paragraphs (h)(2)(vi)(G), (H), and (I) of this section.(A) At least 51 percent of the entity's equity interests are owned and controlled by one or more individuals.(B) At least 51 percent of the entity's equity interests are owned and controlled by a Community Development Corporation (as defined in 13 CFR 124.3 ).(C) At least 51 percent of the entity's equity interests are owned and controlled by an agricultural or horticultural cooperative (as defined in section 199A(g)(4)(A)).(D) At least 51 percent of the entity's equity interests are owned and controlled by an Indian Tribal government (as defined in section 30D(g)(9)).(E) At least 51 percent of the entity's equity interests are owned and controlled by an Alaska Native corporation (as defined in section 3 of the Alaska Native Claims Settlement Act, 43 U.S.C. 1602(m) ).(F) At least 51 percent of the entity's equity interests are owned and controlled by a Native Hawaiian organization (as defined in 13 CFR 124.3 ).(G) Has less than 10 full-time equivalent employees (as determined under section 4980H(c)(2)(E) and (c)(4)) and less than $20 million in annual gross receipts in the previous calendar year; this must include the employees or receipts of all affiliates when determining the size of a business. Affiliation with another business is based on the power to control, whether exercised or not. The power to control exists when an external party has 50 percent or more ownership. It may also exist with considerably less than 50 percent ownership by contractual arrangement, or when one or more parties own a large share compared to other parties.(H) First installed and/or operated a qualified solar or wind facility as defined in section 48(e)(2)(A) two or more years prior to the date of application; or(I) Has 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).(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 by reason of being described in section 501(c)(3) or section 501(d);(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.(3)Geographic criteria - (i)In general. Geographic criteria does 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)(i)(A) or (B) 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. (A)Persistent Poverty County. A Persistent Poverty County (PPC for which information can be found at https://www.ers.usda.gov/data-products/poverty-area-measures/), which is generally defined as any county where 20 percent or more of residents have experienced high rates of poverty over the past 30 years. For the purposes of the Program, the PPC measure is that adopted by the USDA to make this determination. The most recent measure, which would apply for the 2023 Program year, incorporates poverty estimates from the 1980, 1990, and 2000 censuses, and 2007-11 ACS 5-year average. 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. Applicants who satisfy the definition of PPC community at the time of application are considered to continue to meet the definition of PPC for the duration of the recapture period described in paragraph (n)(1) of this section, unless the location of the facility changes.(B)Certain census tracts. A census tract that is designated in the Climate and Economic Justice Screening Tool (CEJST), which can be found at https://screeningtool.geoplatform.gov/en/#3/33.47/-97.5, as disadvantaged based on whether the tract is described in paragraph (h)(3)(ii)(A) or (B) of this section. The CEJST website provides further detail on the terms described in paragraphs (h)(3)(ii)(C) through (E) of this section, which are used in identifying census tracts described in paragraphs (h)(3)(ii)(A) and (B) of this section. See CEJST, Methodology & data, https://screeningtool.geoplatform.gov/en/methodology.(ii)Applicable terms for certain census tracts. The following terms are applicable to this paragraph (h)(3):(A)Energy burden or cost. The census tract is greater than or equal to the 90th percentile for energy burden (or energy cost) and is greater than or equal to the 65th percentile for low income.(B)Exposure. The census tract is greater than or equal to the 90th percentile for PM2.5 exposure and is greater than or equal to the 65th percentile for low income.(C)Energy cost. Energy cost is defined as average household annual energy cost in dollars divided by the average household income.(D)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.(E)Low-income. Low income is defined as the percent of a census tract's population in households where 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, it may later be re-allocated in the event it has excess capacity.(2)Definitions -(i)Behind the meter (BTM) facility. For purposes of the Program, a qualified wind or solar 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 qualified solar or wind facility that does not meet the requirements for a Category 3 Facility and is BTM. A qualified solar or wind facility is residential if it is uses solar or wind energy to generate electricity for use in a dwelling unit that is used as a residence.(iii)Eligible FTM facility. For purposes of the Program, a qualified solar or wind 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, FTM is defined as a facility that is not BTM. For the purposes of Category 4 Facilities, a qualified solar or wind facility is also FTM if 50 percent or more of its electricity generation on an annual basis is physically exported 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. See§ 601.601 of this chapter. If a facility category is oversubscribed, a lottery system may be used to allocate Capacity Limitation to similarly situated applicants.(2)Information required as part of application. Applicants are required to submit with each application for a Capacity Limitation allocation information, documentation, and attestations to demonstrate eligibility for an allocation and project viability as specified in guidance published in the Internal Revenue Bulletin. See§ 601.601 of this chapter.(3)No administrative appeal of capacity limitation allocation decisions. An applicant may not administratively appeal decisions regarding Capacity Limitation allocations.(k)Placed in service -(1)Requirement to report date placed in service. For any facility that received an allocation of Capacity Limitation the owner of the facility must report to DOE the date the eligible property was placed in service. This report is done through the same portal by which the original application for allocation was submitted.(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 prove the facility is still eligible to maintain the allocation and the increased energy percentage under section 48(e)(1) as specified in guidance published in the Internal Revenue Bulletin. See§ 601.601 of this chapter.(3)DOE confirmation. 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 energy percentage. 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 paragraph (m) of this section). Based on DOE's recommendation, the IRS will decide whether the facility should retain its allocation or if the facility should be disqualified and will notify DOE of its decision. Each applicant must receive confirmation from the IRS that DOE has reviewed the placed in service submissions, and that eligibility is confirmed, 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, if eligible, making a transfer election under section 6418 of the Code, or, if eligible, making 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. Qualified solar or wind facilities must be placed in service after being awarded an allocation of Capacity Limitation.(2)Rejection or rescission. An application for a qualified solar or wind 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 changes.(2) The net output of the facility increases such that it exceeds the less than 5 MW AC output limitation provided in section 48(e)(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 (AC for a wind facility; DC for a solar facility).(3) The facility cannot satisfy the financial benefits requirements under section 48(e)(2)(B)(ii) and paragraph (e) of this section as planned, if applicable, or cannot satisfy the financial benefits requirements under section 48(e)(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 treated 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 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 48(e) Increase to the section 48(a) credit -(1)In general. Section 48(e)(5) provides for recapturing the benefit of any increase in the credit allowed under section 48(a) by reason of section 48(e) 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)). Section 48(e) 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 a qualified solar or wind facility property under section 48(e) 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 event occurs is increased by the recapture percentage of the benefit of the increase in the section 48 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 48(a), the eligibility of such property for such increase pursuant to section 48(e) is restored. Such restoration of an increase pursuant to section 48(e) 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 48(e): (i) Property described in section 48(e)(2)(A)(iii)(II) fails to provide financial benefits.(ii) Property described under section 48(e)(2)(B) ceases to allocate the financial benefits equitably among the occupants of the dwelling units, such as not allocating to residents the required net energy savings of the electricity, as required by paragraph (e) of this section.(iii) Property described under section 48(e)(2)(C) ceases to provide at least 50 percent of the financial benefits of the electricity produced to qualifying households as described under section 48(e)(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 48(e)(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 48(e)(2)(B)(i), as applicable.(v) A facility increases its output such that the facility's output is 5 MW AC or greater, unless the applicant can prove that the output increase is not attributable to the original facility but rather is output associated with a new facility under the 80/20 Rule (the cost of the new property plus the value of the used property).(4)Section 50(a) Recapture. Any event that results in recapture under section 50(a) will also result in recapture of the benefit of the increase in the section 48 credit by reason of section 48(e). 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)Applicability date. The rules of this section will apply to taxable years ending on or after October 16, 2023.T.D. 9979, 88 FR 55540 , Aug. 15, 2023; 88 FR 59446 , Aug. 29, 2023, as amended at 88 FR 87903 , Dec. 20, 2023 88 FR 55540 , 59446, 10/16/2023, as amended at 88 FR 87903 , 12/20/2023