WASHINGTON, D.C. – As part of the Biden-Harris Administration’s Investing in America strategy, the U.S. Department of the Treasury and Internal Revenue Service (IRS) released guidance that provides detailed information about the domestic content bonus under the Inflation Reduction Act for clean energy projects and facilities that meet American manufacturing and sourcing requirements. The guidance was developed in partnership with the Department of Energy and Department of Transportation.
“The domestic content bonus under the Inflation Reduction Act will boost American manufacturing, including in iron and steel, so America’s workers and companies continue to benefit from President Biden’s Investing in America agenda. These tax credits are key to driving investment and ensuring all Americans share in the growth of the clean energy economy,” said Secretary of the Treasury Janet L. Yellen. “Thanks to President Biden’s Investing in America agenda and the Inflation Reduction Act, the United States is benefitting from a boom in clean energy development and manufacturing, creating good-paying jobs nationwide, strengthening our national security, and advancing our climate goals.”
Under the Production Tax Credit (PTC), facilities that meet domestic content requirements receive a 10 percent bonus. Under the Investment Tax Credit (ITC), projects that meet the domestic content requirement receive up to a 10-percentage point bonus. Projects are eligible for the full value of the bonus only if they meet the domestic content requirement and one of the following requirements: 1) the project has a maximum net output of less than 1 megawatt of energy; 2) construction of the project began before January 29, 2023; or 3) the project satisfies the Inflation Reduction Act’s prevailing wage and apprenticeship requirements.
The domestic content bonus applies to facilities built using the required amounts of domestically produced steel, iron, and manufactured products. To receive the bonus, all steel and iron manufacturing processes must take place in the United States. A statutorily required minimum percentage of the costs of the manufactured products and components of manufactured products that comprise a facility must come from products and components that were mined, produced, or manufactured in the United States.
Consistent with the Buy America rules administered by the Federal Transit Administration, a manufactured product is produced in the United States if the manufacturing processes for the product take place in the United States and all the components of the product are manufactured in the United States. Components include any articles, materials, or supplies that are incorporated into the manufactured product. The guidance also includes key clarifications around the treatment of labor costs, to ensure the focus of the incentive remains on domestic manufacturing.
To assist taxpayers in determining the applicable steel, iron, or manufactured product standards, the Treasury Department and the IRS are providing a safe harbor for certain types of clean energy projects, which was recommended by the Federal Transit Administration and the Department of Energy. Treasury welcomes input on how manufactured product components are classified, particularly as technologies, manufacturing processes, and supply chains evolve. While this guidance establishes a safe harbor with specified classifications for certain manufactured products, Treasury is open to considering alternative approaches to classification, including a tax-specific, technology-neutral, principles-based approach.
Guidance for the domestic content bonus is the next step in the first phase of the Treasury Department’s implementation of the Inflation Reduction Act’s clean energy provisions. This guidance follows a Notice of Proposed Rulemaking for the clean vehicle credit released in March and guidance for the bonus for clean energy projects and facilities located in energy communities, issued in April. The first phase of guidance represents the core elements needed to accelerate the Inflation Reduction Act’s significant economic and climate benefits and to provide clarity and certainty to companies and other entities planning investments and projects. The Treasury Department will continue issuing guidance on the Inflation Reduction Act’s clean energy provisions on a rolling basis in the coming months.
More information can be found here.
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