Treasury, IRS release guidance on domestic content bonus

Published on May 20, 2024 by Dave Kovaleski

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The U.S. Department of the Treasury and Internal Revenue Service (IRS) issued further guidance on an initiative designed to boost American manufacturing and iron and steel production.

The guidance relates to the Inflation Reduction Act’s (IRA) domestic content bonus. The domestic content bonus applies to facilities and projects built using the required amounts of domestically produced steel, iron, and manufactured products.

To get the bonus, all manufacturing processes for steel and iron components must take place in the United States. Further, a required minimum percentage of the costs of the manufactured products and components that comprise a facility must be mined, produced, or manufactured in the United States.

Through the Production Tax Credit for clean energy (PTC), facilities that meet domestic content requirements receive a 10 percent bonus. Further, under the Investment Tax Credit for clean energy (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.

This guidance provides clarity and certainty on eligibility for the domestic content bonus. To assist taxpayers in determining whether the minimum percentage of the costs of the manufactured products and components of manufactured products is met, this notice creates a new elective safe harbor that gives clean energy developers the option of relying on DOE-provided default cost percentages for an exhaustive set of manufactured products and their components. This safe harbor is in lieu of obtaining direct cost information from suppliers.

In addition, the guidance amends last May’s Notice to add more safe harbor classifications, including the addition of hydropower technologies, as well as to provide clarity for rooftop solar.

“American workers and businesses are committed to making sure the United States economy benefits from the global transition to clean energy. That is why these incentives to bring clean energy manufacturing to America are jumpstarting investments across the country. Today’s guidance provides important clarity to companies and simplifies the process,” U.S. Deputy Secretary of the Treasury Wally Adeyemo said. “This should help companies make more clean power investments using U.S.-made equipment, generating new business for manufacturers and creating more good-paying jobs.”

Treasury and IRS continue to consider stakeholder comments and plan to issue further domestic content guidance to address issues not in the scope of this guidance.