Bulletin No. 2024–32

HIGHLIGHTS

OF THIS ISSUE





Bulletin No. 2024–32

August 5, 2024

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be

relied upon as authoritative interpretations.

ADMINISTRATIVE

INCOME TAX

TD 10003, page 342.

REG-119283-23, page 351.

This document contains final regulations relating to the

excise tax imposed on certain sales by manufacturers, producers, or importers of designated drugs. Specifically, the

final regulations set forth procedural provisions relating to

how taxpayers must report liability for such tax. The final

regulations also except such tax from semimonthly deposit

requirements. The final regulations affect manufacturers,

producers, or importers of designated drugs dispensed,

furnished, or administered to individuals under the terms of

Medicare during certain statutory periods.

EMPLOYEE PLANS

Notice 2024-59, page 348.

This notice sets forth updates on the corporate bond

monthly yield curve, the corresponding spot segment rates

for June 2024 used under § 417(e)(3)(D), the 24-month

average segment rates applicable for July 2024, and the

30-year Treasury rates, as reflected by the application of

§ 430(h)(2)(C)(iv).

Finding Lists begin on page ii.

This document contains proposed regulations relating

to the clean electricity production credit and the clean

electricity investment credit established by the Inflation

Reduction Act of 2022. The proposed regulations would

provide rules for: determining greenhouse gas emissions

rates resulting from the production of electricity; petitioning for provisional emissions rates; and determining

eligibility for these credits in various circumstances. The

proposed regulations would affect all taxpayers who

produce clean electricity and claim the clean electricity

production credit with respect to a facility or the clean

electricity investment credit with respect to a facility or

energy storage technology, as applicable, that is placed

in service after 2024.

Rev. Rul. 2024-15, page 340.

Federal rates; adjusted federal rates; adjusted federal longterm rate, and the long-term tax exempt rate. For purposes

of sections 382, 1274, 1288, 7872 and other sections of

the Code, tables set forth the rates for August 2024.

The IRS Mission

Provide America’s taxpayers top-quality service by helping

them understand and meet their tax responsibilities and

enforce the law with integrity and fairness to all.

Introduction

The Internal Revenue Bulletin is the authoritative instrument

of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service

and for publishing Treasury Decisions, Executive Orders, Tax

Conventions, legislation, court decisions, and other items of

general interest. It is published weekly.

It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application

of the tax laws, including all rulings that supersede, revoke,

modify, or amend any of those previously published in the

Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements of

internal practices and procedures that affect the rights and

duties of taxpayers are published.

Revenue rulings represent the conclusions of the Service

on the application of the law to the pivotal facts stated in

the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices,

identifying details and information of a confidential nature are

deleted to prevent unwarranted invasions of privacy and to

comply with statutory requirements.

Rulings and procedures reported in the Bulletin do not have the

force and effect of Treasury Department Regulations, but they

may be used as precedents. Unpublished rulings will not be

relied on, used, or cited as precedents by Service personnel in

the disposition of other cases. In applying published rulings and

procedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be considered,

and Service personnel and others concerned are cautioned

against reaching the same conclusions in other cases unless

the facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.

This part includes rulings and decisions based on provisions

of the Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.

This part is divided into two subparts as follows: Subpart A,

Tax Conventions and Other Related Items, and Subpart B,

Legislation and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.

To the extent practicable, pertinent cross references to these

subjects are contained in the other Parts and Subparts. Also

included in this part are Bank Secrecy Act Administrative

Rulings. Bank Secrecy Act Administrative Rulings are issued

by the Department of the Treasury’s Office of the Assistant

Secretary (Enforcement).

Part IV.—Items of General Interest.

This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative index

for the matters published during the preceding months. These

monthly indexes are cumulated on a semiannual basis, and are

published in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

August 5, 2024 

Bulletin No. 2024–32

Part I

Section 1274.—

Determination of Issue

Price in the Case of Certain

Debt Instruments Issued for

Property

(Also Sections 42, 280G, 382, 467, 468, 482, 483,

1288, 7520, 7872.)

Rev. Rul. 2024-15

This revenue ruling provides various

prescribed rates for federal income tax

AFR

110% AFR

120% AFR

130% AFR

AFR

110% AFR

120% AFR

130% AFR

150% AFR

175% AFR

AFR

110% AFR

120% AFR

130% AFR

Short-term adjusted AFR

Mid-term adjusted AFR

Long-term adjusted AFR

August 5, 2024

purposes for August 2024 (the current

month). Table 1 contains the shortterm, mid-term, and long-term applicable federal rates (AFR) for the current

month for purposes of section 1274(d)

of the Internal Revenue Code. Table 2

contains the short-term, mid-term, and

long-term adjusted applicable federal

rates (adjusted AFR) for the current

month for purposes of section 1288(b).

Table 3 sets forth the adjusted federal long-term rate and the long-term

tax-exempt rate described in section

382(f). Table 4 contains the appro-

priate percentages for determining the

low-income housing credit described

in section 42(b)(1) for buildings placed

in service during the current month.

However, under section 42(b)(2), the

applicable percentage for non-federally

subsidized new buildings placed in service after July 30, 2008, shall not be

less than 9%. Finally, Table 5 contains

the federal rate for determining the

present value of an annuity, an interest for life or for a term of years, or a

remainder or a reversionary interest for

purposes of section 7520.

REV. RUL. 2024-15 TABLE 1

Applicable Federal Rates (AFR) for August 2024

Period for Compounding

Annual

Semiannual

Quarterly

Short-term

4.95%

4.89%

4.86%

5.45%

5.38%

5.34%

5.96%

5.87%

5.83%

6.46%

6.36%

6.31%

Mid-term

4.34%

4.29%

4.27%

4.78%

4.72%

4.69%

5.22%

5.15%

5.12%

5.66%

5.58%

5.54%

6.54%

6.44%

6.39%

7.65%

7.51%

7.44%

Long-term

4.52%

4.47%

4.45%

4.98%

4.92%

4.89%

5.43%

5.36%

5.32%

5.89%

5.81%

5.77%

Annual

3.74%

3.29%

3.42%

REV. RUL. 2024-15 TABLE 2

Adjusted AFR for August 2024

Period for Compounding

Semiannual

3.71%

3.26%

3.39%

340

Monthly

4.84%

5.32%

5.80%

6.28%

4.25%

4.67%

5.10%

5.52%

6.36%

7.40%

4.43%

4.87%

5.30%

5.74%

Quarterly

3.69%

3.25%

3.38%

Monthly

3.68%

3.24%

3.37%

Bulletin No. 2024–32

REV. RUL. 2024-15 TABLE 3

Rates Under Section 382 for August 2024

Adjusted federal long-term rate for the current month

Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted federal

long-term rates for the current month and the prior two months.)

3.42%

3.62%

REV. RUL. 2024-15 TABLE 4

Appropriate Percentages Under Section 42(b)(1) for August 2024

Note: Under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after

July 30, 2008, shall not be less than 9%.

Appropriate percentage for the 70% present value low-income housing credit

8.03%

Appropriate percentage for the 30% present value low-income housing credit

3.44%

REV. RUL. 2024-15 TABLE 5

Rate Under Section 7520 for August 2024

Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years,

or a remainder or reversionary interest

Section 42.—Low-Income

Housing Credit

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

August 2024. See Rev. Rul. 2024-15, page 340.

Section 280G.—Golden

Parachute Payments

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

August 2024. See Rev. Rul. 2024-15, page 340.

Section 382.—Limitation

on Net Operating Loss

Carryforwards and

Certain Built-In Losses

Following Ownership

Change

The adjusted applicable federal long-term rate

is set forth for the month of August 2024. See Rev.

Rul. 2024-15, page 340.

Section 467.—Certain

Payments for the Use of

Property or Services

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

August 2024. See Rev. Rul. 2024-15, page 340.

Section 468.—Special

Rules for Mining and Solid

Waste Reclamation and

Closing Costs

The applicable federal short-term rates are set

forth for the month of August 2024. See Rev. Rul.

2024-15, page 340.

Section 482.—Allocation

of Income and Deductions

Among Taxpayers

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

August 2024. See Rev. Rul. 2024-15, page 340.

5.2%

Section 483.—Interest on

Certain Deferred Payments

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

August 2024. See Rev. Rul. 2024-15, page 340.

Section 1288.—Treatment

of Original Issue Discount

on Tax-Exempt Obligations

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of

August 2024. See Rev. Rul. 2024-15, page 340.

Section 7520.—Valuation

Tables

The applicable federal mid-term rates are set

forth for the month of August 2024. See Rev. Rul.

2024-15, page 340.

Section 7872.—Treatment

of Loans With BelowMarket Interest Rates

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

August 2024. See Rev. Rul. 2024-15, page 340.

Bulletin No. 2024–32

341

August 5, 2024

26 CFR 40.0-1;26 CFR 40.6011(a)-1;26 CFR

40.6302(c)-1;26 CFR 47.5000D-0;26 CFR

47.5000D-1;26 CFR 47.5000D-2;26 CFR

47.5000D-3;26 CFR 47.5000D-4

TD 10003

Excise Tax on Designated

Drugs; Procedural

Requirements

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final rule.

SUMMARY: This document contains

final regulations relating to the excise tax

imposed on certain sales by manufacturers, producers, or importers of designated

drugs. Specifically, the final regulations

set forth procedural provisions relating

to how taxpayers must report liability

for such tax. The final regulations also

except such tax from semimonthly deposit

requirements. The final regulations affect

manufacturers, producers, or importers

of designated drugs dispensed, furnished,

or administered to individuals under the

terms of Medicare during certain statutory

periods.

DATES: Effective date: These regulations

are effective on August 5, 2024.

Applicability dates: For dates of applicability, see §§40.0-1(e), 40.6011(a)-1(e),

40.6302(c)-1(f), and 47.5000D-1(b).

FOR FURTHER INFORMATION

CONTACT: Jacob W. Peeples or James

S. Williford at (202) 317-6855 (not a tollfree number).

SUPPLEMENTARY INFORMATION:

Background

This document amends the Excise Tax

Procedural Regulations (26 CFR part 40)

and adds new part 47 to 26 CFR chapter I

to contain the “Designated Drugs Excise

Tax Regulations” related to the excise tax

imposed by section 5000D of the Internal

Revenue Code (Code) on certain sales by

manufacturers, producers, or importers of

designated drugs (section 5000D tax).

August 5, 2024

Sections 1191 through 1198 of the

Social Security Act (SSA), added by sections 11001 and 11002 of Public Law 117169, 136 Stat. 1818 (August 16, 2022),

commonly referred to as the Inflation

Reduction Act of 2022 (IRA), require

the Secretary of Health and Human Services to establish a Medicare prescription

drug price negotiation program (Medicare

Drug Price Negotiation Program) to negotiate maximum fair prices for certain high

expenditure, single-source drugs covered

under Medicare.

Section 5000D, added to new chapter 50A of the Code by section 11003 of

the IRA, imposes an excise tax on certain sales by manufacturers, producers, or

importers of designated drugs dispensed,

furnished, or administered to individuals

under the terms of Medicare during a day

that falls within a period described in section 5000D(b). The periods described in

section 5000D(b) relate to certain statutorily prescribed milestones in the Medicare

Drug Price Negotiation Program. Because

chapter 50A is a new chapter of the Code,

the existing regulations that prescribe procedural rules applicable to most Federal

excise taxes do not apply to chapter 50A.

Notice 2023-52 (2023-35 I.R.B. 650;

August 28, 2023) announced that the

Department of the Treasury (Treasury

Department) and the IRS intended to propose regulations addressing substantive

and procedural issues related to the section 5000D tax.

On October 2, 2023, a notice of proposed rulemaking (REG-115559-23) was

published in the Federal Register (88 FR

67690) (proposed regulations). No public

hearing was requested or held. The Treasury Department and the IRS received several comments in response to the proposed

regulations. The comments addressing the

proposed regulations are summarized in

the Summary of Comments and Explanation of Revisions section of this preamble.

Summary of Comments and

Explanation of Revisions

I. Overview

As noted in the Background section of

this preamble, the Treasury Department

and the IRS received several public comment submissions in response to the pro-

342

posed regulations. The public comments

fall into six general categories: timing of

the publication of the proposed regulations; the quarterly filing requirement in

the proposed regulations; the proposed

regulations’ retroactive applicability

dates; the constitutionality of the section

5000D tax; technical issues and questions

relating to the implementation of the section 5000D tax itself; and comments on

the Special Analyses provided in the proposed regulations. Each of these categories of comments is addressed in turn in

parts II through VII of this Summary of

Comments and Explanation of Revisions.

All public comments were considered and

are available at https://www.regulations.gov

or upon request. After full consideration of

the public comments received in response

to the proposed regulations, this Treasury

decision adopts the proposed regulations

with three non-substantive modifications.

Specifically, the final regulations modify proposed §§40.0-1, 40.6011-1(d), and

40.6302(c)-1 by clarifying that the section

5000D tax is imposed on “the sale of” designated drugs. The language, as modified,

more closely tracks the language of section

5000D(a).

II. Timing of the Publication of the

Proposed Regulations

A commenter stated that the Treasury

Department and the IRS acted prematurely when publishing proposed regulations related to procedural rules prior

to publishing substantive rules for the

section 5000D tax and requested that the

Treasury Department and the IRS withdraw the proposed regulations until substantive rules are published.

The section 5000D tax is a self-executing tax – that is, the section 5000D

tax is effective and applicable regardless

of whether implementing regulations are

published by the Treasury Department and

the IRS. See Sundance Helicopters, Inc. v.

United States, 104 Fed. Cl. 1, 11 (2012)

(in determining whether the issuance of

regulations is a precondition to the application of a statute, the court followed Tax

Court precedent in Estate of Neumann v.

Comm’r, 106 T.C. 216 (1996) (setting out

the rule that “a tax statute is self-executing

if the regulation referred to in the statute

deals only with how, not whether, the tax

Bulletin No. 2024–32

is to be applied.”)). Further, under section

5000D(b)(1), the first date that a manufacturer, producer, or importer could be

liable for the section 5000D tax is October 2, 2023. As a result, publication of the

proposed regulations was not premature

because liability can arise under section

5000D in the absence of substantive regulatory guidance, and taxpayers needed this

procedural guidance on how to meet their

tax reporting and payment obligations for

section 5000D tax liability incurred on

and after October 2, 2023. Accordingly,

the Treasury Department and the IRS are

finalizing the proposed regulations without adopting this comment.

III. Quarterly Filing Requirement

A commenter expressed concern

regarding the proposed regulations’ quarterly filing and payment requirement. Specifically, the commenter stated that – in

the absence of substantive guidance such

as clarification of what sales are subject to

the section 5000D tax – it is “impossible”

for the IRS to determine that a “quarterly

cadence” for filing returns and paying the

section 5000D tax is rational. Further, the

commenter stated that the quarterly filing

requirement will be overly burdensome on

taxpayers.

Generally, §40.6011(a)-1(a)(2)(i) re­

quires that taxpayers subject to Federal

excise tax must file a Form 720, Quarterly Federal Excise Tax Return, beginning with the first calendar quarter during

which their Federal excise tax liability

arises. Once the first Form 720 is filed,

a taxpayer is generally required to continue filing Forms 720 for every calendar

quarter thereafter – regardless of whether additional Federal excise tax liabilities

are incurred during a particular subsequent calendar quarter – until the taxpayer permanently ceases all operations with

respect to which the Federal excise tax

liability was incurred. See §§40.6011(a)1(a)(2)(i) and 40.6011(a)-2(a)(1). Failure

to file subsequent quarterly returns after

filing the first Form 720 may result in

the assessment of penalties under section

6651(a) of the Code.

In developing the proposed regulations, the Treasury Department and the

IRS recognized that in the context of the

section 5000D tax (under which a tax-

Bulletin No. 2024–32

payer may incur liability in a particular

calendar quarter and then never incur liability again in subsequent calendar quarters), to require a taxpayer to continue to

file Form 720 for every calendar quarter

following the filing of its first Form 720

even if no tax liability is incurred in subsequent calendar quarters would be both

unnecessary for tax administration and

unduly burdensome on the taxpayer. As a

result, the proposed regulations exempted

taxpayers that incur a section 5000D tax

liability (section 5000D taxpayers) and

report that tax liability on a timely filed

Form 720 from the general requirement

to file subsequent Forms 720 if no section

5000D tax liability is incurred during a

subsequent calendar quarter. Specifically,

proposed §40.6011(a)-1(d) required a taxpayer to file a subsequent Form 720 only

if a new section 5000D tax liability arises

during a particular calendar quarter.

Regarding the requirement to pay

a section 5000D tax liability quarterly

with the taxpayer’s Form 720, generally, §§40.6071(a)-1(a) and 40.6151(a)-1

require that Form 720 filers must pay the

tax shown on the return at the same time

the return is filed. Providing a different

rule for section 5000D taxpayers would

introduce unnecessary complexity into

the excise tax filing and payment regime.

An increase in complexity could lead to

taxpayer confusion and likely result in

a greater burden on both taxpayers and

the IRS with little to no benefit accruing

to stakeholders. The Treasury Department and the IRS also note that proposed

§40.6302(c)-1 exempted the section

5000D tax from the semimonthly deposit

requirements that apply to most other

Federal excise taxpayers. By finalizing

this proposed rule without this modification to the requirement to pay with the

quarterly filing, the compliance burden

on section 5000D taxpayers will be further reduced.

For these reasons, as well as for reasons similar to those discussed in part II

of this Summary of Comments and Explanation of Revisions (related to the necessity to timely provide section 5000D taxpayers with procedural guidance on how

to meet their tax reporting and payment

obligations), the Treasury Department and

the IRS are finalizing the proposed regulations without adopting this comment.

343

IV. Applicability Dates

The proposed regulations provided that

the Treasury decision finalizing the proposed regulations will apply to calendar

quarters beginning on or after October 1,

2023; in other words, the proposed regulations provided that this Treasury decision will not apply beginning on the date

that it is published in the Federal Register, but rather it will retroactively apply

as of the first day of the fourth calendar

quarter of 2023. A commenter requested

that the Treasury Department and the IRS

reconsider the retroactive applicability

dates provided in the proposed regulations

because the section 5000D tax is new.

As discussed in part II of this Summary

of Comments and Explanation of Revisions, the Treasury Department and the

IRS prioritized providing section 5000D

taxpayers with procedural guidance on

how to meet their tax reporting and payment obligations by October 2, 2023, the

first date when a taxpayer could incur a

section 5000D tax liability. Because the

first date when a taxpayer could incur liability for the section 5000D tax is October 2, 2023, which falls within the fourth

calendar quarter of 2023, it is appropriate

for the final regulations that provide rules

relating to filing and payment of the section 5000D tax to relate back to the beginning of the fourth calendar quarter of 2023

(that is, October 1, 2023), which in accordance with section 7805(b)(1)(B), would

be the first taxable period ending after

October 2, 2023 (that is, the date the proposed regulations were published in the

Federal Register). As a result, the Treasury Department and IRS are finalizing

the proposed applicability dates without

adopting this comment.

V. Constitutionality

Some commenters stated that the

Medicare Drug Price Negotiation Program generally, and the section 5000D

tax specifically, may be unconstitutional.

These comments are outside the scope of

the proposed regulations, which set forth

proposed rules for administering a duly

enacted tax law. Therefore, it is not appropriate for the Treasury Department and the

IRS to address these comments in the context of this rulemaking.

August 5, 2024

VI. Technical Comments

A commenter requested that the Treasury Department and the IRS consider providing sales-reporting and calculation “safe

harbors” in these final regulations. Another

commenter stated their belief that Notice

2023-52 requested clarification on how the

Treasury Department and the IRS should

define “sales” for purposes of the section

5000D tax. These comments are outside the

scope of the proposed regulations, which

related only to the procedures for reporting

and paying the section 5000D tax.

VII. Comments on the Special Analyses

A. Paperwork Reduction Act

A commenter requested that the Treasury Department and the IRS reconsider

the paperwork burden estimate in the

Paperwork Reduction Act (44 U.S.C.

3507(d)) (PRA) section of the proposed

regulations because the commenter

believes that the number of estimated

hours is too low. In this request, the

commenter suggested that it is possible

that no taxpayers will ever incur a section 5000D tax liability. The commenter

accepted that the Treasury Department

and the IRS do not have historical data on

the number of compliance hours affected

taxpayers may experience if a section

5000D tax liability is incurred and did

not offer a specific estimated number of

hours it views as more accurate than the

estimate provided in the proposed regulations. Similarly, the commenter did not

offer an alternative calculation methodology that the Treasury Department and the

IRS could use to provide a better burden

estimate.

The Treasury Department and the IRS

calculated the estimated number of paperwork burden hours using the long-standing

and established methodology outlined in

Publication 5743, Taxpayer Compliance

Burden, to arrive at the estimated total

annual reporting burden of 1,380 hours

stated in the proposed regulations. For

these reasons, the Treasury Department and

the IRS estimate that this Treasury decision

will impose a total annual reporting burden

of 1,380 hours, as discussed in part II of the

Special Analyses section of this preamble.

August 5, 2024

However, the Treasury Department and the

IRS will regularly examine and, as necessary, update the estimated total annual

reporting burden of this Treasury decision

as required by the PRA.

B. Regulatory Flexibility Act

A commenter requested that the Treasury

Department and the IRS conduct a Regulatory Flexibility Act (5 U.S.C. chapter 6)

(RFA) analysis because the commenter is

concerned that this Treasury decision may

have an indirect effect on small entities. An

agency may properly certify that no RFA

analysis is needed when it determines that

a rule will not have a significant economic

impact on a substantial number of small

entities that are subject to the requirements

of the proposed rule. See Mid-Tex Elec.

Co-op., Inc. v. FERC, 773 F.2d 327, 342

(D.C. Cir. 1985) (holding that Congress did

not intend to require consideration of every

indirect effect that any regulation might

have on small businesses). Accordingly, as

discussed in part III of the Special Analyses section of this preamble, the Treasury

Department and the IRS continue to certify

that this Treasury decision will not create

additional obligations for, or impose a significant economic impact on, small entities,

and as a result, a regulatory flexibility analysis under the RFA is not required.

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 collection of information contained in these final regulations has been

reviewed and approved by the Office of

Management and Budget in accordance

with the PRA under control number 15450023.

344

The collections of information in

these regulations relate to reporting and

recordkeeping requirements that will

allow taxpayers to meet their tax reporting obligations. The collections of information would generally be used by the

IRS for tax compliance purposes and by

taxpayers to facilitate proper tax reporting and compliance. The reporting and

recordkeeping requirements are covered

within the form and instructions for Form

720.

Because the section 5000D tax is a

new tax that has never been reported to

the IRS, the Treasury Department and

the IRS do not have historical data on the

number of affected taxpayers. The Centers for Medicare and Medicaid Services

(CMS) has selected 10 drugs for price

negotiation for initial price applicability

year 2026. CMS will select for negotiation a limited number of drugs for each

initial price applicability year after that,

as outlined in the IRA. Further, manufacturers, producers, or importers of such

drugs may or may not become subject

to a section 5000D tax liability. Based

on the foregoing, the IRS estimates that

there will be between 0 and 50 taxpayers

during the next 3 years.

If a taxpayer has a section 5000D tax

liability, it would be required to file Form

720 to report such liability. Form 720 is

a quarterly return. A taxpayer would only

be required to file Form 720 during calendar quarters in which the taxpayer has

a section 5000D tax liability. Therefore,

a taxpayer that has a section 5000D tax

liability in one calendar quarter but not in

subsequent calendar quarters would only

be required to file one Form 720.

The respondents with regard to the

section 5000D tax are manufacturers,

producers, or importers of certain drugs.

The Treasury Department and the IRS

estimate the annual burden of the collections of information as follows (these estimates, which are for PRA purposes only,

are based on the high end of the range of

possible taxpayers and the high end of the

range of the frequency of responses, in

which a taxpayer would have tax liability

in all four calendar quarters):

Estimated frequency of responses:

Quarterly.

Estimated number of responses: 50.

Bulletin No. 2024–32

Estimated burden time per respondent:

6.9 hours.

Estimated total annual reporting burden: 1,380 hours.

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 assigned

by OMB. Books or records relating to a

collection of information must be retained

if their contents may become material in

the administration of any internal revenue

law. Generally, tax returns and tax return

information are confidential, as required

by section 6103.

The Treasury Department and the IRS

received a comment suggesting that the

paperwork burden estimate provided in

the proposed regulations was too low.

However, for the reasons discussed in

detail in the Summary of Comments and

Explanation of Revisions section of this

preamble and in this Special Analyses section, the Treasury Department and the IRS

have not changed the estimates provided

herein.

III. Regulatory Flexibility Act

For the reasons discussed in detail in

the Summary of Comments and Explanation of Revisions section of this preamble and in this Special Analyses section,

pursuant to the RFA, it is hereby certified that these final regulations will not

have a significant economic impact on

a substantial number of small entities.

This certification is based on the fact

that the section 5000D tax is imposed

only on certain sales by manufacturers,

producers, or importers of designated

drugs during periods described in section 5000D(b). The periods described in

section 5000D(b) relate to milestones in

the Medicare Drug Price Negotiation Program, which involve only certain drugs

with high Medicare expenditures. Drugs

with high Medicare expenditures that are

not already excluded from the Medicare

Drug Price Negotiation Program under an

exception such as the SSA’s small biotech

exception (sections 1192(b) and (d)(2) of

the SSA) are likely to be manufactured,

produced, or imported by large entities, so

if any section 5000D tax liability arises,

Bulletin No. 2024–32

an insubstantial number of taxpayers will

be small entities. As noted earlier, data is

not available about the number of taxpayers affected, but the number is likely to be

limited, in part due to the limited number

of drugs selected for the Medicare Drug

Price Negotiation Program in any particular year. In addition, these final regulations will assist taxpayers in meeting their

tax reporting obligations by providing

clarity on how to report section 5000D

tax liability, which will make it easier for

taxpayers to comply with section 5000D.

Therefore, these final regulations will

not create additional obligations for, or

impose a significant economic impact on,

small entities, and a regulatory flexibility

analysis under the RFA is not required.

IV. Section 7805(f)

Pursuant to section 7805(f) of the

Code, the notice of proposed rulemaking preceding these final regulations was

submitted to the Chief Counsel for the

Office of Advocacy of the Small Business

Administration for comment on its impact

on small business. No comments were

received from the Chief Counsel for the

Office of Advocacy of the Small Business

Administration.

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 final regulations do not have

federalism implications, do not impose

substantial direct compliance costs on

State and local governments, and do not

preempt State law within the meaning of

the Executive order.

Statement of Availability of IRS

Documents

The IRS Notice 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 Jacob W. Peeples of the Office of

the Associate Chief Counsel (Passthroughs

& Special Industries). However, other personnel from the Treasury Department and

the IRS participated in their development.

V. Unfunded Mandates Reform Act

List of Subjects

Section 202 of the Unfunded Mandates

Reform Act of 1995 requires that agencies

assess anticipated costs and benefits and

take certain other actions before issuing a

final rule that includes any Federal mandate that may result in expenditures in

any one year by a State, local, or Tribal

government, in the aggregate, or by the

private sector, of $100 million in 1995

dollars, updated annually for inflation.

These final regulations do not include any

Federal mandate that may result in expenditures by State, local, or Tribal governments, or by the private sector, in excess

of that threshold.

26 CFR Part 40

VI. Executive Order 13132: Federalism

PART 40—EXCISE TAX

PROCEDURAL REGULATIONS

Executive Order 13132 (Federalism)

prohibits an agency from publishing any

rule that has federalism implications if

the rule either imposes substantial, direct

345

Excise taxes, Reporting and recordkeeping requirements.

26 CFR Part 47

Excise taxes.

Adoption of Amendments to the

Regulations

Accordingly, the Treasury Department

and the IRS amend 26 CFR chapter I, subchapter D, as follows:

Paragraph 1. The authority citation

for part 40 continues to read in part as follows:

August 5, 2024

Authority: 26 U.S.C. 7805.

*****

Par. 2. Section 40.0-1 is amended by

revising paragraphs (a) and (e) to read as

follows:

§40.0-1 Introduction.

(a) In general. The regulations in this

part are designated the Excise Tax Procedural Regulations. The regulations in this

part set forth administrative provisions

relating to the excise taxes imposed by

chapters 31 through 34, 36, 38, 39, 49, and

50A of the Internal Revenue Code (Code)

(except for the chapter 32 tax imposed by

section 4181 (firearms tax) and the chapter 36 taxes imposed by sections 4461

(harbor maintenance tax) and 4481 (heavy

vehicle use tax)), and to floor stocks taxes

imposed on articles subject to any of these

taxes. Chapter 31 relates to retail excise

taxes; chapter 32 to manufacturers’ excise

taxes; chapter 33 to taxes imposed on communications services and air transportation services; chapter 34 to taxes imposed

on certain insurance policies; chapter 36

to taxes imposed on transportation by

water; chapter 38 to environmental taxes;

chapter 39 to taxes imposed on registration-required obligations; chapter 49 to

taxes imposed on indoor tanning services;

and chapter 50A to taxes imposed on the

sale of designated drugs. References in

this part to taxes also include references

to the fees imposed by sections 4375 and

4376 of the Code. See parts 43, 46 through

49, and 52 of this chapter for regulations

related to the imposition of tax.

*****

(e) Applicability dates—(1) Paragraph

(a). Paragraph (a) of this section applies

to returns required to be filed under

§40.6011(a)-1 for calendar quarters beginning on or after October 1, 2023. For rules

that apply before October 1, 2023, see 26

CFR part 40, revised as of April 1, 2024.

(2) Paragraphs (b) and (c). Paragraphs (b) and (c) of this section apply

to returns for calendar quarters beginning

after March 31, 2013. For rules that apply

before March 31, 2013, see 26 CFR part

40, revised as of April 1, 2012.

(3) Paragraph (d). Paragraph (d) of

this section applies to returns for calendar

quarters beginning on or after January 19,

August 5, 2024

2021. For rules that apply before January

19, 2021, see 26 CFR part 40, revised as

of April 1, 2020.

Par. 3. Section 40.6011(a)-1 is

amended by:

1. Revising the first sentence of paragraph (a)(2)(i).

2. Adding paragraphs (d) and (e).

The revision and additions read as follows:

§40.6011(a)-1 Returns.

(a) * * *

(2) * * *

(i) * * * Except as provided in paragraphs (b) through (d) of this section, the

return must be made for a period of one

calendar quarter. * * *

*****

(d) Tax on the sale of designated drugs.

A return that reports liability imposed by

section 5000D of the Internal Revenue

Code must be made for a period of one

calendar quarter. A return must be filed

for each calendar quarter in which liability for the tax imposed by section 5000D

is incurred. There is no requirement that

a return be filed for a calendar quarter in

which there is no liability imposed by section 5000D.

(e) Applicability dates—(1) Paragraph

(a)(2)(i). Paragraph (a)(2)(i) of this section applies to returns filed for calendar

quarters beginning on or after October 1,

2023. For rules that apply before October

1, 2023, see 26 CFR part 40, revised as of

April 1, 2024.

(2) Paragraph (c). See paragraph (c)(2)

of this section.

(3) Paragraph (d). Paragraph (d) of

this section applies to returns filed for

calendar quarters beginning on and after

October 1, 2023.

Par. 4. Section 40.6302(c)-1 is

amended by:

1. Revising paragraphs (e)(1)(iv) and

(v).

2. Adding paragraph (e)(1)(vi).

3. Revising paragraph (f).

The revisions and addition read as follows:

§40.6302(c)-1 Deposits.

*****

346

(e) * * *

(1) * * *

(iv) Sections 4375 and 4376 (relating

to fees on health insurance policies and

self-insured insurance plans);

(v) Section 5000B (relating to indoor

tanning services); and

(vi) Section 5000D (relating to the sale

of designated drugs).

*****

(f) Applicability dates—(1) Paragraphs (a) through (d). Paragraphs (a)

through (d) of this section apply to deposits and payments made after March 31,

2013. For rules that apply before March

31, 2013, see 26 CFR part 40, revised as

of April 1, 2013.

(2) Paragraph (e). Paragraph (e) of

this section applies to calendar quarters

beginning on or after October 1, 2023.

For rules that apply before October 1,

2023, see 26 CFR part 40, revised as of

April 1, 2024.

Par. 5. Add part 47 to read as follows:

PART 47—DESIGNATED DRUGS

EXCISE TAX REGULATIONS

Sec.

47.5000D-0 Table of contents.

47.5000D-1 Introduction.

47.5000D-2 - 47.5000D-4 [Reserved]

Authority: 26 U.S.C. 7805.

Section 47.5000D-1 also issued under

26 U.S.C. 5000D.

§47.5000D-0 Table of contents.

This section lists the table of contents

for §§47.5000D-1 through 47.5000D-4.

§47.5000D-1 Introduction.

(a) In general.

(b) Applicability date.

§§47.5000D-2 - 47.5000D-4 [Reserved]

§47.5000D-1 Introduction.

(a) In general. The regulations in this

part are designated the Designated Drugs

Excise Tax Regulations. The regulations

in this part relate to the tax imposed by

section 5000D of the Internal Revenue

Code. See part 40 of this chapter for reg-

Bulletin No. 2024–32

ulations relating to returns, payments,

and other procedural rules applicable to

this part.

(b) Applicability date. This section

applies to returns filed for calendar quarters beginning on or after October 1, 2023.

Bulletin No. 2024–32

§§47.5000D-2 - 47.5000D-4 [Reserved]

Douglas W. O’Donnell,

Deputy Commissioner.

Aviva R. Aron-Dine,

Acting Assistant Secretary of

the Treasury (Tax Policy).

Approved: June 24, 2024.

(Filed by the Office of the Federal Register July 3,

2024, 8:45 a.m., and published in the issue of the

Federal Register for July 5, 2024, 89 FR 55507)

347

August 5, 2024

Part III

Update for Weighted

Average Interest Rates,

Yield Curves, and Segment

Rates

under § 414(y)) pursuant to § 412. Section

430(h)(2) specifies the interest rates that

must be used to determine a plan’s target

normal cost and funding target. Under

this provision, present value is generally

determined using three 24-month average

interest rates (“segment rates”), each of

which applies to cash flows during specified periods. To the extent provided under

§ 430(h)(2)(C)(iv), these segment rates

are adjusted by the applicable percentage

of the 25-year average segment rates for

the period ending September 30 of the

year preceding the calendar year in which

the plan year begins.1 However, an election may be made under § 430(h)(2)(D)

(ii) to use the monthly yield curve in place

of the segment rates.

Section 1.430(h)(2)-1(d) provides

rules for determining the monthly corporate bond yield curve,2 and § 1.430(h)

(2)-1(c) provides rules for determining

the 24-month average corporate bond

segment rates used to compute the target

normal cost and the funding target. Consistent with the methodology specified in

§ 1.430(h)(2)-1(d), the monthly corporate

bond yield curve derived from June 2024

Notice 2024-59

This notice provides guidance on the

corporate bond monthly yield curve, the

corresponding spot segment rates used

under § 417(e)(3), and the 24-month average segment rates under § 430(h)(2) of the

Internal Revenue Code. In addition, this

notice provides guidance as to the interest rate on 30-year Treasury securities

under § 417(e)(3)(A)(ii)(II) as in effect for

plan years beginning before 2008 and the

30-year Treasury weighted average rate

under § 431(c)(6)(E)(ii)(I).

YIELD CURVE AND SEGMENT

RATES

Section 430 specifies the minimum

funding requirements that apply to single-employer plans (except for CSEC plans

Applicable Month

July 2024

data is in Table 2024-6 at the end of this

notice. The spot first, second, and third

segment rates for the month of June 2024

are, respectively, 5.09, 5.28, and 5.52.

The 24-month average segment rates

determined under § 430(h)(2)(C)(i)

through (iii) must be adjusted pursuant to §

430(h)(2)(C)(iv) to be within the applicable minimum and maximum percentages

of the corresponding 25-year average segment rates. For this purpose, any 25-year

average segment rate that is less than 5%

is deemed to be 5%. The 25-year average

segment rates for plan years beginning in

2023 and 2024 were published in Notice

2022-40, 2022-40 I.R.B. 266 and Notice

2023-66, 2023-40 I.R.B. 992, respectively. The applicable minimum and maximum percentages are 95% and 105% for

plan years beginning in 2023 and 2024.

24-MONTH AVERAGE CORPORATE

BOND SEGMENT RATES

The three 24-month average corporate

bond segment rates applicable for July

2024 without adjustment for the 25-year

average segment rate limits are as follows:

24-Month Average Segment Rates Without 25-Year Average Adjustment

First Segment

Second Segment

4.99

5.29

The adjusted 24-month average segment rates set forth in the chart below

reflect § 430(h)(2)(C)(iv) of the Code. The

24-month averages applicable for July

2024, adjusted to be within the applicable

minimum and maximum percentages of

Third Segment

5.29

the corresponding 25-year average segment rates in accordance with § 430(h)(2)

(C)(iv) of the Code, are as follows:

Adjusted 24-Month Average Segment Rates

For Plan Years

Beginning In

Applicable Month

First Segment

Second Segment

Third Segment

2023

July 2024

4.99

5.29

5.74

2024

July 2024

4.99

5.29

5.59

30-YEAR TREASURY SECURITIES

INTEREST RATES

Section 431 specifies the minimum

funding requirements that apply to multi-

employer plans pursuant to § 412. Section

431(c)(6)(B) specifies a minimum amount

for the full-funding limitation described in

§ 431(c)(6)(A), based on the plan’s current

liability. Section 431(c)(6)(E)(ii)(I) pro-

vides that the interest rate used to calculate current liability for this purpose must

be no more than 5 percent above and no

more than 10 percent below the weighted

average of the rates of interest on 30-year

Pursuant to § 433(h)(3)(A), the third segment rate determined under § 430(h)(2)(C) is used to determine the current liability of a CSEC plan (which is used to calculate the minimum amount

of the full funding limitation under § 433(c)(7)(C)).

2

For months before February 2024, the monthly corporate bond yield curve was determined in accordance with Notice 2007-81, 2007-44 I.R.B. 899. Section 1.430(h)(2)-1(d) generally adopts

the methodology for determining the monthly corporate bond yield curve under Notice 2007-81 but includes two enhancements to take into account subsequent changes in the bond market.

Those enhancements are described in the preamble to TD 9986 (89 FR 2127).

1

August 5, 2024

348

Bulletin No. 2024–32

Treasury securities during the four-year

period ending on the last day before the

beginning of the plan year. Notice 88-73,

1988-2 C.B. 383, provides guidelines for

determining the weighted average interest

rate. The rate of interest on 30-year Treasury securities for June 2024 is 4.45 percent. The Service determined this rate as

the average of the daily determinations of

yield on the 30-year Treasury bond matur-

ing in May 2054. For plan years beginning

in July 2024, the weighted average of the

rates of interest on 30-year Treasury securities and the permissible range of rates used

to calculate current liability are as follows:

For Plan Years Beginning In

Treasury Weighted Average Rates

30-Year Treasury Weighted Average

Permissible Range 90% to 105%

July 2024

3.52

3.17 to 3.69

under § 417(e)(3)(D) are segment rates

computed without regard to a 24-month

average. Section 1.417(e)-1(d)(3) and

Notice 2007-81 provide guidelines for

determining the minimum present value

segment rates. Pursuant to those guidelines,

the minimum present value segment rates

determined for June 2024 are as follows:

MINIMUM PRESENT VALUE

SEGMENT RATES

In general, the applicable interest rates

Month

June 2024

Minimum Present Value Segment Rates

First Segment

Second Segment

5.09

5.28

DRAFTING INFORMATION

The principal author of this notice

is Tom Morgan of the Office of Associ-

Bulletin No. 2024–32

ate Chief Counsel (Employee Benefits,

Exempt Organizations, and Employment

Taxes). However, other personnel from

the IRS participated in the development

349

Third Segment

5.52

of this guidance. For further information

regarding this notice, contact Mr. Morgan

at 202-317-6700 or Tony Montanaro at

626-927-1475 (not toll-free number).

August 5, 2024

Table 2024-6

Monthly Yield Curve for June 2024

Derived from June 2024 Data

Maturity

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5

12.0

12.5

13.0

13.5

14.0

14.5

15.0

15.5

16.0

16.5

17.0

17.5

18.0

18.5

19.0

19.5

20.0

Yield

5.53

5.38

5.25

5.14

5.05

4.98

4.93

4.90

4.88

4.88

4.89

4.91

4.94

4.97

5.01

5.05

5.08

5.12

5.16

5.19

5.23

5.26

5.28

5.31

5.33

5.35

5.37

5.39

5.41

5.42

5.43

5.44

5.45

5.46

5.46

5.47

5.48

5.48

5.48

5.49

August 5, 2024

Maturity

20.5

21.0

21.5

22.0

22.5

23.0

23.5

24.0

24.5

25.0

25.5

26.0

26.5

27.0

27.5

28.0

28.5

29.0

29.5

30.0

30.5

31.0

31.5

32.0

32.5

33.0

33.5

34.0

34.5

35.0

35.5

36.0

36.5

37.0

37.5

38.0

38.5

39.0

39.5

40.0

Yield

5.49

5.49

5.49

5.49

5.49

5.49

5.49

5.49

5.49

5.49

5.49

5.49

5.49

5.49

5.50

5.50

5.50

5.50

5.50

5.50

5.50

5.50

5.51

5.51

5.51

5.51

5.51

5.51

5.51

5.52

5.52

5.52

5.52

5.52

5.52

5.52

5.52

5.53

5.53

5.53

Maturity

40.5

41.0

41.5

42.0

42.5

43.0

43.5

44.0

44.5

45.0

45.5

46.0

46.5

47.0

47.5

48.0

48.5

49.0

49.5

50.0

50.5

51.0

51.5

52.0

52.5

53.0

53.5

54.0

54.5

55.0

55.5

56.0

56.5

57.0

57.5

58.0

58.5

59.0

59.5

60.0

Yield

5.53

5.53

5.53

5.53

5.53

5.53

5.53

5.54

5.54

5.54

5.54

5.54

5.54

5.54

5.54

5.54

5.54

5.54

5.54

5.54

5.55

5.55

5.55

5.55

5.55

5.55

5.55

5.55

5.55

5.55

5.55

5.55

5.55

5.55

5.55

5.55

5.55

5.55

5.56

5.56

350

Maturity

60.5

61.0

61.5

62.0

62.5

63.0

63.5

64.0

64.5

65.0

65.5

66.0

66.5

67.0

67.5

68.0

68.5

69.0

69.5

70.0

70.5

71.0

71.5

72.0

72.5

73.0

73.5

74.0

74.5

75.0

75.5

76.0

76.5

77.0

77.5

78.0

78.5

79.0

79.5

80.0

Yield

5.56

5.56

5.56

5.56

5.56

5.56

5.56

5.56

5.56

5.56

5.56

5.56

5.56

5.56

5.56

5.56

5.56

5.56

5.56

5.56

5.56

5.56

5.56

5.56

5.57

5.57

5.57

5.57

5.57

5.57

5.57

5.57

5.57

5.57

5.57

5.57

5.57

5.57

5.57

5.57

Maturity

80.5

81.0

81.5

82.0

82.5

83.0

83.5

84.0

84.5

85.0

85.5

86.0

86.5

87.0

87.5

88.0

88.5

89.0

89.5

90.0

90.5

91.0

91.5

92.0

92.5

93.0

93.5

94.0

94.5

95.0

95.5

96.0

96.5

97.0

97.5

98.0

98.5

99.0

99.5

100.0

Yield

5.57

5.57

5.57

5.57

5.57

5.57

5.57

5.57

5.57

5.57

5.57

5.57

5.57

5.57

5.57

5.57

5.57

5.57

5.57

5.57

5.57

5.57

5.57

5.57

5.58

5.58

5.58

5.58

5.58

5.58

5.58

5.58

5.58

5.58

5.58

5.58

5.58

5.58

5.58

5.58

Bulletin No. 2024–32

Part IV

Notice of Proposed

Rulemaking

REG-119283-23

Section 45Y Clean

Electricity Production

Credit and Section

48E Clean Electricity

Investment Credit

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

SUMMARY: This document contains

proposed regulations relating to the clean

electricity production credit and the clean

electricity investment credit established by

the Inflation Reduction Act of 2022. The

proposed regulations would provide rules

for: determining greenhouse gas emissions rates resulting from the production

of electricity; petitioning for provisional

emissions rates; and determining eligibility for these credits in various circumstances. The proposed regulations would

affect all taxpayers who produce clean

electricity and claim the clean electricity

production credit with respect to a facility

or the clean electricity investment credit

with respect to a facility or energy storage

technology, as applicable, that is placed

in service after 2024. This document also

provides notice of a public hearing on the

proposed regulations.

DATES: Written or electronic comments

must be received by August 2, 2024. The

public hearing on these proposed regulations is scheduled to be held on August 12,

2024, at 10 a.m. (ET) and August 13, 2024,

at 10 a.m. (ET). On August 13, 2024, the

public hearing will be held by telephone

only. Requests to speak and outlines of

topics to be discussed at the public hearing

must be received by August 2, 2024. If no

outlines are received by August 2, 2024,

the public hearing will be cancelled.

ADDRESSES: Commenters are strongly

encouraged to submit public comments

electronically via the Federal eRulemaking Portal at https://www.regulations.

gov (indicate IRS and REG-119283-23)

by following the online instructions for

submitting comments. Once submitted

to the Federal eRulemaking Portal, comments cannot be edited or withdrawn. The

Department of the Treasury (Treasury

Department) and the IRS will publish for

public availability any comments submitted to the IRS’s public docket. Send paper

submissions to: CC:PA:01:PR (REG119283-23), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin

Station, Washington, DC 20044.

FOR FURTHER INFORMATION

CONTACT: Concerning these proposed

regulations, the Office of Chief Counsel

(Passthroughs and Special Industries) at

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

concerning submissions of comments or

the public hearing, Vivian Hayes at (202)

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

email to publichearings@irs.gov (preferred).

SUPPLEMENTARY INFORMATION:

Background

This notice of proposed rulemaking

contains proposed amendments to the

Income Tax Regulations (26 CFR part

1) to implement sections 45Y and 48E of

the Internal Revenue Code (Code), which

generally replace sections 45 and 48 of

the Code with respect to qualified facilities, and for section 48E, with respect to

energy storage technology, that is placed

in service after December 31, 2024.

The renewable electricity production

credit determined under section 45 of

the Code (section 45 credit) is generally

available for qualified facilities described

in section 45(d), which provides that the

construction of the qualified facilities

must begin before January 1, 2025. Similarly, other than for geothermal heat pump

equipment (described in section 48(a)(3)

(vii)1), the energy credit determined under

section 48 of the Code (section 48 credit),

which is an investment credit under section 46 of the Code, is generally available for energy property the construction

of which begins before January 1, 2025.

Therefore, as long as construction begins

on the relevant qualified facility or energy

property before January 1, 2025, a taxpayer may be able to claim a section 45

credit or section 48 credit, respectively,

even if the taxpayer places the qualified

facility or energy property in service after

December 31, 2024.

Sections 45Y and 48E were added to the

Code, respectively, by sections 13701(a)

and 13702(a) of Public Law 117-169, 136

Stat. 1818, 1982 (August 16, 2022), commonly referred to as the Inflation Reduction Act of 2022 (IRA). Section 13701(c)

of the IRA provides that the clean electricity production credit determined under

section 45Y (section 45Y credit) applies to

facilities placed in service after December

31, 2024. Similarly, section 13702(c) of

the IRA provides that the clean electricity

investment credit determined under section 48E (section 48E credit) applies to

property placed in service after December

31, 2024.

Thus, in some cases, if a taxpayer

places in service a qualified facility or

energy property after 2024, the construction of which begins before 2025, the

qualified facility or energy property may

be eligible for more than one of the credits determined under section 45, 45Y,

48, or 48E, although a taxpayer can only

claim one of these credits with respect

to such qualified facility or energy property. Accordingly, a taxpayer must choose

which one of these credits to claim with

respect to such qualified facility or energy

property. Once the taxpayer has claimed

one of these credits with respect to a qualified facility or an energy property, the

taxpayer cannot claim any other of these

credits with respect to the same qualified

facility or energy property.

Section 48(a)(3)(vii) includes as energy property equipment that uses the ground or ground water as a thermal energy source to heat a structure or as a thermal energy sink to cool a structure

(geothermal heat pump property), but only with respect to property the construction of which begins before January 1, 2035.

1

Bulletin No. 2024–32

351

August 5, 2024

I. Overview of Section 45Y

Section 45Y(a)(1) provides that for purposes of the general business credit under

section 38 of the Code, the section 45Y

credit for any taxable year is an amount

equal to the product of the kilowatt hours

(kWh) of eligible electricity produced by

the taxpayer at a qualified facility, multiplied by the applicable amount with

respect to such qualified facility. For this

purpose, eligible electricity is electricity

that is either (1) sold by the taxpayer to an

unrelated person during the taxable year

or (2) in the case of a qualified facility that

is equipped with a metering device that is

owned and operated by an unrelated person, sold, consumed, or stored by the taxpayer during the taxable year.

A. Amount of credit

For purposes of the applicable amount

used in calculating the section 45Y credit,

section 45Y(a)(2) provides a base amount

and a higher alternative amount. Section

45Y(a)(2)(A) provides that the applicable amount will be the base amount of

0.3 cents in the case of a qualified facility that does not satisfy the requirements

for the higher alternative amount. Section

45Y(a)(2)(B) provides that the alternative

amount of 1.5 cents applies in the case

of any qualified facility (1) with a maximum net output of less than 1 megawatt

(as measured in alternating current), (2)

the construction of which begins prior to

the date that is 60 days after the Secretary

of the Treasury or her delegate (Secretary)

publishes guidance on the requirements

of section 45Y(g)(9) (wage requirements)

and section 45Y(g)(10) (apprenticeship

requirements),2 or (3) that satisfies section

45Y(g)(9) and, with respect to the construction of such facility, satisfies section

45Y(g)(10).

Section 45Y(c)(1) provides for an

inflation adjustment for both the base and

alternative amounts. Section 45Y(c)(1)

provides that in the case of a calendar year

beginning after 2024, the 0.3 cent amount

in section 45Y(a)(2)(A) and the 1.5 cent

amount in section 45Y(a)(2)(B) will each

be adjusted by multiplying such amount

by the inflation adjustment factor for the

calendar year in which the sale, consumption, or storage of the electricity occurs.

Section 45Y(c)(1) also addresses the

rounding rules to be applied to this computation. Section 45Y(c)(2) provides that

the Secretary will, not later than April 1

of each calendar year, determine and publish in the Federal Register the inflation

adjustment factor for such calendar year

in accordance with section 45Y(c).

Section 45Y(g)(7) provides for an

increase in the section 45Y credit amount

for any qualified facility located in an

energy community, and section 45Y(g)

(11) provides for an increase in the section

45Y credit amount if the domestic content

bonus requirement is satisfied.

Section 45Y(g)(7) provides that in the

case of any qualified facility that is located

in an energy community (as defined in

section 45(b)(11)(B)), for purposes of

determining the amount of the credit

under section 45Y(a) with respect to any

electricity produced by the taxpayer at

such facility during the taxable year, the

applicable amount under section 45Y(a)

(2) will be increased by an amount equal

to 10 percent of the amount otherwise in

effect under such paragraph.

Section 45Y(g)(11) provides that in

the case of any qualified facility that satisfies the domestic content bonus requirement under section 45Y(g)(11)(B)(i), the

amount of the credit determined under

section 45Y(a) will be increased by an

amount equal to 10 percent of the amount

so determined (as determined without

application of section 45Y(g)(7)). Section

45Y(g)(11)(B)(i) generally provides that

the domestic content bonus requirement

is satisfied with respect to any qualified

facility if the taxpayer certifies to the Secretary (at such time, and in such form and

manner, as the Secretary may prescribe)

that any steel, iron, or manufactured product that is a component of such facility

(upon completion of construction) was

produced in the United States (as determined under section 661 of title 49, Code

of Federal Regulations). Section 45Y(g)

(11)(B)(iii) provides that for purposes of

the domestic content bonus requirement,

the manufactured products that are com-

ponents of a qualified facility upon completion of construction will be deemed to

have been produced in the United States if

not less than the adjusted percentage (as

determined under section 45Y(g)(11)(C))

of the total cost of all such manufactured

products of such facility are attributable to

manufactured products (including components) that are mined, produced, or manufactured in the United States.

B. Qualified facility

Section 45Y(b) provides guidance on

the meaning of a qualified facility for purposes of section 45Y. Subject to section

45Y(b)(1)(B) through (D), section 45Y(b)

(1)(A) defines a qualified facility to mean

a facility owned by the taxpayer that is

used for the generation of electricity, that

is placed in service after December 31,

2024, and for which the greenhouse gas

emissions rate (as determined under section 45Y(b)(2)) is not greater than zero.

Section 45Y(b)(1)(B) provides that

for purposes of section 45Y, a facility

will only be treated as a qualified facility

during the 10-year period beginning on

the date the facility was originally placed

in service.

Section 45Y(b)(1)(C) provides that a

qualified facility will include a new unit or

any additions of capacity that are placed in

service after December 31, 2024, if in connection with a facility described in section

45Y(b)(1)(A) (without regard to section

45Y(b)(1)(A)(ii) describing the requirement that the facility be placed in service

after December 31, 2024) that was placed

in service before January 1, 2025, but only

to the extent of the increased amount of

electricity produced at the facility due to

the new unit or addition of capacity.

Section 45Y(b)(1)(D) provides that

a qualified facility will not include any

facility for which a credit determined

under section 45, 45J, 45Q, 45U, 48, 48A,

or 48E of the Code is allowed under section 38 for the taxable year or any prior

taxable year.

Section 45Y(b)(2) describes the greenhouse gas emissions rate referenced in

section 45Y(b)(1)(A)(iii). Section 45Y(b)

(2)(A) defines greenhouse gas emissions

To meet this requirement, the construction of the qualified facility must begin prior to January 29, 2023. See proposed §1.45Y–3 as proposed in the notice of proposed rulemaking (REG–

100908–23) published in the Federal Register (88 FaR 60018) on August 30, 2023, and corrected at 88 FR 73807 on October 27, 2023.

2

August 5, 2024

352

Bulletin No. 2024–32

rate for purposes of section 45Y to mean

the amount of greenhouse gases emitted

into the atmosphere by a facility in the

production of electricity, expressed as

grams of CO2e per kWh. Section 45Y(e)

(1) defines CO2e per kWh for purposes of

section 45Y to mean, with respect to any

greenhouse gas, the equivalent carbon

dioxide (as determined based on global

warming potential) per kWh of electricity produced. Section 45Y(e)(2) defines

greenhouse gas for purposes of section

45Y to have the same meaning given such

term under section 211(o)(1)(G) of the

Clean Air Act (CAA) (42 U.S.C. 7545(o)

(1)(G)) as in effect on August 16, 2022.

Section 45Y(b)(2)(B) provides that in

the case of a facility that produces electricity through combustion or gasification, the greenhouse gas emissions rate

(GHG emissions rate) for such facility is

equal to the net rate of greenhouse gases

emitted into the atmosphere by such

facility (taking into account lifecycle

greenhouse gas emissions, as described

in section 211(o)(1)(H) of the CAA (42

U.S.C. 7545(o)(1)(H))) in the production

of electricity, expressed as grams of CO2e

per kWh.

Section 45Y(b)(2)(C) provides for the

establishment of GHG emissions rates for

facilities either through the publication

of emissions rates described in section

45Y(b)(2)(C)(i) or a provisional emissions rate as described in section 45Y(b)

(2)(C)(ii). Section 45Y(b)(2)(C)(i) states

that the Secretary will annually publish

a table that sets forth the GHG emissions

rates for types or categories of facilities,

that a taxpayer will use for purposes of

section 45Y. Section 45Y(b)(2)(C)(ii) provides that in the case of any facility for

which a GHG emissions rate has not been

established by the Secretary, a taxpayer

that owns such facility may file a petition

with the Secretary for determination of the

GHG emissions rate with respect to such

facility.

Section 45Y(b)(2)(D) provides that for

purposes of section 45Y(b) the amount of

greenhouse gases emitted into the atmosphere by a facility in the production of

electricity cannot include any qualified

carbon dioxide that is captured by the

taxpayer and either (1) disposed of by

the taxpayer in secure geological storage

pursuant to any regulations established

Bulletin No. 2024–32

under section 45Q(f)(2), or (2) utilized by

the taxpayer in a manner described in section 45Q(f)(5). Section 45Y(e)(3) defines

qualified carbon dioxide for purposes of

section 45Y to mean carbon dioxide captured from an industrial source that would

otherwise be released into the atmosphere

as industrial emission of greenhouse gas,

is measured at the source of capture and

verified at the point of disposal or utilization, and is captured and disposed or utilized within the United States (within the

meaning of section 638(1) of the Code) or

a United States territory, which for purposes of section 45Y and the section 45Y

regulations has the meaning of the term

“possession” of the United States (within

the meaning of section 638(2)).

C. Credit phase-out

Section 45Y(d) describes the credit

phase-out. Section 45Y(d)(1) provides

generally that the amount of the clean

electricity production credit under section 45Y(a) for any qualified facility the

construction of which begins during a

calendar year described in section 45Y(d)

(2) is equal to the product of the amount

of the credit determined under section

45Y(a) without regard to section 45Y(d),

multiplied by the phase-out percentage

under section 45Y(d)(2). Section 45Y(d)

(2) provides that the phase-out percentage

is 100 percent for a facility the construction of which begins during the first calendar year following the applicable year;

75 percent for a facility the construction

of which begins during the second calendar year following the applicable year;

50 percent for a facility the construction

of which begins during the third calendar

year following the applicable year; and 0

percent for a facility the construction of

which begins during any calendar year

subsequent to the calendar year described

in section 45Y(d)(2)(C). Section 45Y(d)

(3) defines the “applicable year” for purposes of section 45Y(d) to mean the later

of the calendar year in which the Secretary

determines that the annual greenhouse gas

emissions from the production of electricity in the United States are equal to or less

than 25 percent of the annual greenhouse

gas emissions from the production of electricity in the United States for calendar

year 2022, or 2032.

353

D. Special rules

Section 45Y(g) provides special rules

for section 45Y. Section 45Y(g)(1) provides that consumption, sales, or storage

is taken into account under section 45Y

only with respect to electricity the production of which is within the United States

(within the meaning of section 638(1)), or

a United States territory, which for purposes of section 45Y and the section 45Y

regulations has the meaning of the term

“possession” of the United States (within

the meaning of section 638(2)).

Section 45Y(g)(2) provides a rule for

combined heat and power system (CHP)

property. For purposes of section 45Y(a),

section 45Y(g)(2)(A) generally provides

that the kWh of electricity produced by a

taxpayer at a qualified facility will include

any production in the form of useful thermal energy by any CHP property within

such facility, and the amount of greenhouse gases emitted into the atmosphere

by such facility in the production of such

useful thermal energy will be included

for purposes of determining the GHG

emissions rate for such facility. Section

45Y(g)(2)(B) defines CHP property for

purposes of section 45Y(g)(2) to have the

same meaning given such term by section

48(c)(3) (without regard to section 48(c)

(3)(A)(iv), (B), and (D) thereof). Section

45Y(g)(2)(C) provides the necessary

conversion from BTU to kWh for a taxpayer to calculate a section 45Y credit

for useful thermal energy produced by a

CHP property.

Section 45Y(g)(3) provides that in the

case of a qualified facility in which more

than one person has an ownership interest, except to the extent provided in regulations prescribed by the Secretary, production from the facility will be allocated

among such persons in proportion to their

respective ownership interests in the gross

sales from such facility.

Section 45Y(g)(4) provides that persons will be treated as related to each

other if such persons would be treated as

a single employer under the regulations

prescribed under section 52(b). In the

case of a corporation that is a member of

an affiliated group of corporations filing a

consolidated return, such corporation will

be treated as selling electricity to an unrelated person if such electricity is sold to

August 5, 2024

such a person by another member of such

group.

Section 45Y(g)(5) provides that under

regulations prescribed by the Secretary,

rules similar to the rules of section 52(d)

will apply to a pass-thru in the case of

estates and trusts.

Section 45Y(g)(6) provides for the

allocation of the credit to patrons of an

agricultural cooperative.

Section 45Y(g)(8) provides that rules

similar to the rules of section 45(b)(3) will

apply to a credit reduced for tax-exempt

bonds.

Section 45Y(g)(9) provides that rules

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

apply with respect to wage requirements.

Section 45Y(g)(10) provides rules similar

to the rules of section 45(b)(8) apply with

respect to apprenticeship requirements.

II. Overview of Section 48E

For purposes of the general business

credit under section 38, which includes

the investment credit under section 46,

section 48E(a)(1) provides a credit for any

taxable year in which a qualified investment is made with respect to any qualified

facility and any energy storage technology

(EST).

A. Amount of credit

The amount of the section 48E credit is

equal to the applicable percentage of the

qualified investment in any qualified facility and any EST. Section 48(E)(a)(2) provides a base rate and a higher alternative

rate for the applicable percentage. Section

48E(a)(2)(A)(i) provides that in the case

of a qualified facility that does not satisfy

the requirements for the higher alternative rate, the base rate will be 6 percent.

Section 48E(a)(2)(A)(ii) provides that the

alternative rate of 30 percent applies in

the case of any qualified facility (1) with a

maximum net output of less than 1 megawatt (as measured in alternating current),

(2) the construction of which begins prior

to the date that is 60 days after the Secretary publishes guidance on the prevail-

ing wage requirements of section 48E(d)

(3) and the apprenticeship requirements

of section 48E(d)(4),3 or (3) that satisfies the prevailing wage requirements of

section 48E(d)(3) and, with respect to the

construction of such facility, satisfies the

apprenticeship requirements of section

48E(d)(4).

Similarly, section 48E(a)(2)(B)(ii) provides that the alternative rate of 30 percent

applies in the case of an EST (1) with a

capacity of less than 1 megawatt, (2) the

construction of which begins prior to the

date that is 60 days after the Secretary

publishes guidance on the requirements

of section 48E(d)(3) and (4)4 (prevailing

wage and apprenticeship requirements,

respectively), or (3) that satisfies section

48E(d)(3) and with respect to the construction of such EST, satisfies section 48E(d)

(4). Section 48E(a)(2)(B)(i) provides that

in the case of an EST that does not satisfy

the requirements for the alternative rate,

the base rate will be 6 percent.

Section 48E(a)(3)(A) provides for

an increase in credit rate for a qualified

facility or EST located in an energy community (as defined in section 45(b)(11)

(B)) and section 48E(a)(3)(B) similarly

provides for an increase in credit rate for

a qualified facility or EST that meets the

domestic content bonus requirements.

B. Qualified investment with respect to

a qualified 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)(i)

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 that is properly chargeable to

capital account of the taxpayer.

Section 48E(b)(2) provides that for

purposes of section 48E, qualified prop-

erty means property that is tangible personal property, or other tangible property

(not including a building or its structural

components), but only if such property

is used as an integral part of the qualified

facility; with respect to which depreciation

(or amortization in lieu of depreciation) is

allowable; and the construction, reconstruction, or erection of which is completed by the taxpayer, or that is acquired

by the taxpayer provided the original use

of such property commences with the taxpayer.

Section 48E(b)(1)(B)(i)(I) and (II) provide that qualified interconnection property must be in connection with a qualified

facility that has a maximum net output of

not greater than 5 megawatts (as measured

in alternating current) and be placed in

service during the taxable year of the taxpayer. Section 48E(b)(4) provides that the

term “qualified interconnection property”

has the meaning given such term in section 48(a)(8)(B).

Section 48E(b)(3)(A) provides that for

purposes of section 48E, the term “qualified facility” means a facility that is used

for the generation of electricity, which

is placed in service after December 31,

2024, and for which the anticipated GHG

emissions rate (as determined under section 48E(b)(3)(B)(ii)) is not greater than

zero.

Section 48E(b)(3)(B) provides additional rules for a qualified facility. Section 48E(b)(3)(B)(i) provides rules on

an expansion of facility and incremental

production stating that rules similar to the

rules of section 45Y(b)(1)(C) apply for

purposes of section 48E(b)(3). Section

48E(b)(3)(B)(ii) provides rules to determine the GHG emissions rate of a qualified facility by stating that rules similar

to the rules of section 45Y(b)(2) apply for

purposes of section 48E(b)(3).

Section 48E(b)(3)(C) provides that

a qualified facility will not include any

facility for which a renewable electricity

production credit determined under section 45, an advanced nuclear power facility production credit determined under

section 45J, a carbon oxide sequestration

To meet this requirement, the construction of the qualified facility must begin prior to January 29, 2023. See proposed §1.48E–3 as proposed in the notice of proposed rulemaking (REG–

100908–23) published in the Federal Register (88 FR 60018) on August 30, 2023, and corrected at 88 FR 73807 on October 27, 2023.

4

To meet this requirement, the construction of the EST must begin prior to January 29, 2023. See proposed §1.48E–3 as proposed in the notice of proposed rulemaking (REG–100908–23)

published in the Federal Register at 88 FR 60018 on August 30, 2023, and corrected at 88 FR 73807 on October 27, 2023.

3

August 5, 2024

354

Bulletin No. 2024–32

credit determined under section 45Q, a

zero-emission nuclear power production

credit determined under section 45U, a

clean electricity production credit determined under section 45Y, an energy credit

determined under section 48, or a qualifying advanced coal project credit under

section 48A, is allowed under section 38

for the taxable year or any prior taxable

year. Section 48E(b)(5) provides a rule for

coordination with the rehabilitation credit

stating that the qualified investment with

respect to any qualified facility for any

taxable year will not include that portion

of the basis of any property that is attributable to qualified rehabilitation expenditures (as defined in section 47(c)(2) of the

Code).

Section 48E(b)(6) provides that for purposes of section 48E(b), the terms “CO2e

per kWh” and “greenhouse gas emissions

rate” have the same meaning given such

terms under section 45Y. Section 48E(f)

provides that, in section 48E, the term

“greenhouse gas” has the same meaning

given such term under section 45Y(e)(2).

C. Qualified investment with respect to

an energy storage technology

Section 48E(c) describes a qualified

investment with respect to EST. For purposes of section 48E(a), section 48E(c)(1)

provides that the qualified investment with

respect to EST for any taxable year is the

basis of any EST placed in service by the

taxpayer during such taxable year. Section 48E(c)(2) provides that for purposes

of section 48E, the term “energy storage

technology” has the meaning given such

term in section 48(c)(6) (except that section 48(c)(6)(D) will not apply). Section

48(c)(6)(A)(i) defines “energy storage

technology” to mean property (other than

property primarily used in the transportation of goods or individuals and not for

the production of electricity) that receives,

stores, and delivers energy for conversion

to electricity (or, in the case of hydrogen,

which stores energy), and has a nameplate

capacity of not less than 5 kWh. Section

48(c)(6)(A)(ii) provides that the term

“energy storage technology” also includes

thermal energy storage property. Section

5

48(c)(6)(B) describes a rule for modifications of certain property.

Section 48(c)(6)(C)(i) defines “thermal energy storage property” to mean for

purposes of section 48(c)(6), subject to

section 48(c)(6)(C)(ii), property comprising a system that is directly connected to

a heating, ventilation, or air conditioning

system, removes heat from, or adds heat

to, a storage medium for subsequent use,

and provides energy for the heating or

cooling of the interior of a residential or

commercial building. Section 48(c)(6)(C)

(ii) describes the exclusion that thermal

energy storage property will not include

a swimming pool, combined heat and

power system property, or a building or its

structural components.

Section 48E(d) provides special rules

for section 48E, all of which refer to other

provisions. Section 48E(d)(1) provides a

rule for qualified progress expenditures,

stating that rules similar to the rules of

former section 46(c)(4) and (d) (as in

effect on the day before the date of the

enactment of the Revenue Reconciliation Act of 1990) apply for purposes of

section 48E(a).5 Section 48E(d)(2) provides a special rule for property financed

by subsidized energy financing or private

activity bonds, stating that rules similar to

the rules of section 45(b)(3) apply. Section

48E(d)(3) provides a rule for prevailing

wage requirements, stating that rules similar to the rules of section 48(a)(10) apply.

Likewise, section 48E(d)(4) provides a

rule for apprenticeship requirements stating that rules similar to the rules of section

45(b)(8) apply. Lastly, section 48E(d)(5)

provides a rule for the domestic content

requirement for elective payment stating

that in the case of a taxpayer making an

election under section 6417 with respect

to a credit under section 48E, rules similar

to the rules of section 45Y(g)(12) apply.

D. Credit phase-out

Section 48E(e) describes the credit

phase-out. Section 48E(e)(1) provides

generally that the amount of the clean

electricity investment credit under section

48E(a) for any qualified investment with

respect to any qualified facility or EST the

construction of which begins during a calendar year described in section 48E(e)(2)

is equal to the product of the amount of the

credit determined under section 48E(a)

without regard to section 48E(e), multiplied by the phase-out percentage under

section 48E(e)(2). Section 48E(e)(2) provides that the phase-out percentage is 100

percent for any qualified investment with

respect to any qualified facility or EST the

construction of which begins during the

first calendar year following the applicable

year; 75 percent for any qualified investment with respect to any qualified facility

or EST the construction of which begins

during the second calendar year following the applicable year; 50 percent for any

qualified investment with respect to any

qualified facility or EST the construction

of which begins during the third calendar

year following the applicable year; and 0

percent for any qualified investment with

respect to any qualified facility or EST the

construction of which begins during any

calendar year subsequent to the calendar

year described in section 48E(e)(2)(C).

Section 48E(e)(3) defines the “applicable

year” for purposes of section 48E(e) to

have the same meaning given such term in

section 45Y(d)(3).

E. Recapture rules

For purposes of the recapture rules

under section 50(a), section 48E(g) provides a special recapture rule applicable

to qualified facilities. Specifically, section 48E(g) provides that, for purposes

of section 50, if the Secretary determines

that the GHG emissions rate for a qualified facility is greater than 10 grams of

CO2e per kWh, any property for which a

credit was allowed under section 48E with

respect to such facility ceases to be investment credit property in the taxable year in

which the determination is made.

III. Notice 2022-49

On October 24, 2022, the Treasury

Department and the IRS published Notice

2022-49, 2022-43 I.R.B. 321. The notice

requested general comments on issues

arising under sections 45Y and 48E, as

The rules provided by §1.46-5 related to qualified progress expenditures apply for purposes of section 48E(a).

Bulletin No. 2024–32

355

August 5, 2024

well as on issues relating to three other

credits. For section 45Y, the notice specifically requested comments concerning

(1) industry standards for taxpayer eligibility for the credit, (2) what the Treasury

Department and the IRS should consider,

including around the scope and factors,

for the annual GHG emissions rate table,

(3) whether guidance is needed to clarify

cases in which a metering device is owned

and operated by an unrelated person or in

which electricity produced at such a qualified facility with such a device is sold,

consumed or stored by the taxpayer, and

(4) what procedures the Treasury Department and the IRS should provide for a

taxpayer whose facility does not have an

emissions rate established by the annual

rate table, and what should the Secretary

consider in making such a determination.

For section 48E, the notice specifically

requested comments concerning what

industry mechanisms currently exist for a

taxpayer to demonstrate eligibility for the

credit.

The Treasury Department and the IRS

received over 100 comments specifically

addressing sections 45Y and 48E from

industry participants and other stakeholders. The Treasury Department and the IRS

appreciate the commentors’ interest and

engagement on these issues. These comments have been carefully considered in

the preparation of these proposed regulations.

IV. Prior Guidance

On August 30, 2023, the Treasury

Department and the IRS published a notice

of proposed rulemaking and a notice of

public hearing (REG-100908-23) in the

Federal Register (88 FR 60018), providing guidance on the prevailing wage and

registered apprenticeship (PWA) requirements under sections 45, 45Y, 48, 48E and

several other sections of the Code (August

Proposed Regulations). The August Proposed Regulations also proposed guidance

on the one-megawatt exception under sections 45, 45Y, 48, and 48E (One-Megawatt

Exception). Under this exception, with

respect to certain facilities with a maximum net output (or capacity for energy

storage technology under section 48E) of

less than one megawatt, increased credit

amounts are available.

August 5, 2024

On November 22, 2023, the Treasury

Department and the IRS published a notice

of proposed rulemaking and a notice of

public hearing (REG- 132569-17) in the

Federal Register (88 FR 82188), providing guidance under section 48 of the Code.

Among other matters, the proposed regulations under section 48 (Section 48 Proposed Regulations) withdrew and reproposed the regulations in §1.48-13 from the

August Proposed Regulations regarding

the PWA requirements under section 48,

the One-Megawatt Exception under section 48(a)(9)(B)(i), and the recapture rules

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

Explanation of Provisions

I. Rules Applicable to the Clean

Electricity Production Tax Credit

The proposed regulations under section

45Y are organized in five sections, proposed §§1.45Y-1 through 1.45Y-5 (section 45Y regulations). Proposed §1.45Y-1

would provide an overview of the section

45Y regulations, generally applicable

definitions, and general rules applicable

to section 45Y, including a rule for calculating the credit for a CHP property. Proposed §1.45Y-2 would provide rules relating to qualified facilities for purposes of

the section 45Y credit. Section 1.45Y-3 is

reserved for rules relating to the increased

credit amount for meeting the prevailing

wage and apprenticeship requirements. A

cross reference will be added to §1.45Y-3

in the final regulations after §1.45Y-3 is

finalized. Proposed §1.45Y-4 would provide the rules of general application under

section 45Y, including rules that attribute

production to the taxpayer, rules for the

expansion of a facility and incremental

production, and rules for retrofits of an

existing facility. Proposed §1.45Y-5 would

provide rules pertaining to the determination of a GHG emissions rate for a facility

under section 45Y.

A. Amount of credit

Proposed §1.45Y-1 would provide an

overview of the section 45Y regulations

and definitions of terms for purposes of

the section 45Y regulations, including

the terms “combined heat and power system (CHP) property,” “metering device,”

356

“related person,” “unrelated person,” and

“qualified facility.”

Proposed §1.45Y-1(a)(5)(i) would

define, for purposes of section 45Y(a)(1)

(A)(ii)(II), the term “metering device” as

equipment that is owned and operated by

an unrelated person (as defined in paragraph (a)(11) of this section) for energy

revenue metering to measure and register

the continuous summation of an electricity quantity with respect to time. Further,

proposed §1.45Y-1(a)(5)(ii) would provide standards for maintaining and operating a metering device for purposes of

section 45Y(a)(1)(A)(ii)(II) and proposed

§1.45Y-1(a)(5) by requiring a metering

device to be maintained in proper working order according to the instructions of

its manufacturer. Proposed §1.45Y-1(a)

(5)(ii) would also provide that a metering

device should meet the requirements of

the American National Standards Institute

C12.1-2022 standard, or subsequent revisions, be revenue grade with a +/- 0.5%

accuracy, and be properly calibrated. Proposed §1.45Y-1(a)(5)(iii) would provide

that for purposes of monitoring the metering device, the unrelated person may share

network equipment, such as spare fiber

optic cable owned by the taxpayer that

produces the electricity, and may co-locate network equipment in the taxpayer’s facilities. Proposed §1.45Y-1(a)(5)

(iv) would provide examples illustrating

the proposed rules provided by proposed

§1.45Y-1(a)(5).

Proposed §1.45Y-1(a)(7)(i) would provide that for purposes of section 45Y(a),

the term “related person” means a person who is related to another person if

such person would be treated as a single

employer under the regulations in 26 CFR

chapter 1 under section 52(b) of the Code.

Proposed §1.45Y-1(a)(7)(ii) would provide that in the case of a corporation that

is a member of a consolidated group (as

defined in §1.1502-1(h)), such corporation

will be treated as selling electricity to an

unrelated person if such electricity is sold

to an unrelated person by another member

of such group.

Proposed §1.45Y-1(a)(11) would provide that for purposes of section 45Y(a),

the term “unrelated person” means a

person who is not a related person as

defined in section 45Y(g)(4) and proposed

§1.45Y-1(a)(7). In the case of sales of

Bulletin No. 2024–32

electricity to an individual consumer, such

sales will be treated as sales to an unrelated party for purposes of the section 45Y

credit. Proposed §1.45Y-1(a)(11) provides

an example illustrating the application of

these rules.

Proposed

§1.45Y-1(b)(1)

would

describe the calculation of the section

45Y credit, providing that the credit is an

amount equal to the product of the kWh

of electricity that is produced by the taxpayer at a qualified facility (as defined in

proposed §1.45Y-2(a)) and sold by the

taxpayer to an unrelated person during the

taxable year, multiplied by the applicable

amount (as described in proposed §1.45Y1(b)) with respect to such qualified facility. Proposed §1.45Y-1(b)(1) would further provide that in the case of a qualified

facility that is equipped with a metering

device that is owned and operated by an

unrelated person, the section 45Y credit

for any taxable year is an amount equal to

the product of the kWh of electricity that

is both produced at the qualified facility

(as defined in proposed §1.45Y-2(a)) and

sold, consumed, or stored by the taxpayer

during the taxable year, multiplied by the

applicable amount with respect to such

qualified facility. Proposed §1.45Y-1(b)

(1) would also provide that only one section 45Y credit may be claimed for each

kWh of electricity produced by the taxpayer at a qualified facility.

Proposed §1.45Y-1(b)(2)(i) would

define the applicable amount as the base

amount described in §1.45Y-1(b)(2)(ii)

or the alternative amount described in

§1.45Y-1(b)(2)(iii). Proposed §1.45Y1(b)(2)(i) would further provide that the

applicable amount is subject to the inflation adjustment as provided in section

45Y(c)(1) and proposed §1.45Y-1(b)

(3), and that the applicable amount may

also be increased as provided in section

45Y(g)(7)) and proposed §1.45Y-1(b)

(4), in the case of a qualified facility that

is located in an energy community. Proposed §1.45Y-1(b)(2)(ii) would describe

the base amount as 0.3 cents in the case

of any qualified facility that does not satisfy the requirements provided in section

45Y(a)(2)(B). Proposed §1.45Y-1(b)(2)

(iii) would describe the alternative amount

as 1.5 cents if prevailing wage and apprenticeship requirements are satisfied as provided in section 45Y(a)(2)(B).

Bulletin No. 2024–32

Proposed §1.45Y-1(b)(3) would provide the rules related to the inflation

adjustment factor applicable to the section 45Y credit. Proposed §1.45Y-1(b)

(4) would provide the rules applicable to

the energy communities increase in credit.

Proposed §1.45Y-1(b)(5) would provide

the domestic content bonus credit amount.

Proposed §1.45Y-1(c) would provide

the credit phase-out rules. Generally,

proposed §1.45Y-1(c)(1) would provide

that the amount of the clean electricity

production credit under section 45Y(a)

for any qualified facility the construction

of which begins during a calendar year

described in section 45Y(d)(2) is equal

to the product of the amount of the credit

determined under section 45Y(a) without

regard to the credit phaseout rules of section 45Y(d) (credit phase-out), multiplied

by the phase-out percentage provided in

section 45Y(d)(2). Proposed §1.45Y-1(c)

(2) would provide that the phase-out percentage is 100 percent for a facility the

construction of which begins during the

first calendar year following the applicable year; 75 percent for a facility the

construction of which begins during the

second calendar year following the applicable year; 50 percent for a facility the

construction of which begins during the

third calendar year following the applicable year; and 0 percent for a facility the

construction of which begins during any

calendar year subsequent to the calendar

year described in section 45Y(d)(2)(C).

Proposed §1.45Y-1(c)(3) would define

the “applicable year” for purposes of proposed §1.45Y-1(c) to mean the later of

the calendar year in which the Secretary

makes the determination that the annual

greenhouse gas emissions from the production of electricity in the United States

are equal to or less than 25 percent of the

annual greenhouse gas emissions from

the production of electricity in the United

States for calendar year 2022, or 2032.

Proposed §1.45Y-1(c)(4) would provide

that, for the purposes of determining the

applicable year, the annual greenhouse

gas emissions from the production of electricity in the United States for any year

must be assessed separately using both

the Energy Information Administration’s

(EIA) Electric Power Annual, using the

sum of the annual carbon dioxide emissions data from conventional power plants

357

and combined heat and power plants

as currently listed in Table 9.1 and the

Monthly Energy Review annual carbon

dioxide emissions from the combustion

of biomass to produce electricity in the

electric power sector as currently listed

in Table 11.7, and the U.S. Environmental Protection Agency (EPA) Inventory

of U.S. Greenhouse Gas Emissions and

Sinks (GHGI) annual electric power-related carbon dioxide, methane, and nitrous

oxide emissions data including carbon

dioxide emissions from the combustion

of biomass to produce electricity. In the

most current version of the GHGI, annual

fossil and biogenic CO2 from electricity

production in the electric power sector is

available in Table 2-11 and Tables 3-120

and 3-122, respectively; and CH4 and

N2O from electricity production in the

electric power sector is available in Table

3-8 and Table 3-9, respectively. Based on

current and publicly available data in the

2024 GHGI, the estimate for 2022 GHG

emissions associated with the production

of electricity is 1,613 million metric tons

(MMT) CO2e. Currently, explicit data on

industrial and commercial sector GHG

emissions from the production of electricity is not disaggregated from overall sectoral totals. See GHGI, https://www.epa.

gov/ghgemissions/inventory-us-greenhouse-gas-emissions-and-sinks.

For 2022, the EIA Electric Power

Annual states that the annual carbon dioxide emissions from conventional power

plants and combined heat and power

plants are 1,650 MMT, and the Monthly

Energy Review annual carbon dioxide

emissions from the combustion of biomass

to produce electricity in the electric power

sector are 35 MMT. Thus, the EIA’s data

reflects a total of 1,685 MMT in 2022. See

EIA Electric Power Annual (https://www.

eia.gov/electricity/annual); MER (https://

eia.gov/totalenergy/monthly/).

Proposed §1.45Y-1(c)(5) would provide that, for the purposes of determining the applicable year, the Secretary

will make such determination only if the

annual greenhouse gas emissions from

the production of electricity in the United

States, as determined separately under

both of the data sources described in proposed §1.45Y-1(c)(4), for the year is equal

to or less than 25 percent of the annual

greenhouse gas emissions from the pro-

August 5, 2024

duction of electricity in the United States

for calendar year 2022. Proposed §1.45Y1(c)(5) would provide that if a data source

described in proposed §1.45Y-1(c)(4)

becomes unavailable (for example, it is no

longer published or it does not provide the

specified data), the Secretary must designate a similar data source to replace the

unavailable data source. Requiring the

applicable year to be determined using data

from the EIA’s Electric Power Annual and

Monthly Energy Review and the EPA’s

GHGI ensures that this important determination is made transparently and based

on reliable information. Both well-established data sources are representative of

the annual greenhouse gas emissions from

the production of electricity in the United

States, but there are slight differences in

the greenhouse gases and the emissions

sources covered by each data source.

There are other United States Government greenhouse gas datasets that could

serve as the basis for the Secretary’s

determination as to whether the annual

greenhouse gas emissions from the production of electricity in the United States

are equal to or less than 25 percent compared to 2022. Two such datasets are the

EPA Greenhouse Gas Reporting Program

(GHGRP) and Emissions & Generation

Resource Integrated Database (eGRID).

The Treasury Department and the IRS

request comment on which datasets are

most appropriate to determine the applicable year and why.

Proposed §1.45Y-1(d) would provide requirements for CHP property and

special rules for calculating the section

45Y credit for CHP property. Proposed

§1.45Y-1(d)(1) would provide that CHP

property must produce at least 20 percent

of its total useful energy in the form of

thermal energy that is not used to produce

electrical or mechanical power (or combination thereof), and at least 20 percent

of its total useful energy in the form of

electrical or mechanical power (or combination thereof). Proposed §1.45Y-1(d)

(1) would further provide that the energy

efficiency percentage of CHP property

must exceed 60 percent, and that these

percentages are determined on a British

thermal unit (Btu) basis. Section 45Y(g)

(2)(B) incorporates these requirements by

providing that the term “combined heat

and power system property” has the same

August 5, 2024

meaning given such term by section 48(c)

(3) (without regard to section 48(c)(3)(A)

(iv), (B), and (D)).

Proposed

§1.45Y-1(d)(2)

would

describe the energy efficiency percentage

of a CHP property stating that it is the

fraction the numerator of which is the total

useful electrical, thermal, and mechanical

power produced by the system at normal

operating rates, and expected to be consumed in its normal application, and the

denominator of which is the lower heating

value of the fuel sources for the system,

which is a measure of heat content based

on the net energy content of a combustible

fuel.

Proposed §1.45Y-1(d)(3) would provide a special rule for calculating electricity produced by CHP property. For

purposes of section 45Y(a) and proposed

§1.45Y-1(b), the kWh of electricity produced by a taxpayer at a qualified facility

will include any production in the form of

useful thermal energy by any CHP property within such facility, and the amount

of greenhouse gases emitted into the

atmosphere by such facility in the production of such useful thermal energy will be

included for purposes of determining the

GHG emissions rate for such facility.

Proposed §1.45Y-1(d)(3)(ii)(A) would

provide a conversion from Btu to kWh.

Proposed §1.45Y-1(d)(3)(ii))(A) would

provide that for purposes of section

45Y(g)(2)(A)(i) and §1.45Y-1(d)(3), the

amount of kWh of electricity produced in

the form of useful thermal energy is equal

to the quotient of the total useful thermal

energy produced by the CHP property

within the qualified facility, divided by the

heat rate for such facility.

Proposed §1.45Y-1(d)(3)(ii)(B) would

define the term “heat rate” to mean the

amount of energy used by the qualified

facility to generate 1 kWh of electricity,

expressed as Btus per net kWh generated.

In calculating the heat rate of a qualified

facility that includes CHP property that

uses combustion, a taxpayer must use the

annual average heat rate, defined as the

total annual fuel consumption of the CHP

property (in Btus, using the lower heating value of the fuel) during the taxable

year for which the section 45Y credit is

claimed, divided by the annual net electricity generation (in kWh) of the CHP

property during such taxable year.

358

Section 45Y(g)(2), by cross reference to section 48(c)(3), requires that the

energy efficiency percentage of the CHP

property must exceed 60 percent, calculated as (1) the total useful electrical,

thermal, and mechanical power produced

by the system at normal operating rates,

and expected to be consumed in its normal

application, divided by (2) the lower heating value (LHV) of the fuel sources for

the system. The LHV is calculated based

on combustion. Some CHP property may

not involve combustion, such as nuclear

cogeneration. In these scenarios, because

there is no calculable LHV, the energy

efficiency percentage of the CHP property

cannot be determined using the calculation provided in the statute.

The Treasury Department and the IRS

request comments regarding the application of the energy efficiency percentage

requirements to CHP property for which

there is no combustion. Relatedly, comment is requested on whether the existing

definition of heat rate provided in section

45Y(g)(2)(C)(ii) for purposes of calculating the section 45Y credit for CHP property that does not use combustion should

be clarified.

B. Qualified facility

Proposed §1.45Y-2(a) would define

a “qualified facility” to mean a facility

owned by the taxpayer and used for the

generation of electricity, that is placed in

service after December 31, 2024, and has

a GHG emissions rate of not greater than

zero (as determined under rules provided

in proposed §1.45Y-5).

1. Property Included in Qualified Facility

Proposed §1.45Y-2(b) would provide

a description of the property included in

a qualified facility. Proposed §1.45Y-2(b)

(1) would provide that a qualified facility includes a unit of qualified facility (as

defined in proposed §1.45Y-2(b)(2)(i))

that meets the requirements of proposed

§1.45Y-2(b)(2)(ii). Proposed §1.45Y-2(b)

(1) would provide that a qualified facility

also includes qualified property owned by

the taxpayer that is an integral part of a

qualified facility (as defined in proposed

§1.45Y-2(b)(3)). Section 45Y is silent

regarding the credit eligibility of compo-

Bulletin No. 2024–32

nents that are part of a qualified facility

but located in different locations. Proposed §1.45Y-2(b)(1) would clarify that

any property that meets the requirements

of a qualified facility described in proposed §1.45Y-2(b) is part of a qualified

facility, regardless of where such property is located. Proposed §1.45Y-2(b)(1)

would provide that a qualified facility also

generally does not include equipment that

is an addition or modification to an existing qualified facility, however, proposed

§1.45Y-2(b)(1) would reference proposed

§1.45Y-4(c) for rules regarding the expansion of a facility or incremental production and proposed §1.45Y-4(d) for rules

regarding a retrofitted qualified facility

(80/20 Rule).

2. Unit of Qualified Facility

Proposed §1.45Y-2(b)(2)(i) would

provide that for purposes of the section

45Y credit, the unit of qualified facility

includes all functionally interdependent

components of property (as defined in

proposed §1.45Y-2(b)(2)(ii)) owned by

the taxpayer that are operated together and

that can operate apart from other property

to produce electricity. Proposed §1.45Y2(b)(2)(i) would clarify that no provision

of this section, §1.45Y-1, or §1.45Y-4

through §1.45Y-5 uses the term “unit”

in respect of a qualified facility with any

meaning other than that provided in proposed §1.45Y–2(b)(2)(i). A reference to

§1.45Y-3 will also be added to the previous sentence in proposed §1.45Y-2(b)

(2)(i) when proposed §1.45Y-2(b)(2)(i)

is finalized, but it cannot be added until

§1.45Y-3 is finalized.

Proposed §1.45Y-2(b)(2)(ii) would

provide that components are functionally

interdependent if placing in service each

component is dependent upon placing in

service other components to produce electricity. See the discussion in section I.A.

of the Explanation of Provisions regarding

the special rule for CHP property.

3. Integral Part

Proposed §1.45Y–2(b)(3)(i) would

provide that for purposes of the section

45Y credit, a component of property

owned by a taxpayer is an integral part

of a facility if it is used directly in the

Bulletin No. 2024–32

intended function of the qualified facility and is essential to the completeness of

such function.

Proposed §1.45Y–2(b)(3)(ii) would

provide that components of property that

are an integral part of a qualified facility include power conditioning equipment and transfer equipment. Proposed

§1.45Y–2(b)(3)(ii) would provide that

power conditioning equipment includes

equipment that modifies the characteristics of electricity into a form suitable for

use or transmission or distribution. Proposed §1.45Y–2(b)(3)(ii) would provide

that parts related to the functioning or protection of power conditioning equipment

are also treated as power conditioning

equipment and includes examples.

Proposed §1.45Y–2(b)(3)(ii) would

provide that transfer equipment includes

components that permit the aggregation

of electricity generated by components of

qualified facilities and components that

alter voltage in order to permit transfer to a

transmission or distribution line. Proposed

§1.45Y–2(b)(3)(ii) would also clarify that

transfer equipment does not include transmission or distribution lines. Proposed

§1.45Y–2(b)(3)(ii) would provide that

examples of transfer equipment include,

but are not limited to, wires, cables, and

combiner boxes that conduct electricity.

Proposed §1.45Y–2(b)(3)(ii) would provide that parts related to the functioning or

protection of transfer equipment are also

treated as transfer equipment and include

examples.

Proposed §1.45Y-2(b)(3)(iii) would

provide that roads that are an integral part

of a qualified facility are those roads integral to the intended function of the qualified facility, such as onsite roads that are

used to operate and maintain the qualified

facility. Proposed §1.45Y–2(b)(3)(iii)

would also clarify that roads used primarily for access to the site, or roads used

primarily for employee or visitor vehicles,

are not integral to the intended function of

the qualified facility and thus are not an

integral part of a qualified facility.

Proposed §1.45Y–2(b)(3)(iv) and (v)

would also provide that fences and buildings (also referred to as structures) are

generally not integral parts of a qualified

facility because they are not integral to the

intended function of the qualified facility.

However, a building (or structure) may be

359

an integral part of a qualified facility if it is

essentially an item of machinery or equipment and a structure that houses components of property that are integral to the

intended function of the qualified facility

if the use of the structure is so closely

related to the use of the housed components of property therein that the structure

clearly can be expected to be replaced if

the components of property it initially

houses are replaced.

Proposed §1.45Y-2(b)(3)(vi) would

provide a rule for shared integral property

by stating that multiple qualified facilities

(whether owned directly by one or more

taxpayers), including qualified facilities with respect to which a taxpayer has

claimed a credit under section 45Y or section 48E, may include shared property that

can be considered an integral part of each

qualified facility. Proposed §1.45Y-2(b)

(3)(vi) would also provide that a component of property that is shared by a qualified facility (as defined in section 45Y(b))

(45Y Qualified Facility) and a qualified

facility (as defined in section 48E(b)(3))

(48E Qualified Facility) that is an integral

part of both qualified facilities will not

affect the eligibility of the section 45Y

Qualified Facility to claim the section 45Y

credit or the section 48E Qualified Facility to claim a section 48E credit. Proposed

§1.45Y-2(b)(3)(vii) would provide examples illustrating proposed §1.45Y-2(b)(3).

4. Coordination with Other Credits

Proposed §1.45Y-2(c)(1) would provide that the term “qualified facility” (as

defined in section 45Y(b)) will not include

any facility for which a credit determined

under section 45, 45J, 45Q, 45U, 48, 48A,

or 48E is allowed under section 38 of the

Code for the taxable year or any prior taxable year. Proposed §1.45Y-2(c)(1) would

further clarify that a taxpayer that directly

owns a qualified facility (as defined in

section 45Y(b)) that is eligible for both

a section 45Y credit and another Federal

income tax credit is eligible for the section 45Y credit only if the other Federal

income tax credit was not allowed with

respect to the qualified facility. Proposed

§1.45Y-2(c)(1) would also add that nothing in §1.45Y-2(c) precludes a taxpayer

from claiming a section 45Y credit with

respect to a qualified facility (as defined

August 5, 2024

in section 45Y(b)) that is co-located with

another facility for which a credit determined under section 45, 45J, 45Q, 45U,

48, 48A, or 48E is allowed under section

38 for the taxable year or any prior taxable

year. Proposed §1.45Y-2(c)(2) would clarify that for purposes of proposed §1.45Y2(c)(1), the term “allowed” only includes

credits that taxpayers have claimed on

a Federal income tax return or Federal

return, as appropriate, and that the IRS

has not challenged in terms of the taxpayer’s eligibility. Proposed §1.45Y-2(c)(3)

includes several examples illustrating the

rules of §1.45Y-2(c).

C. Rules of general application to section

45Y

1. Only Production in the United States

Taken into Account

Proposed §1.45Y-4(a) would provide

that consumption, sales, or storage of electricity are taken into account for purposes

of the section 45Y credit only with respect

to electricity produced within the United

States (as defined in section 638(1)), or a

United States territory, which for purposes

of section 45Y and the section 45Y regulations has the meaning of the term “possession” of the United States (as defined in

section 638(2)).

2. Production Attributable to the

Taxpayer and Section 761(a) Elections

Proposed §1.45Y-4(b)(1) would provide that in the case of a qualified facility in which more than one person has an

ownership share (and such arrangement is

not treated as a partnership for Federal tax

purposes), production from the qualified

facility is allocated among such persons

in proportion to their respective ownership share in the gross sales from such

qualified facility during the taxable year.

The respective owners each determine

their respective section 45Y credit under

section 45Y(a) based on their respective

ownership shares in the gross sales from

such qualified facility. Proposed §1.45Y4(b)(2) would provide an example demonstrating the application of this rule.

Proposed §1.45Y-4(b)(3) would provide that if a qualified facility is owned

through an unincorporated organization

August 5, 2024

that has made a valid election under section 761(a) of the Code, each member’s

undivided ownership share in the qualified

facility will be treated as a separate qualified facility owned by such member.

3. Expansion of Facility; Incremental

Production

Proposed §1.45Y-4(c)(1) would provide, solely for purposes of proposed

§1.45Y-4(c), that the term “qualified

facility” includes either a new unit or an

addition of capacity placed in service after

December 31, 2024, in connection with a

facility described in section 45Y(b)(1)(A)

(without regard to clause (ii) of such paragraph), which was placed in service before

January 1, 2025, but only to the extent of

the increased amount of electricity produced at the facility by reason of such

new unit or addition of capacity. Proposed

§1.45Y-4(c)(1) would also provide that a

new unit or an addition of capacity will be

treated as a separate qualified facility. Proposed §1.45Y-4(c)(1) would provide for

purposes of proposed §1.45Y-4(c), that a

new unit or an addition of capacity require

the addition or replacement of components

of property, including any new or replacement integral property, added to a facility

necessary to increase capacity. If applicable for purposes of proposed §1.45Y-4(c),

taxpayers must use modified or amended

facility operating licenses or the International Standard Organization (ISO) conditions to measure the maximum electrical

generating output of a facility to determine its nameplate capacity. Additionally,

proposed §1.45Y-4(c)(1) would provide

that for purposes of section 45Y(a)(2)(B)

(i) (that is, the One-Megawatt Exception),

the capacity for a new unit or an addition

of capacity is the sum of the nameplate

capacity of the added qualified facility

and the nameplate capacity of the facility

to which the qualified facility was added.

Proposed §1.45Y-4(c)(2) would provide that solely for purposes of §1.45Y4(c), a facility that is decommissioned

or in the process of decommissioning

and restarts can be considered to have

increased capacity if the following conditions are met: (1) the existing facility must

have ceased operations; (2) the existing

facility must have a shutdown period of

at least one calendar year during which it

360

is without a valid operating license from

its respective Federal regulatory authority

(that is, the Federal Energy Regulatory

Commission (FERC) or the Nuclear Regulatory Commission (NRC)); and (3) the

increased capacity of the restarted facility

must have a new, reinstated, or renewed

operating license issued by either FERC

or NRC.

Proposed

§1.45Y-4(c)(3)

would

describe how to compute the increased

amount of electricity produced as a result

of a new unit or an addition of capacity.

Proposed §1.45Y-4(c)(3) would provide

that to determine the increased amount of

electricity produced by a facility by reason of a new unit or an addition of capacity, a taxpayer must multiply the amount

of electricity that the facility produces

during a taxable year after the new unit or

addition of capacity is placed in service

by a fraction, the numerator of which is

the added nameplate capacity that results

from the new unit or addition of capacity,

and the denominator of which is the total

nameplate capacity of the facility with the

new unit or addition of capacity added.

Proposed §1.45Y-4(c)(4) would illustrate the application of these rules to determine the increased amount of electricity

attributable to a new unit or an addition of

capacity described in §1.45Y-4(c).

4. Retrofit of an Existing Facility (80/20

Rule)

Proposed §1.45Y-4(d)(1) would provide that for purposes of section 45Y(b)

(1)(B), a facility may qualify as originally

placed in service even if it contains some

used components of property within the

unit of qualified facility, provided the fair

market value of the used components of

the unit of qualified facility is not more

than 20 percent of the total value of the

unit of qualified facility (that is, the cost of

the new components of property plus the

fair market value of the used components

of property within the unit of qualified

facility) (80/20 Rule). Proposed §1.45Y4(d)(1) would further provide that if a

facility satisfies the requirements of the

80/20 Rule, then the date on which such

qualified facility is considered originally

placed in service for purposes of section

45Y(B)(1)(b) is the date on which the

new components of property of the unit

Bulletin No. 2024–32

of qualified facility are placed in service.

Proposed §1.45Y-4(d)(2) would provide

that, for purposes of this 80/20 Rule, the

cost of new components of the unit of

qualified facility includes all costs properly included in the depreciable basis of

the new components of property. Lastly,

proposed §1.45Y-4(d)(3) would provide

examples demonstrating the 80/20 Rule.

D. Greenhouse gas emissions rates

Section 45Y(b)(2) provides rules for

determining GHG emissions rates. Proposed §1.45Y-5(a) would provide an overview of the rules pertaining to GHG emissions rates for facilities under section 45Y.

1. Definitions Related to Greenhouse Gas

Emissions Rates

Proposed §1.45Y-5(b) would provide

definitions of terms relevant to determining GHG emissions rates. Section 45Y(e)

(1) defines the term “CO2e per kWh” as,

with respect to any greenhouse gas, the

equivalent carbon dioxide (as determined

based on global warming potential) per

kWh of electricity produced. Proposed

§1.45Y-5(b)(1) would clarify that the term

“CO2e per kWh” means with respect to

any greenhouse gas, the equivalent carbon

dioxide (as determined based on the 100year time horizon global warming potential (GWP-100)) per kWh of electricity

produced. Proposed §1.45Y-5(b)(1) would

also provide global warming potentials for

certain greenhouse gases from the Intergovernmental Panel on Climate Change’s

Fifth Assessment Report (AR5).

Proposed §1.45Y-5(b)(8) would provide that the term “fuel” means material

directly used to produce electricity or

energy inputs that are used to produce

electricity. Proposed §1.45Y-5(b)(9)

would provide that the term “feedstock”

means any raw material used in a process

for electricity generation or to produce an

intermediate product or finished fuel used

for electricity generation.

Section 45Y(b)(2)(B) provides rules

for determining a GHG emissions rate

for a facility that produces electricity

through combustion or gasification. Proposed §1.45Y-5(b)(2) would provide that

the term “combustion” means a rapid exothermic chemical reaction, specifically the

Bulletin No. 2024–32

oxidation of a fuel, which liberates energy

including heat and light. This proposed

definition of “combustion” would include,

for example, burning fossil fuels, but it

would not include the reaction that produces electricity inside a fuel cell.

Gasification produces fuel but not electricity. Proposed §1.45Y-5(b)(3) would

provide that the term “gasification” means

a thermochemical process that converts

carbon-containing materials into syngas, a

gaseous mixture that is composed primarily of carbon monoxide, carbon dioxide,

and hydrogen. Because gasification does

not produce electricity, the inclusion of

the term “gasification” as a category separate from “combustion” in section 45Y(b)

(2)(B) would have no independent significance unless it is interpreted as applying

to the production of an energy source that

is ultimately used by the facility to generate electricity (for example, syngas used to

make electricity). Thus, proposed §1.45Y5(b)(4) would interpret the phrase “facility which produces electricity through

combustion or gasification” in section

45Y(b)(2)(B) as applying to facilities that

produce electricity through combustion or

use an input energy source to produce electricity, which energy source was produced

through a fundamental transformation, or

multiple transformations, of one energy

source into another using combustion or

gasification. The Treasury Department

and the IRS request comment on this proposed interpretation, including whether

the application of this proposed interpretation should be clarified with respect to

any type of fundamental transformation of

an energy source and any related activities

or operations. Comment is also requested

on supply chain tracing requirements that

the Treasury Department and the IRS may

apply to verify whether or not a feedstock

or fuel (including energy inputs) used by

a facility to produce electricity was produced using combustion or gasification.

Section 45Y(b)(2)(B) provides that in

the case of electricity produced through

combustion or gasification, the GHG

emissions rate for such facility is equal to

the net rate of greenhouse gases emitted

into the atmosphere by such facility (taking into account lifecycle greenhouse gas

emissions, as described in section 211(o)

(1)(H) of the CAA (42 U.S.C. 7545(o)(1)

(H)) in the production of electricity. Pro-

361

posed §1.45Y-5(b)(4) would provide that a

“facility that produces electricity through

combustion or gasification” (C&G Facility) means a facility that produces electricity through combustion or uses an input

energy source to produce electricity, if the

input energy source was produced through

a fundamental transformation, or multiple

transformations, of one energy source into

another using combustion or gasification.

Under proposed §1.45Y-5(b)(4), a facility

that produces electricity using any fuel

that was produced using electricity that

had been produced, in whole or in part,

from the combustion of fossil fuels would

be considered a C&G Facility. For example, a hydrogen fuel cell would be considered a C&G Facility if it produced electricity using hydrogen that was produced

by an electrolyzer powered, in whole or in

part, by electricity from the grid because

some of the electricity from the grid was

produced through combustion or gasification. A fuel cell facility such as a solid

oxide fuel cell, which uses methane as

fuel, would be considered a C&G Facility, because the methane reforming reaction that produces syngas within the fuel

cell prior to the production of electricity

would be considered a gasification reaction. In contrast, a hydrogen fuel cell facility using hydrogen produced exclusively

using electricity from a new solar array

or wind farm co-located with the hydrogen fuel cell facility would not be considered a C&G Facility, because the input

energy source was not produced through a

transformation of one energy source into

another using combustion or gasification.

The Treasury Department and the IRS

request comment on whether the proposed

definitions of gasification, combustion,

and C&G Facility would result in certain types of fuel cells that use fossil or

biogenic fuel inputs (via combustion or

gasification) to produce electricity being

unable to demonstrate a net rate of greenhouse gas emissions that is not greater

than zero with a lifecycle analysis because

they are not classified as a C&G Facility

as defined in proposed §1.45Y-5(b)(4).

Because the energy transformation that

produces electricity in a fuel cell would

not be considered combustion under the

definition in proposed §1.45Y-5(b)(2), a

fuel cell facility would only qualify as a

C&G Facility if the fuel it used to produce

August 5, 2024

electricity was produced through combustion or gasification under these proposed

regulations.

Proposed §1.45Y-5(b)(7) would provide that a “Non-C&G Facility” means a

facility that produces electricity and is not

described in proposed §1.45Y-5(b)(4).

Proposed §1.45Y-5(b)(5) would provide that, consistent with section 45Y(b)

(2)(A), the term “greenhouse gas emissions rate” means the amount of greenhouse gases emitted into the atmosphere

by a facility in the production of electricity, expressed as grams of CO2e per kWh.

Proposed §1.45Y-5(b)(6) would provide that, for the purposes of section

45Y(b)(2)(A), for both C&G Facilities

and Non-C&G Facilities, the term “greenhouse gases emitted into the atmosphere

by a facility in the production of electricity” means emissions from a facility

that directly occur from the process that

transforms the input energy source into

electricity. Proposed §1.45Y-5(b)(6)(i)

through §1.45Y-5(b)(6)(vi) would exclude

emissions that may relate to a facility but

do not occur “in the production of electricity” as specified in section 45Y(b)(2)

(A). Proposed §1.45Y-5(c)(1) would provide, for Non-C&G Facilities only, additional types of excluded emissions under

section 45Y(b)(2)(A). Proposed §1.45Y5(d)(2) would provide, for C&G Facilities only, that additional rules on included

and excluded emissions apply in order to

conduct a lifecycle analysis as required by

section 45Y(b)(2)(B).

Proposed §1.45Y-5(b)(6)(i) through

§1.45Y-5(b)(6)(vi) would clarify that

for the purposes of both Non-C&G and

C&G Facilities this definition excludes:

1) emissions from back-up generators that

are primarily used in maintaining critical

systems in case of a power system outage

or for supporting restart of a generator

after an outage; 2) emissions from routine

operational and maintenance activities

that are integral to the production of electricity, including, but not limited to, emissions from internal combustion vehicles

used to access and perform maintenance

on remote electricity generating facilities

or emissions occurring from heating and

cooling control rooms or dispatch centers;

3) emissions from a step-up transformer

that conditions the electricity into a form

suitable for productive use or sale; 4)

August 5, 2024

emissions that occur before commercial

operations commence or after commercial operations terminate, including, but

not limited to, on-site emissions occurring from construction or manufacturing

of the facility itself, emissions from the

off-site manufacturing of facility components, or emissions occurring due to siting

or decommissioning; 5) emissions from

infrastructure associated with the facility,

including, but not limited to, emissions

from road construction for feedstock production; and 6) emissions from the distribution of electricity to consumers.

2. Greenhouse Gas Emissions Rates for

Non-C&G Facilities

Proposed §1.45Y-5(c) would provide the rules for determining a GHG

emissions rate for Non-C&G Facilities,

including by the Secretary when publishing a table described in section 45Y(b)

(2)(C)(i) or determining an emissions

rate as provided in section 45Y(b)(2)

(C)(ii). Proposed §1.45Y-5(c)(1) would

provide that GHG emissions rates for

Non-C&G Facilities must be determined

under proposed §1.45Y-5(c) and (e). In

addition, proposed §1.45Y-5(c)(1)(i)

would provide that, with respect to NonC&G Facilities only, greenhouse gases

emitted into the atmosphere by a facility

in the production of electricity excludes

emissions of greenhouse gases that are

not directly produced by the fundamental

transformation of the input energy source

into electricity, including, but not limited to, the following: 1) emissions from

hydropower reservoirs due to anoxic

conditions; 2) ebullitive, diffuse, and

degassing emissions from hydropower

operations; 3) emissions of non-condensable gases from underground reservoirs during geothermal operations; 4)

emissions from a step-up transformer

that conditions the electricity into a form

suitable for productive use or sale; and

5) emissions occurring due to activities

and operations occurring off-site, including but not limited to, the production

and transportation of fuels used by the

facility, or land use change from siting

or changes in demand. Proposed §1.45Y5(c)(1)(i) would thus exclude emissions

that may relate to a Non-C&G Facility but

do not occur “in the production of elec-

362

tricity” as specified in section 45Y(b)(2)

(A) because such emissions do not arise

directly from the transformation of the

input energy source into electricity. For

example, emissions from land use change

from siting or changes in demand would

be excluded because such emissions do

not occur “in the production of electricity” for Non-C&G Facilities under section 45Y(b)(2)(A), but this exclusion

does not apply to C&G Facilities because

section 45Y(b)(2)(B) requires a broader

standard for assessing GHG emissions

than section 45Y(b)(2)(A).

Proposed §1.45Y-5(c)(1)(ii) would

provide that, subject to proposed §1.45Y5(b)(6) and (c)(1), a GHG emissions rate

for a Non-C&G Facility must be determined through a technical and engineering assessment of the fundamental energy

transformation into electricity, and that

such assessment must consider all input

and output energy carriers and chemical

reactions or mechanical processes taking

place at the facility in the production of

electricity. Proposed §1.45Y-5(c)(1)(iii)

would provide an example of a GHG

emissions rate determination for a NonC&G Facility.

Proposed §1.45Y-5(c)(2) would identify certain types or categories of facilities

that are categorically Non-C&G Facilities with a GHG emissions rate that is not

greater than zero. Proposed §1.45Y-5(c)

(2)(i) through (viii) would provide that

these include wind facilities (including

small wind properties), hydropower facilities (including retrofits adding power

production to non-powered dams, conduit hydropower, hydropower using new

impoundments, and hydropower using

diversions such as a penstock or channel), marine and hydrokinetic facilities,

solar facilities (including photovoltaic

and concentrating solar power), geothermal facilities (including flash and binary

plants), nuclear fission facilities, nuclear

fusion facilities, and waste energy recovery property (WERP) that derives energy

from any of the energy sources described

in proposed §1.45Y-5(c)(2)(i) through

(vii) (including geothermal or solar waste

heat recovery such as from a district geothermal heating system, and waste heat

recovery such as from a nuclear reactor

dedicated to heat production for an industrial facility).

Bulletin No. 2024–32

WERP is property that generates electricity solely from heat from buildings

or equipment if the primary purpose of

such building or equipment is not the

generation of electricity. Examples of

buildings or equipment the primary purpose of which is not the generation of

electricity include, but are not limited to,

manufacturing plants, medical care facilities, facilities on school campuses, pipeline compressor stations, and associated

equipment. The Treasury Department

and the IRS request comment on whether

this definition of WERP is appropriate.

Comment is further requested on whether

and why it would be appropriate to revise

proposed §1.45Y-5(c)(2)(viii) to include

additional energy sources (such as energy

from exothermic chemical reactions or

pressure drop technologies) that do not

rely on combustion or gasification but

could include equipment related to the

transport of fossil fuels (for example,

natural gas).

For purposes of proposed §1.45Y-5(c)

(2)(ii), hydropower includes retrofits that

add electricity production to non-powered

dams, conduit hydropower, hydropower

using new impoundments, and hydropower using diversions such as a penstock

or channel. Greenhouse gas emissions are

not created by the fundamental transformation of electricity needed to produce

electricity in a hydropower facility. A

hydropower facility converts the potential energy of flowing water into electricity. The potential energy results from

changes in gravitational potential energy

from the flowing water, which the hydropower facility captures with a turbine

which spins a rotor within a generator to

produce electricity. Hydropower facilities may release greenhouse gas emissions from the hydropower reservoir due

to diffusion at the water surface or due

to ebullition, and from degassing when

water passes through a pump house or

turbine. Such emissions from hydropower

facilities would not be considered greenhouse gases emitted into the atmosphere

by a Non-C&G Facility in the production

of electricity under proposed §1.45Y-5(b)

(6)(C), because emissions of greenhouse

gasses are not created by the fundamental transformation of potential energy in

flowing water into electricity, but rather

from processes that are not fundamental

Bulletin No. 2024–32

to the transformation of potential energy

into electricity.

Similarly, greenhouse gas emissions

are not created by the fundamental transformation of energy from high-pressure

hot water into electricity in a flash geothermal facility, which is included in proposed §1.45Y-5(c)(2)(v). A flash geothermal facility uses high-pressure hot water

from deep inside the earth and converts

it directly to steam that drives a turbine

and generator. After the steam passes

through the turbine, it is released into

the atmosphere and any non-condensable gases including greenhouse gases

dissolved in the steam are also released.

Such emissions from flash geothermal

facilities would not be considered greenhouse gases emitted into the atmosphere

by a facility in the production of electricity under proposed §1.45Y-5(c)(1)(i)(C),

because the greenhouse gases are already

present in the underground water and are

not created by the fundamental transformation of the thermal energy in the water

into electricity, but rather by processes

that are not fundamental to the transformation of the thermal energy into electricity. This proposed treatment of flash

geothermal facilities is supported by surveys indicating that underground carbon

dioxide in certain geothermal reservoirs

is emitted passively into the atmosphere

even in the absence of geothermal electricity generation. The Treasury Department and the IRS request comment on

whether the identification of flash geothermal facilities as Non-C&G Facilities

with a GHG emissions rate that is not

greater than zero in proposed §1.45Y5(c)(2)(v) is appropriate.

For purposes of proposed §1.45Y-5(c)

(2)(iv), solar includes concentrated solar

power. Concentrated solar power facilities may have auxiliary burners that in

some cases use combustion exclusively

for the purposes of cold starts or freeze

protection of thermal working fluids, but

in other cases, may also be used to generate electricity in hybrid configurations.

The Treasury Department and the IRS

request comment on whether the existing

definitions of C&G Facilities and NonC&G Facilities is sufficient to distinguish

between these two categories of facilities, or whether additional clarification is

needed.

363

3. Greenhouse Gas Emissions Rates for

C&G Facilities

Section 45Y(b)(2)(B) provides that in

the case of electricity produced through

combustion or gasification, the GHG

emissions rate for such facility is equal to

the net rate of greenhouse gases emitted

into the atmosphere by such facility (taking into account lifecycle greenhouse gas

emissions, as described in section 211(o)

(1)(H) of the CAA) in the production of

electricity.

Section 211(o)(1)(H) of the CAA

provides that “lifecycle greenhouse gas

emissions” means the aggregate quantity

of greenhouse gas emissions (including

direct emissions and significant indirect

emissions such as significant emissions

from land use changes) related to the full

fuel lifecycle, including all stages of fuel

and feedstock production and distribution,

from feedstock generation or extraction

through the distribution and delivery and

use of the finished fuel to the ultimate

consumer, if the mass values for all greenhouse gases are adjusted to account for

their relative global warming potential.

The EPA promulgated its interpretation

of section 211(o)(1)(H) of the CAA in a

2010 notice-and-comment rulemaking

establishing the regulatory framework

for the updated renewable fuel standard

(RFS2) program. The EPA interpreted

section 211(o)(1)(H) of the CAA in the

context of the facts and policy framework

of the RFS program and based on information available at that time; however,

the EPA’s analysis and implementation of

the RFS2 rule offer relevant precedent for

the Treasury Department’s and the IRS’s

interpretation of section 45Y(b)(2)(B). In

the RFS2 rulemaking, the EPA interpreted

211(o)(1)(H) of the CAA as requiring the

agency to account for the real-world emissions consequences of increased production of biofuels. Thus, the EPA determined

in the RFS2 context that the inclusion of

direct emissions and significant indirect

emissions such as significant emissions

from land-use changes in section 211(o)

(1)(H) of the CAA requires a consequential approach to considering the realworld emissions associated with biofuel

production. A “consequential” approach

considers the real-world greenhouse gas

emissions associated with biofuel produc-

August 5, 2024

tion, including secondary or indirect emissions resulting from market interactions

induced by expanded biofuel production

and use. Such an approach includes consideration of market interactions induced

by expanded biofuel production and use

that may result in secondary or indirect

greenhouse gas emissions, domestically

and globally.

Proposed §1.45Y-5(d) would provide

the rules applicable to determining a net

rate of GHG emissions for C&G Facilities, including by the Secretary when publishing a table described in section 45Y(b)

(2)(C)(i) or determining an emissions

rate as provided in section 45Y(b)(2)(C)

(ii). Proposed §1.45Y-5(d)(1) would provide that GHG emissions rates for C&G

Facilities must be determined by a lifecycle analysis (LCA) that complies with

proposed §1.45Y-5(d) and (e), and that

such rate equals the net rate of greenhouse

gases emitted into the atmosphere by such

facility (taking into account lifecycle

greenhouse gas emissions, as described

in section 211(o)(1)(H) of the CAA) in

the production of electricity, expressed as

grams of CO2e per kWh.

Proposed §1.45Y-5(d)(2) would provide that an LCA used for determining

the net rate of greenhouse gases emitted

into the atmosphere by a facility must

comply with the requirements provided

in proposed §1.45Y-5(d)(2)(i) through

(vii). Proposed §1.45Y-5(d)(2)(i) would

provide that the starting boundary of

the LCA for an LCA involving generation-derived feedstocks (such as biogenic

feedstocks) is feedstock generation, and

the starting boundary of the LCA for an

LCA involving extraction-derived feedstocks (such as fossil fuel feedstocks) is

feedstock extraction. Under proposed

§1.45Y-5(d)(2)(i), the starting boundaries would include the processes necessary

to produce and collect or extract the raw

materials used to produce electricity from

combustion or gasification technologies,

including those used as energy inputs to

electricity production. This includes the

emissions effects of relevant land management activities or changes related to

or associated with feedstock production.

The starting conditions are the material

and energy flows, including associated

direct and indirect greenhouse gas emissions, of the processes associated with the

August 5, 2024

extraction or production of raw feedstock

materials or fuel.

Proposed §1.45Y-5(d)(2)(ii) would

provide that the ending boundary of an

LCA for electricity that is transmitted to

the grid or electricity that is used on-site

is the meter at the point of production of

the C&G Facility. The distribution, transmission, and use of such electricity generated by a C&G Facility (and other types

of energy sources it may displace while

in use) are outside of the LCA boundary;

therefore, such emissions would not be

taken into account because they do not

occur in the “production of electricity” as

described in section 45Y(b)(2)(B). Given

the particular context of section 45Y(b)(2)

(B) (that is, a tax credit for the production

of clean electricity), proposed §1.45Y-5(d)

(2)(ii) is consistent with section 45Y(b)(2)

(B) of the Code (and the term “ultimate

consumer” in section 211(o)(1)(H) of the

CAA referenced therein) because it would

treat the C&G Facility as the ultimate consumer of the fuel used to produce electricity.

Proposed §1.45Y-5(d)(2)(iii) would

provide that an LCA must be based on a

future anticipated baseline, which projects future status quo in the absence of the

availability of the sections 45Y and 48E

credits (taking into account anticipated

changes in technology, policies, practices,

and environmental and other socioeconomic conditions).

Proposed §1.45Y-5(d)(2)(iv) would

provide that offsets and offsetting activities that are unrelated to the production

of electricity by a C&G Facility, including the production and distribution of any

input fuel, may not be taken into account

in an LCA.

Proposed §1.45Y-5(d)(2)(v) would

interpret the reference to section 211(o)

(1)(H) of the CAA as requiring that an

LCA must take into account direct emissions, significant indirect emissions in the

United States or other countries, emissions

associated with market-mediated changes

in related commodity markets, emissions

associated with feedstock generation or

extraction, emissions consequences of

increased production of feedstocks, emissions at all stages of fuel and feedstock

production and distribution, and emissions

associated with distribution, delivery, and

use of feedstocks to and by a C&G Facil-

364

ity. Proposed §1.45Y-5(d)(2)(v) would

interpret section 45Y(b)(2)(B) of the Code

(and the term “ultimate consumer” in section 211(o)(1)(H) of the CAA referenced

therein) as applying to the C&G Facility

because it is the ultimate consumer of the

fuel used to produce electricity.

Proposed §1.45Y-5(d)(2)(v)(A) would

provide that direct emissions include,

but are not limited to: 1) emissions from

feedstock generation, production, and

extraction (including emissions from feedstock and fuel harvesting and extraction

and direct land use change and management, including emissions from fertilizers,

and changes in carbon stocks); 2) emissions from feedstock and fuel transport

(including emissions from transporting the

raw or processed feedstock to the fuel processing facility); 3) emissions from transporting and distributing fuels to the electricity production facility; 4) emissions

from handling, processing, upgrading,

and/or storing feedstocks, fuels and intermediate products (including emissions

from on/offsite storage and preparation/

pre-treatment for use (for example, torrefaction or pelletization) and emissions

from process additives); and 5) emissions

from combustion and gasification at the

electricity generating facility (including

emissions from the combustion and/or

gasification process and emissions from

gasification or combustion additives).

Proposed §1.45Y-5(d)(2)(v)(B) would

provide examples of significant indirect

emissions including, but not limited to,

emissions from indirect land use and land

use change and other induced emissions

associated with the increased use of the

feedstock for electricity production. Significant indirect emissions may include

positive or negative emissions. For biogenic resources, significant indirect emissions may include emissions from growth

and regrowth.

Proposed §1.45Y-5(d)(2)(vi) would

provide principles for excluded emissions

by listing types of emissions that the LCA

must not take into account.

Proposed §1.45Y-5(d)(2)(vii) would

provide that an LCA may consider alternative fates and may account for avoided

emissions. Alternative fate means a set

of informed assumptions (for example,

production processes, material outcomes,

market-mediated effects) used to estimate

Bulletin No. 2024–32

the emissions from the use of each feedstock were it not for the feedstock’s new

use due to the implementation of policy

(that is, to produce electricity). Avoided

emissions means the estimated emissions

associated with the feedstock, including the feedstock’s production and use,

that would have occurred in the alternative fate (if such feedstock had not been

diverted for electricity production) but are

instead avoided with the feedstock’s use

for electricity production. It is important

to note that, while, in some circumstances,

emissions may be avoided if compared to

the alternative fate, in others the new use

of the material (for example, for electricity production) may involve additional

emissions that were not emitted in the

alternative fate estimation. Relatedly, in

some circumstances, emissions may be

avoided in one part of the supply chain

only to occur elsewhere along the supply

chain due to the new use.

4. Additional Issues Regarding

Greenhouse Gas Emissions Rates for

C&G Facilities

The determination of net GHG emissions rates for C&G Facilities raises a

range of complex technical questions that

are relevant to determining eligibility for

the section 45Y and section 48E credits.

The Treasury Department and the IRS

request comment on the following topics:

(1) the treatment of renewable natural gas

(RNG) and fugitive sources of methane;

(2) analytical LCA parameters, including spatial scales and time horizons; (3)

whether and how to distinguish between

co-products, byproducts, and waste products and how emissions should be allocated to each in LCAs; (4) how to attribute

emissions to the heat produced by facilities using combined heat and power systems; (5) how to create and maintain LCA

baselines; and (6) certain issues related to

LCA modeling.

a. Treatment of biogas, renewable

natural gas (RNG), or fugitive sources of

methane

The Treasury Department and the IRS

intend to provide rules addressing facilities that produce electricity using biogas,

renewable natural gas (RNG), or fugi-

Bulletin No. 2024–32

tive sources of methane (for example,

from coal mine operations) for purposes

of the section 45Y credit or the section

48E credit, collectively referred to as the

“Clean Electricity Tax Credits.” In the

context of this guidance, the term “RNG”

refers to biogas that has been upgraded to

be equivalent in nature to fossil natural

gas. Fugitive methane refers to the release

of methane through, for example, equipment leaks during the extraction, processing, transformation, and delivery of fossil

fuels to the point of final use, such as coal

mine methane. Such rules would apply to

all biogas, RNG, or fugitive methane used

for the purposes of the Clean Electricity

Tax Credits and would provide requirements that must be met to account for

any greenhouse gas emissions benefits

from biogas, RNG, or fugitive methane in

determining GHG emissions rates for purposes of the Clean Electricity Tax Credits. Such requirements would be designed

to reflect the ways in which additional

demand for biogas, RNG or fugitive methane can impact greenhouse gas emissions

outcomes.

The Treasury Department and the IRS

anticipate requiring that for purposes

of the Clean Electricity Tax Credits, in

order for biogas, biogas-based RNG, or

fugitive methane to receive an emissions

value consistent with such gases (and not

standard natural gas), the biogas or RNG

used to produce electricity or to produce

a feedstock or fuel that is used to produce

electricity must originate from the first

productive use of the relevant methane.

For any specific source of biogas, RNG,

or fugitive methane, productive use is

generally defined as any valuable application of the relevant methane (including

to provide heat or cooling, generate electricity, or upgraded to RNG in the case of

biogas or fugitive methane), and specifically excludes venting to the atmosphere

or capture and flaring. The Treasury

Department and the IRS further propose

to define first productive use of the relevant methane as the time when a producer

of that gas first begins using or selling it

for productive use in the same taxable

year as (or after) the electricity production

facility was placed in service. The implication of this proposal is that biogas, for

example, from any source that had been

productively used in a taxable year prior

365

to the taxable year in which the relevant

electricity production facility was placed

in service would not include GHG emissions benefits that might otherwise be

attributable to biogas-based RNG, but

would instead receive a value consistent

with natural gas. This proposal would

limit emissions associated with the diversion of biogas, RNG, or fugitive methane

from other pre-existing productive uses.

For existing biogas sources that typically productively use or sell a portion of

the biogas and flare or vent the remaining

excess, the flared or vented portion may be

eligible for first productive use as defined

above if the flaring or venting volume can

be adequately demonstrated and verified.

In such circumstances, the flared or vented

volume may be determined based on the

previous taxable year’s flared or vented

volume as demonstrated via reported data

to programs such as the Greenhouse Gas

Reporting Program. Requirements would

be established to reduce the risk that

entities will deliberately generate additional biogas for purposes of the Clean

Electricity Tax Credits, above historic

and expected future levels or an equivalent metric, for example by generating

biogas through the intentional generation

of waste, and to ensure that other factors

affecting the emissions rate of electricity

produced with biogas, biogas-based RNG

or RNG procurement via RNG certificates are taken into account. The Treasury

Department and the IRS request comment

on these and other potential conditions.

Any fugitive sources of methane would

be treated in the same fashion as biogas or

RNG with respect to these requirements,

albeit with different considerations in

development of the counterfactual.

The Treasury Department and the IRS

also recognize that different sources of

methane may have significantly different characteristics (for example, counterfactuals, alternative fates, baseline

characteristics, upstream leakage rates,

etc.) and therefore significantly different lifecycle emissions. For this reason,

the Treasury Department and the IRS are

considering requiring an LCA to be conducted for electricity produced by each

category of feedstock, rather than across

all feedstocks used for the production

of electricity by a facility. The Treasury

Department and the IRS request com-

August 5, 2024

ment on whether LCAs should be conducted on a feedstock-by-feedstock basis

or averaged across feedstocks, and how

to determine the appropriate categories

of feedstock.

For purposes of the Clean Electricity Tax Credits, producers using biogas, RNG, or fugitive methane would be

required to acquire and retire corresponding energy attribute certificates (EACs)

through a book-and-claim system that can

verify in an electronic tracking system

that all applicable requirements are met.

Electricity producers would also be

required to have a pipeline interconnection and measurement capability using a

revenue grade meter. These rules would

apply to the use of EACs with both direct

and non-direct claims of biogas, RNG, or

fugitive methane use. Direct use would

involve a direct exclusive pipeline connection to a facility that generates biogas

or RNG or from which fugitive methane

is being sourced, while non-direct use

would involve production using biogas,

RNG, or fugitive methane sourced from

a commercial or common-carrier natural gas or other specified pipeline. In all

cases, EACs would need to document the

biogas, RNG, or fugitive methane procurement use claims and that the energy

attributes of the RNG or fugitive methane

being used are not sold to other parties or

used for compliance with other policies or

programs.

The Treasury Department and the IRS

request comments on these and other

approaches related to biogas, RNG and

fugitive methane. Regarding these sources

of methane, the Treasury Department and

the IRS request comment on the appropriate LCA considerations associated with

them, such as counterfactual scenarios

(that is, appropriate baselines), to account

for direct and significant indirect emissions, and also the manner in which to

assess methane from these sources if the

current practice is flaring. In particular, the

Treasury Department and the IRS request

comments on the following questions:

(1) What data sources and peer

reviewed studies provide information on

fugitive methane, biogas, and RNG production systems (including biogas production and reforming systems), markets,

monitoring, reporting, and verification

processes, and greenhouse gas emissions

August 5, 2024

associated with these production systems

and markets?

(2) What conditions for the use of biogas, RNG, and fugitive methane would

ensure that emissions accounting for purposes of the Clean Electricity Tax Credits reflect and reduce the risk of indirect

emissions effects from electricity production using biogas and RNG? How can

taxpayers verify that they have met these

requirements?

(3) How broadly available and reliable

are existing electronic tracking systems

and verification protocols and practices

for biogas, RNG, or fugitive methane certificates in book and claim systems? What

developments may be required, if any,

before such systems are appropriate for

use with biogas or RNG certificates used

to claim the Clean Electricity Tax Credits?

(4) How should biogas, RNG or fugitive methane resulting from the first productive use of methane be defined, documented, and verified? What industry best

practices or alternative methods would

enable such verification to be reflected in

a biogas, RNG or methane certificate or

other documentation? What additional

information should be included in such

EACs to help certify compliance?

(5) What are the emissions associated

with different methods of transporting

biogas, RNG or fugitive methane to electricity producers (for example, vehicular

transport, pipeline)?

(6) How can the final regulations

reflect and mitigate indirect emissions

effects from the diversion of biogas, RNG,

or fugitive methane from potential future

productive uses? What other new uses of

biogas, RNG, or fugitive methane could

be affected in the future if more gas from

new capture and productive use of methane from these sources is used in the electricity production process?

(7) How can the potential for the generation of additional emissions from the

production of additional waste, waste

diversion from lower-emitting disposal

methods, and changes in waste management practices be limited through emissions accounting or rules for biogas and

RNG use established for purposes of the

Clean Electricity Tax Credits?

(8) To limit the additional production

of waste, should the final regulations

limit eligibility to methane sources that

366

existed as of a certain date or waste or

waste streams that were produced before

a certain date, such as the date that the

IRA was enacted? If so, how can that be

documented or verified? How should any

changes in volumes of waste and waste

capacity at existing methane sources be

documented and treated for purposes of

the Clean Electricity Tax Credits? How

should additional capture of existing

waste or waste streams be documented

and treated?

(9) Are geographic or temporal deliverability requirements needed to reflect

and reduce the risk of indirect emissions

effects from biogas, RNG, or fugitive

methane use in the electricity production

process? If so, what should these requirements be and are electronic tracking systems able to capture these details?

(10) How should variation in methane

leakage across the existing natural gas

pipeline system be taken into account in

estimating the emissions from the transportation of RNG or fugitive methane or

establishing rules for RNG or fugitive

methane use? How should methane leakage rates be estimated based on factors

such as the location where RNG or fugitive methane is injected and withdrawn,

the distance between the locations where

RNG or fugitive methane is injected and

withdrawn, season of year, age of pipelines, or other factors? Are data or analysis

available to support this?

(11) What counterfactual assumptions

and data should be used to assess the net

greenhouse gas emissions of facilities that

rely on biogas, RNG, or fugitive methane

(for example, venting, flaring, or other

practice)? Is venting an appropriate counterfactual assumption in some cases? If

not, what other factors should be considered?

(12) What criteria should be used in

assessing biogas, fugitive methane, or

RNG-based provisional emissions rates?

What practices should be put in place

to reduce the risk of unintended consequences (for example, gaming)? Should

conservative default parameters and counterfactuals be used unless proven otherwise by a third party?

(13) What are the effects on greenhouse gas emissions of capturing methane

emissions for use as biogas or RNG, such

as on livestock farms?

Bulletin No. 2024–32

The Treasury Department and the IRS

recognize that sufficient tracking and verification mechanisms for biogas, RNG,

or fugitive methane are not yet available, and existing systems have limited

capabilities for tracking and verifying

RNG pathways, especially in the part of

the production process before the methane has been reformed to RNG. Existing tracking and verification systems do

not clearly distinguish between inputs,

verify or require verification of underlying practices claimed by biogas or RNG

production sources, require proof of generator interconnection or revenue-quality

metering, provide validation of generation

methodology, include exclusively United

States based-generation, verify generator registration, and track the vintage of

generator interconnection. The Treasury

Department and the IRS are considering

providing rules to address whether or how

book-and-claim systems with sufficient

tracking and verification mechanisms may

be used to attribute the environmental

benefits of biogas, RNG, or fugitive methane in the final regulations.

The treatment of biogas, RNG, and

fugitive methane presents a range of complex issues that the Treasury Department

and the IRS will consider in the development of the final regulations.

b. Analytical LCA parameters, including

spatial scales and time horizons

An LCA may require decisions on a

wide range of analytical parameters that

may have a meaningful impact on the

accuracy and utility of its results. The

Treasury Department and the IRS request

comment on the analytical LCA parameters that are most relevant to particular

types of categories of facilities that may

be eligible for the Clean Electricity Tax

Credits.

The Treasury Department and the IRS

specifically request comment regarding

spatial and temporal scales, including the

factors that should be considered in setting the spatial and temporal scales for

LCAs conducted for the Clean Electricity

Tax Credits. Spatial scale involves defining the area over which emissions impacts

will be evaluated. Temporal scale involves

defining the time period over which emissions impacts will be evaluated. The deci-

Bulletin No. 2024–32

sion of setting the spatial scale should be

considered in conjunction with decisions

on temporal scale, as the two can interact

in ways that affect greenhouse gas assessment outcomes.

In conducting a greenhouse gas assessment for biomass feedstocks, for example, carbon stocks or flows that have

high variability at fine spatial or temporal scales may have much less variability

if averaged over larger areas or longer

temporal scales. Averaging over long

temporal scales may reduce the variability observed at small spatial scales, and

averaging over large areas may reduce the

variability observed over small temporal

scales. However, it is not safe to assume

that integrating over large areas and long

timeframes is always preferable. Large

spatial scales and long temporal scales are

not necessarily the most accurate way to

conduct specific policy or program assessments because the combination of the two

may obscure important information (for

example, biophysical differences in species or landscapes, or shorter time frames

or subregional analysis needed for policy

analysis) or may mask important smaller-scale impacts. It is important to note

that utilizing a large spatial scale and a

short temporal scale could yield the same

result as a small spatial scale combined

with a longer temporal scale.

The Treasury Department and the IRS

acknowledge that it may be appropriate

to utilize different spatial and temporals

scales for different feedstocks given their

heterogeneity. The Treasury Department

and the IRS request comment on the following questions regarding spatial and

temporal scale:

(1) What factors should be considered

in establishing the timeframe for the LCA

analysis? What timeframe would provide

confidence that significant emissions have

been accounted for?

(2) Should the LCA distinguish

between an “emissions horizon” (the timeframe over which emissions effects from

the feedstock use persist into the future)

and an “assessment horizon” (the timeframe over which the emissions effects are

included in the analysis), and how would

that be reflected in the choice of temporal

scale? What assessment horizon will provide reasonable confidence that significant

LCA emissions have been incorporated?

367

Should the modeled future anticipated

baseline include estimated emissions from

electricity production to reflect the effects

of the anticipated phase out of the Clean

Electricity Tax Credits?

(3) If the assessment horizon is shorter

than the emissions horizon, should an estimate of the emissions beyond the assessment horizon be included in the LCA?

(4) What considerations should be

reflected in the choice(s) of spatial scale?

For example, the increased use of some

fuels/feedstocks may have global effects

(for example, changes in commodity production and ensuing land use and greenhouse gas changes), though this may not

be the case for all feedstocks or fuels.

What factors should be considered to

assess whether a global scale is necessary

for certain feedstocks to ensure that significant emissions are captured? Should all

feedstock/fuels assessments be conducted

with the same spatial scale to determine

the extent to which increased use has estimated global ramifications?

(5) The choice of spatial scale can

be greatly influenced by the availability

and accuracy of data and the precision

with which one can measure and model

feedstock production as well as market

dynamics. What sources of data would be

most important to consider for modeling?

What str

This text is long and has been trimmed here. Open the source document for the complete record.