Bulletin No. 2024–52

HIGHLIGHTS

OF THIS ISSUE





Bulletin No. 2024–52

December 23, 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

AOD 2024-1, page 1354.

Acquiescence to the holding that notices that identify certain

arrangements as reportable transactions, issued without following notice-and-comment rulemaking procedures after the

American Jobs Creation Act of 2004, are invalid under the

Administrative Procedure Act.

ADMINISTRATIVE, INCOME TAX

Rev. Proc. 2024-44, page 1438.

ther adversely affected by Hurricane Helene, Tropical Storm

Helene, and Hurricane Milton with respect to their employee

benefit plans, certain timeframes are extended during the

Relief Period established by this document. This document

is jointly issued by the Departments of Labor and the Treasury, through the Employee Benefits Security Administration

and the Internal Revenue Service, respectively, under section

518 of ERISA and section 7508A(b) of the Code.

EMPLOYMENT TAX

REG-106595-22, page 1444.

This proposed revenue procedure specifies when information

shown on a return in accordance with the applicable forms

and instructions will be an adequate disclosure for purposes

of reducing an understatement of income tax under section

6662(d) and for purposes of avoiding the section 6694(a)

preparer penalty. This revenue procedure updates Rev. Proc.

2023-40, 2023-51 I.R.B. 1553, and applies to any income

tax return filed on 2024 tax forms for a taxable year beginning in 2024, and to any income tax return filed in 2025 on

2024 tax forms for short taxable years beginning in 2025.

These proposed regulations relate to the definition of qualified nonpersonal use vehicles. Qualified nonpersonal use

vehicles are excepted from the substantiation requirements

that apply to certain listed property. These proposed regulations add unmarked vehicles used by firefighters or members of a rescue squad or ambulance crew as a new type of

qualified nonpersonal use vehicle. These regulations affect

governmental units that provide firefighter or rescue squad

or ambulance crew member employees with unmarked qualified nonpersonal use vehicles and the employees who use

those vehicles.

EMPLOYEE PLANS

INCOME TAX

Notice 2024-82, page 1425.

T.D. 10015, page 1355.

This notice sets forth the 2024 Required Amendments List

(2024 RA List). The 2024 RA List applies to individually

designed plans qualified under section 401(a) of the Internal

Revenue Code and individually designed plans that satisfy

the requirements of section 403(b). The 2024 RA List also

applies to pre-approved plans with respect to interim amendments.

Notice 2024-86, page 1429.

In order to ensure that plans, participants, beneficiaries, qualified beneficiaries, and claimants in disaster areas are not fur-

Finding Lists begin on page ii.

Section 48 provides an investment tax credit for energy property (energy credit). These final regulations update the regulations under section 48 to reflect changes to that section

since 1987, mostly notably changes made by the Inflation

Reduction Act of 2022 (IRA). Generally, in connection with

the IRA, the final regulations update the types of energy property eligible for the energy credit, including additional types

of energy property added by the IRA; clarify the application

of new credit transfer rules to recapture due to failure to

satisfy the prevailing wage requirements, including notification requirements for eligible taxpayers; and include quali-

fied interconnection costs in the basis of certain lower-output energy properties. The final regulations also provide

rules generally applicable to energy property, such as rules

regarding: functionally interdependent components; property

that is an integral part of an energy property; application

of the “80/20 Rule” to retrofitted energy property; dual use

property; ownership of components of an energy property;

energy property that may be eligible for multiple Federal

income tax credits; and the election to treat qualified facilities eligible for the renewable electricity production credit

under section 45 instead as property eligible for the energy

credit.

INCOME TAX, TAX CONVENTIONS

Rev. Proc. 2024-42, page 1433.

This revenue procedure updates and supersedes the lists

of countries in Rev. Proc. 2023-36. Armenia and Uruguay

are added to the list of jurisdictions with which the United

States has in effect a relevant information exchange agreement. Costa Rica and Thailand are added to the list of coun-

tries with which Treasury and the IRS have determined it is

appropriate to have an automatic exchange relationship with

respect to the information collected under Treas. Reg. §§

1.6049-4(b)(5) and 1.6049-8(a).

TAX CONVENTIONS

Announcement 2024-42, page 1443.

The competent authorities of the United States and the Kingdom of Norway have entered a Competent Authority Arrangement under paragraph 2 of Article 27 (Mutual Agreement

Procedure) of the Convention between the United States of

America and the Kingdom of Norway for the Avoidance of

Double Taxation and the Prevention of Fiscal Evasion with

respect to Taxes on Income and Property in which the competent authorities confirm that Article 20 (Investment or

Holding Companies) is not applicable to a U.S. investment

company that qualifies as a Regulated Investment Company

pursuant to sections 851 (Definition of regulated investment

company) and 852 (Taxation of regulated investment companies and their shareholders) of the Internal Revenue Code.

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.

December 23, 2024 

Bulletin No. 2024–52

Actions Relating to Court

Decisions

It is the policy of the Internal Reve­

nue Service to announce at an early date

whether it will follow the holdings in cer­

tain cases. An Action on Decision is the

document making such an announcement.

An Action on Decision will be issued

at the discretion of the Service only on

un­appealed issues decided adverse to the

government. Generally, an Action on De­

cision is issued where its guidance would

be helpful to Service personnel working

with the same or similar issues. Unlike a

Treasury Regulation or a Revenue Ruling,

an Action on Decision is not an affirma­

tive statement of Service position. It is not

intended to serve as public guidance and

may not be cited as precedent.

Actions on Decisions shall be relied

upon within the Service only as conclu­

sions applying the law to the facts in the

particular case at the time the Action on

Decision was issued. Caution should be

exercised in extending the recommenda­

tion of the Action on Decision to similar

cases where the facts are different. More­

over, the recommendation in the Action

on Decision may be superseded by new

legislation, regulations, rulings, cases, or

Actions on Decisions.

Prior to 1991, the Service published

acquiescence or nonacquiescence only in

certain regular Tax Court opinions. The

Service has expanded its acquiescence

program to include other civil tax cases

where guidance is determined to be help­

ful. Accordingly, the Service now may

acquiesce or nonacquiesce in the holdings

of memorandum Tax Court opinions, as

well as those of the United States District

Courts, Claims Court, and Circuit Courts

of Appeal. Regardless of the court decid­

ing the case, the recommendation of any

Action on Decision will be published in

the Internal Revenue Bulletin.

The recommendation in every Action

on Decision will be summarized as ac­

quiescence, acquiescence in result only,

or nonacquiescence. Both “acquiescence”

and “acquiescence in result only” mean

that the Service accepts the holding of the

court in a case and that the Service will

follow it in disposing of cases with the

same controlling facts. However, “acqui­

escence” indicates neither approval nor

disapproval of the reasons assigned by the

court for its conclusions; whereas, “acqui­

escence in result only” indicates disagree­

ment or concern with some or all of those

reasons. “Nonacquiescence” signifies that,

although no further review was sought,

the Service does not agree with the hold­

ing of the court and, generally, will not

follow the decision in disposing of cases

involving other taxpayers. In reference to

an opinion of a circuit court of appeals, a

“nonacquiescence” indicates that the Ser­

vice will not follow the holding on a na­

tionwide basis. However, the Service will

recognize the precedential impact of the

opinion on cases arising within the venue

of the deciding circuit.

The Commissioner DOES ACQUI­

ESCE in the following decision:

Green Rock LLC v. Internal Revenue Serv., 104 F.4th 220 (11th Cir.

2024).1

Acquiescence to the holding that notices that identify certain arrangements as reportable transactions, issued without following notice-and-comment rulemaking procedures after the Amer­

ican Jobs Creation Act of 2004, are invalid under the Administrative Procedure Act.

1

December 23, 2024

1354

Bulletin No. 2024–52

Part I

26 CFR 1.48-9, 1.48-13, 1.48-14, and 1.6418-5

T.D. 10015

DEPARTMENT OF THE

TREASURY

Internal Revenue Service

26 CFR Part 1

Definition of Energy

Property and Rules

Applicable to the Energy

Credit

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document sets forth

final rules relating to the energy credit,

including rules for determining whether

investments in energy property are eligi­

ble for the energy credit and for imple­

menting certain amendments made by the

Inflation Reduction Act of 2022. The final

regulations impact taxpayers who invest

in energy property eligible for the energy

credit.

DATES: Effective date: These regulations

are effective on December 12, 2024.

Applicability dates: For dates of applica­

bility, see §§1.48-9(g), 1.48-13(f), 1.4814(j), and 1.6418-5(j).

FOR FURTHER INFORMATION

CONTACT: Concerning the regulations,

the IRS Office of the Associate Chief

Counsel (Passthroughs and Special Indus­

tries) at (202) 317‑6853 (not a toll‑free

number).

SUPPLEMENTARY INFORMATION:

Authority

This document contains amendments

to the Income Tax Regulations (26 CFR

part 1) under sections 48 and 6418 of the

Internal Revenue Code (Code) issued by

Bulletin No. 2024–52

the Secretary of the Treasury or her dele­

gate (Secretary) pursuant to the authority

granted under sections 45(b)(12), 48(a)

(3)(D), and (a)(16), 6418(g) and (h), and

7805(a) of the Code (final regulations).

Section 48(a)(3)(D) provides a specific

delegation of authority for the Secretary to

prescribe by regulations performance and

quality standards for energy property after

consulting with the Secretary of Energy.

Sections 45(b)(12) and 48(a)(16) pro­

vide specific delegations of authority with

respect to the requirements of section

45(b), including the prevailing wage and

apprenticeship (PWA) requirements of

section 45(b)(7) and (8), as incorporated

by section 48(a)(10) and (11), with each

stating, “[t]he Secretary shall issue such

regulations or other guidance as the Sec­

retary determines necessary to carry out

the purposes of this subsection, including

regulations or other guidance which pro­

vides for requirements for recordkeeping

or information reporting for purposes of

administering the requirements of this

subsection.” Section 48(a)(10)(C) grants

authority for the Secretary to provide,

by regulations or other guidance, for

recapturing the benefit of any increase

in the credit allowed under section 48(a)

allowed to an energy project that initially

satisfies the PWA requirements if such

energy project should later fail to satisfy

such requirements during the recapture

period by applying rules similar to the

rules of section 50(a) of the Code. Sec­

tion 48(a)(16) provides a general grant of

regulatory authority for section 48(a), by

stating: “The Secretary shall issue such

regulations or other guidance as the Sec­

retary determines necessary to carry out

the purposes of this subsection, including

regulations or other guidance which pro­

vides for requirements for recordkeeping

or information reporting for purposes of

administering the requirements of this

subsection.”

Section 6418(g) provides several spe­

cific delegations of authority to the Sec­

retary with regard to enforcing require­

ments for valid transfers of certain Federal

income tax credits under section 6418 and

recapturing excessive credit transfers.

Section 6418(h) provides a specific del­

egation of authority with respect to the

1355

transfer of credits under section 6418,

stating, in part, that “[t]he Secretary shall

issue such regulations or other guidance

as may be necessary to carry out the pur­

poses of this section.”

Finally, section 7805(a) authorizes the

Secretary to “prescribe all needful rules

and regulations for the enforcement of

[the Code], including all rules and regu­

lations as may be necessary by reason of

any alteration of law in relation to internal

revenue.”

Background

I. Overview

Section 38 of the Code allows cer­

tain business credits against the Federal

income tax imposed by chapter 1 of the

Code (chapter 1). Among the credits

allowed by section 38 is the investment

credit determined under section 46 of the

Code, which includes the energy credit

determined under section 48 (section 48

credit). See sections 38(b)(1) and 46(2).

Section 48(a)(1) generally provides that

the section 48 credit for any taxable year

is the energy percentage of the basis of

each energy property placed in service

during such taxable year. For most types

of energy property, eligibility for the

section 48 credit and, in some cases, the

amount of the section 48 credit depend

upon meeting certain deadlines for begin­

ning construction of the energy property

or for placing the energy property in ser­

vice.

Section 48 originally was enacted by

section 2 of the Revenue Act of 1962, Pub­

lic Law 87-834, 76 Stat. 960, 963 (Octo­

ber 16, 1962), to spur economic growth by

encouraging investments in various capital

projects across many industries including

energy, transportation, and communica­

tions. Section 48 has been amended many

times since its enactment, most recently by

section 13102 of Public Law 117-169, 136

Stat. 1818 (August 16, 2022), commonly

known as the Inflation Reduction Act of

2022 (IRA). The IRA amended section

48 in several ways, including by making

additional types of energy property eligi­

ble for the section 48 credit, providing a

special rule to allow certain lower-output

December 23, 2024

energy properties to include amounts paid

for qualified interconnection property in

connection with the installation of energy

property, and providing an increased

credit amount for energy projects that sat­

isfy prevailing wage and apprenticeship

requirements, a domestic content bonus

credit amount, and an increase in credit

rate for energy communities.

The Income Tax Regulations at §1.48-9

in effect prior to December 12, 2024 (for­

mer §1.48-9), which provide definitions

and rules for determining whether prop­

erty is energy property eligible for the sec­

tion 48 credit, originally were published

on January 23, 1981 (T.D. 7765, 46 FR

7287). Those regulations were amended on

July 21, 1987 (T.D. 8147, 52 FR 27336) to

provide rules for dual use property. Thus,

former §1.48-9 has not been updated since

1987, which is before many of the current

types of energy property became eligible

for the section 48 credit.

II. Prior Guidance

Prior to proposing the amendments

to the regulations under section 48

being finalized by this treasury decision,

the Department of the Treasury (Trea­

sury Department) and the IRS twice

requested comments on issues to be

addressed in these regulations. On Octo­

ber 26, 2015, the Treasury Department

and the IRS published Notice 2015-70,

2015-43 I.R.B. 604, requesting com­

ments regarding statutory updates to

section 48 preceding those made by the

IRA. On October 24, 2022, in response

to the passage of the IRA, the Trea­

sury Department and the IRS published

Notice 2022-49, 2022-43 I.R.B. 321,

requesting general as well as specific

comments on issues arising under sec­

tion 48, among other sections, that were

amended or added by the IRA.

On August 30, 2023, the Treasury

Department and the IRS published a

notice of proposed rulemaking (REG100908-23) in the Federal Register (88

FR 60018), corrected in 88 FR 73807

(Oct. 27, 2023), corrected in 89 FR 25550

(April 11, 2024), proposing rules regard­

ing the increased credit amounts available

for taxpayers satisfying PWA require­

ments established by the IRA (PWA

Proposed Regulations). Comments were

December 23, 2024

requested and a public hearing was held

November 21, 2023.

On November 22, 2023, after consid­

eration of all the comments submitted in

response to Notice 2015-70 and Notice

2022-49, and after consultation with the

Department of Energy (DOE), the Trea­

sury Department and the IRS published

a notice of proposed rulemaking and a

notice of public hearing (REG-13256917) in the Federal Register (88 FR

82188), corrected in 89 FR 2182 (January

12, 2024), proposing rules that would pro­

vide guidance under section 48 (Proposed

Regulations). On February 22, 2024, the

Treasury Department and the IRS pub­

lished a second correction to the Proposed

Regulations in the Federal Register (89

FR 13293) that re-opened the comment

period through March 25, 2024 (Correc­

tion). The Proposed Regulations withdrew

certain portions of the PWA Proposed

Regulations and re-proposed regulations

that would provide additional guidance

on the PWA requirements under section

48, including the statutory exception for

energy projects with a maximum output

of less than one megawatt (MW) and the

recapture rules under section 48(a)(10)(C)

related to the PWA requirements.

Although the Proposed Regulations

withdrew certain portions of the PWA

Proposed Regulations, the Explanation

of Provisions section in the preamble to

the PWA Proposed Regulations gener­

ally remained relevant. Therefore, to the

extent consistent with the preamble to the

Proposed Regulations, the Explanation of

Provisions section of the PWA Proposed

Regulations was incorporated in the pre­

amble to the Proposed Regulations.

The preamble to the Proposed Regu­

lations did not address written comments

that were submitted in response to the

PWA Proposed Regulations. Any com­

ments received in response to the Pro­

posed Regulations, including comments

on the re-proposed regulations addressing

the PWA requirements specific to sec­

tion 48, are addressed in the Summary of

Comments and Explanation of Revisions

section of this preamble. The Proposed

Regulations did not extend the comment

period or affect the scheduled hearing for

the PWA Proposed Regulations. The PWA

Proposed Regulations, other than the por­

tions that were withdrawn, were adopted

1356

as final regulations by Treasury Decision

(T.D. 9998), which was published in the

Federal Register (89 FR 53184) on June

25, 2024 (PWA Final Regulations).

On June 21, 2023, the Treasury Depart­

ment and the IRS published a notice of

proposed rulemaking (REG-101610-23)

in the Federal Register (88 FR 40496)

proposing rules concerning the election

under section 6418 to transfer certain

Federal income tax credits, including the

section 48 credit (6418 Proposed Regu­

lations). Proposed §1.6418-5 of the 6418

Proposed Regulations included proposed

rules addressing notification requirements

and the impact of the credit recapture rules

under sections 50(a), 49(b), and 45Q(f)

(4) on the transfer of Federal income tax

credits. Comments were requested and a

public hearing on the 6418 Proposed Reg­

ulations was held on August 23, 2023.

The Proposed Regulations would

supplement the 6418 Proposed Reg­

ulations by adding provisions to pro­

posed §1.6418-5 addressing notification

requirements and the impact of the recap­

ture rules for failing to satisfy the PWA

requirements under section 48(a)(10) if

an election under §1.6418-2 or §1.6418-3

has been made. The preamble to the Pro­

posed Regulations did not address written

comments that were submitted in response

to the regulations proposed in the 6418

Proposed Regulations. Any comments

received in response to the Proposed

Regulations, including the additions to

proposed §1.6418-5 described in the Pro­

posed Regulations, are addressed in the

Summary of Comments and Explanation

of Revisions section of this preamble. The

Proposed Regulations did not otherwise

extend the comment period for the 6418

Proposed Regulations. On April 30, 2024,

a Treasury Decision (T.D. 9993) adopting

the 6418 Proposed Regulations as final

regulations (6418 Final Regulations) was

published in the Federal Register (89

FR 34770). The 6418 Final Regulations

did not finalize the portion of proposed

§1.6418-5 that was included in the Pro­

posed Regulations.

Summary of Comments and

Explanation of Revisions

The Treasury Department and the

IRS received 350 written comments in

Bulletin No. 2024–52

response to the Proposed Regulations.

The comments are available for public

inspection at https://www.regulations.gov

or upon request. After full consideration

of the comments received in response to

the Proposed Regulations, these final reg­

ulations adopt the Proposed Regulations

with modifications as described in this

Summary of Comments and Explanation

of Revisions.

Comments addressing the require­

ments for energy property are described

in part I of this Summary of Comments

and Explanation of Revisions. Comments

addressing the PWA requirements are

described in part II of this Summary of

Comments and Explanation of Revisions.

Comments addressing rules applicable to

energy property are described in part III of

this Summary of Comments and Explana­

tion of Revisions.

Comments summarizing the statute or

the Proposed Regulations, recommending

statutory revisions, or addressing issues

that are outside the scope of this rulemak­

ing (such as revising other Federal regula­

tions and recommending changes to IRS

forms) generally are not addressed in this

Summary of Comments and Explanation

of Revisions or adopted in these final

regulations. In addition to modifications

described in this Summary of Comments

and Explanation of Revisions, the final

regulations also include non-substantive

grammatical or stylistic changes to the

Proposed Regulations. Unless otherwise

indicated in this Summary of Comments

and Explanation of Revisions, provisions

of the Proposed Regulations with respect

to which no comments were received are

adopted without substantive change.

I. Requirements for Energy Property

For purposes of the section 48 credit,

energy property consists of all the compo­

nents of property that meet the statutory

requirements for an energy property as

defined by section 48(a)(3) and (c).

Section 48(a)(3)(B) through (D) pro­

vide general requirements for all types

of energy property. Section 48(a)(3)(B)

limits energy property to property that is

constructed, reconstructed, or erected by

the taxpayer or that the taxpayer acquires

if the original use of such property com­

mences with the taxpayer. Section 48(a)(3)

Bulletin No. 2024–52

(C) provides that to be eligible as energy

property, depreciation (or amortization in

lieu of depreciation) must be allowable for

the property. Section 48(a)(3)(D) provides

that to be eligible as energy property, the

property must also meet any performance

and quality standards that have been pre­

scribed by the Secretary, after consulta­

tion with the Secretary of Energy, and

are in effect at the time of the taxpayer’s

acquisition of the property. Under section

48(a)(3), energy property does not include

property that is part of a qualified facility

the production from which is allowed a

renewable electricity production credit

determined under section 45 (section 45

credit) for the taxable year or any prior

taxable year. Lastly, if the statutory text of

section 48 provides dates by which con­

struction of energy property must begin or

when energy property must be placed in

service, such energy property must meet

those deadlines to be eligible for the sec­

tion 48 credit at specified energy percent­

ages.

A. Definitions related to requirements for

energy property

Before 1990, section 48 defined the

term “section 38 property” to include,

among other types of property, energy

property eligible for the section 48 credit.

The Revenue Reconciliation Act of 1990,

Public Law 101-508, 104 Stat. 1388

(November 5, 1990) removed the term

“section 38 property” in amending section

48. However, section 48 is one of the cred­

its that comprise the investment credit for

any taxable year determined under section

46, which is included in section 38(b)(1)

and remains subject to the general busi­

ness credit rules under section 38. As a

result, rules related to “section 38 prop­

erty” remain generally applicable to the

section 48 credit.

Sections 1.48-1 and 1.48-2 provide

guidance with respect to section 38 prop­

erty. Section 1.48-1 was last substan­

tially revised on October 11, 1988 (T.D.

8233, 53 FR 39592) and §1.48-2 was last

revised on June 28, 1985 (T.D. 8031, 50

FR 26698). Although subsequent amend­

ments to section 48 have made some of the

rules provided by these regulations inap­

plicable, those rules continue to provide

useful definitions related to requirements

1357

for energy property, some of which would

be adopted under proposed §1.48-9.

1. Performance and Quality Standards for

Energy Property

Section 48(a)(3)(D) provides that

energy property is property that meets the

performance and quality standards (if any)

that have been prescribed by the Secretary

by regulations (after consultation with the

Secretary of Energy) and are in effect at

the time of the acquisition of the prop­

erty. Former §1.48-9(m)(1) provided that

“energy property must meet quality and

performance standards, if any, that have

been prescribed by the Secretary (after

consultation with the Secretary of Energy)

and are in effect at the time of acquisition.”

Generally, proposed §1.48-9(c)(2)(i)

would adopt this rule for performance and

quality standards for energy property from

former §1.48-9(m)(1) by providing that

energy property must meet performance

and quality standards, if any, which have

been prescribed by the Secretary (after

consultation with the Secretary of Energy)

and are in effect at the time of acquisition

of the energy property. The final regula­

tions adopt this rule as proposed.

2. Performance and Quality Standards for

Electrochromic Glass Property

Proposed §1.48-9(c)(2)(ii)(B) would

provide rules for performance and qual­

ity standards for electrochromic glass

property by stating that to be eligible for

the section 48 credit, electrochromic win­

dows must be rated in accordance with

the National Fenestration Rating Coun­

cil (NFRC) and secondary glazing sys­

tems must be rated in accordance with

the Attachments Energy Rating Council

(AERC) Rating and Certification Process,

or subsequent revisions.

A few commenters addressed the per­

formance and quality standards for elec­

trochromic glass provided in the Proposed

Regulations. Generally, these commenters

suggested methods to satisfy the NFRC

rating requirement and were particularly

interested in a simulation-based process.

For example, a commenter advocated for a

process that emphasizes simulation-based

validation to expedite compliance and

reduce barriers to implementation, partic­

December 23, 2024

ularly given the lengthy delays associated

with physical testing. This commenter

stated that simulations, supported by

advanced and reliable modeling software,

have become a standard practice within

the industry. Another commenter also

emphasized the need to use simulations to

satisfy the NFRC rating requirement.

In response to these comments, the

Treasury Department and the IRS con­

sulted with the DOE and learned that the

existing NRFC and the AERC ratings sys­

tems incorporate simulation methodolo­

gies that should address the commenters’

concerns. Accordingly, the final regula­

tions adopt this rule as proposed.

3. Placed in Service

a. General rules

Section 48(a) provides that the sec­

tion 48 credit for any taxable year is the

energy percentage of the basis of each

energy property placed in service during

such taxable year. As part of the regula­

tions under section 46 for the investment

credit, §1.46-3(d)(1) provides general

rules for determining when a taxpayer has

placed a property in service for purposes

of the section 48 credit. Under §1.463(d)(1), property is considered placed in

service in the earlier of the taxable year

in which, under the taxpayer’s deprecia­

tion practice, the period for depreciation

with respect to such property begins; or

the taxable year in which the property is

placed in a condition or state of readiness

and availability for a specifically assigned

function, whether in a trade or business, in

the production of income, in a tax-exempt

activity, or in a personal activity.

Proposed §1.48-9(b)(5) largely pro­

posed to adopt the general rules of §1.463(d)(1) for determining when a taxpayer

has placed an energy property in service.

However, to be eligible for the section 48

credit, energy property must be property

with respect to which depreciation (or

amortization in lieu of depreciation) is

allowable. Accordingly, proposed §1.489(b)(5)(i) would provide that the taxable

year in which energy property is placed in

service is the earlier of the taxable year in

which, under the taxpayer’s depreciation

practice, the period for depreciation of

such property begins, or the taxable year

December 23, 2024

in which the energy property is placed in

a condition or state of readiness and avail­

ability for a specifically assigned function

in either a trade or business or in the pro­

duction of income.

A commenter requested that the final

regulations provide a different placed in

service rule for energy storage technology.

Because energy storage technology may

charge and discharge prior to commer­

cial readiness, the commenter suggested

that energy storage technology should

be treated as placed in service when: (i)

such property has all licenses, permits,

and approvals required to store and dis­

patch power; (ii) pre-operational testing is

complete; (iii) the taxpayer has title to the

property; and (iv) the property is available

to store and discharge power on a regular,

commercial basis.

Proposed §1.48-9(b)(5) would adopt

the general placed in service rules of

§1.46-3(d)(1), which have applied to

the section 48 credit since its enactment,

with a modification to reflect the require­

ment that the property be eligible for

depreciation or amortization. Until the

IRA amended section 48, energy storage

property (referred to as “energy storage

technology” after the IRA amendments)

was considered a component of energy

property. Without providing specific

indicia that an energy property is placed

in service, the rule provided at proposed

§1.48-9(b)(5) would provide general prin­

ciples for a taxpayer to determine when an

energy property has been placed in service

that are broadly applicable to all types of

energy property, well-understood, and

widely relied upon by industry. The gen­

eral principles provided by the final rule

are sufficiently broad to address the com­

menter’s concerns. Therefore, the final

regulations do not adopt these comments

and instead adopt the placed in service

rules as proposed.

b. Lease-passthrough election

Section 1.46-3(d)(3) provides that,

notwithstanding the provisions of §1.463(d)(1), property with respect to which an

election is made under §1.48-4 to treat the

lessee as having purchased such property

is considered placed in service by the les­

sor in the taxable year in which possession

is transferred to such lessee. Proposed

1358

§1.48-9(b)(5)(ii) would adopt the special

rule from §1.46-3(d)(3) for determining

when a leased property has been placed

in service. Several commenters provided

comments relating to the rule for leased

property in the context of qualified biogas

property.

A commenter requested clarification on

the application of the lease passthrough

election under §1.48-4 to treat a lessee as

having purchased such energy property

from the lessor with respect to any prop­

erty comprising a qualified biogas prop­

erty, including both component properties

considered functionally interdependent as

a single unit of energy property and prop­

erty treated as an integral part of energy

property. This commenter asked for illus­

trative examples of the application of the

lease passthrough election in the context

of a renewable natural gas (RNG) qual­

ified biogas property if the equipment

comprising the qualifying biogas produc­

tion property, including equipment treated

as an integral part of the qualifying biogas

property, is owned by multiple taxpayers.

Another commenter suggested allow­

ing a single taxpayer to consolidate

deemed ownership of an entire qualified

biogas property to permit a more efficient

use and/or transfer of the section 48 credit

under the section 6418 credit transfer rules

by relying on existing lease passthrough

rules that apply to energy property. The

commenter asserted that this would per­

mit greater qualified investment and use

of the section 48 credit if, for regulatory or

environmental permitting reasons, some

portion of the section 48 credit-eligible

qualified biogas property simply cannot

be owned by a single or related taxpayers.

The commenter acknowledged that under

the 6418 Proposed Regulations, the trans­

fer of the tax credits to a lessee under a

lease passthrough election will preclude

further transfers under section 6418.

Guidance on eligibility for the lease

passthrough election is beyond the scope

of the Proposed Regulations because pro­

posed §1.48-9(b)(5)(ii) merely proposed a

rule for determining when property with

respect to which a lease passthrough elec­

tion is made under §1.48-4 is placed in

service. Guidance on eligibility for the

lease passthrough election is addressed

elsewhere, such as in §1.48-4 and the

6418 Final Regulations. Accordingly,

Bulletin No. 2024–52

these final regulations do not adopt these

comments.

4. Acquisition of energy property

Proposed §1.48-9(b)(2) would provide

that the term acquisition of energy prop­

erty means a transaction by which a tax­

payer obtains rights and obligations with

respect to energy property, including title

to the energy property under the law of the

jurisdiction in which the energy property

is placed in service, unless the property is

possessed or controlled by the taxpayer as

a lessee, and physical possession or con­

trol of the energy property. This definition

was intended to require that the taxpayer

establish tax ownership of the energy

property for Federal income tax purposes.

The final regulations modify the definition

in proposed §1.48-9(b)(2) to make this

requirement explicit.

B. Types of energy property

Proposed §1.48-9(e) would expand the

definitions of energy property provided

in former §1.48-9 to account for new

technologies that were added by amend­

ments to section 48, including by the IRA.

Generally, the definitions of the types of

energy property provided in the Proposed

Regulations incorporate the definitions

provided in section 48(a)(3) and (c) but

do not provide specific beginning of con­

struction or placed in service deadlines.

Taxpayers should refer to the current defi­

nitions of energy property provided by

section 48 for specific requirements appli­

cable to each type of energy property. The

definitions of the types of energy property

provided in proposed §1.48-9(e) were

developed by the Treasury Department

and the IRS in consultation with the DOE.

Some commenters requested clarifica­

tion concerning whether a particular type

of technology would fall into one of the

categories of energy property. For exam­

ple, a commenter requested guidance

concerning what type of energy property

would include sewage energy recovery

property and provided three options: geo­

thermal heat pump (GHP) property by

reference to “underground fluids,” energy

storage technology, or waste energy

recovery property (WERP). A definitive

response to such comments would require

Bulletin No. 2024–52

the Treasury Department and the IRS to

conduct a complete factual analysis of the

property in question, which may include

information that was not provided by the

commenters. Because more information

is needed to make the determinations

requested by the commenters, these final

regulations do not address the requested

clarifications concerning the categoriza­

tion of specific technologies.

1. Combined Heat and Power System

Property

Section 48(a)(3)(A)(v) includes com­

bined heat and power system (CHP) prop­

erty as a type of energy property. Section

48(c)(3)(A) defines CHP property as

property comprising a system that, among

other requirements, uses the same energy

source for the simultaneous or sequential

generation of electrical power, mechanical

shaft power, or both, in combination with

the generation of steam or other forms of

useful thermal energy (including heating

and cooling applications). Section 48(c)

(3)(A) further provides, in part, that a

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), and that the energy

efficiency percentage of the system must

exceed 60 percent.

Section 48(c)(3)(B) provides that

the amount of the section 48 credit with

respect to CHP property is reduced to the

extent that a CHP property has an electri­

cal or mechanical capacity in excess of

applicable limits. Subject to the exception

for CHP property that uses closed or openloop biomass as feedstock, CHP property

with capacity in excess of the applicable

capacity limit (15 MW or a mechanical

capacity of more than 20,000 horsepower

or an equivalent combination of electrical

and mechanical energy capacities) is eli­

gible for only a fraction of the otherwise

allowable section 48 credit. This frac­

tion is equal to the applicable capacity

limit divided by the capacity of the CHP

property. However, CHP property with a

capacity in excess of 50 MW or a mechan­

ical energy capacity in excess of 67,000

1359

horsepower or an equivalent combina­

tion of electrical and mechanical energy

capacities does not qualify for the section

48 credit.

Section 48(c)(3)(C) provides that the

energy efficiency percentage of a CHP

property is the fraction (i) the numera­

tor 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 nor­

mal application, and (ii) the denomina­

tor of which is the lower heating value

of the fuel sources for the system. The

energy efficiency percentage and the per­

centages under section 48(c)(3)(A)(ii)

are determined on a British thermal unit

(Btu) basis. Section 48(c)(3)(C)(iii) spe­

cifically provides that the term “combined

heat and power system property” does

not include property used to transport an

energy source to the facility or to distrib­

ute energy produced by the facility.

Additionally, section 48(c)(3)(D) pro­

vides that a CHP property with a fuel

source that is at least 90 percent from

closed or open-loop biomass that would

otherwise qualify for the section 48 credit

but for the failure to meet the efficiency

standard is eligible for a credit reduced in

proportion to the degree to which the sys­

tem fails to meet the efficiency standard.

For example, a system that would other­

wise be required to meet the 60-percent

efficiency standard, but that only achieves

30-percent efficiency, would be permitted

to claim a credit equal to one-half of the

otherwise allowable credit.

Proposed §1.48-9(e)(6)(i) would pro­

vide generally that CHP property is prop­

erty comprising a system that uses the

same energy source for the simultane­

ous or sequential generation of electrical

power, mechanical shaft power, or both, in

combination with the generation of steam

or other forms of useful thermal energy

(including heating and cooling applica­

tions). Proposed §1.48-9(e)(6)(i) would

also provide that CHP property must pro­

duce at least 20 percent of its total useful

energy in the form of thermal energy that is

not used to produce electrical or mechani­

cal 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). Further,

proposed §1.48-9(e)(6)(i) would provide

December 23, 2024

that the energy efficiency percentage of

CHP property must exceed 60 percent

(except in the case of CHP systems that

use biomass within the meaning of sec­

tion 45). Proposed §1.48-9(e)(6)(i) would

also provide that CHP property does not

include any property comprising a system

if such system has a capacity in excess of

50 MW or a mechanical energy capac­

ity in excess of 67,000 horsepower or an

equivalent combination of electrical and

mechanical energy capacities. Proposed

§1.48-9(e)(6)(ii) would provide that CHP

property does not include property used to

transport the energy source to the gener­

ating facility or to distribute energy pro­

duced by the facility.

A commenter requested that the final

regulations clarify whether a CHP prop­

erty would be eligible for the section 48

credit, assuming all other criteria are met,

if the fuel source is exclusively non-re­

newable natural gas. There is no require­

ment that a CHP property use a specific

fuel or feedstock. The Treasury Depart­

ment and the IRS emphasize that all CHP

property must meet the requirements of

section 48(c)(3) and those provided in

proposed §1.48-9(e)(6)(i), which the final

regulations adopt as proposed.

2. Geothermal Heat Pump Property

Section 48(a)(3)(A)(vii) provides, in

part, that energy property includes equip­

ment that uses the ground or ground water

as a thermal energy source to heat a struc­

ture or as a thermal energy sink to cool a

structure (geothermal heat pump or GHP

property). Proposed §1.48-9(e)(8) would

adopt the statutory definition of GHP

property while providing the modification

that in addition to the ground and ground

water, other underground working fluids

may be used as a thermal energy source

or as a thermal energy sink. Accordingly,

proposed §1.48-9(e)(8) would provide

that GHP property is equipment that uses

the ground, ground water, or other under­

ground fluids as a thermal energy source

to heat a structure or as a thermal energy

sink to cool a structure.

Several commenters requested revi­

sions to the definition of GHP property to

include recovered heat as a thermal energy

source. For example, representative of

these comments, a commenter requested

December 23, 2024

clarification that equipment used to cir­

culate recovered heat qualifies as GHP

property. This commenter asserted that

the same GHP property that uses a ground

heat exchanger as a source or sink can

be designed to operate in a heat recov­

ery mode, simply recycling heat around

a building if the potential exists. Another

commenter noted that the use of GHP

property in heat recovery mode should be

considered a qualified energy source for

purposes of the calculation to determine

whether the GHP property qualifies as

dual use property.

As defined in proposed §1.48-14(b)(1),

the term “dual use property” would mean

property that uses energy derived from

both a qualifying source (that is, from

an energy property including a qualified

facility for which a section 48(a)(5) elec­

tion has been made) and from a non-qual­

ifying source (that is, sources other than

an energy property including a qualified

facility for which a section 48(a)(5) elec­

tion has been made). As proposed §1.4814(b)(2) would further provide, if dual use

property uses energy derived from both

a qualifying source and a non-qualifying

source it will qualify as energy property

if its use of energy from non-qualifying

sources does not exceed 50 percent of its

total energy input during an annual mea­

suring period (Dual Use Rule). Further, if

the energy used from qualifying sources is

between 50 percent and 100 percent, only

a proportionate amount of the basis of the

energy property will be taken into account

in computing the amount of the section 48

credit. For example, if 80 percent of the

energy used by a dual use property is from

qualifying sources, 80 percent of the basis

of the dual use property will be taken into

account in computing the amount of the

section 48 credit.

The Treasury Department and the IRS

decline to adopt these suggested revisions

because they would conflict with the stat­

utory definition of GHP property. Section

48(a)(3)(A)(vii) specifically provides that

GHP property includes equipment that

uses the ground or ground water as a ther­

mal energy source. While the Proposed

Regulations would provide that under­

ground fluids may be included, this is a

clarification that underground fluids other

than water may offer another medium that

contains thermal energy from the ground

1360

or ground water. The statute does not

include any other thermal energy sources.

For further discussion of the Dual Use

Rule see part III.B. of this Summary of

Comments and Explanation of Revisions.

Additionally, a few commenters sug­

gested expanding the definition to allow

GHP property to be used to heat domestic

hot water in addition to a structure. For

example, a commenter requested that the

final rule clarify that domestic hot water

generation by GHP property is included

in the definition of GHP property. Another

commenter asserted that GHP property

eligible for the section 48 credit should

also be permitted to provide hot water

generation because it would be counter­

intuitive if heating hot water for space

conditioning is included in the definitions,

but heating of domestic hot water is not.

The statute requires GHP property heat a

structure or cool a structure; therefore, the

suggestion to expand the definition is not

authorized by the statute. The Treasury

Department and the IRS decline to adopt

these suggested revisions. The final regu­

lations adopt this rule as proposed.

A commenter mentioned that the

energy property definition in proposed

§1.48-9(e)(3) concerning geothermal

energy property includes clarifying lan­

guage on the scope of included property,

specifically addressing production and

distribution equipment. The commenter

recommended including similar language

for GHP property described in section

48(a)(3)(A)(vii). The Treasury Depart­

ment and the IRS declined to adopt this

suggestion in the Proposed Regulations,

and explained in the preamble to the

Proposed Regulations that, while section

48(a)(3)(A)(vii) does not specify energy

distribution equipment and components

of a building’s heating and/or cooling sys­

tem as components of GHP property, such

equipment may be integral to the func­

tion of the GHP property to heat or cool a

structure. Thus, energy distribution equip­

ment may be considered GHP property for

the reasons stated in the preamble to the

Proposed Regulations.

3. Waste Energy Recovery Property

Section 48(a)(3)(A)(viii) provides that

energy property includes waste energy

recovery property (WERP). Section 48(c)

Bulletin No. 2024–52

(5) defines WERP as property (with a

capacity not in excess of 50 MW) that

generates electricity solely from heat from

buildings or equipment if the primary pur­

pose of such building or equipment is not

the generation of electricity. Additionally,

section 48(c)(5)(C) prevents taxpayers

from claiming a double benefit by provid­

ing that any property that could be treated

as WERP (determined without regard to

section 48(c)(5)(C)) and is part of a CHP

property is not treated as WERP for pur­

poses of section 48 unless the taxpayer

elects not to treat such system as a CHP

property for purposes of section 48.

Proposed §1.48-9(e)(9)(i) would pro­

vide that WERP is property that generates

electricity solely from heat from build­

ings or equipment if the primary purpose

of such building or equipment is not the

generation of electricity. Proposed §1.489(e)(9)(i) would also provide examples

of buildings or equipment the primary

purpose of which is not the generation of

electricity including, but not limited to,

manufacturing plants, medical care facil­

ities, facilities on college campuses, pipe­

line compressor stations, and associated

equipment. Further, proposed §1.48-9(e)

(9)(i) would provide that WERP does not

include any property that has a capacity in

excess of 50 MW. Proposed §1.48-9(e)(9)

(ii) would provide that any WERP that is

part of a system that is a CHP property is

not treated as WERP for purposes of sec­

tion 48 unless the taxpayer elects to not

treat such system as a CHP property for

purposes of section 48.

Several commenters requested that

specific technologies, including “pres­

sure reduction” equipment or “pressure

letdown” equipment, sometimes referred

to as “turboexpanders,” which generally

allow high pressure gas to expand and

produce heat, be added to the examples of

WERP that would be provided in proposed

§1.48-9(e)(9)(i). Another commenter

requested that “pressure reduction” equip­

ment be included as an example of WERP

because pipeline transmissions (regard­

less of geographic distance) require high

pressure, but at pressure letdown stations

and within industrial facilities where the

pressure is reduced, pressure reduction

affords an opportunity for energy collec­

tion. A commenter requested that district

energy systems paired with WERP be

Bulletin No. 2024–52

added to the examples of WERP, while

another commenter suggested adding car­

bon dioxide power system technology to

the examples of WERP.

In response to these requests, the Trea­

sury Department and the IRS highlight

that proposed §1.48-9(e)(9) would provide

non-exhaustive examples of buildings and

facilities at which WERP may function

rather than examples of technology that

may qualify as WERP. This approach

provides a function-oriented approach to

determine whether a technology is WERP

that is broad enough to encompass nascent

technologies without rendering the regula­

tions quickly obsolete. Therefore, the final

regulations do not adopt the requested

revisions to the definition of WERP, and

the final regulations adopt this rule as pro­

posed.

4. Energy Storage Technology

Section 48(a)(3)(A)(ix), which was

added by the IRA, provides that energy

property includes energy storage technol­

ogy. 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, that stores energy), and has a

nameplate capacity of not less than 5 kilo­

watt-hours (kWh). Section 48(c)(6)(A)(ii)

provides that thermal energy storage prop­

erty is also energy storage technology.

Section 48(c)(6)(B) provides a rule for

modifications of energy storage technol­

ogy. In the case of any property that either

was placed in service before August 16,

2022, and would be described in section

48(c)(6)(A)(i), except that such property

has a capacity of less than 5 kWh and is

modified in a manner that such property

(after such modification) has a nameplate

capacity of not less than 5 kWh, or is

energy storage technology (as described

in section 48(c)(6)(A)(i)) and is modified

in a manner that such property (after such

modification) has an increase in name­

plate capacity of not less than 5 kWh, such

property is treated as energy storage tech­

nology (as described in section 48(c)(6)

(A)(i)) except that the basis of any exist­

ing property prior to such modification is

1361

not taken into account for purposes of the

section 48 credit.

Section 48(c)(6)(C) defines thermal

energy storage property, for purposes of

section 48(c)(6), as 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) provides that thermal energy storage

property does not include a swimming

pool, a CHP property, or a building or its

structural components.

Commenters requested clarifications

regarding the treatment of energy stor­

age technology co-located with, an inte­

gral part of, or shared with a facility that

is otherwise eligible for certain Federal

tax credits. For example, a commenter

requested clarification concerning bound­

aries between energy storage technology

eligible for the section 48 credit and qual­

ified clean hydrogen production facilities

eligible for the credit under section 45V.

Another commenter requested confir­

mation that energy storage technology,

including a hydrogen energy storage prop­

erty, separately qualifies for the section 48

credit regardless of whether it is part of a

facility for which a credit under section

45, 45V, or 48 is or has been allowed. A

commenter also requested confirmation

that energy storage technology will be

treated as separate property for section

48 and other Code provisions. The Trea­

sury Department and the IRS confirm

that energy storage technology is eligi­

ble for the section 48 credit if it satisfies

the requirements of section 48 even if the

energy storage technology is co-located

with or shared by a facility that is other­

wise eligible for the section 45, 45V, or 48

credits.

a. Hydrogen energy storage property

Proposed §1.48-9(e)(10)(iv) would

provide that hydrogen energy storage

property is property (other than property

primarily used in the transportation of

goods or individuals and not for the pro­

duction of electricity) that stores hydro­

gen and has a nameplate capacity of not

less than 5 kWh, equivalent to 0.127 kg of

December 23, 2024

hydrogen or 52.7 standard cubic feet (scf)

of hydrogen. Proposed §1.48-9(e)(10)

(iv) would also require hydrogen energy

storage property to store hydrogen that is

solely used for the production of energy

and not for other purposes such as for the

production of end products such as fertil­

izer. Proposed §1.48-9(e)(10)(iv) would

also provide a non-exhaustive list of

components of hydrogen energy storage

property that would include, but would

not be limited to, a hydrogen compressor

and associated storage tank and an under­

ground storage facility and associated

compressors.

In the preamble to the Proposed Regu­

lations, the Treasury Department and the

IRS requested comments on alternative

approaches to assessing limitations on the

use of hydrogen energy storage property,

including whether additional clarifica­

tion is needed regarding the production

of energy from hydrogen, and what type

of documentation would be needed to

demonstrate that a hydrogen energy stor­

age property was used to store hydrogen

that is solely used for the production of

energy.

A commenter particularly endorsed

the approach taken in the Proposed Reg­

ulations by providing that the nameplate

capacity requirement for hydrogen is

0.127 kilograms for 5 kWh. The com­

menter suggested this rule be retained in

the final regulations.

Generally, commenters disagreed with

the requirement that hydrogen energy

storage property must store hydrogen

that is solely used for the production of

energy and not for other purposes, which

the commenters referred to as the “end use

requirement.” For example, a commenter

stated that the final regulations should be

revised to align with the statutory language

and asserted that the end use requirement

is not in accord with legislative intent,

would cause delays, is unworkable, and

misaligns with the Biden Administration’s

U.S. National Clean Hydrogen Strategy

and Roadmap. Some commenters asserted

that the end use requirement is simply

unworkable due to lack of tracing mecha­

nisms once hydrogen enters the stream of

commerce.

Multiple commenters also asserted

that imposing an end use requirement

on hydrogen energy storage property is

December 23, 2024

unsupported by the statute and would

be impossible to administer. Comment­

ers expressed concerns that the end use

requirement would render the credit use­

less, impact markets inappropriately,

and lead to confusion. Commenters

also asserted that section 48(c)(6)(A)(i)

requires only that hydrogen energy stor­

age property “store energy” and does not

require that it actually be used for the pro­

duction of energy. Another commenter

noted that because hydrogen is a form of

energy, that hydrogen storage is per se

energy use.

With respect to administrability, com­

menters explained the difficulties of both

requiring exclusive energy use and obtain­

ing the information to make this determi­

nation. For example, a commenter stated

that it is too difficult for the storage owner

to predict how hydrogen will be used and

another asserted that requiring stored

hydrogen to be used solely for the pro­

duction of energy would, in cases of bulk

storage, be nearly impossible. Another

commenter likewise stated that taxpay­

ers do not have full control of, or even

information regarding, the use of hydro­

gen once it leaves their storage facilities

and will be unable to have the certainty

needed regarding end use to obtain proj­

ect financing. This commenter, along with

others, also noted the significant burden

of documenting the end use of the stored

hydrogen. This commenter explained that

currently there are no recordkeeping or

documentation precedents available for

a taxpayer to efficiently demonstrate the

end-use of hydrogen, a fungible molecule,

stored in a taxpayer’s hydrogen energy

storage property. The commenter asserted

that because there is no available docu­

mentation pathway for tracking hydro­

gen molecules through to their end use,

it would be both impractical and prohibi­

tively costly for a taxpayer to develop and

implement such recordkeeping practices.

Another commenter requested that the end

use requirement conclude with the recap­

ture period.

Lastly, commenters explained how the

end use requirement would limit the use­

fulness of the credit. For example, a com­

menter asserted that the end use require­

ment would render the section 48 credit

largely useless as a means of encouraging

the development of the large-scale hydro­

1362

gen storage capability that will be essential

to the establishment of a robust hydrogen

ecosystem in the United States. Addition­

ally, a commenter stated that an end use

requirement would cause several prob­

lems, including deterring the provision of

hydrogen storage services to a significant

portion of the hydrogen market sector (for

example, for ammonia production). This

commenter also requested clarification

regarding the appropriate treatment in a

case in which hydrogen is another step

removed from ammonia production with

electricity production as an interim step.

Generally, under the Proposed Regula­

tions, this scenario satisfies the end use

requirement.

A commenter noted that the end use

requirement would lead to a risk of cre­

ating two separate markets for hydrogen:

those that are able to use the section 48

credit and those that are not. Emphasiz­

ing the same points, another commenter

stated that restricting the end-use of the

clean hydrogen to “energy” may mate­

rially impact the ability of producers to

secure offtake agreements and/or restrict

the usage of hydrogen storage and trans­

portation networks to only certain types of

hydrogen end-uses.

Another commenter noted that energy

storage technology neutrality is very

important. This commenter stated that it

believes that the “energy only” end use

requirement would make hydrogen stor­

age a second (or even third) class tech­

nology if compared to battery energy stor­

age for purposes of the section 48 credit.

The commenter added that one way of

reading the positioning of hydrogen and

battery storage within the same statutory

provision is that this reflects the intent of

Congress to not favor one form of energy

storage over the other. This commenter

further asserts that the absence of an

end use requirement imposed on battery

storage property indicates that no such

requirement should be imposed on hydro­

gen energy storage property.

While the majority of commenters

objected to including the end use require­

ment, several commenters provided sug­

gestions if the end use requirement is

adopted. Several of these commenters

suggested the use of an allocation rule sim­

ilar to the Dual Use Rule under proposed

§1.48-14(b)(2) and discussed in part III.B.

Bulletin No. 2024–52

of this Summary of Comments and Expla­

nation of Revisions. A commenter sug­

gested revising the Proposed Regulations

to require a reasonable allocation between

qualifying energy uses and nonqualifying

non-energy uses of stored hydrogen simi­

lar to the requirements found in the Dual

Use Rule. Another commenter stated that

the final regulations should provide flexi­

bility and permit any reasonable method

to establish the annual use of the stored

hydrogen similar to proposed §1.48-14(b)

(2)(ii). A commenter proposed that the

final regulations provide a Dual Use safe

harbor for a portion of a hydrogen energy

storage property.

Alternatively, several commenters sug­

gested linking the end use requirement to

the rules for the credit for production of

clean hydrogen under section 45V of the

Code. These commenters proposed that

hydrogen energy storage be eligible for

the section 48 credit regardless of end use,

if the hydrogen stored is at least 50 per­

cent qualified clean hydrogen under sec­

tion 45V(c)(2).

Commenters also requested clarifica­

tions regarding what would be consid­

ered energy use for purposes of applying

the end use requirement. For example, a

commenter requested a clarification that

the definition of energy use is inclusive

of an application in which hydrogen is

fully consumed in the manufacturing of

a downstream molecule, which is in turn

clearly used in an energy application for

which hydrogen would be qualified if used

directly. Another commenter noted that

the examples provided in the preamble to

the Proposed Regulations are too narrow

and should be expanded to reflect vari­

ous uses of hydrogen as energy, including

ammonia as a feedstock for fuel. A com­

menter asked for clarification that storage

of hydrogen that is solely used as energy

includes hydrogen used as energy for

mobility purposes. Finally, a commenter

requested that the final regulations allow

for the storage of hydrogen whose end use

is fertilizer for food production, because

prohibiting hydrogen storage used in this

way may encourage the parallel develop­

ment of hydrogen storage and transporta­

tion infrastructure that could otherwise be

shared.

Several commenters also requested

clarification regarding substantiation of

Bulletin No. 2024–52

the end use requirement. A commenter

suggested that taxpayers be permitted to

rely on the use described in commercial

sales contracts without the need to track

the ultimate end use of hydrogen by thirdparty users. Another commenter asked

that taxpayers be required only to main­

tain documentation, such as an agreement

between the two parties or a certification,

that the immediate purchaser of the stored

hydrogen intends to use it for energy. This

commenter stated that tracking use past

the point of immediate purchaser to the

end use of the molecule is impossible and

as a result may make the credit unavail­

able to a variety of hydrogen storage

projects. Another commenter noted that

operators of clean hydrogen transport and

storage systems will need to know what

sort of assurances are needed from off-tak­

ers at the limits of their system to satisfy

credit eligibility and ensure limited recap­

ture risk.

Several commenters suggested that the

final regulations provide a method for a

taxpayer to demonstrate that a hydrogen

energy storage property was used to store

hydrogen solely used for the production

of energy. A commenter recommended

that taxpayers be able to meet this require­

ment through (i) an affirmative attestation

of intent by the taxpayer that owns the

storage property and (ii) a five-year look­

back process, with reasonable threshold

tests, to determine whether a recapture has

occurred and what percentage of the credit

should be recaptured. Another commenter

recommended that the final regulations

create a rebuttable presumption of energy

use allowing taxpayers to demonstrate

energy end use requirements under the

relevant facts and circumstances.

The Proposed Regulations would

require that the hydrogen energy storage

property store hydrogen solely use for the

production of energy and not for other

purposes such as for the production of end

products such as fertilizer. After consider­

ation of comments received, the Treasury

Department and the IRS agree that section

48(c)(6)(A)(i) does not require that hydro­

gen energy storage property store hydro­

gen that will be used for the production

of energy. The Treasury Department and

the IRS also understand commenters’ con­

cerns regarding the administrative chal­

lenges the end use requirement presents

1363

for taxpayers and agree that the final regu­

lations require modification. Accordingly,

the final regulations do not adopt the

requirement that hydrogen energy storage

property store hydrogen that is solely used

for the production of energy and not for

other purposes such as for the production

of end products such as fertilizer.

Some commenters asserted that the

preamble to the Proposed Regulations

indicated that hydrogen energy storage

property is not limited to hydrogen. Since

hydrogen may be stored within ammonia

or methanol, commenters requested that

the final regulations state that hydrogen

storage property that stores hydrogen

in the form of ammonia, methanol, or

another stable medium qualifies as energy

storage technology if such product is pro­

duced directly from hydrogen and subject

to any use limitation provided in the regu­

lations. Another commenter requested that

the final regulations clarify that equipment

used to process hydrogen into ammonia,

methanol, and other carriers, as well as

storage for such hydrogen carriers, is

hydrogen energy storage property.

The Treasury Department and the IRS

decline to adopt the comments request­

ing that the final regulations provide that

chemical storage, that is, equipment used

to store hydrogen carriers (such as ammo­

nia and methanol), is hydrogen energy

storage property. Section 48(c)(6)(A)(i)

specifically references only hydrogen, not

compounds containing hydrogen. While

most vessels designed for hydrogen stor­

age (both above and below ground) may

be capable of storing other gases, they are

usually dedicated to a single gas (and not

repurposed) to avoid contamination and

mixing of gases.

Many commenters also provided feed­

back on the non-exhaustive list of compo­

nents of property that may be considered

part of hydrogen energy storage property

as would be provided in proposed §1.489(e)(10)(iv). A commenter endorsed the

inclusion of “compressor and storage

tank” as a component of hydrogen energy

storage property. Several commenters

requested that additional components of

property be added to this list, some by

asserting that the components should be

eligible under rules for functionally inter­

dependent or integral property. Other

commenters requested that the final reg­

December 23, 2024

ulations expand the examples of integral

and functionally interdependent equip­

ment to be more inclusive of existing and

future hydrogen energy storage property

technologies.

Specifically, commenters requested

that hydrogen energy storage property

include hydrogen liquefaction and related

equipment, equipment required to operate

underground hydrogen storage property,

as well as dedicated hydrogen distribution

equipment such as pipelines located on

the storage side of custody meters, hydro­

gen trailers (for example, cryogenic liquid

tankers, or cylinders hauled by modules

or chassis) and railcars. Another com­

menter proposed that the final regulations

treat hydrogen liquefaction equipment

and related equipment in the same man­

ner as power conditioning and transfer

equipment may be treated with respect

to certain energy property that generates

electricity.

The Treasury Department and IRS

agree that additional clarity on the defini­

tion of hydrogen energy storage property

is warranted. The Treasury Department

and IRS understand that hydrogen lique­

faction equipment may prepare hydrogen

for storage in the hydrogen energy storage

property, making such property an integral

part of hydrogen energy storage property.

Section 48(c)(6)(A)(i) provides that

energy storage technology does not

include property primarily used in the

transportation of goods or individuals

and not for the production of electricity.

Pipelines, trailers, and railcars are prop­

erty primarily used in the transportation

of goods or individuals not for the pro­

duction of electricity. However, hydrogen

energy storage property may have gath­

ering and distribution lines to transport

hydrogen within the hydrogen energy

storage property, making such property an

integral part of the hydrogen energy stor­

age property. Therefore, the gathering and

distribution lines used within a hydrogen

energy storage property are not pipelines

used to transport hydrogen outside of the

hydrogen energy storage property. The

final regulations provide that property that

is an integral part of hydrogen energy stor­

age property includes, but is not limited

to, hydrogen liquefaction equipment and

gathering and distribution lines within a

hydrogen energy storage property.

December 23, 2024

Several commenters requested clari­

fication regarding the costs included in

hydrogen energy storage property. In

the context of salt caverns, a commenter

asserted that the final regulations should

confirm that eligible costs for a salt cavern

include not only the costs to acquire and

construct the eligible property but also all

direct and indirect costs associated with

the development and construction of the

salt cavern and referenced rules under

section 263A of the Code. Another com­

menter requested clarification regarding

what equipment from an operational stor­

age facility would be includible in basis

for purposes of the section 48 credit. A

commenter requested that power-to-gas

methanation facility qualify as hydrogen

energy storage.

As stated for other energy properties,

the Treasury Department and the IRS

emphasize that the rule for determining

what constitutes a unit of energy property

is function-based. Because more informa­

tion is needed to make the determinations

requested by the commenters, the final

regulations do not adopt these comments.

b. Electrical energy storage property

Proposed §1.48-9(e)(10)(ii) would pro­

vide that electrical energy storage prop­

erty is property (other than property pri­

marily used in the transportation of goods

or individuals and not for the production

of electricity) that receives, stores, and

delivers energy for conversion to electric­

ity, and has a nameplate capacity of not

less than 5 kWh. For example, subject to

the exclusion for property primarily used

in the transportation of goods or individ­

uals, electrical energy storage property

includes, but is not limited to, recharge­

able electrochemical batteries of all types

(such as lithium ion, vanadium flow,

sodium sulfur, and lead-acid); ultracapac­

itors; physical storage such as pumped

storage hydropower, compressed air stor­

age, flywheels; and reversible fuel cells.

Multiple commenters requested clari­

fication concerning specific technologies

that may be electrical energy storage prop­

erty. A commenter requested that the defi­

nition be expanded to include compressed

fluid storage in addition to compressed

air storage so as to include liquid and gas

applications. Because these applications

1364

generally are used by pipelines, which are

property primarily used in the transporta­

tion of goods or individuals and not for

the production of electricity, the Treasury

Department and the IRS decline to adopt

these revisions.

Multiple commenters requested that

load controllers be described as an inte­

gral part of electrical energy storage tech­

nology while other commenters requested

that bidirectional chargers be eligible as

energy storage technology. Another com­

menter requested that the final regulations

explicitly include thermal batteries capa­

ble of storing energy for conversion to

electricity in its non-exhaustive list of eli­

gible “electrical energy storage property”

due to confusion related to thermal energy

storage (TES) being a separate category.

As has been noted previously, the Pro­

posed Regulations are intended to provide

a function-oriented method to determine

whether a technology is energy storage

technology that is broad enough to encom­

pass nascent technologies without render­

ing the regulations quickly obsolete. It

is impossible to enumerate every single

technology that may be eligible for the

section 48 credit given the ever-changing

nature of the industry and technological

development. Although these regulations

do not list all technologies that may qual­

ify for the section 48 credit, the Proposed

Regulations provide adequate guidance

and examples to illustrate the application

of the rules for taxpayers to analyze a par­

ticular technology. The Treasury Depart­

ment and the IRS, therefore, do not adopt

commenters’ requests concerning specific

technologies.

Multiple commenters questioned what

primarily used in the transportation in

section 48(c)(6)(A)(i) means in the case

of electrical energy storage property. A

commenter explained that pipeline sys­

tems can be multi-tasked with a section

of the pipe to act as energy storage and

requested that the phrase “primarily used

in the transportation of goods” specifi­

cally exclude equipment that is mobile

but include stationary property such as

pipelines. Another commenter requested

a bright line rule for technologies that are

not primarily used in transportation of

goods or individuals to qualify for the sec­

tion 48 credit. This commenter suggested

that property, including school buses,

Bulletin No. 2024–52

that receives, stores, and delivers energy

for conversion to electricity and that is

used less than 35 percent of the hours in

a calendar year for transporting goods or

individuals is not primarily used for trans­

portation. In response to these comments,

the Treasury Department and the IRS note

that pipelines and school buses are both

primarily used in transportation. In addi­

tion, there are other IRA tax incentives

intended to benefit some technologies for

which commenters seek section 48 credit

eligibility. For instance, section 45W

provides a tax credit for electric school

buses. Furthermore, a notice of proposed

rulemaking (REG-118269-23) published

in the Federal Register (89 FR 76759) on

September 19, 2024, regarding the sec­

tion 30C alternative fuel vehicle refueling

property credit (30C Proposed Regula­

tions) proposed a definition for property

primarily used in the transportation of

goods or individuals and not for the pro­

duction of electricity for purposes of sec­

tions 48 and 48E. In particular, proposed

§1.48-9(e)(10)(vi) of the 30C Proposed

Regulations would provide that energy

storage property is primarily used in the

transportation of goods or individuals

and not for the production of electricity,

and therefore is not energy storage tech­

nology eligible for the section 48 credit,

if a credit is claimed under section 30C

for such property. Accordingly, comments

regarding this proposed definition will be

addressed when the 30C Proposed Regu­

lations are finalized.

In the context of a pumped storage

hydropower facility, a commenter sug­

gested that the scope of eligible electrical

energy storage technology be defined to

include all property necessary to receive,

store, and deliver energy for conversion

to electricity, consistent with the defini­

tion in section 48(c)(6)(A)(i), and include

all tangible personal property and other

tangible property up to and including the

step-up transformer at the substation prior

to transmission to the grid. This com­

menter also suggested that an example

be included to illustrate these concepts.

Another commenter stated that the final

regulations should confirm that the term

“energy storage technology” includes all

the qualified property up to and including

the step-up transformer at the substation

prior to transmission to the grid, and that

Bulletin No. 2024–52

this property would include the two reser­

voirs, the powerhouse (including the gen­

erators, turbines, and associated electrical

equipment), the piping and pumps, the

tunnel, substation equipment, and other

integral property.

A definitive response to such comments

would require the Treasury Department

and the IRS to conduct a complete fac­

tual analysis of the property in question,

which may include information beyond

that which was provided by the comment­

ers. Because more information is needed

to make the determinations requested by

the commenters, the requested clarifica­

tions are not addressed in these final reg­

ulations.

c. Thermal energy storage property

Proposed §1.48-9(e)(10)(iii) would

provide that thermal energy storage prop­

erty is property comprising a system that

is directly connected to a heating, venti­

lation, or air conditioning (HVAC) sys­

tem; removes heat from, or adds heat to,

a storage medium for subsequent use; and

provides energy for the heating or cool­

ing of the interior of a residential or com­

mercial building. Thermal energy storage

property includes equipment and materi­

als, and parts related to the functioning of

such equipment, to store thermal energy

for later use to heat or cool, or to provide

hot water for use in heating a residential or

commercial building. It does not include a

swimming pool, CHP property, or a build­

ing or its structural components. The Pro­

posed Regulations included a non-exhaus­

tive list of examples of thermal energy

storage property.

Commenters requested clarifications

on what constitutes thermal energy stor­

age property. A commenter requested clar­

ification that thermal energy storage prop­

erty includes all air-source heat pumps,

electric boilers, and hot water heat pumps,

but does not include fossil-fuel-pow­

ered water boilers. The commenter also

requested that the final regulations clar­

ify that ground and air source heat pumps

qualify as energy storage technology

and suggested that thermal energy stored

in one medium may be transferred and

stored in a second medium for subsequent

use. The commenter also requested that

the use of the term “subsequent” in the

1365

definition of thermal energy storage prop­

erty under section 48(c)(6)(C)(i)(II) not

require a specific interval of time between

storage and use for a process to qualify.

Another commenter stated that the point

at which the scope of thermal energy

storage property ends is unclear and

requested clarification regarding whether

“equipment” extends to the thermal

energy source for thermal energy storage

property. This commenter also requested

clarity on whether the thermal energy

source equipment (for example, chiller,

heat pump, or furnace) may be used for

multiple purposes or if the thermal energy

source equipment must be dedicated to the

thermal energy storage property. Another

commenter asked whether equipment

that uses thermal energy to heat or cool

a structure is also thermal energy storage

property. Some commenters endorsed the

proposed examples of thermal energy

storage property, while other comment­

ers requested additions, such as including

“chilled water” to ice and electric boilers

that use electricity to heat water and later

use this stored energy to heat a building

through the HVAC system.

The Treasury Department and IRS agree

that the definition of thermal energy stor­

age property requires clarification. Ther­

mal energy storage property is defined,

in part, as a system which “removes heat

from, or adds heat to, a storage medium

for subsequent use.” The Treasury Depart­

ment and IRS, in consultation with DOE,

understand the phrase “adds heat to” as

including equipment that is involved in

adding, or transferring, already-exist­

ing heat from one medium to the storage

medium, but not equipment involved

in transforming other forms of energy

into heat in the first instance. Equipment

that just adds (or removes) heat includes

technologies, like heat pumps, that draw

heat from the ambient air or other stores

of heat, and add that heat to a storage

medium. By contrast, equipment that

transforms other forms of energy into heat

in the first instance, for example, through

combustion or electric resistance, is not

property that “removes heat from, or adds

heat to” a storage medium and is therefore

not an eligible component of a thermal

energy storage property. For example, a

conventional gas boiler with an integrated

storage tank would not generally be ther­

December 23, 2024

mal energy storage property. While the

gas boiler elements would not be part of

such property, the integrated storage tank,

however, may be thermal energy storage

property if it otherwise meets the ther­

mal energy storage property definition.

Further, an air-to-water heat pump with a

thermal storage tank, for example, would

generally be thermal energy storage prop­

erty provided that it otherwise meets the

thermal energy storage definition. This

could be the case even if the heat pump

also serves a purpose in the connected

HVAC system’s real-time heating or cool­

ing of a building. In that case, the thermal

storage tank would be thermal energy stor­

age property and the heat pump may also

qualify as part of that eligible property to

the extent the taxpayer’s costs exceed the

cost of an HVAC system without thermal

storage capacity that would meet the same

functional heating or cooling needs as the

heat pump system with a storage medium,

other than time shifting of heating or cool­

ing.

The Proposed Regulations included an

example of electric furnaces that use elec­

tricity to heat bricks to high temperatures

and later use this stored energy to heat a

building through the HVAC system. The

Treasury Department and IRS acknowl­

edge that this example needs to be refined

to more precisely delineate the scope of

eligible thermal energy storage property.

Whereas the heated bricks and equipment

that adds heat generated by the furnace

to those bricks, or removes heat from the

bricks, are eligible thermal energy storage

property, the electric furnace equipment

that transforms energy into the thermal

energy in the first instance is not. The final

regulations clarify that thermal energy

storage property does not include property

that transforms other forms of energy into

heat in the first instance and this example

has been revised accordingly in the final

regulations.

With respect to the requirement for

subsequent use, the Treasury Department

and IRS also agree that additional clarity

is warranted. The statute requires that ther­

mal energy storage property must be able

to perform certain functions, not simply

performing heat transfer. Any heat trans­

fer may take some amount of time and

heat does not immediately dissipate even

if no effort is made to store it. While some

December 23, 2024

may assert that such heat transfer is sub­

sequent use, the Treasury Department and

IRS disagree. A plain reading of the stat­

ute indicates that thermal energy storage

property does not include property that

simply engages in heat transfer. The ther­

mal energy storage property must be able

to store the heat. The Treasury Depart­

ment and IRS, in consultation with DOE,

find that a minimum time interval for sub­

sequent use provides certainty for taxpay­

ers and sound tax administration. Accord­

ingly, the final regulations clarify that

property that “removes heat from, or adds

heat to, a storage medium for subsequent

use” is property that is designed with the

particular purpose of substantially altering

the time profile of when heat added to or

removed from the thermal storage medium

can be used to heat or cool the interior of

a residential or commercial building. The

final regulations also provide a safe harbor

for thermal energy storage property. If the

thermal energy storage property can store

energy that is sufficient to provide heating

or cooling of the interior of a residential or

commercial building for the minimum of

one hour, it is deemed to have the purpose

of substantially altering the time profile of

when heat added to or removed from the

thermal storage medium can be used to

heat or cool the interior of a residential or

commercial building.

The Treasury Department and IRS

have revised the definition of thermal

energy storage property and the exam­

ples in the final regulations to illustrate

what constitutes thermal energy storage

property. These final regulations also add

that thermal energy storage property may

store thermal energy in an artificial pit, an

aqueous solution, or a solid-liquid phase

change material, in addition to the under­

ground tank or a borehole field already

included in the Proposed Regulations, in

order to be extracted for later use for heat­

ing and/or cooling. The final regulations

clarify that a heat pump system that trans­

fers heat into and out of a storage medium

is thermal energy storage property. How­

ever, consistent with §1.48-14(d), if ther­

mal energy storage property, such as a heat

pump system, includes equipment, such

as a heat pump, that also serves a purpose

in an HVAC system that is installed in

connection with the thermal energy stor­

age property, the taxpayer’s basis in the

1366

thermal energy storage property includes

the total cost of the thermal energy stor­

age property and HVAC system less the

cost of an HVAC system without thermal

storage capacity that would meet the same

functional heating or cooling needs as the

heat pump system with a storage medium,

other than time shifting heating or cool­

ing.

Commenters also requested clarifi­

cations regarding whether specific com­

ponents may be part of thermal energy

storage. A commenter requested that pipes

to distribute stored thermal energy to and

within buildings (including for multiple

residential or commercial buildings such

as through a district heating system) and

equipment in building heating and/or

cooling systems — such as coils, radia­

tors, and other end-use equipment — nec­

essary to convey stored thermal energy to

building space or domestic hot water sup­

ply be included in thermal energy storage

property.

With respect to the request to include

pipes and equipment in building heating

and/or cooling systems, the statutory defi­

nition of thermal energy storage property

provides, in part, that it is directly con­

nected to an HVAC system, not that it is an

HVAC system. The Proposed Regulations

would provide a function-oriented method

to evaluate whether property is a func­

tionally interdependent or an integral part

of thermal energy storage property. With

respect to the request to include equipment

necessary to convey domestic hot water

supply, the statutory definition further pro­

vides, in part, that thermal energy storage

property provides energy for the heating

or cooling of the interior of a residential

or commercial building. The statute does

not provide for stored energy for domes­

tic hot water supply for consumptive use.

Therefore, property that provides energy

for domestic hot water supply exclusively

for consumptive use and not for heating or

cooling of the interior of such a building

is not eligible under the statute. The final

regulations do not adopt these comments.

Another commenter requested clari­

fication that if property that would oth­

erwise qualify as thermal energy storage

property is connected to a district heating

system that provides energy for the heat­

ing or cooling of multiple buildings, it

would nonetheless be considered “directly

Bulletin No. 2024–52

connected to a heating, ventilation, or air

conditioning system”. Proposed §1.489(e)(10)(iii) would not preclude ther­

mal energy storage technology property

that is directly connected to more than

one HVAC system from being a thermal

energy storage property. The final regula­

tions do not modify the example.

Commenters also requested modifica­

tion of the definition of thermal energy

storage property in proposed §1.48-9(e)

(10)(iii). A commenter suggested adding

“refrigeration” to “is directly connected to

a heating, ventilation, or air conditioning

system” because industrial refrigeration

systems are considered part of the HVAC

system in construction. This commenter

also joined another in recommending add­

ing “industrial” to “for use in heating a

residential or commercial building” to pre­

vent restricting the use of thermal energy

storage in industrial sites and to elimi­

nate confusion regarding commercial and

industrial building types. To maintain con­

sistency with the statutory text, the final

regulations maintain the wording set forth

in section 48(c)(6)(C)(i)(I) and (III) as is.

Commenters also expressed concerns

that the language “directly connected

to…” in proposed §1.48-9(e)(10)(iii)

might exclude thermal energy storage

property that directly functions as a heat­

ing system itself without connecting to an

HVAC system. A commenter suggested

providing guidance to clarify that thermal

energy storage property that functions as a

self-contained heating or cooling system

is eligible thermal energy storage property

under proposed §1.48-9(e)(10)(iii). Sec­

tion 48(c)(6)(C)(i)(I) requires that ther­

mal energy storage property is directly

connected to a heating, ventilation, or air

conditioning system, but does not include

the HVAC system itself as eligible ther­

mal energy storage property. Therefore,

these comments are not adopted because

they would be inconsistent with the stat­

ute. However, elements of such a system

could constitute eligible thermal energy

storage property.

Additionally, a commenter requested

clarification that thermal energy storage

property may be considered battery stor­

age technology for the purpose of claiming

the credit available to residential custom­

ers under section 25D(d)(6) of the Code.

The Treasury Department and the IRS

Bulletin No. 2024–52

decline to address this request because it

is outside of the scope of section 48 and,

therefore, these final regulations.

d. Modifications of energy storage

property

Proposed §1.48-9(e)(10)(v) would pro­

vide that with respect to electrical energy

storage property and hydrogen energy

storage property placed in service after

December 31, 2022, energy storage tech­

nology that is modified as set forth in pro­

posed §1.48-9(e)(10)(v) is treated as elec­

trical energy storage property or hydrogen

energy storage property, except that the

basis of any existing property prior to such

modification is not taken into account for

purposes of the section 48 credit. Proposed

§1.48-9(e)(10)(v) applies to any electrical

energy storage property and hydrogen

energy storage property that either: (A)

was placed in service before August 16,

2022, and would be described in section

48(c)(6)(A)(i), except that such property

had a capacity of less than 5 kWh and is

modified in a manner that such property

(after such modification) has a nameplate

capacity (after such modification) of not

less than 5 kWh; or (B) is described in

section 48(c)(6)(A)(i) and is modified in

a manner that such property (after such

modification) has an increase in name­

plate capacity of not less than 5 kWh.

A commenter asked if the section 48

credit is available for repurposed batter­

ies used to build energy storage systems.

Whether a battery is repurposed and eli­

gible for the section 48 credit requires a

factual determination that is beyond the

scope of these regulations. The 80/20

Rule provides general rules for taxpayers

that include some used components when

placing in service an energy property.

Another commenter requested that the

requirement that any modified energy stor­

age property must increase the nameplate

capacity of the energy storage property by

5 kWh or more be removed. Section 48(c)

(6)(B) sets forth the 5 kWh requirement

for modifications to energy storage prop­

erty so it cannot be removed. The final

regulations do not adopt this comment.

Multiple commenters requested clari­

fication that the minimum 5 kWh capac­

ity increase needed for modifications of

energy storage under section 48(c)(6)

1367

(B) be the nameplate capacity not actual

capacity (which may have decreased

due to degradation). The commenters

explained that focusing on nameplate

capacity will provide greater certainty

than measuring actual capacity. Another

commenter explained that nameplate

capacity should be tested at the time of

purchase, rather than on the date of mod­

ification, especially due to non-degrading

systems and storage augmentation. The

commenter noted that if augmentations

are implemented, the installed energy

storage capacity of the energy storage

technology is increased (original instal­

lation nameplate capacity plus the aug­

mentation totaling the amount installed),

but the nameplate capacity of the property

and interconnection agreement remains

unchanged.

Section 48(c)(6)(B) provides that, for

purposes of the modification rule, name­

plate capacity is examined at the time

of the modification and must result in a

nameplate capacity increase from below 5

kWh to not less than 5 kWh (for energy

storage property originally placed in ser­

vice before enactment of the IRA) or by

at least 5 kWh (for energy storage tech­

nology placed in service after the enact­

ment of the IRA that is later modified).

Consistent with the statute, the Proposed

Regulations would not take into account

actual capacity but instead use nameplate

capacity. The only instance in which sec­

tion 48(c)(6)(B) uses the term “capacity”

alone, rather than “nameplate capacity”,

is nonetheless still a reference to name­

plate capacity. Specifically, section 48(c)

(6)(B)(i) refers to property that “would be

described in subparagraph (A)(i), except

that such property has a capacity of less

than 5 kilowatt hours”. The referenced

section 48(c)(6)(A)(i) text makes clear that

the 5 kWh capacity threshold is, in fact, a

nameplate capacity threshold. Therefore,

for the avoidance of doubt, the final regu­

lations at §1.48-9(e)(10)(v)(A) clarify that

the relevant pre-modification capacity is

the nameplate capacity. Therefore, other

than the minor clarification noted above,

these comments were not adopted in the

final regulations.

Additionally, a commenter requested

clarification whether capacity must be

added within the bounds of an existing

electrical storage property enclosure, or

December 23, 2024

whether the enclosure may be expanded or

an additional enclosure added to accom­

modate the increased capacity. Another

commenter requested clarification that

adding new battery racks to an existing

enclosure would be eligible for the section

48 credit if the nameplate capacity of the

new battery rack is at least 5 kWh. The

Proposed Regulations would provide no

limitation on the physical space occupied

by an energy storage technology and the

final regulations retain this approach.

5. Qualified Biogas Property

Section 48(a)(3)(A)(x) was added by

the IRA to provide that energy property

includes qualified biogas property. Sec­

tion 48(c)(7)(A) defines qualified biogas

property as property comprising a system

that converts biomass (as defined in sec­

tion 45K(c)(3), as in effect on the date of

enactment of section 48(a)(7) (August 16,

2022)) into a gas that consists of not less

than 52 percent methane by volume, or is

concentrated by such system into a gas

that consists of not less than 52 percent

methane, and captures such gas for sale

or productive use, and not for disposal via

combustion. Section 48(c)(7)(B) provides

that qualified biogas property includes any

property that is part of such system that

cleans or conditions such gas.

Proposed §1.48-9(e)(11) would adopt

the statutory definition of qualified bio­

gas property. Proposed §1.48-9(f)(2)

(i) would provide that components of

property are considered qualified biogas

property if they are functionally inter­

dependent, that is, if the placing in ser­

vice of each component is dependent

upon the placing in service of each of the

other components in order to perform the

intended function of the qualified bio­

gas property as described in proposed

§1.48-9(e)(11)(i). The Proposed Regu­

lations adopted this approach because it

provides a function-oriented method to

determine what is considered included in

a qualified biogas property and is broad

enough to encompass technological

changes. Additionally, proposed §1.489(e)(11)(i) would provide examples of

functionally interdependent components

of a qualified biogas property including,

but not limited to, a waste feedstock col­

lection system, a landfill gas collection

December 23, 2024

system, mixing or pumping equipment,

and an anaerobic digester.

Proposed §1.48-9(e)(11)(i) would

clarify that upgrading equipment is not

a functionally interdependent component

of qualified biogas property. The pream­

ble to the Proposed Regulations stated

that the upgrading equipment that is nec­

essary to condition biogas into the appro­

priate mixture for injection into the pipe­

line is not functionally interdependent

with the qualified biogas property that

converts biomass into a gas containing

not less than 52 percent methane and cap­

tures such gas for sale or productive use

as specified in the statute. The preamble

to the Proposed Regulations also stated

that while this upgrading equipment

makes the injection of biogas into a pipe­

line possible, such upgrading equipment

is not necessary to satisfy the statutory

requirements that the biogas converted

from biomass contain not less than 52

percent methane, and that it be captured

for sale or productive use.

a. Correction and cleaning and

conditioning property

The Correction published on Feb­

ruary 22, 2024, stated that a correction

was needed to clarify that gas upgrading

equipment that is necessary to concentrate

the gas from qualified biogas property

into the appropriate mixture for injection

into a pipeline through removal of other

gases such as carbon dioxide, nitrogen,

or oxygen, would be energy property if

it is an integral part of an energy prop­

erty as defined in proposed §1.48-9(f)(3).

Accordingly, the Proposed Regulations

were corrected by revising the following

sentence: “However, gas upgrading equip­

ment necessary to concentrate the gas

into the appropriate mixture for injection

into a pipeline through removal of other

gases such as carbon dioxide, nitrogen, or

oxygen is not included in qualified bio­

gas property.” to read as follows: “How­

ever, gas upgrading equipment necessary

to concentrate the gas into the appropri­

ate mixture for injection into a pipeline

through removal of other gases such as

carbon dioxide, nitrogen, or oxygen is not

a functionally interdependent component

(as defined in paragraph (f)(2)(ii) of this

section) of qualified biogas property.”

1368

The Proposed Regulations and Correc­

tion requested comments regarding what

types of components may be included

within the definition of cleaning and con­

ditioning property provided in the defini­

tion of qualified biogas property in section

48(c)(7)(B). The Treasury Department

and the IRS received numerous comments

regarding the components that should be

included in qualified biogas property.

Commenters universally supported the

inclusion of upgrading equipment in qual­

ified biogas property and some asserted

that the Proposed Regulations’ exclusion

of upgrading equipment conflicts with

analogous provisions in the Proposed Reg­

ulations that allow the inclusion of power

conditioning and transfer equipment such

as that allowed in offshore wind projects.

Most commenters asserted that upgrading

equipment should be considered function­

ally interdependent to qualified biogas

property and therefore, eligible for the

section 48 credit. A commenter requested

that biogas energy property include a defi­

nition of system for section 48(c)(7)(A)

purposes that includes all integrated prop­

erty.

Commenters also expressed concern

that the Proposed Regulations and the

Correction unduly limit what would be

included as qualified biogas property. For

example, a commenter stated that prop­

erty used to capture, clean, condition,

upgrade, and perform “chemical, mechan­

ical, or thermochemical conversion” are

all necessary to convert biogas into usable

products. Commenters explained that

the Proposed Regulations would allow

only biogas property with limited utility

to qualify and would exclude a majority

of costs related to biogas property. For

example, a commenter stated that under

the Proposed Regulations, property used

to produce the raw biogas from the land­

fill, remove sulfur from the biogas, and

remove the volatile organic compounds

from the biogas would appear to qualify

for the section 48 credit, whereas property

used to remove carbon dioxide, nitrogen,

and oxygen from biogas and to otherwise

prepare the gas for injection into a natu­

ral gas pipeline would not qualify for the

section 48 credit. The commenter asserted

that the equipment used in these latter pro­

cesses are essential components of a RNG

system and comprise approximately 85

Bulletin No. 2024–52

percent of overall capital investment in an

RNG project.

A commenter asserted that the Pro­

posed Regulations read the sale or pro­

ductive use language out of the statute.

Another commenter stated that the Pro­

posed Regulations would limit eligibility

for the section 48 credit to essentially

raw biogas (if it can meet the 52 percent

methane threshold). According to the

commenter, raw biogas generally cannot

be used without some treatment due to the

contaminants present in the gas stream

and even if the raw biogas can be used,

such use is typically through combustion

(that is, burned on-site for electricity or

as process energy), which is excluded

under the statute. The commenter

explained that, at best, the Proposed Reg­

ulations may allow some medium-BTU

gas, which is biogas that received only

limited treatment to remove certain con­

taminants, to be eligible for the section

48 credit. However, medium-BTU gas is

not as valuable as RNG and is typically

used locally.

Generally, many commenters agreed

that the utility of biogas is significantly

limited without proper cleaning and con­

ditioning. These commenters stated that,

without upgrading, the extracted biogas

faces considerable challenges for market­

ability because its high moisture content

and corrosive properties make it difficult

to safely store, compress, mix with other

gases, transport, inject into the natural

gas system, or market. Consequently, the

non-upgraded biogas is of limited util­

ity, such as on-site combustion to create

process heat, generate electricity, or to be

flared into the atmosphere. In contrast, a

commenter described the marketable uses

of upgraded RNG as including, but not

limited to, advanced electricity genera­

tion in fuel cells, hydrogen production,

advanced liquid fuels for aviation, and

RNG for use in trucking, industrial pro­

cesses, and space heating.

Generally, commenters requested the

final regulations correct the treatment of

“gas upgrading equipment” in the Pro­

posed Regulations to instead treat it as

property that “cleans and conditions” gas,

asserting that such treatment is consistent

with the plain text of the statute and the

intention of Congress. To support this

position, a commenter asserted that the

Bulletin No. 2024–52

statute and legislative history do not con­

template any limitation on what property

“cleans or conditions” gas. Several com­

menters cited certain congressional state­

ments regarding the Agriculture Environ­

mental Stewardship Act to support their

reading of the definition of qualified bio­

gas property added to section 48 by the

IRA.

Similarly, many commenters asserted

there is a misunderstanding in the Pro­

posed Regulations that the term “upgrad­

ing” is interchangeable with the phrase

“cleaning and conditioning.” For exam­

ple, a commenter stated that the exclusion

of upgrading equipment appears contra­

dictory to the statute, which expressly

includes cleaning and conditioning prop­

erty. This commenter noted that the Pro­

posed Regulations misunderstand the

“upgrading” process, which is an indus­

try verbiage, but is essentially part of the

“cleaning and conditioning process” nec­

essary to process biogas to standards that

support its productive use or sale. Another

commenter stated that the DOE uses these

terms interchangeably.

Additionally, a few commenters stated

that the Proposed Regulations incorrectly

implemented the 52 percent measurement

as a ceiling rather than a floor. For exam­

ple, a commenter pointed to the preamble

to the Proposed Regulations as mistakenly

interpreting that the statute was enacted to

incentivize taxpayers to produce 52 per­

cent methane (and nothing greater). The

commenter stated that this is contrary to

the statute, to the relevant legislative his­

tory, and to an understanding of how the

quantities of biogas that can be produced

by RNG developers can be used.

Several commenters also pointed to

the reference to “such gas” in the stat­

ute to evidence that “such gas” refers to

biogas not less than 52 percent methane

and captured for sale or productive use.

A commenter asserted that the reference

to “such gas” provides a two-prong test.

According to the commenter, first the sys­

tem must convert the biomass into a gas

that is between 52 percent and 100 per­

cent methane by volume and second the

system must capture “such gas for sale or

productive use, and not for disposal via

combustion”; thus, in the commenter’s

view, the reference to “such gas” is to gas

described in the first prong.

1369

Another commenter stated that the ref­

erence to “such gas” includes biogas that

is at least 52 percent methane by volume.

The commenter concluded therefore, that

the statute does not exclude from qualified

biogas property cleaning and conditioning

equipment that is used to process biogas

that is already 52 percent methane by vol­

ume.

Another commenter stated that the

statute uniquely and broadly defines the

term “cleaning and condition property”

not as the Proposed Regulations suggest,

which limits its applicability to instances

in which an otherwise ineligible property

needs cleaning and conditioning to be eli­

gible. Instead, the commenter noted that

the Proposed Regulations’ interpretation

of section 48(c)(7)(B) ignores the refer­

ence to “such gas,” referring to the defini­

tion in section 48(c)(7)(A), which clearly

states “any property which is part of such

system which cleans or conditions such

gas.” The commenter asserted that the

term “such gas” refers to biogas that is not

less than 52 percent methane and captured

for sale or productive use, as confirmation

that cleaning and conditioning equipment

for gas that has already met the conditions

set forth in section 48(c)(7)(A), is quali­

fied biogas property.

Commenters also objected to the exclu­

sion of gas upgrading equipment provided

in the Proposed Regulations because com­

menters assert that it could negatively

impact investment and financing for bio­

gas projects, especially those on small

farms, agricultural projects, and municipal

projects. A commenter, who works with

smaller scale farms including dairy farms,

asserted that the upgrading equipment is

integral to the cleaning and conditioning

process, and crucial for achieving energy

output suitable for productive use or sale,

especially for projects in rural and remote

communities. The commenter concluded

that the limitation on upgrading equip­

ment provided in the Proposed Regula­

tions will prevent projects from moving

forward and disproportionately impact

small agricultural projects.

Several commenters asserted that the

statute supports redefining the components

of property that are considered function­

ally interdependent to a qualified biogas

property. A commenter suggested redefin­

ing qualified biogas property as property

December 23, 2024

that is placed in service to upgrade biogas

for sale or a productive use beyond the

point that such gas is typically vented or

flared. This commenter explained that this

definition properly places the focus on

property used to convert an unproductive

substance (such as landfill gas) into a pro­

ductive substance (such as RNG).

Another commenter agreed with the

inclusion of the gas upgrading equipment

as integral property but stated that the Cor­

rection is limited to technology specific

to upgrading for pipeline injection and

therefore, is out of line with the technol­

ogy neutral definition in the statute. The

commenter asserted that upgrading, pro­

cessing, or reforming should be viewed

without limitation to specific technology

and that many biomass resources may not

be close to natural gas pipelines or have

other limitations on pipeline injection. The

commenter further stated that the focus

should be on the components required for

property that captures such gas for sale or

productive use. Therefore, if additional

onsite steps are required to process raw

biogas that meets the minimum 52 percent

methane content threshold into a usable

product, whatever the product may be,

then the property necessary to take those

steps should be considered qualified bio­

gas property.

The Treasury Department and the

IRS agree with the commenters that the

proposed rule addressing gas upgrading

equipment is too restrictive. As comment­

ers explained, upgrading equipment is

used interchangeably with cleaning and

conditioning equipment and such equip­

ment may be needed to make the biogas

suitable for sale or productive use. The

Treasury Department and IRS also agree

that specific upgrading equipment should

not be identified for injection into a pipe­

line. Therefore, the final regulations pro­

vide more generally that gas upgrading

equipment is cleaning and conditioning

property.

Commenters requested clarifications

regarding what types of equipment are

considered qualified biogas property,

including as functionally interdependent

components or as property integral to the

qualified biogas property. For example, a

commenter requested that a list of equip­

ment be included as qualifying biogas

property in the final regulations includ­

December 23, 2024

ing gas removal equipment, pressure and

temperature control equipment, moisture

removal equipment, compression equip­

ment, thermal oxidizer equipment, gas

recycling equipment, and synthetic meth­

ane production equipment. Another com­

menter proposed revisions to the example

in proposed §1.48-9(e)(11)(i) to include

as qualified biogas property cleaning and

conditioning equipment used to remove

toxins or any other impurities from raw

biogas or concentrate the gas into the

appropriate mixture for sale or produc­

tive use through removal of other gases

such as carbon dioxide, nitrogen, or oxy­

gen. A commenter requested the inclu­

sion of landfill municipal solid waste as a

renewable resource to produce renewable

natural gas as energy property because

such a system may implement thermal

gasification and other relevant technolo­

gies. Another commenter suggested that

qualified biogas property should include

the pipeline and compression equipment

necessary to transport the gas from the

production plant to the common carrier

pipeline.

Another commenter suggested that

the Proposed Regulations be modified to

specifically provide that the property com­

prising a biogas conversion/concentration

and capture system, including any prop­

erty that is part of such system and that

cleans and conditions, is a single unit of

energy property (collectively referred to

as a RNG Production System). This com­

menter also suggested that the gas upgrad­

ing equipment necessary to concentrate the

gas into the appropriate mixture for injec­

tion into a pipeline through the removal

of other gases and impurities is a func­

tionally interdependent component of the

RNG Production System. This commenter

also described a second type of property, a

landfill gas collection system (LFG Col­

lection System), and noted that the LFG

Collection System is property that is an

integral part of, but not functionally inter­

dependent with, the RNG Production Sys­

tem because the placing in service of an

LFG Collection System is not dependent

upon placing in service the RNG Produc­

tion System, but the LFG Collection Sys­

tem is used directly in and essential to the

completeness of the intended function of

the RNG Production System. While this

commenter’s focus was on landfills, the

1370

commenter noted the same analysis would

apply to other collection systems such as

anaerobic digesters operating at farms.

Some commenters asserted that anaerobic

digesters were functionally interdepen­

dent property, while others asserted that

anaerobic digesters were integral property.

After consultation with the DOE, the

Treasury Department and IRS understand

that the methane content of biogas in an

anaerobic digester can vary between 44%

and 68%. Thus, if biogas processed by

an anaerobic digester consists of not less

than 52% methane and all other statu­

tory requirements are met, an anaerobic

digester would be a unit of energy prop­

erty. Commenters explained that although

biogas exiting an anaerobic digester might

not be put to productive use, the statute

requires that qualified biogas property

capture the gas “for sale or productive

use.” To illustrate, if a taxpayer places in

service an anaerobic digester, which gen­

erates biogas meeting the not less than

52% methane requirement, and sells the

biogas to another taxpayer who in turn

places in service cleaning and condition­

ing property to clean such biogas, each

taxpayer has a qualified biogas property

and may be eligible for the section 48 tax

credit. On the other hand, if the biogas in

the anaerobic digester does not meet the

not less than 52% methane requirement,

then such digester is not, by itself, a qual­

ified biogas property. Nevertheless, the

anaerobic digester still may be an integral

part of other qualified biogas property,

such as a system that cleans and condi­

tions the biogas.

The Treasury Department and the IRS

intend that the final regulations provide a

function-oriented approach to determin­

ing what property is considered energy

property, including qualified biogas prop­

erty. The Proposed Regulations provided

examples of types of property that are

included as qualified biogas property,

which were intended to be illustrative but

not exclusive. Therefore, the final regula­

tions do not include additional examples

of property that is included as qualified

biogas property but do clarify that prop­

erty that is an integral part of qualified

biogas property includes, but is not lim­

ited to, a waste feedstock collection sys­

tem, landfill gas collection system, and

mixing and pumping equipment.

Bulletin No. 2024–52

b. Flaring allowance

The preamble to the Proposed Reg­

ulations explained that a commenter to

Notice 2022-49 stated that some proper­

ties that produce electricity from gas using

a combustion process may flare waste or

tail gas, including during commissioning

or maintenance periods. This commenter

recommended a de minimis exception.

In response to this concern, the Proposed

Regulations requested comments regard­

ing whether such an exception is neces­

sary and what should be considered de

minimis for this purpose.

All comments received in response to

this request were in favor of an exception.

Some comments pointed to the overarch­

ing purpose of the qualified biogas prop­

erty and noted that nominal leakage should

not prevent property from qualifying. For

example, a commenter asserted that if the

overarching purpose of the biogas is for

sale or productive use, then the combus­

tion of a de minimis portion should not

prevent a property that produced such gas

from being a qualified biogas property.

Similarly, a commenter recommended

allowing a de minimis exception for flare

waste or tail gas so that otherwise eligible

biomass systems will not be disqualified

from the credit due to small amounts of

leakage arising from normal business

operations.

Another commenter pointed to the ben­

efit of hazard reduction associated with

nominal flaring. This commenter stated

that flaring in appropriate circumstances

should not disqualify a facility, because

“flares are often required as a safety and

emissions hazard reducer to be used in

case of emergency, accidental release,

start-up and shut-down procedures, and

other rare occurrences.”

The Treasury Department and the IRS

understand commenters’ concerns regard­

ing whether flaring performed for com­

missioning, maintenance, safety, or other

reasons may impact eligibility for the sec­

tion 48 tax credit. Qualified biogas prop­

erty is defined, in part, as capturing biogas

“for sale or productive use, and not for

disposal via combustion.” The Treasury

Department and the IRS interpret this stat­

utory requirement to not impact a quali­

fied biogas property that combusts, or

flares, some biogas under standard oper­

Bulletin No. 2024–52

ating conditions, provided the primary

purpose of the qualified biogas property is

sale or productive use of biogas and any

flaring complies with all relevant Federal,

State, regional Tribal, and local laws and

regulations. After consulting the DOE, the

Treasury Department and the IRS under­

stand that flare permits are specific to a

given biogas facility design. Determin­

ing the amount of flaring appropriate for

safety purposes is specific to each quali­

fied biogas property and enforcing that

limit is best left to relevant Federal, State,

regional, local, and/or Tribal regulators.

Flaring performed in accordance with

applicable permits from relevant Federal,

State, regional, local, and/or Tribal regula­

tors should not jeopardize a qualified bio­

gas property’s eligibility for the section 48

credit. Accordingly, the final regulations

at §1.48-9(e)(11) provide that while a

qualified biogas property generally may

not capture biogas for disposal via com­

bustion, combustion in the form of flar­

ing will not disqualify a qualified biogas

property, provided the primary purpose

of the qualified biogas property is sale or

productive use of biogas and any flaring

complies with all relevant Federal, State,

regional, Tribal, and local laws and reg­

ulations.

c. Point of measurement

Proposed §1.48-9(e)(11)(ii) would pro­

vide that the methane content requirement

described in section 48(c)(7)(A)(i) and

in the Proposed Regulations is measured

at the point at which gas exits the biogas

production system, which may include an

anaerobic digester, landfill gas collection

system, or thermal gasification equipment.

This measurement point was described in

the Proposed Regulations as the point at

which a taxpayer generally must deter­

mine whether it will convert the biogas to

fuel for sale or use it directly to generate

heat or to fuel an electricity generation

unit.

Several commenters requested clarifi­

cation regarding the point of measurement

for the methane content requirement. A

commenter specifically requested clari­

fication regarding the point at which the

gas exits the biogas production system.

Several commenters noted that the point

of measurement provided in the Proposed

1371

Regulations was incorrect because it is

too early in the process. These comments

responded to the Proposed Regulations

as well as the Correction. This sentiment

generally is consistent with the comment­

ers’ view that biogas upgrading equipment

should be considered eligible biogas prop­

erty.

One commenter stated that the Cor­

rection does not address the measurement

point for the methane content requirement

for purposes of determining whether the

definition of “qualified biogas property”

is met. The commenter asserted that the

final rule must clarify that the 52 percent

methane content requirement is measured

at the point at which the biogas is going

to be sold or put to productive use, which

would be after the biogas has been passed

through the cleaning and conditioning and/

or gas upgrading equipment. The com­

menter suggested that a change should be

made regardless of whether gas upgrad­

ing equipment is considered “integral” or

“functionally interdependent.” The com­

menter submitted another comment after

the Correction was issued urging that the

methane content of 52 percent should be

measured at the point at which the gas is

ready for sale or applicable productive

use, that is, at the end of the cleaning and

conditioning process. Several commenters

supported these comments and incorpo­

rated them into their own comments.

Another commenter similarly stated

that the methane content should be mea­

sured at the end of the cleaning and condi­

tioning process, which would be the point

at which the biogas is going to be sold or

put to a productive use, to ensure it con­

sists of at least 52 percent methane. Many

commenters have asserted that the 52 per­

cent measurement is a floor (not a ceiling).

Therefore, even if the measurement point

were to occur earlier, taxpayers that later

upgrade the biogas could still satisfy the

52 percent requirement.

The Treasury Department and the IRS

agree that the point of measurement in the

Proposed Regulations was too early in the

biogas production process, which could

potentially frustrate compliance with the

“sale or productive use” requirement.

Therefore, the final regulations adopt at

§1.48-9(e)(11)(ii) the rule that the meth­

ane content requirement described in sec­

tion 48(c)(7)(A)(i) and in the Proposed

December 23, 2024

Regulations is measured at the point at

which the biogas exits the qualified biogas

property.

6. Microgrid Controllers

Section 48(a)(3)(A)(xi) provides that

energy property includes microgrid con­

trollers. Section 48(c)(8)(A) defines a

microgrid controller as equipment that is

part of a qualified microgrid and designed

and used to monitor and control the

energy resources and loads on such micro­

grid. Section 48(c)(8)(B) defines a quali­

fied microgrid as an electrical system that

includes equipment that is capable of gen­

erating not less than 4 kW and not greater

than 20 MW of electricity; is capable of

operating in connection with the electri­

cal grid and as a single controllable entity

with respect to such electrical grid, and

independently (and disconnected) from

such electrical grid; and is not part of a

bulk-power system (as defined in section

215 of the Federal Power Act (16 U.S.C.

824o)).

Proposed §1.48-9(e)(12)(i) would pro­

vide generally that a microgrid controller

is equipment that is part of a qualified

microgrid and is designed and used to

monitor and control the energy resources

and loads on such microgrid. A qualified

microgrid is an electrical system that

includes equipment that is capable of gen­

erating not less than 4 kW and not greater

than 20 MW of electricity; is capable of

operating in connection with the electrical

grid and as a single controllable entity with

respect to such electrical grid, and inde­

pendently (and disconnected) from such

electrical grid; and is not part of a bulkpower system (as defined in section 215 of

the Federal Power Act (16 U.S.C. 824o)).

Proposed §1.48-9(e)(12)(ii) would pro­

vide that for purposes of proposed §1.489(e)(12), a qualified microgrid includes an

electrical system that is capable of operat­

ing in connection with the larger electrical

grid, regardless of whether a connection to

the larger electrical grid exists.

The preamble to the Proposed Regu­

lations requested comments on whether

the rules for functionally interdependent

property as would be provided in pro­

posed §1.48-9(f)(2)(ii) would be sufficient

to determine the components that should

be included as part of a microgrid con­

December 23, 2024

troller, or whether another test is needed

due to the specific role of microgrid con­

trollers and their components. A few com­

menters advocated for the application of

the functional interdependence standard

to microgrid controllers. For example,

one commenter stated that the functional

interdependence standard is thoughtful,

provides direct language applicable to the

definition of microgrid controllers, and

creates an easy and thorough way to iden­

tify the multi-faceted infrastructure that

goes into microgrid controllers to generate

and store energy.

However,

several

commenters

requested that particular components of

property be listed specifically in the defi­

nition of microgrid controllers: optimiza­

tion software, communications software,

communications equipment, incoming

service, cables, wiring, ethernet switches,

computer hardware, load controllers,

programmable logic controllers, meters

and relays, building management sys­

tems, local human management interface

screens, protective relays, breakers, rout­

ers, and other hardware necessary to mon­

itor and control the energy resources and

loads on a qualified microgrid.

Additionally, two commenters specif­

ically requested the inclusion of switch­

gear in the definition of microgrid con­

trollers. One of the commenters explained

that switchgear is the true backbone of the

microgrid controls system. However, the

commenter also pointed out that switch­

gear is an essential part of any building’s

electrical operations with or without a

microgrid. This commenter also noted

that because switchgear is a critical piece

of a building’s infrastructure, it is usually

also owned by the building owner. The

commenters generally suggested that if

switchgear is owned by the building owner

but paid for by the taxpayer that owns the

microgrid controller, then the cost of the

switchgear should be included in the basis

of the taxpayer’s section 48 credit for the

microgrid controller similar to the inclu­

sion of interconnection property costs in

the credit basis of certain lower-output

energy properties.

The two commenters also suggested

that if switchgear is part of an existing

building, and a microgrid controller is

added in a case in which a taxpayer is

applying the 80/20 Rule, then the switch­

1372

gear should not be taken into account for

purposes of the 80/20 Rule. For example,

one of the commenters explained that

switchgear in an existing building may

be sufficient for connecting microgrid

controls with relevant distributed energy

resources and load resources either as is or

with some additional pieces of equipment

and because all microgrid control compo­

nents will connect through the switchgear,

it is critical that the integrated but stand­

alone microgrid control equipment is not

considered as retrofitting of the switch­

gear in existing buildings under the 80/20

Rule. The other commenter likewise rec­

ommended that equipment integrated into

switchgear to enable the installation of a

microgrid controller should not be consid­

ered retrofitted equipment but a separate

purchase of functionally interdependent

energy property.

The Treasury Department and the IRS

consulted with the DOE and confirmed

that while switchgear may be a necessary

part of a microgrid, switchgear is neither

functionally interdependent nor integral

to a microgrid controller. Switchgear

plays a vital role in ensuring the reliabil­

ity and safety of microgrids by managing

power distribution, providing protection,

and maintaining system integrity. How­

ever, the microgrid controller is respon­

sible for the overall management and

optimization of a microgrid’s energy

resources and its interaction with the

main grid. For example, in the build­

ing context, technically a fuse or circuit

breaker could be considered a switchgear,

in which case they would exist in build­

ings with or without microgrid control.

As a result, switchgear is not part of the

energy property defined as a “microgrid

controller” and is not taken into account

for purposes of the 80/20 Rule. For fur­

ther discussion of the 80/20 Rule see part

III.A. of this Summary of Comments and

Explanation of Revisions.

After considering comments request­

ing that the final regulations add more

examples of specific components eligible

as part of a microgrid controller, the Trea­

sury Department and the IRS decline to do

so. The Treasury Department and the IRS

have further considered the unit of energy

property as applied to microgrid control­

lers and conclude that the proposed rule

is clear.

Bulletin No. 2024–52

Commenters also requested clarifi­

cation concerning what is included as a

“microgrid” for purposes of section 48.

Two commenters requested the adoption

of language clarifying that an eligible

microgrid includes an electrical system

that is capable of operating in connection

with the larger electrical grid regardless

of whether the microgrid is physically

connected to the electrical grid. Another

commenter noted that until it is clarified

that single-family homes with systems

greater than 4 kW are eligible “microg­

rids,” tax equity investors likely will be

reluctant to finance the installation of

load controllers associated with rooftop

solar, storage, and residential microgrid

installations. Similarly, another com­

menter asserted that the term “qualified

microgrid” applies both to microgrids as

they are conventionally known, which

could involve many households or busi­

nesses, and to “nanogrids,” which usually

involve a single household. Regarding the

request for clarification about a microg­

rid needing to be physically connected to

the electrical grid, proposed §1.48-9(e)

(12)(ii) already provides that a qualified

microgrid includes an electrical system

that is capable of operating in connection

with the larger electrical grid, regardless

of whether a connection to the larger

electrical grid exists. Regarding the other

comments, proposed §1.48-9(e)(12)(i)

adopts the statutory definition of a qual­

ified microgrid as an electrical system

that includes equipment that is capable

of generating not less than 4 kW and not

greater than 20 MW of electricity. This

definition encompasses a wide range

of technologies. To the extent that such

“nanogrids” used in single family homes

meet the definition under the statute and

proposed §1.48-9(e)(12)(i), it is unneces­

sary to change the definition to identify

this certain technology. The proposed rule

is adopted without change.

C. Definition of energy property and

scope of included components

Since shortly after the enactment of

section 48, energy property eligible for the

section 48 credit has been interpreted by

the Treasury Department and the IRS to

include, in addition to energy generation

property, costs related to components such

Bulletin No. 2024–52

as power conditioning equipment, transfer

equipment, and parts related to the func­

tioning of that equipment.

On November 9, 1978, the Energy

Tax Act of 1978, amended section 48 by

adding a new subsection (then section

48(l)) to define “energy property.” Public

Law 95-816, 92 Stat. 2174. On January

23, 1981, the Treasury Department and

the IRS promulgated T.D. 7765, 46 FR

7287-01, to provide additional guidance

regarding the definition of energy prop­

erty. The preamble to T.D. 7765 states that

“[i]n response to comments, the definition

of solar energy property was expanded

to make it clear that it includes storage

devices, power conditioning equipment,

transfer equipment, and property solely

related to the functioning of those items.

However, such equipment does not

include transmission equipment.”

The preamble to T.D. 7765 also states

that “[a] number of comments cited spe­

cific legislative history to the effect that

wind energy property includes ‘transfer

equipment.’” T.D. 7765 defines “trans­

fer equipment” as including equipment

that permits the aggregation of electricity

generated by several windmills and equip­

ment that alters voltage in order to permit

transfer to a transmission line. T.D. 7765

adds transfer equipment, but not transmis­

sion lines, to the definition of wind energy

property.

Former §1.48-9(d)(3) defines “solar

energy property” as equipment that uses

solar energy to generate electricity, and

includes storage devices, power condi­

tioning equipment, transfer equipment,

and parts related to the functioning of

those items. This provision also provides

that solar energy property used to generate

electricity includes only equipment up to

(but not including) the stage that transmits

or uses electricity.

Former §1.48-9(e) defines “wind

energy property” as consisting of a wind­

mill, wind-driven generator, storage

devices, power conditioning equipment,

transfer equipment, and parts related to

the functioning of those items. Section

48(a)(3) no longer includes wind energy

property as a type of energy property.

However, qualified wind facilities (includ­

ing qualified offshore wind facilities) may

be qualified investment credit facilities

that a taxpayer may elect to treat as energy

1373

property if they meet all the requirements

provided in section 48(a)(5).

While not specifically addressed in sec­

tion 48, guidance published in the Internal

Revenue Bulletin interpreting section 48

has provided that functionally interde­

pendent components are considered com­

ponents of energy property eligible for

the section 48 credit. In Notice 2018-59,

2018-28 I.R.B. 196, the Treasury Depart­

ment and the IRS clarified components

that are considered part of an energy prop­

erty. Section 7.01(1) of Notice 2018-59

states that an energy property generally

includes all components of property that

are functionally interdependent (unless

such equipment is an addition or mod­

ification to an energy property). Notice

2018-59 also provides that components of

property are functionally interdependent if

the placing in service of each component

is dependent upon the placing in service of

each of the other components in order to

generate electricity. Further, Notice 201859 cites Revenue Ruling 94-31, 1994-1

C.B. 16, in stating that functionally inter­

dependent components of property that

can be operated and metered together and

can begin producing electricity separately

from other components of property within

a larger energy project will be considered

an energy property.

In the context of defining “section 38

property,” §1.48-1(d)(4) provides that

“section 38 property” is “used as an inte­

gral part of one of the specified activities

[for which section 38 property may func­

tion] if it is used directly in the activity

and is essential to the completeness of

the activity.” Section 1.48-1(d)(4) also

provides that “[p]roperty shall be consid­

ered used as an integral part of one of the

specified activities if so used either by the

owner of the property or by the lessee of

the property.” Notice 2018-59 incorpo­

rates the concept of integral property from

§1.48-1(d) to provide that certain property

that is an integral part of an energy prop­

erty is included in energy property for pur­

poses of the section 48 credit.

Notice 2018-59 also explains that prop­

erty that is “functionally interdependent”

to the generation of electricity is treated as

a unit of energy property. Further, Notice

2018-59 provides that certain other prop­

erty integral to the production of electric­

ity is included in determining what costs

December 23, 2024

to include in the basis of energy property

and the date on which construction of the

energy property began. Section 7.02(1) of

Notice 2018-59 includes an example illus­

trating that, while a transmission tower

located at a site where energy property

is located is not energy property because

transmission is not an integral part of the

activity performed by the energy property,

a custom-designed transformer that steps

up the voltage of electricity produced at

an energy property to the voltage needed

for transmission is power conditioning

equipment, which is an integral part of the

activity performed. In addition, section

7.02(2) of Notice 2018-59 explains that

onsite roads used to operate and maintain

the energy property are integral to the pro­

duction of electricity, but not roads used

primarily to access the site or primarily for

employee or visitor vehicles. Similarly,

section 7.02(3) and (4) of Notice 2018-59

explain that fences are not integral to the

production of electricity nor are buildings,

unless the building is essentially an item

of machinery or equipment, or a structure

that houses property that is integral to the

activity of an energy property if the use

of the structure is so closely related to the

use of the housed energy property that the

structure clearly can be expected to be

replaced if the energy property it initially

houses is replaced.

One challenge in defining components

that are included in energy property is

determining the components that are com­

mon to all energy property, without lim­

iting or constraining future technological

advances. To avoid limiting future energy

technologies, the Treasury Department

and the IRS consulted with the DOE and

determined that the best option is to adopt

a function-oriented approach to describe

the types of components that are con­

sidered energy property. Accordingly,

proposed §1.48-9(f) would adopt the

concepts of functional interdependence

and property that is an integral part of an

energy property as provided in guidance

published in the Internal Revenue Bulletin

issued previously by the Treasury Depart­

ment and the IRS.

Further, consistent with prior guidance,

proposed §1.48-9(f)(1) would provide

the general rule that an energy property

includes a unit of energy property that

meets the requirements for energy prop­

December 23, 2024

erty, is not excluded from energy property,

and is of a type of energy property included

in section 48(a)(3). Property owned by

the taxpayer that is an integral part of an

energy property is treated as energy prop­

erty. Energy property does not include any

electrical transmission equipment, such

as transmission lines and towers, or any

equipment beyond the electrical trans­

mission stage. With the exception of the

modification of energy storage technology

(as provided in proposed §1.48-9(e)(10)

(iii)) and the application of the 80/20 Rule

(as provided in proposed §1.48-14(a)(1)),

energy property does not include equip­

ment that is an addition or modification to

an existing energy property.

1. Unit of Energy Property

Proposed §1.48-9(f)(2)(i) would pro­

vide, in part, that the term unit of energy

property means all functionally inter­

dependent components of property (as

defined in proposed §1.48-9(f)(2)(ii))

owned by the taxpayer that are operated

together and that can operate apart from

other energy properties within a larger

energy project (as defined in proposed

§1.48-13(d)). For rooftop solar energy

property, all components of property that

are installed on a single rooftop would

also be considered a single unit of energy

property under the Proposed Regulations.

A commenter requested additional

examples regarding the “unit of energy

property” with respect to electrical energy

storage and other energy property. For

example, the commenter requested an

example illustrating that an individual

battery capable of operating on its own

or with other batteries is a “unit of energy

property.” The commenter asserted that

this should be the clear result if such a bat­

tery can “operate apart from other energy

properties,” including, for example, a sin­

gle storage container with multiple battery

packs. The commenter noted that this is

also consistent with prior guidance pub­

lished in the Internal Revenue Bulletin

regarding wind farms. The commenter

asserted that if under this prior guid­

ance, the addition of a new wind turbine

is treated as the addition of a new unit of

energy property, then the same rule should

apply to batteries. A definitive response to

such comments would require the Trea­

1374

sury Department and the IRS to conduct

a complete factual analysis of the property

in question, which may include informa­

tion beyond that which was provided by

the commenters. Because more informa­

tion is needed to make the determina­

tions requested by the commenters, the

requested clarifications are not addressed

in these final regulations.

With respect to solar energy property,

some commenters suggested that the Pro­

posed Regulations did not clearly draw the

line between the unit of energy property

and property integral to the unit of energy

property. For example, a commenter

stated that the final regulations need to

clarify that a unit of solar energy prop­

erty includes all solar panels, racks, wires,

cables, and equipment connected through

a single inverter (rather than all prop­

erty through the transformer). This com­

menter referred to Example 1 in proposed

§1.48-9(f)(5)(i) and recommended adding

an example (or modifying the existing

example) to clarify the components in the

unit of solar energy property. This com­

menter explained that this is necessary to

comport with the definition of a unit of

energy property as all functionally inter­

dependent components, since each group

of components connected through an

inverter may be operated independently.

Similarly, a commenter requested that the

final regulations clarify that a solar project

may have multiple units of energy prop­

erty connected through a single inverter.

Another commenter also requested a new

or revised example to illustrate that for a

larger-scale ground-mounted solar array, a

“unit of energy property” is a single string

or block of panels connected to each other

and through a common inverter.

As highlighted by commenters, solar

energy property may be configured in

different ways. The Treasury Department

and IRS agree with commenters that

clarity on how the definition of a unit of

energy property is applied to solar energy

property is warranted. Under the Pro­

posed Regulations, a unit of energy prop­

erty means all functionally interdependent

components of property (as defined in

proposed §1.48-9(f)(2)(ii)) owned by the

taxpayer that are operated together and

that can operate apart from other energy

properties within a larger energy project

(as defined in proposed §1.48-13(d)). In

Bulletin No. 2024–52

applying this definition to a solar energy

property, the Treasury Department and

IRS view the unit of energy property as

all the solar panels that are connected to a

common inverter, which would be consid­

ered an integral part of the energy prop­

erty, or connected to a common electrical

load, if a common inverter does not exist.

Accordingly, a large, ground-mounted

solar energy property may be comprised

of one or more units of energy property

depending upon the number of inverters.

The example in the final regulations is

updated to reflect this. The final regula­

tions adopt the definition of unit of energy

property as proposed.

For rooftop solar energy property, all

components of property that are installed

on a single rooftop would also be consid­

ered a single unit of energy property under

the Proposed Regulations. The final regu­

lations adopt this rule as proposed.

2. Functional Interdependence

Proposed §1.48-9(f)(2)(ii)(A) would

provide that except as provided in pro­

posed §1.48-9(f)(2)(ii)(B), with respect

to components of a unit of energy prop­

erty, the term functionally interdependent

means that the placing in service of each

component is dependent upon the placing

in service of each of the other components

in order to generate or store electricity,

thermal energy, or hydrogen as provided

by section 48(c) and as described in pro­

posed §1.48-9(e).

Proposed §1.48-9(f)(2)(ii)(B) would

provide that in the case of solar process

heat equipment, fiber-optic solar energy

property, electrochromic glass property,

GHP property, qualified biogas property,

and microgrid controllers, with respect

to components of such property, the term

functionally interdependent means that

the placing in service of each component

is dependent upon the placing in service

of each of the other components in order

to perform the intended function of the

energy property as provided by section

48(c) and as described in proposed §1.489(e).

Many commenters requested that tax­

payers be permitted to claim a credit for

a functionally interdependent piece of

property without owning the entire unit

of energy property. These comments

Bulletin No. 2024–52

addressing ownership are discussed in

part III.D. of this Summary of Comments

and Explanation of Revisions.

Other commenters asserted that the

statute does not require ownership of a

unit of energy property; instead, the tax­

payer must only own something that fits

the relevant definition of “energy prop­

erty.” These commenters stated that the

proposed definitions of the unit of energy

property based on “functional interde­

pendence” and integral property have no

basis in section 48. A commenter stated

that section 48 does not require or per­

mit the Treasury Department or the IRS

to discriminate between types of energy

property, whether based on functionality,

ownership, or otherwise. This commenter

referred to the flush language at section

48(a)(3)(D): “[energy property] shall

not include any property which is part

of a facility the production from which

is allowed as a credit under section 45

for the taxable year or any prior taxable

year.” The commenter said this language

clearly signals that Congress recognizes

that property may be part of a facility, but

that the term “property” represents some­

thing less than a facility. The commenter

also referred to Technical Advice Mem­

orandum 8528001 (January 8, 1985) for

the principle that components of property

that may function together can also retain

their separate identity for tax purposes.

Lastly, the commenter stated that section

48 is focused on capitalized expenditures

on items of property that are tangible

personal property for Federal income tax

purposes that are used in a trade or busi­

ness. As a result, the commenter asserted

that to define the types of property that

qualify for the section 48 credit, taxpay­

ers should focus on items of property that

are integral to a process that Congress has

chosen to incentivize, for example, the

production of energy using certain inputs.

This commenter requested the removal of

the functional interdependence standard

at proposed §1.48-9(f) and asserted that

while this standard is needed for section

45 to determine a qualified facility and

for beginning of construction purposes,

this standard is not needed for purposes of

section 48.

Another commenter stated that the Pro­

posed Regulations contradict the language

and intent of the IRA by distinguishing

1375

between “functionally interdependent”

components and “integral parts” of energy

property to determine the owner or own­

ers of energy property who may claim the

section 48 credit. The commenter noted

that this distinction contravenes the plain

text of section 48, which permits the sec­

tion 48 credit to be claimed by the owner

of energy property if the original use of

that energy property began with such

owner.

The concept of a unit of energy prop­

erty also is intertwined with the discus­

sion of the 80/20 Rule in part III.A. of this

Summary of Comments and Explanation

of Revisions. In the context of the 80/20

Rule, a few commenters also did not

agree with this concept. For example, a

commenter highlighted the statutory lan­

guage and pointed out that certain defi­

nitions of energy property use the word

“equipment” as opposed to “system.” A

commenter explained that some energy

properties are defined as equipment that

serves a function, such as solar energy

property defined in section 48(a)(3)(A)(i)

and GHP property defined in section 48(a)

(3)(A)(vii). This commenter contrasted

those definitions with statutory definitions

of other types of energy property as com­

prising a system, such as the definition of

CHP property in section 48(c)(3), thermal

energy storage property as defined in sec­

tion 48(c)(6)(C)(i), and qualified biogas

property as defined in section 48(c)(7).

The commenter concluded that the “unit

of energy property” concept as provided

in proposed §1.48-9(f)(2)(i) is appropriate

for energy properties defined as systems,

but it should not be applied to energy

properties defined as equipment.

Another commenter made a similar

point about misalignment of the “unit of

energy property” concept by focusing

specifically on its application to geother­

mal energy property. The commenter

stated that despite the statute defining

“energy property” at the equipment level,

“equipment used to produce, distribute,

or use energy derived from a geother­

mal deposit,” the Proposed Regulations

use the term “unit of energy property,” a

term defined more expansively, such that

it could be interpreted to be equivalent to

an entire facility in the case of geothermal

energy property. By using the term “unit of

energy property,” the commenter asserted

December 23, 2024

that the Proposed Regulations give a mis­

leading appearance that the rules comport

with the statutory text of section 48 but

define that term so that it is functionally

equivalent to the term “facility” as applied

in section 45.

In the context of microgrid control­

lers, some commenters agreed with the

application of the functional interdepen­

dence standard. A commenter stated that

microgrids are highly customizable, and

the functional interdependence standard

as proposed would allow accommodation

of the different engineering requirements

of qualified microgrids to future-proof

the definition and allow for technological

advances. This commenter agreed that the

functional interdependence standard is

sufficiently flexible for microgrid control­

lers.

The statute supports the Proposed Reg­

ulations’ definition and use of the terms

“functionally interdependent” and “unit

of energy property.” Additionally, these

concepts have been adopted in previous

guidance published in the Internal Reve­

nue Bulletin under section 48, particularly

Notice 2018-59, which provides guidance

regarding the beginning of construction

rules for the section 48 credit.

There are three key reasons for requir­

ing an energy property to include all

functionally interdependent components

that are part of a unit of energy property.

First, the statutory definition of each type

of energy property as provided in section

48(a)(3) and (c) is included at proposed

§1.48-9(e). The unit of energy property

definition at §1.48-9(e)(2) aligns with

these statutory definitions by encompass­

ing the property required to generate elec­

tricity or perform the required function as

described in the statute. If a taxpayer owns

merely a component of property within a

larger unit of energy property and is not

required to place in service the entire unit

of energy property, then in some cases

there would be no certainty that the gen­

eration of electricity or other statutorily

required function would be satisfied when

the taxpayer claims the credit.

Some commenters suggested that this

uncertainty could be eliminated or reduced

by a coordinated operating plan among

separate taxpayers. However, section 48

provides a credit only if a taxpayer places

in service “energy property” as defined

December 23, 2024

by statute. It does not provide a credit for

placing in service a mere component of

energy property, regardless of whether it

is subject to an operating plan. In addition,

taxpayers claim the section 48 credit by

filing Form 3468, Investment Credit, with

their Federal income tax return. The IRS

has no authority to compel taxpayers to

coordinate tax credit claims or share tax

return information with other taxpayers.

Any taxpayer claiming a section 48 credit

must satisfy the statutory requirements, as

described by Congress, for each type of

energy property, and the functional inter­

dependence standard provided in the Pro­

posed Regulations would ensure that the

statutory requirements are met.

Second, focusing on the statutory lan­

guage in section 48(a)(1), which provides

that “the energy credit for any taxable

year is the energy percentage of the basis

of each energy property placed in service

during such taxable year,” the defini­

tion of the unit of energy property using

a functional interdependence standard

is consistent with how the term “placed

in service” has been interpreted by the

courts and developed in various forms of

guidance. Proposed §1.48-9(b)(5) largely

incorporates the general rules provided by

§1.46-3(d)(1) for determining when a tax­

payer has placed a property in service for

the section 48 credit. An energy property

is considered “placed in service” in the

earlier of the taxable year in which, under

the taxpayer’s depreciation practice, the

depreciation of such energy property

begins or the taxable year in which the

property is “placed in a condition or state

of readiness and availability for a specifi­

cally assigned function.” See §§1.46-3(d)

(1) and 1.167(a)-11(e)(1)(i).

To determine the taxable year in which

depreciation begins, it is the energy prop­

erty described in section 48(a)(3)(A) that

must be depreciable. See section 48(a)(3)

(C). As stated earlier, this energy property

cannot be a mere component that would

be depreciated in isolation from the rest of

the components that would make up a unit

of energy property. Treating individual

components within a unit of energy prop­

erty as an energy property would make

it practically impossible to determine the

taxable year in which the depreciation

of components that comprise an energy

property begins.

1376

The Tax Court has said that “when an

individual component that is designed to

operate as a part of a larger system is inca­

pable of contributing to the system in isola­

tion, it is not regarded as placed in service

until the entire system reaches a condition

of readiness and availability for its specif­

ically assigned function.” Green Gas Del.

Statutory Tr. v. Commissioner, 147 T.C. 1,

52 (2016), aff’d, 903 F.3d 138 (D.C. Cir.

2018). The Tax Court further explained

that components “are not to be considered

placed in service separately from the sys­

tem of which they are an essential part.”

Olsen v. Commissioner, T.C. Memo 202141, aff’d 52 F.4th 889 (10th Cir. 2022). See

also Sealy Power, Ltd. v. Commissioner,

46 F.3d 382, 390 (5th Cir. 1995), aff’g in

part, rev’g in part on other grounds T.C.

Memo. 1992-168; see Pub. Serv. Co. v.

United States, 431 F.2d 980, 984 (10th

Cir. 1970) (holding that individual com­

ponents of a power plant could not be con­

sidered separately because no component

“would serve any useful purpose” on its

own). As demonstrated by these rulings,

courts have long interpreted the placed in

service requirement to apply to all of the

functionally interdependent components

of a unit of property that must be placed in

service collectively.

Lastly, in amending section 48 for

taxable years after the enactment of the

IRA, Congress did not contradict or dis­

place these concepts, which had already

been established in guidance published in

the Internal Revenue Bulletin. In Notice

2018-59, the Treasury Department and the

IRS clarified what components are con­

sidered part of an energy property. Sec­

tion 7.01(1) of Notice 2018-59 states that

an energy property generally includes all

components of property that are function­

ally interdependent (unless such equip­

ment is an addition or modification to an

energy property). Further, Notice 2018-59

provides that components of property are

functionally interdependent if the placing

in service of each component is dependent

upon the placing in service of each of the

other components to generate electricity.

Notice 2018-59 relies upon the ratio­

nale provided in Revenue Ruling 94-31,

1994-1 C.B. 16, that functionally inter­

dependent

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