Additional Guidance on Low-Income Communities Bonus Credit Program

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9979]

RIN 1545-BQ81

Additional Guidance on Low-Income Communities Bonus Credit Program

AGENCY:

Internal Revenue Service (IRS), Treasury.

ACTION:

Final regulations.

SUMMARY:

This document contains final regulations concerning the application of the low-income communities bonus credit program for the energy investment credit established pursuant to the Inflation Reduction Act of 2022. Under this program, applicants investing in certain solar or wind-powered electricity generation facilities for which the applicants otherwise would be eligible for an energy investment credit may apply for an allocation of environmental justice solar and wind capacity limitation to increase the amount of the energy investment credit for the taxable year in which the facility is placed in service. This document provides definitions and requirements that are applicable for this program. These final regulations affect applicants seeking allocations of the environmental justice solar and wind capacity limitation to increase the amount of the energy investment credit for which such applicants would otherwise be eligible once the facility is placed in service.

DATES:

Effective date:

These regulations are effective on October 16, 2023.

Applicability date:

For date of applicability, see § 1.48(e)-1(o).

FOR FURTHER INFORMATION CONTACT:

Concerning the regulations, Whitney Brady, the IRS Office of the Associate Chief Counsel (Passthroughs and Special Industries) at (202) 317-6853 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments to the Income Tax Regulations (26 CFR part 1) relating to new section 48(e) of the Internal Revenue Code (Code). Section 13103 of Public Law 117-169, 136 Stat. 1818, 1921 (August 16, 2022), commonly known as the Inflation Reduction Act of 2022 (IRA), added new section 48(e) to the Code to increase the amount of the energy investment credit determined under section 48(a) (section 48 credit) with respect to eligible property of the taxpayer that is part of a qualified solar or wind facility if the taxpayer applies for and is awarded an allocation of environmental justice solar and wind capacity limitation (Capacity Limitation) as part of the low-income communities bonus credit program for the section 48 credit (Low-Income Communities Bonus Credit Program or Program).

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This document contains final definitions and rules applicable to the Program.

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This notice of proposed rulemaking uses the terms “taxpayer” and “applicant” interchangeably (as the context may require) to avoid confusion given that persons eligible to apply for an allocation of Capacity Limitation under the Program may be exempt from or otherwise not subject to Federal income taxes imposed by chapter 1 of the Code.

The section 48 credit for a taxable year is generally calculated by multiplying the basis of each energy property placed in service by a taxpayer during that taxable year by the energy percentage (as defined in section 48(a)(2)). Section 48(e) increases the taxpayer's section 48 credit by increasing the energy percentage used to calculate the amount of the section 48 credit (section 48(e) Increase) in the case of eligible property that is part of a qualified solar or wind facility that receives an allocation of Capacity Limitation under the Program.

On February 13, 2023, the Department of the Treasury (Treasury Department) and the IRS released Notice 2023-17, 2023-10 I.R.B. 505, to establish the Program. Notice 2023-17 also provided initial Program guidance regarding applicable definitions and Program requirements.

On June 1, 2023, the Treasury Department and the IRS published in the

Federal Register

(88 FR 35791) a notice of proposed rulemaking (REG-110412-23, 2023-26 I.R.B. 1098) under section 48(e) (Proposed Rules) relating to the Program. Numerous commenters responded to the Proposed Rules, and after consideration of all comments received by June 30, 2023, the Proposed Rules are adopted as modified by this Treasury decision. The areas of comment and the revisions to the Proposed Rules are discussed in the following Summary of Comments and Explanation of Revisions section of this preamble. The comments are available for public inspection at

https://www.regulations.gov

or upon request. Other minor, editorial, and clarifying revisions made to the Proposed Rules as adopted in these final regulations are not discussed in the Summary of Comments and Explanation of Revisions section of this preamble.

As announced in Proposed Rules, the Treasury Department and the IRS are also providing procedural and clarifying guidance applicable to the Program in Revenue Procedure 2023-27, 2023-35 I.R.B. This procedural and clarifying guidance is being issued simultaneously with these final regulations and provides the process for applying to the Program. These procedural rules provide guidance necessary to implement the Program, including, in relevant part, information an applicant must submit, the application review process, and the manner of obtaining an allocation.

Summary of Comments and Explanation of Revisions

I. Definition of Qualified Solar or Wind Facility

Section 48(e)(2)(A) and the Proposed Rules define a single qualified solar or wind facility as any facility that (i) generates electricity solely from a wind facility, solar energy property, or small wind energy property; (ii) has a maximum net output of less than 5 megawatts (MW) (as measured in alternating current (AC)); and (iii) is described in at least one of the four facility categories described in section 48(e)(2)(A)(iii) (Category 1, 2, 3, or 4 are described in more detail in part III of this Summary of Comments and Explanation of Revisions section). In addition, for purposes of determining allocations, administering the Program fairly, and avoiding abuse, the Proposed Rules provided that multiple solar or wind energy properties or facilities that are operated as part of a single project would be aggregated and treated as a single facility. Whether multiple facilities or energy properties are operated as part of a single project would depend on the relevant facts and circumstances and would be evaluated based on the factors provided in section 7.01(2)(a) of Notice 2018-59 or section 4.04(2) of Notice 2013-29, as applicable.

A few commenters suggested the Treasury Department and the IRS should not impose the single project factors to aggregate multiple facilities or energy properties into a single facility for purposes of these regulations. For example, some commenters said this does not work well for Tribal or some other partially-consolidated “projects” that may share ownership, financing, and other factors for efficiency, yet are different and distinguishable facilities. Some of the commenters suggested that a Tribe must be allowed to apply Capacity Limitation allocations for multiple projects, as separate projects, to allow for phased deployment of projects, and to treat each phase as a different project. Another commenter recommended relaxing restrictions in

the project definition so long as a reasonable period has elapsed to ensure adequate competitive forces in the market become established or suggested a carve-out from this rule for certain projects. An additional commenter suggested that if certain factors are present, those single factors standing alone should result in energy properties or facilities being regarded as a single project (that is, apart from other properties or facilities with which they might otherwise be grouped) without the need to apply all of the factors provided in section 7.01(2)(a) of Notice 2018-59 or section 4.04(2) of Notice 2013-29, as applicable. Similarly, a commenter noted that co-located sites are typically permitted as a single project, even though the interconnection, ownership, financing, and construction of the facilities are conducted independently. This commenter stated that maintaining the requirement of one project per permit should not disqualify either project from receiving allocation under the Program.

The Treasury Department and the IRS determined that to prevent some applicants from attempting to circumvent the less than 5 MW maximum net output limitation provided in section 48(e)(2)(A)(ii) by artificially dividing larger projects into multiple facilities, it is necessary to incorporate the single project factors tests provided in section 7.01(2)(a) of Notice 2018-59 or section 4.04(2) of Notice 2013-29, as applicable, into the definition of qualified solar or wind facility. Therefore, the final regulations generally adopt the definition of qualified solar or wind facility provided in the Proposed Rules. However, the final regulations clarify that if multiple facilities or energy properties are regarded as a single facility for purposes of this rule, they will be regarded as a single facility for all purposes under the Program. Additionally, to alleviate some commenters' concerns that multiple energy properties or facilities that satisfy any of the listed factors will conclusively result in a single project determination, the final regulations clarify that whether multiple facilities or energy properties are operated as part of a single project and thus treated a single facility, will depend on the relevant facts and circumstances. Thus, a single factor or factors are not determinative.

A commenter noted that the Proposed Rules specify that a qualified facility refers to a solar energy property with an output of less than 5 MW and recommended aligning the Program with the industry standard by allowing projects that have a capacity of up to 5 MW. This comment is not adopted because section 48(e)(2)(A)(ii) limits the Program to facilities that have a maximum net output of less than 5 MW (as measured in AC).

II. Four Categories of Qualified Solar or Wind Facilities

Depending on the category of the facility, an allocation of Capacity Limitation under the Program may result in a section 48(e) Increase equal to either 10 percentage points or 20 percentage points. Section 48(e)(1)(A)(i) provides for a section 48(e) Increase of 10 percentage points for eligible property that is located in a low-income community (Category 1 facility), or on Indian land (Category 2 facility). Section 48(e)(1)(A)(ii) provides for a section 48(e) Increase of 20 percentage points for eligible property that is part of a qualified low-income residential building project (Category 3 facility) or a qualified low-income economic benefit project (Category 4 facility).

Under section 48(e)(2)(A)(iii)(I), the term low-income community is generally defined under section 45D(e)(1), with certain modifications described elsewhere in section 45D(e), as any population census tract if the poverty rate for such tract is at least 20 percent, or, in the case of a tract not located within a metropolitan area, the median family income for such tract does not exceed 80 percent of statewide median family income, or in the case of a tract located within a metropolitan area, the median family income for such tract does not exceed 80 percent of the greater of statewide median family income or the metropolitan area median family income. Section 48(e)(2)(A)(iii)(I) provides that Indian land is defined in section 2601(2) of the Energy Policy Act of 1992 (25 U.S.C. 3501(2)). The final regulations clarify that the poverty rate for a census tract is generally based on the 2011-2015 American Community Survey (ACS) low-income community data for the New Markets Tax Credit (NMTC), however, if updated data is released, a taxpayer can choose to base the poverty rate for any population census tract on either the 2011-2015 ACS low-income community data or the updated ACS low-income community data for a period of 1 year following the date of the release of the updated data. After the 1-year transition period, the updated ACS low-income community data must be used. Applicants who satisfy the definition of low-income community at the time of application are considered to continue to meet the definition of low-income community for the duration of the recapture period, unless the location of the facility changes.

Section 48(e)(2)(B) provides that a facility will be treated as part of a qualified low-income residential building project if (i) such facility is installed on a residential rental building that participates in a covered housing program (as defined in section 41411(a) of the Violence Against Women Act of 1994 (34 U.S.C. 12491(a)(3)) (VAWA), a housing assistance program administered by the Department of Agriculture (USDA) under title V of the Housing Act of 1949, a housing program administered by a Tribally designated housing entity (as defined in section 4(22) of the Native American Housing Assistance and Self-Determination Act of 1996 (25 U.S.C. 4103(22)), or such other affordable housing programs as the Secretary may provide, and (ii) the financial benefits of the electricity produced by such facility are allocated equitably among the occupants of the dwelling units of such building.

Section 48(e)(2)(C) provides that a facility will be treated as part of a qualified low-income economic benefit project if at least 50 percent of the financial benefits of the electricity produced by such facility are provided to households with income of less than 200 percent of the poverty line (as defined in section 36B(d)(3)(A) of the Code) applicable to a family of the size involved, or less than 80 percent of area median gross income (as determined under section 142(d)(2)(B) of the Code).

One commenter stated that the statute does not provide for “facility categories” and that what section 48(e)(2)(A)(iii) describes is not four distinct facility categories, but four ways of meeting geographic or benefits-based qualifying criteria. The Treasury Department and the IRS determined that a change in the final regulations is not necessary because the use of facility categories as a means of differentiating the four distinct geographic or benefits-based qualifying criteria is consistent with the statute and serves as an administratively convenient mechanism to distinguish among them and describe requirements and definitions applicable to each. Accordingly, as discussed in part II of this Summary of Comments and Explanation of Revisions section, the final regulations, consistent with the Proposed Rules, require a qualified solar or wind facility to be described in one of the four categories described in section 48(e)(2)(A)(iii) (Category 1, 2, 3, or 4).

Another commenter asked for clarification on whether a project must just be located in a low-income

community or whether benefits must also go to a low-income community to qualify for each category. The Treasury Department and the IRS considered the comment but did not make a change because the Proposed Rules and now the final regulations clearly describe the categories that have applicable benefits sharing requirements consistent with statutory requirements, so no change is necessary. For Category 1 and Category 2, section 48(e)(2)(A)(iii)(I) requires a facility to be located in a low-income community (as defined in section 45D(e)) or on Indian land (as defined in section 2601(2) of the Energy Policy Act of 1992 (25 U.S.C. 3501(2))), but the statute, and accordingly the final regulations, do not impose any requirements to share financial benefits with low-income subscribers or households. Conversely, for Category 3 and Category 4, section 48(e)(2)(B) and (C) does impose benefits sharing requirements, and those rules were included in the Proposed Rules and are provided in these final regulations as modified. See part V of this Summary of Comments and Explanation of Revisions section for more discussion regarding those requirements.

Specific to Category 2, another commenter noted that the definition of located on Indian land should include simple fee and trust lands located off-reservation owned by Tribes. Trust lands located off-reservation are covered under the statutory definition of Indian land referenced in section 48(e)(2)(A)(I). Fee lands, however, would only be covered if they are included within the boundaries of a reservation or in the census categories included within the Indian land definition. Therefore, the final regulations did not adopt the commenter's suggestion and define “Indian land” by reference to section 2601(2) of the Energy Policy Act of 1992 (25 U.S.C. 3501(2)) without additional clarification.

Specific to Category 3, a commenter asked for clarification that the installation of a facility on a “residential rental building” extends to the curtilage of the building, including carports, sheds, and open space on the same property. Another commenter asked for similar clarification stating that the guidance currently defines a facility as eligible if it is a facility installed on an eligible building. This commenter stated that this is an overly narrow statement that would not include adjacent carport or ground-mount solar on the same parcel. The commenter encouraged the Treasury Department and the IRS to include these other solar installation locations, as rural and suburban section 42 low-income housing credit (commonly referred to as LIHTC) properties often have excess land or large parking areas due to zoning requirements that could host solar installations. The final regulations adopt this comment by clarifying that a facility is treated as installed on a residential rental building that participates in a covered housing program or other affordable housing program (Qualified Residential Property) even if that facility is not on the Qualified Residential Property if the facility is installed on the same or adjacent parcel of land as the Qualified Residential Property, and the other requirements to be a Category 3 facility are satisfied.

Several commenters requested that the Treasury Department and the IRS categorically include any LIHTC project as a Category 3 project. Section 48(e)(2)(B)(i) provides that a covered housing program is defined in VAWA. The statutory cross-reference is comprehensive and includes numerous types of housing programs and policies across Federal agencies, including the low-income housing credit under section 42 of title 26. Accordingly, a solar or wind facility that is installed on a “qualified low-income building” under section 42 is eligible for Category 3. In response to commenters' general inquiries on covered housing programs, the Treasury Department and the IRS, in consultation with other Federal agencies, developed an illustrative list of Federal housing programs and policies that meet the requirements in section 48(e)(2)(B)(i). This list will be made available on the Program web page and is also listed here:

Covered housing programs and policies (as defined in VAWA) with active affordability covenants tied to the following:

• Department of Housing and Urban Development's (HUD) Section 202 Supportive Housing for the Elderly, including the direct loan program under Section 202;

• HUD's Section 811 Supportive Housing for Persons with Disabilities;

• HUD's Housing Opportunities for Persons With AIDS (HOPWA) program;

• HUD's homeless programs under title IV of the McKinney-Vento Homeless Assistance Act, including the Emergency Solutions Grants program, the Continuum of Care program, and the Rural Housing Stability Assistance program;

• HUD's HOME Investment Partnerships (HOME) program;

• Federal Housing Administration (FHA) mortgage insurance under Section 221(d)(3) subsidized with a below-market interest rate (BMIR) prescribed in the proviso of Section 221(d)(5) of the National Housing Act;

• HUD's Section 236 interest rate reduction payments;

• HUD Public Housing assisted under section 9 of the United States Housing Act of 1937;

• HUD tenant-based and project-based rental assistance under section 8 of the United States Housing Act of 1937;

• HUD Section 8 Moderate Rehabilitation Program;

• HUD Section 8 Moderate Rehabilitation Single Room Occupancy Program for Homeless Individuals;

• USDA Section 515 Rural Rental Housing;

• USDA Section 514/516 Farm Labor Housing;

• USDA Section 538 Guaranteed Rural Rental Housing;

• USDA Section 533 Housing Preservation Grant Program;

• Treasury/IRS Low-Income Housing Credit under section 42 of the Code;

• HUD's National Housing Trust Fund;

• Veterans Administration's (VA) Comprehensive Service Programs for Homeless Veterans;

• VA's grant program for homeless veterans with special needs;

• VA's financial assistance for supportive services for very low-income veteran families in permanent housing; and/or

• Department of Justice transitional housing assistance grants for victims of domestic violence, dating violence, sexual assault, or stalking.

Section 48(e)(2)(B)(i) also includes the following Federal housing programs:

• Housing assistance programs administered by the USDA under title V of the Housing Act of 1949; and/or

• Housing programs administered by an Indian Tribe or a Tribally designated housing entity (as defined in section 4(22) of the Native American Housing Assistance and Self-Determination Act of 1996 (25 U.S.C. 4103(22)).

One commenter also requested that Federal Weatherization Assistance Program (WAP) affordable housing categorically qualify as Category 3 covered housing. The WAP is not a housing program. The WAP is a program of the DOE that provides weatherization services and support for qualifying housing but does not provide or administer the actual housing. Therefore, the WAP program is not included as a Category 3 housing program.

Several commenters also requested that Category 3 include as an eligible residential rental building housing that is enrolled under a State-specific low-

income housing program that is not enrolled, or may not qualify, under the statutorily listed Federal housing programs. Similarly, several commenters requested that housing authorities under State programs be able to appeal for qualification under the Program. One commenter provided that housing authorities should be able to prove they meet certain minimum criteria and thresholds beyond enrollment in specified Federal programs.

State specific housing programs do not categorically qualify as Qualified Residential Properties nor do the facilities installed on such buildings categorically meet the requirements of section 48(e)(2)(B). The statute specifically lists only Federal housing programs and provides that the Secretary may include other affordable housing programs. The Treasury Department and the IRS decline to include additional housing programs in the final regulations at this time so that the Program will focus on the statutorily-prescribed housing programs. However, the Treasury Department and the IRS may include additional housing programs in future Program guidance.

The final regulations also do not provide a special review process for housing authorities to be considered as qualifying under State specific programs for the same reasons as provided earlier regarding State program eligibility. Moreover, a housing authority is not the same thing as a housing program. It is the solar or wind facility that is being reviewed, upon application, to determine whether the facility qualifies for an allocation, and not a specific housing authority or building that the facility will serve. The building on which the facility is built must already be a part of a Qualified Residential Property, otherwise the facility is not eligible under the requirements for Category 3.

One commenter also requested greater protection for the tenants of a Qualified Residential Property when a facility applies for or receives an allocation under Category 3. The commenter requested rent protection for the life of the solar or wind facility to ensure tenants are not subject to rent increases due to the installation of the solar or wind facility. The commenter also requested eviction protection, relocation assistance for tenants affected by construction, with a right of return for those tenants after construction, a sales restriction of five years for the building on which the facility is installed, and strong enforcement mechanisms.

The Treasury Department and the IRS considered this comment but did not adopt the commenter's suggestions because the requirements recommended by the commenter are outside the scope of section 48(e) and therefore what could be implemented by these final regulations.

III. Eligible Property, Including Energy Storage Technology Installed in Connection With Solar or Wind Facility

“Eligible property” as defined by section 48(e)(3) means energy property that (i) is part of a wind facility described in section 45(d)(1) for which an election to treat the facility as energy property was made under section 48(a)(5) (wind facility), or (ii) is solar energy property described in section 48(a)(3)(A)(i) (solar energy property) or qualified small wind energy property described in section 48(a)(3)(A)(vi) (small wind energy property). Eligible property also includes energy storage technology (as described in section 48(a)(3)(A)(ix)) “installed in connection with” such energy property.

The Proposed Rules defined “installed in connection with” for energy storage technology to demonstrate what is required for such energy storage technology to be considered eligible property under section 48(e)(3), providing that this is met if both (1) the energy storage technology and other eligible property are considered part of a single qualified solar or wind facility because the energy storage technology and other eligible property are owned by a single legal entity, located on the same or contiguous pieces of land, have a common interconnection point, and are described in one or more common environmental or other regulatory permits; and (2) the energy storage technology is charged no less than 50 percent by the other eligible property.

The Proposed Rules also added a safe harbor, which would deem the energy storage technology to be charged at least 50 percent by the facility if the power rating of the energy storage technology is less than 2 times the capacity rating of the connected wind facility (in kW AC) or solar facility (in kW direct current (DC)).

A commenter stated that the last sentence relating to the safe harbor appears to have the phrases “power rating” and “capacity rating” reversed, and to have omitted how energy storage is measured. The commenter stated that energy storage is measured in kWh, a measure of energy. A generating facility such as a solar or wind farm produces power, measured in kW. The commenter believes that the apparent intended meaning of the sentence would be better rendered with: “The Treasury Department and the IRS also propose to add a safe harbor, which would deem the energy storage technology to be charged at least 50 percent by the facility if the [capacity] rating of the energy storage technology [(in kWh)] is less than 2 times the [power] rating of the connected wind facility (in kW AC) or solar facility (in kW DC).” The Treasury Department and the IRS considered this comment, but the final regulations do not adopt the commenter's suggestion.

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For energy storage, the power rating (measured in kilowatts) indicates how much power can flow into or out of the battery in any given instant. It is similar to the capacity rating of a solar or wind facility, which indicates how much power can theoretically come out of the solar or wind facility in any given instant. In this context, the Treasury Department and the IRS accurately referred to the “power rating” of the energy storage technology.

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The commenter correctly identified that the Proposed Rules omitted how energy storage is measured. The omission was an error, and the Treasury Department and the IRS issued a correction to the Proposed Rules published in the

Federal Register

(88 FR 41340) on June 26, 2023, to clarify that the power rating of the energy storage technology is measured in kW. The final regulations incorporate this correction.

Additionally, a couple of commenters requested that the Treasury Department and the IRS eliminate the requirement that energy storage technology be charged at least 50 percent by other eligible property. These commenters point to the general language in sections 48(a)(2)(A)(i)(VI) and 48(c)(6) on energy storage technology and argue against including the charging requirement for section 48(e). One commenter said there is no statutory basis to require energy storage technology to be charged by other eligible energy property and this goes against Congressional intent. Another commenter said this rule may set a problematic and inequitable precedent in the context of the underlying section 48 credit, which Congress deliberately moved away from this standard in the IRA to better promote the benefits of energy storage, and that the standard for storage inclusion should not be more burdensome for environmental justice communities or Tribes than for other projects seeking the section 48 credit.

The general language in sections 48(a)(2)(A)(vi) and 48(c)(6) describing energy storage technology eligible for the section 48 credit differs from what Congress included when describing energy storage technology eligible for a section 48(e) Increase. Eligible property as described in section 48(e)(3) includes

energy storage technology (as described in section 48(a)(3)(A)(ix)) installed

in connection with

other eligible energy property. The use of the phrase “in connection with” limits the energy storage technology eligible for a section 48(e) Increase to energy storage that is installed in connection with the eligible solar or wind facility. The general energy storage technology language in section 48 includes no such limiting language. As required by the statute, the Treasury Department and the IRS determined that the proposed rule serves to ensure that energy storage technology eligible for a section 48(e) Increase has a sufficient nexus to the eligible property. The Treasury Department and the IRS provide taxpayers with the safe harbor described earlier as a means of deeming the energy storage technology as satisfying the requirement that it be charged no less than 50 percent by the other eligible property. The Proposed Rule applies uniformly to all taxpayers seeking an allocation of Capacity Limitation. Therefore, the final regulations retain the requirement that the energy storage technology must be charged no less than 50 percent by the other eligible property. However, to provide additional guidance on the application of this standard, the final regulations clarify that “50 percent” is based on an annual average.

Another commenter suggested eliminating the co-location requirement applicable to energy storage technology because the language of the statute can and should be interpreted to include storage projects that have firm, contractual offtake agreements with offsite solar or wind projects, and that these projects would be located within the same balancing authority, ensuring that all benefits are local. The final regulations do not adopt the commenter's suggestion because the Treasury Department and the IRS view the Proposed Rule that the energy storage technology be located on the same or contiguous pieces of land as the other eligible property as consistent with the statutory requirement that limits energy storage technology eligible for a section 48(e) Increase to only energy storage technology that is installed in connection with other eligible property.

Finally, one commenter requested clarification that the power rating of connected energy storage technology will not be counted against a facility's Capacity Limitation allocation. Because the final regulations, consistent with the Proposed Rules, define a qualified solar or wind facility eligible for a Capacity Limitation without reference to energy storage technology, the Treasury Department and the IRS believe this clarification in the final regulations is unnecessary.

A few commenters also requested that final regulations expand the definition of “in connection with” under section 48(e)(3)(B) applicable to energy storage technology to include interconnection property under section 48(a)(8), so that interconnection costs are eligible for purposes of calculating the section 48(e) Increase.

Section 48(e)(3)(B) provides that energy storage technology defined under section 48(a)(3)(A)(ix) installed in connection with eligible solar or wind property described in section 45(d)(1) or section 48(a)(3)(A)(i) or (vi) is eligible property for purposes of calculating the section 48(e) Increase. Neither section 48(e)(3)(B) nor any other provision applicable to section 48(e) includes interconnection property or costs in the definition of eligible property. Therefore, the final regulations do not adopt these commenters' suggestion.

IV. Location

The Proposed Rules provided that a qualified solar or wind facility is treated as “located in a low-income community” or “on Indian land” under section 48(e)(2)(A)(iii)(I) or located in a geographic area under the Additional Selection Criteria (see part VII of this Summary of Comments and Explanation of Revisions section) if the facility satisfies the nameplate capacity test (Nameplate Capacity Test).

Under the Nameplate Capacity Test, a facility that has nameplate capacity (for example, wind and solar facilities) is considered located in or on the relevant geographic area if 50 percent or more of the facility's nameplate capacity is in a qualifying area. A facility's nameplate capacity percentage is determined by dividing the nameplate capacity of the facility's energy-generating units that are located in the qualifying area by the total nameplate capacity of all the energy-generating units of the facility.

Nameplate capacity for an electricity generating unit means the maximum electricity generating output that the unit is capable of producing on a steady state basis and during continuous operation under standard conditions, as measured by the manufacturer and consistent with the definition provided in 40 CFR 96.202. Energy-generating units that generate DC power before converting to AC (for example, solar photovoltaic) should use the nameplate capacity in DC, otherwise the nameplate capacity in AC should be used (for example, wind facilities). Where applicable, the International Standard Organization conditions are used to measure the maximum electricity generating output or usable energy capacity. The nameplate capacity of any energy storage technology installed in connection with the qualified solar or wind facility does not affect the assessment of the Nameplate Capacity Test.

A few commenters noted concerns on the Nameplate Capacity Test and what it means to be “located in.” Another commenter suggested that the Nameplate Capacity Test should provide maximum flexibility. This commenter noted that Tribal lands are often not contiguous, and that new housing is limited so it is often off-reservation and there are also issues of right of way.

The Nameplate Capacity Test to determine the location of a facility already inherently provides flexibility because it only requires that 50 percent or more (rather than a larger percentage) of the facility's nameplate capacity be in a qualifying area. The Treasury Department and the IRS concluded that a 50 percent standard is a reasonable standard, which strikes the right balance between providing flexibility to taxpayers and ensuring that statutory requirements are satisfied. Additionally, this standard is familiar to taxpayers because it is the same standard that is used to determine whether a facility is located in an energy community under Notice 2023-29, 2023-20 IRB 1.

Other commenters had concerns about the use of AC and DC. These commenters said that the Treasury Department and the IRS should update the Proposed Rules to clarify that the use of DC is limited to project location and does not apply to the maximum output of a qualified facility. One commenter also added that the Treasury Department and the IRS should update the Proposed Rules to clarify that an allocation will not be reduced if a qualified facility's AC output is less than the facility's DC output. Additionally, a few commenters suggested that the nameplate capacity for both wind and solar facilities should be based on AC as the statute indicates and questioned the differing standard.

In response to these comments, the Treasury Department and the IRS added language in the final regulations to clarify that the Nameplate Capacity Test only applies for purposes of determining whether a facility is located in a qualifying area. The Treasury Department and the IRS did not modify the Nameplate Capacity Test to remove the reference to DC for measuring the nameplate capacity of a solar facility because nameplate capacity for a solar

facility is appropriately measured in DC. Solar facilities produce electricity in DC, which is then converted to AC for end use. Conversely, wind facilities produce electricity in AC.

V. Financial Benefits for Category 3 and Category 4 Allocations

Section 48(e)(2)(D) provides that “electricity acquired at a below market rate” will not fail to be taken into account as a financial benefit. The Proposed Rules provided definitions of the terms “financial benefit” and “electricity acquired at a below market rate” under section 48(e)(2)(D), as well as a manner to apply such definitions, appropriately, to qualified low-income residential building projects (section 48(e)(2)(B)) and qualified economic benefit projects (section 48(e)(2)(C)).

A. Financial Benefits for Qualified Low-Income Residential Building Projects

For a facility to be treated as part of a qualified low-income residential building project, section 48(e)(2)(B)(ii) provides that the financial benefits of the electricity produced by such facility must be allocated equitably among the occupants of the dwelling units of a Qualified Residential Property. The Proposed Rules reserved allocations under this category exclusively for applicants that would apply the financial benefits requirement under Category 3 in the following manner.

The Proposed Rules provided that financial benefits can be demonstrated through net energy savings as defined later. At least 50 percent of the financial value of net energy savings would be required to be equitably passed on to building occupants. This requirement would recognize that not all the financial value of the net energy savings can be passed on to building occupants because a certain percentage can be assumed to be dedicated to lowering the operational costs of energy consumption for common areas, which benefits all building occupants. The Proposed Rules provided that applicants must equitably pass on net energy savings by distributing equal shares among the Qualified Residential Property's units that are designated as low-income under the covered housing program, or by distributing proportional shares based on each dwelling unit's electricity usage.

The Proposed Rules accounted for the specific nature of facilities serving low-income residential buildings and facility ownership, as the facility may be third-party owned or commonly owned with the building.

In scenarios where the facility and the Qualified Residential Property have the same ownership, the Proposed Rules defined the financial value of net energy savings as the financial value equal to the greater of: (1) 25 percent of the gross financial value of the annual energy produced or (2) the gross financial value of the annual energy produced minus the annual costs to operate the facility. Gross financial value of the annual energy produced is calculated as the sum of (a) the total self-consumed kilowatt-hours produced by the qualified solar or wind facility multiplied by the applicable building's metered price of electricity and (b) the total exported kilowatt-hours produced by the qualified solar or wind facility multiplied by the applicable building's volumetric export compensation rate for solar or wind kilowatt-hours. The annual operating costs are calculated as the sum of annual debt service, maintenance, replacement reserve, and other costs associated with maintaining and operating the qualified solar or wind facility.

If the facility and building are commonly owned, a signed benefit-sharing agreement between the building owner and the tenants would be required. The Proposed Rules requested comments on how to adjust definitions of gross financial value to account for scenarios in which building occupants are compensating the facility owner for energy services.

In scenarios where the facility and the Qualified Residential Property have different ownership and the facility owner enters into a power purchase agreement (PPA) or other contract for energy services with the Qualified Residential Property owner, the Proposed Rules defined net energy savings as equal to the greater of: (1) 50 percent of the financial value of the annual energy produced by the facility that accrues to the owner of the Qualified Residential Property in the form of utility bill credit and/or cash payments for net excess generation or (2) the financial value of the annual energy produced by the facility that accrues to the owner of the Qualified Residential Property in the form of utility bill credit and/or cash payments for net excess generation minus any payments made by the building owner to the facility owner for energy services associated with the facility in a given year. In these scenarios, the facility owner must enter into an agreement with the building owner for the building owner to distribute the savings to residents.

1. Requirement To Equitably Allocate Financial Benefits

Two commenters provided that under certain State and Federal housing programs, housing authorities receive utility subsidies based on historical utility costs. These commenters also noted that a housing authority may have their utility allowance decreased if the housing authority reduces their utility costs through savings from the facility. Additionally, these commenters stated that the department managing a housing authority can claim a portion of net metering credits if the housing authority receives net metering credits. One of the commenters, therefore, requested that the Treasury Department and the IRS draft a rule that the housing authority be able to retain 100 percent of net metering credits, regardless of the energy savings received from the program and the facility. The other commenter requested that the Treasury Department and the IRS waive the requirement for public housing authorities to pass financial benefits along to residents. This commenter stated that in public housing, all benefits ultimately accrue to the benefit of residents. Another commenter stated that HUD-utility allowances may need to be increased for buildings if net benefits are to be shared between the owner and tenants, and the external financing is used to build the system, such that additional proceeds will be needed to pay debt service on the energy.

The Treasury Department and the IRS considered these comments but did not adopt them in the final regulations because section 48(e)(2)(B) requires that the financial benefits of the electricity produced by the facility be allocated equitably among the occupants of the Qualified Residential Property.

One commenter warned the Treasury Department and the IRS to guard against owner/related party financing designed to capture all or most of the energy savings benefits by artificially manipulating their terms of the financing to capture the savings during the term of the credit, and against owners seeking to purchase energy wholesale and mark up value to tenants to artificially inflate the value of the energy savings. The commenter says the value of the energy bill savings should be indexed against the approved meter rate as authorized by the relevant public service commission (where applicable) or some other third-party verifiable rate unrelated to the project sponsor or affiliates.

In response to this comment, the Treasury Department and the IRS have

maintained the baseline of 50 percent of the net energy savings calculated from a minimum of 25 percent of the gross financial value of electricity produced as described in the Proposed Rules to ensure the statutory obligation that financial benefits be allocated to tenants. The final regulations clarify, consistent with the comments received, that gross financial value includes the sale of any renewable energy credits or other attributes associated with the facility's production, if separate from the metered price of electricity or export compensation rate.

Many commenters requested that the final regulations provide guidance for facility owners to prove equitable distribution of benefits to tenants. A few commenters stated that in certain cases, like a project using community renewable energy facility rate structures offered by utilities, separately metered residents can subscribe voluntarily, and some residents may choose not to subscribe. Therefore, these commenters requested that the regulations allow for a reduction in the equitable distribution requirement on a pro-rata basis by the (number) of residents who choose not to subscribe. However, one of the commenters recommended a minimum threshold of resident participation, suggesting 50 percent participation at placed in service, for the distribution of benefits to be considered equitable.

In consideration of these comments, the Treasury Department and the IRS have clarified in the final regulations that for any occupant(s) that choose to not receive utility bill savings, the portion of the financial value that would otherwise be distributed to non-participating occupants must be instead distributed equitably to the participating occupants. Additionally, no less than 50 percent of the Qualified Residential Property's occupants that are designated as low-income must participate and receive utility bill savings for the facility to utilize this method of benefit distribution.

2. Gross Financial Value

A few commenters suggested changes to the definition of gross financial value. One commenter stated that for purposes of building occupants compensating the facility owner, gross financial value could be calculated based on the average monthly local utility rate for either residential or low-income residential (from the previous calendar year or trailing 12 months) multiplied by the average residential kilowatt hour usage per square foot multiplied by the per square footage of rentable residential space in the building. The commenter provided variation and detail on how this would be accomplished.

Another commenter requested clarification on how to define “gross financial value.” The commenter stated that it is unclear whether the “price of electricity” means only the energy costs or also all the delivery costs and other charges that may be charged on a per kilowatt hour basis. Additionally, the commenter noted that the “export compensation rate for . . . kilowatt hours” may not be solely tied to the energy but may also include additional compensation such as the value of renewable energy certificates or other incentives provided by States.

Finally, one commenter stated that calculating the “gross financial value of the annual energy produced,” as defined in the Proposed Rules, would be difficult for buildings due to the complexity of electricity rate structures in many jurisdictions, which may vary depending on the time of day and time of year.

The Treasury Department and the IRS considered the commenters' suggestions but generally did not adopt them because the Proposed Rules provide a clear and accurate framework for defining “gross financial value.” However, the final regulations clarify, consistent with the comments received, that gross financial value includes the sale of any renewable energy credits or other attributes associated with the facility's production, if separate from the metered price of electricity or export compensation rate. The same definition of gross financial value applies regardless of the ownership structure.

One commenter requested clarification about whether front of the meter (FTM) volumetric tariff compensation rate, such as Connecticut's Residential Renewable Energy Solutions Buy-All-Sell-All tariff (BASA Tariff), may be included in the gross financial value calculation when the facility and Qualified Residential Property have the same ownership. The commenter believes that the BASA tariff $/kWh revenue would be included in the definition of gross financial value because it is included in the definition as part of “the total exported kilowatt-hours produced by the qualified solar or wind facility multiplied by the applicable building's volumetric export compensation rate for solar.”

The Treasury Department and the IRS considered this comment but ultimately concluded that additional clarification in the final regulations to address specific State tariff rates is not necessary. The definition of gross financial value included in the final regulations, consistent with the Proposed Rules, already includes the total exported kilowatt-hours produced by the qualified solar or wind facility multiplied by the applicable building's volumetric export compensation rate for solar or wind kilowatt-hours, which would include compensation from the electricity produced from the facility.

Another commenter stated that it is not appropriate to define financial benefits in terms of the value of energy savings. Instead, this commenter claimed that the only financial benefit that can be generated by facilities in Category 3 would be through net metering, where the facility generates excess capacity that is sold back to the grid for off-site consumption. The commenter also implied that, in the case of net metering credits, the credit would go directly to the tenants, and that the building owner will never receive any financial benefit.

The Treasury Department and the IRS considered this comment but did not adopt it in the final regulations. The Treasury Department and the IRS determined that gross financial value from the electricity produced from a qualified solar or wind facility may stem from self-consumed kilowatt-hours produced by the facility, exported kilowatt-hours produced by the facility, or the sale of any renewable energy credits or other attributes associated with the facility's production (if separate from the metered price of electricity or export compensation rate). Further, financial value of energy savings from the electricity produced is a financial benefit of the electricity produced by the facility and section 48(e)(2)(B)(ii) provides that the financial benefits of the electricity produced by such facility must be allocated equitably among the occupants of the dwelling units of a Qualified Residential Property.

3. Net Financial Value

One commenter stated that rather than creating two methods, the Treasury Department and IRS should adopt a single method to calculate net energy savings. The commenter stated that for both scenarios (commonly owned and third-party owned), the final regulations should adopt the method from the Proposed Rules that was only proposed to apply when the facility and Qualified Residential Property have the same ownership. The Treasury Department and the IRS considered this comment but did not adopt it in the final regulation because it is appropriate for “net financial value” to be defined differently depending on whether the facility is commonly owned or third-party owned because in third-party

owned scenarios calculating the facility's levelized cost of energy would be overly complex and potentially vulnerable to manipulation. Instead, relying on the PPA rate is simpler and more reliable. The final regulations clarify that in case of a commonly owned facility “net financial value” is defined as the gross financial value of the annual energy produced minus the annual average (or levelized) cost of the qualified solar or wind facility over the useful life of the facility (including debt service, maintenance, replacement reserve, capital expenditures, and any other costs associated with constructing, maintaining, and operating the facility). In the case of a third-party owned facility, “net financial value” is defined as gross financial value of the annual energy produced minus any payments made by the building owner and/or building occupants to the facility owner for energy services associated with the facility in a given year.

Another commenter cited to the Connecticut's Residential Renewable Energy Solutions BASA Tariff, which involves FTM projects, and requested a change to the net financial value definition for third-party owned facilities. The commenter proposed that, to include FTM projects in Category 3, the first definition of net financial value needs to be amended to reference “the total financial value of energy produced by the facility that accrues to the owner of the qualified residential property, or the facility owner, the tenants, or a combination thereof.” The commenter further provided that a set percentage can be required to be provided, like 25 percent, to the tenants, and the rest of the revenue can be allocated between the facility owner and the property owner in whatever manner is requested. This commenter also requested that the second definition of net financial value be amended to say that “the total financial value of the annual energy produced by the facility that accrues to the owner of the qualified residential property, or the facility owner, the tenants, or a combination thereof minus any payments made, or revenue allocated, to the facility owner for energy services associated with the facility in a given year” to consider solar site lease structures (for FTM project like BASA) in addition to PPAs.

Another commenter generally recommended that the Treasury Department and the IRS adopt a baseline requirement of passing on at least 25 percent of net energy savings to tenants, to ensure meaningful financial benefits are afforded to households in Category 3.

The Treasury Department and the IRS considered these comments but did not adopt them in the final regulations and maintain the baseline of 50 percent of the net energy savings calculated from a minimum of 25 percent of the gross financial value of electricity produced as described in the Proposed Rule, which is a higher value of meaningful financial benefits than the commenter suggests. The other 50 percent of the net energy savings can be assumed to be dedicated to lowering the operational costs of energy consumption for common areas, which benefits all building occupants. The Treasury Department and the IRS determined that the baseline of 50 percent of the net energy savings is consistent with the statutory intent for Category 3, which is to provide the financial benefits of the electricity produced directly to building occupants.

4. Single Family Housing

One commenter generally noted that the financial benefit definitions for Category 3 only contemplate multi-family housing. This commenter requests clarification for Tribal housing programs, which the commenter states primarily consist of Tribal single-family residences that would have their own meter.

In response to the comment, the Treasury Department and the IRS have modified the financial benefit definition to provide clarity for single-family residences that meet the criteria of a Qualified Residential Property. The final regulations state that a Qualified Residential Property could either be a multifamily rental property or single-family rental property. The same rules for financial benefits for Category 3 apply to both property types.

5. Benefits Sharing Agreement

Several commenters expressed concern over the signed benefits sharing agreement between the building owner and the tenants if the facility and building are commonly owned. Generally, commenters suggested the elimination of this requirement. A few commenters noted the administrative burdens and challenges on the building owner in obtaining signed agreements from all tenants. Likewise, another commenter said that this requirement is overly burdensome, and that requiring each resident to voluntarily sign a benefits sharing agreement would prevent a facility from proceeding. This commenter also noted the possibility that requiring such an agreement may conflict with consumer protection laws, and another commenter agreed suggesting certain customer protection disclosures may be required. One commenter also stated that this process would potentially present a `false promise' to residents should the project not be selected for an allocation. Some commenters offered alternatives to a signed benefits sharing agreement. Several commenters recommended that the facility owner or building owner provide notice to all building occupants of the expected financial benefits and the proposed method of allocating the benefit. Similarly, another suggested that owners be required to develop a benefits sharing plan that must be communicated to tenants, with owners ensuring that sufficient time is given for tenants to provide feedback. Finally, a few commenters suggested that applicants instead submit a self-attestation form certifying that they will equitably distribute benefits in accordance with the standards set forth in HUD guidelines.

One commenter supported the requirement for a signed benefits sharing agreement. However, the commenter requested additional guidance on the contents of such a benefits sharing agreement, including specific required consumer protection disclosures, such as resources tenants can access to better understand or renegotiate the agreement. This commenter additionally encouraged the Treasury Department and the IRS to adopt a model affidavit or agreement between building owners and tenants based on the options considered and used in California's Solar on Multifamily Affordable Housing (SOMAH) program. Another commenter generally asked for clarification on how to prove or attest that financial benefits are due to cost savings associated with solar.

Several Tribal commenters requested that facilities owned by Tribes or Tribal housing authorities should be presumed to result in an economic benefit to Tribal members who reside on the reservation or who live in Tribal-owned housing, and thus should not be required to enter into a benefits sharing agreement with Tribal members to show the financial benefit to Tribal members.

The Treasury Department and the IRS agree that requiring a signed benefits sharing agreement between the building owner and the tenants is burdensome and not necessary to demonstrate compliance with Program requirements. Instead, to better achieve the goal of verifying Program compliance and to provide clarification to applicants regarding how they can demonstrate that statutory requirements are met the final regulations require that facility owners for all Category 3 facilities must

prepare a Benefits Sharing Statement, which must include (1) a calculation of the facility's gross financial value using the method described in the final regulations, (2) a calculation of the facility's net financial value using the method described in the final regulations, (3) a calculation of the financial value required to be distributed to building occupants using the method described in the regulations, (4) a description of the means through which the required financial value will be distributed to building occupants, and (5) if the facility and Qualified Residential Property are separately owned, indication of which entity will be responsible for the distribution of benefits to the occupants. In addition, the Qualified Residential Property owner must formally notify the occupants of units in the Qualified Residential Property of the development of the facility and planned distribution of benefits.

6. Impact of Metering on Delivery of Financial Benefits

Regardless of ownership, residential buildings may have master-metered or sub-metered utilities. Therefore, the Proposed Rules provided that for sub-metered buildings, the tenants must receive the financial value associated with utility bill savings in the form of a credit on their utility bills. HUD has issued guidance for residents of sub-metered HUD-assisted housing that participate in community solar, providing an analysis of how community solar credits may affect utility allowance and annual income for rent calculations.

3

The Proposed Rules provided that applicants follow the HUD guidance and future HUD guidance on this issue to ensure that tenants' utility allowances and annual income for rent calculations are not negatively impacted.

3

U.S. Department of Housing and Urban Development, Treatment of Community Solar Credits on Tenant Utility Bills (July 2022): MF Memo re Community Solar Credits, (

https://www.hud.gov/sites/dfiles/Housing/documents/MF_Memo_Community_Solar_Credits_signed.pdf

) and Community Solar Credits in PIH Programs (August 2022), (

https://www.hud.gov/sites/dfiles/documents/Solar%20Credits_PH_HCV.pdf

).

The Treasury Department and the IRS are aware that in some States or jurisdictions it may not be administratively, or legally, possible to apply utility bill savings on residents' electricity bills. The Proposed Rules requested comments on this issue and how financial benefits, such as services and building improvements, can be provided to residents in such residential buildings.

For master-metered buildings, the Proposed Rules provided that because residents do not have individually metered utilities and do not receive utility bills, the building owner must pass on the savings through other means, such as by providing certain benefits to the building residents beyond those provided prior to the qualified solar or wind facility being placed in service. HUD has issued guidance for how residents of mastered-metered HUD-assisted housing can benefit from owners' sharing of financial benefits accrued from an investment in solar energy generation.

4

The Proposed Rules provided that applicants follow the HUD guidance and future HUD guidance on this issue to ensure that tenants' utility allowances and annual income for rent calculations are not negatively impacted.

4

U.S. Department of Housing and Urban Development, Treatment of Solar Benefits in Mastered-metered Buildings (May 2023), MF_Memo_re_Community_Solar_Credits_in_MM_Buildings.pdf (

https://www.hud.gov/sites/dfiles/Housing/documents/MF_Memo_re_Community_Solar_Credits_in_MM_Buildings.pdf

).

Many commenters noted that it is difficult for utility bill credits to be distributed to residents even in sub-metered buildings and suggested that the financial benefit structure available under the Proposed Rules for master metered buildings be similarly applied to sub-metered buildings. Several commenters noted that it is not possible to distribute utility bill credits to residents in sub-metered buildings because most States lack legislation or regulations governing the allocation of solar credits to consumer utility bills, and, one commenter further stated, that even in States that do, the utilities may not have the administrative infrastructure to allocate credits across bills. Another commenter supported this by stating that only 21 States and DC have statewide policies that support sharing solar savings in multi-family housing in the form of utility bill credits. Many commenters also voiced general concern that the process of distributing utility credits is administratively burdensome on the owner of the facility. One commenter stated that many of the residents who would be eligible to receive bill credits on their utility bills will already receive a subsidized electricity price from their distribution company, which would result in their cost of power already being lower than other consumers in their service territory. This commenter asserts that it be more economical to “sell” or “allocate” the bill credits to another consumer in the same service territory and offset their higher energy costs and provide a greater overall financial benefit to tenants. The commenter states that this system would be similar to the process proposed for master-metered buildings.

Many commenters asked for flexibility in providing financial benefits to residents. A few commenters suggested that metering configuration should not be regarded for purposes of defining financial benefits. One commenter stated that financial benefits should be defined by HUD, and should be applicable to all properties, regardless of whether the residential unit is sub-metered or if the building is master-metered. This commenter specifically stated that financial benefits should be allowed to accrue to the common area meters and then be disbursed equitably to occupants based upon any approved method—without regard to metering configuration and without requiring a bill credit allocation method. Several other commenters suggested, as alternatives, services such as free or reduced cost high speed internet, shuttle services, public transportation subsidization, job training programs, community events, and building improvements as alternatives to be allowed instead of utility bill credits.

One commenter suggested that if utility bill credits are not available, applicants could determine a baseline year and calculate the average price per kilowatt hour for that year and then for all subsequent years (after placed in service date) and multiply it by the kilowatt hours of production multiplied by an annual acceptable adjustment. The commenter stated that net energy savings from a given period (month, quarter, or year) would then be required to be spent on residential service programs (available to the largest group of residents), facility upgrades benefiting residents, and other services that benefit a large group of residents.

A few commenters, although supportive, noted that the HUD guidance allowing for services or other benefits to be provided in master metered buildings, in lieu of direct financial savings to tenants, is limited in scope. One commenter pointed out that the HUD memorandum cited in the Proposed Rules only covers developments subsidized through HUD's multifamily programs. This commenter noted that this guidance does not cover HUD's Project Voucher Program and that the USDA does not provide matching guidance for the USDA supported housing. Therefore, this commenter suggests that the regulations directly define financial benefits for master metered housing,

rather than by reference to memoranda, so that this provision is clearly applicable to all master metered affordable housing developments. Similarly, one commenter stated that the types of benefits provided under the HUD guidance for community solar programs should be available as a mechanism to distribute financial benefits for all Category 3 applicants.

Similarly, another commenter noted that certain financial benefits distributed directly to residents may be includable in a household's annual income. The commenter noted that HUD has determined that providing financial benefits in the form of gift cards or cash payments would generally be included in income. Therefore, this commenter supported the inclusion of language in the rules that would state that financial benefits can include credits on utility bills or could include benefits that can be equitably provided to residents but are not direct payments to the residents, such as resident services, free or reduced cost internet, job training, or building upgrades. However, another commenter requested the opposite, stating that direct payments or other financial benefits like rent reductions should be the preferred form of benefits.

In response to these comments, the Treasury Department and the IRS modified the Proposed Rules in the final regulations to provide maximum flexibility to equitably allocate financial benefits to residents while also ensuring the statutory requirements are satisfied. Accordingly, the final regulations provide that financial value can be distributed to building occupants via utility bill savings or through different means, and depending on the method selected, the final regulations prescribe the requirements that must be met. For purposes of this via utility bill savings provision, financial benefits will be considered to be equitably allocated if at least 50 percent of the financial value of the energy produced by the facility is distributed as utility bill savings in equal shares to each building dwelling unit among the Qualified Residential Property's occupants that are designated as low-income under the covered housing program or other affordable housing program (described in section 48(e)(2)(B)(i)) or alternatively distributed in proportional shares based on each low-income dwelling unit's square footage, or each low-income dwelling unit's number of occupants. For any occupant(s) that choose to not receive utility bill savings (for example, exercise their right to “opt out” of a community solar subscription in applicable jurisdictions), the portion of the financial value that would otherwise be distributed to non-participating occupants must be instead distributed to all participating occupants. No less than 50 percent of the Qualified Residential Property's occupants that are designated as low-income must participate and receive utility bill savings for the facility to utilize this method of benefit distribution. If financial value is not distributed via utility bill savings, financial benefits will be considered to be equitably allocated if at least 50 percent of the financial value of the energy produced by the facility is distributed to occupants using one of the methods described in HUD guidance, or other guidance or notices from the Federal agency that oversees the applicable housing program identified in section 48(e)(2)(B).

With respect to allocating financial value via utility bill savings, commenters addressed the language in the Proposed Rules that provided an alternative method for net energy savings to be distributed in proportional shares based on each dwelling unit's electricity unit. The commenters stated that this method is not permitted by HUD. These commenters also proposed a third option for equitable distribution, which they claim is used in California's SOMAH program, where shares are distributed to each unit based on square footage. In response to this comment, the Treasury Department and the IRS added language in the final regulations to clarify that the financial value should be distributed in equal shares to each building dwelling unit among the Qualified Residential Property's occupants that are designated as low-income under the covered housing program or other affordable housing program (described in section 48(e)(2)(B)(i)) or alternatively distributed in proportional shares based on each low-income dwelling unit's square footage, or each low-income dwelling unit's number of occupants.

Another commenter suggested that in a master-metered building, the facility owner be allowed to allocate the value of energy savings to the building's tenant association to distribute equally as the association sees fit. This was suggested in addition to and as alternative to the options provided in the HUD guidance.

In response to this comment, the Treasury Department and the IRS considered but did not adopt this suggestion. The Treasury Department and the IRS have provided additional clarity on the applicability of HUD guidance in the final regulations to provide flexibility to the applicant to determine the methodology most appropriate for allocation of the value of energy savings based on the circumstances of the Qualified Residential Property. This includes options that have been determined to not affect a tenants utility allowance and annual income for rent calculations.

B. Financial Benefits in Qualified Low-Income Economic Benefit Projects

For a facility to be treated as part of a qualified low-income economic benefit project, section 48(e)(2)(C) requires that at least 50 percent of the financial benefits of the electricity produced by the facility be provided to qualifying low-income households. To satisfy this standard, the Proposed Rules required that the facility serve multiple households and at least 50 percent of the facility's total output is distributed to qualifying low-income households under section 48(e)(2)(C)(i) or (ii). In addition, to further the overall goals of the Program, the Proposed Rules reserved allocations under this category exclusively for applicants that would provide at least a 20-percent bill credit discount rate for all such low-income households. The Proposed Rules defined a “bill credit discount rate” as the difference between the financial benefit distributed to the low-income household (including utility bill credits, reductions in the low-income household's electricity rate, or other monetary benefits accrued by the household) and the cost of participating in the Program (including subscription payments for renewable energy and any other fees or charges), expressed as a percentage of the financial benefit distributed to the low-income household. The bill credit discount rate can be calculated by starting with the financial benefit distributed to the low-income household, subtracting all payments made by the low-income customer to the facility owner and any related third parties as a condition of receiving that financial benefit, then dividing that difference by the financial benefit distributed to the low-income household.

1. Category 4 Community Solar

Because of the financial benefits requirements that are structured for community solar projects, several commenters thought that the Proposed Rules too narrowly limited Category 4. Commenters noted that the Proposed Rule precluded otherwise eligible facilities from qualifying under Category 4, including behind the meter (BTM) facilities that meet the Category 4 requirements. One commenter suggested that Category 4 should be open to projects that directly benefit Tribal member small businesses. Similarly, a

commenter noted that Category 4 should be open to all projects, whether FTM or BTM, that directly benefit Tribal member small businesses (where the small business can apply for the section 48 credit) or Tribal enterprises, located on Tribal lands, that may want to deploy commercial roof-top or ground-mount solar (such as canopies) to offset energy costs, provide energy security, or support job creation. Another commenter also criticized the narrow nature of Category 4 noting that the Proposed Rules have made eligibility for Category 4 solely applicable to multifamily and community solar.

Some commenters also made suggestions on how to define Category 4. One commenter suggested that projects under Category 4 allow only on-site commercial and industrial projects to reach overall deployment and savings goals. Similarly, one commenter requested that Category 4 incentivize larger agribusiness projects that employ residents living in these areas and working at these agribusiness facilities (or similar industries) and stated that the 50 percent household requirement is too complicated. This commenter felt that residential facilities are being prioritized in categories 1, 3, and 4, and, therefore, that Category 4 should be modified to incentivize facilities supplying power to businesses but providing financial benefits to low-income residents in the same area. Another commenter recommended that the Category 4 allocation give priority to qualified low-income benefit projects less than 1 MW that are located in low-income communities.

The Treasury Department and the IRS recognize the commenters' concerns that Category 4 is limited. However, projects must meet the statutory requirements under section 48(e)(2)(C) to be considered eligible for Category 4. To ensure these requirements are not too narrowly construed, the Treasury Department and the IRS adopted a change to the FTM definition in the final regulations applicable to Category 4 to ensure that projects meeting the intent of Category 4, as that intent was described in the Proposed Rules, are not unintentionally disqualified due to an overly strict definition of FTM. The final regulations clarify that a facility is FTM if it is directly connected to a grid and its primary purpose is to provide electricity to one or more offsite locations via such grid or utility meters with which it does not have an electrical connection; alternatively, FTM is defined as a facility that is not BTM. The final regulations also clarify that for the purpose of Category 4, a qualified solar or wind facility is also FTM if 50 percent or more of its electricity generation on an annual basis is physically exported to the broader electricity grid.

However, the Treasury Department and the IRS emphasize that this does not change the intent of Category 4 that projects falling under the definition of BTM are not eligible for Category 4, and that financial benefits to eligible low-income households can only be delivered via utility bill savings. Based on industry and market research, community solar programs primarily use utility bill savings to deliver financial benefits to households. For this reason, the Treasury Department and the IRS have defined financial benefits in this manner.

At least one other commenter requested allowing public and affordable housing buildings to participate in Category 4 through the use of geo-eligibility to establish qualification for a Category 4 site. One of these commenters mentioned the process being adopted in New York for its Inclusive Community Solar Adder, which will allow anyone who lives in a designated “Disadvantaged Community” to qualify upon demonstration that their address is in one of the so-called DAC zones. This commenter noted that the Climate and Economic Justice Screening Tool (CEJST) map is already being used to qualify sites for Category 1 participation.

Because section 48(e)(2)(C) provides requirements for ensuring that the financial benefits of the electricity produced by a qualified solar or wind facility are provided to qualifying households, establishing categorical eligibility for Category 4 based on geographic location of the project is inappropriate. Similarly, as discussed in more detail later under part V.B.6. of this Summary of Comments and Explanation of Revisions section, qualifying households based on geography is also inappropriate because of statutory requirements. Similarly, establishing eligibility for multifamily buildings (including master-metered buildings), agribusinesses, or other arrangements that do not directly result in utility bill savings for low-income households is also inappropriate. As discussed earlier, financial benefits to eligible low-income households can only be delivered via utility bill savings under these regulations. Therefore, the final regulations do not adopt these comments.

2. Twenty Percent Bill Credit Discount

One commenter urged the Treasury Department and the IRS to require a higher bill discount rate than 20 percent, stating the programs in Illinois, Massachusetts, and Maryland already provide discounts at or above the proposed threshold level. This commenter believes that the increased credit for qualified low-income economic benefit projects should allow for an increase in the amount of financial benefit delivered to low-income customers in these markets.

Another commenter supported the method of requiring financial benefits in the form of bill credits, but suggested an additional requirement to be included in cases where beneficiaries have no cost of participation through a subscription fee. In this situation, the commenter suggested that the bill credit discount rate should be calculated as the total savings on a customer's utility bill, annually, divided by the total value of the electricity produced by the project, as measured by the income to the project paid by the utility, independent system operator (ISO), or other customer procuring power from the project.

Another commenter requested clarification on the interpretation of bill credit discount rate, which the commenter read to mean that 20 percent of the total export credit rate would be the minimum required revenue share with the low-income customer, rather than 20 percent of the customer's pre-solar electricity bill. This commenter also requested clarification as to whether the calculation will be annual, and whether the form of benefits must specifically be “utility bill credits” or could be other documented financial benefits provided to tenants.

One commenter stated that a 20 percent cost savings requirement will likely be unattainable in some energy markets, specifically States and localities that have less amicable laws and utility regulations for community solar. This commenter recommended a 15 percent cost savings for 2023, stating that 15 percent is still on the higher end of the current industry average for community solar cost savings. This commenter also requested that the benefit should be an annual reduction (of 15 percent) because there can be cost savings fluctuations throughout a calendar year. Although the Treasury Department and the IRS considered various percentages for required cost savings between 5 percent and 20 percent, based on a review of various State program rates and market information, the Treasury Department and the IRS have decided to maintain the 20 percent rate. This rate will allow for the greatest savings to the low-income households and further the

requirement of section 48(e)(2)(C) that 50 percent of the financial benefits of the electricity produced by the facility are provided to such households. Additionally, in response to comments, the Treasury Department and the IRS clarified that the 20 percent bill discount is an annual savings.

Tribal commenters requested that projects owned by Tribes or Tribal housing authorities should be presumed to result in an economic benefit to Tribal members who reside on the reservation or who live in Tribal-owned housing.

The Treasury Department and the IRS decline to adopt the suggestion of presumption of economic benefit. The statutory requirements for the Program require that an qualified low-income economic benefit project serves multiple households and at least 50 percent of the facility's total output is distributed to qualifying low-income households under section 48(e)(2)(C). To help applicants meet this requirement, the Treasury Department and the IRS have provided in the final regulations an illustrative list of categorical eligibility options to provide maximum flexibility to qualify low-income households. This includes eligibility based on Tribal programs and housing programs, among many other options.

3. Single Household

Several commenters have requested that the Treasury Department and the IRS add eligibility under Category 4 for projects that benefit one single-family residence where 100 percent of the facility's total output is distributed to the qualifying low-income household residing at that residence, provided that the project meets all other Category 4 criteria, and the facility provides at least a 20-percent utility bill savings for such low-income household. Several commenters also added that Congress's use of the term “households” is more properly read as a programmatic term applying to all low-income households that can benefit from the Program, rather than a narrower reading suggested in the Proposed Rules. One commenter argued that this narrow reading (excluding single family households from Category 4) would unnecessarily and unfairly discriminate against certain households.

After consideration of all these comments, the final regulations do not adopt the commenter's suggestion. Section 48(e)(2)(C) applicable to Category 4 facilities requires that at least 50 percent of the financial benefits of the electricity produced by the facility be provided to “households” with certain income levels. Because the statute uses the plural term “households,” the Treasury Department and the IRS determined that providing financial benefits to a single household is insufficient to meet the requirements of section 48(e)(2)(C) applicable to Category 4 facilities.

4. Utility Bill Savings

Several Tribal comment letters requested that Category 4 should not be limited to projects that provide only individual benefits or community-scale projects. These commenters urged the Treasury Department and the IRS to expand the definition of “financial benefit” to include community-wide benefits, such as direct benefits to the Tribal government from the additional tax credit (especially for projects owned by the Tribe and receiving elective payments from the Treasury Department), job creation and economic benefits to low-income Tribal members. These same commenters also stated that Category 4 should be open to all projects, regardless of metering, that directly benefit Tribal member small businesses (where the small business can apply for the section 48 credit) or Tribal enterprises located on Tribal lands. Additionally, some of the Tribal comments requested flexibility for Tribal housing or economic development projects that are serving Tribal lands and Tribal households to define benefits collectively (rather than individually), because many of the Tribal commenters are located in States that do not allow for community solar. These commenters stated that they will have to negotiate directly with a utility to deploy community scale projects on the Reservation.

To promote more flexibility with respect to financial benefits requirements in Category 4, a few commenters requested that the Treasury Department and the IRS extend the same flexibility is provided for Category 3 projects regarding financial benefits to Category 4 projects as well. These commenters requested that a manner other than bill credits be permitted to provide financial benefits directly to low-income subscribers in Category 4 that still meets the nominal 20 percent discount requirement, like gift cards, direct payments, or checks. One commenter asked whether master-metered projects are eligible for Category 4 if a project adheres to the same HUD guidance used for Category 3 projects.

The Treasury Department and the IRS considered the comments requesting expansion or flexibility with respect to financial benefits for Category 4 to allow methods other than utility bill savings but ultimately decided not to adopt the commenters' suggestions in these final regulations. Requiring financial benefits via utility bill savings is the only means through which the Treasury Department and the IRS can ensure that the provision of financial benefits to qualifying households is sufficiently regulated such that the requirements of section 48(e)(2)(C) are satisfied. Therefore, the final regulations clarify that financial benefits for Category 4 must be tied to a utility bill of a qualifying household. The Treasury Department and the IRS may consider other methods of determining Category 4 financial benefits in future years.

The final regulations, however, address comments regarding the potential unsuitably of the proposed rules to net-credit billing, or other structures where the qualifying household does not make a direct payment to the project owner by providing an alternative methodology for calculating a 20 percent bill credit discount rate in this scenario. In cases where the qualifying household has no or only a nominal cost of participation, the bill credit discount rate should be calculated as the financial benefit provided to a qualifying household (including utility bill credits, reductions in a qualifying household's electricity rate, or other monetary benefits accrued by a qualifying household on their utility bill) divided by the total value of the electricity produced by the facility and assigned to the qualifying household (including any electricity services, products, and credits provided in conjunction with the electricity produced by such facility), as measured by paid by the utility, ISO, or other off-taker procuring electricity (and related services, products, and credits) from the facility.

5. Fifty Percent of the Facility's Total Output to Low-Income Households

One commenter requested that the facility should not have to provide power to households, as long as the financial benefits were distributed to residents of qualifying households. In this case, the commenter stated that a non-profit organization planned to build a facility on the non-profit office building but distribute the savings the non-profit derived from the facility to the residents of apartments the non-profit administers. Similarly, another commenter noted that the use of “distribute” rather than “assigned” in the requirement in the Proposed Rules that 50 percent of the facility's total output is distributed to qualifying low-income households may imply that beneficiaries are expected to receive the physical flows of electricity from the

facility, which is not how community solar works in most cases, nor is it what the statute requires.

In response to these comments and to clarify the intent of the Proposed Rules, which was to structure Category 4 consistent with the market as it exists today (including community solar business models), the final regulations adopt the suggestion of the commenter to change “distributed” to “assigned.” Therefore, the full clause in the final regulations is “at least 50 percent of the facility's total output must be assigned to Qualified Households.”

6. Low-Income Verification

To ensure the requirements of section 48(e)(2)(C) are met, verification of households' qualifying low-income status is required. The Proposed Rules provided that applicants are responsible for proof-of-income verification and would be required to submit documentation upon placing the qualified solar or wind facility in service that identifies each qualifying low-income household, the output allocated to each qualifying low-income household in kW, and the method of income verification utilized.

The Proposed Rules provided that applicants may use categorical eligibility or other income verification methods to qualify low-income households. Categorical eligibility consists of obtaining proof of household participation in a needs-based Federal,

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State, Tribal, or utility program with income limits at or below the qualifying income level for the specific facility (qualifying program). State agencies (for example, State community solar/wind program administrators) can also provide verification of low-income status if the State program's income limits are at or below the qualifying income level for the qualified solar or wind facility. If a household is not enrolled in a qualifying program, additional income verification methods can be used such as: paystubs, tax returns, or income verification through crediting agencies and commercial data sources. Eligibility based on the applicant (or contractors or subcontractors) collecting self-attestations from households is not permitted.

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Federal programs may include, but are not limited to: Medicaid, Low-Income Home Energy Assistance Program (LIHEAP), Weatherization Assistance Program (WAP), Supplemental Nutrition Assistance Program (SNAP), Section 8 Project-Based Rental Assistance, and the Housing Choice Voucher Program.

Several commenters commented on the verification methods to qualify low-income households. On self-attestation, many commenters disagree with the Proposed Rules prohibiting eligibility based on self-attestation. Many commenters were in favor of self-attestation, which according to one commenter could include an attestation to the effect that the household either participates in one of the programs that has the relevant standard as a criterion or otherwise meets the standard to the best of the resident's knowledge. One commenter stated that self-attestation is the fastest and most efficient way to ensure maximum low-income customer participation. This commenter noted that many customers will be skeptical of providing documents, and that the process of obtaining, processing, and verifying the documentation is administratively burdensome and time consuming. Another commenter noted a practical consideration that by accepting self-certification, households who are not yet enrolled in Federal or State energy assistance programs but are eligible or in the process of enrolling may still participate in qualified low-income economic benefit projects. Another commenter stated that only a fraction of eligible households currently participate in existing State, Federal, utility, or Tribal programs for which they are eligible, and many barriers—including knowledge, time, documentation, and language fluency—prevent many households from participating.

Some of the commenters' recommendations also tied into the use of State programs. One commenter suggested removing the self-attestation limitation where self-attestation is permitted by State agencies. Two other commenters similarly suggested the rules accept income verification via State-program verification where States specifically accept self-attestation with one of the commenters noting that subscribers and applicants should not have to double verify a household if self-attestation is used on the State level. Another commenter encouraged that applicants be allowed to use benefit cards as sufficient evidence of participation in qualifying programs where such cards are the means by which a State makes the benefit available to participants.

Another commenter requested that the rules clarify whether the use of State-approved geo-qualification maps or CEJST are approved income verification methods and recommended that, for individuals who reside within a CEJST or Persistent Poverty County (PPC), the rules should consider allowing self-attestation as a means of income-qualification in States where it is a permissible method for income-qualification. Another commenter asked for clarification about the interaction between this Program and State agency provided income verification, as well as Department of Energy's (DOE) community solar subscription tool tying eligibility, initially, to LIHEAP. The commenter noted that some State agencies allow self-attestation and/or State-approved geo-qualification maps in various programs and requested that the rules allow self-attestation and geo-qualification (including both State maps and CEJST) meeting certain standards to the maximum extent allowable by law. Another commenter suggested expanding those who can provide verification to not just the State agencies but also utilities. In contrast, another commenter instead recommended removing the concept of allowing State agencies to provide verification at all and proposed adding a requirement to make clear that the requirement is on applicants to receive verification directly from the customers.

Some commenters asked for the expansion of categorical eligibility. For example, one commenter recommended that public housing, USDA Rural Development, and the Project Based Voucher Program be added to the list of categorically eligible Federal assistance programs noted in footnote 5 of the Proposed Rules. Another commenter asked if the listed methods are the only possible methods of verification or if other State-approved methods may be considered as well. Another commenter also suggested for purposes of Category 4 that the rules allow participation in more programs as proof of income and that paystubs, tax returns, and credit checks should be removed as possibilities as these could alienate low-income households. An additional commenter noted their view on the importance of protecting Tribal data sovereignty. This commenter said the rules should not tie Tribes to external sources of data. This commenter believes that self-certification as to poverty levels or other metrics by Tribes should be sufficient.

A few commenters suggested adding geographic eligibility to verify low-income status. One commenter suggested adding geographic eligibility to the “category eligibility” and “other income verification methods” to qualify low-income households, where “geographic eligibility” is defined as a household that is currently residing in a LIHTC Qualified Census Tract (LIHTC Qualified Census Tract) and where at least one adult in that household has resided for at least the previous six months. The commenter claims that the LIHTC Qualified Census Tract

household income standard is stricter than that in section 48(e)(2)(C)(ii), and thus this standard is an administratively efficient method of qualifying low-income households for a tax credit similar to the Low-Income Communities Bonus Credit. Another commenter recommended adding the physical location of the customer's home as an additional qualifying criterion, noting a reasonable criterion for inclusion as areas where at least 20 percent of the population falls below the poverty line, with prevalent harmful environmental impacts as outlined in the 2014-2018 5-year American Community Survey (ACS), conducted by the U.S. Census Bureau. Moreover, one commenter suggested including geo-qualification based on State maps and the CEJST Tool.

In contrast, one commenter supported the Proposed Rules noting that categorical income verification decreases costs and increases available low-income customer benefits. Another commenter provided an entirely different suggestion stating that income verification is a vestige of the community solar subscription model and is alternatively achieved by serving communities in low-income areas as measured by area or State median income census data. The commenter suggested that income verification through the Statewide Shared Clean Energy Facility (SCEF) program (which is a Connecticut program) relies on the distribution utilities determining customer eligibility.

After consideration of all of comments on the verification methods to qualify low-income households, the final regulations adopt these comments in part. The Treasury Department and the IRS considered numerous verification methods in crafting the Proposed Rules and the final regulations to strike a balance between reducing administrative burden for taxpayers and households and ensuring adequate checks that the facilities receiving a Capacity Limitation under Category 4 meet the requirements of section 48(e)(2)(C). The final regulations adopt the Proposed Rules' prohibition on self-attestations because they are not sufficiently reliable or verifiable. However, this prohibition on direct self-attestation from a household does not extend to categorical eligibility for needs-based Federal, State, Tribal, or utility programs with income limits that rely on self-attestation for verification of income. The final regulations clarify that income verification is accepted via program verification where the relevant jurisdiction specifically accepts self-attestation.

The Treasury Department and the IRS agree that subscribers and applicants should not have to double verify when a State program accepts self-attestation. The final regulations, consistent with the Proposed Rules, provide flexibility for applicants to qualify households through several means, including categorical eligibility and paystubs, tax returns, or income verification through crediting agencies and commercial data sources. Moreover, the list of Federal programs included in footnote 5 of the Proposed Rules is not the exclusive list of Federal programs that could be used to demonstrate categorical eligibility, which provide additional flexibility to qualify households. However, in response to the comments, the final regulations will include additional examples of programs that will be considered categorically eligible based on income status. Therefore, in response to the commenter's request the following additional programs will be added to the illustrative list that was provided in the Proposed Rules: Federal Communication Commission's Lifeline Support for Affordable Communications, USDA's National School Lunch Program; U.S. Social Security Administration's Supplemental Security Income; or any verified government or non-profit program serving Asset Limited Income Constrained Employed (ALICE) persons or households. The final regulations also clarify that to qualify for categorical eligibility under one of these programs, an individual in the household must be currently enrolled or must have received an award letter or other written documentation from the program in the last 12 months.

With respect to State programs, the final regulations, consistent with the Proposed Rules, provide that categorical eligibility also consists of obtaining proof of household participation in a needs-based State or utility program, so long as the income limits are at or below the qualifying income level for the specific facility. The final regulations clarify that the qualifying income level for a household is based on where such household is located. Without additional information or requirements, geographic-based eligibility verification does not prove that a particular household necessarily meets the income parameters of section 48(e)(2)(C). Although one commenter, for example, noted that LIHTC Qualified Census Tracts have stricter income requirements, this does not address the concern that a particular household's income may not qualify under the statute but only that there are households in the census tract that would qualify.

Two commenters requested eligibility of low-income households be established only at the time of enrollment and remain for the length of the subscription and that there should not be a continual obligation to verify households as low-income. This request is consistent with the Proposed Rules, which provided that applicants are responsible for proof-of-income verification and would be required to submit documentation once upon placing the qualified solar or wind facility in service that identifies each qualifying low-income household as well as other information. The final regulations maintain the Proposed Rule but clarify that the low-income status of a household is determined at the time the household is enrolled in the community program and does not need to be re-verified. Similarly, the recapture rules discussed in part XIII of this Summary of Comments and Explanation of Revisions section are not imposed if the low-income status of households change in later years; however, the Treasury Department and the IRS determined that a change in the final regulations to clarify this point is unnecessary.

VII. Annual Capacity Limitation

Under section 48(e)(4)(C), the total annual Capacity Limitation is 1.8 gigawatts (GW) of DC capacity for each of the calendar year 2023 and 2024 programs. Consistent with section 4.02 of Notice 2023-17, the Proposed Rules specified how the annual Capacity Limitation would be allocated across the four facility categories for 2023. The Proposed Rules, consistent with Notice 2023-17, reserved a portion of the total annual Capacity Limitation of 1.8 GW of DC capacity for each facility category for calendar year 2023 as follows:

Category 1: Located in a Low-Income Community

700 megawatts.

Category 2: Located on Indian land

200 megawatts.

Category 3: Qualified Low-Income Residential Building Project

200 megawatts.

Category 4: Qualified Low-Income Economic Benefit Project

700 megawatts.

The Proposed Rules also provided that the Treasury Department and the IRS would retain the discretion to reallocate Capacity Limitation across categories and sub-reservations to maximize allocation in the event one category or sub-reservation is oversubscribed and another has excess capacity.

One commenter suggested eliminating the 1.8 GW Capacity Limitation altogether, in favor of the same uncapped allocation that they view other solar customers, typically customers in a higher income bracket, have previously received. However, section 48(e)(4)(C) provides the 1.8 GW Capacity Limitation, and it cannot be modified by the final regulations. Therefore, the final regulations do not adopt this comment.

Another commenter suggested re-allocating the Capacity Limitation under Category 3 to Category 4 to increase the total number of MW that can be deployed efficiently while yielding the highest economic benefit. Similarly, a different commenter recommended increasing Category 4 by combining Category 1 and 4 into a single 1.4 GW category applicable to both. In addition, this commenter suggested that the Treasury Department and the IRS should layer on preferences for economic benefits over location in facility selection, similar to its preferences around ownership and location (discussed in part VII of this Summary of Comments and Explanation of Revisions section). Procedurally, an applicant would submit an application for this combined category in the applicable sub-allocation and indicate under which category qualification, and thus bonus level, for the project is sought. The commenter added that the Treasury Department and the IRS can apply a similar approach to the Proposed Rules to sub-allocate capacity among facility types within that combined category, subdividing among commercial, community, and single-family residential solar as strongly recommended by both industry and environmental justice groups since last year. Another commenter also had recommendations about how to re-allocate capacity taking into account the Additional Selection Criteria (ASC). The commenter suggested that the Treasury Department and the IRS reallocate unused capacity in the same year. Specifically, the commenter suggested that if there is unused capacity from a category or an ASC reservation that it be allocated in the same year to ensure all 1.8 GW of projects can be efficiently deployed annually. The commenter encouraged the Treasury Department and the IRS to consider implementing subcategory capacity carveouts within each category to effectively allow for a rolling application system. For example, in Category 4, there should be more capacity dedicated to certain projects over others. Two commenters expressed disagreement for the large total reservation in Category 1. These commenters suggested that some of the Category 1 reservation should be moved to Category 4.

After consideration of these comments, the final regulations, consistent with the Proposed Rules, provide that the total Capacity Limitation for each Program year will be divided across the 4 facility categories and that the Treasury Department and the IRS retain the discretion to reallocate Capacity Limitation across categories and sub-reservations to maximize allocation in the event one category or sub-reservation is oversubscribed and another has excess capacity. The Treasury Department and the IRS continue to believe that the reservations based on facility category best allow a wide variety of facilities and benefits to go to low-income communities to further the intent of the statute. Absent category reservations, all the annual Capacity Limitation could get allocated to one facility category, which is contrary to the statute providing four distinct categories.

The final regulations clarify that the specific reservations for a Program year are provided in guidance published in the Internal Revenue Bulletin. For Program year 2023, Notice 2023-17 and Revenue Procedure 2023-27 provide the specific reservation amounts for each category. As clarified in the final regulations, the specific reservation amounts are established based on factors such as the anticipated number of applications that are expected for each category and the amount of Capacity Limitation that needs to be reserved for each category to encourage market participation in each category consistent with statutory intent.

One commenter stated that sub-allocations should be adaptable in future Program years to account for lessons learned. However, the commenter said that the 200 MW for Indian land should not be reallocated to other categories even if not fully claimed by applications in any given year, nor should any shortfall of applications be used to justify smaller future allocations. The Treasury Department and the IRS understand the importance of all of the categories provided by Congress in the statute and agree that the Capacity Limitation allocated to each facility category should be adaptable. Accordingly, the Treasury Department and the IRS have retained discretion to reallocate Capacity Limitation and to revise amounts reserved for each category in each Program year. After the 2023 Program year, the Treasury Department and the IRS will determine whether to change the facility category reservation amounts for the 2024 Program year based on the factors provided in the final regulations and will announce the specific reservation amounts in Program guidance applicable to 2024.

VIII. Additional Selection Criteria

The Proposed Rules provided that facilities that meet at least one of the two categories of Ownership and Geographic Criteria, collectively the ASC, would receive priority for an allocation within each facility category described in section 48(e)(2)(A)(iii). The Proposed Rules also provided that at least 50 percent of the total Capacity Limitation in each facility category would be reserved for facilities meeting ASC.

The Proposed Rules provided that in evaluating applications received during the initial application window, priority would be given to eligible applications for facilities meeting at least one of the two ASC. If the eligible applications for Capacity Limitation for facilities that meet at least one of the two ASC criteria exceed the Capacity Limitation for a category, facilities meeting both ASC criteria would be prioritized for an allocation.

Several commenters expressed overall agreement and support for the inclusion of ASC, and the purpose behind these criteria, which commenters feel will promote community ownership. One commenter expressed disagreement with the use of ASC in the Program or that it should not be used for the 2023 Program. Another commenter echoed this by saying that the Treasury Department and the IRS should first assess the Program and applications received for 2023, and then consider including the ASC and a corresponding capacity reserve amount.

Other commenters suggested that if ASC is used, the percentage of the total Capacity Limitation in each facility category for ASC should be reduced from 50 percent to 25 percent or to 10 percent. Another commenter stated that the Ownership Criteria is too restrictive, and few applicants will be able to meet the high standard. This commenter recommended giving preferential allocation of capacity limitation to groups that meet one or both of the ASC, without reserving 50 percent of the capacity under each category on a

rolling basis. One commenter similarly stated that an inflexible reservation of 50 percent of the total Capacity Limitation in each category for facilities meeting ASC may result in potentially hundreds of MW of unclaimed Capacity Limitation for 2023. This commenter suggested that a smaller amount of reservation should be reserved for ASC projects in 2023, and that the amount of reservation should be increased in future years. A few other commenters, similarly, suggested that in the first year of the Program, ten percent of the capacity in each sub-reservation should be reserved for ASC applicants, with the Treasury Department and the IRS retaining authority to reallocate the capacity and expand the capacity reservations in future Program years.

One commenter separately stated that except for reallocations (meaning reallocations of capacity between categories) for facilities meeting the ASC, the Treasury Department and the IRS should ensure that proposed reallocations more than 50 MW are subject to public notice and comment.

A few commenters who supported reduction of the ASC reservation amounts, stated that it will take significant time and coordinated effort for new community solar markets to emerge where efforts to establish Program frameworks have been lacking to date. These commenters stated that it is likely that there will be few applicants who meet the ASC, or that the projects developed by owners that would qualify tend to be small scale projects. Some commenters also asserted that the restrictive Ownership Criteria would likely encourage gaming.

In contrast, some commenters expressed support for at least 50 percent of the total Capacity Limitation being reserved for facilities meeting ASC. Additionally, one of the commenters supporting the reduction in the ASC reservation amounts stated that the Treasury Department and the IRS should prioritize reallocations to facility categories with more than 25 percent of the facilities meeting the ASC.

One commenter suggested that a third set of “Market-based” criteria should be added to ASC. The commenter stated that these criteria would prioritize projects that maximize the benefit delivered to the largest number of low-income customers. The two criteria provided by the commenter under this category are: 1. Proposed discount rate: Savings delivered to low-income customers; and 2. Percentage of project reserved for low-income customers: The percentage of the output capacity that will service low-income customers. However, the commenter only includes community solar projects in discussing the reason for this proposal. Two other commenters also proposed a third set of criteria focused on prioritizing projects that are participating in State low-income renewable energy programs, with one commenter specifically naming programs funded under the Environmental Protection Agency's (EPA) Greenhouse Gas Reduction Fund Solar For All Program. However, one of the comments specifically limits these criteria to Category 1 projects. Neither of the comments explain how these criteria would be equitably applied to facilities applying from all States, especially States that do not have such programs, nor do the commenters explain how wind facilities would be eligible under the previously recommended criteria. Other commenters provided additional criteria that could be considered including the use of minority and woman-owned businesses as contractors and employment of workers from low-income communities. Finally, a group of commenters suggested that the Treasury Department and the IRS consider applicants under ASC if the applicant signs a binding commitment to provide financial benefits for longer than the statute requires; or if the applicant sign a binding commitment promising to provide greater financial benefits than required. Another commenter, similarly, suggested incorporating a new category of ASC based on whether the project provides benefits to the local community and its members. The commenter suggested that this would better ensure that Category 1 and Category 2 projects are providing direct benefits to households or the local community. This comment gives examples of criteria for this “provision of benefits” category including: targeted hiring provisions, local procurement standards for Minority, Women and Disadvantaged owned Business Enterprises, Community Workforce Agreements, and Community Benefit Agreements; provision of direct financial benefits to community members, such as energy bill savings or reduction of energy burden; and for Category 1 projects, actual low-income status of households who would be benefited.

After consideration of these comments, the final regulations, consistent with the Proposed Rules, maintain that at least 50 percent of the total Capacity Limitation be reserved for facilities meeting ASC to help achieve the Treasury Department and the IRS's stated goals of the Program in Notice 2023-17 to (1) increase adoption of and access to renewable energy facilities in low-income communities and communities with environmental justice concerns; (2) encourage new market participants in the clean energy economy; and (3) provide social and economic benefits to people and communities that have been marginalized from economic opportunities and overburdened by environmental impacts. While many of the comments provide suggestions for alternative or additional ASC, many of the suggestions could not be applied to all categories or applied nation-wide such as the use of enrollment in a specific State energy program. Other suggestions are infeasible due to statutory conflict such as providing benefits for a longer duration than the statute requires. Lastly, the Treasury Department and the IRS are anticipating upwards of 100,000 applications annually for the Program. Selection criteria that is qualitative, subjective, and would require significant review such as a Community Benefits Agreement, Workforce Agreement, or procurement or hiring targets are administratively infeasible to have timely decisions made throughout the year. The Treasury Department and the IRS heard from many stakeholders that timely decisions will be key to Program success. The ASC proposed by the Treasury Department and the IRS are also directly connected to the applicant (ownership) or the facility (geography), which allows objective criteria. The Treasury Department and the IRS may consider other ASC in future guidance that help achieve these goals and are administratively feasible for the Program. However, the Treasury Department and the IRS did not adopt the commenters' suggestions to add other ASC at this time because the Treasury Department and the IRS determined the ASC provided in the Proposed Rules best promote the Program goals discussed earlier and should be the focus of the Program.

The final regulations maintain that at least 50 percent of the Capacity Limitation in each facility category will be reserved for facilities meeting the ASC but clarify that the method for utilizing the ASC and the specific amount of the reservation (at or above 50 percent) will be provided in guidance published in the Internal Revenue Bulletin. For program year 2023, those procedures are provided in Revenue Procedure 2023-27. The final regulations clarify that the total Capacity Limitation in each facility category reserved for qualified facilities meeting the ASC may be reevaluated in future guidance provided at least 50

percent is reserved. The final regulations also clarify that after the reservation for qualified facilities meeting the ASC is established in guidance, it may later be re-allocated across facility categories and sub-reservations in the event one category or sub-reservation within a category is oversubscribed and another has excess capacity.

One commenter stated that most, if not all, categories, will be oversubscribed, and acknowledged that there will need to be a selection process other than a first-come, first-served application process. However, this commenter recommended against using the proposed Ownership and Geographic Criteria as a means for prioritizing applications. This commenter asserted that criteria related to the ownership or location of a project provides no indication of project viability. This commenter stated that instead, applicants should be prioritized based on project maturity, providing a list of factors that are already included in the Proposed Rules for the Program, for some or all categories, such as site control and possession of all non-ministerial permits. The commenter suggested that a lottery be used in oversubscribed categories for projects that meet the commenters stated project maturity factors. A few other commenters requested that applicants who have made meaningful financial investments in relatively mature projects should be shown preference for an allocation. Specifically, this group of commenters suggested that the Treasury Department and the IRS, in addition to the Ownership and Geographic Criteria, prioritize projects that have signed agreements with income-qualified customers representing 10 percent of a project's capacity.

After consideration by the Treasury Department and the IRS, these comments are not adopted. The project maturity selection criteria that these commenters suggest are already part of the minimum Program requirements to apply that were provided in the Proposed Rules. ASC are selection factors for prioritizing projects in addition to the already required minimum project maturity level that this commenter requests. Prioritizing signed agreements with customers would not work for all categories, and applicants in Category 4

A. Ownership Criteria

The Proposed Rules provided that the Ownership Criteria category is based on characteristics of the applicant that owns the qualified solar or wind facility. A qualified solar or wind facility will meet the Ownership Criteria if it is owned by a Tribal enterprise, an Alaska Native Corporation, a renewable energy cooperative, a qualified renewable energy company meeting certain characteristics, or a qualified tax-exempt entity. If an applicant wholly owns an entity that is the owner of a qualified solar or wind facility, and the entity is disregarded as separate from its owner for Federal income tax purposes (disregarded entity), the applicant, and not the disregarded entity, is treated as the owner of the qualified solar or wind facility for purposes of the Ownership Criteria.

The Proposed Rules provided that a Tribal enterprise, for purposes of the Ownership Criteria, (1) is an entity that is owned at least 51 percent, either directly or indirectly (through a wholly owned corporation created under its Tribal laws or through a section 3 or section 17 Corporation),

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by an Indian Tribal government (as defined in section 30D(g)(9) of the Code), and (2) the Indian Tribal government has the power to appoint and remove a majority (more than 50 percent) of the individuals serving on the entity's board of directors or equivalent governing board.

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A “section 17 corporation” is a corporation incorporated under the authority of section 17 of the Indian Reorganization Act of 1934, 25 U.S.C. 5124. A “section 3 corporation” is a corporation that is incorporated under the authority of section 3 of the Oklahoma Indian Welfare Act, 25 U.S.C. 5203.

The Proposed Rules provided that an Alaska Native Corporation, for purposes of the Ownership Criteria, is defined in section 3 of the Alaska Native Claims Settlement Act, 43 U.S.C. 1602(m).

The Proposed Rules provided that a Renewable Energy Cooperative, for purposes of the Ownership Criteria, is an entity that develops qualified solar and/or wind facilities and owns at least 51 percent of a facility and is either (1) a consumer or purchasing cooperative controlled by its members who are low-income households (as defined in section 48(e)(2)(C)) with each member having an equal voting right, or (2) a worker cooperative controlled by its worker-members with each member having an equal voting right.

The Proposed Rules provided that a Qualified Renewable Energy Company (QREC), for purposes of the Ownership Criteria, is an entity that serves low-income communities and provides pathways for the adoption of clean energy by low-income households. In addition to its general business purpose, the Proposed Rules noted that the Treasury Department and the IRS were considering the following requirements and specifically requested comments on these potential requirements that a QREC would need to satisfy:

(1) At least 51 percent of the entity's equity interests are owned and controlled by (a) one or more individuals, (b) a Community Development Corporation (as defined in 13 CFR 124.3), (c) an agricultural or horticultural cooperative (as defined in section 199A(g)(4)(A) of the Code), (d) an Indian Tribal government (as defined in section 30D(g)(9)), (e) an Alaska Native corporation (as defined in section 3 of the Alaska Native Claims Settlement Act, 43 U.S.C. 1602(m)), or (f) a Native Hawaiian organization (as defined in 13 CFR 124.3);

(2) After applying the controlled group rules under section 52(a) of the Code, the entity has less than 10 full-time equivalent employees (as determined under section 4980H(c)(2)(E) and (c)(4) of the Code) and less than $5 million in annual gross receipts in the previous calendar year;

(3) The entity first installed or operated a qualified solar or wind facility as defined in section 48(e)(2)(A) two or more years prior to the date of application; and

(4) The entity has installed and/or operated qualified solar or wind facilities as defined in section 48(e)(2)(A) with at least 100 kW of cumulative nameplate capacity located in one or more Low-Income Communities as defined in section 48(e)(2)(A)(iii)(I).

The Proposed Rules provided that a “qualified tax-exempt entity”, for purposes of the Ownership Criteria, is (1) An organization exempt from the tax imposed by subtitle A of the Code by reason of being described in section 501(c)(3) or section 501(d); (2) Any State, the District of Columbia, or political subdivision thereof, any territory of the United States, or any agency or instrumentality of any of the foregoing; (3) An Indian Tribal government (as defined in section 30D(g)(9)), political subdivision thereof, or any agency or instrumentality of any of the foregoing; or (4) Any corporation described in section 501(c)(12) operating on a cooperative basis that is engaged in furnishing electric energy to persons in rural areas.

The final regulations modify the definition of “qualified tax-exempt entity” by striking “any territory of the United States.” The Treasury Department and the IRS made this change to correct a drafting error. The tax rules in section 50(b) related to investment tax credits (ITCs), such as section 48, generally provide that credit-eligible property cannot be used predominantly outside the United States

(the fifty States and the District of Columbia) unless the property is owned by a U.S. corporation or U.S. citizen (other than a citizen entitled to the benefits of section 931 (Guam, American Samoa, or the Northern Mariana Islands) or section 933 (Puerto Rico)). Therefore, property used in the territories and owned by a territory government, or an entity created in or organized under the laws of a U.S. territory, generally would not qualify for a section 48 credit.

Another commenter stated that the Ownership Criteria should be eliminated because Congress indicated no intent in the IRA to prefer applications for the Program on project ownership. This commenter asserts that the Ownership Criteria results in non-profits organizations receiving outright allocation awards, while qualified business taxpayers will be subject to a lottery system for any remaining credit. Similarly, another commenter stated that the ASC and the reservations for ASC are not grounded in the statute. Although Congress did not include Ownership Criteria directly in the statute, it did direct the Treasury Department to create a Program to allocate the annual Capacity Limitation of 1.8 GW as measured in DC. As discussed earlier, the Treasury Department and the IRS stated three goals for the Program: (1) increase the adoption of and access to renewable energy facilities in low-income communities and communities with environmental justice concerns; (2) encourage new market participants in the clean energy economy; and (3) provide social and economic benefits to people and communities that have been marginalized from economic opportunities and overburdened by environmental impacts. Based on the breadth of research around the barriers to adoption of renewable energy technology by low-income communities and to meet statutory objectives and Program goals, the inclusion of Ownership Criteria will allow the participation of institutions that are well positioned to increase adoption of clean energy in low-income communities and by low-income households. Moreover, all applicants, with limited exception, in a given category and sub-category, are generally required to meet the same requirements to be awarded an allocation amount based on the projected net output of the facility. No applicant is being awarded the actual bonus credit amount during the application and selection period. All facility owner-applicants who are awarded an allocation will then have to place the facility in service and meet certain requirements before the owner can claim the section 48(e) Increase for the section 48 credit.

A few commenters stated that it is not appropriate to apply the ASC to Category 3 facilities. One commenter said that multi-family affordable housing guarantees that the benefits in Category 3 will be provided to low-income households. Another commenter claimed that Category 3 facilities are subject to existing rules that conflict with the ASC.

Several commenters stated that the current Ownership Criteria may conflict with ownership structures typically used for LIHTC projects. One commenter expressed concern that a tax-exempt applicant who is an owner of a facility through a partnership structured as a limited liability company or a limited partnership for State law purposes would not be considered a qualified tax-exempt entity because the tax-exempt applicant is not the sole owner. This commenter requested revision of the Ownership Criteria to ensure that tax-exempt entities (and other prioritized owner types) remain eligible if the entity controls the managing member or general partner of the partnership that owns the facility for Federal income tax purposes. Another commenter suggested that additional language should state that a qualified tax-exempt entity would still meet the Ownership Criteria if the tax-exempt entity directly serves as the managing member or general partner of the partnership that owns the facility for Federal income tax purposes. A few commenters also stated that most tax-exempt entities entering into a renewable energy tax credit transaction related to a LIHTC project will enter into a partnership with a tax equity investor where the tax-exempt entity is a general partner or managing member and has control over the partnership's operations, but is not the majority owner. The tax equity investor is usually the majority owner to allow the investor to claim most of the tax credits generated by the project.

The Treasury Department and the IRS understand that for tax credit monetization purposes, LIHTC projects and solar and wind facilities are often financed using tax equity partnership structures where a tax-exempt entity (or other Ownership Criteria entities) owns a minority interest (either directly or indirectly) in an entity treated as a partnership for Federal income tax purposes that owns the project or facility. In response to these comments, the Treasury Department and the IRS have clarified through additional language in the final regulations that a qualified solar or wind facility owned by an entity treated as a partnership for Federal income tax purposes is eligible for ASC consideration if an entity that meets the Ownership Criteria has at least a one percent interest (either directly or indirectly) in each material item of partnership income, gain, loss, deduction, and credit of the partnership and is a managing member or general partner (or similar title) under State law of the partnership (or directly owns 100 percent of the equity interests in the managing member or general partner) at all times during the existence of the partnership. Because indirect ownership is permissible, this means an entity that meets the Ownership Criteria can hold its partnership interest through a taxable subsidiary. This clarification should allow tax partnerships formed for the purpose of monetizing LIHTCs or section 48 credits that are directly or indirectly owned and managed by an entity that satisfies the Ownership Criteria to meet the ASC and thus better reflect potential applicants and financing structures for all Categories. The final regulations also clarify that a facility that has received a Capacity Limitation allocation based, in part, on meeting the Ownership Criteria will not be disqualified and lose its allocation if it is transferred by the original applicant to a tax partnership, prior to being placed in service, in which the original applicant retains the requisite direct or indirect ownership of the tax partnership and is a managing member or general partner (or similar title) under State law of such partnership (or directly owns 100 percent of the equity interests in the managing member or general partner) at all times during the existence of the partnership.

One commenter specifically noted that some Tribal enterprises do not have a “board of directors or equivalent governing board,” but the corresponding Tribes own utilities and have the power to appoint and remove the utility's leadership. Therefore, the commenter asked that the Treasury Department and the IRS to clarify Tribally owned utilities (or those Tribally owned entities that do not have a “board,” such as an LLC) meet the Ownership Criteria set forth in the Program. The commenter also stated that “Ownership” should stem from a Tribe's sovereign decision to construct a project rather than how a managing entity is structured and stated that Tribes should be able to attest to ownership control without further documentation. Several commenters included a similar statement. Another commenter further requested that the Tribe be considered the applicant and

not the LLC, but that the LLC should also be allowed to apply, if it is a disregarded entity, and wholly owned by the Tribe (or Tribal enterprise).

In response to these comments, the Treasury Department and the IRS have modified the definition of Tribal enterprise in the final regulations by providing that a Tribal enterprise for purposes of the Ownership Criteria is an entity that (1) an Indian Tribal government (as defined in section 30D(g)(9) of the Code) owns at least a 51 percent interest in, either directly or indirectly (through a wholly owned corporation created under its Tribal laws or through a section 3 or section 17 Corporation), and (2) is subject to Tribal government rules, regulations, and or codes that regulate the operations of the entity.

Several commenters requested revisions to the definition of QREC. One commenter requested that QREC be further defined but did not provide specific language to further define the term. Additionally, a few commenters recommended that the Treasury Department and the IRS change the “and” at the end of the list of requirements that a QREC must satisfy to “or” so that the applicant only needs to meet one requirement, inclusive of the general business purpose to serve low-income communities. One commenter added that this would be more inclusive for new market entrants. Another commenter requested that the criteria for QREC be modified to include trusts as individuals, and that the requirement that 51 percent of the equity interest be controlled by an individual be reduced to 45 percent or, alternatively, at least 25 percent employee owned, and that the second requirement be expanded to provide that the company must have less than 100 full time employees and less than $30 million in annual gross receipts from the previous calendar year. The same commenter also suggested that the definition of a QREC be expanded to include public benefit corporations. One commenter suggested that Category 1(a) of the QREC definition, which currently reads as “one or more individuals,” should be replaced with “renewable energy cooperative,” claiming that this keeps the consistency of the definition with the previous section and requires more rigorous working agreements.

A few commenters variously commented on employee requirements for QRECs. Two commenters, also commenting on the gross receipts threshold, suggested that a QREC maintain less than 10 full time employees and less than $30.4 million in annual gross receipts from the previous calendar year. Another commenter stated that requiring a QREC to have fewer than ten full-time equivalent employees is excessively restrictive and unrealistic. This commenter also stated that the less than $5 million threshold for annual gross receipts in the previous calendar year may be unrealistically low. One commenter stated that the small size requirement appears to be arbitrary and suggested that the Treasury Department and the IRS use the Small Business Administration (SBA) small business size and revenue requirement to promote small business entrants. Further, another commenter stated that imposing an additional requirement to employ workers in certain low-income communities would be too onerous. Additionally, one commenter stated that it is unclear whether the requirement to employ low-income persons would be applicable at the time of application or through the life of the project. This commenter requested that the Treasury Department and the IRS clarify that this requirement is applicable at the time of application, and then consider allowing State or Federally approved workforce training programs, supported through the project, as a means of qualification. However, another commenter, who generally opposed the inclusion of QRECs as an ASC Ownership Criteria category, requested that the Treasury Department and the IRS require such companies to enter into Community Workforce Agreements to ensure workers within low-income and disadvantaged communities benefit from the wealth building opportunities provided by the Program. This commenter also provided a list of the community benefits that should be incorporated into the commenter's suggested agreements.

Additionally, one commenter stated that new market entrants are altogether barred from meeting this definition. Overall, the same commenter suggested as modification adding other consumer protection measures, minority- or women-owned business enterprise criteria, individual rather than company-based experience thresholds, and providing flexibility with regard to size, so as to enable more local clean energy business growth. A separate commenter also noted that new entrant companies, that would otherwise meet the QREC definition, will not qualify due to the specific experience requirement. Another commenter requested the Treasury Department and the IRS update the definition of QREC to include qualified rooftop lessors. This commenter provided an example of projects installed by small businesses that otherwise meet the definition but are counterparties to a lease provided by a third-party project developer. This commenter said that many single-family residential rooftop facilities use third-party ownership (TPO) models to meet the requirements of section 48 but claims that in many States legal title to such facilities is not possible for entities meeting the definition of a QREC, which, by virtue of their small size, do not have access to a lease fund. One commenter also noted that many new market entrants have prior experience as part of other solar projects that they do not own and suggested that companies that have been subcontractors be included for criteria (3) and (4), and that the scope be broadened to be “any solar provider.” A Tribal comment letter also stated that the definition of a QREC is too limited and does not support newly formed entities that are owned in part by Tribes. This commenter claims that, prior to the IRA, Tribes were not able to create joint ventures to deploy solar or wind projects.

After consideration of all comments on the definition of QREC, the final regulations adopt some changes and do not adopt others. The Treasury Department and the IRS will maintain the inclusion of QREC in the final regulations. However, to provide increased flexibility and to encourage new market participants, the Treasury Department and the IRS have modified the QREC definition to allow for previous participation in a renewable energy project as a service provider (either as an individual or a company) to demonstrate a track record for serving low-income communities. While some commenters stated that brand new entities may not meet the criteria for QREC, the Treasury Department and the IRS developed the QREC criteria to support companies or entrepreneurs with a commitment and track record of serving low-income communities that have not been able to grow their market share. The Treasury Department and the IRS also increased the annual gross receipts threshold based on the comments and additional market research to allow for flexibility to growing companies that may still not have significant market-share. After careful assessment of all the proposals provided in the comments and current market information, the final regulations provide additional flexibility to new market entrants by modifying the requirements that a QREC would need to satisfy:

(1) At least 51 percent of the entity's equity interests are owned and controlled by (a) one or more

individuals, (b) a Community Development Corporation (as defined in 13 CFR 124.3), (c) an agricultural or horticultural cooperative (as defined in section 199A(g)(4)(A) of the Code), (d) an Indian Tribal government (as defined in section 30D(g)(9)), (e) an Alaska Native corporation (as defined in section 3 of the Alaska Native Claims Settlement Act, 43 U.S.C. 1602(m)), or (f) a Native Hawaiian organization (as defined in 13 CFR 124.3);

(2) Has less than 10 full-time equivalent employees (as determined under section 4980H(c)(2)(E) and (c)(4) of the Code) and less than $20 million in annual gross receipts in the previous calendar year;

(3) First installed or operated a qualified solar and or facility as defined in section 48(e)(2)(A) two or more years prior to the date of application; or

(4) Has provided solar services as a contractor or subcontractor to qualified solar or wind facilities as defined in section 48(e)(2)(A) with at least 100 kW of cumulative nameplate capacity located in one or more Low-Income Communities as defined in section 48(e)(2)(A)(iii)(I).

The Treasury Department and the IRS may consider other changes to the definition of a QREC in future guidance based on updated market information and what is administratively feasible for the Program.

Another commenter suggested that the definition of QREC be revised to provide that the 51 percent ownership requirement applies as an average over the life of the project because of tax credit equity partnerships that may change facility ownership for a period of time.

In response to these comments, the Treasury Department and the IRS have clarified through additional language in the final regulations that a partnership for Federal income tax purposes is eligible for ASC consideration so long as an entity that meets the Ownership Criteria has at least a one percent interest (either directly or indirectly) in each material item of partnership income, gain, loss, deduction, and credit of the partnership that owns the qualified solar or wind facility and is a managing member or general partner (or similar title) under State law of the partnership (or directly owns 100 percent of the equity interests in the managing member or general partner) at all times during the existence of the partnership. Therefore, there is no need to revise the 51 percent ownership requirement as it applies as an average over the life of the project as the commenter suggests. This also allows more flexibility for all applicants that meet the Ownership Criteria to enter financing arrangements such as tax equity partnerships.

This commenter also suggested that the definition of Renewable Energy Cooperatives be revised to require not only that each member have an equal voting right, but also that each member have rights to profit distributions based on patronage as defined by the proportion of either (i) volume of energy or energy credits purchased (kWh), (ii) volume of financial benefits delivered ($), or (iii) volume of financial payments made ($), and in which at least 50 percent of the patronage in the qualified project is by cooperative members who are low-income households. The commenter noted that the second requested change clarifies that the Renewable Energy Cooperative as a whole does not need to be made up solely of low-income households, but only that for qualified projects that are seeking the Low-Income Bonus Credit, over 50 percent of the participating member interests (and corresponding member benefits) must accrue to households that qualify as low-income (as defined in section 48(e)(2)(C)).

One commenter stated, regarding Renewable Energy Cooperatives, that it may be difficult for cooperatives to ensure income verification of their members, and suggested adding eligibility pathways, potentially based on geography or charter documents, that retain an equity and justice focus while allowing greater flexibility.

Based on these comments, the Treasury Department and the IRS have modified the definition of Qualified Renewable Energy Cooperative in the final regulations to account for different energy cooperative models where profits could be distributed to members based on volume of energy, volume of financial benefits delivered, or volume of financial payments made. The modified language states that a Qualified Renewable Energy Cooperative is an entity that develops qualified solar and/or wind facilities and is either (1) a consumer or purchasing cooperative controlled by its members with each member having an equal voting right and with each member having rights to profit distributions based on patronage as defined by the proportion of either (i) volume of energy or energy credits purchased (kWh), (ii) volume of financial benefits delivered ($), or (iii) volume of financial payments made ($), and in which at least 50 percent of the patronage in the qualified project is by cooperative members who are low-income households (as defined in section 48(e)(2)(C)) or (2) a worker cooperative controlled by its worker-members with each member having an equal voting right.

One commenter expressed that qualified tax-exempt entity should not include all section 501(c)(3) entities without additional guardrails. This commenter further suggests that if QRECs are required to submit documentation of “general business purpose,” then section 501(c)(3) organizations applying as a qualified tax-exempt entity should be required to provide minimal documentation showing relevant charitable purposes. This commenter additionally requested clarification about the manner of application for tax-exempt entities in Puerto Rico and other territories. Similarly, one commenter noted that many large corporations have section 501(c)(3) organizations that could deploy renewable energy projects without tax credits but will be eligible under the definition in the Proposed Rules. This commenter proposed adding to the definition the following requirements: annual gross receipts of no more than $30.4 million (consistent with recommendations for QRECs); prior experience owning, operating, or consulting on a renewable energy project; and an organizational mission statement and/or values that show alignment with the Program.

One commenter requested more clarity on how Tribal enterprises, as well as Tribal governments, political sub-divisions, and agencies or instrumentalities thereof under the qualified tax-exempt entity definition and Tribally owned QRECs can satisfy the Ownership Criteria.

The Treasury Department and the IRS have not adopted any changes in the final regulations regarding qualified tax-exempt entities. The addition of guardrails such as requiring a particular business or charitable purpose is infeasible. All tax-exempt organizations that qualify for ASC will need to demonstrate a charitable purpose through their tax-exempt designation. The Treasury Department and the IRS anticipate that a wide variety of qualified tax-exempt entities may participate in the Program that may include community-based organizations, educational institutions of all sizes, and State and local governments, among others. Accordingly, there is no one business or charitable purpose for qualified tax-exempt entities that would apply to the range of entities that support meeting the stated goals of the Program. The Treasury Department and the IRS may consider changes in future guidance based on updated market information

and what is administratively feasible for the Program. The Treasury Department and the IRS are also providing clarity through modifications in the definition of Tribal enterprise, and the circumstances in which Tribal governments, political sub-divisions, and agencies or instrumentalities thereof would meet the criteria of the qualified tax-exempt entity definition and other Ownership Criteria based on a variety of comments provided by Tribes.

B. Geographic Criteria

The Proposed Rules provided that the Geographic Criteria category is based on where the facility will be placed in service. To meet the Geographic Criteria, a facility would need to be located in a PPC

7

or in a census tract that is designated in the CEJST as disadvantaged based on whether the tract is either (a) greater than or equal to the 90th percentile for energy burden and is greater than or equal to the 65th percentile for low income, or (b) greater than or equal to the 90th percentile for PM

2.5

exposure and is greater than or equal to the 65th percentile for low income.

8

The Proposed Rules provided that applicants who meet the Geographic Criteria at the time of application are considered to continue to meet the Geographic Criteria for the duration of the recapture period, unless the location of the facility changes.

7

https://www.ers.usda.gov/data-products/poverty-area-measures/.

8

https://screeningtool.geoplatform.gov/en/#3/33.47/-97.5.

The CEJST website provides further detail on the terms used in identifying census tracts for the Energy category. “Energy cost” is defined as “Average household annual energy cost in dollars divided by the average household income.” PM

2.5

is defined as “Fine inhalable particles with 2.5 or smaller micrometer diameters. The percentile is the weight of the particles per cubic meter.” “Low income” is defined as “Percent of a census tract's population in households where household income is at or below 200% of the Federal poverty level, not including students enrolled in higher education.” See Methodology & data—Climate & Economic Justice Screening Tool (

geoplatform.gov

).

The Proposed Rules defined a PPC generally as any county where 20 percent or more of residents have experienced high rates of poverty over the past 30 years. For the purposes of the Program, the Proposed Rules provided that the PPC measure adopted by the USDA should be used to make this determination. The most recent measure, which would apply for the 2023 Program year, incorporates poverty estimates from the 1980, 1990, 2000 censuses, and 2007-11 ACS 5-year average.

Generally, commenters were supportive of the Geographic Criteria, including several commenters who had concerns with Ownership Criteria. However, one commenter stated that the Geographic Criteria conflict with existing Federal housing policy because it would encourage facilities to be built in connection with housing in certain areas, rather than supporting low-income residents no matter where they live. Another commenter stated that the Geographic Criteria is imprecise because it does not take into account disadvantaged communities in certain areas, especially those that are highly disadvantaged but border affluent communities.

Several commenters on behalf of Tribes stated that Geographic Criteria should not be applied to Category 2 Projects. However, a few Tribal commenters asked that the Treasury Department and the IRS retain Geographic Criteria for Category 3 and Category 4 projects that are located on Indian land so that Tribal projects can better compete. In response to these comments, the Treasury Department and the IRS have decided to not include Geographic Criteria as an ASC for Category 2 but maintain the use of Geographic Criteria as an ASC as stated in the Proposed Rules in all other categories.

Another commenter provided several suggestions for revising the Geographic Criteria, stating that the Treasury Department and the IRS should consider broadening the Geographic Criteria by including all Indian land or not applying additional Geographic Criteria to them; adding LIHTC and New Markets Tax Credit designations; applying all or at least more of CEJST's burden thresholds as well as the Environmental Protection Agency's EJScreen's thresholds; allowing State screening tools and maps; providing for community self-nomination; or perhaps including adjacent tracts.

Another commenter, providing a comment on Category 3 projects, generally supported the use of Geographic Criteria to prioritize allocations, but recommended reconsideration of the use of the PPCs as a poverty measure. This commenter stated that the PPCs provide data at a county-level designation and that this masks significant variation within counties and does not capture persistent poverty within counties not registering as PPCs. This commenter instead recommended that the LIHTC Qualified Census Tract geographic definition be utilized as an option to determine whether a project meets the Geographic Criteria, stating that the QCT designation denotes census tracts where either (1) 50 percent or more of the households have an income less than 60 percent of the Area Median Gross Income, or (2) the poverty rate is over 25 percent. One Tribal commenter recommended that the Treasury Department and the IRS use a geographic determination based on the LIHTC, or the NMTC because Tribes have been using these to build new Tribal housing or invest in clean energy. Additionally, another commenter suggested that the Geographic Criteria should be expanded to include: disadvantaged communities in other burdened categories; a process for communities to be recognized as communities with environmental justice concerns based on State environmental justice screening tools; and a self-nomination process for communities to submit additional information to demonstrate that they are communities with environmental justice concerns that may not be captured by CEJST or other screening tools. This commenter additionally requested the provision of a publicly accessible mapping tool to identify the areas that meet the geographic criteria.

After consideration of these comments, the Treasury Department and the IRS have not adopted the suggestions. The intent of the Geographic Criteria as applied to Category 3 and to other categories is to encourage the construction of energy facilities in areas across the country that have high energy costs and that might otherwise suffer from underinvestment. This includes areas of the country where affordable housing currently exists but where the adoption of renewable energy technology may be challenging. The Treasury Department and the IRS have determined ASC based on their applicability across all categories. While LIHTC Qualified Census Tract as a Geographic criteria may meet some goals of the program, it is a methodology that is used primarily in the LIHTC industry and not widely known or used by other housing programs or in energy programs. Therefore, its inclusion as a Geographic Criteria is not adopted. Additionally, an allocation based on Geographic Criteria in Category 3 for a facility built in connection with an existing Federally subsidized housing building does not impact the Federal housing policy with regards to siting of the housing itself. The Treasury Department and the IRS may consider other metrics for Geographic Criteria in future guidance that help achieve the Program goals and are administratively feasible for the Program. A publicly accessible mapping tool will be available on DOE's Program website.

IX. Sub-Reservation of Allocation for Facilities Located in a Low-Income Community

The Proposed Rules provided that the 700 MW Capacity Limitation reservation for facilities seeking a Category 1 allocation would be sub-divided with 560 MW reserved specifically for eligible residential BTM facilities, including rooftop solar. The Proposed Rules provided that the remaining 140 MW of Capacity Limitation would be available for applicants with FTM facilities as well as non-residential BTM facilities.

Several commenters opposed to the reservation of capacity in Category 1 for BTM residential facilities. Generally, these commenters requested that the 560 MW capacity reserved for BTM residential facilities be eliminated (leaving a general 700 MW reservation) or that the amounts should be revised. The main concern of commenters is that the proposed 140 MW will provide very limited eligibility for FTM projects, including community solar projects that would otherwise qualify under the statute. One commenter strongly recommended against subdividing the Category 1 Capacity Limitation into BTM and FTM MW blocks. This commenter stated that a BTM project typically requires a credit review and/or a long-term financial commitment from the customer, which the commenter believes is antithetical to the objective of a Program intended to ease financial burdens on low-income households, not impose them. The commenter suggested to instead require that a certain percentage of all generating facilities' capacity be allocated to low-income, residential subscribers. Another commenter pointed out that location is the only requirement in Category 1 under the statute, and that the focus on BTM residential facilities does not fit with the statute.

Other commenters have noted that this focus on BTM residential facilities limits the potential of other applicants to benefit from Category 1. For example, at least two commenters have noted that the prioritization of residential facilities limits the potential for non-profit organizations and municipalities from obtaining an allocation for facilities built to power schools, libraries, food pantries, shelters, houses of worship, education facilities, local community-based non-profits, assisted living facilities, performing arts centers, and community development corporations. One of these commenters explains that these organizations play crucial roles in their communities, providing necessary services and support to the residents of the surrounding area, and the sub-reservation overlooks the fact that commercial and industrial scale solar benefits m

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