us-irs-notices-irb-2023-52-pdf•Internal Revenue Bulletin 2023-52 (PDF rendition): IRS Notices
Internal Revenue Bulletin 2023-52 (PDF rendition): IRS Notices
us-irs-notices-irb-2023-52-pdfInternal Revenue Bulletin 2023-52 (PDF rendition): IRS NoticesGuidance
Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing. Whole bulletin rendition: numbered items are identified below; other legal material and publisher context remain included. This is not a new standalone advance release.
Bulletin No. 2023–52 December 26, 2023 HIGHLIGHTS OF THIS ISSUE These synopses are intended only as aids to the reader in identifying the subject matter covered. They may not be relied upon as authoritative interpretations. ADMINISTRATIVE Rev. Proc. 2023-39, page 1590. This revenue procedure provides specifications for the pri- vate printing of red-ink and black-and-white substitutes for the August 2023 revisions of Forms W-2c and W-3c. This revenue procedure will be produced as the next revision of Publication 1223. Rev. Proc. 2016-20, 2016-13 IRB dated March 28, 2016, is superseded. EMPLOYEE PLANS Notice 2023-79, page 1581. This notice sets forth the 2023 Required Amendments List (2023 RA List). The 2023 RA List applies to both indi- vidually designed plans qualified under section 401(a) of the Internal Revenue Code (qualified individually designed plans) and individually designed plans that satisfy the requirements of section 403(b) (section 403(b) individually designed plans). EXEMPT ORGANIZATIONS Announcement 2023-35, page 1615. Revocation of IRC 501(c)(3) Organizations for failure to meet the code section requirements. Contributions made to the organizations by individual donors are no longer deductible under IRC 170(c). INCOME TAX Notice 2023-80, page 1583. This notice announces that Treasury and the IRS intend to issue proposed regulations to address the application of the foreign tax credit and related rules and the dual consolidated loss (DCL) rules to certain types of taxes described in the GloBE Model Rules. This notice also extends and modifies the temporary relief described in Notice 2023-55 for deter- mining whether a foreign tax is eligible for a foreign tax credit under §§ 901 and 903. REG-132569-17, page 1616. This document contains proposed regulations that would amend the regulations relating to the energy credit for the taxable year in which eligible energy property is placed in service. This document also withdraws and reproposes, for additional clarity, portions of previously proposed regulations regarding the increased energy credit amount available if pre- vailing wage and registered apprenticeship requirements are met. Rev. Proc. 2023-41, page 1607. The revenue procedure sets forth the unpaid loss discount factors for the 2023 accident year for purposes of section 846 of the Internal Revenue Code. The revenue procedure also prescribes the salvage discount factors for the 2023 accident year, which must be used to compute discounted estimated salvage recoverable under section 832 of the Internal Revenue Code. Finding Lists begin on page ii. The IRS Mission Provide America’s taxpayers top-quality service by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all. Introduction The Internal Revenue Bulletin is the authoritative instrument of the Commissioner of Internal Revenue for announcing offi- cial rulings and procedures of the Internal Revenue Service and for publishing Treasury Decisions, Executive Orders, Tax Conventions, legislation, court decisions, and other items of general interest. It is published weekly. It is the policy of the Service to publish in the Bulletin all sub- stantive rulings necessary to promote a uniform application of the tax laws, including all rulings that supersede, revoke, modify, or amend any of those previously published in the Bulletin. All published rulings apply retroactively unless other- wise indicated. Procedures relating solely to matters of inter- nal management are not published; however, statements of internal practices and procedures that affect the rights and duties of taxpayers are published. Revenue rulings represent the conclusions of the Service on the application of the law to the pivotal facts stated in the revenue ruling. In those based on positions taken in rul- ings to taxpayers or technical advice to Service field offices, identifying details and information of a confidential nature are deleted to prevent unwarranted invasions of privacy and to comply with statutory requirements. Rulings and procedures reported in the Bulletin do not have the force and effect of Treasury Department Regulations, but they may be used as precedents. Unpublished rulings will not be relied on, used, or cited as precedents by Service personnel in the disposition of other cases. In applying published rulings and procedures, the effect of subsequent legislation, regulations, court decisions, rulings, and procedures must be considered, and Service personnel and others concerned are cautioned against reaching the same conclusions in other cases unless the facts and circumstances are substantially the same. The Bulletin is divided into four parts as follows: Part I.—1986 Code. This part includes rulings and decisions based on provisions of the Internal Revenue Code of 1986. Part II.—Treaties and Tax Legislation. This part is divided into two subparts as follows: Subpart A, Tax Conventions and Other Related Items, and Subpart B, Legislation and Related Committee Reports. Part III.—Administrative, Procedural, and Miscellaneous. To the extent practicable, pertinent cross references to these subjects are contained in the other Parts and Subparts. Also included in this part are Bank Secrecy Act Administrative Rulings. Bank Secrecy Act Administrative Rulings are issued by the Department of the Treasury’s Office of the Assistant Secretary (Enforcement). Part IV.—Items of General Interest. This part includes notices of proposed rulemakings, disbar- ment and suspension lists, and announcements. The last Bulletin for each month includes a cumulative index for the matters published during the preceding months. These monthly indexes are cumulated on a semiannual basis, and are published in the last Bulletin of each semiannual period. The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate. December 26, 2023 Bulletin No. 2023–52 Part III 2023 Required Amendments List for Individually Designed Qualified and Section 403(b) Plans Notice 2023-79 I. PURPOSE This notice sets forth the 2023 Required Amendments List (2023 RA List). The Required Amendments List (RA List) applies to both individually designed plans qualified under section 401(a) of the Internal Revenue Code (Code) (qual- ified individually designed plans) and individually designed plans that satisfy the requirements of section 403(b) (sec- tion 403(b) individually designed plans). Pursuant to sections 5.03(1)(c) and 6.01 of Rev. Proc. 2022-40, 2022-47 IRB 487, December 31, 2025, generally is both the last day of the remedial amend- ment period and the plan amendment deadline with respect to (1) a disqual- ifying provision arising as a result of a change in qualification requirements that appears on the 2023 RA List, and (2) a form defect arising as a result of a change in section 403(b) requirements that appears on the 2023 RA List. Later dates may apply to a governmental plan within the meaning of section 414(d) pursuant to section 5.03(2)(c) of Rev. Proc. 2022- 40. References to qualification require- ments and to section 403(b) requirements in Parts III and IV of this notice are referred to, separately and collectively, as “requirements.” 1 II. BACKGROUND Section 401(b) of the Code provides a remedial amendment period during which a plan may be amended retroac- tively to comply with the qualification requirements under section 401(a). Treas. Reg. § 1.401(b)-1 describes the disqual- ifying provisions that may be amended retroactively and the remedial amendment period during which retroactive amend- ments may be adopted. That regulation also grants the Commissioner of Internal Revenue the discretion to designate cer- tain plan provisions as disqualifying provisions and to extend the remedial amendment period in guidance published in the Internal Revenue Bulletin (IRB). Section 5 of Rev. Proc. 2019-39, 2019-42 IRB 945, as modified by section III.B.2(e) of Notice 2020-35, 2020-25 IRB 948, establishes a system of recur- ring remedial amendment periods for section 403(b) individually designed plan form defects first occurring after June 30, 2020. Section 5.03(1)(c) of Rev. Proc. 2022- 40 provides generally that, except as other- wise provided by statute or in regulations or other guidance published in the IRB, in the case of an individually designed qual- ified or section 403(b) plan that is not a governmental plan within the meaning of section 414(d), the remedial amendment period for (1) a disqualifying provision or (2) a form defect first occurring after June 30, 2020, that arises as a result of a change in qualification requirements or sec- tion 403(b) requirements, as applicable, expires on the last day of the second cal- endar year that begins after the issuance of the RA List on which the change in qual- ification requirements or section 403(b) requirements appears. Section 5.03(2)(c) provides a special rule for governmental plans that may further extend the remedial amendment period in some cases. Section 6.01 of Rev. Proc. 2022-40 pro- vides that the plan amendment deadline with respect to (1) a disqualifying provi- sion in a qualified individually designed plan, or (2) a form defect first occurring after June 30, 2020, in a section 403(b) individually designed plan is the date on which the remedial amendment period expires in accordance with section 5 of Rev. Proc. 2022-40 with respect to that disqualifying provision or form defect. Section 7 of Rev. Proc. 2022-40 pro- vides that the Department of the Treasury (Treasury Department) and the IRS pub- lish an annual RA List. In general, a change in qualification requirements or section 403(b) requirements will not appear on an RA List until guidance with respect to that change (including, any model amend- ment, if applicable) has been provided in regulations or in other guidance published in the IRB. However, in the discretion of the Treasury Department and the IRS, a change in qualification requirements or section 403(b) requirements may be included on an RA List in other circum- stances, such as in cases in which a stat- utory change is enacted and the Treasury Department and the IRS anticipate that no guidance will be issued. The remedial amendment period applicable to a disqualifying provision or form defect arising as a result of a change in qualification requirements or section 403(b) requirements may be extended beyond the date that normally would apply to an item included on an RA List, if, for example, a statute, regu- lation, or other guidance published in the IRB provides for a later deadline. Section 501 of the SECURE 2.0 Act 2 provides, in general, that a retirement plan or annuity contract will be treated as being operated in accordance with the terms of the plan during a specified period and, except as provided by the Secretary of the Treasury (or the Secretary’s delegate), a retirement plan will not fail to satisfy the anti-cutback requirements of section 411(d)(6) of the Code or section 204(g) of the Employee Retirement Income Security Act of 1974, Pub. L. 93-406, 88 Stat. 829, as amended (ERISA), by reason of a plan amendment made pur- suant to any amendment made by the SECURE 2.0 Act or pursuant to any regulation issued by the Secretary of the 1 In order to help plan sponsors achieve operational compliance with changes in requirements, the IRS provides the Operational Compliance List, which is a list of changes in both qualification requirements and section 403(b) requirements that are effective during a calendar year, on the IRS website at https://www.irs.gov/retirement-plans/operational-compliance-list. See generally section 8 of Rev. Proc. 2022-40. 2 Division T of the Consolidated Appropriations Act, 2023, Pub. L. 117-328, 136 Stat. 4459 (2022), known as the SECURE 2.0 Act of 2022 (SECURE 2.0 Act). Bulletin No. 2023–52 1581 December 26, 2023 Treasury or the Secretary of Labor (or a delegate of either such Secretary) under the SECURE 2.0 Act, provided that: (1) the amendment is adopted no later than the last day of the first plan year beginning on or after January 1, 2025, or, for an applicable collectively bargained plan (a plan maintained pursuant to one or more collective bargaining agreements between employee representatives and one or more employers ratified before December 29, 2022), or for a govern- mental plan (within the meaning of sec- tion 414(d) of the Code), the last day of the first plan year beginning on or after January 1, 2027, or such later date as the Secretary may prescribe (the section 501 date); (2) the amendment applies retroac- tively to the effective date of the SECURE 2.0 Act provision or the regulations there- under (or, in the case of an amendment not required by a provision of the SECURE 2.0 Act or the regulations thereunder, the effective date specified by the plan); and (3) the plan or contract is operated as if the amendment were in effect during the period beginning on the effective date of the SECURE 2.0 Act provision or the regulations thereunder (or, in the case of an amendment not required by a provision of the SECURE 2.0 Act or the regulations thereunder, the effective date specified by the plan or contract) and ending on the section 501 date or, if earlier, the date the amendment is adopted. Section 501(c) of the SECURE 2.0 Act modifies section 601(b)(1) of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), 3 sections 2202(c)(2)(A) and 2203(c) (2)(B)(i) of the Coronavirus Aid, Relief, and Economic Security Act, and section 302(d)(2)(A) of Title III of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 4 to extend plan amendment dead- lines with respect to these sections to coor- dinate with the plan amendment deadlines under section 501 of the SECURE 2.0 Act, as applicable. 5 III. CONTENT AND ORGANIZATION OF RA LIST In general, an RA List includes statu- tory and administrative changes in require- ments that are first effective during the plan year in which the list is published. 6 However, an RA List does not include: • Guidance issued or legislation enacted after the list has been prepared; • Statutory changes in requirements for which the Treasury Department and the IRS expect to issue guidance that would be included on an RA List issued in a future year; • Changes in requirements that permit (but do not require) optional plan provisions, in contrast to changes in requirements that cause existing plan provisions (which may include optional plan provisions previously adopted) to become disqualifying provisions or section 403(b) form defects; 7 or • Changes in the tax laws affect- ing qualified individually designed plans or section 403(b) individually designed plans that do not change the requirements (such as changes to the tax treatment of plan distributions, or changes to the funding requirements for qualified individually designed plans). The RA List is divided into two parts. Part A covers changes in requirements that generally would require an amendment to most plans or to most plans of the type affected by the change. Part B includes changes in requirements that the Treasury Department and the IRS anticipate will not require amendments to most plans but might require an amend- ment because of an unusual plan provi- sion in a particular plan. For example, if a change affects a particular requirement that most plans incorporate by reference, Part B would include that change because a partic- ular plan might not incorporate the require- ment by reference and, thus, might include language inconsistent with the change. Annual, monthly, or other periodic changes to (1) the various dollar lim- its that are adjusted for cost of living increases as provided in section 415(d) or other Code provisions, (2) the spot segment rates used to determine the applicable interest rate under sec- tion 417(e)(3), and (3) the applicable mortality table under section 417(e) (3), are treated as included on the RA List for the year in which such changes are effective even though they are not directly referenced on that RA List. The Treasury Department and the IRS antic- ipate that few plans have language that will need to be amended on account of these changes. The fact that a change in a requirement is included on the RA List does not neces- sarily mean that a plan must be amended as a result of that change. Each plan spon- sor must determine whether a particu- lar change in a requirement requires an amendment to its plan. IV. 2023 REQUIRED AMENDMENTS LIST Part A. Changes in requirements that gen- erally would require an amend- ment to most plans or to most plans of the type affected by the change. • None Part B. Other changes in requirements that may require an amendment. • None V. DRAFTING INFORMATION The principal author of this notice is Tom Morgan of the Office of Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes). For further infor- mation regarding this notice, contact Mr. Morgan at (202) 317-6700 (not a toll-free number). 3 Division O of the Further Consolidated Appropriations Act, 2020, Pub. L. 116-94, 133 Stat. 2534 (2019). 4 Division EE of the Consolidated Appropriations Act, 2021, Pub. L. 116-260, 134 Stat. 1182 (2020). 5 Section G of Notice 2020-68, 2020-38 IRB 567, extended the deadline to amend a plan to reflect section 104 of Division M of the Further Consolidated Appropriations Act, known as the Bipartisan American Miners Act of 2019, to coordinate with the plan amendment deadlines provided in section 601 of the SECURE Act. 6 RA Lists also may include changes in requirements that were first effective in a prior year that were not included on a prior RA List under certain circumstances, such as changes in require- ments that were issued or enacted after the prior year’s RA List was prepared. 7 The remedial amendment period and plan amendment deadline for discretionary changes to the terms of an individually designed qualified or section 403(b) plan are governed by sections 5.03(1)(b), 5.03(2)(b), and 6.02 of Rev. Proc. 2022-40. These deadlines for discretionary changes are not affected by the inclusion of a change in requirements on an RA List. December 26, 2023 1582 Bulletin No. 2023–52 Bulletin No. 2023–52 1583 December 26, 2023 Guidance Regarding the Foreign Tax Credit and Dual Consolidated Losses in Relation to the GloBE Model Rules, and Extension and Modification of Temporary Relief in Notice 2023-55 Notice 2023-80 SECTION 1. OVERVIEW .01 Purpose. This notice announces that the Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) intend to issue proposed regulations under §§ 59(l), 78, 704, 901, 903, 951A, 954, 960, and 1503(d) of the Internal Revenue Code (Code) 1 to address the application of those provisions, includ- ing the foreign tax credit rules and the dual consolidated loss rules, to certain types of taxes described in the “Tax Challenges Arising from the Digitalisation of the Economy - Global Anti-Base Erosion Model Rules (Pillar Two)” (GloBE Model Rules). 2 The Treasury Department and the IRS anticipate that the proposed regula- tions will be consistent with the guidance provided in sections 2 and 3 of this notice. This notice also extends the relief period for the temporary relief described in Notice 2023-55 in determining whether a foreign tax is eligible for a foreign tax credit under §§ 901 and 903. In addition, this notice addresses the application of the temporary relief with respect to partner- ships and their partners. .02 Overview of the GloBE Model Rules. The GloBE Model Rules create a coordinated system of minimum taxa- tion intended to ensure that Multinational Enterprise Groups (MNE Groups) with annual revenue of EUR 750 million or more pay a minimum level of tax on the income arising in each jurisdiction in which they operate. 3 Certain jurisdictions have enacted, and others have proposed, legislation to implement the GloBE Model Rules for the IIR and Qualified Domestic Minimum Top-up Tax (QDMTT), effec- tive for Fiscal Years beginning on or after December 31, 2023, and for the UTPR, effective for Fiscal Years beginning on or after December 31, 2024. 4 This notice does not provide guidance regarding the UTPR, except as provided in sections 2.03 and 3.03 of this notice. The Treasury Department and the IRS continue to ana- lyze issues related to the UTPR and intend to issue additional guidance. Under the GloBE Model Rules, an in-scope MNE Group must calculate its Effective Tax Rate (ETR) for each juris- diction in which it operates. The ETR determination for a jurisdiction involves calculating the Net GloBE Income in that jurisdiction, based on the net income or loss reflected on financial statements with certain adjustments, and Adjusted Covered Taxes, which is a measure of taxes paid with respect to that income (including, when computing the ETR for the IIR or UTPR, cross-border taxes such as those imposed on income of a controlled for- eign corporation (CFC) or foreign branch located in the jurisdiction). If the ETR for a jurisdiction is below the 15% Minimum Rate, Top-up Tax may be imposed and col- lected under the QDMTT, IIR, and UTPR. The amount of Top-up Tax is determined by multiplying the Top-up Tax Percentage (the excess of 15% over the ETR in the jurisdiction) by the Excess Profits (the Net GloBE Income in such jurisdiction that exceeds a Substance-based Income Exclusion). A jurisdiction that enacts a QDMTT will collect tax with respect to low-taxed income in that jurisdiction. Any Top-up Tax not collected under a QDMTT may be collected under the IIR or UTPR. Jurisdictions enacting the QDMTT, IIR, and UTPR into their domestic law may separately enact each such tax or may amend their existing corporate income tax. The GloBE Model Rules operate so that taxes are imposed on Net GloBE Income in the following order of priority: (1) Covered Taxes (other than Controlled Foreign Company Tax Regimes (CFC Tax Regimes) and certain cross-border taxes); (2) QDMTT; (3) CFC Tax Regimes and certain other cross-border taxes; (4) IIR; and (5) UTPR. Thus, for example, a QDMTT is computed without regard to taxes paid pursuant to a CFC Tax Regime. SECTION 2. GLOBE MODEL RULES AND THE FOREIGN TAX CREDIT .01 Background. Section 901 generally allows a credit for the amount of any income, war prof- its, and excess profits taxes (collectively, foreign income taxes) paid or accrued during the taxable year to any foreign country or to any territory of the United States, and in the case of a domestic cor- poration, the taxes deemed to have been paid under § 960. Section 903 provides that foreign income taxes include a tax paid in lieu of a generally-imposed for- eign income tax. This section 2 describes rules that would address the treatment of cer- tain taxes, including IIRs, UTPRs, and QDMTTs, under §§ 59(l), 78, 275, 704, 901, 903, 951A, 954, and 960. For pur- poses of section 2 of this notice, the term IIR, the term UTPR, and the term QDMTT mean a tax imposed under a foreign tax law 5 that is consistent with the IIR, UTPR, and QDMTT, respectively, described in the GloBE Model Rules. .02 Final Top-up Tax. (1) In general. The Treasury Department and the IRS intend to issue proposed regulations consistent with the guidance provided in this section 2.02, which describes the treatment of final top-up taxes under §§ 59(l), 78, 275, 704, 901, 903, 951A, 954, and 960. 1 Unless otherwise specified, all “section” or “§” references are to sections of the Code or the Income Tax Regulations (26 CFR part 1). 2 Org. for Econ. Coop. & Dev. [OECD], Tax Challenges Arising from the Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two) (Dec. 14, 2021), https://www. oecd-ilibrary.org/taxation/tax-challenges-arising-from-digitalisation-of-the-economy-global-anti-base-erosion-model-rules-pillar-two_782bac33-en. 3 Capitalized terms used in this notice, but not defined herein, have the meanings ascribed to such terms under the GloBE Model Rules. 4 Under the European Union (EU) Directive requiring the adoption of the GloBE Model Rules, EU Member States will apply the UTPR for years beginning on or after December 31, 2023 but only in limited circumstances. See Council Directive 2022/2523, art. 50, 2022 OJ (L 328) 1, 55. 5 The term “foreign tax law” in this notice has the meaning in § 1.901-2(g)(4). December 26, 2023 1584 Bulletin No. 2023–52 (2) Definition of final top-up tax. A foreign income tax (tested tax) is a final top-up tax if, in computing the tested tax, the foreign tax law takes into account: (a) the amount of tax imposed on the direct or indirect owners of the entity subject to the tested tax by other countries (including the United States) with respect to the income subject to the tested tax, or (b) in the case of an entity subject to the tested tax on income attributable to its branch in the foreign country imposing the tested tax, the amount of tax imposed on the entity by its country of residence with respect to such income. (3) Treatment of a final top-up tax under §§ 901 and 59(l). No credit is allowed under §§ 901 or 59(l) to a person for a final top-up tax if, under the foreign tax law, any amount of United States federal income tax liability of the person would be taken into account in comput- ing the final top-up tax (without regard to whether the person has any amount of United States federal income tax liability that, in fact, is taken into account in such computation). (4) Treatment of a final top-up tax paid by a partnership or CFC. In general, a final top-up tax is treated as if it were a creditable tax at the partnership and CFC level, with the disallowance of the credit pursuant to section 2.02(3) of this notice applying at the level of the partner or U.S. shareholder, as applicable. This treatment is intended to facilitate appropriate results where a final top-up tax is creditable as to one partner or U.S. shareholder of a partnership or CFC, as applicable, but not as to another. Further, a final top-up tax is not taken into account in determining whether the high-tax exception to foreign base company income in § 1.954-1(d) or the high-tax exclusion from tested income in § 1.951A-2(c)(7) applies. (a) Creditable foreign tax expenditure. A final top-up tax is treated as a creditable foreign tax expenditure under § 1.704- 1(b)(4)(viii)(b). (b) Eligible current year tax. A final top-up tax is treated as an eligible current year tax under § 1.960-1(b)(5). (c) Application of the high-tax excep- tions under §§ 951A and 954(b)(4). In computing the effective rate of foreign income tax under § 1.954-1(d)(2) and § 1.951A-2(c)(7)(vi), a final top-up tax is excluded from the amount of foreign income taxes described in § 1.954-1(d) (2)(i) and § 1.951A-2(c)(7)(vi)(A), and increases the amount of the net item of income described in § 1.951-1(d)(2)(ii) and the amount of the tentative tested income item described in § 1.951A-2(c) (7)(vi)(B), as applicable. (5) Application of §§ 78 and 275(a)(4). If a taxpayer chooses with respect to any taxable year to claim a credit for foreign income taxes, absent a specific statutory provision to the contrary (such as § 901(j) (3)), the gross-up rule of § 78 and the deduction disallowance rule of § 275(a) (4) apply to any foreign income tax paid or accrued in such taxable year regardless of whether a foreign tax credit is allowed for the particular tax. The guidance in this section would confirm that result in the case of a final top-up tax, such as an IIR that is a foreign income tax. As a result, a taxpayer who chooses to credit foreign income taxes would be required to include in gross income under § 78 an amount equal to the amount of a final top-up tax deemed paid by the taxpayer under §§ 960(a), (b), and (d), and would not be able to claim a deduction for a final top-up tax under § 275(a)(4). (a) Section 78 gross-up amount. Section 78 applies to a final top-up tax deemed paid by a domestic corporation that chooses to have the benefits of subpart A of part III of subchapter N for any taxable year. (b) Section 275(a)(4) deduction dis- allowance. Section 275 applies to deny a deduction for a final top-up tax to any person that chooses to take to any extent the benefits of § 901. (6) Examples. The following examples illustrate the application of this section 2.02. (a) Example 1—IIR that is a foreign income tax. (i) Facts. Country X imposes an IIR on certain entities resident in Country X. The IIR imposed by Country X is a foreign income tax within the meaning of § 1.901-2(a) and (b). Under Country X tax law, in computing the amount of the IIR, the foreign tax liability of the direct and indirect owners of the Country X taxpayers that relates to income subject to the IIR is taken into account if those owners are part of the same MNE Group (as defined under Country X tax law) as the Country X taxpayers. USP is a domestic corporation that owns all the stock of CFCX, a CFC that is organized in, and is a tax resident of, Country X. CFCX owns all the stock of CFCY, a CFC that is organized in, and is a tax resident of, Country Y. Under Country X tax law, USP is considered part of the same MNE Group as CFCX and CFCY, and, therefore, any U.S. tax liability of USP that relates to income sub- ject to the IIR is taken into account in computing the IIR. In 2024, CFCX is liable for 5u (units of Country X currency) of the Country X IIR. At all relevant times, 1u = $1. USP is deemed to pay $4 of the Country X IIR under § 960(d). USP chooses to credit foreign income taxes for 2024. (ii) Analysis. The Country X IIR is a final top-up tax because it is a foreign income tax that takes into account the amount of tax imposed by other coun- tries on the direct or indirect owners of the entity subject to the Country X IIR with respect to the income subject to the Country X IIR. No credit is allowed under § 901 to USP for the $4 of Country X IIR that USP is deemed to pay because, under Country X tax law, USP’s U.S. federal income tax liability may be taken into account in computing the Country X IIR. This result does not depend on whether USP has any amount of U.S. federal income tax liability or whether any of that liability is, in fact, taken into account in computing the Country X IIR. The amount included in USP’s income by reason of § 78 and § 1.78-1(a) is $5. (b) Example 2—Minority U.S. shareholder. (i) Facts. The facts are the same as in Example 1, except that: (i) USP and USM, a domestic corpora- tion, own 70% and 30%, respectively, of the stock of HoldCo, a CFC that is organized in, and is a tax res- ident of, Country A, and HoldCo owns all the stock of CFCX, (ii) USM is not considered part of the same MNE Group as USP, CFCX and CFCY under Country X tax law, (iii) CFCX is liable for 6.5u of the Country X IIR, and (iv) under § 960(d), USP is deemed to pay $3.64 of the Country X IIR, and USM is deemed to pay $1.56 of the Country X IIR. (ii) Analysis. Similar to the analysis in Example 1, the Country X IIR is a final top-up tax, and no credit is allowed under § 901 to USP for the $3.64 of Country X IIR that USP is deemed to pay because, under Country X tax law, USP’s U.S. federal income tax liability may be taken into account in computing the Country X IIR. USM, however, may be allowed a credit under § 901 for the $1.56 of the Country X IIR that USM is deemed to pay under § 960(d) because, under Country X tax law, no amount of USM’s U.S. federal income tax liability can be taken into account in computing the Country X IIR as USM is not considered part of the same MNE Group as CFCX. Under § 78 and § 1.78-1(a), the amount included in USP’s income is $4.55, and the amount included in USM’s income is $1.95. (c) Example 3—QDMTT that is a foreign income tax. (i) Facts. The facts are the same as in Example 1, except that Country Y imposes a QDMTT. The QDMTT imposed by Country Y is a foreign income tax within the meaning of § 1.901-2(a) and (b). Under Country Y tax law, in computing the amount of the QDMTT, the foreign tax liability of direct and indirect owners of the entity subject to the QDMTT is not taken into account. Therefore, any U.S. tax lia- bility of USP is not taken into account in computing the QDMTT. In 2024, CFCX is liable for no amount of Country X IIR, and CFCY is liable for 10y (units of Country Y currency) of Country Y QDMTT. At all relevant times, 1y= $1. USP is deemed to pay $8 of the Country Y QDMTT under § 960(d). Bulletin No. 2023–52 1585 December 26, 2023 (ii) Analysis. The Country Y QDMTT is not a final top-up tax because Country Y tax law does not take into account in computing the Country Y QDMTT the amount of tax imposed by other coun- tries on the direct and indirect owners of the entity subject to the Country Y QDMTT. Therefore, USP may be allowed a credit under § 901 for the $8 of Country Y QDMTT deemed paid under § 960(d). The amount included in USP’s income by reason of § 78 and § 1.78-1(a) is $10. .03 Separate Levy Rules. (1) In general. The Treasury Department and the IRS intend to issue proposed regulations consistent with the guidance provided in this section 2.03, which describes how the separate levy rules of § 1.901-2(d) apply with respect to an IIR, UTPR, and QDMTT. This treat- ment would reflect that the amount of tax imposed under an IIR, UTPR, or QDMTT is computed separately from any other levy imposed by a foreign country, and would ensure consistent treatment of an IIR, UTPR, and QDMTT regardless of the manner in which a foreign country enacts an IIR, UTPR, or QDMTT under its for- eign tax law. (2) Application of separate levy rules. Each of an IIR, UTPR, and QDMTT imposed by a foreign country is a separate levy within the meaning of § 1.901-2(d) from any other levy imposed by that coun- try, even if the country imposes the IIR, UTPR, or QDMTT by adjusting the base of any other levy (such as through an addi- tion to income or denial of deductions). .04 Determining the Taxpayer for a QDMTT. (1) In general. The Treasury Department and the IRS intend to issue proposed regulations consistent with the guidance provided in this section 2.04, which describes rules for determining the person by whom a QDMTT is considered paid under § 1.901-2(f) when a QDMTT is computed by reference to the income of two or more persons. (2) QDMTT on income of two or more persons. The legal lability for a QDMTT imposed on the income of two or more persons is determined under the rules of this section 2.04(2) through (4) rather than under § 1.901-2(f)(3) (regarding taxes imposed on combined income of two or more persons). If a QDMTT is computed by reference to the income of two or more persons, foreign tax law is considered to impose legal liability for the QDMTT on each person in proportion to the person’s QDMTT Allocation Key, as determined under this section 2.04(2). A person’s QDMTT Allocation Key is the product of (i) the excess (if any) of the QDMTT Rate over the person’s Separate Pre-QDMTT ETR, and (ii) the person’s Separate QDMTT Income (such terms as defined in section 2.04(3)). If a person’s Separate QDMTT Income is zero or less than zero, then the person’s QDMTT Allocation Key will be treated as zero. The rules of this section 2.04 apply regardless of how the foreign tax law allocates the QDMTT lia- bility among two or more persons, which person is obligated to remit the tax, which person actually remits the tax, or which person the foreign country could proceed against to collect the tax in the event all or a portion of the tax is not paid. (3) Definitions. The following defini- tions apply for purposes of this section 2.04. (a) Person. Person means an individ- ual or an entity (including a disregarded entity described in § 301.7701-2(c)(2) (i)) that is subject to a QDMTT imposed by a foreign country. In determining the amount of the QDMTT paid by an owner of a partnership or a disregarded entity, the rule described in section 2.04(2) first applies to determine the amount of the QDMTT paid by the partnership or dis- regarded entity, and then § 1.901-2(f)(4) applies to allocate the amount of such QDMTT to the owner. (b) QDMTT Rate. QDMTT Rate means the minimum effective tax rate (ETR), as stated in the foreign tax law, to which the actual ETR of a person or persons is compared for purposes of computing the QDMTT. (c) Separate Pre-QDMTT Taxes. A per- son’s Separate Pre-QDMTT Taxes means the taxes (whether positive or negative) of the person that are taken into account under the foreign tax law for purposes of computing the QDMTT. (d) Separate QDMTT Income. A per- son’s Separate QDMTT Income means the income or loss of the person that is taken into account under the foreign tax law for purposes of computing the QDMTT. (e) Separate Pre-QDMTT ETR. A per- son’s Separate Pre-QDMTT ETR means the person’s Separate Pre-QDMTT Taxes (whether positive or negative) divided by the person’s Separate QDMTT Income. (4) Separate QDMTT Income and Separate Pre-QDMTT Taxes. A per- son’s Separate QDMTT Income and a person’s Separate Pre-QDMTT Taxes are determined by reference to the rele- vant amounts (not reduced by negative amounts attributable to any other person) provided on any return, schedule or other document that, under the foreign tax law, must be filed or maintained for purposes of the QDMTT. If no return, schedule, or other document that provides a per- son’s Separate QDMTT Income and a person’s Separate Pre-QDMTT Taxes is required to be filed or maintained, then, a person’s Separate QDMTT Income and a person’s Separate Pre-QDMTT Taxes are determined by reference to the rel- evant amounts provided in the books of account regularly maintained by or on behalf of the person and used for pur- poses of computing the QDMTT. (5) Examples. The following examples illustrate the application of this section 2.04(2) through (4). (a) Example 1—QDMTT imposed on two or more persons. (i) Facts. Country X has enacted a QDMTT. Under Country X tax law, entities that are resident in, or have a taxable presence in, Country X and that are members of the same MNE Group, are jointly and severally liable for the QDMTT. USP is a United States person that owns all of the stock of each of CFC1 and CFC2, each of which is a CFC that is a tax resident of Country X. CFC1 and CFC2 are members of the same MNE Group under Country X tax law. In Year 1, CFC1’s Separate QDMTT Income is 100u (units of Country X currency) and CFC1’s Separate Pre-QDMTT Taxes is 5u. In the same year, CFC2’s Separate QDMTT Income is 50u, and CFC2’s Separate Pre-QDMTT Taxes is 5u. The QDMTT Rate in Country X is 15%. Country X imposes 12.5u of QDMTT with respect to CFC1 and CFC2 collectively. (ii) Analysis. Under Country X tax law, the amount of the QDMTT is computed by reference to the income of both CFC1 and CFC2. Under sec- tion 2.04(2) through (4) of this notice, the 12.5u of the Country X QDMTT is allocated between CFC1 and CFC2 in proportion to each person’s QDMTT Allocation Key. CFC1’s QDMTT Allocation Key is 10u ((15% - (5u / 100u)) x 100u), and CFC2’s QDMTT Allocation Key is 2.5u ((15% - (5u / 50u)) x 50u). Accordingly, 10u of the Country X QDMTT (12.5u x (10u / 12.5u)) is allocated to CFC1, and 2.5u of the Country X QDMTT (12.5u x (2.5u / 12.5u)) is allocated to CFC2. (b) Example 2—Effect of SBIE. (i) Facts. The facts are the same as in Example 1, except that CFC1 and CFC2 collectively have 15u of Substance-based Income Exclusion (SBIE) which, under Country X tax law, can reduce an MNE Group’s QDMTT liability. After taking into account December 26, 2023 1586 Bulletin No. 2023–52 the SBIE, Country X imposes 11.25u of QDMTT with respect to CFC1 and CFC2 collectively. (ii) Analysis. The amount of SBIE (if any), and the entity to which it may be attributable, is not taken into account in the calculation of each person’s QDMTT Allocation Key. The QDMTT Allocation Key for each of CFC1 (10u) and CFC2 (2.5u) remains the same as in Example 1 because each of CFC1 and CFC2 has the same Separate QDMTT Income and Separate Pre-QDMTT Taxes as in Example 1. Accordingly, 9u of the Country X QDMTT (11.25u x (10u / 12.5u)) is allocated to CFC1, and 2.25u of the Country X QDMTT (11.25u x (2.5u / 12.5u)) is allocated to CFC2. (c) Example 3—Negative Separate QDMTT Income. (i) Facts. The facts are the same as in Example 1, except that USP also owns all of the stock of CFC3, which is a CFC that is a tax resident of Country X. CFC3 is a member of the same MNE Group as CFC1 and CFC2 under Country X tax law. In Year 1, CFC3’s Separate QDMTT Income is a net loss of 50u, and its Separate Pre-QDMTT Taxes is zero. Country X imposes 5u of QDMTT with respect to CFC1, CFC2, and CFC3 collectively. (ii) Analysis. Under Country X tax law, the amount of the QDMTT is computed by reference to the income of CFC1, CFC2, and CFC3. Under section 2.04(2) through (4) of this notice, the 5u of Country X QDMTT is allocated among CFC1, CFC2, and CFC3 in proportion to each person’s QDMTT Allocation Key. The QDMTT Allocation Key for CFC1 (10u) and for CFC2 (2.5u) remain the same as in Example 1 because they have the same Separate QDMTT Income and Separate Pre- QDMTT Taxes as in Example 1. CFC3’s QDMTT Allocation Key is treated as zero because its Separate QDMTT Income is less than zero. Accordingly, 4u of the Country X QDMTT (5u x (10u / 12.5u)) is allocated to CFC1, 1u of the Country X QDMTT (5u x (2.5u / 12.5u)) is allocated to CFC2, and none of the Country X QDMTT (5u x 0u / 12.5u) is allocated to CFC3. (d) Example 4—Negative Separate Pre-QDMTT Taxes. (i) Facts. The facts are the same as in Example 1, except that: (i) in Year 1, CFC1’s Separate Pre- QDMTT Taxes is -5u, representing a negative amount of income tax expense (a tax benefit), and (ii) Country X imposes 22.5u of QDMTT with respect to CFC1 and CFC2 collectively. (ii) Analysis. As in Example 1, under Country X tax law, the amount of the QDMTT is computed by reference to the income of both CFC1 and CFC2. Under section 2.04(2) through (4) of this notice, the 22.5u of Country X QDMTT is allocated between CFC1 and CFC2 in proportion to each person’s QDMTT Allocation Key. The QDMTT Allocation Key for CFC2 (2.5u) remains the same as in Example 1 because CFC2 has the same Separate QDMTT Income and Separate Pre-QDMTT Taxes as in Example 1. However, CFC1’s QDMTT Allocation Key is now 20u ((15% - (-5u / 100u)) x 100u), reflecting the change in CFC1’s Separate Pre- QDMTT Taxes. Accordingly, 20u of the Country X QDMTT (22.5u x (20u / 22.5u)) is allocated to CFC1, and 2.5u of the Country X QDMTT (22.5u x (2.5u / 22.5u)) is allocated to CFC2. .05 The Non-duplication Requirement for In Lieu of Taxes. (1) In general. The Treasury Department and the IRS intend to amend the non-duplication requirement in § 1.903-1(c)(1)(ii) as described in this sec- tion 2.05. (2) Non-duplication requirement. A for- eign tax, in order to qualify as an in lieu of tax, need only be in substitution for a generally-imposed net income tax and not in substitution for all net income taxes imposed by that country. Accordingly, the first sentence of the non-duplication requirement in § 1.903-1(c)(1)(ii) would be revised as follows: “The generally-im- posed net income tax for which the tested foreign tax is imposed in substitution is not also imposed, in addition to the tested for- eign tax, on any persons with respect to any portion of the income to which the amounts (such as sales or units of production) that form the base of the tested foreign tax relate (the ‘excluded income’).” Conforming changes to the second sentence of § 1.903- 1(c)(1)(ii) and the examples in § 1.903-1(d) would be made as appropriate. (3) Example. (a) Facts. Country X imposes a net income tax within the meaning of § 1.901-2(a)(3) on the income of nonresident companies that is attributable to the nonresident’s activities within Country X (NRCIT) and that constitutes a generally-imposed net income tax. The NRCIT applies to all nonresident corpora- tions that engage in business in Country X except for nonresident corporations that engage in activities related to Industry B, which are instead subject to the Industry B Tax. The NRCIT and the Industry B Tax were enacted contemporaneously, and the statutory language of the NRCIT expressly excludes gross income derived by corporations engaged in activities related to Industry B. Country X enacts a QDMTT that is a net income tax within the meaning of § 1.901-2(a)(3). The Country X QDMTT is imposed with respect to gross income that is also included in the base of the Industry B Tax. (b) Analysis. The Industry B Tax meets the requirement in § 1.903-1(c)(1)(i) because Country X has a generally-imposed net income tax, the NRCIT. In addition, the Industry B Tax meets the require- ment in § 1.903-1(c)(1)(ii), modified as described in section 2.05(2), because the generally-imposed net income tax for which the tested foreign tax is imposed in substitution, the NRCIT, is not also imposed, in addition to the Industry B Tax, on any persons with respect to any portion of the income to which the amounts that form the base of the Industry B Tax relate (“excluded income”). It is not relevant that the Country X QDMTT is also imposed on the excluded income. (4) Additional changes to § 1.903-1. The Treasury Department and the IRS are considering whether additional changes to § 1.903-1 would be needed to ensure that foreign taxes continue to be credit- able only where consistent with the scope and purposes of § 903. These additional changes may include defining a general- ly-imposed net income tax. .06 Applicability Date and Reliance. (1) Applicability date. It is anticipated that the proposed regulations will pro- vide that rules consistent with the rules described in section 2 of this notice apply to taxable years ending after December 11, 2023. (2) Reliance. A taxpayer may rely on the guidance described in sections 2.02 through 2.05 of this notice for taxable years that end after December 11, 2023, and on or before the date proposed regula- tions are published in the Federal Register, provided that the taxpayer consistently follows the guidance in its entirety for all those taxable years. Additionally, for tax- able years that begin on or after December 28, 2021, and end on or before December 11, 2023, a taxpayer may rely on the guidance described in section 2.05 of this notice. SECTION 3. GLOBE MODEL RULES AND DUAL CONSOLIDATED LOSSES .01 Background. Section 1503(d) and the regulations thereunder (DCL rules) prevent “double dipping” of losses, which occurs when the same economic loss offsets or reduces both income subject to U.S. tax (but not a foreign jurisdiction’s tax) and income subject to the foreign jurisdiction’s tax (but not U.S. tax). See S. Rep. 313, 99th Cong., 2d Sess., at 419-20 (1986). A dual consolidated loss (DCL) is defined as a net operating loss of a dual resident corpora- tion and a net loss of a domestic corpora- tion that is attributable to certain foreign branches or interests in hybrid entities (separate units). See § 1.1503(d)-1(b)(5). Under the DCL rules, a DCL cannot off- set the income of a domestic affiliate (a domestic use), subject to certain excep- tions. See § 1.1503(d)-4(b). Under one exception, a domestic use of a DCL is permitted if the taxpayer makes a domestic use election, which requires the taxpayer to certify that there Bulletin No. 2023–52 1587 December 26, 2023 has not been, and will not be, a foreign use of the DCL. See § 1.1503(d)-6(d) and § 1.1503(d)-1(b)(20). In general, a foreign use of a DCL occurs when any portion of the DCL is made available under the income tax laws of a foreign country to offset or reduce, directly or indirectly, any income that under U.S. tax principles is income of a foreign cor- poration or a direct or indirect owner of certain interests in hybrid entities. See § 1.1503(d)-3(a)(1). In the event of a foreign use (or other triggering event) during the certification period, the tax- payer must recapture the DCL as ordi- nary income and pay an interest charge. § 1.1503(d)-6(e)(1). However, among other exceptions, a foreign use is not con- sidered to occur if the laws of a foreign country provide an election that would enable a foreign use and such election is not made. § 1.1503(d)-3(c)(2). Under this domestic use election, a taxpayer effectively has the choice to put a DCL to a domestic use or a foreign use (but not both). .02 Interaction with GloBE Model Rules. Under the GloBE Model Rules, an MNE Group whose ETR for a jurisdic- tion is below the 15% Minimum Rate must compute the amount of Jurisdictional Top-up Tax owed with respect to the juris- diction. That Jurisdictional Top-up Tax is based on, among other factors such as Adjusted Covered Taxes, the Net GloBE Income of Constituent Entities within the jurisdiction. For this purpose, the GloBE Model Rules take a jurisdictional blend- ing approach under which all income and loss of Constituent Entities in the same jurisdiction are generally aggregated. This aggregation can be viewed as giving rise to double dipping concerns that the DCL rules were intended to address. For example, if, in determining Net GloBE Income of a jurisdiction, a loss giving rise to a DCL is aggregated with items that under U.S. tax principles are items of a foreign corporation in that jurisdiction, the loss would be avail- able to reduce both U.S. tax (if a domes- tic use election were permitted) and the Jurisdictional Top-up Tax. These concerns could exist with respect to a DCL incurred in a taxable year ending before the time at which the GloBE Model Rules are antici- pated to be effective (for instance, a taxable year ending on December 31, 2023) if tim- ing differences between U.S. tax law and applicable financial accounting standards result in a portion of the loss comprising the DCL being taken into account as an expense under the GloBE Model Rules in a later year. Additionally, the GloBE Model Rules include certain features that may differ from traditional foreign income tax sys- tems. For example, the GloBE Model Rules do not include a mechanism through which a taxpayer can decline aggregation, with the result that the taxpayer might effectively be required to put a DCL to a foreign use (thereby removing what oth- erwise may have been a choice between a domestic use and a foreign use). In addi- tion, a loss may never produce a benefit under the Jurisdictional Top-up Tax, for example, if the ETR in the jurisdiction is at or above the Minimum Rate (with- out regard to the loss) and the loss is not carried over in determining Jurisdictional Top-Up Tax in another year. Accordingly, the Treasury Department and the IRS are studying the extent to which the DCL rules should apply with respect to the GloBE Model Rules, including the extent to which aggrega- tion should result in a foreign use of a DCL, and the extent to which the GloBE Model Rules should cause an entity that is not otherwise subject to an income tax of a foreign jurisdiction to be a dual resi- dent corporation or a hybrid entity under § 1.1503(d)-1(b)(2) or (3), or should pre- vent such an entity from being a trans- parent entity under § 1.1503(d)-1(b)(16). The Treasury Department and the IRS are also studying similar issues in the con- text of other provisions (for example, the interaction of the anti-hybrid rules under §§ 245A(e) and 267A with the GloBE Model Rules). .03 Treatment of Legacy DCLs. In the interest of providing certainty while the Treasury Department and the IRS develop guidance addressing the inter- action of the DCL rules with the GloBE Model Rules, the Treasury Department and the IRS intend to issue proposed reg- ulations with respect to DCLs incurred in (i) taxable years ending on or before December 31, 2023, or (ii) provided the taxpayer’s taxable year begins and ends on the same dates as the Fiscal Year of the MNE Group that could take into account as an expense any portion of a deduction or loss comprising such a DCL, taxable years beginning before January 1, 2024, and ending after December 31, 2023 (collectively, legacy DCLs). Under this proposed rule, a foreign use would not be considered to occur with respect to a legacy DCL solely because all or a portion of the deductions or losses that comprise the legacy DCL are taken into account in determining the Net GloBE Income for a particular jurisdiction. However, this pro- posed rule would not apply to any DCL that was incurred or increased with a view to reducing the Jurisdictional Top-Up Tax or qualifying for the proposed rule described in this notice. .04 Reliance. Taxpayers may rely on the guidance described in this section 3 until proposed regulations are published in the Federal Register. SECTION 4. REQUEST FOR COMMENTS .01 Comments. The Treasury Department and the IRS request comments on the rules described in sections 2 and 3 of this notice. The Treasury Department and the IRS spe- cifically solicit comments on the inter- action of the DCL rules with the GloBE Model Rules, including Article 3.2.7 of the GloBE Model Rules (relating to Intragroup Financing Arrangements). .02 Procedures for Submitting Comments. (1) Deadline. Written comments should be submitted by February 9, 2024. Consideration will be given, however, to any written comment submitted after February 9, 2024, if such consideration will not delay the issuance of proposed regulations. (2) Form and manner. The subject line for the comments should include a refer- ence to Notice 2023-80. All commenters are strongly encouraged to submit com- ments electronically. However, comments may be submitted in one of two ways: (a) Electronically via the Federal eRulemaking Portal at www.regulations. gov (type IRS-2023-0060 in the search field on the regulations.gov homepage to find this notice and submit comments); or December 26, 2023 1588 Bulletin No. 2023–52 (b) By mail to: Internal Revenue Service, CC:PA:LPD:PR (Notice 2023- 80), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, D.C., 20044. (3) Publication of comments. The Treasury Department and the IRS will publish for public availability any com- ment submitted electronically and on paper to its public docket on regulations. gov. SECTION 5. EXTENSION AND MODIFICATION OF TEMPORARY RELIEF IN NOTICE 2023-55 .01 Background. On January 4, 2022, the Treasury Department and the IRS published Treasury Decision 9959 in the Federal Register (87 FR 276) (2022 FTC final regulations), which contained final regu- lations under §§ 901 and 903. Correcting amendments to the 2022 FTC final reg- ulations were published in the Federal Register on July 27, 2022 (87 FR 45018). On November 22, 2022, the Treasury Department and the IRS published pro- posed regulations (REG-112096-22) in the Federal Register (87 FR 71271), which included proposed rules relating to the cost recovery requirement and the substi- tution requirement for covered withhold- ing taxes. On April 17, 2023, the Treasury Department and the IRS published Notice 2023-31 in the Internal Revenue Bulletin (IRB 2023-16) relating to proposed § 1.903-1(c)(2)(iii)(B) (the single-country exception). On August 7, 2023, the Treasury Department and the IRS published Notice 2023-55 in the Internal Revenue Bulletin (IRB 2023-32). Notice 2023-55 provides temporary relief in determining whether a foreign tax meets the definition of a foreign income tax under §§ 901 and 903 for for- eign taxes paid in any taxable year (a relief year) beginning on or after December 28, 2021, and ending on or before December 31, 2023 (the relief period), provided that the taxpayer satisfies certain requirements. .02 Application of Temporary Relief in Notice 2023-55 to Partnerships. The Treasury Department and the IRS have received questions regarding the application of the temporary relief pro- vided in Notice 2023-55 to partnerships, including whether the partnership or its partners would apply the temporary relief with respect to foreign taxes paid or oth- erwise required to be reported by such partnership. 6 This section 5.02 provides that, with respect to foreign taxes paid or otherwise required to be reported by such partner- ship, 7 which could include foreign taxes paid by a CFC (collectively, the part- nership’s foreign taxes), the partnership would apply (or not apply) the temporary relief. However, if, before December 11, 2023, a partnership did not apply the tem- porary relief for a partnership’s relief year ending on or before December 31, 2022 (a partnership 2022 tax year), a partner may apply the temporary relief to its share of the partnership’s foreign taxes for a part- nership 2022 tax year. In certain circum- stances, the IRS may make adjustments relating to the foreign tax credits claimed by a partner with respect to such foreign taxes on audit of the partner. .03 Modification and Clarification of the Consistent Application Requirement and Single-Benefit Requirement of Notice 2023-55. Section 3 of Notice 2023-55 states that, if a taxpayer applies the temporary relief, then the taxpayer must apply the tempo- rary relief to (1) all foreign taxes paid by the taxpayer in the taxpayer’s relief year, and (2) all foreign taxes (i) that are paid by any other person in a taxable year that begins on or after December 28, 2021 and that ends with or within the taxpayer’s relief year, and (ii) for which the taxpayer would be eligible to claim a credit, as pro- vided in § 901 (determined without regard to the limitations described in § 1.901- 1(b)), if the taxpayer applied the temporary relief to such foreign taxes (the consistent application requirement). Additionally, the taxpayer may not apply the temporary relief in a relief year to claim a credit, as provided under § 901, for any amount of foreign tax for which a deduction is allowed in the relief year or any other tax- able year (the single-benefit requirement). This section 5.03 modifies and clarifies the consistent application requirement and the single-benefit requirement in Notice 2023-55 with respect to partnerships and their partners. Partnerships and their partners are each subject to the consistent applica- tion requirement. Therefore, a partner- ship that applies the temporary relief to a relief year must apply the temporary relief to all the partnership’s foreign taxes (as defined in section 5.02 of this notice). For a partnership’s taxable year beginning after December 31, 2022, a partnership’s application (or non-appli- cation) of the temporary relief for a relief year will cause a partner to be required to apply (or to be precluded from applying) the temporary relief for the relief year to all other foreign taxes for which the part- ner would be eligible to claim a credit as provided in § 901 (determined without regard to the limitations described in § 1.901-1(b)), unless the partner does not control whether the partnership applies (or does not apply) the temporary relief for the relief year. 8 Furthermore, partnerships and their partners are each subject to the single-ben- efit requirement. Therefore, a partnership cannot apply the temporary relief to report any amount of foreign tax as a creditable foreign tax expenditure if the partnership reports the amount as a deduction in the relief year or any other taxable year. .04 Extension of Temporary Relief. Section 4 of Notice 2023-55 defines the relief period as taxable years begin- ning on or after December 28, 2021, and ending on or before December 31, 2023, and defines relief year as any taxable year within the relief period. This section 5.04 modifies the relief period to mean taxable years beginning on or after December 28, 2021, and ending before the date that a notice or other guidance withdrawing or 6 For purposes of this section 5, references to a partnership only include partnerships with a U.S. federal tax return filing obligation under § 6031 in a relief year. 7 For the avoidance of doubt, “required to be reported” means foreign taxes which would be required to be reported if the partnership applied the temporary relief. 8 Whether a partner controls the partnership’s application (or non-application) of the temporary relief will be determined based on the facts and circumstances, including the partnership agreement. For example, a partner may control a partnership’s application (or non-application) of the temporary relief by reason of being a general partner or owning, individually or together with related persons, a majority of the capital or profits interests in the partnership. Bulletin No. 2023–52 1589 December 26, 2023 modifying the temporary relief is issued (or any later date specified in such notice or other guidance). If final regulations consistent with the guidance provided in section 2 apply in a relief year, those final regulations apply regardless of whether the taxpayer applies the temporary relief described in Notice 2023-55, as modified by section 5.02 through 5.04 of this notice, for the relief year. .05 Effect on Other Documents. Sections 3 (Temporary Relief) and 4 (Relief Period) of Notice 2023-55, 2023- 32 I.R.B. 427, are modified. SECTION 6. DRAFTING AND CONTACT INFORMATION The principal author of this notice is the Office of Associate Chief Counsel (International). For further information concerning section 3 of this notice, con- tact Brady Plastaras at (202) 317-6937. For further information regarding sec- tion 5 of this notice, contact Moshe Dlott at (202) 317-4967 or Larry Pounders at (202) 317-5465. For all other sections, contact Jeffrey Cowan at (202) 317-4924 or Hayley Rassuchine at (202) 317-5282 (not toll-free number). December 26, 2023 1590 Bulletin No. 2023–52 NOTE. This revenue procedure will be reproduced as the next revision of IRS Publication 1223, General Rules and Specifications for Substitute Forms W-2c and W-3c. 26 CFR 601.602: Ta x forms and instructions. (Also Part I, Sections 6041, 6051, 6071, 6081, 6091; 1.6041-1, 1.6041-2, 31.6051-1, 31.6051-2, 31.6071(a)-1, 31.6081(a)- 1, 31.6091-1.) Rev. Proc. 2023-39 TABLE OF CONTENTS Part 1 – SUBSTITUTE FORMS W-2C AND W-3C Section 1.1 – Purpose ...............................................................................1591 Section 1.2 – What’s New ............................................................................1593 Section 1.3 – Filing Forms W-2c and W-3c Electronically ...................................................1593 Section 1.4 – Specifications for Red-Ink Substitute Forms W-2c (Copy A) and W-3c Filed With the SSA ..............1594 Section 1.5 – Specifications for Substitute Black-and-White Forms W-2c (Copy A) and W-3c Filed With the SSA ......1596 Section 1.6 – Requirements for Substitute Privately Printed Forms W-2c (Copies B, C, and 2) Furnished to Employees ..1599 Section 1.7 – Instructions for Employers ................................................................1600 Section 1.8 – OMB Requirements for Both Red-Ink and Black-and-White Copy A and W-3c Substitute Forms .........1601 Section 1.9 – Order Forms and Instructions ..............................................................1601 Section 1.10 – Effect on Other Documents ...............................................................1602 Section 1.11 – Exhibits ..............................................................................1602 Bulletin No. 2023–52 1591 December 26, 2023 Part 1 Substitute Forms W-2c and W-3c Section 1.1 – Purpose .01 The purpose of this revenue procedure is to state the requirements of the Internal Revenue Service (IRS) and the Social Security Administration (SSA) regarding the preparation and use of substitute forms for Form W-2c, Corrected Wage and Tax Statement, and Form W-3c, Transmittal of Corrected Wage and Tax Statements. .02 The official IRS Form W-2c is a six-part form and the official IRS Form W-3c is a one-part form. Red-ink substitute forms that completely conform to the specifications contained in this document may be privately printed without the prior approval of the IRS or the SSA. Only the substitute black-and-white Form (Copy A) and substitute black-and-white W-3c forms need to be submitted to the SSA for approval. Note. Both paper substitute forms filed with the SSA, and those furnished to employees, that do not totally conform to these specifications are not acceptable. Forms W-2c (Copy A) and Forms W-3c that do not conform may be returned. In addition, penalties may be assessed by the IRS. .03 Substitute red-ink forms should not be submitted to either the IRS or the SSA for specific approval. If you are uncertain of any specification and want clarification, do the following. 1. Submit a letter to the appropriate address below citing the specification. 2. State your understanding of the specification; enclose an example. 3. Be sure to include your name, complete address, phone number, and, if applicable, your email address with your correspondence. .04 Any questions about the red-ink Form W-2c (Copy A) and Form W-3c, should be emailed to substituteforms@irs.gov. Please enter “Substitute Forms” on the subject line. Or send your questions to: Internal Revenue Service Attn: Substitute Forms Program SE:W:CAR:MP:P:TP:TP ATSC 4800 Buford Highway Mail Stop 061-N Chamblee, GA 30341 Note. Do not send completed forms to the Substitute Forms Program via email or mail as they are unable to process those forms. Any examples/samples of substitute forms sent to the Substitute Forms program should not contain taxpayer information. Any questions about the substitute black-and-white Form W-2c (Copy A) and W-3c should be emailed to copy.a.forms@ssa.gov or sent to: Social Security Administration Direct Operations Center Attn: Substitute Black-and-White Copy A Forms, Room 341 1150 E. Mountain Drive Wilkes-Barre, PA 18702-7997 December 26, 2023 1592 Bulletin No. 2023–52 Do not email or mail completed Forms W-2c (Copy A) to the SSA Substitute Black-and-White Copy A Forms address as they are unable to process those forms. Submitters should use the address shown on the Form W-3c. Note. You should receive a response from either the IRS or the SSA within 30 days. .05 Some Forms W-2c that include logos, slogans, and advertisements (including advertisements for tax preparation software) may be considered as suspicious or altered Forms W-2c (also known as questionable Forms W-2c). An employee may not recognize the importance of the employee copy for tax reporting purposes due to the use of logos, slogans, and advertisements. Thus, the IRS has determined that logos, slogans, and advertising will not be allowed on Copy A of Forms W-2c, Forms W-3c, or any employee copies reporting wages, with the following exceptions for the employee copies: • Forms may include the exact name of the employer or agent, primary trade name, trademark, service mark, or symbol of the employer or agent. • Forms may include an embossment or watermark on the information return (and copies) that is a representation of the name, a primary trade name, trademark, service mark, or symbol of the employer or agent. • Presentation may be in any typeface, font, stylized fashion, or print color normally used by the employer or agent; and used in a non-intrusive manner. • These items do not materially interfere with the ability of the recipient to recognize, understand, and use the tax information on the employee copies. The IRS e-file logo on the IRS official employee copies may be included, but it is not required, on any of the substitute form copies. The information return and employee copies must clearly identify the employer’s name associated with its employer identification number (EIN). Note. Just as with the forms, an employee may not recognize the importance (or legitimacy) of an envelope containing employee copies of Form W-2c if logos, slogans, and advertisements (including coupons) are on the envelope. Therefore, such items are not allowed on envelopes containing employee copies of Form W-2c. Forms W-2c and W-3c are subject to annual review and possible change. This revenue procedure may be revised to state other requirements of the IRS and the SSA regarding the preparation and use of substitute forms for Form W-2c and Form W-3c for corrections to be made at a future date. If you have comments about the prohibition against including slogans, advertising, and logos on information returns and employee copies, email or send your comments to: substituteforms@ irs.gov or Internal Revenue Service, Attn: Substitute Forms Program, SE:W:CAR:MP:P:TP:TP, ATSC, 4800 Buford Highway, Mail Stop 061-N, Chamblee, GA 30341. .06 The Internal Revenue Service/Information Returns Branch (IRS/IRB) maintains a centralized customer service call site to answer questions related to information returns (Forms W-2, W-3, W-2c, W-3c, 1099 series, 1096, etc.). You can reach the call site at 866-455-7438 (toll free) or 304-263-8700 (not a toll-free number). Deaf or hard-of-hearing customers may call any of our toll-free numbers using their choice of relay service. You may also email questions to mccirp@irs.gov. Do not submit employee information via email because it is not secure and the information may be compromised. File paper or electronic Forms W-2c (Copy A) with the SSA. The IRS/IRB does not process Forms W-2c (Copy A). Bulletin No. 2023–52 1593 December 26, 2023 .07 The following form instructions and publications provide more detailed filing procedures for certain information returns. • General Instructions for Forms W-2 and W-3 (Including Forms W-2AS, W-2CM, W-2GU, W-2VI, W-3SS, W-2c, and W-3c). • Publication 1141, General Rules and Specifications for Substitute Forms W-2 and W-3. Section 1.2 – What’s New .01 Electronic filing of returns. The Department of the Treasury and the IRS issued final regulations (T.D. 9972) that changed the rules for mandatory electronic filing of correction forms, including Form W-2c, as authorized under the Taxpayer First Act, enacted July 1, 2019. If you were required to electronically file the original Form W-2, you must electronically file any Form W-2c correcting that form. If the original Form W-2 was permitted to be filed on paper and you filed on paper, then you must file any Form W-2c correcting that form on paper. See Regulations section 301.6011-2 for more information. .02 IRS address change. Inquiries about the red-ink Form W-2c (Copy A) and Form W-3c should be sent to the IRS at: Internal Revenue Service, Attn: Substitute Forms Program, SE:W:CAR:MP:P:TP:TP, ATSC, 4800 Buford Highway, Mail Stop 061-N, Chamblee, GA 30341. .03 Exhibits. All of the exhibits in this publication were updated for the August 2023 revisions of those forms. .04 Editorial changes. We made editorial changes throughout, including to update references and correspond more closely to Publication 1141. Redundancies were eliminated as much as possible. Section 1.3 – Filing Forms W-2c and W-3c Electronically .01 If an employer was required to electronically file the original Form W-2, they must electronically file any Form W-2c correcting that form. If the original Form W-2 was permitted to be filed on paper and was filed on paper, then the employer must file any Form W-2c correcting that form on paper. See Regulations section 301.6011-2(c)(4)(ii) for more information. SSA publication EFW2C, Specifications for Filing Forms W-2c Electronically, contains specifications and procedures for filing Forms W-2c. Employers are cautioned to obtain the most recent revision of EFW2C (and supplements) due to any subsequent changes in specifications and procedures. Instead of the EFW2C upload format, the employer can use SSA’s W-2c Online fill-in forms to create, save, print, and submit up to 25 Forms W-2c at a time to the SSA. For more information, go to SSA.gov/employer/. .02 You may obtain a copy of the EFW2C by accessing the SSA website at SSA.gov/employer/ EFW2&EFW2C. .03 Electronic filers do not file a paper Form W-3c. See the SSA publication EFW2C for guidance on transmitting Form W-2c (Copy A) information to the SSA electronically. .04 Employers who do not comply with the electronic filing requirements for Form W-2c (Copy A) and who are not granted a waiver by the IRS may be subject to penalties. Employers who file Form W-2c information with the SSA electronically must not send the same data to the SSA on paper Forms W-2c (Copy A). Any duplicate reporting may subject filers to unnecessary contacts by the SSA or the IRS. December 26, 2023 1594 Bulletin No. 2023–52 Section 1.4 – Specifications for Red-Ink Substitute Forms W-2c (Copy A) and W-3c Filed With the SSA .01 The official IRS-printed red dropout ink Form W-2c (Copy A) and W-3c and their exact substitutes are referred to as red-ink in this revenue procedure. Employers may file substitute Forms W-2c (Copy A) and W-3c with the SSA. The substitute forms must be exact replicas of the official IRS forms with respect to layout and content because they will be read by scanner equipment. Even the slightest deviation can result in incorrect scanning, and may affect money amounts reported for employees. .02 Color and paper quality for Form W-2c (Copy A) (cut sheets and continuous pin-fed forms) and Form W-3c must be white 100% bleached chemical wood, optical character recognition (OCR) bond. The contractor must initiate or have a quality control program to assure OCR ink density. •Acidity: Ph value, average, not less than . . . . . . . . . . . . . .4.5 •Basis weight: 17 x 22 inch 500 cut sheets, pound ..........18–20 •Metric equivalent—gm./sq. meter (a tolerance of +5 pct. is allowed) ..................68–75 •Stiffness: Average, each direction, not less than—milligrams Cross direction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Machine direction ..........................80 •Tearing strength: Average, each direction, not less than—grams .............................40 •Opacity: Average, not less than—percent...............82 •Reflectivity: Average, not less than—percent.............68 •Thickness: Average—inch ......................0.0038 Metric equivalent—mm .......................0.097 (a tolerance of +0.0005 inch (0.0127 mm) is allowed). Paper cannot vary more than 0.0004 inch (0.0102 mm) from one edge to the other. •Porosity: Average, not less than—seconds . . . . . . . . . . . . . . 10 •Finish (smoothness): Average, each side—seconds..........20–55 (for information only) the Sheffield equivalent—units .......170-d200 •Dirt: Average, each side, not to exceed—parts per million......8 Note. Reclaimed fiber in any percentage is permitted, provided the requirements of this standard are met. .03 All printing of substitute Forms W-2c (Copy A) and W-3c must be in Flint J-6983 red OCR dropout ink except as specified below. The following must be printed in nonreflective black ink: • Identifying number “44444” for Forms W-2c (Copy A) or “55555” for Form W-3c at the top of the forms. • The four (4) corner register marks on the forms. • The form identification number (“W-3c”) at the bottom of Form W-3c. • All the instructions below Form W-3c beginning with “Purpose of Form” to the end of Form W-3c. .04 The vertical and horizontal spacing on Forms W-2c and W-3c must meet specifications. See Exhibits A and B. Bulletin No. 2023–52 1595 December 26, 2023 • On Form W-3c and Form W-2c (Copy A), all the perimeter rules must be 1-point (0.014- inch), while all other rules must be one-half point (0.007-inch). Vertical rules must be parallel to the left edge of the form; horizontal rules parallel to the top edge. • The top, left, and right margins on Form W-2c (Copy A) and Form W-3c must be 0.50 inches. The width of a substitute Form W-2c (Copy A) or W-3c must be 7.50 inches. See Exhibits A and B. • The first three columns on Form W-2c (Copy A) and Form W-3c must measure 1.90 inches in width. • The last column on Form W-2c (Copy A) and Form W-3c must measure 1.80 inches in width. .05 The official red-ink Form W-3c and Form W-2c (Copy A) are 7.50 inches wide. Employers filing Forms W-2c (Copy A) with the SSA on paper must also file a Form W-3c. One Form W-2c (Copy A) or Form W-3c is contained on a standard-size, 8.5 x 11-inch page. .06 The top, left, and right margins for the Form W-2c (Copy A) and Form W-3c are 0.50 inches (1/2 inch). All margins must be free of printing except for the words “DO NOT CUT, FOLD, OR STAPLE THIS FORM” on red-ink Form W-2c (Copy A) and “DO NOT CUT, FOLD, OR STAPLE” on red-ink Form W-3c. .07 The identifying numbers are “44444” for Form W-2c and “55555” for Form W-3c. No printing should appear anywhere near the identifying numbers. Note. The identifying number must be printed in nonreflective black ink in OCR-A font of 10 characters per inch. .08 Continuous pin-fed Forms W-2c (Copy A) must be separated into 11-inch deep pages. The pin-fed strips must be removed when Forms W-2c (Copy A) are filed with the SSA. .09 Box 12 of Form W-2c (Copy A) contains four entry boxes – 12a, 12b, 12c, and 12d. Do not make more than one entry per box. Enter your first code in box 12a (for example, enter Code D in box 12a, not 12d, if it is your first entry). If more than four items need to be reported in box 12, use a second Form W-2c to report the additional items (see Multiple forms in the most recent General Instructions for Forms W-2 and W-3). Do not report the same federal tax data to the SSA on more than one Form W-2c (Copy A). However, repeat the identifying information (employee’s name, address, and SSN; employer’s name, address, and EIN) on each additional form. .10 The checkboxes in box 13 of Form W-2c (Copy A) must be 0.14 inches each. Each space before the first checkbox is 0.20 inches; each space between the first checkbox and second checkbox should be 0.36 inches; each space between the second and third checkboxes should be 0.44 inches; and each space between the third checkbox to the margin of box 13 should be 0.48 inches. The checkboxes in box c of Form W-3c must also be 0.14 inches. Note. More than 50% of an applicable checkbox must be covered by an “X.” .11 All substitute Forms W-2c (Copy A) and W-3c in the red-ink format must have the form number and form title printed on the bottom face of each form using type identical or a close approximation to that of the official IRS form. The red-ink substitute must have the form producer’s (not the form filer’s) EIN entered in red in place of the Cat. No. (directly to the left of “Department of the Treasury” on Form W-2c (Copy A) and at the bottom on Form W-3c). .12 The words “For Privacy Act and Paperwork Reduction Act Notice, see the separate instructions.” must be printed on all Forms W-2c (Copy A) and Forms W-3c. December 26, 2023 1596 Bulletin No. 2023–52 .13 The Office of Management and Budget (OMB) Number must be printed on substitute Forms W-3c and W-2c (Copy A) (on each ply) in the same location as on the official IRS forms. .14 All substitute Forms W-3c must include the instructions that are printed on the same sheet below the official IRS form. .15 The appropriate SSA filing address information must be printed on the front of Form W-3c below the body of the form as shown below. Send this entire page with Copy A of Form W-2c to: Social Security Administration Direct Operations Center P.O. Box 3333 Wilkes-Barre, PA 18767-3333 Note: If you use “Certified Mail” or an IRS-approved private delivery service to file, add “Attn: W-2c Process, 1150 E. Mountain Dr.” to the address and change the ZIP code to “18702-7997.” See Pub. 15 (Circular E), Employer’s Tax Guide, for a list of IRS-approved private delivery services. .16 The back of substitute Form W-2c (Copy A) and Form W-3c must be free of all printing. .17 All copies must be clearly legible. Fading must be minimized to assure legibility. .18 Chemical transfer paper is permitted for Form W-2c (Copy A) only if the following standards are met: • Only chemically backed paper is acceptable for Form W-2c (Copy A). Front and back chemically treated paper cannot be processed properly by scanning equipment. • Chemically transferred images must be black. • Carbon-coated forms are not permitted. .19 The Government Printing Office (GPO) symbol and the Catalog Number (Cat. No.) must be deleted from substitute Form W-2c (Copy A) and Form W-3c. .20 The sequence for assembling the copies of Form W-2c is as follows. • Copy A—For Social Security Administration • Copy 1—For State, City, or Local Tax Department • Copy B—To Be Filed With Employee’s FEDERAL Tax Return • Copy C—For EMPLOYEE’S RECORDS • Copy 2—To Be Filed With Employee’s State, City, or Local Income Tax Return • Copy D—For Employer Section 1.5 – Specifications for Substitute Black-and-White Forms W-2c (Copy A) and W-3c Filed With the SSA .01 The SSA-approved substitute black-and-white Forms W-2c (Copy A) and W-3c are referred to as substitute black-and-white Form W-2c (Copy A) and W-3c. Specifications for the substitute Bulletin No. 2023–52 1597 December 26, 2023 black-and-white Form W-2c (Copy A) and W-3c are similar to the red-ink forms (Section 4) except for the items that follow (see Exhibits C and D). You may contact the SSA via email at copy.a.forms@ssa.gov for more information. Note. Exhibits are samples only and may not show the required typeface and/or font. Exhibits must not be downloaded to meet tax obligations. 1. Forms must be printed on 8.5 x 11-inch single-sheet paper only, not on continuous pin-fed paper. There must be one Form W-2c (Copy A) or W-3c printed on a page. 2. All forms and data must be printed in nonreflective black ink only. 3. The data and forms must be programmed to print simultaneously. Forms cannot be produced separately from wage data entries. 4. The forms must not contain corner register marks. 5. The forms must not contain any shaded areas including those boxes that are entirely shaded on the red-ink forms. 6. Identifying numbers on both Form W-2c (“44444”) and Form W-3c (“55555”) must be preprinted in 14-point Arial bold font or a close approximation. 7. The form numbers (“W-2c” and “W-3c”) must be in 18-point Arial font or a close approximation. 8. No part of the box titles or the data printed on the forms may touch any of the vertical or horizontal lines, nor should any of the data intermingle with the box titles. The data should be centered in the boxes. 9. Do not print any information in the margins of the black-and-white forms (for example, do not print “DO NOT CUT, FOLD, OR STAPLE” in the top margin of Form W-3c). 10. The word “Code” must not appear in box 12 on Form W-2c (Copy A). 11. A 4-digit vendor code (not filer code) preceded by four zeros and a slash (for example, 0000/9876) must appear in 12-point Arial font, or a close approximation, in place of the Cat. No. to the left of “Department of the Treasury” on Form W-2c (Copy A) and in the bottom right corner of Form W-3c. Note. Do not display the form producer’s EIN. The vendor code will be used to identify the form producer. 12. Do not print Catalog Numbers (Cat. No.) on either Form W-2c (Copy A) or Form W-3c. 13. Do not print dollar signs. If there are no money amounts being reported, the entire field should be left blank. Note. Although substitute Copy 1 of Form W-2c can be printed in black instead of the red dropout ink, it should conform as closely as possible to Copy A of the official IRS form in content, format, and layout in order to satisfy state and local reporting requirements. .02 The dimensions for the substitute black-and-white Forms W-2c (Copy A) and W-3c are as follows. See Exhibits C and D. 1. The top, left, and right margins on Form W-2c (Copy A) and Form W-3c must measure 1/2 (0.50) inch. 2. The distance from the top line of Form W-3c to the bottom line of the form must measure 7 3/16 (7.19) inches. December 26, 2023 1598 Bulletin No. 2023–52 3. The distance from the top line of Form W-2c (Copy A) to the bottom line of the form must measure 9 1/3 (9.33) inches. 4. Each box on Form W-2c (Copy A) and Form W-3c must measure 1/3 (0.33) inch in height except as otherwise established. 5. Box b on Form W-3c must measure one (1.00) inch in height. 6. Box a on Form W-2c (Copy A) must measure 1 1/3 (1.33) inches in height and box 14 must measure 5/6 (0.83) inch in height. 7. The first three columns on the right of Form W-2c (Copy A) and Form W-3c must measure 1 9/10 (1.90) inches in width. 8. The last column on the right of Form W-2c (Copy A) and Form W-3c must measure 1 8/10 (1.80) inches in width. 9. The “Explain decreases here” box must measure 1/3 (0.33) inch and the “Signature” box on Form W-3c must measure 1/2 (0.50) inch in height. .03 You must submit samples of your black-and-white substitute Forms W-2c (Copy A) and W-3c to the SSA. Only black-and-white substitute Forms W-2c (Copy A) and W-3c will be accepted for approval by the SSA. All checkboxes on the dummy-data substitute black-and-white Form W-3c must be electronically checked in box c (Kind of Payer, Kind of Employer, and Third-party sick pay). Questions regarding other forms (that is, red-ink Forms W-2, W-2c, W-3, W-3c, 1099 series, 1096, etc.) must be directed to the IRS. Also, see IRS Publications 1141 and 1179. .04 You will be required to send one set of blank and one set of dummy-data substitute black- and-white Form W-2c (Copy A) and W-3c for approval. Sample data entries should be filled in to the maximum length for each box entry, preferably using numeric data or alpha data, depending upon the type required to be entered. Include in your submission the name, telephone number, fax number, and email address of a contact person who can answer questions regarding your sample forms. .05 To receive approval, you may first contact the SSA at copy.a.forms@ssa.gov to obtain a template and further instructions. You can either submit your sample substitute black-and-white Forms W-2c (Copy A) and Forms W-3c in a PDF version electronically for approval to the copy.a.forms@ssa.gov or send your paper sample substitute black-and-white Forms W-2c (Copy A) and Forms W-3c to: Social Security Administration Direct Operations Center Attn: Substitute Black-and-White Copy A Forms, Room 341 1150 E. Mountain Drive Wilkes-Barre, PA 18702-7997 Send your sample forms via private mail carrier or certified mail in order to verify their receipt. You can expect approval (or disapproval) by the SSA within 30 days of receipt of your sample forms. Do not mail completed Forms W-2c (Copy A) and W-3c to the Substitute Black-and-White Forms (Copy A) address. Submitters should use the address shown on the Form W-3c. .06 Vendor codes from the National Association of Computerized Tax Processors (NACTP) are required by those companies producing the W-2 family of forms as part of a product for resale to be used by multiple employers and payroll professionals. Employers developing Forms W-2c or W-3c to be used only for their individual company require a vendor code issued by the SSA. Bulletin No. 2023–52 1599 December 26, 2023 .07 The 4-digit vendor code preceded by four zeros and a slash (0000/9876) must be preprinted on the sample black-and-white substitute Forms W-2c and W-3c. Forms not containing a vendor code will be rejected and will not be submitted for testing or approval. If you have a valid vendor code provided to you through the NACTP, you should use that code. If you do not have a valid vendor code, contact the SSA at copy.a.forms@ssa.gov to obtain an SSA-issued code. (Additional information on vendor codes may be obtained from the SSA or the NACTP via email at president@ nactp.org.) .08 If you use forms produced by a vendor and have questions concerning approval, do not send the forms to the SSA for approval. Instead, you may contact the software vendor to obtain a copy of SSA’s dated approval notice supplied to that vendor. Section 1.6 – Requirements for Substitute Privately Printed Forms W-2c (Copies B, C, and 2) Furnished to Employees Note. Rules in Section 1.6 apply only to employee copies of Form W-2c (Copies B, C, and 2). Printers are cautioned that the paper filers who send Forms W-2c (Copy A) to the SSA must follow the requirements in Sections 1.4 and/or 1.5 above. .01 All employers (including those who file electronically) must furnish employees with at least two copies of Form W-2c (three or more for employees required to file a state, city, or local income tax return). Employee copies do not require approval as long as these requirements are followed. .02 Chemical transfer paper for employee copies must be clearly legible, have the capability to be photocopied, and not fade to such a degree as to preclude legibility and the ability to photocopy. .03 The paper for all copies must be white and printed in black ink. The substitute Copy B (or its equal), which employees are instructed to attach to their federal income tax returns, as well as all other copies furnished to employees, should be at least 9-pound paper (basis 17 x 22-500). See Section 1.4.02. .04 Type must be substantially identical in size and shape to that on the official form. .05 Substitute forms for employees need to contain only the payment boxes and captions that are applicable. These boxes, box numbers, and box titles must, when applicable, match the IRS- printed form. In all cases, the employee name, address, and SSN, as well as the employer name, address, and EIN, must be present. .06 The dimensions of the boxes on these copies (Copies B, C, and 2), but not Copy A, may be adjusted to allow space for conveying additional information. This may permit the employer to eliminate other statements or notices that would otherwise be furnished to employees. .07 The maximum allowable dimensions for employee copies of Form W-2c are no more than 11.00 inches deep by 8.50 inches wide. The minimum allowable dimensions for employee copies of Form W-2c are 2.67 inches deep by 4.25 inches wide. Note. These maximum and minimum size specifications are subject to future change. .08 Either horizontal or vertical format is permitted for substitute employee copies of Forms W-2c. That is, the width of the form may be either greater or less than the depth of the form. .09 All copies of Form W-2c must clearly and prominently display the form number and the form title together in one area of the form. It is recommended (but not required) that this be located on the bottom left of Form W-2c. The reference to the “Department of the Treasury – Internal Revenue Service” must be on all copies of Form W-2c. It is recommended (but not required) that this be located on the bottom right of Form W-2c. December 26, 2023 1600 Bulletin No. 2023–52 .10 If the substitute Forms W-2c are not labeled as to the disposition of the copies, then written notification must be provided to each employee as specified below. • The first copy of Form W-2c (Copy B) is filed with the employee’s federal tax return. • The second copy of Form W-2c (Copy C) is for the employee’s records. • If applicable, the third copy (Copy 2) of Form W-2c is filed with the employee’s state, city, or local income tax return. If the substitute Forms W-2c are labeled, the forms must contain the applicable description as stated on the official form. .11 Instructions similar to those on the back of Form W-2c (Copy C) of the official form must be provided to each employee. Section 1.7 – Instructions for Employers .01 Privately printed substitute Forms W-2c are not required to contain a copy to be retained by employers (Copy D). However, employers must retain copies of the Forms W-2c (Copy A) filed with SSA or have the ability to reconstruct the data for at least four years. Employers must be able to generate a facsimile of Form W-2c (Copy A), in case of loss. .02 If Copy D is provided for the employer, instructions contained on the back of Copy D of the official form must appear on the back of the substitute form. If Copy D is not provided, these instructions must be furnished to the employer on a separate statement. .03 Only originals or compliant substitute copies of Forms W-2c (Copy A) and Forms W-3c may be filed with the SSA. Carbon copies and photocopies are unacceptable. .04 Employers should type or machine-print entries on plain paper forms whenever possible and provide good quality data entries by using a high quality type face, inserting data in the middle of blocks that are well separated from other printing and guidelines, and taking any other measures that will guarantee clear, sharp images. .05 Because employers must file a machine-scannable Form W-2c, they should meet the following requirements. • Use 12-point Courier font or a close approximation for data entries. • Proportional-spaced fonts are unacceptable. • Do not print any data in the top margin of the forms. .06 The employer must also provide employee copies of Forms W-2c (Copies B, C, and 2) that are legible and able to be photocopied (by the employee). .07 When Forms W-2c or W-3c are typed, black ink must be used with no script type, inverted font, italics, or dual-case alpha characters. .08 Forms W-2c (Copy A) require decimal entries for wage data. Do not print dollar signs with money amounts on Forms W-2c (Copy A) and Form W-3c. .09 The filer’s employer identification number (EIN) must be entered in box (b) of Form W-2c and box (e) of Form W-3c. Bulletin No. 2023–52 1601 December 26, 2023 .10 The employer’s name, address, EIN, and state ID number may be preprinted. .11 Employers must not truncate the employee’s SSN on Copy A of Forms W-2c. See the General Instructions for Forms W-2 and W-3 for more information. Section 1.8 – OMB Requirements for Both Red-Ink and Black-and-White Copy A and W-3c Substitute Forms .01 The Paperwork Reduction Act (the Act) of 1995 (Public Law 104-13) requires the following. • The Office of Management and Budget (OMB) approves all IRS tax forms that are subject to the Act. • Each IRS form contains (in or near the upper right corner) the OMB approval number, if assigned—the official OMB numbers may be found on the official IRS printed forms and are also shown on the forms in the exhibits. • Each IRS form (or its instructions) states: 1. Why the IRS needs the information, 2. How it will be used, and 3. Whether or not the information is required to be furnished to the IRS. .02 This information must be provided to any users of official or substitute IRS forms or instructions. .03 The OMB requirements for substitute IRS Form W-2c and Form W-3c are the following. • Any substitute form or substitute statement to a recipient must show the OMB number as it appears on the official IRS form. • The OMB number for both Form W-2c (Copy A) and Form W-3c is 1545-0008 and must appear exactly as shown on the official IRS form. • For any copy of Form W-2c, other than Copy A, the OMB number must use one of the following formats. 1. OMB No. 1545-xxxx (preferred) or 2. OMB # 1545-xxxx (acceptable). .04 Any substitute Form W-3c and Form W-2c (Copy A only) must state “For Privacy Act and Paperwork Reduction Act Notice, see the separate instructions.” If no instructions are provided to users of your forms, you must furnish them with the exact text of the Privacy Act and Paperwork Reduction Act Notice in the General Instructions for Forms W-2 and W-3. Section 1.9 – Order Forms and Instructions .01 You can order official IRS Forms W-2c, Forms W-3c, and the General Instructions for Forms W-2 and W-3 (Including Forms W-2AS, W-2CM, W-2GU, W-2VI, W-3SS, W-2c, and W-3c), online at IRS.gov/OrderForms. Only contact the IRS, not the SSA, for forms. December 26, 2023 1602 Bulletin No. 2023–52 .02 Copies of Form W-2c (Copy A) and Form W-3c downloaded from IRS.gov cannot be used for filing with the SSA. These copies of Forms W-2c and W-3c are for information purposes only. Section 1.10 – Effect on Other Documents .01 Revenue Procedure 2016-20, 2016-13 I.R.B. dated March 28, 2016, (reprinted as Publication 1223, Revised 03-2016), is superseded. Section 1.11 – Exhibits Exhibits A through D provide the general measurements for Forms W-2c and W-3c as discussed in this revenue procedure. Exhibits are samples only and may not show the required typeface and/ or font. Exhibits must not be downloaded to meet tax obligations. Certain exhibits show a 0000/ in the location designated for your vendor code. See Section 1.5.01, item 11, and Section 1.5.06 for more information. Exhibit A — Form W-2c (Copy A) (Red-Ink) 08-2023 Exhibit B — Form W-3c (Red-Ink) 08-2023 Exhibit C — Form W-2c (Copy A) (Substitute Laser/ Black-and-White) 08-2023 Exhibit D — Form W-3c (Substitute Laser/Black-and-White) 08-2023 Bulletin No. 2023–52 1603 December 26, 2023 15 December 26, 2023 1604 Bulletin No. 2023–52 16 Bulletin No. 2023–52 1605 December 26, 2023 17 December 26, 2023 1606 Bulletin No. 2023–52 18 Bulletin No. 2023–52 1607 December 26, 2023 26 CFR 601.201: Rulings and determination letters. (Also: Part I, Sections 832, 846; 1.832-4, 1.846-1.) Rev. Proc. 2023-41 SECTION 1. PURPOSE This revenue procedure prescribes dis- count factors for the 2023 accident year for use by insurance companies in com- puting discounted unpaid losses under § 846 of the Internal Revenue Code and discounted estimated salvage recoverable under § 832. This revenue procedure also provides, for convenience, discount fac- tors for losses incurred in the 2022 acci- dent year and earlier accident years for use in taxable years beginning in 2023. The discount factors for accident years before 2023 were prescribed in earlier revenue procedures. See, e.g., Rev. Proc. 2023- 10, 2023-3 I.R.B. 411. For background concerning the loss payment patterns and application of the discount factors, see Rev. Proc. 2023-10. SECTION 2. SCOPE This revenue procedure applies to any insurance company that is required to discount unpaid losses under § 846 for a line of business using the discount factors published by the Secretary. This revenue procedure also applies to any insurance company that is required to discount esti- mated salvage recoverable under § 832. SECTION 3. DISCOUNT FACTORS FOR THE 2023 ACCIDENT YEAR .01 The tables in this section 3 sepa- rately present for each line of business the discount factors for losses incurred in the 2023 accident year for use by insur- ance companies in computing discounted unpaid losses under § 846 and estimated salvage recoverable under § 832. The dis- count factors presented in this section are generally determined by using the applica- ble interest rate for 2023 under § 846(c), which is 2.90 percent, determined using semiannual compounding. The exceptions are the discount factors for long-tail lines of business determined using the com- posite method described in section V of Notice 88-100, 1988-2 C.B. 439. These discount factors are to be used in tax- able years beginning in 2033 for losses incurred in accident years not separately reported on the annual statement for 2033. For taxable years beginning after 2033, the discount factors to be used for losses incurred in the 2023 accident year will be those determined using the composite method for later accident years. These discount factors will be published in later years. All discount factors are determined by assuming that all loss payments occur in the middle of the calendar year. .02 Section V of Notice 88-100 sets forth a composite method for computing discounted unpaid losses for accident years that are not separately reported on the annual statement. Tables 1 and 2 sep- arately provide discount factors for insur- ance companies that have elected to use the composite method of Notice 88-100. See Rev. Proc. 2002-74, 2002-2 C.B. 980. The discount factors computed using the composite method are unrelated to the composite discount factors referred to in § 1.846-1(b)(1)(ii) and (4) of the Income Tax Regulations, which apply to lines of business for which the Secretary has not published discount factors. The compos- ite discount factors for use with respect to such lines of business are labelled “Short-Tail Composite” (in Table 1, part B) and “Long-Tail Composite” (in Table 2, part B). The “Miscellaneous Casualty” discount factors referenced in § 1.846- 1(b)(2) are not set forth in tables but are equivalent to the “Short-Tail Composite” discount factors. Table 1 (part A) Discount Factors Under Section 846 (percent) For Losses Incurred in Accident Year 2023 in Short-Tail Lines of Business Taxable Year Beginning in Auto Physical DamageFidelity/Surety Financial Guaranty/ Mortgage GuarantyInternationalOther* 202398.382695.747795.251195.884296.9968 202497.171997.171997.171997.171997.1719 Taxpayer Not Using Composite Method Years after 202498.570798.570798.570798.570798.5707 Taxpayer Using the Composite Method 202598.570798.570798.570798.570798.5707 Years after 2025Use composite method discount factors published for the relevant accident year.** *For the Accident and Health line of business (other than disability income or credit disability insurance), the discount factor for taxable year 2023 is 98.5707 percent. This is also the discount factor used in later taxable years for taxpayers not using the composite method. For taxpayers using the composite method, the discount factor for losses incurred in 2023 is the discount factor published for Accident and Health lines of business for losses incurred in the accident year coinciding with the taxable year. **The relevant accident year is the accident year that is two years prior to the specified taxable year. December 26, 2023 1608 Bulletin No. 2023–52 Table 1 (part B) Discount Factors Under Section 846 (percent) For Losses Incurred in Accident Year 2023 in Short-Tail Lines of Business Taxable Year Beginning in Reinsurance - Nonproportional Assumed Financial Lines Reinsurance - Nonproportional Assumed Liability Reinsurance - Nonproportional Assumed Property Special Property (Fire, Allied Lines, Inland Marine, Earthquake, Burglary & Theft)Warranty Short-Tail Composite 202395.857494.926096.211097.593198.374297.2238 202497.171997.171997.171997.171997.171997.1719 Taxpayer Not Using Composite Method Years after 202498.570798.570798.570798.570798.570798.5707 Taxpayer Using the Composite Method 202598.570798.570798.570798.570798.570798.5707 Years after 2025Use composite method discount factors published for the relevant accident year.** **The relevant accident year is the accident year that is two years prior to the specified taxable year. Bulletin No. 2023–52 1609 December 26, 2023 Table 2 (part A) Discount Factors Under Section 846 (percent) For Losses Incurred in Accident Year 2023 in Long-Tail Lines of Business Taxable Year Beginning in Commercial Auto/Truck Liability/ Medical Medical Professional Liability - Claims-Made Medical Professional Liability - Occurrence Multiple Peril Lines Other Liability - Claims-Made Other Liability - Occurrence 202394.066991.701286.883195.438291.423790.0155 202494.665792.780788.787793.873292.362890.8746 202595.218593.102590.180393.906692.406191.5784 202695.523493.957791.551293.841492.613391.9264 202795.425093.787892.354393.627592.547392.2284 202894.958894.420592.742093.883692.591591.2169 202994.980393.994993.127093.964492.239791.1996 203095.452694.860292.993095.712093.916091.9425 203196.411696.175294.799296.537096.413192.9346 203298.255997.631896.469197.972196.998694.7538 Taxpayer Not Using Composite Method 203398.570798.570797.754898.570798.344796.0789 203498.570798.570798.570798.570798.570797.3969 Years after 203498.570798.570798.570798.570798.570798.5707 Taxpayer Using the Composite Method 203398.570798.570797.964398.587698.369997.0305 Years after 2033Use composite method discount factors published for the relevant accident year.** **The relevant accident year is the accident year that is ten years prior to the specified taxable year. December 26, 2023 1610 Bulletin No. 2023–52 Table 2 (part B) Discount Factors Under Section 846 (percent) For Losses Incurred in Accident Year 2023 in Long-Tail Lines of Business Taxable Year Beginning in Private Passenger Auto Liability/ Medical Products Liability - Claims-Made Products Liability - Occurrence Workers' Compensation Long-Tail Composite 202395.856289.178088.531788.955193.4051 202495.520290.494789.902887.478192.7019 202595.601290.736991.011286.894592.4617 202695.520389.799891.587586.421791.8247 202794.628691.285391.913086.714991.5295 202894.013592.870792.381486.112791.0702 202994.579494.595293.298486.703091.3120 203094.725395.031393.589388.185392.6078 203195.471096.276794.608589.593293.9475 203297.613897.934296.608990.510495.2242 Taxpayer Not Using Composite Method 203398.570798.570797.897591.780396.5456 203498.570798.570798.570793.073997.8319 203598.570798.570798.570794.391598.5707 203698.570798.570798.570795.732798.5707 203798.570798.570798.570797.095798.5707 203898.570798.570798.570798.469098.5707 Years after 203898.570798.570798.570798.570798.5707 Taxpayer Using the Composite Method 203398.570796.688898.222092.809096.9820 Years after 2033Use composite method discount factors published for the relevant accident year.** **The relevant accident year is the accident year that is ten years prior to the specified taxable year. SECTION 4. DISCOUNT FACTORS FOR TAXABLE YEARS BEGINNING IN 2023 .01 The tables in this section 4 pres- ent separately for each line of business discount factors for losses incurred in the 2023 accident year and earlier accident years for use by insurance companies in computing discounted unpaid losses under § 846 and estimated salvage recoverable under § 832 in taxable years beginning in 2023. .02 Tables 3 and 4 separately provide discount factors for insurance companies that have elected to use the composite method of Notice 88-100. See Rev. Proc. 2002-74. The discount factors computed using the composite method are unre- lated to the composite discount factors referred to in § 1.846-1(b)(1)(ii) and (4), which apply to lines of business for which the Secretary has not published discount factors. The composite dis- count factors for use with respect to such lines of business are labelled “Short- Tail Composite” (in Table 3, part B) and “Long-Tail Composite” (in Table 4, part B). The “Miscellaneous Casualty” discount factors referenced in § 1.846- 1(b)(2) are not set forth in tables but are equivalent to the “Short-Tail Composite” discount factors. Bulletin No. 2023–52 1611 December 26, 2023 Table 3 (part A) Discount Factors Under Section 846 (percent) For Taxable Year(s) Beginning in 2023 Short-Tail Lines of Business Accident Year Auto Physical DamageFidelity/Surety Financial Guaranty/ Mortgage GuarantyInternationalOther* 202398.382695.747795.251195.884296.9968 202297.391197.391197.391197.391197.3911 Taxpayer Not Using Composite Method 202198.599998.599998.599998.599998.5999 202098.483498.483498.483498.483498.4834 201998.478598.478598.478598.478598.4785 Years before 201998.551398.551398.551398.551398.5513 Taxpayer Using the Composite Method Years before 202298.599998.599998.599998.599998.5999 *For the Accident and Health line of business (other than disability income or credit disability insurance), the discount factor for taxable year 2023 is 98.5707 percent. December 26, 2023 1612 Bulletin No. 2023–52 Table 3 (part B) Discount Factors Under Section 846 (percent) For Taxable Year(s) Beginning in 2023 Short-Tail Lines of Business Accident Year Reinsurance - Nonproportional Assumed Financial Lines Reinsurance - Nonproportional Assumed Liability Reinsurance - Nonproportional Assumed Property Special Property (Fire, Allied Lines, Inland Marine, Earthquake, Burglary & Theft)Warranty Short-Tail Composite 202395.857494.926096.211097.593198.374297.2238 202297.391197.391197.391197.391197.391197.3911 Taxpayer Not Using Composite Method 202198.599998.599998.599998.599998.599998.5999 202098.483498.483498.483498.483498.483498.4834 201998.478598.478598.478598.478598.478598.4785 Years before 201998.551398.551398.551398.551398.551398.5513 Taxpayer Using the Composite Method Years before 202298.599998.599998.599998.599998.599998.5999 Bulletin No. 2023–52 1613 December 26, 2023 Table 4 (part A) Discount Factors Under Section 846 (percent) For Taxable Year(s) Beginning in 2023 Long-Tail Lines of Business Accident Year Commercial Auto/Truck Liability/ Medical Medical Professional Liability - Claims-Made Medical Professional Liability - Occurrence Multiple Peril Lines Other Liability - Claims-Made Other Liability - Occurrence 202394.066991.701286.883195.438291.423790.0155 202295.067993.316889.604194.330092.925391.5404 202195.434493.084290.780994.155492.444891.0405 202095.109692.834691.458092.907591.900790.5269 201994.970792.960092.421691.005091.724090.2502 201895.049893.303593.506991.603992.604090.7542 201795.326094.242394.318991.315493.077090.7788 201694.980495.129194.999391.017793.837891.9830 201596.410296.016096.122093.520094.926492.6228 201498.358597.750397.790294.853096.687694.4974 Taxpayer Not Using the Composite Method 201398.551398.551398.551396.189598.003395.8511 201298.551398.551398.551397.504598.551397.2176 Years before 201298.551398.551398.551398.551398.551398.5513 Taxpayer Using the Composite Method Years before 201498.5513 98.551398.551396.918598.092096.7300 December 26, 2023 1614 Bulletin No. 2023–52 Table 4 (part B) Discount Factors Under Section 846 (percent) For Taxable Year(s) Beginning in 2023 Long-Tail Lines of Business Accident Year Private Passenger Auto Liability/ Medical Products Liability - Claims-Made Products Liability - Occurrence Workers' Compensation Long-Tail Composite 202395.856289.178088.531788.955193.4051 202295.858991.188390.639688.356693.2372 202195.404888.496390.199085.875891.7095 202094.663583.131590.812583.318089.8805 201993.956084.415189.411882.690988.2413 201894.282486.418489.930982.890588.6421 201794.520587.804090.852783.256788.6258 201695.055089.038891.807284.103689.1661 201595.647390.296992.199284.715090.3858 201497.728291.578594.413386.594692.1457 Taxpayer Not Using the Composite Method 201398.551392.883895.773987.806593.4541 201298.551394.212497.157189.041494.7812 201198.551395.562998.551390.299596.1195 201098.551396.929998.551391.581397.4421 200998.551398.286898.551392.886798.5513 200898.551398.551398.551394.215498.5513 200798.551398.551398.551395.566198.5513 200698.551398.5513 98.551396.933498.5513 200598.551398.551398.551398.291398.5513 Years before 200598.551398.551398.551398.551398.5513 Taxpayer Using the Composite Method Years before 201498.551394.728896.690391.257995.0968 SECTION 5. DRAFTING INFORMATION The principal author of this revenue procedure is James G. Carpino of the Office of Associate Chief Counsel (Financial Institutions & Products). For further infor- mation regarding this revenue procedure contact Mr. Carpino at (202) 317-6995 (not a toll-free number). Bulletin No. 2023–52 1615 December 26, 2023 Part IV Deletions From Cumulative List of Organizations, Contributions to Which are Deductible Under Section 170 of the Code Announcement 2023-35 The Internal Revenue Service has revoked its determination that the organi- zation listed below qualifies as an organi- zation described in sections 501(c)(3) and 170(c)(2) of the Internal Revenue Code of 1986. Generally, the IRS will not disallow deductions for contributions made to a listed organization on or before the date of announcement in the Internal Revenue Bulletin that an organization no longer qualifies. However, the IRS is not pre- cluded from disallowing a deduction for any contributions made after an organiza- tion ceases to qualify under section 170(c) (2) if the organization has not timely filed a suit for declaratory judgment under sec- tion 7428 and if the contributor (1) had knowledge of the revocation of the ruling or determination letter, (2) was aware that such revocation was imminent, or (3) was in part responsible for or was aware of the activities or omissions of the organization that brought about this revocation. If on the other hand a suit for declar- atory judgment has been timely filed, contributions from individuals and orga- nizations described in section 170(c)(2) that are otherwise allowable will continue to be deductible. Protection under section 7428(c) would begin on and would end on the date the court first determines the organization is not described in section 170(c)(2) as more particularly set for in section 7428(c)(1). For individual contrib- utors, the maximum deduction protected is $1,000, with a husband and wife treated as one contributor. This benefit is not extended to any individual, in whole or in part, for the acts or omissions of the orga- nization that were the basis for revocation. The Following organization is no lon- ger qualified as an organization exempt from income tax under Internal Revenue Code (the “Code”) Section 501(a) as an organization described in Section 501(c) (3) of the Code: NAME OF ORGANIZATION EFFECTIVE DATE OF REVOCATIONLOCATION CHILDRENS CANCER COOPERATIVE INC1/1/2020SUMMERVILLE, SC December 26, 2023 1616 Bulletin No. 2023–52 Definition of Energy Property and Rules Applicable to the Energy Credit REG-132569-17 AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Notice of proposed rulemak- ing, public hearing, and partial withdrawal of notice of proposed rulemaking. SUMMARY: This document contains pro- posed regulations that would amend the regulations relating to the energy credit for the taxable year in which eligible energy property is placed in service. This document also withdraws and reproposes, for additional clarity, portions of previ- ously proposed regulations regarding the increased energy credit amount available if prevailing wage and registered apprentice- ship requirements are met. In connection with the Inflation Reduction Act of 2022, the proposed regulations would: update the types of energy property eligible for the energy credit, including additional types of energy property added by that law; clarify the application of new credit transfer rules to the energy credit recapture rules appli- cable to failures to satisfy the prevailing wage requirements, including notification requirements for eligible taxpayers; and include qualified interconnection costs in the basis of some lower-output energy properties. The proposed regulations would also provide additional requirements and rules generally applicable to energy prop- erty, such as rules regarding: functionally interdependent components; property that is an integral part of an energy property; application of an “80/20 Rule” to retrofitted energy property; dual use property; sepa- rate ownership of components of an energy property; property that could be eligible for multiple Federal income tax credits; and the election to treat qualified facilities eligible for the renewable electricity pro- duction credit instead as property eligible for the energy credit. The proposed regu- lations would impact taxpayers who invest in energy property eligible for the energy credit. DATES: Written or electronic comments must be received by January 22, 2024. A public hearing on these proposed regula- tions is scheduled to be held on February 20, 2024, at 10 a.m. ET. Requests to speak and outlines of topics to be discussed at the public hearing must be received by January 22, 2024. If no outlines are received by January 22, 2024, the public hearing will be cancelled. Requests to attend the public hearing must be received by 5 p.m. on February 15, 2024. The pub- lic hearing will be made accessible to people with disabilities. Requests for spe- cial assistance during the hearing must be received by 5 p.m. on February 14, 2024. ADDRESSES: Commenters are strongly encouraged to submit public comments electronically. Submit electronic submis- sions via the Federal eRulemaking Portal at www.regulations.gov (indicate IRS and REG-132569-17) by following the online instructions for submitting comments. Once submitted to the Federal eRulemak- ing Portal, comments cannot be edited or withdrawn. The Department of Treasury (Treasury Department) and the IRS will publish for public availability any com- ments submitted, whether electronically or on paper, to the IRS’s public docket. Send paper submissions to: CC:PA:LPD:PR (REG-132569-17), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington DC 20044. FOR FURTHER INFORMATION CONTACT: Concerning the pro- posed regulations, Office of Associate Chief Counsel (Passthroughs & Special Industries) at (202) 317-6853 (not a toll- free number); concerning submissions of comments or the public hearing, Vivian Hayes, (202) 317-6901 (not toll-free num- ber) or by email to publichearings@irs. gov (preferred). SUPPLEMENTARY INFORMATION: Background This notice of proposed rulemaking consists of several proposed amendments to the existing Income Tax Regulations (26 CFR part 1) under section 48 of the Internal Revenue Code (Code) addressing the energy credit determined under sec- tion 48 (section 48 credit) for purposes of sections 38 and 46 of the Code (proposed regulations). This notice of proposed rulemaking also withdraws and reproposes portions of another notice of proposed rulemaking (REG-100908-23) proposing regulations under section 48 that were published in the Federal Register (88 FR 60018) on August 30, 2023. This notice of proposed rulemaking would also propose additional regulations under section 6418 of the Code to supplement a notice of proposed rulemaking (REG-101610-23) published in the Federal Register (88 FR 40496) on June 21, 2023. Section 38 allows certain business credits against the Federal income tax imposed by chapter 1 of the Code (chap- ter 1). Among the credits allowed by section 38 are the investment credit deter- mined under section 46, which includes the energy credit determined under sec- tion 48. See sections 38(b)(1) and 46(2). Section 48(a)(1) generally provides that the energy credit for any taxable year is the energy percentage of the basis of each energy property placed in service during such taxable year. For most types of energy property, eligibility for the section 48 credit and, in some cases, the amount of the section 48 credit for which energy property is eligible, are dependent upon meeting certain deadlines for beginning construction of the energy property and for placing the energy property in service. Section 48 was originally enacted by section 2 of the Revenue Act of 1962, Public Law 87-834, (76 Stat. 960, 963) to spur economic growth by encourag- ing investments in various capital proj- ects across many industries including energy, transportation, and communica- tions. Section 48 has been amended many times since its enactment, most recently by section 13102 of Public Law 117-169, 136 Stat. 1818 (August 16, 2022), com- monly known as the Inflation Reduction Act of 2022 (IRA). The IRA amended section 48 in several ways, including by making additional types of energy prop- erty eligible for the section 48 credit, providing a special rule to allow certain lower-output energy properties to include qualified interconnection costs in the basis of associated energy property, and Bulletin No. 2023–52 1617 December 26, 2023 providing an increased credit amount for energy projects that satisfy prevailing wage and apprenticeship requirements, a domestic content bonus credit amount, and an increase in credit rate for energy communities. The current Income Tax Regulations at §1.48-9, which provide definitions and eligibility rules for determining whether property is energy property eligible for the section 48 credit, were published on January 23, 1981 (T.D. 7765, 46 FR 7287). Those regulations were amended on July 21, 1987 (T.D. 8147, 52 FR 27336), to provide rules for dual use property, but have not been updated since 1987, before many of the current types of energy prop- erty became eligible for the section 48 credit. Prior to proposing amendments to the existing regulations under section 48, the Treasury Department and the IRS have twice requested comments on issues to be addressed. On October 26, 2015, the Treasury Department and the IRS pub- lished Notice 2015-70, 2015-43 I.R.B. 604, to request comments regarding stat- utory updates to section 48 preceding those made by the IRA. On October 24, 2022, in response to the passage of the IRA, the Treasury Department and the IRS published Notice 2022-49, 2022-43 I.R.B. 321, to request general as well as specific comments on issues arising under section 48, among other sections, that were amended or added by the IRA. After consideration of comments submitted in response to Notice 2015-70 and Notice 2022-49, and after consultation with the Department of Energy, the Treasury Department and the IRS propose the revi- sions to the existing regulations under section 48 contained in this notice of pro- posed rulemaking. On August 30, 2023, the Treasury Department and the IRS published in the Federal Register (88 FR 60018) a notice of proposed rulemaking (REG- 100908-23) proposing rules regarding the increased credit amount available for taxpayers satisfying prevailing wage and registered apprenticeship requirements established by the IRA (August Proposed Regulations). The August Proposed Regulations provided rules addressing the recapture under section 48(a)(10)(C) of increased credit amounts from only initially satisfying the prevailing wage requirements under section 48(a)(10)(A) and (B). Comments were requested and a public hearing has been scheduled for November 21, 2023. This notice of pro- posed rulemaking withdraws certain por- tions of the August Proposed Regulations and reproposes regulations that would provide additional guidance on the pre- vailing wage and apprenticeship require- ments under section 48, including the statutory exception for energy projects with a maximum output of less than one megawatt (MW) and the recapture rules under section 48(a)(10)(C) related to the prevailing wage requirements. Although this notice of proposed rulemaking withdraws certain portions of the August Proposed Regulations, the Explanation of Provisions section in the preamble to the August Proposed Regulations generally remains relevant. Therefore, to the extent not inconsistent with the Summary of Comments and Explanation of Provisions section of this preamble, the Explanation of Provisions section of the August Proposed Regulations is incorporated by reference in this notice of proposed rulemaking. This notice of proposed rulemaking does not address written comments that were submitted in response to the regulations proposed in the August Proposed Regulations. Any comments received in response to this notice of proposed rulemaking, including comments on the reproposed regulations, will be addressed in the Treasury Decision adopting these regulations as final regu- lations. This notice of proposed rulemak- ing does not extend the comment period or affect the scheduled hearing for the August Proposed Regulations. On June 21, 2023, the Treasury Department and the IRS published in the Federal Register (88 FR 40496) a notice of proposed rulemaking (REG- 101610-23) proposing rules concerning the election under section 6418 of the Code established by the IRA to transfer certain Federal income tax credits, includ- ing the section 48 credit (June Proposed Regulations). The June Proposed Regulations provided proposed rules addressing notification requirements and the impact of credit recapture rules under sections 50(a), 49(b), and 45Q(f)(4) of the Code in proposed §1.6418-5. Comments were requested and a public hearing on the June Proposed Regulations was held on August 23, 2023. This document amends those June Proposed Regulations to add guidance to proposed §1.6418-5 that describes the recapture rules relating to failing to satisfy the prevailing wage and apprenticeship requirements under section 48(a)(10) and (11), including the statutory exception for energy projects with a max- imum output of less than 1 MW in sec- tion 48(a)(9)(B)(i), and the recapture rules under section 48(a)(10)(C) related to the prevailing wage requirements. This notice of proposed rulemaking does not address written comments that were submitted in response to the regulations proposed in the June Proposed Regulations. Any comments received in response to this notice of proposed rulemaking, includ- ing the amendments to the June Proposed Regulations, will be addressed in the Treasury Decision adopting these regula- tions as final regulations. This notice of proposed rulemaking does not otherwise extend the comment period for the June Proposed Regulations. Summary of Comments and Explanation of Provisions I. Requirements for Energy Property For purposes of the section 48 credit, energy property consists of all the com- ponents of property that meet the statu- tory requirements for an energy property as defined by section 48. Components of an energy property are those that would be included in a unit of energy property because they are functionally interdepen- dent (as described in proposed §1.48-9(f) (2)(ii)) as well as property owned by the same taxpayer that is an integral part of such energy property (as described in pro- posed §1.48-9(f)(3)). Additionally, com- ponents of property must not be a type of property specifically excluded from energy property (as described in proposed §1.48-9(d)). Section 48(a)(3)(B)-(D) provides gen- eral requirements for all types of energy property. Section 48(a)(3)(B)(i) defines energy property as property that is con- structed, reconstructed, or erected by the taxpayer. Alternatively, section 48(a) (3)(B)(ii) provides that energy property December 26, 2023 1618 Bulletin No. 2023–52 can also include property which the tax- payer acquires if the original use of such property commences with the taxpayer. Section 48(a)(3)(C) provides that to be eligible as energy property, deprecia- tion (or amortization in lieu of deprecia- tion) must be allowable for the property. Section 48(a)(3)(D) provides that to be eligible as energy property, the property must also meet any performance and qual- ity standards that have been prescribed by the Secretary of the Treasury or her del- egate (Secretary), after consultation with the Secretary of Energy, and are in effect at the time of the taxpayer’s acquisition of the property. Under section 48(a)(3), energy property does not include property that is part of a qualified facility the pro- duction from which is allowed a renewable electricity production credit determined under section 45 (section 45 credit) for the taxable year or any prior taxable year. Lastly, where section 48 provides dates by which construction of energy property must begin or when energy property must be placed in service, such energy prop- erty must meet those deadlines to be eli- gible for the section 48 credit at specified energy percentages. Proposed §1.48-9(a) would provide this general overview of the definition of energy property. A. Definitions related to requirements for energy property Before 1990, section 48 defined the term “section 38 property” to include, among other types of property, energy property eligible for the section 48 credit. The Revenue Reconciliation Act of 1990, Public Law 101-508, 104 Stat. 1388 (November 5, 1990) removed the term “section 38 property” in amending sec- tion 48. However, section 48 is one of the credits that comprise the investment credit for any taxable year determined under section 46, which is included in section 38(b)(1) and remains subject to the gen- eral business credit rules under section 38. As a result, rules related to “section 38 property” remain generally applica- ble to the section 48 credit. The Treasury Department and the IRS published regu- lations under §§1.48-1 and 1.48-2 to pro- vide guidance with respect to section 38 property. Section 1.48-1 was last substan- tially revised on October 11, 1988 (T.D. 8233, 53 FR 39592) and §1.48-2 was last revised on June 28, 1985 (T.D. 8031, 50 FR 26698). Although subsequent amend- ments to section 48 have made some of the rules provided by these regulations inap- plicable, those rules continue to provide useful definitions, some of which §1.48-9 of these proposed regulations (proposed §1.48-9) would adopt. 1. Construction, Reconstruction, or Erection of Energy Property Section 48(a)(3)(B)(i) defines energy property as property that is constructed, reconstructed, or erected by the taxpayer. Existing §1.48-2(b)(1) provides that property is considered as constructed, reconstructed, or erected by the taxpayer if the work is performed for the taxpayer in accordance with the taxpayer’s speci- fications. Proposed §1.48-9(b)(1) would largely adopt the definition of the term “constructed, reconstructed, or erected” from existing §1.48-2(b)(1) while modi- fying it to address energy property. 2. Acquisition and Original Use of Energy Property Section 48(a)(3)(B)(ii) provides that energy property includes property that is acquired by the taxpayer if the orig- inal use of such property commences with the taxpayer. Existing §1.48-2(b) (6) provides that property is deemed to be acquired when reduced to physical possession or control by the taxpayer. Proposed §1.48-9(b)(2) would adopt the concepts from existing §1.48-2(b)(6), and provide additional clarification that the term “acquisition of energy prop- erty” means a transaction by which a tax- payer obtains rights and obligations with respect to energy property, including title to the energy property under the law of the jurisdiction in which the energy property is placed in service, unless the property is possessed or controlled by the taxpayer as a lessee, and physical posses- sion or control of the energy property. In addition, existing §1.48-2(b)(7) defines the term “original use” as the first use to which the property is put, whether or not such use corresponds to the use of such property by the taxpayer. Proposed §1.48-9(b)(3) largely would adopt the §1.48-2(b)(7) definition of original use while modifying it to address energy property. 3. Depreciation Allowable Section 48(a)(3)(C) requires that energy property be property with respect to which depreciation (or amortization in lieu of depreciation) is allowable, and existing §1.48-1(b) explains when depre- ciation is allowable with respect to sec- tion 38 property. Specifically, §1.48-1(b) provides that a deduction for depreciation is allowable if the property is of a char- acter subject to the allowance for depre- ciation under section 167 of the Code and the basis (or cost) of the property is recovered through a method of deprecia- tion, including, for example, the unit of production method and the retirement method as well as methods of deprecia- tion that measure the life of the property in terms of years. Proposed §1.48-9(b) (4)(i) generally would adopt the §1.48- 1(b) rule for determining whether depre- ciation is “allowable” under section 48, with certain modifications to update the described methods of depreciation and to make the definition specific to energy property as defined in section 48. Proposed §1.48-9(b)(4)(i) would also clarify that the 100-percent additional first year depreciation provided by sec- tion 168(k) of the Code is considered a method of depreciation. In addition, existing §1.48-1(b)(3) pro- vides language describing when depreci- ation is not allowable to the taxpayer for purposes of defining section 38 property. Section 1.48-1(b)(3) provides that if the cost of property is not recovered through a method of depreciation but through a deduction of the full cost in one taxable year, for purposes of §1.48-1(b)(1) a deduction for depreciation with respect to such property is not allowable to the taxpayer. However, if an adjustment with respect to the income tax return for such taxable year requires the cost of such property to be recovered through a method of depreciation, a deduction for deprecia- tion will be considered as allowable to the taxpayer. Proposed §1.48-9(b)(4)(ii) generally would adopt this rule from §1.48-1(b) (3) to determine when depreciation is Bulletin No. 2023–52 1619 December 26, 2023 not allowable, with certain modifica- tions to update the described methods of depreciation and to make the definition specific to energy property as defined in section 48. Proposed §1.48-9(b)(4) would provide that if the basis or cost of energy property is not recovered through a method of depreciation but through a deduction of the full cost in one taxable year, a deduction for depreciation with respect to such property is not allowable to the taxpayer. However, proposed §1.48-9(b)(4)(i) would provide that if an IRS adjustment with respect to an income tax return or information return for such taxable year requires the basis or cost of such property to be recovered using a method of depre- ciation, including any additional first year depreciation deduction provision in the Code, a deduction for depreciation will be considered as allowable to the taxpayer. 4. Performance and Quality Standards for Energy Property Section 48(a)(3)(D) provides that energy property is property that meets the performance and quality standards (if any) that have been prescribed by the Secretary by regulations (after consultation with the Secretary of Energy), and are in effect at the time of the acquisition of the prop- erty. Existing §1.48-9(m)(1) provides that “energy property must meet quality and performance standards, if any, that have been prescribed by the Secretary (after consultation with the Secretary of Energy) and are in effect at the time of acquisition.” Proposed §1.48-9(c)(2) would adopt this rule for performance and quality standards for energy property from §1.48-9(m)(1). After consultation with the Department of Energy, proposed §1.48-9(c)(2)(ii) would provide special rules for perfor- mance and quality standards with respect to both small wind and electrochromic glass property. These clarifications are needed to ensure that the intended energy production or savings occurs. a. Performance and quality standards for small wind energy property Proposed §1.48-9(c)(2)(ii)(A) would provide that small wind energy property must meet the performance and quality standards in effect at the time of acqui- sition of the small wind turbine set forth in one of the following: the American Wind Energy Association Small Wind Turbine Performance and Safety Standard 9.1-2009, or subsequent revisions (AWEA); International Electrotechnical Commission 61400-1, 61400-2, 61400- 11, 61400-12, or subsequent revisions (IEC); or the ANSI/ACP 101-1-2021, the Small Wind Turbine Standard, or subsequent revisions (ACP). Proposed §1.48-9(c)(2)(ii)(A) would also provide that certification requirements applicable to such performance and quality stan- dards for small wind energy property are provided in guidance published in the Internal Revenue Bulletin, such as Notice 2015-4, 2015-5 I.R.B. 407, and its succes- sor, Notice 2015-51, 2015-31 I.R.B. 133. b. Performance and quality standards for electrochromic glass property As described in part I.C.2.b of this Summary of Comments and Explanation of Provisions, electrochromic glass is incorporated into either an electrochromic window or secondary glazing product. Accordingly windows, including second- ary glazings, that incorporate electrochro- mic glass are electrochromic glass property for purposes of the section 48 credit. Proposed §1.48-9(c)(2)(ii)(B) would also adopt the requirement that windows that incorporate electrochromic glass must be rated in accordance with the National Fenestration Rating Council (NFRC) and would provide that secondary glazing systems must be rated in accordance with the Attachments Energy Rating Council (AERC) Rating and Certification Process, or subsequent revisions. c. Time of acquisition Existing §1.48-9(m)(2) provides that the time of acquisition for purposes of applying quality and performance stan- dards for energy property is either (i) the date the taxpayer enters into a binding contract to acquire the property; or (ii) for property constructed, reconstructed, or erected by the taxpayer, the earlier of the date that the taxpayer begins construction, reconstruction, or erection of the property, or the date the taxpayer and another person enter into a binding contract requiring the other person to construct, reconstruct, or erect property and place the property in service for an agreed upon use. Proposed §1.48-9(c)(2)(iii) would adopt the rule for the “time of acquisition” from §1.48-9(m) (2) only for purposes of applying the per- formance and quality standards for energy property. d. Binding contract Section 1.168(k)-2(b)(5)(iii)(A) pro- vides the following definition of a binding contract in the context of the acquisition of qualified property for the allowance of additional first year depreciation under section 168(k) of the Code: A contract is binding only if it is enforceable under State law against the taxpayer or a predecessor, and does not limit damages to a specified amount (for example, by use of a liquidated damages provision). For this purpose, a contractual provision that limits dam- ages to an amount equal to at least five percent of the total contract price will not be treated as limiting damages to a specified amount. Proposed §1.48-9(c)(2)(iv) would adopt this definition of the term “binding contract” from §1.168(k)-2(b)(5)(iii)(A) for purposes of applying the performance and quality standards for energy property. 5. Placed in Service Section 48(a) provides that the energy credit for any taxable year is the energy percentage of the basis of each energy property placed in service during such taxable year. As part of the regulations under section 46 for the investment credit, §1.46-3(d)(1) provides general rules for determining when a taxpayer has placed a property in service for the section 48 credit. Property is considered placed in service in the earlier of the taxable year in which, under the taxpayer’s deprecia- tion practice, the period for depreciation with respect to such property begins; or the taxable year in which the property is placed in a condition or state of readiness and availability for a specifically assigned function, whether in a trade or business, in December 26, 2023 1620 Bulletin No. 2023–52 the production of income, in a tax-exempt activity, or in a personal activity. Proposed §1.48-9(b)(5) largely would adopt the general rules from §1.46-3(d) (1) for determining whether a taxpayer has placed an energy property in service with certain modifications. As discussed previously, to be eligible for the section 48 credit, energy property must be prop- erty with respect to which depreciation (or amortization in lieu of depreciation) is allowable. Further, one requirement for determining if depreciation is allowable with respect to energy property is that the basis or cost of such energy property is recovered using a method of deprecia- tion. Accordingly, proposed §1.48-9(b)(5) (i) clarifies that the taxable year in which energy property is placed in service would be the earlier of the taxable year in which the period for depreciation of such prop- erty begins, or the taxable year in which the energy property is placed in a condi- tion or state of readiness and availability for a specifically assigned function in either a trade or business or in the produc- tion of income. In addition, section 50(b)(3) of the Code provides that tax-exempt organi- zations cannot determine an investment tax credit, including the section 48 credit, unless the property is used predominantly in an unrelated trade or business, so the proposed regulations do not include a rule applicable to tax-exempt use. However, section 6417(d)(2) of the Code provides that an applicable entity (as defined in section 6417(d)(1), and including a tax-exempt organization) making an elective payment election under section 6417 can determine an applicable credit (defined in section 6417(b), and includ- ing the section 48 credit) without regard to section 50(b)(3), by treating any property with respect to which the sec- tion 48 credit is determined as used in a trade or business of the applicable entity. (See the rules of proposed §1.6417-2(c) (2) contained in the notice of proposed rulemaking (REG-101607-23) published in the Federal Register (88 FR 40528) on June 21, 2023.) Thus, if the rules under section 6417(d)(2) apply, the general rule adopted in proposed §1.48-9(b)(5) (i) would apply to determine when the energy property is placed in service by an applicable entity. Section 1.46-3(d)(3) provides that not- withstanding the provisions of §1.46-3(d) (1), property with respect to which an election is made under §1.48-4 to treat the lessee as having purchased such property is considered placed in service by the les- sor in the taxable year in which possession is transferred to such lessee. Proposed §1.48-9(b)(5)(ii) would adopt the special rule from §1.46-3(d)(3) for determining when a leased property has been placed in service. B. Property excluded from energy property Section 48(a)(5) generally provides an election to treat certain types of qual- ified facilities as defined in section 45(d), referred to as a “qualified investment credit facility,” as energy property for purposes of section 48. However, section 48(a)(5)(B) provides that no section 45 credit is allowed for any taxable year with respect to any qualified investment credit facility. Section 48(a)(5)(C) provides, in part, that the term “qualified invest- ment credit facility” means any qualified facility with respect to which no section 45 credit has been allowed for which the taxpayer makes an irrevocable elec- tion. Accordingly, proposed §1.48-9(d) would exclude from energy property any property that is part of a qualified facility with respect to which a section 45 credit is allowed for any taxable year, including any prior taxable year. The Treasury Department and the IRS understand that energy storage technolo- gies eligible for the section 48 credit are often co-located with qualified facilities eligible for the section 45 credit and may share power conditioning and transfer equipment. In consideration of this prac- tice, the proposed rules would provide that power conditioning and transfer equip- ment that is shared by a qualified facility (as defined in section 45(d)) and an energy property may be treated as an integral part of the section 48 energy property. Such shared property is not considered part of a qualified facility and, therefore, the shar- ing of such property will not impact the ability of a taxpayer to claim the section 48 credit for the energy property or the section 45 credit for the qualified facil- ity. The Treasury Department and the IRS request comments regarding whether additional guidance is needed on this rule. C. Types of energy property Proposed §1.48-9(e) would expand upon the definitions of energy property provided in existing §1.48-9 to account for new technologies that were added by amendments to section 48, including by section 13102 of the IRA. Generally, the definitions of the types of energy prop- erty provided in the proposed regulations do not provide specific beginning of con- struction or placed in service deadlines. Taxpayers should refer to the current stat- utory language of section 48 for specific requirements applicable to each type of energy property with respect to any par- ticular taxable year. The following defi- nitions in proposed §1.48-9(e) for the different types of energy properties were developed by the Treasury Department and the IRS in consultation with the Department of Energy. 1. Solar Energy Property Section 48(a)(3)(A)(i) provides that energy property includes solar energy property and defines solar energy prop- erty as any property that is equipment that uses solar energy to generate electricity, to heat or cool (or provide hot water for use in) a structure, or to provide solar process heat, excepting property used to generate energy for the purposes of heating a swim- ming pool. Existing §1.48-9(d)(1) defines solar energy property as including equipment and materials (and parts related to the func- tioning of such equipment) that use solar energy directly to (i) generate electricity, (ii) heat or cool a building or structure, or (iii) provide hot water for use within a building or structure. Further, existing §1.48-9(d)(3), in part, defines solar elec- tric generation equipment as equipment that uses solar energy to generate elec- tricity through a process that involves the transformation of sunlight into electricity through the use of such devices as solar cells or other collectors. In response to Notice 2015-70, com- menters requested that the Treasury Department and the IRS provide guid- ance regarding specific components that Bulletin No. 2023–52 1621 December 26, 2023 may be considered solar energy property, including in photovoltaic (PV) systems (including concentrated PV systems), non-PV concentrated solar power systems (passive solar), solar process, and thermal systems. Several commenters requested that the regulations explicitly list certain types of technologies as solar energy property, such as integrated thermoplas- tic roofing and racking systems. Other commenters requested that the regula- tions simply define solar energy property to include common components such as controllers to manage use of solar energy, mounting structures, energy storage tech- nology, power conditioning equipment, and step-up transformers. Proposed §1.48-9(e)(1)(i) would depart from the existing definition of solar energy property at §1.48-9(d)(1) by adopting a modified version of the cur- rent statutory definition, which provides that solar energy property is equipment that uses solar energy to generate elec- tricity, to heat or cool a structure, or to provide solar process heat, and parts related to the functioning of such equip- ment. Proposed §1.48-9(e)(1)(ii) would define the term “solar electric generation equipment” as equipment that converts sunlight into electricity through the use of devices such as solar cells or other col- lectors, while adopting the current statu- tory exclusion for any property used to generate energy for the purposes of heat- ing a swimming pool. The proposed reg- ulations would eliminate the exclusion for passive solar in existing §1.48-9(d) (2) because section 48 does not distin- guish between passive and active solar energy systems. Finally, the proposed regulations would apply the functional interdependence test as described in part I.D.2 of this Summary of Comments and Explanation of Provisions to determine whether components are included as part of solar energy property. Existing §1.48-9(d)(7) provides that solar energy property does not include equipment that uses solar energy to gen- erate steam at high temperatures for use in industrial or commercial processes (solar process heat). This definition conflicts with section 48(a)(3)(A)(i). Accordingly, the proposed regulations would adopt the statutory language by explicitly including solar process heat within the definition of the term “solar energy property.” After consultation with the Department of Energy, proposed §1.48-9(e)(1)(iii) would define “solar process heat equipment” as equipment that uses solar energy to gen- erate heat for use in industrial or commer- cial processes. 2. Fiber-optic Solar Energy Property and Electrochromic Glass Property a. Fiber-optic solar energy property Section 48(a)(3)(A)(ii) provides that energy property includes equipment that uses solar energy to illuminate the inside of a structure using fiber-optic distrib- uted sunlight. The Treasury Department and the IRS received no comments in response to Notice 2022-49 regard- ing fiber-optic solar energy property. Accordingly, proposed §1.48-9(e)(2) (i) would adopt the statutory definition of fiber-optic solar energy property. Additionally, the proposed regulations would apply the functional interdepen- dence test as described in part I.D.2 of this Summary of Comments and Explanation of Provisions to determine whether com- ponents are included as part of fiber-optic solar energy property. b. Electrochromic glass property Section 48(a)(3)(A)(ii) was modified by the IRA to add electrochromic glass property as a type of energy property. That provision defines electrochromic glass property as equipment that uses electricity to change its light transmit- tance properties in order to heat or cool a structure. The Treasury Department and IRS consulted with the Department of Energy to determine the types of property eligible as electrochromic glass property. Accordingly, §1.48-9(e)(2)(ii) would provide that there are only two types of electrochromic glass property: (i) elec- trochromic glass incorporated into a full window that is installed directly into a building or (ii) electrochromic glass incor- porated into a secondary window (known as secondary glazing) that is installed on top of an existing window. For each type of electrochromic glass property, there is a separate control package consisting of electronics, power supply, sensors, and software necessary to control the oper- ations of the electrochromic glass prop- erty. Thus, electrochromic glass property is not only comprised of electrochromic glass but also the relevant window or secondary glazing property that incorpo- rates the electrochromic glass property. Therefore, in addition to the electronic controls package that includes the power electronics, sensors, wires, and software systems, the electrochromic window or secondary glazing also includes the elec- trochromic glass coating and the balance of window and installation components including glass, flashing, framing, and sealants, as applicable, to the type of electrochromic glass property. In response to Notice 2022-49, sev- eral commenters provided input on the definition of electrochromic glass prop- erty. Several commenters requested a narrow definition. Other commenters suggested adopting a broader definition of electrochromic glass property. One commenter stated that interpretations of the terms “electrochromic glass” or “dynamic glass” should be expanded to include any material or technology that meets or exceeds the performance criteria for such components established by the most recent Energy Star or International Energy Conservation Code (IECC) stan- dards in effect at the time such component is placed in service. In response to the comments and after consultation with the Department of Energy, the proposed regulations would clarify the definition of electrochromic glass property. Proposed §1.48-9(e)(2) (ii) would adopt the statutory definition of electrochromic glass property while providing that light transmittance prop- erties include both visible light and near infrared light. Additionally, as mentioned previously, proposed §1.48-9(c)(2)(ii)(B) would adopt the performance and qual- ity standards that new electrochromic windows must be rated in accordance with the NFRC and secondary glazing systems must be rated in accordance with the AERC Rating and Certification Process, or subsequent revisions. The application of these performance and quality standards are needed to ensure that the intended energy savings occurs from the installation of electrochromic glass property. December 26, 2023 1622 Bulletin No. 2023–52 The Treasury Department and the IRS received comments requesting guidance concerning the eligible components of electrochromic glass property. Similar to the other energy properties, the proposed regulations would apply the functional interdependence test as described in part I.D.2 of this Summary of Comments and Explanation of Provisions to determine whether components are included as part of electrochromic glass property. This approach provides a technology-neutral way to determine what is considered included in the energy property that is broad enough to encompass techno- logical changes. In the case of electro- chromic glass property, for example, an electrochromic glass system includes the full controls package, the electro- chromic glass coating, and the balance of window and installation components including glass, flashing, framing, and sealants. 3. Geothermal Energy Property Section 48(a)(3)(A)(iii) provides that energy property includes geothermal property, and defines geothermal property as equipment used to produce, distribute, or use energy derived from a geothermal deposit (within the meaning of section 613(e)(2) of the Code), but only, in the case of electricity generated by geother- mal power, up to (but not including) the electrical transmission stage. Existing §1.48-9(c)(10)(i) defines “geothermal equipment” as equipment that produces, distributes, or uses energy derived from a geothermal deposit. Existing §1.48-9(c)(10) generally pro- vides that geothermal property includes production and distribution equipment. Proposed §1.48-9(e)(3)(i) would adopt this definitional framework by providing that geothermal energy property is equip- ment used to produce, distribute, or use energy derived from a geothermal deposit (within the meaning of section 613(e)(2)), and includes production equipment (as defined in proposed §1.48-9(e)(3)(ii)) and distribution equipment (as defined in pro- posed §1.48-9(e)(3)(iii)). Proposed §1.48-9(e)(3)(ii) would adopt a modified definition of production equip- ment from existing §1.48-9(c)(10)(ii) in three respects. First, proposed §1.48-9(e) (3)(ii) would provide, in part, that produc- tion equipment includes equipment nec- essary to bring geothermal energy from the subterranean deposit to the surface. Second, while existing §1.48-9(c)(10)(ii) provides that reinjection wells required for production may qualify as produc- tion equipment, proposed §1.48-9(e)(3) (ii) would expand the types of wells that may qualify as production equipment to production, injection, and monitoring wells. Third, proposed §1.48-9(e)(3)(ii) would also include the electricity gener- ating equipment as production equipment for those projects that convert geothermal energy to electricity. Proposed §1.48-9(e)(3)(iii) would adopt a modified definition of distribution equipment from existing §1.48-9(c)(10) (iii). The existing regulations provide that distribution equipment includes compo- nents of a heating system, such as pipes and ductwork that distribute the energy derived from the geothermal deposit within a building. Proposed §1.48-9(e) (3)(iii) would also add components of a building’s heating or cooling system as distribution equipment. The proposed regulations would apply the functional interdependence test as described in part I.D.2 of this Summary of Comments and Explanation of Provisions to determine whether components are included as part of geothermal energy property. In response to Notice 2015-70, one commenter requested that the regulations be modified to include as credit eligible costs incurred to drill failed or non-pro- ducing wells, and in some scenarios, for the margin or contingency that a subsid- iary contractor requires to be paid to per- form under an engineering, procurement, and construction (EPC) contract. While the proposed regulation would expand the types of wells that may be considered pro- duction equipment, it would not specifi- cally include costs incurred to drill failed or non-producing wells. In many cases costs incurred to drill failed or non-pro- ducing geothermal wells are already recoverable through intangible drilling costs under §1.612-5. It is also unclear whether the margin or contingency that a subsidiary contractor requires to be paid to perform under an EPC contract can be recovered by a taxpayer. However, if such costs are recoverable, such recovery would likely occur through capitalizing the costs to the underlying mineral interest and claiming depletion deductions under section 613(e). Therefore, the Treasury Department and the IRS have determined that these costs cannot be included in the basis of the geothermal energy property for purposes of calculating the section 48 credit. 4. Qualified Fuel Cell Property Section 48(a)(3)(A)(iv) provides that energy property includes qualified fuel cell property. As modified by the IRA, section 48(c)(1) defines “qualified fuel cell property” as a fuel cell power plant that has a nameplate capacity of at least 0.5 kilowatt (kW) (1 kW in the case of a fuel cell power plant with a linear genera- tor assembly) of electricity using an elec- trochemical process or electromechanical process and an electricity-only genera- tion efficiency greater than 30 percent. Electricity-only generation efficiency may be calculated by dividing the heat rate of the fuel cell (for example, kilo- watt-hours (kWh) electricity produced per kilogram (kg) of fuel consumed) by the higher heating value of the fuel (for example, kWh per kg). Section 48(c) (1)(C) defines the term “fuel cell power plant” as an integrated system comprised of a fuel cell stack assembly, or linear generator assembly, and associated bal- ance of plant components that converts a fuel into electricity using electrochemi- cal or electromechanical means. The Treasury Department and the IRS received few comments regarding qual- ified fuel cell property in response to Notice 2022-49. As discussed, the pro- posed regulations are intended to provide a technology-neutral way to determine what is included in energy property that is broad enough to encompass technolog- ical changes and do not include rules for a particular type of product. As a result, proposed §1.48-9(e)(4) would adopt the statutory definition of qualified fuel cell property. The proposed regulations would also apply the functional interdependence test as described in part I.D.2 of this Summary of Comments and Explanation of Provisions to determine whether com- ponents are included as part of qualified fuel property. Bulletin No. 2023–52 1623 December 26, 2023 5. Qualified Microturbine Property Section 48(a)(3)(A)(iv) provides that energy property includes qualified micro- turbine property. Section 48(c)(2) defines “qualified microturbine property” as a sta- tionary microturbine power plant that has a nameplate capacity of less than 2,000 kW and an electricity-only generation efficiency of not less than 26 percent at International Standard Organization con- ditions. Section 48(c)(2)(C) provides that a “stationary microturbine power plant” is an integrated system comprised of a gas turbine engine, a combustor, a recuperator or regenerator, a generator or alternator, and associated balance of plant compo- nents that convert a fuel into electricity and thermal energy. A stationary microturbine power plant also includes all secondary components located between the existing infrastructure for fuel delivery and the existing infrastructure for power distribu- tion, including equipment and controls for meeting relevant power standards, such as voltage, frequency, and power factors. The Treasury Department and the IRS received no comments regarding qualified microturbine property in response to the request for comment published in Notice 2022-49. Therefore, proposed §1.48-9(e) (5) would adopt the statutory definition of qualified microturbine property. The proposed regulations would also apply the functional interdependence test as described in part I.D.2 of this Summary of Comments and Explanation of Provisions to determine whether components are included as part of qualified microturbine property. 6. Combined Heat and Power System Property Section 48(a)(3)(A)(v) includes com- bined heat and power system (CHP) prop- erty as a type of energy property. Section 48(c)(3)(A) defines CHP property as property comprising a system that uses the same energy source for the simulta- neous or sequential generation of elec- trical power, mechanical shaft power, or both, in combination with the generation of steam or other forms of useful thermal energy (including heating and cooling applications). Section 48(c)(3)(A) further provides, in part, that a CHP property must produce at least 20 percent of its total useful energy in the form of thermal energy that is not used to produce elec- trical or mechanical power (or combina- tion thereof), and at least 20 percent of its total useful energy in the form of electri- cal or mechanical power (or combination thereof), and that the energy efficiency percentage of the system must exceed 60 percent. Section 48(c)(3)(B) provides that the credit for CHP property is reduced to the extent that a CHP property has an electri- cal or mechanical capacity in excess of applicable limits. Subject to the exception for CHP property that uses closed or open- loop biomass as feedstock, CHP property with capacity in excess of the applicable capacity limit (15 MW or a mechanical capacity of more than 20,000 horsepower or an equivalent combination of electri- cal and mechanical energy capacities) is eligible for only a fraction of the oth- erwise allowable section 48 credit. The fraction is equal to the applicable capacity limit divided by the capacity of the CHP property. However, CHP property with a capacity in excess of 50 MW or a mechan- ical energy capacity in excess of 67,000 horsepower or an equivalent combina- tion of electrical and mechanical energy capacities does not qualify for the section 48 credit. Section 48(c)(3)(C) provides that the energy efficiency percentage of a CHP property is the fraction (1) the numera- tor of which is the total useful electrical, thermal, and mechanical power produced by the system at normal operating rates, and expected to be consumed in its nor- mal application, and (2) the denomina- tor of which is the lower heating value of the fuel sources for the system. The energy efficiency percentage and the per- centages under section 48(c)(3)(A)(ii) are determined on a British thermal unit (Btu) basis. Section 48(c)(3)(C)(iii) spe- cifically provides that the term “combined heat and power system property” does not include property used to transport the energy source to the facility or to distrib- ute energy produced by the facility. Additionally, section 48(c)(3)(D) pro - vides that a CHP property with a fuel source that is at least 90 percent from closed or open-loop biomass that would otherwise qualify for the section 48 credit but for the failure to meet the efficiency standard is eligible for a credit reduced in proportion to the degree to which the system fails to meet the efficiency stan- dard. For example, a system that would otherwise be required to meet the 60-per- cent efficiency standard, but which only achieves 30-percent efficiency, would be permitted to claim a credit equal to one- half of the otherwise allowable credit (that is, a five percent credit). In response to Notice 2015-70, several commenters requested that the definition of CHP property be modified by relax- ing certain requirements. Specifically, commenters requested that the definition of CHP property be modified by elimi- nating or reducing the requirement that a facility produce at least 20 percent of its total useful energy in the form of electri- cal or mechanical power (or combination thereof). This modification would allow waste heat to power (WHP) property, which uses waste heat from industrial processes to generate electricity, to qual- ify as CHP property despite its inability to meet certain statutory requirements. Since the comments to Notice 2015-70 were received, Congress amended section 48 by adding waste energy recovery prop- erty (WERP) as a type of energy property in the Consolidated Appropriations Act, 2021, Public Law 116-260, 134 Stat. 1182 (Dec. 27, 2020). Additional information on requirements for WERP is provided in part I.C.9 of this Summary of Comments and Explanation of Provisions. Proposed §1.48-9(e)(6)(i) would adopt a simplified version of the statutory defi- nition of CHP property. Additionally, pro- posed §1.48-9(e)(6)(ii) would provide that CHP property does not include property used to transport the energy source to the generating facility or to distribute energy produced by the facility. The proposed regulations would also apply the func- tional interdependence test as described in part I.D.2 of this Summary of Comments and Explanation of Provisions to deter- mine whether components are included as part of CHP property. 7. Qualified Small Wind Energy Property Section 48(a)(3)(A)(vi) provides that energy property includes qualified small wind energy property. Section 48(c)(4) December 26, 2023 1624 Bulletin No. 2023–52 defines qualified small wind energy prop- erty as property using a qualifying small wind turbine (which has a nameplate capacity of not more than 100 kW) to gen- erate electricity. The Treasury Department and the IRS received no comments regard- ing qualified small wind energy property in response to Notice 2015-70. Accordingly, proposed §1.48-9(e)(7) would adopt the statutory definition of qualified small wind energy property. The proposed regulations would apply the functional interdepen- dence test as described in part I.D.2 of this Summary of Comments and Explanation of Provisions to determine whether com- ponents are included as part of qualified small wind energy property. 8. Geothermal Heat Pump Equipment Section 48(a)(3)(A)(vii) provides that energy property includes geothermal heat pump equipment. The statute provides, in part, that geothermal heat pump equip- ment is equipment that uses the ground or ground water as a thermal energy source to heat a structure or as a thermal energy sink to cool a structure. The Treasury Department and the IRS received no com- ments regarding geothermal heat pump equipment in response to Notice 2015-70. As a result, proposed §1.48-9(e)(8) would adopt the statutory definition of qualified geothermal heat pump equipment while providing the modification that in addi- tion to the ground and ground water, other underground working fluids may be used as a thermal energy source or as a ther- mal energy sink. The proposed regulations would apply the functional interdepen- dence test as described in part I.D.2 of this Summary of Comments and Explanation of Provisions to determine whether com- ponents are included as part of geothermal heat pump equipment. Additionally, while section 48(a)(3) (A)(vii) does not specify energy distri- bution equipment and components of a building’s heating and/or cooling system as components of geothermal heat pump equipment, such equipment may be inte- gral to the function of the geothermal heat pump equipment, to heat or cool a structure. Thus, energy distribution equip- ment may be considered geothermal heat pump equipment. See section I.E.3. of this preamble for a discussion of an integral part of energy property. 9. Waste Energy Recovery Property (WERP) Section 48(a)(3)(A)(viii) provides that energy property includes WERP. Section 48(c)(5)(A) defines WERP as property (with a capacity not in excess of 50 MW) that generates electricity solely from heat from buildings or equipment if the pri- mary purpose of such building or equip- ment is not the generation of electricity. Additionally, section 48(c)(5)(C) prevents taxpayers from claiming a double benefit by providing that any property that could be treated as WERP (determined without regard to section 48(c)(5)), which is part of a CHP property is not treated as WERP for purposes of section 48 unless the tax- payer elects not to treat such system as a CHP property for purposes of section 48. Proposed §1.48-9(e)(9), would adopt the statutory definition of WERP. The proposed regulations would also apply the functional interdependence test as described in part I.D.2 of this Summary of Comments and Explanation of Provisions to determine whether components are included as part of WERP. Additionally, after consultation with the Department of Energy, proposed §1.48-9(e)(9) would provide examples of buildings or equip- ment the primary purpose of which is not the generation of electricity including, but not limited to, manufacturing plants, med- ical care facilities, facilities on college campuses, pipeline compressor stations, and associated equipment. 10. Energy Storage Technology Section 48(a)(3)(A)(ix) was added by the IRA to provide that energy prop- erty includes energy storage technology. Section 48(c)(6)(A)(i) defines energy storage technology to mean property (other than property primarily used in the transportation of goods or individuals and not for the production of electricity) that receives, stores, and delivers energy for conversion to electricity (or, in the case of hydrogen, that stores energy), and has a nameplate capacity of not less than 5 kWh. Section 48(c)(6)(A)(ii) provides that thermal energy storage property is also energy storage technology. Section 48(c)(6)(B) provides a rule for modifications of energy storage technol- ogy. In the case of any property that either was placed in service before August 16, 2022, and would be described in section 48(c)(6)(A)(i), except that such property has a capacity of less than 5 kWh and is modified in a manner that such property (after such modification) has a nameplate capacity of not less than 5 kWh, or is energy storage technology (as described in section 48(c)(6)(A)(i)) and is modified in a manner that such property (after such modification) has an increase in name- plate capacity of not less than 5 kWh, such property is treated as energy storage tech- nology (as described in section 48(c)(6) (A)(i)) except that the basis of any exist- ing property prior to such modification is not taken into account for purposes of section 48. Section 48(c)(6)(C) defines thermal energy storage property, for purposes of section 48(c)(6) as property comprising a system that: is directly connected to a heating, ventilation, or air conditioning system; removes heat from, or adds heat to, a storage medium for subsequent use; and provides energy for the heating or cooling of the interior of a residential or commercial building. Section 48(c)(6)(C) (ii) provides that thermal energy storage property does not include a swimming pool, a combined heat and power system property, or a building or its structural components. The Treasury Department and the IRS received comments addressing energy storage technologies in response to Notice 2022-49. Some comments discussed the definition of energy storage tech- nology and how broadly energy storage technology should be interpreted in the regulations. For example, a commenter requested that guidance define energy storage broadly based on its characteris- tics and capabilities, rather than using a technology-based definition that could unintentionally exclude developing tech- nologies. Some commenters requested that the definition of energy storage tech- nology focus more on capability and less on a particular technology. Other commenters requested confirmation that Bulletin No. 2023–52 1625 December 26, 2023 certain specific technologies would be included within the definition of energy storage technology and that the definition be based on the underlying definition for the technology provided in section 48(c) (6), as opposed to the specific function- alities of the energy storage technology. After consideration of these comments, proposed §1.48-9(e)(10) would adopt the statutory definition of energy storage technology. Commenters also provided input on hydrogen storage, including a variety of recommendations on what the defini- tion of hydrogen storage property should include. For example, one commenter suggested that “energy storage technol- ogy” with respect to hydrogen storage includes all equipment, facilities, storage receptacles, dedicated vehicles and ves- sels used to compress, liquify, store, and distribute hydrogen and hydrogen car- riers, such as ammonia, methanol, and other forms of hydrogen carriers. Another commenter requested that regulations include a broad list of components of energy storage technologies including the storage receptacle itself and all pressure vessels, piping, valves, and tanks among many other components. This commenter also suggested that property that facili- tates use of ammonia, methanol and other hydrogen carriers be included as hydrogen energy storage technology. Another com- menter noted that the regulations should provide specific use limitations for stored hydrogen such as for use solely in ener- gy-related activities. Section 48(c)(6)(A) already defines energy storage technology (including hydrogen storage) and thermal energy storage property based on the general functions of the relevant energy storage technology. Hydrogen energy storage property must store hydrogen that is solely used for the production of energy and not for the production of end products, such as fertilizer. For example, this would include, but is not limited to, hydrogen used to produce heat, to generate electricity, or to be used in a fuel cell vehicle. The type of hydrogen storage medium (for exam- ple, physical based or material based), is not limited. Proposed §1.48-9(e)(10) (iv) therefore would adopt that rule. The Treasury Department and the IRS request comments on alternative approaches to assessing limitations on the use of hydro- gen energy storage property, including whether additional clarification is needed regarding the production of energy from hydrogen, and what type of documenta- tion would be needed to demonstrate that a hydrogen energy storage property was used to store hydrogen solely used for the production of energy. Proposed §1.48-9(e)(10) would apply the functional interdependence test as described in part I.D.2 of this Summary of Comments and Explanation of Provisions to determine whether components are included as part of an energy storage tech- nology. This approach provides a tech- nology-neutral way to determine what is considered energy storage technology and is broad enough to encompass technolog- ical changes. The proposed regulations would, however, provide additional guid- ance in the form of a non-exclusive list of examples of different types of energy stor- age technologies. The list is non-exclusive because it would be impossible to list all the types of technologies that could qual- ify currently, and the Treasury Department and the IRS acknowledge the importance of leaving the language broad to allow future technological advances in energy storage technologies to qualify. Additionally, rechargeable electro- chemical batteries of all types meet the functional definition by receiving energy in the form of electricity, storing elec- tro-chemical energy, and producing electricity. A commenter requested that re-used or “second life” batteries should be considered “new energy property.” Generally, used property cannot be con- sidered “new property” for purposes of the 80/20 Rule, which is described in part III.A. of this Summary of Comments and Explanation of Provisions. However, pro- posed §1.48-9(e)(10)(v) would provide that recycled components may be used to meet the modification rule for energy stor- age technology. The Treasury Department and the IRS request comments on whether “second life” batteries should be consid- ered new components for purposes of the 80/20 Rule. Additionally, the Treasury Department and the IRS request com- ment on what types of components may be used to modify an existing energy storage technology, and whether there are any challenges with recycled components being used to meet the modification rule. Energy storage technology excludes property primarily used in the transpor- tation of goods or individuals and not for the production of electricity under section 48(c)(6)(A)(i). The Treasury Department and the IRS understand that this exclusion, at a minimum, would apply to batteries and other energy storage technology that are incorporated into or otherwise physically integrated within motor vehicles and other modes of transportation of goods or indi- viduals and from which an electric motor of such vehicle or other mode of trans- portation draws electricity for propulsion. The Treasury Department and the IRS do not intend that this exclusion apply to bat- teries and other energy storage technology that may be used to charge or recharge such vehicles or other modes of transpor- tation, if the batteries and other energy storage technologies are physically sepa- rate from such vehicles or other modes of transportation. The Treasury Department and the IRS request comments as to how the exclusion for property primarily used in the transportation of goods or individu- als and not for the production of electricity should be defined and the specific types of property that may be covered or not cov- ered by this exclusion. Although the list of examples of energy storage technologies that proposed §1.48- 9(e)(10) would provide is nonexclusive, and therefore many other technologies that are not addressed would meet these functional definitions, there are some examples that do not meet the functional definition. For example, some technolo- gies are marketed as “virtual batteries,” which are aggregations of controllable electricity demand providing similar elec- trical grid services to an electrical grid battery. Such “virtual batteries” receive energy in the form of electricity, but they do not store it for later discharge as elec- tricity. The function of “virtual batter- ies” is to shift demand to different points in time. Because such demand shifting is not a storage activity for purposes of section 48(c)(6), this technology is not an energy storage technology. There are other technologies for which the determi- nation of whether they meet the statutory December 26, 2023 1626 Bulletin No. 2023–52 requirements of section 48(c)(6) is less clear. The Treasury Department and the IRS request comments on whether these other types of technologies should be con- sidered energy storage technologies. 11. Qualified Biogas Property Section 48(a)(3)(A)(x) was added by the IRA to provide that energy prop- erty includes qualified biogas property. Section 48(c)(7)(A) defines qualified biogas property as property comprising a system that converts biomass (as defined in section 45K(c)(3), as in effect on the date of enactment of section 48(a)(3)(A) (August 16, 2022)) into a gas that consists of not less than 52 percent methane by volume, or is concentrated by such system into a gas that consists of not less than 52 percent methane, and captures such gas for sale or productive use, and not for dis- posal via combustion. Section 48(c)(7)(B) provides that qualified biogas property includes any property that is part of such system that cleans or conditions such gas. In response to Notice 2022-49, the Treasury Department and the IRS received several comments regarding qualified bio- gas property. Many commenters supported adopting a broad definition of qualified biogas property to include all the related technologies that commenters stated could be utilized in qualified biogas property. After consideration of these comments, proposed §1.48-9(e)(11) would adopt the statutory definition of qualified biogas property. Additionally, at least one commenter stated that when gas is being upgraded and injected into a pipeline, upgrading equip- ment is necessary to condition the gas into the appropriate mixture for injection into the pipeline and should be part of the qualified biogas property. In the comment- er’s view, the eligibility of this upgrading equipment hinges on the meaning of the phrase “captures such gas for sale or pro- ductive use.” The commenter asserted that the statute should encompass such conversion of biogas to a more portable product such as a compressed or liquified gas. Therefore, the commenter asserted that upgrading equipment be included in a qualified biogas property because it captures such biogas for sale or produc- tive use and includes any property that is part of such qualified biogas property that cleans or conditions such gas. After consideration of these comments, proposed §1.48-9(e)(11) would provide that components of property are consid- ered qualified biogas property if they are functionally interdependent, that is, if the placing in service of each component is dependent upon the placing in service of each of the other components in order to perform the intended function of the qualified biogas property as described in proposed §1.48-9(e)(11)(i). This approach would provide a technology-neutral way to determine what is considered included in a qualified biogas property and is broad enough to encompass technological changes. Additionally, proposed §1.48- 9(e)(11)(i) provides examples of func- tionally interdependent components of the qualified biogas property including, but not limited to, a waste feedstock collec- tion system, a landfill gas collection sys- tem, mixing or pumping equipment, and an anaerobic digester. Regarding the upgrading equipment that is necessary to condition biogas into the appropriate mixture for injection into the pipeline, this equipment is not func- tionally interdependent with the qualified biogas property that converts biomass into a gas containing not less than 52 percent methane and captures such gas for sale or productive use as specified in the statute. While this upgrading equipment makes the injection of biogas into a pipeline pos- sible, such upgrading equipment is not necessary to satisfy the statutory require- ments that the biogas converted from biomass contain not less than 52 percent methane, and that it be captured for sale or productive use. In support of including upgrading equipment necessary to prepare the biogas for injection into the pipeline, commenters point to the statutory language that qualified biogas property includes any property that is part of such system that cleans or conditions such gas. However, unlike upgrading equipment that is nec- essary for injection of the biogas into the pipeline, cleaning and conditioning equip- ment is part of the necessary process to convert biomass into gas that is not less than 52 percent methane and capture gas for sale or productive use. Therefore, pro- posed §1.48-9(e)(11)(i) would clarify that upgrading equipment is not a functionally interdependent component of qualified biogas property. The Treasury Department and the IRS request comments regard- ing what types of components may be included within the definition of cleaning and conditioning property provided in the definition of qualified biogas property in section 48(c)(7)(B). One commenter had recommendations about the application of the requirement in section 48(c)(7)(A)(ii) that a qualified biogas property captures such gas for sale or productive use, and not for disposal via combustion. This commenter noted that some properties that produce electricity from gas using a combustion process, may flare waste or tail gas, including during commissioning or maintenance periods. The commenter recommended a de mini- mis exception so that sale or use of gas in this manner will not prevent a property that produced such gas from being a qualified biogas property. The Treasury Department and the IRS request additional comments on whether such an exception is necessary and what should be considered de minimis for this purpose. Lastly, several comments addressed the methane requirements in the statutory definition by commenting on how and when methane content should be mea- sured and whether methane monitoring is required. After consideration and coor- dination with the Department of Energy, the proposed regulations would adopt a rule addressing the production point at which methane content must be mea- sured. Proposed §1.48-9(e)(11)(ii) would provide that the methane requirements described in section 48(c)(7)(A)(i)(I) and section 48(c)(7)(A)(i)(II) are measured at the point at which gas exits the biogas production system (which may include an anerobic digester, landfill gas collectors, or thermal gasification equipment) of a qualified biogas property. This is the point at which a taxpayer generally must deter- mine whether it will convert the biogas to fuel for sale or use it directly to generate heat or fuel an electricity generation unit. 12. Microgrid Controllers Section 48(a)(3)(A)(xi) was added by the IRA to provide that energy prop- erty includes microgrid controllers. Section 48(c)(8)(A) defines a microgrid Bulletin No. 2023–52 1627 December 26, 2023 controller as equipment that is part of a qualified microgrid and designed and used to monitor and control the energy resources and loads on such microgrid. Section 48(c)(8)(B) defines a quali- fied microgrid as an electrical system that includes equipment that is capable of generating not less than 4 kW and not greater than 20 MW of electricity; is capable of operating in connection with the electrical grid and as a single controllable entity with respect to such electrical grid, and independently (and disconnected) from such electrical grid; and is not part of a bulk-power system (as defined in section 215 of the Federal Power Act (16 U.S.C. 824o)). In response to Notice 2022-49, the Treasury Department and the IRS received several comments requesting clarification on the definition of microgrid controllers, with some commenters suggesting a broad interpretation and others suggesting a nar- row interpretation. Additionally, several commenters identified certain compo- nents that should be included as part of an eligible microgrid controller. Several commenters asserted that the focus of the microgrid controller defi- nition should be on capability and not the availability of an interconnection with the utility grid. In response to these comments, proposed §1.48-9(e)(12)(ii) would clarify that an eligible microgrid includes an electrical system that is capa- ble of operating in connection with the larger electrical grid whether or not the microgrid is physically connected to the electrical grid. For example, a microgrid located in a remote area that does not have a larger electrical grid to which it can physically connect can still be a qual- ified microgrid. After consideration of these comments, proposed §1.48-9(e)(12)(i) would adopt the statutory definition of a microgrid controller. The Treasury Department and the IRS request comments on whether the rules for functionally interdependent property provided in proposed §1.48-9(f) (2)(ii) would be sufficient to determine the components that should be included as part of a microgrid controller, or whether another test is needed due to the specific role of microgrid controllers and their components. 13. Other Property Included in Section 48 Because future legislation may add additional types of energy property to sec- tion 48, proposed §1.48-9(e)(13) would provide that any other property specified by section 48 as energy property is treated as energy property for purposes of these proposed regulations. The general rules and requirements applicable to energy property provided in these proposed regu- lations would also apply to such property. D. Definition of energy property and scope of included components Since shortly after the enactment of section 48, energy property eligible for the section 48 credit has been interpreted by the Treasury Department and the IRS to include, in addition to energy generation property, costs related to components such as power conditioning equipment, transfer equipment, and parts related to the func- tioning of that equipment. On November 9, 1978, the Energy Tax Act of 1978, amended section 48 by add- ing a new subsection (then section 48(l)) to define “energy property.” Public Law 95-816, 92 Stat. 2174. On January 23, 1981, the Treasury Department and the IRS promulgated T.D. 7765 to provide additional guidance regarding the defini- tion of energy property. 46 FR 7287-01. The preamble to T.D. 7765 states that “[i] n response to comments, the definition of solar energy property was expanded to make it clear that it includes storage devices, power conditioning equipment, transfer equipment, and property solely related to the functioning of those items. However, such equipment does not include transmission equipment.” The preamble to T.D. 7765 also pro- vides that “[a] number of comments cited specific legislative history to the effect that wind energy property includes ‘transfer equipment.’” The preamble to T.D. 7765 defines “transfer equipment” as including equipment that permits the aggregation of electricity generated by several windmills and equipment that alters voltage in order to permit transfer to a transmission line. The preamble to T.D. 7765 concludes that transfer equipment is specifically added to the definition of wind energy property, however, transfer equipment does not include transmission lines. Existing §1.48-9(d)(3) defines “solar energy property” as equipment that uses solar energy to generate electricity, and includes storage devices, power condi- tioning equipment, transfer equipment, and parts solely related to the functioning of those items. This section also provides that solar energy property used to generate electricity includes only equipment up to (but not including) the stage that transmits or uses electricity. Existing §1.48-9(e) defines “wind energy property” as consisting of a wind- mill, wind-driven generator, storage devices, power conditioning equipment, transfer equipment, and parts solely related to the functioning of those items. Section 48(a)(3) no longer includes wind energy property as a type of energy prop- erty. However, qualified wind facilities (including qualified offshore wind facil- ities) may be qualified investment credit facilities that a taxpayer may elect to treat as energy property if they meet all the requirements provided in section 48(a)(5). While not specifically addressed in section 48, Internal Revenue Bulletin guidance interpreting section 48 has pro- vided that functionally interdependent components, are considered components of energy property eligible for the sec- tion 48 credit. In Notice 2018-59, 2018- 28 I.R.B. 196, the Treasury Department and the IRS clarified what components are considered part of an energy property. Section 7.01(1) of Notice 2018-59 states that an energy property generally includes all components of property that are func- tionally interdependent (unless such equipment is an addition or modification to an energy property). Notice 2018-59 provides that components of property are functionally interdependent if the placing in service of each component is dependent upon the placing in service of each of the other components in order to generate electricity. Further, Notice 2018-59 relies upon the rationale provided in Revenue Ruling 94-31, 1994-1 C.B. 16, to provide that functionally interdependent compo- nents of property that can be operated and metered together and can begin producing electricity separately from other compo- nents of property within a larger energy December 26, 2023 1628 Bulletin No. 2023–52 project will be considered an energy property. In the context of defining “section 38 property,” §1.48-1(d)(4) provides that “section 38 property” is “used as an inte- gral part of one of the specified activities if it is used directly in the activity and is essential to the completeness of the activ- ity.” Section 1.48-1(d)(4) also provides that “[p]roperty shall be considered used as an integral part of one of the specified activities if so used either by the owner of the property or by the lessee of the prop- erty.” Notice 2018-59 incorporates the concept of integral property from §1.48- 1(d) to provide that certain property that is an integral part of an energy property is included in energy property for purposes of the section 48 credit. While Notice 2018-59 explained that property that is “functionally interdependent” to the gen- eration of electricity was treated as a unit of energy property, it also provided that certain other property that was integral to the production of electricity are included in determining what costs to include in the basis of energy property and the date on which construction began. Section 7.02(1) of Notice 2018-59 includes an example illustrating that, while a trans- mission tower located at a site where energy property is located is not energy property because transmission is not an integral part of the activity performed by the energy property, a custom-designed transformer that steps up the voltage of electricity produced at an energy prop- erty to the voltage needed for transmis- sion is power conditioning equipment, which is an integral part of the activity performed. In addition, section 7.02(2) of Notice 2018-59 explains that onsite roads used to operate and maintain the energy property are integral to the production of electricity, but not roads used primarily to access the site or primarily for employee or visitor vehicles. Similarly, sections 7.02(3) and (4) of Notice 2018-59 explain that fences are not integral to the pro- duction of electricity nor are buildings, unless the building is essentially an item of machinery or equipment, or a structure that houses property that is integral to the activity of an energy property if the use of the structure is so closely related to the use of the housed energy property that the structure clearly can be expected to be replaced when the energy property it initially houses is replaced. In response to a request for com- ments regarding the definition and scope of energy property in Notice 2015-70, several commenters requested that the regulations provide a specific list of eli- gible components and define each type of component. Commenters specifically requested that the regulations provide definitions for conversion equipment, power conditioning equipment, transfer equipment, and other property commonly used in conjunction with energy property. Further, some commenters requested that the regulations include safety equipment such as electrical panels, rapid shut-down equipment, and utility disconnection equipment as eligible components when used in conjunction with energy property. Conversely, several commenters recom- mended that the regulations not provide a technical definition or list of components because innovations in energy property may require that such a definition would need to be continually updated. Commenters requested that the regu- lations be clarified to include as energy property all components located before the point at which voltage of the electric- ity is increased to the voltage of the trans- mission line, referred to as the “separation point,” such as step-up transformers, dead end structures, switches, switch gear build- ings, voltage regulators, and hardware and software used to monitor, operate, and protect such property. Additionally, one commenter requested that the regulations be clarified to include as energy property all components located beyond the sep- aration point, such as switches, circuit breakers, lighting or surge arrestors, and metering equipment, if the use of such components is primarily related to the functioning or protection of components located at or before the separation point. One challenge in providing definitions of what components to include in energy property is in determining what compo- nents are common to all energy property, without limiting or constraining future technological advances. To avoid limiting future energy technologies, the Treasury Department and the IRS consulted with the Department of Energy and determined that the best option is to adopt a func- tion-oriented approach to describe the types of components that are considered energy property. Accordingly, proposed §1.48-9(f) would adopt the concepts of functional interdependence and prop- erty that is an integral part of an energy property as provided in Internal Revenue Bulletin guidance issued previously by the Treasury Department and the IRS. 1. Unit of Energy Property Proposed §1.48-9(f)(2)(i) would pro- vide that a unit of energy property consists of all functionally interdependent compo- nents of property (as defined in proposed §1.48-9(f)(2)(ii)) owned by the taxpayer that are operated together and that can operate apart from other energy properties within a larger energy project (as defined in proposed §1.48-13(d) and discussed in part II.C of this Summary of Comments and Explanation of Provisions). 2. Functional Interdependence Proposed §1.48-9(f)(2)(ii) would pro- vide that components of property are functionally interdependent if the placing in service of each component is depen- dent upon the placing in service of each of the other components in order to gener- ate or to store electricity, thermal energy, or hydrogen, or otherwise perform its intended function as provided in section 48(c) and as described in proposed §1.48- 9(e). Energy property, with certain excep- tions, includes all components necessary to generate or store electricity or thermal energy for transmission, distribution, or use up to (but not including) the stage that transmits, distributes, or uses electricity or thermal energy. In the case of qualified bio- gas property, microgrid controllers, elec- trochromic glass property, and fiber-optic solar energy property, components of such energy property are functionally interde- pendent if the placing in service of each component is dependent upon the placing in service of each of the other components in order to perform the intended function of the energy property as provided by sec- tion 48(c) and as described in proposed §1.48-9(e). Additionally, energy property generally would not include equipment that is an addition or modification to an existing energy property unless the rules regarding retrofitted energy property Bulletin No. 2023–52 1629 December 26, 2023 described in proposed §1.48-14(a) and part III.A. of this Summary of Comments and Explanation of Provisions apply. 3. Integral Part of an Energy Property Proposed §1.48-9(f)(3)(i) would pro- vide that property owned by a taxpayer that is an integral part of an energy prop- erty owned by that same taxpayer is energy property. To be part of an energy property, such property must be used directly in the intended function of the energy prop- erty as provided by section 48(c) and as described in §1.48-9(e) and be essential to the completeness of the intended function. Proposed §1.48-9(f)(3)(ii) would describe power conditioning equipment and trans- fer equipment, and would provide that such components, and parts related to the functioning of those components, are energy property when they meet the defi- nition of integral part provided in §1.48- 9(f)(3)(i). Many commenters requested clar- ification on the eligible components of an offshore wind facility. Proposed §1.48-9(f)(5)(iii) would provide an example that applies the integral part rule to include power conditioning and transfer equipment as part of a quali- fied offshore wind facility but excludes transmission and distribution equipment from being part of the qualified offshore wind facility. This example is consistent with the view of the Joint Committee on Taxation in the General Explanation of Tax Legislation Enacted in the 116th Congress, JCS 1-22 (February 2022). According to that document, “[q]uali- fied offshore wind facilities are qualified wind facilities . . . and include property owned by the taxpayer necessary to con- dition electricity for use on the electrical grid such as subsea cables and voltage transformers.” Id. at 498. Furthermore, consistent with Notice 2018-59, proposed §1.48-9(f)(3)(iii) would provide as further examples of integral property onsite roads that are used for equipment to operate and main- tain the energy property. Section 1.48- 9(f)(3)(iii) would also clarify that roads primarily for access to the site, or roads used primarily for employee or visi- tor vehicles, are not integral parts of an energy property. Proposed §1.48-9(f) (3)(iv) and (v) would also provide that fences and buildings (also referred to as structures) are generally not integral parts of an energy property because they are not integral to the activity of the energy property. However, a build- ing may be an integral part of a unit of energy property if it is essentially an item of machinery or equipment, or a structure that houses property that is integral to the activity of an energy property, if the use of the structure is so closely related to the use of the housed energy property that the structure clearly can be expected to be replaced when the energy property it initially houses is replaced. The Treasury Department and the IRS request com- ments on whether additional types of property meet the requirements provided in proposed §1.48-9(f)(3) and could be considered an integral part of an energy property. 4. Location of Energy Property Section 48 and the existing regulations thereunder are silent regarding the credit eligibility of components of an energy property located in different locations. However, the Treasury Department and the IRS have provided analogous guid- ance regarding the credit eligibility of off- site components for the residential energy efficient property tax credit under section 25D of the Code (section 25D credit). In Notice 2013-70, 2013-47 I.R.B. 528, the Treasury Department and the IRS provided guidance addressing the eligibility for the section 25D credit for offsite components of solar elec- tric property. Specifically, Q&A #25 of Notice 2013-70 addressed the issue of whether a taxpayer that installs solar panels as part of solar electric property other than directly on the taxpayer’s home may claim the section 25D credit. Q&A #25 concluded that the taxpayer would be able to claim the section 25D credit because the solar electric property expenditure was made for property that, consistent with the requirements of the section 25D credit, uses solar energy to generate electricity for use in a dwelling unit that is used as a residence by the tax- payer. The fact that the solar panels were not directly located on the taxpayer’s home did not change the analysis or the eligibility of the taxpayer’s expenditure for purposes of the section 25D credit. Similarly, Q&A #26 of Notice 2013-70 addressed a scenario in which a taxpayer purchases solar panels that are placed on an offsite solar array (community solar project) and connected to the local pub- lic utility’s electrical grid that supplies electricity to the taxpayer’s residence. The taxpayer enters into a direct contrac- tual arrangement with the utility to allow the taxpayer to provide electricity to the electrical grid using a net metering system that measures the amount of electricity produced by the taxpayer’s solar pan- els and transmitted to the electrical grid and the amount of electricity used by the taxpayer’s residence and drawn from the electrical grid. The contract states that the taxpayer owns the electricity transmitted by the solar panels to the electrical grid until drawn from the electrical grid at his residence. Q&A #26 determined that off- site solar panels under this type of con- tractual arrangement with a utility that supplies electricity to the taxpayer’s res- idence also meet the definition of a solar electric property expenditure eligible to claim the section 25D credit. In response to Notice 2015-70, many commenters ref- erenced Notice 2013-70 when requesting that existing §1.48-9 be modified to allow components of energy property to be situ- ated in different locations without affect- ing the eligibility of the energy property for the section 48 credit. After consideration of the comments received, the Treasury Department and the IRS have determined that if property is a functionally interdependent part of an energy property (as defined in §1.48-9(f) (2)(ii)), or an integral part of an energy property (as defined in §1.48-9(f)(3)(i)), such property is part of an energy property regardless of where it is located. Proposed § 1.48-9(f)(4) would adopt this position. 5. Property Excluded from Energy Property Proposed §1.48-9(d)(2) would also clar- ify that certain types of intangible prop- erty, such as power purchase agreements, renewable energy certificates, goodwill, and going concern value, are not energy property because they are not functionally interdependent with other components of December 26, 2023 1630 Bulletin No. 2023–52 an energy property as defined in proposed §1.48-9(f)(2)(ii) and are not an integral part of an energy property as defined in pro- posed §1.48-9(f)(3)(i). II. Rules Relating to the Increased Credit Amount for Prevailing Wages and Apprenticeships. The IRA amended several sections of the Code including section 48 to pro- vide increased credit amounts for tax- payers who satisfy certain requirements, including an increased credit amount for satisfying prevailing wage and appren- ticeship (PWA) requirements. This same increased credit amount is also generally available under certain sections of the Code including section 48 with respect to energy projects with a maximum net output of less than one megawatt (One- Megawatt Exception). Additionally, this same increased credit amount is available under certain sections of the Code includ- ing section 48 if beginning of installa- tion or beginning of construction (BOC) occurs before January 29, 2023 (BOC Exception). The Treasury Department and the IRS issued proposed §1.48-13 as part of the August Proposed Regulations to provide guidance concerning the increased credit amount available for taxpayers satisfy- ing the PWA requirements. This notice of proposed rulemaking withdraws §1.48- 13 as proposed in the August Proposed Regulations and reproposes in a new §1.48-13 (proposed §1.48-13) the sub- stance of the withdrawn rules with minor changes and additional rules with respect to the increased credit amount available for taxpayers under section 48(a)(9). Proposed §1.48-13 would provide spe- cial rules affecting the basis of energy property that include: (i) the definition of an energy project for purposes of the PWA requirements as well as other delineated purposes discussed in part II.C of this Summary of Comments and Explanation of Provisions and (ii) guidance concerning the One-Megawatt Exception discussed in part II.D of this Summary of Comments and Explanation of Provisions. These pro- posed regulations also provide guidance on the recapture rules under section 48(a) (10)(C) applicable to failures to satisfy the PWA requirements. A. General rules For properties placed in service after December 31, 2022, the section 48 credit is generally six percent of the basis of energy property described in section 48(a) (2)(A)(i) and two percent of the basis of energy property described in section 48(a)(2)(A)(ii). If a taxpayer satisfies the PWA requirements, the One-Megawatt Exception, or the BOC Exception, then the section 48 credit for the basis of each energy property placed in service during the taxable year is multiplied by five. To satisfy the prevailing wage require- ments under section 48(a)(10)(A) and (B) (Prevailing Wage Requirements), a tax- payer must ensure that any laborers and mechanics employed by the taxpayer or any contractor or subcontractor in: (i) the construction of any energy project, and (ii) the alteration or repair of that energy project (for the five-year period begin- ning on the date such project is originally placed in service), are paid wages at rates not less than the prevailing rates for con- struction, alteration, or repair of a simi- lar character in the locality in which that energy project is located as most recently determined by the Secretary of Labor, in accordance with subchapter IV of chap- ter 31 of title 40, United States Code (Davis-Bacon Act). Section 48(a)(10)(B) provides that rules similar to the rules of section 45(b)(7)(B) apply for purposes of the correction and penalty related to the failure to satisfy the Prevailing Wage Requirements. Section 48(a)(10)(C) provides a recap- ture rule applicable to failures to satisfy the Prevailing Wage Requirements with respect to alterations or repairs that occur during the five-year period after the energy project is placed in service (section 48(a) (10)(C) recapture). Specifically, section 48(a)(10)(C) instructs the Secretary, by regulations or other guidance, to provide for recapturing the benefit of any increase in the credit allowed by the Prevailing Wage Requirements with respect to failures to satisfy the Prevailing Wage Requirements during the five-year period after the energy project is placed in ser- vice. Section 48(a)(10)(C) clarifies that the failures during the five-year period remain subject to the correction and pen- alty provisions in section 45(b)(7)(B) (as referenced in section 48(a)(10)(B)) and provides that the period and percentage of the credit that is recaptured is determined under rules similar to the rules in section 50(a). Subject to the section 48(a)(10) (C) recapture (including the correction and penalty provisions in section 45(b)(7) (B)), the taxpayer is deemed at the time the energy project is placed in service to satisfy the Prevailing Wage Requirements for alterations or repairs for the five-year period beginning after such project is originally placed in service. Section 48(a) (11) provides that rules similar to the rules of section 45(b)(8) apply for purposes of the apprenticeship requirements. The August Proposed Regulations provided guidance for taxpayers claiming an increased credit amount under section 48(a)(9)(A)(i) with respect to an energy project that satisfies the PWA require- ments, the One-Megawatt Exception, or the BOC Exception. The August Proposed Regulations provided that to satisfy the PWA requirements, the energy project must meet the Prevailing Wage Requirements of section 48(a)(10)(A) and proposed §1.45-7(b)-(d), the appren- ticeship requirements of section 45(b)(8) and proposed §1.45-8, and the record- keeping and reporting requirements of proposed §1.45-12. In addition, under the August Proposed Regulations, to satisfy the Prevailing Wage Requirements with respect to section 48(a)(10)(A)(ii), a tax- payer also would be required to ensure that any laborer and mechanic employed by the taxpayer or any contractor or subcontractor in the construction of any energy project, as well any alteration or repair of an energy project in the five-year period beginning on the date a project is placed in service, are paid wages at rates not less than the prevailing rates for con- struction, alteration, or repair of a simi- lar character in the locality in which the energy project is located in accordance with the Davis-Bacon Act. The August Proposed Regulations also provided that the increased credit amount was subject to section 48(a)(10)(C) recapture for any project that failed to satisfy the Prevailing Wage Requirements in proposed §1.45-7 with respect to an alteration or repair of such project for the five-year period beginning on the date such project is originally placed in service (but that does Bulletin No. 2023–52 1631 December 26, 2023 not cease to be investment credit prop- erty within the meaning of section 50(a) of the Code). B. Section 48(a)(10)(C) recapture rules The Treasury Department and the IRS have determined that additional guidance on the section 48(a)(10)(C) recapture rules is necessary. Proposed §1.48-13 would provide additional guidance on the sec- tion 48(a)(10)(C) recapture rules related to the Prevailing Wage Requirements. The proposed regulations also provide other minor technical corrections to the August Proposed Regulations. In addition to largely restating the general rules in the August Proposed Regulations, proposed §1.48-13 would clarify that a taxpayer that has claimed an increased credit amount under section 48(a) (9)(A)(i) and 48(a)(9)(B)(iii) but failed to satisfy the Prevailing Wage Requirements set forth in proposed §1.45-7(b)-(d) with respect to any period during the five-year period beginning on the date a project is placed in service is subject to section 48(a) (10)(C) recapture of a portion (up to 100 percent) of the increased credit amount. Proposed §1.48-13 would also clarify that the failure to satisfy the Prevailing Wage Requirements in proposed §1.45-7(b)-(d) with respect to any period during the five- year period beginning on the date a project is placed in service remains subject to the correction and penalty provisions in pro- posed §1.45-7(c)(1). Section 48(a)(10)(C) requires that the recapture period and percentage of such recapture be determined under rules simi- lar to the rules of section 50(a). Consistent with that requirement, proposed §1.48-13 would also clarify that the five-year recap- ture period under section 48(a)(10)(C) would begin on the day an energy project is placed in service and end on the day that is five full years after the placed-in-ser- vice date. Proposed §1.48-13 would also provide that each 365-day period (366- day period in case of a leap year) within the recapture period is a separate recap- ture year. The proposed regulations would provide that the recapture amount is deter- mined consistent with the percentages set forth in section 50(a) based on the year in which the section 48(a)(10)(C) recapture event is determined to have occurred. The Treasury Department and the IRS understand that the five-year recapture period is unlikely to align with a taxpay- er’s taxable year. The proposed regula- tions would provide that whether a section 48(a)(10)(C) recapture event has occurred is determined at the close of taxable year that begins or ends within the five-year recapture period. In addition to the report- ing and recordkeeping requirements con- tained in proposed §1.45-12, the proposed regulations would provide for an annual information reporting requirement that verifies compliance with the Prevailing Wage Requirements following the close of each recapture year consistent with the forms and instructions prescribed by the IRS. The IRS anticipates that the annual compliance reporting obligation will be made at the time the taxpayer files its income tax or other annual return follow- ing the close of each recapture year. Under proposed §1.48-13, if the increased credit amount is subject to section 48(a)(10)(C) recapture, then the increase in tax under chapter 1 for the recapture of the increased credit amount would be assessed with respect to the tax- able year in which the section 48(a)(10) (C) recapture event occurred. The pro- posed regulations also clarify that a tax- payer whose increased credit amount is subject to section 48(a)(10)(C) recapture may still be entitled to the base amount of the energy credit under section 48(a) if they meet the requirements to claim the credit. Additionally, the proposed regula- tions clarify the application of the trans- ferability rules under section 6418 to a section 48(a)(10)(C) recapture event and include a proposed addition to §1.6418-5 confirming the notification requirements for an eligible taxpayer and that a trans- feree taxpayer is responsible for any amount of tax increase under section 48(a) (10)(C). C. Definition of energy project Under section 48(a)(9)(A)(ii), an energy project is a project consisting of one or more energy properties that are part of a single project. Proposed §1.48-13(d) would provide a definition of “energy project” for purposes of the increased credit amount for the PWA requirements (provided by section 48(a) (9)), the domestic content bonus credit amount (provided by section 48(a)(12)), and the increase in credit rate for energy communities (provided in section 48(a) (14)). For these purposes, the term energy project means one or more energy prop- erties that are operated as part of a sin- gle project. Section 45 qualified facilities that are co-located with section 48 energy property will not be considered part of an energy project (unless they elect under section 48(a)(5) to be treated as energy property). Multiple energy properties would be treated as one energy project, if at any point during the construction of the multiple energy properties, they are owned by a single taxpayer (subject to the related taxpayer rule discussed later in this part) and any two or more of the following factors (also set forth in section 7.01(2)(a) of Notice 2018-59 as factors indicating that multiple energy properties are operated as part of a single project) are present: 1. The energy properties are con- structed on contiguous pieces of land; 2. The energy properties are described in a common power purchase, thermal energy, or other off-take agreement or agreements; 3. The energy properties have a com- mon intertie; 4. The energy properties share a com- mon substation, or thermal energy off- take point; 5. The energy properties are described in one or more common environmental or other regulatory permits; 6. The energy properties are con- structed pursuant to a single master con- struction contract; or 7. The construction of the energy prop- erties are financed pursuant to the same loan agreement. Under proposed §1.48-13(d)(2), related taxpayers would be treated as one taxpayer in determining whether multiple energy properties are treated as an energy project. Related taxpayers would be defined as members of a group of trades or businesses that are under common control (as defined in §1.52-1(b)). Proposed §1.48-13(d)(3) would also provide that if multiple energy properties are treated as a single project for begin- ning of construction purposes with respect to the section 48 credit, the multiple December 26, 2023 1632 Bulletin No. 2023–52 energy properties would also be treated as one energy project for purposes of the PWA requirements, the domestic content bonus credit amount, and the increase in section 48 credit rate for energy commu- nities. This rule would apply to an energy project for which construction begins after the date final regulations are published in the Federal Register. D. One-Megawatt exception Section 48(a)(9)(B)(i) and §1.48-13 of the August Proposed Regulations would provide that the increased credit amount is also available under section 48 with respect to energy projects with a maxi- mum net output of less than 1 MW of elec- trical (as measured in alternating current) or thermal energy. The August Proposed Regulations do not address how to deter- mine the maximum net output of a project. The Department of Energy has advised the Treasury Department and the IRS that for energy projects that generate electric- ity, the determination of an energy proj- ect’s nameplate capacity will provide the necessary guidance to determine the maximum electrical generating output in MWs of electrical (as measured in alter- nating current) or thermal energy that the unit is capable of producing on a steady state basis and during continuous opera- tion under standard conditions. Proposed §1.48-13(e) would thus provide a rule for the determination of nameplate capac- ity as expressed in MWs of electrical (as measured in alternating current) or ther- mal energy. Because electrochromic glass property, fiber-optic solar, and microgrid controllers do not generate electricity or thermal energy, these energy properties are not eligible for the One-Megawatt Exception. The Treasury Department and the IRS request comments on whether other methods of measurement may allow these energy properties to use the One- Megawatt Exception. Under proposed §1.48-13(e)(1), the nameplate capacity for an electrical gen- erating unit would mean the maximum electrical generating output in MWs that the unit is capable of producing on a steady-state basis and during continu- ous operation under standard conditions, as measured by the manufacturer and consistent with the definition provided in 40 CFR 96.202. Where applicable, those rules provide that the International Standard Organization (ISO) conditions are used to measure the maximum electri- cal generating output. Proposed §1.48-13(e)(2) through (4) would provide rules for energy storage technologies. Generally, electrical energy storage property would look to the stor- age device’s nameplate capacity in MWs under proposed §1.48-13(e)(2). As with energy properties that generate electric- ity, nameplate capacity for an electrical energy storage property would mean the maximum electrical generating output in MWs that the unit is capable of producing on a steady state basis and during contin- uous operation under standard conditions, as measured by the manufacturer and con- sistent with the definition provided in 40 CFR §96.202. Proposed §1.48-13(e)(3) would pro- vide that for thermal energy storage prop- erty, taxpayers must use the equivalent value of 3.4 million British Thermal Units per hour (mmBtu/hour) for heating and 284 tons for cooling to determine whether the thermal energy storage property sat- isfies the One-Megawatt Exception (Btu per hour/3,412,140 = MW). The Treasury Department and the IRS request com- ments on whether these tests are suitable or whether another test should apply for measuring the One-Megawatt Exception for thermal energy storage property. Proposed §1.48-13(e)(4) would pro- vide that for hydrogen energy storage property, 1 MW is equivalent to 3.4 mmBtu/hour, and using the higher heat- ing value of hydrogen, this can be con- verted to 10,500 scf per hour. Therefore, proposed §1.48-13(e)(4) would pro- vide that for a hydrogen energy storage property to satisfy the One-Megawatt Exception, an eligible hydrogen produc- ing, or hydrogen storage energy property must be designed to have a maximum net output of less than 3.4 mmBtu/hour of hydrogen or equivalently 10,500 scf per hour of hydrogen. Proposed §1.48-13(e)(3) through (5) would provide that to apply the One- Megawatt Exception to energy projects that produce thermal energy or fuels, tax- payers must use the equivalent value of 3.4 million British thermal units (mmB- tus) per hour (Btu per hour/3,412,140 = MW). For certain technologies that pro- duce fuels, such as qualified biogas prop- erty (proposed §1.48-13(e)(5)), hydrogen energy storage property (proposed §1.48- 13(e)(4)), and specified hydrogen pro- duction facilities (as defined in section 48(a)(15)(C)) (proposed §1.48-13(e)(4)), taxpayers may use equivalent maximum fuel volume flows in standard cubic feet (scf) per hour to assess the One-Megawatt Exception. Taxpayers can use equiva- lent volume flows using the default high heat value conversion factors found in Table C-1 to Subpart C of Part 98, Title 40 of the Greenhouse Gas Reporting Rule promulgated by the Environmental Protection Agency. Otherwise, taxpayers may calculate their own equivalent volu- metric flow if the heat content of the gas is known. For property generating thermal energy, proposed §1.48-13(e)(3) would provide that the equivalents for 1 MW that should be used are 3.4 mmBtu/hour for heating and equivalently 284 tons for cooling should be used to determine whether the energy property satisfies the One-Megawatt Exception. Proposed §1.48-13(e)(3) would also specify that for projects delivering thermal energy to a building or buildings, the One-Megawatt Exception can be assessed as either the aggregate maximum thermal output of all individual heating or cooling elements within the building or buildings or as the maximum thermal output that the entire project is capable of delivering to a build- ing or buildings at any given moment. III. Rules Applicable to Energy Property. A. Retrofitted energy property (80/20 Rule) The Treasury Department and the IRS have published several pieces of Internal Revenue Bulletin guidance regarding the eligibility of retrofitted equipment added to qualified facilities and energy prop- erty for purposes of the section 45 and 48 credits. In Notice 2016-31, 2016-23 I.R.B. 1025, the Treasury Department and the IRS considered the application of the Five Percent Safe Harbor provided in section 5.01 of Notice 2013-29, 2013- 20 I.R.B. 1085, to retrofitted qualified facilities for purposes of applying the Bulletin No. 2023–52 1633 December 26, 2023 beginning of construction requirement to the section 45 credit. Section 6.01 of Notice 2016-31 cites to Revenue Ruling 94-31 and Notice 2008-60, 2008-2 C.B. 178, for the concept that a qualified facility may qualify as originally placed in service even though it contains some used property, provided the fair market value of the used property is not more than 20 percent of the qualified facility’s total value (that is, the cost of the new property plus the value of the used prop- erty). This concept has become known as the “80/20 Rule.” Similarly, Notice 2018-59 addressed the application of the 80/20 Rule to ret- rofitted energy property for purposes of the applying the beginning of construc- tion rules to the section 48 credit. Section 7.05(1) of Notice 2018-59 provides that retrofitted energy property may qualify as originally placed in service even though it contains some used components of prop- erty, provided it satisfies the 80/20 Rule. Further, this section of the notice provided that, for purposes of the 80/20 Rule, the cost of the new energy property includes all properly capitalized costs of the new energy property. In response to requests for comment in Notice 2015-70 and Notice 2022-49, sev- eral commenters requested that the regula- tions address the applicability of the 80/20 Rule to energy property for purposes of the section 48 credit. After consideration of the comments, proposed §1.48-14(a) would apply the 80/20 Rule to energy property for purposes of the section 48 credit. B. Dual use property Existing §1.48-9 includes a dual use equipment rule (Dual Use Rule). The pre- amble to T.D. 8147 notes that the regu- lations prior to amendment by T.D. 8147 required that equipment must use only energy from a single qualifying source (solar energy property, wind energy prop- erty, or geothermal equipment) to qualify as energy property. In changing from a single source rule to the Dual Use Rule, the preamble to T.D. 8147 explained that the Treasury Department and the IRS reconsidered the legislative history of the investment tax credit and determined that, “while Congress did not intend that property that does not use qualified energy be eligible for the business energy credit as solar, wind, or geothermal property, Congress also did not intend to adopt an all or nothing rule for dual use solar, wind, or geothermal energy property.” Accordingly, the Dual Use Rule in existing §1.48-9 provides that a solar energy property, wind energy property, and geothermal equipment are eligible for the section 48 credit to the extent of the property’s basis or cost allocable to its annual use of energy from a qualified source, provided the use of energy from “non-qualifying” sources does not exceed 25 percent of the total energy input of the property during an annual measuring period. Notably, the Dual Use Rule pro- vided in §1.48-9 also precludes an energy property from receiving and aggregating energy from a combination of qualify- ing sources (solar energy property, wind energy property, and geothermal equip- ment). Because the Dual Use Rule requires that a solar energy property, wind energy property, or geothermal equipment must use a minimum of 75 percent of energy from a qualified source during an annual measuring period to qualify for a section 48 credit. This rule became known as the “75-percent Cliff.” The Dual Use Rule provided in existing §1.48-9 also provides that, if in the first annual measuring period, the applicable percentage (based on usage from a qual- ifying source) is between 75 percent and 100 percent, only a proportionate amount of the eligible basis of the energy property should be taken into account in computing the amount of the section 48 credit. If less than 75 percent of the energy used is from qualifying sources, then the eligible basis is zero, and the property is not eligible for the section 48 credit. 1. Alternatives to the 75-percent Cliff In response to Notice 2015-70, many commenters requested that the regulations be modified to reduce the Dual Use Rule’s current 75-percent Cliff to a 50-percent Cliff. Commenters cited as support for this proposal the statutory language of section 25D(d)(1), which allows for full credit eli- gibility if a solar water heating property receives at least 50 percent of its energy inputs from the sun. Applying this premise to the investment tax credit under section 48 would allow an energy property to be eligible for 100 percent of the section 48 credit if it receives at least 50 percent of its energy input from a qualifying source but would render the energy property ineligi- ble for the section 48 credit if less than 50 percent of its energy input is from a qual- ifying source. Commenters asserted that a 50-percent Cliff would be more equitable than the 75-percent Cliff. Several commenters also recom- mended that the regulations be modified to provide that if greater than 50 percent of energy received by an energy property is from a qualifying source that the energy property is eligible for a full section 48 credit. Conversely, if the energy prop- erty receives less than 50 percent of its energy input from a qualifying source, the qualifying basis of the energy property is reduced incrementally for the annual mea- suring period. Importantly, this rule would reduce the credit but not disqualify the energy property entirely from credit eligi- bility. The benefit of adopting this rule is that it would eliminate the “all or nothing” dynamic of the current 75-percent Cliff and, as a result, would provide certainty that an energy property will remain credit eligible. The main obstacle to adopting this rule is that it would be expensive for taxpayers to measure with great accuracy the relative amounts of energy input from different qualifying sources. Many commenters suggested chang- ing the Dual Use Rule to a “Primary Use Rule” modeled on the “Primary Use” Test for asset class depreciation deter- minations, changes in use, and for asset disposition purposes. According to com- menters, this approach is popular because the Primary Use Test could be performed at the same time (on the placed in service date) and manner in which the taxpayer determines the primary use of the asset for depreciation purposes. The challenge of this approach is that it also depends upon taxpayers correctly using the deprecia- tion asset class determination procedures and reporting any changes in primary use to the IRS for recapture. Moreover, the scope of the Primary Use Test seems inap- propriate for the section 48 credit because the Primary Use Test merely serves to determine how the property is depre- ciated rather than whether the property December 26, 2023 1634 Bulletin No. 2023–52 can be depreciated. Applying this test to determine credit eligibility may increase, beyond what was intended, the credit available to a taxpayer. After consideration of the comments, the Treasury Department and the IRS have determined it would be most con- sistent with statutory intent to reduce the applicable threshold of the Dual Use Rule to 50 percent resulting in the adop- tion of a 50-percent Cliff. Therefore, pro- posed §1.48-14(b)(2)(i) would require an energy property to derive a minimum of 50 percent of energy from a qualify- ing source during an annual measuring period. Similar to the operation of the 75-percent Cliff in existing §1.48-9, if the energy used from qualifying sources is between 50 percent and 100 percent, only a proportionate amount of the eli- gible basis of the energy property will be taken into account in computing the amount of the section 48 credit. If less than 50 percent of the energy used is from qualifying sources, then the eligi- ble basis is zero, and the property is not eligible for the section 48 credit. The Treasury Department and the IRS recog- nize that the Dual Use Rule is no longer relevant to determining the eligibility of energy storage technology placed in ser- vice after December 31, 2022, because the IRA added energy storage technology as an energy property effective for prop- erty placed in service after December 31, 2022. However, the Dual Use Rule may still have other applications under section 48. The Treasury Department and the IRS request comments on the application of the Dual Use Rule to section 48 after its amendment by the IRA. 2. Aggregation of Energy Inputs While T.D. 8147 significantly amended existing §1.48-9 to permit 25 percent of energy used by energy property from non-qualifying sources, it did not allow the aggregation of energy from multiple energy properties to be treated as energy from qualifying sources for purposes of the Dual Use Rule. In response to Notice 2015-70, sev- eral commenters requested a revised rule to permit taxpayers to calculate credit basis by aggregating all inputs from qualifying sources that would otherwise individually qualify for the section 48 credit (all types of energy property and any qualified facilities for which an election is made to claim the section 48 credit as a “qualified investment credit facility” under section 48(a)(5)). After consideration of the comments received, proposed §1.48-14(b)(2)(ii) would revise the Dual Use Rule to permit the aggrega- tion of energy inputs from more than one energy property. 3. Measurement Period Existing §1.48-9(c)(10)(iv) and (d)(6) provides that an annual measuring period is the period during which the portion of dual use property’s basis or cost allocable to use of energy from a qualified source is measured. An annual measuring period for an item of dual use property is defined as the 365-day period beginning with the day it is placed in service or a 365-day period beginning the day after the last day of the immediately preceding annual mea- suring period. In response to Notice 2015-70, several commenters requested that the regula- tions provide a clarification of the annual measurement rules applicable to dual use property. Several of these commenters’ concerns were tied to energy storage tech- nology. Because the IRA now includes energy storage technology as eligible property, many of these specific concerns may have been eliminated. However, the proposed regulations would still address these concerns by adopting these annual measurement rules for application to the Dual Use Rule. Accordingly, a taxpayer may claim the section 48 credit when it places an energy property in service, and all relevant time periods, including depre- ciation and recapture, begin on that date. After consideration of the comments, pro- posed §1.48-14(b)(2)(iii) would provide that an annual measuring period for an item of dual use property is any period of 365 consecutive days (366 days in a leap year) beginning with the day the dual use property is placed in service. 4. Dual Use Property and Microgrid Controllers Certain equipment is necessary for a microgrid controller to perform its functions, but such equipment may also have been required to be installed even without the presence of a microgrid. An example is a communications system (for example, a local ethernet network or a commercial wireless network). A microg- rid controller must be connected to a com- munications system to operate properly. Such a communications system could be considered part of the microgrid control- ler itself. However, the communications system could also be used for other pur- poses and may not be dedicated to the microgrid system. The Dual Use Rule would be inapplicable in this scenario because the scenario does not involve the use of energy derived from both a qualifying source and from sources other than a qualifying source (non-qualifying source). The Treasury Department and the IRS request comments on whether a rule is needed to address this situation for microgrid controllers or other potentially similar situations for which the Dual Use Rule would not apply. C. Energy property that could be eligible for multiple credits Section 48 and the existing regulations thereunder are silent regarding the eligi- bility of components of energy property for multiple credits. However, in Notice 2013-70, the Treasury Department and the IRS considered the ability of a sin- gle taxpayer to claim section 25D and section 48 credits for different uses of the same energy property. In Q&A #27 of Notice 2013-70, a taxpayer purchased and installed solar electric property to generate electricity for the taxpayer’s residence. The taxpayer also expected the solar electric property to generate excess electricity that would be sold to a utility. Q&A #27 determined that the taxpayer may not claim the section 25D credit for the full amount of the solar electric property expenditure because the property not only generates electricity for use in the taxpayer’s residence, but it also generates electricity for sale by the taxpayer. As a result, the taxpayer may only claim the section 25D credit for the portion of the solar electric property expenditure that relates to the electricity generated for use in the taxpayer’s home. However, the taxpayer may be able to Bulletin No. 2023–52 1635 December 26, 2023 claim the section 48 credit for a portion of the solar electric property expenditure if the requirements of section 48 are sat- isfied. Notice 2013-70 did not separately analyze whether the taxpayer had met the requirements to claim the section 48 credit. Several commenters requested a modification of the regulations to allow section 48 credit eligibility in scenarios involving different taxpayers that claim different credits related to different com- ponents of an energy property. This may also occur in situations in which differ- ent taxpayers own components of energy property as discussed in part III.E.1 of this Summary of Comments and Explanation of Provisions. After consideration of these comments, proposed §1.48-14(c)(1) would provide that the same energy prop- erty may be eligible for both the section 48 credit and another credit subject to cer- tain limitations that proposed §1.48-14(c) (2) would provide. D. Incremental cost Existing guidance under section 48 provides that only the incremental cost of energy property is included in the eligible basis for purposes of determining the sec- tion 48 credit. Existing §1.48-9(k) defines incremental cost as the excess of the total cost of equipment over the amount that would have been expended for the equip- ment if the equipment were not used for a qualifying purpose related to the section 48 credit. The existing regulations pro- vide as an example, a scenario in which energy property costing $100 performs a pollution control function as well as a non-qualifying function. The example states that it would cost $60 solely to per- form the non-qualifying function, thus the incremental cost to the energy property would be $40. The Treasury Department and the IRS received no comments regarding the incremental cost rule in response to Notice 2015-70. Thus, proposed §1.48-14(d)(1) would continue to apply this incremental cost approach and would provide that only the incremental cost of energy property is included in the eligible basis of the energy property for purposes of computing the section 48 credit. E. Special rules concerning ownership 1. Separate Ownership of Energy Property Section 48 and the existing regulations thereunder are silent regarding whether the components of an energy property can be owned by multiple taxpayers. In Revenue Ruling 78-268, 1978-2 C.B. 10, the Treasury Department and the IRS addressed a situation involving four own- ers that shared a common tenancy in an electric generating facility: two inves- tor-owned utilities, a tax-exempt coopera- tive, and a tax-exempt municipality-owned utility. The specific issue raised in this Revenue Ruling was whether ownership by the tax-exempt entities disqualified the entire electric generating facility from the investment tax credit. Former section 48(a)(4) effectively stated that property owned by a tax-exempt entity could not be investment tax credit property. Revenue Ruling 78-268 concluded that the two investor-owned utilities were eligible for the investment tax credit despite the fact that the electric generating facility was not credit-eligible property in the hands of the tax-exempt entities. This revenue ruling has been interpreted to stand for the prop- osition that fractional interests in common tenancies should be treated as separate assets for Federal income tax purposes. Several commenters requested the adoption of a rule that separate parties that own an interest in energy property are eli- gible for the section 48 credit to the extent of their fractional ownership interests. Further, these commenters also requested the adoption of a rule that, if components of energy property are owned by sepa- rate taxpayers, each taxpayer would be eligible for the section 48 credit to the extent of their cost basis in the compo- nents of energy property that they own. These commenters cite Revenue Ruling 78-268 as support for the proposition that fractional interests in common tenancies should be treated as separate assets for Federal income tax purposes. Many commenters requested that the regulations address situations involving energy property with multiple owners, such as solar condos and community solar facilities. These commenters requested that the regulations be clarified to state that shared ownership does not affect the credit eligibility of an energy property, regardless of the ownership structure. To support this position, several commenters cite to section 25C(e)(1) (redesignated as section 25C(f)(1) of the Code by the IRA) and section 25D(e)(5) that treat a tenant-stockholder (as defined in section 216 of the Code) in a cooperative hous- ing corporation (as defined in section 216) as making his or her proportionate share (as defined in section 216(b)(3)) of any expenditures of such corporation. Similarly, sections 25C(f)(1) and 25D(e) (6) treat an individual member of a condo- minium management association as hav- ing made the individual’s proportionate share of any expenditures of such asso- ciation. As a result, a tenant-stockholder in a cooperative or a member of a condo- minium association may claim a section 25C or 25D credit for their proportional share of the expenditure of the coopera- tive or condominium association for credit eligible property. Several commenters expressed con- cerns about credit eligibility and the ownership of offshore wind property. For example, a group of commenters requested confirmation that certain transfer and power conditioning equipment necessary to deploy offshore wind is eligible for a section 48 credit, but also that the trans- fer and power conditioning equipment is eligible for section 48 even if owned by a separate entity from the entity that owns the offshore wind turbines or if the trans- fer and power conditioning equipment is shared between multiple offshore wind facilities as part of a shared transmission solution. The Treasury Department and the IRS have determined that a taxpayer that owns an energy property is eligible for the sec- tion 48 credit only to the extent of the taxpayer’s eligible basis in the energy property. In the case of multiple parties that hold ownership shares in an energy property, each party is eligible for the sec- tion 48 credit to the extent of the party’s fractional ownership interest. Proposed §1.48-14(e)(2) would adopt this position. Proposed §1.48-14(e)(4) also would pro- vide examples illustrating the treatment of multiple owners of an energy property. December 26, 2023 1636 Bulletin No. 2023–52 As described in part I.D.3 of this Summary of Comments and Explanation of Provisions with regard to qualified off- shore wind property, functionally interde- pendent components do not include power conditioning and transfer equipment such as subsea cables and voltage transformers necessary to condition electricity for use on the electrical grid. However, the power conditioning and transfer equipment are integral parts of the qualified offshore wind property, and thus, are energy prop- erty. In contrast, transmission and distri- bution equipment are not functionally interdependent components of an energy property nor are they an integral part of an energy property. If the taxpayer owns both the unit of energy property and at least a portion of the related power condition- ing and transfer equipment, that taxpayer would be able to calculate the section 48 credit on the eligible basis of the energy property, including the taxpayer’s basis in the integral power conditioning and transfer equipment. In the case of multi- ple parties that hold ownership shares in an energy property, each party is eligible for the section 48 credit to the extent of its fractional ownership interest. If power conditioning and transfer equipment owned by one taxpayer is an integral part of an energy property owned by an unre- lated taxpayer, the taxpayer that owns the power conditioning and transfer equip- ment would not be eligible for the section 48 credit but the taxpayer that owns the energy property would be eligible for the section 48 credit. For example, if Taxpayer A owns only power conditioning and transfer equip- ment that is an integral part of an energy property owned by unrelated Taxpayer B, Taxpayer A would not be eligible for the section 48 credit. However, this would not prevent Taxpayer B from claiming a sec- tion 48 credit on the basis of the energy property that it owns. In addition, if unre- lated taxpayers Taxpayer A and Taxpayer B jointly own power conditioning and transfer equipment that is an integral part of a qualified offshore wind facility, but only Taxpayer B owns the unit of energy property (that is, the qualified offshore wind facility), only Taxpayer B may claim the section 48 credit. The amount of Taxpayer B’s section 48 credit is calcu- lated by taking into account both Taxpayer B’s share of the basis in the power con- ditioning and transfer equipment and Taxpayer B’s basis in the unit of energy property (that is, Taxpayer B’s basis in qualified offshore wind facility). 2. Related Taxpayers Section 48 does not define the term “related taxpayers.” This term was defined in existing §1.48-9(q)(10)(i) in the context of qualified intercity buses. This provision states that related taxpayers are treated as one taxpayer in determining the increase in operating capacity of qualifying inter- city buses and in determining the qualified investment in qualified intercity buses for the energy credit. Existing §1.48-9(q) (10)(i) also provides that related taxpay- ers are members of a group of trades or businesses that are under common control (as defined in §1.52–1(b)). The Treasury Department and the IRS received no com- ments regarding the related taxpayer rule in response to Notice 2015-70. As a result, proposed §1.48-14(e)(3) would incor- porate the rule provided in the existing regulations. F. Coordination with other code provisions 1. Election to Treat Qualified Facilities as Energy Property Section 48(a)(5) allows a taxpayer that owns a qualified facility (as defined in section 45(d)) to elect to claim the section 48 credit in lieu of the section 45 credit. Section 48(a)(5)(A) provides that if the taxpayer makes an election, the qualified facility will be treated as part of a quali- fied investment credit facility, and there- fore deemed energy property eligible for a section 48 credit. A qualified investment credit facility is defined in section 48(a) (5)(C) as a qualified facility described in section 45(d)(1) – (4), (6), (7), (9), or (11), with respect to which no credit has been allowed under section 45, and for which the taxpayer makes an irrevocable election to claim the section 48 credit in lieu of any section 45 credit. Qualified facilities for which a taxpayer is eligible to make an election under section 48(a) (5) include wind, closed- and open-loop biomass, geothermal, solar, landfill gas, trash, hydropower, marine and hydroki- netic facilities. Only with respect to a qualified invest- ment credit facility, section 48(a)(5)(D) defines “qualified property” as tangi- ble personal property or other tangible property (not including a building or its structural components), but only if such property is used as an integral part of the qualified investment credit facility; with respect to which depreciation (or amorti- zation in lieu of depreciation) is allowable; that is constructed, reconstructed, erected, or acquired by the taxpayer; and the orig- inal use of the property commences with the taxpayer. Notice 2009-52, 2009-25 I.R.B. 1094, provides taxpayers with procedures to make an election under section 48(a)(5). Proposed §1.48-14(f)(6) would adopt the procedures in Notice 2009-52 and, as a result, Notice 2009-52 will be obsoleted upon the publication of the final regula- tions in the Federal Register. a. Interaction of section 45 credit requirements with section 48 credit In response to Notice 2015-70, several commenters requested that the regulations address whether and to what extent the definition of “qualified investment credit facility” provided in section 48(a)(5) (C) makes the rules that generally apply for determining a taxpayer’s section 45 credit applicable to qualified facilities for which the taxpayer makes an election. Additionally, Notice 2022-49 requested comments on whether guidance is needed to determine whether a qualified invest- ment credit facility that elects to claim the section 48 credit in lieu of the section 45 credit is subject to all of the requirements of section 45, including the requirement that electricity generated by the qualified investment credit facility be sold to an unrelated person, and what factors the Treasury Department and the IRS should consider regarding such guidance. Several commenters responded and generally were not supportive of imposing the require- ments of section 45 on a qualified invest- ment credit facility that elects to claim the section 48 credit in lieu of the section 45 credit. One commenter pointed out, for example, that section 48 only cross-ref- erences specific provisions of section Bulletin No. 2023–52 1637 December 26, 2023 45(d) and not all of section 45(d) nor all of section 45. This commenter noted that because section 48 is an investment tax credit rather than a production tax credit, the rationale for requiring sales of energy from a qualified investment credit facility to unrelated persons is inapplicable. Section 45(a) sets forth the amount of the production tax credit for a taxable year. It does not determine whether a facility is a “qualified facility” (that definition is set forth in section 45(d)). Section 45(a) specifies the amount of the credit for a qualified facility by formula (0.3 cents (increased credit amount under section 45(a)(6) if the requirements of 45(a)(6)(B) are met) multiplied by the kWh of elec- tricity generated and sold to an unrelated person. This statutory structure appears to make the requirement that electricity be sold to an unrelated person relevant only for determining the amount of the section 45 tax credit, not eligibility for the section 48 tax credit. Therefore, after consider- ation of these comments, the Treasury Department and the IRS have determined that the requirements of section 45 are not imposed on a qualified investment credit facility that elects to claim the section 48 credit in lieu of the section 45 credit. Proposed §1.48-14(f)(1) would adopt this position. b. Time and manner of making election Section 2 of Notice 2009-52 provides that, to make the election with respect to a qualified facility, a taxpayer must claim the energy credit on a completed Form 3468, Investment Credit, and file such form with the taxpayer’s income tax return for the year in which the property is placed in service. The taxpayer must make a sepa- rate election for each qualified facility that is to be treated as a qualified investment credit facility. Proposed §1.48-14(f)(6) (i) would adopt this procedure with some modifications. If any taxpayer owning an interest in a qualified investment credit facility makes an election under section 48(a)(5), that election would be binding on all taxpayers that directly or indirectly own an interest in the facility. Additionally, proposed §1.48-14(f) (6)(ii) would provide a similar special rule for partnerships and S corporations, which would require that the election be made at the entity level and is binding on all ultimate credit claimants (as defined in §1.50-1(b)(3)(ii)) who must claim the credit in proportion to their respec- tive qualified investment in the energy property. The credit is claimed on each claimant’s completed Form 3468, or any successor form(s), and filed with a timely filed (including extensions) return for the taxable year in which the partnership or S corporation makes the election. 2. Coordination Between Section 42 and 48 Credits Section 50(c)(3)(A) provides the gen- eral rule that a taxpayer’s basis in an energy property is reduced by 50 per- cent of the amount of a section 48 credit determined with respect to the taxpayer’s investment in the energy property. Section 13102(i) of the IRA amended section 50(c) to provide an exception to that rule for property placed in service after December 31, 2022. As a result, a taxpayer that has claimed a section 48 credit with respect to its basis in an energy property is not required to reduce its basis in the energy property when determining eligible basis for purposes of calculating a low-income housing credit under section 42 of the Code (section 42 credit). Accordingly, the basis of energy property may be used to determine a section 48 credit and may also be included in eligible basis when deter- mining a section 42 credit. G. Rules for certain lower-output energy properties to include qualified interconnection costs in the basis of associated energy property. Section 13102(j) of the IRA added section 48(a)(8)(A) to the Code, which provides that, for purposes of determin- ing the section 48 credit with respect to energy property (as defined in section 48(a)(3)) that has a maximum net output of not greater than 5 MW (as measured in alternating current) (Five-Megawatt Limitation), a taxpayer may include amounts paid or incurred by the taxpayer for qualified interconnection property in connection with the installation of the energy property to provide for the trans- mission or distribution of the electric- ity produced or stored by such energy property. Additionally, these costs must be properly chargeable to the capital account of the taxpayer. Section 48(a)(8)(B) defines “qualified interconnection property” to mean, with respect to an energy project that is not a microgrid controller, any tangible property that is part of an addition, modification, or upgrade to a transmission or distribution system that is required at or beyond the point at which the energy project inter- connects to such transmission or distribu- tion system in order to accommodate such interconnection; either that is constructed, reconstructed, or erected by the taxpayer, or for which the cost with respect to the construction, reconstruction, or erection of such property is paid or incurred by such taxpayer; and the original use of which, pursuant to an interconnection agreement, commences with a utility. Section 48(a)(8)(C) defines an “inter- connection agreement” as an agreement with a utility for the purposes of inter- connecting the energy property owned by such taxpayer to the transmission or distri- bution system of such utility. Section 48(a)(8)(D) defines the term “utility” for purposes of section 48(a)(8) as the owner or operator of an electrical transmission or distribution system that is subject to the regulatory authority of a State or political subdivision thereof, any agency or instrumentality of the United States, a public service or public utility commission or other similar body of any State or political subdivision thereof, or the governing or ratemaking body of an electric cooperative. Section 48(a)(8)(E) provides a special rule for interconnection property. In the case of expenses paid or incurred for inter- connection property, amounts otherwise chargeable to capital account with respect to such expenses must be reduced under rules similar to the rules of section 50(c). 1. Qualified Interconnection Property Notice 2022-49 requested comments on several aspects of the treatment of qual- ified interconnection property, specifically the types of eligible costs, the required documentation, and the Five-Megawatt Limitation. Qualified interconnection property costs arise from installation of tangible December 26, 2023 1638 Bulletin No. 2023–52 property that is part of an addition, modifi- cation, or upgrade to a transmission or dis- tribution system at or beyond the point of interconnection. Energy property includes all functionally interdependent property owned by the taxpayer. Additionally, property owned by the taxpayer that is an integral part of such energy property is energy property. This may include power conditioning equipment owned by the taxpayer and used to condition electricity into a form suitable for use or transmis- sion. However, qualified interconnection property, which is most similar in function to transmission and distribution property, is neither property that is a functionally interdependent component of an energy property nor an integral part of an energy property. Therefore, qualified intercon- nection property is not energy property. Accordingly, proposed §1.48-14(g)(2) would clarify that qualified interconnec- tion property is not taken into account in determining whether an energy property satisfies the requirements for the domestic content bonus credit amount referenced in section 48(a)(12)(B) and the increase in credit rate for energy communities pro- vided in section 48(a)(14). Consistent with section 48(a)(8)(A), however, proposed §1.48-14(g) would clarify that, in connection with the instal- lation by a taxpayer of energy property (as defined in section 48(a)(3)) that has a maximum net output of not greater than 5 MW (as measured in alternating current), amounts paid or incurred by the taxpayer for qualified interconnection property that is required to accommodate the inter- connection are included in the basis of a related energy property. Additionally, proposed §1.48-14(g)(3) would provide that the maximum net output of an energy property is measured only by nameplate generating capacity of the unit of energy property (or, in the case of energy stor- age technology, the nameplate capacity of such energy storage technology) at the time the energy property is placed in service. 2. Costs Included in Basis of Related Energy Property Proposed §1.48-14(g)(1) would pro- vide that only amounts paid or incurred by a taxpayer for property that is constructed, reconstructed, or erected by the taxpayer, or for which the cost with respect to the construction, reconstruction, or erection of such property is paid or incurred by such taxpayer, will be included in the basis of a related energy property. A taxpayer that is reimbursed for these costs may not include such reimbursed costs in the amount paid or incurred by the taxpayer for qualified interconnection property. Proposed §1.48- 14(g)(6) would adopt this rule. In the case of a utility reimbursing a taxpayer for costs the taxpayer pays or incurs for qual- ified interconnection property, the utility should provide the taxpayer with informa- tion regarding such costs by the date on which the project is placed in service. The Treasury Department and the IRS are aware of common situations where a taxpayer could ultimately receive a pay- ment, credit, or service from another entity, including a utility, related to the costs the taxpayer pays or incurs for qual- ified interconnection property. For exam- ple, one taxpayer may place in service energy property and make payments to a utility with respect to qualified intercon- nection property involving the addition, modification, or upgrade to the utility’s transmission system related to such energy property. Subsequently, a different tax- payer may, at a later date, place in service energy property and make payments to the same utility related to the same additions, modifications, or upgrades to the utili- ty’s transmission system that were made in response to the first taxpayer’s inter- connection. The utility may pay, credit, or provide services to the first taxpayer in an amount related to the costs paid by the second taxpayer. The likely amount or timing of any such payment, credit, or ser- vice would not be known at the time the first taxpayer interconnects to the utility’s transmission system. The Treasury and the IRS request com- ment on whether such payment, credit, or service received by the first taxpayer, as the result of subsequent payments made to a utility by other parties, should be treated as a reimbursement to the first taxpayer and impact the amount of the costs of qualified interconnection property that the first tax- payer may include in its basis for purposes of the section 48 credit. The Treasury and the IRS also request comment on whether the costs paid by the second taxpayer should be treated as amounts paid or incurred for qualified interconnection property in connection with the instal- lation of the second taxpayer’s energy property. The Treasury and IRS request comment on industry practices relevant to the determination of costs paid or incurred for qualified interconnection property, including the accounting treatment of costs paid or incurred for qualified inter- connection property. The Treasury and the IRS also request comment on whether any clarifications are needed regarding the tax treatment of amounts paid or incurred for qualified interconnection property, including reimbursement of costs paid or incurred by a taxpayer for qualified inter- connection costs. In section 3.02(1)(b)(ii) of Notice 2022-49, the Treasury Department and the IRS requested comments concerning what type of documentation, in addition to interconnection agreements and cost cer- tification reports, is readily available for a taxpayer to demonstrate that they have paid or incurred interconnection costs. Taxpayers must retain documentation in compliance with section 6001 of the Code. The proposed regulations do not provide any specific type of required documenta- tion, and any documentation that satisfies section 6001 will suffice to substantiate that a taxpayer has paid or incurred qual- ified interconnection costs. Commenters to Notice 2022-49 provided feedback on the documentation that taxpayers may use to substantiate costs paid or incurred for qualified interconnection property. Qualified interconnection property is either constructed, reconstructed, or erected by the taxpayer, or the taxpayer pays or incurs the cost with respect to the construction, reconstruction, or erection of such property; and the original use of which, pursuant to an interconnection agreement, commences with a utility. Therefore, in some cases, taxpayers will have the necessary information and doc- umentation on these costs. In other cases, the taxpayers will need to receive this information from the utility, which, the Treasury Department and the IRS under- stand, will be a common scenario. For sit- uations in which property is constructed, reconstructed, or erected by a party other than the taxpayer, final information with conclusive details such as a true-up report Bulletin No. 2023–52 1639 December 26, 2023 with the actual costs, final invoices, proof of payment or reimbursement, and per- mission to operate documentation or any other final project accounting docu- mentation should be maintained. Other examples of cost documentation records include, but are not limited to, the inter- connection agreement, interconnection study, signed customer contracts, and cost certification reports. 3. Five-Megawatt Limitation Under section 48(a)(8)(A), energy property includes amounts paid or incurred by the taxpayer for qualified interconnec- tion property in connection with the instal- lation of energy property only if it has a maximum net output of not greater than 5 MW (as measured in alternating current). The addition of amounts paid or incurred by the taxpayer for qualified interconnec- tion property in section 48(a)(8)(A) is tied to the installation of “energy property.” The statute clearly ties the 5 MW limita- tion to the energy property; therefore, as long as an energy property is 5 MW or less, the statute is satisfied. Additionally, measurement at the level of the energy property provides certainty for taxpayers and the IRS because it is measured by the energy property’s maximum net output when it is placed in service. Therefore, proposed §1.48-14(g)(3) would provide that the Five-Megawatt Limitation must be measured at the level of the energy property. Proposed §1.48-14(g)(7) also would provide examples illustrating the application of this rule. In accordance with proposed §1.48- 14(g)(3), if an energy project comprised of multiple energy properties has a combined nameplate capacity in excess of 5 MW, each of the energy properties would none- theless be eligible to include amounts paid or incurred by the taxpayer for qualified interconnection property if each energy property satisfies the Five-Megawatt Limitation. The Treasury Department and the IRS request comments regard- ing the application of the Five-Megawatt Limitation to a single energy property, including whether the definition of an energy property is sufficiently clear for this purpose. In addition, the Treasury Department and the IRS request com- ments regarding the circumstances under which multiple energy properties each with a nameplate capacity of less than 5 MW would utilize common power con- ditioning equipment for economic or regulatory reasons and/or common inter- connection agreements, or would instead utilize separate power conditioning equip- ment and/or interconnection agreements. 4. Non-application to Certain Types of Energy Properties The definition of qualified interconnec- tion property specifically excludes inter- connection property installed with respect to an energy project that is a microgrid controller. Additionally, taxpayers may not include the costs of qualified interconnec- tion property in the basis of electrochro- mic glass property and fiber optic solar energy property because these types of energy property do not require additions, modifications, or upgrades to a transmis- sion or distribution system. Similarly, in the case of energy properties that generate thermal energy, such as certain geother- mal property and qualified biogas prop- erty, this provision is inapplicable. Effect on Other Documents Notice 2009-52 will be obsoleted upon publication of the final regulations in the Federal Register. Notice 2009-52, in rele- vant part, provides procedures for taxpay- ers to make an irrevocable election under section 48(a)(5) to treat qualified property that is part of a qualified investment credit facility as energy property eligible for a section 48 credit in lieu of a section 45 credit. Proposed Applicability Dates Except for the provisions of proposed §§1.48-13 and 1.6418-5(f), these regula- tions generally are proposed to apply with respect to property that is placed in service after December 31, 2022, and during a taxable year beginning after the date final regulations are published in the Federal Register. Proposed §1.6418-5(f) is pro- posed to apply to taxable years ending on or after the date final regulations are pub- lished in the Federal Register. A taxpayer may rely on proposed §§ 1.48-9, 1.48-14, and 1.6418-5(f) with respect to property that is placed in service after December 31, 2022, and during a taxable year begin- ning on or before the date final regulations are published in the Federal Register, pro- vided the taxpayer and all related persons (within the meaning of sections 267(b) and 707(b) of the Code) apply proposed §§ 1.48-9 and 1.48-14 in their entirety and in a consistent manner. Proposed §1.48-13 is proposed to apply to projects placed in service in taxable years ending after the date final regulations are published in the Federal Register, and the construction of which begins after the date final regulations are published in the Federal Register. However, proposed §1.48-13(d) is proposed to apply to energy projects the construction of which begins after November 22, 2023. Taxpayers may rely on §1.48-13 with respect to construc- tion of a property or project beginning on or after January 29, 2023, and on or before the date these regulations are published as final regulations in the Federal Register, provided, that beginning after the date that is 60 days after August 29, 2023, tax- payers follow proposed §1.48-13 in its entirety and in a consistent manner. Special Analyses I. Regulatory Planning and Review— Economic Analysis Pursuant to the Memorandum of Agreement, Review of Treasury Regulations under Executive Order 12866 (June 9, 2023), tax regulatory actions issued by the IRS are not subject to the require- ments of section 6 of Executive Order 12866, as amended. Therefore, a regulatory impact assessment is not required. II. Paperwork Reduction Act The Paperwork Reduction Act of 1995 (44 U.S.C. 3501–3520) (PRA) requires that a Federal agency obtain the approval of Office of Management and Budget (OMB) before collecting information from the public, whether such collection of informa- tion is mandatory, voluntary, or required to obtain or retain a benefit. A Federal agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of infor- mation displays a valid control number. December 26, 2023 1640 Bulletin No. 2023–52 The collections of information in these proposed regulations contain reporting and recordkeeping requirements that are required to verify the eligibility of the property for the credit. These collections of information would generally be used by the IRS for tax compliance purposes and by taxpayers to facilitate proper reporting and compliance. The reporting requirement mentioned within this proposed regulations with respect to section 48 are in proposed §1.48-14(f)(6), which provides the time and manner for a taxpayer to make a sec- tion 48(a)(5)(C) an election to have qual- ified investment credit facility property that was placed in service after December 31, 2008, treated as a qualified investment credit facility for purposes of claiming the section 48 credit. These requirements are considered general tax records under § 1.6001-1. A taxpayer must make a section 48(a) (5)(C) election on a completed Form 3468 (Investment Credit) (or successor forms, or pursuant to instructions and other guid- ance) with the taxpayer’s timely filed return (including extensions) for the tax- able year in which the energy property is placed in service. The taxpayer must make a separate section 48(a)(5)(C) elec- tion for each qualified facility that is to be treated as a qualified investment credit facility. These collections are included in Notice 2009-52, 2009-1 C.B. 1094, which is already approved under OMB Control Number 1545-2145 for all filers. Also, the election selection is included on, Form 3468, which is already approved in OMB Control Numbers 1545-0155 for trust and estate filers, 1545-0074 for individual filers, and 1545-0123 for business filers. This proposed regulation is not chang- ing the collection requirements already approved by OMB. These proposed regulations would also include reporting requirements, in addi- tion to the general reporting requirements set forth in in §1.45-12 of the August Proposed Regulations, for taxpayers that claim an increased credit amount under section 48(a)(9)(B)(iii). These proposed regulations would require taxpayers to verify compliance with the Prevailing Wage Requirements by providing infor- mation that includes the aggregate infor- mation detailed in §1.45-12 of the August Proposed Regulations during the five-year recapture period after an energy project is placed in service. The Secretary may issue forms and instructions in future guidance for the purpose of meeting these reporting requirements. As set forth in the pream- ble to the August Proposed Regulations, these reporting requirements will be cov- ered under OMB control numbers 1545- 0074 for individuals/sole proprietors and 1545-0123 for business entities. The IRS has solicited public comments on these requirements and the associated burdens for trusts and estates and has sought OMB approval under a new OMB control num- ber (1545-NEW) for trust and estate filers. This proposed regulation is not chang- ing or creating new collection require- ments not already approved by, or will be approved by, OMB for the §1.45-12. These proposed regulations also describe recapture procedures as detailed in proposed § 1.6418–5. The reporting of a section 48(a)(10)(C) recapture event will still be required to be reported using Form 4255, Recapture of Investment Credit. This form is approved under OMB control numbers 1545–0074 for individu- als, 1545–0123 for business entities, and 1545-0166 for trust and estate filers. The proposed regulation is not changing or creating new collection requirements not already approved by OMB. III. Regulatory Flexibility Act The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes certain requirements with respect to Federal rules that are subject to the notice and comment requirements of section 553(b) of the Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely to have a significant economic impact on a sub- stantial number of small entities. Unless an agency determines that a proposal is not likely to have a significant economic impact on a substantial number of small entities, section 603 of the RFA requires the agency to present an initial regulatory flexibility analysis (IRFA) of the proposed rule. The Treasury Department and the IRS have not determined whether the pro- posed rule, when finalized, will likely have a significant economic impact on a substantial number of small entities. This determination requires further study. However, because there is a possibil- ity of significant economic impact on a substantial number of small entities, an IRFA is provided in these proposed regu- lations. The Treasury Department and the IRS invite comments on both the num- ber of entities affected and the economic impact on small entities. Pursuant to section 7805(f), this notice of proposed rulemaking has been submit- ted to the Chief Counsel of Advocacy of the Small Business Administration for comment on its impact on small business. A. Need for and objectives of the rule The proposed regulations will provide greater clarity to taxpayers for purposes of claiming the section 48 credit for energy property. The proposed rule is expected to encourage taxpayers to invest in devel- oping new energy properties, including qualified facilities otherwise eligible for the section 45 credit for which a taxpayer makes a section 48(a)(5)(C) election. Thus, the Treasury Department and the IRS intend and expect that the proposed rule will deliver benefits across the econ- omy that will beneficially impact various industries. B. Affected small entities The Small Business Administration estimated in its 2018 Small Business Profile that 99.9 percent of United States businesses meet its definition of a small business. The applicability of these pro- posed regulations does not depend on the size of the business, as defined by the Small Business Administration. As described more fully in the preamble to these proposed regulations and in this IRFA, these rules may affect a variety of different businesses across several differ- ent industries. The section 48 credit incentivizes the development of energy property. Because the potential credit claimants can vary widely, it is difficult to estimate at this time the impact of these proposed regula- tions, if any, on small businesses. The Treasury Department and the IRS expect to receive more information on the impact on small businesses through com- ments on this proposed rule and again Bulletin No. 2023–52 1641 December 26, 2023 when taxpayers start to claim the section 48 credit using the guidance and procedures provided in these proposed regulations. C. Impact of the rule The proposed regulations will allow taxpayers to plan investments and trans- actions based on the ability to claim the section 48 credit. The increased use of the section 48 credit will incentivize the development of technologies for energy generation and storage. The use of the sec- tion 48 credit may also lead to additional investment in electrical grid infrastructure to transport electricity. Because the statutory changes that are reflected in the proposed rules have already been accounted for by Form 3468, the recordkeeping and reporting require- ments should not increase for taxpayers that already claim the section 48 credit. The Form 3468 already provides the pro- cedures for taxpayers to make a section 48(a)(5)(C) election. To make the election, a taxpayer must claim the energy credit with respect to a qualified investment credit facility property on a completed Form 3468 (Investment Credit) (or successor forms, or pursuant to instructions and other guid- ance) and file such form with the taxpayer’s timely filed return (including extensions) for the taxable year in which the property is placed in service. Although the Treasury Department and the IRS do not have suffi- cient data to precisely determine the likely extent of the increased costs of compliance, the estimated burden of complying with the recordkeeping and reporting requirements are described in the Paperwork Reduction Act section of the preamble. D. Duplicative, overlapping, or conflicting Federal rules The proposed rule would not dupli- cate, overlap, or conflict with any relevant Federal rules. As discussed above, the proposed rule would merely provide pro- cedures and definitions to allow taxpayers to claim the section 48 credit. IV. Unfunded Mandates Reform Act Section 202 of the Unfunded Mandate Reform Act of 1995 (UMRA) requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a final rule that includes any Federal mandate that may result in expen- ditures in any one year by a State, local, or Tribal government, in the aggregate, or by the private sector, of $100 million (updated annually for inflation). These proposed regulations do not include any Federal mandate that may result in expen- ditures by State, local, or Tribal govern- ments or by the private sector in excess of that threshold. V. Executive Order 13132: Federalism Executive Order 13132 (Federalism) prohibits an agency from publishing any rule that has federalism implications if the rule either imposes substantial, direct compliance costs on State and local gov- ernments, and is not required by statute, or preempts State law, unless the agency meets the consultation and funding requirements of section 6 of the Executive order. These proposed regulations do not have federalism implications and do not impose substantial, direct compliance costs on State and local governments or preempt State law within the meaning of the Executive order. VI. Executive Order 13175: Consultation and Coordination with Indian Tribal Governments Executive Order 13175 (Consultation and Coordination With Indian Tribal Governments) prohibits an agency from publishing any rule that has Tribal impli- cations if the rule either imposes substan- tial, direct compliance costs on Indian Tribal governments, and is not required by statute, or preempts Tribal law, unless the agency meets the consultation and funding requirements of section 5 of the Executive order. This proposed rule does not have substantial direct effects on one or more Federally recognized Indian Tribes and does not impose substantial direct compli- ance costs on Indian Tribal governments within the meaning of the Executive order. Statement of Availability of IRS Documents IRS notices and other guidance cited in this preamble are published in the Internal Revenue Bulletin (or Cumulative Bulletin) and are available from the Superintendent of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by visiting the IRS website at https://www.irs.gov. Comments and Public Hearing Before these proposed amendments to the regulations are adopted as final regu- lations, consideration will be given to any comments regarding the notice of pro- posed rulemaking and partial withdrawal of notice of proposed rulemaking that are submitted timely to the IRS in the pream- ble under the ADDRESSES section. The Treasury Department and the IRS request comments on all aspects of the proposed regulations. All comments submitted will be made available at http://www.regu- lations.gov or upon request for public inspection and copying. A public hearing has been scheduled for February 20, 2024, at 10 a.m. ET, in the Auditorium at the Internal Revenue Building, 1111 Constitution Ave, NW, Washington, DC. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 30 minutes before the hearing starts. Participants may alternatively attend the public hearing by telephone. The rules of 26 CFR 601.601(a)(3) apply to the public hearing. Persons who wish to present oral comments at the public hearing must submit an outline of the topics to be discussed and the time to be devoted to each topic by January 22, 2024. A period of 10 minutes will be allotted to each person for making com- ments. An agenda showing the sched- uling of the speakers will be prepared after the deadline for receiving outlines has passed. Copies of the agenda will be available free of charge at the public hearing. If no outline of the topics to be discussed at the public hearing is received by January 22, 2024, the public hearing will be cancelled. If the public hearing is cancelled, a notice of cancellation of the public hearing will be published in the Federal Register. Individuals who want to testify in per- son at the public hearing must send an email to publichearings@irs.gov to have your name added to the building access December 26, 2023 1642 Bulletin No. 2023–52 list. The subject line of the email must contain the regulation number REG- 132569-17 and the language TESTIFY In Person. For example, the subject line may say: Request to TESTIFY In Person at Hearing for regulation number REG-132569-17. Individuals who want to testify by telephone at the public hearing must send an email to publichearings@irs.gov to receive the telephone number and access code for the hearing. The subject line of the email must contain the regulation number REG-132569-17 and the language TESTIFY Telephonically. For exam- ple, the subject line may say: Request to TESTIFY Telephonically at Hearing for REG-132569-17. Individuals who want to attend the public hearing in person without testify- ing must also send an email to publichear- ings@irs.gov to have your name added to the building access list. The subject line of the email must contain the regulation number REG-132569-17 and the language ATTEND In Person. For example, the subject line may say: Request to ATTEND Hearing in Person for REG-132569-17. Requests to attend the public hearing must be received by 5:00 p.m. on February 15, 2024. Hearings will be made accessible to people with disabilities. To request spe- cial assistance during a hearing please contact the Publications and Regulations Branch of the Office of Associate Chief Counsel (Procedure and Administration) by sending an email to publichearings@ irs.gov (preferred) or by telephone at (202) 317-6901 (not a toll-free number) by at least 5:00 p.m. on February 14, 2024. Drafting Information The principal authors of these pro- posed rules are Martha M. Garcia and Boris Kukso of the Office of Associate Chief Counsel (Passthroughs & Special Industries). However, other personnel from the Treasury Department and the IRS participated in their development. List of Subjects in 26 CFR Part 1 Income taxes, Reporting and record- keeping requirements. Partial Withdrawal of Notice of Proposed Rulemaking Under the authority of 26 U.S.C. 7805, proposed §1.48-13 contained in the notice of proposed rulemaking (REG-100908- 23) that was published in the Federal Register on August 30, 2023 (88 FR 60018), is withdrawn. Proposed Amendments to the Regulations Accordingly, the Treasury Department and the IRS propose to amend 26 CFR part 1 as follows: PART 1—INCOME TAXES Paragraph 1. The authority citation for part 1 is amended by: a. Revising the entry for §1.48-9; and b. Adding entries in numerical order for §§ 1.48-13, 1.48-14, and 1.6418-5. The revision and additions read in part as follows: Authority: 26 U.S.C. 7805 * * * * * * * * Section 1.48-9 also issued under 26 U.S.C. 48(a)(3)(D)(i) and (16). * * * Section 1.48-13 also issued under 26 U.S.C. 48(a)(10)(C) and (16). * * * Section 1.48-14 also issued under 26 U.S.C. 48(a)(16). * * * * * * * * Section 1.6418-5 also issued under 26 U.S.C. 48(a)(10)(C) and 6418(g) and (h). * * * * * Par. 2. Revise §1.48-9 to read as follows: §1.48-9 Definition of energy property. (a) In general. For purposes of the energy credit determined under section 48 of the Internal Revenue Code (Code), the term energy property means property that, taking into account the definition of the term unit of energy property (defined in paragraph (f)(2)(i) of this section) and of other terms defined in paragraph (b) and other provisions of this section, meets the requirements of paragraph (c) of this section and is of a type of energy property set forth in paragraph (e) of this section. Paragraph (d) of this section provides rules for property excluded from energy property. Paragraph (f) of this section pro- vides rules for components included in an energy property. Paragraph (g) of this section provides the applicability date for this section. (b) Definitions related to requirements for energy property. For purposes of sec- tion 48 of the Code, this section, §§1.48- 13 and 1.48-14, and any provision of the Code or this chapter that expressly refers to any of the foregoing, the following defi- nitions apply: (1) Construction, reconstruction, or erection of energy property. The term con- struction, reconstruction, or erection of energy property means work performed to construct, reconstruct, or erect energy property either by the taxpayer or for the taxpayer in accordance with the taxpay- er’s specifications. (2) Acquisition of energy property. The term acquisition of energy property means a transaction by which a taxpayer obtains rights and obligations with respect to energy property, including— (i) Title to the energy property under the law of the jurisdiction in which the energy property is placed in service, unless the property is possessed or controlled by the taxpayer as a lessee, and (ii) Physical possession or control of the energy property. (3) Original use of energy property— (i) In general. The term original use of energy property means the first use to which a unit of energy property is put, whether or not such use is by the taxpayer. (ii) Retrofitted units of energy prop- erty. A retrofitted unit of energy prop- erty acquired by the taxpayer will not be treated as being put to original use by the taxpayer unless the rules in §1.48-14(a) regarding retrofitted energy property (80/20 Rule) or paragraph (e)(10)(v) of this section regarding modifications of certain energy storage technology apply. The question of whether a unit of energy property meets the 80/20 Rule or is mod- ified (as described in paragraph (e)(10) (v) of this section) is a facts and circum- stances determination. (4) Allowable—(i) In general. For purposes of applying paragraph (c)(1)(ii) of this section, depreciation (or amorti- zation in lieu of depreciation) is allow- able with respect to energy property if such property is of a character subject Bulletin No. 2023–52 1643 December 26, 2023 to the allowance for depreciation under section 167 of the Code and the basis or cost of such property is recovered using a method of depreciation (for example, the straight line method), which includes any additional first year depreciation deduc- tion method of depreciation (for exam- ple, under section 168(k) of the Code). Further, if an Internal Revenue Service adjustment with respect to the Federal income tax or information return for such taxable year requires the basis or cost of such energy property to be recovered using a method of depreciation, depre- ciation is allowable to the taxpayer with respect to energy property. (ii) Exclusions from allowable. For pur- poses of paragraph (b)(4)(i) of this section, depreciation is not allowable with respect to energy property if the basis or cost of such property is not recovered through a method of depreciation but, instead, such basis or cost is recovered through a deduc- tion of the full basis or cost of the energy property in one taxable year (for example, under section 179 of the Code). (5) Placed in service—(i) In general. Energy property is considered placed in service in the earlier of: (A) The taxable year in which, under the taxpayer’s depreciation practice, the period for depreciation with respect to such energy property begins; or (B) The taxable year in which the energy property is placed in a condition or state of readiness and availability for a specifically assigned function, whether in a trade or business or in the production of income. Energy property in a condition or state of readiness and availability for a specifically assigned function includes, but is not limited to, components that are acquired and set aside during the taxable year for use as replacements for a particu- lar energy property (or energy properties) in order to avoid operational time loss and equipment that is acquired for a specifi- cally assigned function and is operational but is undergoing testing to eliminate any defects. However, components acquired to be used in the construction of an energy property will not be considered in a con- dition or state of readiness and availability for a specifically assigned function. (ii) Energy property subject to §1.48-4 election to treat lessee as purchaser. Notwithstanding paragraph (b)(5)(i) of this section, energy property with respect to which an election is made under §1.48-4 to treat the lessee as having purchased such energy property is considered placed in service by the lessor in the taxable year in which possession is transferred to such lessee. (6) Unit of energy property. The term unit of energy property is defined in paragraph (f)(2)(i) of this section. No provision of this section or §1.48-13 or §1.48-14 uses the term unit in respect of energy property with any meaning other than that provided in paragraph (f)(2)(i) of this section. (7) Claim. With respect to a section 48 credit determined with respect to energy property of a taxpayer, the term claim means filing a completing Form 3468, Investment Credit, or any successor form(s), with the taxpayer’s timely filed (including extensions) Federal income tax return for the taxable year in which the energy property is placed in service, and includes the making of an election under section 6417 or 6418 of the Code and corresponding regulations with respect to such section 48 credit and made on the taxpayer’s Federal income tax return or annual information return. (c) Requirements for energy prop- erty—(1) In general. Energy property must satisfy each of the requirements of paragraphs (c)(1)(i) through (v) of this section: (i) The taxpayer constructs, recon- structs, or erects the property, or, if the original use of the property commences with the taxpayer, acquires the property; (ii) Depreciation (or amortization in lieu of depreciation) is allowable with respect to the property; (iii) The property meets the perfor- mance and quality standards as provided in paragraph (c)(2) of this section; (iv) The construction of the property begins before the date provided in section 48 of the Code (if any such date is pro- vided); and (v) The property is placed in service by the taxpayer by the date provided in sec- tion 48 (if any such date is provided). (2) Performance and quality stan- dards—(i) In general. Energy prop- erty must meet performance and quality standards, if any, which have been pre- scribed by the Secretary of the Treasury or her delegate (after consultation with the Secretary of Energy) and are in effect at the time of acquisition of the energy property. (ii) Special rules for performance and quality standards—(A) Small wind energy property. Small wind energy property must meet the performance and quality standards in effect at the time of acquisi- tion of the small wind turbine set forth in the American Wind Energy Association Small Wind Turbine Performance and Safety Standard 9.1-2009, or subse- quent revisions (AWEA); International Electrotechnical Commission 61400-1, 61400-2, 61400-11, 61400-12, or subse- quent revisions (IEC); or the ANSI/ACP 101-1-2021, the Small Wind Turbine Standard, or subsequent revisions (ACP). The certification requirements applicable to such performance and quality standards are provided in guidance published in the Internal Revenue Bulletin. See §601.601 of this chapter. (B) Electrochromic glass property. To be eligible for the section 48 credit, electrochromic windows must be rated in accordance with the National Fenestration Rating Council (NFRC) and secondary glazing systems must be rated in accor- dance with the Attachments Energy Rating Council (AERC) Rating and Certification Process, or subsequent revisions. See para- graph (e)(2)(ii) of this section for the defi- nition of electrochromic glass property. (iii) Time of acquisition. For purposes of applying performance and quality stan- dards, the time of acquisition is the date the taxpayer enters into a binding contract (as defined in paragraph (c)(2)(iv) of this section) to acquire the property, or, in the case of property constructed, recon- structed, or erected by the taxpayer, the earlier of the date that— (A) The taxpayer begins construction, reconstruction, or erection of the property, or (B) The taxpayer and another person enter into a binding contract (as defined in paragraph (c)(2)(iv) of this section) requiring the other person to construct, reconstruct, or erect property and to place the property in service for an agreed upon use. (iv) Binding contract. For purposes of this paragraph (c)(2), a contract is bind- ing only if it is enforceable under State December 26, 2023 1644 Bulletin No. 2023–52 law against the taxpayer or a predecessor and does not limit damages to a specified amount (for example, by use of a liqui- dated damages provision). For this pur- pose, a contractual provision that limits damages to an amount equal to at least five percent of the total contract price will not be treated as limiting damages to a specified amount. For additional guidance regarding the definition of a binding con- tract, see §1.168(k)-2(b)(5)(iii)(A). (d) Property that is not energy prop- erty—(1) Interaction with section 45. Energy property does not include any property that is part of a qualified facility the production from which is allowed as a credit determined under section 45 of the Code (section 45 credit) for the taxable year or any prior taxable year. However, see paragraph (f)(3) of this section for rules regarding property that is an integral part of an energy property that is also used by a qualified facility. See §1.48-14(f)(1) for rules regarding making an election under section 48(a)(5) of the Code to treat a qualified facility as an energy property. (2) Other property. Energy property also does not include power purchase agreements, goodwill, going concern value, or renewable energy certificates. (e) Types of energy property. The types of energy property eligible for a section 48 credit are: (1) Solar energy property—(i) In gen- eral. Solar energy property is equipment that uses solar energy to generate electric- ity, to heat or cool (or provide hot water for use in) a structure, or to provide solar process heat, excepting property used to generate energy for the purposes of heat- ing a swimming pool. Solar energy prop- erty includes solar electric generation equipment (as defined in paragraph (e) (1)(ii) of this section), solar process heat equipment (as defined in paragraph (e)(1) (iii) of this section), and equipment that uses solar energy to heat or cool a struc- ture or provide hot water for use in a struc- ture, and parts related to the functioning of all such equipment. (ii) Solar electric generation equip- ment. Solar electric generation equipment is equipment that converts sunlight into electricity through the use of devices such as solar cells or other collectors. (iii) Solar process heat equipment. Solar process heat equipment is equipment that uses solar energy to generate steam at high temperatures for use in industrial or commercial processes. (2) Fiber-optic solar energy property and electrochromic glass property— (i) Fiber-optic solar energy property. Fiber-optic solar energy property is equip- ment that uses solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight. (ii) Electrochromic glass property. Electrochromic glass energy property uses electricity to change its light trans- mittance properties (both visible and near infrared light) in order to heat or cool a structure. For purposes of section 48, windows, including secondary win- dows (also referred to as secondary glaz- ings), that incorporate electrochromic glass are treated as electrochromic glass property. (3) Geothermal energy property—(i) In general. Geothermal energy property is equipment used to produce, distribute, or use energy derived from a geothermal deposit (within the meaning of section 613(e)(2) of the Code), but only, in the case of electricity generated by geother- mal power, up to (but not including) the electrical transmission stage. Geothermal equipment includes production equipment (as defined in paragraph (e)(3)(ii) of this section) and distribution equipment (as defined in paragraph (e)(3)(iii) of this section). (ii) Production equipment. For pur- poses of paragraph (e)(3)(i) of this section, production equipment is equipment nec- essary to bring geothermal energy from the subterranean deposit to the surface, including well-head and downhole equip- ment (such as screening or slotting liners, tubing, downhole pumps, and associated equipment). Production, injection, and monitoring wells required for production of the geothermal deposit qualify as pro- duction equipment. If geothermal energy is used to generate electricity, production equipment also includes the property nec- essary to produce electricity. Production equipment does not include equipment used for exploration and development of geothermal deposits. (iii) Distribution equipment. For pur- poses of paragraph (e)(3)(i) of this sec- tion, distribution equipment is equipment that transports geothermal energy from a geothermal deposit to the site of ultimate use. If geothermal energy is used to gen- erate electricity, distribution equipment includes equipment that transports geo- thermal fluids between the geothermal deposit and the power plant. Distribution equipment also includes components of a building’s heating and/or cooling system, such as pipes and ductwork that distribute within a building the energy derived from the geothermal deposit. (4) Qualified fuel cell property. Qualified fuel cell property is a fuel cell power plant that has a nameplate capacity of at least 0.5 kilowatts (kW) (1 kW in the case of a fuel cell power plant with a linear generator assembly) of electricity using an electrochemical or electromechanical pro- cess, and an electricity-only generation efficiency greater than 30 percent. For this purpose, electricity-only generation efficiency may be calculated by dividing the heat rate of the fuel cell (for example, kilowatt-hours (kWh) electricity produced per kilogram (kg) of fuel consumed) by the higher heating value of the fuel (for example, kWh per kg). A fuel cell power plant is an integrated system comprised of a fuel cell stack assembly, or linear gener- ator assembly, and associated balance of plant components that converts a fuel into electricity using electrochemical or elec- tromechanical means. A linear generator assembly does not include any assembly that contains rotating parts. (5) Qualified microturbine property. Qualified microturbine property is a sta- tionary microturbine power plant that has a nameplate capacity of less than 2,000 kW and an electricity-only generation efficiency of not less than 26 percent at International Standard Organization con- ditions. A stationary microturbine power plant is an integrated system comprised of a gas turbine engine, a combustor, a recuperator or regenerator, a generator or alternator, and associated balance of plant components that converts a fuel into elec- tricity and thermal energy. A stationary microturbine power plant also includes all secondary components located between the existing infrastructure for fuel deliv- ery and the existing infrastructure for power distribution, including equipment and controls for meeting relevant power standards, such as voltage, frequency, and power factors. Bulletin No. 2023–52 1645 December 26, 2023 (6) Combined heat and power system (CHP) property—(i) In general. CHP property is property comprising a system that uses the same energy source for the simultaneous or sequential generation of electrical power, mechanical shaft power, or both, in combination with the genera- tion of steam or other forms of useful ther- mal energy (including heating and cooling applications). CHP property must produce at least 20 percent of its total useful energy in the form of thermal energy that is not used to produce electrical or mechanical power (or combination thereof), and at least 20 percent of its total useful energy in the form of electrical or mechanical power (or combination thereof). The energy effi- ciency percentage of CHP property must exceed 60 percent (except in the case of CHP systems that use biomass within the meaning of section 45 of the Code). CHP property does not include any property comprising a system if such system has a capacity in excess of 50 MW or a mechan- ical energy capacity in excess of 67,000 horsepower or an equivalent combina- tion of electrical and mechanical energy capacities. (ii) Components excluded. CHP prop- erty does not include property used to transport the energy source to the gener- ating facility or to distribute energy pro- duced by the facility. (7) Qualified small wind energy prop- erty. Qualified small wind energy prop- erty is property that uses a qualifying small wind turbine to generate electricity. A qualifying small wind turbine means a wind turbine that has a nameplate capacity of not more than 100 kW. (8) Geothermal heat pump equipment. Geothermal heat pump equipment is equipment that uses the ground, ground water, or other underground fluids as a thermal energy source to heat a struc- ture or as a thermal energy sink to cool a structure. (9) Waste energy recovery property (WERP)—(i) In general. WERP is prop- erty that generates electricity solely from heat from buildings or equipment if the primary purpose of such building or equip- ment is not the generation of electricity. Examples of buildings or equipment the primary purpose of which is not the gen- eration of electricity include, but are not limited to, manufacturing plants, medical care facilities, facilities on college cam- puses, pipeline compressor stations, and associated equipment. WERP does not include any property that has a capacity in excess of 50 MW. (ii) Coordination with CHP property. Any WERP that is part of a system that is a CHP property is not treated as WERP for purposes of section 48 of the Code unless the taxpayer elects to not treat such system as a CHP property for purposes of section 48. (10) Energy storage technology—(i) In general. Energy storage technology includes electrical energy storage prop- erty described in paragraph (e)(10)(ii) of this section, thermal energy storage prop- erty described in paragraph (e)(10)(iii) of this section, and hydrogen energy storage property described in paragraph (e)(10) (iv) of this section. (ii) Electrical energy storage property. Electrical energy storage property is prop- erty (other than property primarily used in the transportation of goods or individuals and not for the production of electricity) that receives, stores, and delivers energy for conversion to electricity, and has a nameplate capacity of not less than 5 kWh. For example, subject to the exclusion for property primarily used in the transpor- tation of goods or individuals, electrical energy storage property includes but is not limited to rechargeable electrochemi- cal batteries of all types (such as lithium ion, vanadium flow, sodium sulfur, and lead-acid); ultracapacitors; physical stor- age such as pumped storage hydropower, compressed air storage, flywheels; and reversible fuel cells. (iii) Thermal energy storage property. Thermal energy storage property is prop- erty comprising a system that is directly connected to a heating, ventilation, or air conditioning (HVAC) system; removes heat from, or adds heat to, a storage medium for subsequent use; and provides energy for the heating or cooling of the interior of a residential or commercial building. Thermal energy storage prop- erty includes equipment and materials, and parts related to the functioning of such equipment, to store thermal energy for later use to heat or cool, or to provide hot water for use in heating a residen- tial or commercial building. It does not include a swimming pool, CHP property, or a building or its structural components. For example, thermal energy storage includes, but is not limited to, thermal ice storage systems that use electricity to run a refrigeration cycle to produce ice that is later connected to the HVAC system as an exchange medium for air conditioning the building, heat pump systems that store thermal energy in an underground tank or borehole field to be extracted for later use for heating and/or cooling, and electric furnaces that use electricity to heat bricks to high temperatures and later use this stored energy to heat a building through the HVAC system. (iv) Hydrogen energy storage property. Hydrogen energy storage property is prop- erty (other than property primarily used in the transportation of goods or individuals and not for the production of electricity) that stores hydrogen and has a nameplate capacity of not less than 5 kWh, equivalent to 0.127 kg of hydrogen or 52.7 standard cubic feet (scf) of hydrogen. Hydrogen energy storage property must store hydro- gen that is solely used as energy and not for other purposes such as for the pro- duction of end products such as fertilizer. For example, hydrogen energy storage property includes, but is not limited to, a hydrogen compressor and associated stor- age tank and an underground storage facil- ity and associated compressors. (v) Modifications of energy storage energy property. With respect to electri- cal energy storage property and hydrogen energy storage property placed in service after December 31, 2022, energy storage technology that is modified as set forth in this paragraph (e)(10)(v) is treated as elec- trical energy storage property described in paragraph (e)(10)(ii) of this section or hydrogen energy storage property described in paragraph (e)(10)(iv) of this section, except that the basis of any exist- ing property prior to such modification is not taken into account for purposes of this section and section 48. This paragraph (e) (10)(v) applies to any electrical energy storage property and hydrogen energy storage property that either: (A) Was placed in service before August 16, 2022, and would be described in section 48(c)(6)(A)(i) of the Code, except that such property had a capacity of less than 5 kWh and is modified in a manner that such property (after such December 26, 2023 1646 Bulletin No. 2023–52 modification) has a nameplate capacity (after such modification) of not less than 5 kWh; or (B) Is described in section 48(c)(6)(A) (i) of the Code and is modified in a manner that such property (after such modifica- tion) has an increase in nameplate capac- ity of not less than 5 kWh. (11) Qualified biogas property—(i) In general. Qualified biogas property is property comprising a system that converts biomass (as defined in section 45K(c)(3) of the Code, as in effect on August 16, 2022) into a gas that consists of not less than 52 percent methane by volume (tested at the point described in paragraph (e)(11)(ii) of this section), or is concentrated by such system into a gas that consists of not less than 52 percent methane (tested at the point described in paragraph (e)(11)(ii) of this section), and captures such gas for sale or productive use and not for disposal via combustion. Qualified biogas property also includes any property that is part of such sys- tem that cleans or conditions such gas. For example, qualified biogas property includes, but is not limited to, a waste feedstock collection system, a landfill gas collection system, mixing or pump- ing equipment, and an anaerobic digester. However, gas upgrading equipment nec- essary to concentrate the gas into the appropriate mixture for injection into a pipeline through removal of other gases such as carbon dioxide, nitrogen, or oxy- gen is not included in qualified biogas property. (ii) Methane content requirement. The methane content requirement described in section 48(c)(7)(A)(i) of the Code and paragraph (e)(11)(i) of this section is mea- sured at the point at which gas exits the biogas production system, which may include an anerobic digester, landfill gas collection system, or thermal gasification equipment. This is the point at which a tax- payer generally must determine whether it will convert the biogas to fuel for sale or use it directly to generate heat or to fuel an electricity generation unit. (12) Microgrid controllers—(i) In general. A microgrid controller is equip- ment that is part of a qualified microgrid and is designed and used to monitor and control the energy resources and loads on such microgrid. A qualified microgrid is an electrical system that includes equip- ment that is capable of generating not less than 4 kW and not greater than 20 MW of electricity; is capable of oper- ating in connection with the electrical grid and as a single controllable entity with respect to such electrical grid, and independently (and disconnected) from such electrical grid; and is not part of a bulk-power system (as defined in section 215 of the Federal Power Act (16 U.S.C. 824o)). (ii) Capable of operating in connec- tion with the electrical grid. For purposes of this paragraph, a qualified microg- rid includes an electrical system that is capable of operating in connection with the larger electrical grid, regardless of whether a connection to the larger electri- cal grid exists. (13) Other property included in sec- tion 48. Any other property specified by section 48 as energy property is energy property for purposes of this section and §§1.48-13 and §1.48-14. (f) Property included in energy prop- erty—(1) In general. An energy prop- erty includes a unit of energy property (as defined in paragraph (f)(2)(i) of this section) that meets the requirements of paragraph (c) of this section, that is not excluded from energy property as pro- vided in paragraph (d) of this section, and is of a type of energy property included in paragraph (e) of this section. Property owned by the taxpayer that is an integral part of an energy property (as defined in paragraph (f)(3) of this section) is treated as energy property. Energy property does not include any electrical transmission equipment, such as transmission lines and towers, or any equipment beyond the elec - trical transmission stage. Energy property also generally does not include equipment that is an addition or modification to an existing energy property. However, see §1.48-14(a) for rules regarding retrofitted energy property (80/20 Rule) and para- graph (e)(10)(v) of this section for rules regarding modifications of certain types of energy storage technology. (2) Unit of energy property—(i) Definition. The term unit of energy prop- erty means all functionally interdependent components of property (as defined in paragraph (f)(2)(ii) of this section) owned by the taxpayer that are operated together and that can operate apart from other energy properties within a larger energy project (as defined in §1.48-13(d)). For rooftop solar energy property, all com- ponents of property that are installed on a single rooftop are considered a single unit of energy property. See §1.48-13(d) for rules regarding when multiple energy properties will be treated as an energy project for certain purposes. (ii) Functionally interdependent—(A) In general. Except as provided in para- graph (f)(2)(ii)(B) of this section, with respect to components of a unit of energy property, the term functionally interde- pendent means that the placing in service of each component is dependent upon the placing in service of each of the other components in order to generate or store electricity, thermal energy, or hydrogen as provided by section 48(c) of the Code and as described in paragraph (e) of this section. (B) Components of certain energy property. In the case of solar process heat equipment, fiber-optic solar energy prop- erty, electrochromic glass property, geo- thermal heat pump equipment, qualified biogas property, and microgrid controllers, with respect to components of such prop- erty, the term functionally interdependent means that the placing in service of each component is dependent upon the placing in service of each of the other components in order to perform the intended function of the energy property as provided by sec- tion 48(c) of the Code and as described in paragraph (e) of this section. (3) Integral part—(i) In general. For purposes of the section 48 credit, prop- erty owned by a taxpayer is an integral part of an energy property owned by the same taxpayer if it is used directly in the intended function of the energy property as provided by section 48(c) of the Code and as described in paragraph (e) of this section and is essential to the complete- ness of the intended function. Property that is an integral part of an energy prop- erty is energy property. A taxpayer may not claim the section 48 credit for any property that is an integral part of the tax- payer’s energy property that is not owned by the taxpayer. Multiple energy prop- erties (whether owned by one or more taxpayers) may include shared property that may be considered an integral part of Bulletin No. 2023–52 1647 December 26, 2023 each energy property so long as the cost basis for the shared property is properly allocated to each energy property. The total cost basis of such shared property divided among the energy properties may not exceed 100 percent of the cost of such shared property. In addition, property that is shared by a qualified facility (as defined in section 45(d) of the Code) and an energy property that is an integral part of the energy property will not be considered property that is not energy property under paragraph (d) of this section. (ii) Power conditioning and transfer equipment. Property that is an integral part of energy property includes power conditioning equipment and transfer equipment used to perform the intended function of the energy property as pro- vided by section 48(c) and as described in paragraph (e) of this section. Power conditioning equipment includes, but is not limited to, transformers, inverters, and converters, which modify the characteris- tics of electricity or thermal energy into a form suitable for use or transmission or distribution. Parts related to the func- tioning or protection of power condition- ing equipment are also treated as power conditioning equipment and include, but are not limited to, switches, circuit break- ers, arrestors, and hardware and software used to monitor, operate, and protect power conditioning equipment. Transfer equipment includes equipment that per- mits the aggregation of energy generated by components of energy properties and equipment that alters voltage in order to permit transfer to a transmission or distri- bution line. Transfer equipment does not include transmission or distribution lines. Examples of transfer equipment include, but are not limited to, wires, cables, and combiner boxes that conduct electricity. Parts related to the functioning or pro- tection of transfer equipment are also treated as transfer equipment and may include items such as current transform- ers used for metering, electrical interrupt- ers (such as circuit breakers, fuses, and other switches), and hardware and soft- ware used to monitor, operate, and protect transfer equipment. Power conditioning equipment and transfer equipment that are integral to an energy property may be integral to another energy property or used by a qualified facility (as defined in section 45(d) of the Code), so long as the total cost basis of the integral property is properly allocated across the energy prop- erty and qualified facility that share such property. (iii) Roads. Roads that are an integral part of an energy property are integral to the activity performed by the energy property such as onsite roads that are used for equipment to operate and maintain the energy property. Roads primarily for access to the site, or roads used primarily for employee or visitor vehicles, are not integral to the activity performed by an energy property. (iv) Fences. Fencing is not an integral part of an energy property because it is not integral to the activity performed by the energy property. (v) Buildings. Generally, buildings are not integral parts of an energy prop- erty because they are not integral to the activity of the energy property. However, the following structures are not treated as buildings for this purpose: (A) A structure that is essentially an item of machinery or equipment; and (B) A structure that houses property that is integral to the activity of an energy property if the use of the structure is so closely related to the use of the housed energy property that the structure clearly can be expected to be replaced when the energy property it initially houses is replaced. (4) Location of energy property. Any property that meets the requirements of paragraphs (f)(2) and (3) of this section is part of an energy property regardless of where such property is located. (5) Examples. This paragraph provides examples illustrating property included in energy property. (i) Example 1. Solar energy property. X con- structs a solar energy property (Property) comprised of 500 separate solar panels. The solar panels are connected by wires, cables, and combiner boxes. Generated electricity is conditioned for subsequent use through an inverter and eventually carried to a substation that houses a transformer where the elec- tricity is stepped up to electrical grid voltage before being transmitted to the electrical grid through an intertie. All components of the Property, up to and including the transformer are either functionally interdependent components of the Property or are integral parts of the Property. Therefore, the Property is an energy property for purposes of the section 48 credit. When X places the Property in service, the cost of the components up to and including the transformer is included in the basis of the Property for purposes of computing the section 48 credit. (ii) Example 2. Co-located energy properties. Assume the same facts as in Example 1, except that Y constructs a wind energy property (Wind Property) near X’s solar energy property (Solar Property). X’s Solar Property and Y’s Wind Property each connect to a substation that houses a transformer where the electricity is stepped up to electrical grid voltage before being transmitted to the electrical grid through the intertie. X and Y each pay 50% of the cost of the transformer and related power conditioning equip- ment housed therein. X’s Solar Property and Y’s Wind Property are separate energy properties. When X and Y place their respective energy properties in service, the cost of the components up to and includ- ing 50% of the cost of the transformer and related power conditioning equipment is included in X’s and Y’s basis in their respective energy properties for purposes of computing the section 48 credit. (iii) Example 3. Qualified offshore wind facil- ity. Z constructs a qualified offshore wind facility (Offshore Wind Facility) comprised of 150 turbines for which Z makes a valid election under section 48(a)(5) of the Code to claim the section 48 credit in lieu of the section 45 credit. The alternating current electricity generated by the individual wind turbines will be carried by inter-array cables to an offshore substation where a transformer will step up the volt- age of the electricity and a converter will convert it to direct current so it may be transported by subsea export cables to an onshore substation adjacent to the point of interconnection with the electrical grid. When the electricity reaches the onshore substation, it will flow into another converter where it will be converted back to alternating current, and then through a transformer and associated switchgear where it will be converted to electrical grid voltage and where the Offshore Wind Facility can be elec- trically isolated from the grid. The electricity will then pass through an intertie that will take the elec- tricity from the substation to the point of intercon- nection with the electrical grid. All components of the Offshore Wind Facility, up to and including the transformer and switchgear housed in the onshore substation, are either functionally interdependent components of an energy property or integral parts of an energy property. Therefore, the Offshore Wind Facility is an energy property, and when Z places the Offshore Wind Facility in service, the cost of the components up to and including the transformer and switchgear housed in the onshore substation are included in the basis of the Offshore Wind Facility for purposes of computing the section 48 credit. (iv) Example 4. Co-located energy property and qualified facility. X constructs a wind facility (Wind Facility) that is co-located with an energy storage technology (Energy Storage). The Wind Facility and Energy Storage share power conditioning and transfer equipment. X assigns 50% of the cost of the shared power conditioning and transfer equipment to the Wind Facility and 50% of the cost to the Energy Storage. The power conditioning and transfer equip- ment are integral parts of the Energy Storage, and are therefore, considered energy property. Therefore, X will include 50% of the cost of the power condi- tioning and transfer equipment when determining the section 48 credit for the Energy Storage. Because the December 26, 2023 1648 Bulletin No. 2023–52 shared power conditioning and transfer equipment are not considered part of the Wind Facility, if the Wind Facility otherwise satisfies the requirements of the section 45 credit, X can claim the section 45 credit for the Wind Facility. (g) Applicability date. This section applies with respect to property placed in service after December 31, 2022, and during a taxable year beginning after [DATE OF PUBLICATION OF FINAL RULE]. Par. 3. Section 1.48-13 is added to read as follows: §1.48-13 Rules relating to the increased credit amount for prevailing wage and apprenticeship. (a) In general. If a qualified energy project satisfies the requirements in para- graph (b) of this section, the amount of the energy credit determined under sec- tion 48(a) of the Internal Revenue Code (Code), after the application of sections 48(a)(1) through (8), and 48(a)(15), is equal to the credit determined under sec- tion 48(a) (section 48 credit) multiplied by five. (b) Requirements. A qualified energy project satisfies the requirements of this paragraph (b) if it is one of the following— (1) A project with a maximum net out- put of less than one megawatt (MW) of electrical (as measured in alternating cur- rent) or thermal energy determined based on the nameplate capacity as provided in paragraph (e) of this section (One- Megawatt Exception); (2) A project the construction of which began prior to January 29, 2023; or (3) A project that meets the prevail- ing wage requirements of section 48(a) (10)(A) of the Code, §1.45-7(b)-(d), and paragraph (c) of this section, the appren- ticeship requirements of section 45(b)(8) of the Code and §1.45-8, and the record- keeping and reporting requirements of §1.45-12. (c) Special rule applicable to general prevailing wage requirements—(1) In general. In addition to satisfying the pre- vailing wage requirements under §1.45- 7(b) through (d), a taxpayer must ensure that any laborers and mechanics employed (within the meaning of §1.45-7) by the taxpayer or any contractor or subcontrac- tor in the construction of such energy proj- ect, and for the five-year period beginning on the date such project is placed in ser- vice, the alteration or repair of such proj- ect, are paid wages at rates not less than the prevailing rates for construction, alter- ation, or repair of a similar character in the locality in which such project is located as most recently determined by the Secretary of Labor, in accordance with 40 U.S.C. chapter 31, subchapter IV. Subject to sec- tion 48(a)(10)(C) of the Code and this paragraph (c), for purposes of determining the increased credit amount under section 48(a)(9)(B)(iii) of the Code, the taxpayer is deemed to satisfy the prevailing wage requirements of section 48(a)(10)(A)(ii) of the Code at the time such project is placed in service. (2) Exception. For purposes of satis- fying the prevailing wage requirements of paragraph (b)(3) of this section, §1.45- 7(a) does not apply. (3) Recapture—(i) In general. The increased credit amount under paragraph (b)(3) of this section is subject to recapture for any project that does not satisfy the prevailing wage requirements in §1.45- 7(b) through (d) and paragraph (c)(1) of this section for any period with respect to an alteration or repair of such project during the five-year period beginning on the date such project is originally placed in service (five-year recapture period) (but that does not cease to be investment credit property within the meaning of section 50(a) of the Code). (ii) Recapture event—(A) In general. Any failure to satisfy the prevailing wage requirements in §1.45-7(b) through (d) and paragraph (c)(1) of this section for any period with respect to the alteration or repair of any project during the five- year recapture period is a recapture event. Any failure to satisfy the prevailing wage requirements in §1.45-7(b) through (d) and paragraph (c)(1) of this section for any period remain subject to the correc- tion and penalty provisions in §1.45-7(c), including the waiver provisions in §1.45- 7(c)(6). Subject to § 1.45-7(c)(5) and (6), if the correction and penalty payments described in §1.45-7(c) are not made by the taxpayer on or before the date that is 180 days after the date of a final determi- nation by the IRS (as defined in §1.45-7(c) (4)(ii)), the cure provision in §1.45-7(c) does not apply and the increased credit amount is subject to recapture. (B) Yearly determination. A determi- nation of whether a recapture event has occurred under paragraph (c)(3)(ii) of this section must be made for each taxable year (or portion thereof) occurring within the five-year recapture period, beginning with the taxable year ending after the date the energy project is placed in service. Thus, for each taxable year beginning or end- ing within the five-year recapture period, the taxpayer must determine whether the prevailing wage requirements of section 48(a)(10)(A) of the Code, §1.45-7(b)-(d), and paragraph (c)(1) of this section are satisfied for the recapture year(s) occur- ring during each taxable year. (C) Carrybacks and carryforward adjusted. In the case of any recapture event described in paragraph (c)(3)(ii)(A) of this section, the carrybacks and carryforwards under section 39 must be adjusted by rea- son of such recapture event. (iii) Correction and penalty pay- ments not required if taxpayer is subject to recapture under section 48(a)(10)(C) of the Code. If the IRS determines that a taxpayer that claimed the increased credit amount under section 48(a)(9)(B)(iii) of the Code or transferred a specified credit portion under section 6418 of the Code that includes the increased credit amount under section 48(a)(9)(B)(iii) failed to satisfy the prevailing wage requirements in §1.45-7(b) through (d) and paragraph (c)(1) of this section for any period with respect to the alteration or repair of any project during the five-year recapture period and the taxpayer does not make the correction and penalty payments provided in §1.45-7(c), then no penalty is assessed under §1.45-7, and the increased credit amount is subject to recapture. Taxpayers whose increased credit amount is subject to recapture under this section may still be entitled to the base amount of the energy credit under section 48(a) of the Code if such taxpayers meet the requirements to claim the credit. (4) Recapture amount—(i) In gen- eral. If a recapture event has occurred as described in paragraph (c)(3)(ii) of this section and the taxpayer fails to make the correction and penalty payments described in §1.45-7(c)(1) within 180 days after the date of a final determination by the IRS, the tax under chapter 1 of the Code for the taxable year in which the recapture Bulletin No. 2023–52 1649 December 26, 2023 event occurs is increased by the applica- ble recapture percentage multiplied by the increased credit amount that was claimed by the taxpayer under paragraph (b)(3) of this section. (ii) Applicable recapture percentage. If the recapture event occurs: (A) Within one full year after the prop- erty is placed in service, the recapture per- centage is 100; (B) Within one full year after the close of the period described in paragraph (c)(4) (ii)(A) of this section, the recapture per- centage is 80; (C) Within one full year after the close of the period described in paragraph (c)(4) (ii)(B) of this section, the recapture per- centage is 60; (D) Within one full year after the close of the period described in paragraph (c)(4) (ii)(C) of this section, the recapture per- centage is 40; (E) Within one full year after the close of the period described in paragraph (c)(4) (ii)(D) of this section, the recapture per- centage is 20. (5) Recapture period. The five-year recapture period begins on the date the project is placed in service and ends on the date that is five full years after the placed-in-service date. Each 365-day period (366-day period in case of a leap year) within the five-year recapture period is a separate recapture year for recapture purposes. (6) Increase in tax for recapture. The increase in tax under chapter 1 of the Code for the recapture of an increased credit amount claimed under paragraph (b)(3) occurs in the year of the recapture event. (7) Annual prevailing wage compliance report. In addition to the general reporting requirements in §1.45-12, a taxpayer that has claimed an increased credit amount under paragraph (b)(3) of this section or transferred a specified credit portion under section 6418 of the Code that includes an increased credit amount under paragraph (b)(3) of this section is required to provide to the IRS, information on the payment of prevailing wages with respect to any alteration or repair of the project during the recapture period at the time and in the form and manner prescribed in IRS forms or instructions or in publications or guid- ance published in the Internal Revenue Bulletin. See §601.601 of this chapter. (8) Transferred specified credit por- tions. In the case of a transferred spec- ified credit portion under section 6418, to which recapture of an increased credit amount under this paragraph (c) applies, the eligible taxpayer is required to notify the transferee taxpayer of the recapture event in accordance with the provisions of §1.6418-5(f)(2) and the transferee taxpayer is responsible for any amount of increase in tax under section 48(a) (10)(C) of the Code and this paragraph (c) in accordance with the provisions of §1.6418-5(f)(3). (9) Coordination with recapture rules under section 50(a). If any increased credit amount was recaptured with respect to investment credit property in a prior year under section 48(a)(10)(C) of the Code and this paragraph (c), then, such increased credit amount is not included in determin- ing the aggregate decrease in the credits allowed under section 38 of the Code for all prior taxable years which would have resulted solely from reducing to zero the credit determined under subparts D and E of part IV of subchapter A of chapter 1 of the Code (that is, sections 38 – 50 of the Code) with respect to the property. (d) Energy project defined—(1) In gen- eral. For purposes of the increased credit amount provided by section 48(a)(9) of the Code and paragraphs (b) and (c) of this section, the domestic content bonus credit amount provided by section 48(a) (12) of the Code, and the increase in credit rate for energy communities provided in section 48(a)(14) of the Code, the term energy project means one or more energy properties (multiple energy properties) that are operated as part of a single energy project. Multiple energy properties will be treated as one energy project if, at any point during the construction of the multi- ple energy properties, they are owned by a single taxpayer (subject to the related taxpayer rule provided in paragraph (d)(2) of this section) and any two or more of the following factors are present: (i) The energy properties are con- structed on contiguous pieces of land; (ii) The energy properties are described in a common power purchase, thermal energy, or other off-take agreement or agreements; (iii) The energy properties have a com- mon intertie; (iv) The energy properties share a com- mon substation, or thermal energy off- take point; (v) The energy properties are described in one or more common environmental or other regulatory permits; (vi) The energy properties are con- structed pursuant to a single master con- struction contract; or (vii) The construction of the energy properties are financed pursuant to the same loan agreement. (2) Related taxpayers—(i) Definition. For purposes of this section, the term related taxpayers means members of a group of trades or businesses that are under common control (as defined in §1.52-1(b)). (ii) Related taxpayer rule. For purposes of this section, related taxpayers are treated as one taxpayer in determining whether multiple energy properties are treated as an energy project with respect to which a section 48 credit may be determined. (3) Consistent treatment as an energy project. If multiple energy properties are treated as a single energy project for beginning of construction purposes with respect to the section 48 credit, the mul- tiple energy properties will also be treated as a single energy project for purposes of the prevailing wage and apprenticeship requirements, the domestic content bonus credit amount, and the increase in section 48 credit rate for energy communities. (e) Nameplate capacity for purposes of the One-Megawatt Exception. For pur- poses of paragraph (b)(1) of this section, the determination of whether an energy project has a maximum net output of less than 1 MW of electrical (as measured in alternating current) or thermal energy is determined based on the nameplate capacity. Where applicable, taxpayers should use the International Standard Organization (ISO) conditions to measure the maximum electrical generating output or usable energy capacity of an energy project. Paragraphs (e)(1) through (5) of this section provide rules for applying the One-Megawatt Exception (as pro- vided in paragraph (b)(1) of this section) to different types of energy properties. Because electrochromic glass property (as defined in §1.48-9(e)(2)(ii)), fiber-optic solar energy property (as defined in §1.48- 9(e)(2)(i)), and microgrid controllers (as December 26, 2023 1650 Bulletin No. 2023–52 defined in §1.48-9(e)(12)) do not generate electricity or thermal energy, these energy properties are not eligible for the One- Megawatt Exception. (1) Electrical generating energy prop- erty. In the case of an electrical generating energy property, use the maximum electri- cal generating output in MW that the unit of energy property is capable of producing on a steady state basis and during contin- uous operation under standard conditions, as measured by the manufacturer and con- sistent with the definition of nameplate capacity provided in 40 CFR 96.202. (2) Electrical energy storage property. In the case of electrical energy storage prop- erty (as defined in §1.48-9(e)(10)(ii)), use the storage device’s maximum net output. (3) Thermal energy storage property and other property generating thermal energy. In the case of thermal energy storage property (as defined in §1.48-9(e) (10)(iii)) and other energy property that generates thermal energy for productive use (for example, direct geothermal use, geothermal heat pumps, solar process heating), a taxpayer must use the equiva- lent of 3.4 million British Thermal Units per hour (mmBtu/hour) for heating and 284 tons for cooling can be used to deter- mine if the thermal storage property sat- isfies the One-Megawatt Exception (Btu per hour/3,412,140 = MW). For projects delivering thermal energy to a building or buildings, this can be assessed as either the aggregate maximum thermal output of all individual heating or cooling ele- ments within the building or buildings, or as the maximum thermal output that the entire project is capable of delivering to a building or buildings at any given moment. (4) Hydrogen energy storage property and specified clean hydrogen produc- tion facilities. A hydrogen energy storage property (as defined in §1.48-9(e)(10)(iv)) or a specified clean hydrogen production facility (as defined in section 48(a)(15) (C) of the Code) must have a maximum net output of less than 3.4 mmBtu/hour of hydrogen or equivalently 10,500 standard cubic feet (scf) per hour of hydrogen to satisfy the One-Megawatt Exception. (5) Qualified biogas property. In the case of qualified biogas property, 3.4 mmBtu/hour can be used as equivalent to the One-Megawatt Exception. Taxpayers may convert the maximum net output of 3.4 mmBtu/hour into an equivalent maxi- mum net volume flow in scf per hour using the appropriate high heat value conversion factors found in the EPA GHGRR at table C-1 to subpart C of part 98 (40 CFR part 98). Otherwise, taxpayers may calculate their own equivalent volumetric flow if the heat content of the gas is known. (f) Applicability date—(1) In general. Except as provided in paragraph (f)(2) of this section, this section applies to projects placed in service in taxable years ending on or after the date final regulations are published in the Federal Register, and the construction of which begins after the date final regulations are published in the Federal Register. (2) Exception. Paragraph (d) of this section applies to energy projects the con- struction of which begins after November 22, 2023. Par. 4. Section 1.48-14 is added to read as follows: §1.48-14 Rules applicable to energy property. (a) Retrofitted energy property—(1) In general. For purposes of section 48(a) (3)(B)(ii), (a)(5)(D)(iv), and (a)(8)(B)(iii) of the Internal Revenue Code (Code), a retrofitted energy property may be origi- nally placed in service even though it con- tains some used components of the unit of energy property only if the fair mar- ket value of the used components of the unit of energy property is not more than 20 percent of the total value of the unit of energy property taking into account the cost of the new components of property plus the value of the used components of the unit of energy property (80/20 Rule). Only expenditures paid or incurred that relate to the new components of the unit of energy property are taken into account for purposes of computing the energy credit determined under section 48 (sec- tion 48 credit) with respect to the unit of energy property. The cost of new com- ponents of the unit of energy property includes all costs properly included in the depreciable basis of the new components. If the taxpayer satisfies the 80/20 Rule with regard to the unit of energy property and the taxpayer pays or incurs new costs for property that is an integral part of the energy property (as defined in §1.48-9(f) (3)(i)), the taxpayer may include the new costs paid or incurred for property that is an integral part of the energy property (as defined in §1.48-9(f)(3)(i)) in the basis of the energy property for purpose of the sec- tion 48 energy credit. Further, in the case of an energy project (as defined in §1.48- 13(d)), the 80/20 Rule is applied to each unit of energy property comprising an energy project. (2) Excluded costs. Costs incurred for new components of property added to used components of a unit of energy prop- erty may not be taken into account for pur- poses of the section 48 credit unless the taxpayer satisfies the 80/20 Rule (as pro- vided in paragraph (a)(1) of this section) by placing into service a unit of energy property for which the fair market value of the used components of property is not more than 20 percent of the total value of the unit of energy property taking into account the cost of the new components of property plus the value of the used compo- nents of property. (3) Examples. This paragraph (a)(3) provides examples illustrating the provi- sions of this paragraph (a): (i) Example 1. Retrofitted solar energy prop- erty that satisfies the 80/20 Rule. Z owns an exist- ing solar energy property for which the section 48 credit has been claimed and the recapture period for the section 48 credit has elapsed. Z replaces used components of the solar energy property with new components of property at a cost of $1.4 million. The retrofitted solar energy property constitutes a unit of energy property. The fair market value of the remaining original components of the retro- fitted solar energy property is $100,000, which is not more than 20% of the retrofitted solar energy property’s total value of $1.5 million (the cost of the new components ($1.4 million) + the value of the remaining original components ($100,000)). The value of the old components of the retrofitted solar energy property is $100,000/$1.5 million (7% of the value of total value of the retrofitted solar energy property), thus the retrofitted solar energy property will be considered newly placed in service for purposes of section 48, and Z will be able to claim a section 48 credit based on the cost of the new components ($1.4 million). (ii) Example 2. Capital improvements to an exist- ing energy property that do not satisfy the 80/20 Rule. X owns an existing unit of energy property for which the section 48 credit has been claimed and the recapture period for the section 48 credit has elapsed. The fair market value of the unit of energy property is $1 million. During the tax year, X makes capital improvements to the unit of energy property. The expenditures for such capital improvements total $300,000. X may not claim a section 48 credit for the $300,000 spent on capital improvements during Bulletin No. 2023–52 1651 December 26, 2023 the tax year because the capital improvements did not satisfy the 80/20 Rule. (b) Dual use property—(1) Definition. For purposes of section 48, the term dual use property means property that uses energy derived from both a qualifying source (that is, from an energy property defined in §1.48-9(a) (including a qual- ified facility for which an election has been made as provided by paragraph (f) (1) of this section)) and from a non-qual- ifying source (that is, sources other than an energy property defined in §1.48-9(a) (including a qualified facility for which an election has been made as provided by paragraph (f)(1) of this section)). (2) Qualification as energy property— (i) In general. If dual use property meets each of the requirements of this paragraph (b), it will qualify as energy property if its use of energy from non-qualifying sources does not exceed 50 percent of its total energy input (as determined under the rules of paragraph (b)(2)(ii) of this sec- tion) during an annual measuring period (as defined in paragraph (b)(2)(iii) of this section). If the energy used from qualify- ing sources is between 50 percent and 100 percent, only a proportionate amount of the eligible basis of the energy property will be taken into account in computing the amount of the section 48 credit (for example, if 80 percent of the energy used by a dual use property is from qualifying sources, 80 percent of the basis of the dual use property will be taken into account in computing the amount of the section 48 credit). (ii) Aggregation of energy inputs. The measurement of energy use required for purposes of paragraph (b)(2)(i) of this section may be made by comparing, on the basis of British thermal units (Btus), energy input to dual use property from all qualifying sources with energy input from all non-qualifying sources. The Commissioner may also accept any other method that accurately establishes the rel- ative annual use of energy derived from all qualifying sources and of energy input from all non-qualifying sources by dual use property. (iii) Annual measuring period. For purposes of paragraph (b)(2)(i) of this section, the term annual measuring period means with respect to an item of dual use property the 365-day period (366-day period in case of a leap year) beginning with the day the dual use property is placed in service or a 365- day period (366-day period in case of a leap year) beginning the day after the last day of the immediately preceding annual measuring period. (iv) Recapture. If, for a taxable year (within the recapture period specified in section 50(a) of the Code) subsequent to the taxable year that a dual use property was placed in service, the equipment’s use of energy from all qualifying sources is reduced below 50 percent of its total energy input (as determined under the rules of paragraph (b)(2)(i) of this sec- tion), then recapture of the section 48 credit is required under section 50(a). (c) Energy property eligible for mul- tiple Federal income tax credits—(1) In general. For purposes of this section, the basis of energy property may be eligible for calculating both the section 48 credit and another Federal income tax credit, subject to the limitation provided in para- graph (c)(2) of this section. (2) Limitation. A taxpayer that owns energy property that is eligible for both the section 48 credit and another Federal income tax credit is eligible for the sec- tion 48 credit only to the extent the other Federal income tax credit was not claimed with respect to the taxpayer’s eligible basis in the energy property. Except as provided in paragraph (f)(8) of this section, in no event may a taxpayer claim both a section 48 credit and another Federal income tax credit with respect to the same eligible basis in an energy property. See paragraph (e) of this section for special rules regard- ing ownership of energy property. (d) Incremental cost —(1) In general. For purposes of this section, only the incremental cost of energy property is included in the eligible basis of the energy property. The term incremental cost means the excess of the total cost of energy prop- erty over the amount that would have been expended for the energy property if the energy property were not used for a qual- ifying purpose. (2) Example. A installs solar energy property above the surface of an existing roof of a building that A owns. The solar energy property uses bifacial panels that convert to energy the light that strikes both the front and back of the panels if installed over a highly reflective surface that is affixed to a roof (reflective roof). The cost of the reflective roof is $15,000 whereas the cost of a standard roof for the building would be $10,000. The reflec- tive roof does not include the portions of the existing roof that will be replaced, and any features of the roof not directly related to establishing, improving, and maintaining the efficiency of the reflec- tive roof. Accordingly, the reflective roof, if installed in connection with the solar energy property, constitutes energy prop- erty under section 48. The incremental cost of the reflective roof is $5,000, and that amount is A’s eligible basis in the solar energy property for purposes of the section 48 credit. (e) Special rules concerning owner- ship—(1) Eligible basis. For purposes of this section, a taxpayer that owns an energy property is eligible for the section 48 credit only to the extent of the taxpay- er’s eligible basis in the energy property. In the case of multiple taxpayers holding direct ownership in an energy property, each taxpayer determines its eligible basis based on its fractional ownership interest in the energy property. (2) Multiple owners. A taxpayer must directly own at least a fractional interest in the entire unit of energy property for a section 48 credit to be determined with respect to such taxpayer’s interest. No section 48 credit may be determined with respect to a taxpayer’s ownership of one or more separate components of an energy property if the components do not consti- tute a unit of energy property. However, the use of property owned by one taxpayer that is an integral part of an energy prop- erty owned by a second taxpayer will not prevent a section 48 credit from being determined with respect to the second tax- payer’s energy property. (3) Related taxpayers—(i) Definition. For purposes of this section, the term related taxpayers means members of a group of trades or businesses that are under common control (as defined in §1.52-1(b)). (ii) Related taxpayer rule. For purposes of this section, related taxpayers are treated as one taxpayer in determining whether a taxpayer has made an investment in an energy property with respect to which a section 48 credit may be determined. December 26, 2023 1652 Bulletin No. 2023–52 (4) Examples. The following examples illustrate the rules in this paragraph (e). In each example, X and Y are unrelated taxpayers. (i) Example 1. Fractional ownership required to satisfy section 48. X and Y own fractional ownership interests in a geothermal heat pump equipment that is a unit of energy property. Because X and Y each own a fractional ownership interest in a unit of energy property, a section 48 credit may be determined with respect to X’s and Y’s fractional ownership interests in the unit of energy property. (ii) Example 2. Ownership of separate compo- nents. X and Y own separate components of a geo- thermal heat pump equipment, which taken together is a unit of energy property. X owns the coils in the ground and Y owns the heat pump. No section 48 credit may be determined with respect to either X or Y because each owns a separate component of energy property that does not constitute a unit of energy property as defined in §1.48-9(f)(2). (iii) Example 3. Shared ownership of property that is an integral part of separate energy proper- ties. X owns a wind energy property that is a unit of energy property and Y owns a solar energy property that is a unit of energy property that are co-located. Both X’s wind energy property and Y’s solar energy property connect to a substation that houses a step-up transformer where the electricity is stepped up to electrical grid voltage before being transmitted to the electrical grid through an intertie. X and Y each own a 50% fractional ownership interest in the step-up transformer. The step-up transformer is an integral part of both the wind energy property and the solar energy property (as defined in §1.48-9(f)(3)(i). As a result, X and Y may both compute a section 48 credit for their respective energy properties by including 50% of the costs of the step-up transformer. (iv) Example 4. Separate ownership of property that is an integral part of separate energy property. X owns a wind energy property that is a unit of energy property and property that is an integral part of the wind energy property, specifically a transformer where the electricity is stepped up to electrical grid voltage before being transmitted to the electrical grid through an intertie. Y owns a solar energy property that is a unit of energy property that connects to X’s transformer. Because Y does not hold an ownership interest in the transformer, Y may compute its sec- tion 48 credit for its solar energy property but it will not include any costs relating to the transformer. (f) Coordination with other Code pro- visions. Paragraphs (f)(1) through (7) of this section provide rules applicable to the election under section 48(a)(5)(C) to treat certain facilities as energy property eligible for a section 48 credit in lieu of a renewable electricity production credit under section 45 of the Code (section 45 credit). Paragraph (f)(8) of this section provides a coordination rule for property with respect to which both a section 48 credit and a low-income housing credit under section 42 of the Code (section 42 credit) may be determined. (1) Election to treat qualified facilities as energy property. If a taxpayer makes an election under section 48(a)(5)(C) of the Code (pursuant to the requirements in paragraph (f)(6) of this section) to treat qualified property (as defined in para- graph (f)(2) of this section) that is part of a qualified investment credit facility (as defined in paragraph (f)(4) of this section) as energy property with respect to which a section 48 credit may be determined, such property will be treated as energy property for purposes of section 48. No section 45 credit may be determined with respect to any such qualified investment credit facil- ity and the requirements of section 45 are not imposed on a qualified investment credit facility. No credit under sections 45Q or 45V of the Code may be deter- mined with respect to either any carbon capture equipment included in a qualified investment credit facility or any specified clean hydrogen production facility. (2) Qualified property. For purposes of this paragraph (f), the term qualified property means property that meets each of the requirements of paragraphs (f)(2)(i) through (iii) of this section: (i) The property is tangible personal property (as defined in paragraph (f)(3)(i) of this section) or other tangible property (not including a building or its structural components) (as defined in paragraph (f) (3)(ii) of this section), but only if such other tangible property is used as an inte- gral part (as defined in paragraph (f)(3)(iii) of this section) of the qualified investment credit facility (as defined in paragraph (f) (4) of this section). (ii) Depreciation (or amortization in lieu of depreciation) is allowable (as defined in §1.48-9(b)(4)) with respect to the property. (iii) The taxpayer constructs, recon- structs, or erects the property (as defined in §1.48-9(b)(1)) or acquires the property (as defined in §1.48-9(b)(2)) if the original use of the property (as defined in §1.48- 9(b)(3)) commences with the taxpayer. (3) Definitions related to requirements for qualified property. For purposes of section 48 of the Code and this paragraph (f), the definitions of this paragraph (f)(3) apply: (i) Tangible personal property. The term tangible personal property means any tangible property except land and improvements thereto, such as buildings or other inherently permanent structures (including items that are structural com- ponents of such buildings or structures). Tangible personal property includes all property (other than structural compo- nents) that is contained in or attached to a building. Further, all property that is in the nature of machinery (other than structural components of a building or other inher- ently permanent structure) is considered tangible personal property even though located outside a building. Local law is not controlling for purposes of determin- ing whether property is or is not tangible property or tangible personal property. Thus, tangible property may be personal property for purposes of the energy credit even though under local law the property is considered to be a fixture and therefore real property. (ii) Other tangible property. The term other tangible property means tangible property other than tangible personal property (not including a building and its structural components), that is used as an integral part of furnishing electrical energy by a person engaged in a trade or business of furnishing any such service. (iii) Integral part—(A) In general. Property owned by a taxpayer is an inte- gral part of a qualified investment credit facility owned by the same taxpayer if it is used directly in the intended function of the qualified investment credit facility and is essential to the completeness of the intended function of the qualified invest- ment credit facility. A taxpayer may not claim the section 48 credit for any prop- erty that is an integral part of the taxpay- er’s qualified investment credit facility that is not owned by the taxpayer. (B) Power conditioning and trans- fer equipment. Property that is an inte- gral part of a qualified investment credit facility includes power conditioning equipment and transfer equipment used to perform the intended function of the qualified investment credit facility. Power conditioning equipment includes, but is not limited to, transformers, inverters, and converters, which mod- ify the characteristics of electricity or thermal energy into a form suitable for use or transmission or distribution. Parts related to the functioning or protec- tion of power conditioning equipment Bulletin No. 2023–52 1653 December 26, 2023 are also treated as power conditioning equipment and include, but are not lim- ited to, switches, circuit breakers, arres- tors, and hardware and software used to monitor, operate, and protect power conditioning equipment. Transfer equip- ment includes equipment that permits the aggregation of energy generated by components of energy properties and equipment that alters voltage in order to permit transfer to a transmission or dis- tribution line. Transfer equipment does not include transmission or distribution lines. Examples of transfer equipment include, but are not limited to, wires, cables, and combiner boxes that conduct electricity. Parts related to the function- ing or protection of transfer equipment are also treated as transfer equipment and may include items such as current transformers used for metering, electri- cal interrupters (such as circuit breakers, fuses, and other switches), and hardware and software used to monitor, operate, and protect transfer equipment. (C) Roads. Roads that are an integral part of a qualified investment credit facil- ity are integral to the activity performed by the qualified investment credit facility; these include onsite roads that are used for equipment to operate and maintain the qualified investment credit facility. Roads primarily for access to the site, or roads used primarily for employee or visitor vehicles, are not integral to the activity performed by a qualified investment credit facility. (D) Fences. Fencing is not an integral part of an energy property because it is not integral to the activity performed by the energy property. (E) Buildings. Generally, buildings are not integral parts of a qualified investment credit facility because they are not integral to the activity of the qualified investment credit facility. However, the following structures are not treated as buildings for this purpose: (1) A structure that is essentially an item of machinery or equipment. (2) A structure that houses property that is integral to the activity of a quali- fied investment credit facility if the use of the structure is so closely related to the use of the housed qualified investment credit facility that the structure clearly can be expected to be replaced when the qualified investment credit facility it ini- tially houses is replaced. (4) Qualified investment credit facility. The term qualified investment credit facil- ity means any facility— (i) That is a qualified facility (within the meaning of section 45) described in section 45(d)(1) through (4), (6), (7), (9) or (11) of the Code; (ii) That meets the placed in service and beginning of construction requirements (if any) provided in section 48 of the Code; (iii) With respect to which no credit has been allowed under section 45 of the Code; and (iv) For which the taxpayer makes an irrevocable election under section 48(a) (5) of the Code and paragraph (f)(1) of this section. (5) Intangibles excluded. Intangible property is not qualified property for pur- poses of section 48(a)(5)(D) of the Code and paragraph (f) of this section. (6) Time and manner of making elec- tion—(i) In general. To make an election under section 48(a)(5) of the Code and paragraph (f)(1) of this section to treat a qualified facility as a qualified investment credit facility, a taxpayer must claim the section 48 credit with respect to such qual- ified investment credit facility on a com- pleted Form 3468, Investment Credit, or any successor form(s), and file such form with the taxpayer’s timely filed (includ- ing extensions) Federal income tax return for the taxable year in which the quali- fied investment credit facility is placed in service. The taxpayer must also attach a statement to its Form 3468, or any suc- cessor form(s), filed with its timely filed Federal income tax return (including extensions) that includes all of the infor- mation required by the instructions to Form 3468, or any successor form(s) for each qualified investment credit facility subject to an election under section 48(a) (5) and paragraph (f)(1) of this section. A separate election must be made for each qualified facility that meets the require- ments provided in paragraph (f)(4) of this section to be treated as a qualified invest- ment credit facility. If any taxpayer own- ing an interest in a qualified facility makes an election with respect to such qualified facility, that election is binding on all tax- payers that directly or indirectly own an interest in the qualified facility. (ii) Special rule for partnerships and S corporations. In the case of a qualified facility owned by a partnership or an S corporation, the election under para- graph (f)(1) of this section is made by the partnership or S corporation and is binding on all ultimate section 48 credit claimants (as defined in §1.50-1(b)(3) (ii)). The partnership or S corporation must file a Form 3468, or any successor form(s), with its timely filed partnership or S corporation return (including exten- sions) with respect to Federal income tax for the taxable year in which the quali- fied investment credit facility is placed in service to indicate that it is making the election and attach a statement that includes all of the information required by the instructions to Form 3468, or any successor form(s) for each quali- fied facility subject to the election. The ultimate credit claimants must claim the section 48 credit on a completed Form 3468, or any successor form(s), and file such form with a timely filed (including extensions) Federal income tax return for the taxable year that ends with or within the taxable year in which the partnership or S corporation made the election. The partnership or S corporation making the election must provide the ultimate credit claimants with the necessary information to complete Form 3468, or any successor form(s), to claim the energy credit. (7) Election irrevocable. The election under section 48(a)(5) of the Code and paragraph (f)(1) of this section to treat a qualified facility as an energy property is irrevocable. (8) Coordination rule for sections 42 and 48 credits. As provided under section 50(c)(3)(C) of the Code, in the case of a taxpayer determining eligible basis for purposes of calculating a section 42 credit, a taxpayer is not required to reduce its basis in an energy property by the amount of the section 48 credit determined with respect to the property. The basis of an energy property may be used to deter- mine a section 48 credit and may also be included in eligible basis when determin- ing a section 42 credit. See paragraph (e) of this section for special rules regarding ownership of energy property. (g) Rules for certain lower-output energy properties to include qualified interconnection costs in the basis of December 26, 2023 1654 Bulletin No. 2023–52 associated energy property—(1) In gen- eral. For purposes of determining the sec- tion 48 credit, energy property includes amounts paid or incurred by the taxpayer for qualified interconnection property (as defined in paragraph (g)(2) of this sec- tion), in connection with the installation of energy property (as defined in §1.48- 9(a)) that has a maximum net output of not greater than 5 MW (as measured in alternating current) (as described in para- graph (g)(3) of this section). The qualified interconnection property must provide for the transmission or distribution of the electricity produced or stored by such energy property and must be properly chargeable to the capital account of the taxpayer as reduced by paragraph (g)(6) of this section. (2) Qualified interconnection prop- erty. The term qualified interconnection property means, with respect to an energy project that is not a microgrid controller, any tangible property that is part of an addition, modification, or upgrade to a transmission or distribution system that is required at or beyond the point at which the energy project interconnects to such transmission or distribution system in order to accommodate such interconnec- tion; is either constructed, reconstructed, or erected by the taxpayer, (as defined in §1.48-9(b)(1)), or for which the cost with respect to the construction, reconstruc- tion, or erection of such property is paid or incurred by such taxpayer; and the original use (as defined in §1.48-9(b)(3)), of which, pursuant to an interconnection agreement (as defined in paragraph (g) (4) of this section), commences with a utility (as defined in paragraph (g)(5) of this section). Qualified interconnection property is not part of an energy prop- erty. As a result, qualified interconnec- tion property is not taken into account in determining whether an energy property satisfies the requirements for the domes- tic content bonus credit amount refer- enced in section 48(a)(12) of the Code and the increase in credit rate for energy communities provided in section 48(a) (14) of the Code. (3) Five-Megawatt Limitation—(i) In general. The Five-Megawatt Limitation is measured at the level of the energy prop- erty in accordance with section 48(a)(8) (A) of the Code. The maximum net output of an energy property is measured only by nameplate generating capacity of the unit of energy property at the time the energy property is placed in service. (ii) Nameplate capacity for purposes of the Five-Megawatt Limitation. The deter- mination of whether an energy property has a maximum net output of not greater than 5 MW (as measured in alternating current) is based on the nameplate capac- ity for purposes of paragraph (g)(1) of this section. Where applicable, taxpay- ers should use the International Standard Organization (ISO) conditions to measure the maximum electrical generating output or usable energy capacity of an energy property. Paragraphs (g)(3)(ii)(A) and (B) of this section, provide rules for applying the Five-Megawatt Limitation (as pro- vided in paragraph (g)(1) of this section) to electrical generating energy property and electrical energy storage property, respectively. (A) Electrical generating energy prop- erty. In the case of an electrical generating energy property, use the maximum electri- cal generating output in MW that the unit of energy property is capable of producing on a steady state basis and during contin- uous operation under standard conditions, as measured by the manufacturer and con- sistent with the definition of nameplate capacity provided in 40 CFR 96.202. (B) Electrical energy storage property. In the case of electrical energy storage property (as defined in §1.48-9(e)(10)(ii)), the storage device’s maximum net output is its nameplate capacity. (4) Interconnection agreement . The term interconnection agreement means an agreement with a utility for the purposes of interconnecting the energy property owned by such taxpayer to the transmis- sion or distribution system of the utility. (5) Utility. For purposes of section 48(a)(8) of the Code and this paragraph (g), the term utility means the owner or operator of an electrical transmission or distribution system that is subject to the regulatory authority of a State or polit- ical subdivision thereof, any agency or instrumentality of the United States, a public service or public utility commis- sion or other similar body of any State or political subdivision thereof, or the gov- erning or ratemaking body of an electric cooperative. (6) Reduction to amounts chargeable to capital account. In the case of expenses paid or incurred for qualified intercon- nection property as defined in paragraph (g)(2) of this section, amounts otherwise chargeable to capital account with respect to such expenses must be reduced under rules similar to the rules of section 50(c) of the Code. In addition, the taxpayer must pay or incur the interconnection prop- erty costs; therefore, any reimbursement, including by a utility, must be accounted for by reducing taxpayers’ expenditure when determining eligible costs. (7) Examples. This subparagraph pro- vides examples illustrating the application of the Five-Megawatt Limitation provided in this paragraph (g). (i) Example 1. Application of Five-Megawatt Limitation to an interconnection agreement for energy properties owned by separate taxpayers. X places in service a solar energy property (Solar Property) with a maximum net output of 5 MW (as measured in alternating current). Y places in service a qualified wind facility (Wind Facility), for which Y has made a valid election under section 48(a)(5) of the Code to elect the section 48 credit in lieu of the section 45 credit, with a maximum net output of 5 MW (as measured in alternating current). The Solar Property and the Wind Facility are separate units of energy property installed on contiguous pieces of land and connect to the grid through a common intertie. As part of the development of the Solar Property and Wind Facility, interconnec- tion costs are required by the utility to modify and upgrade the transmission system at or beyond the common intertie to the utility’s transmission sys- tem to accommodate such interconnection. X and Y are party to the same interconnection agreement with the utility that allows for a maximum output of 10 MW (as measured in alternating current). The interconnection agreement provides the total cost of the qualified interconnection property. X and Y may include the costs paid or incurred by X and Y, respectively, for qualified interconnection property subject to the terms of the interconnection agree- ment, when calculating their respective section 48 credits for the Solar Property and the Wind Facility because each has a maximum net output of not greater than 5 MW. (ii) Example 2. Application of Five-Megawatt Limitation to an interconnection agreement for a single energy property. X develops three solar energy properties located in close proximity. The three solar energy properties are not considered an energy project pursuant to the definition in § 1.48-13(d). Each of the solar energy properties is a unit of energy property and has a maximum net output of 4 MW (as measured in alternating cur- rent). Electricity that is suitable for use or transmis- sion (and is not further conditioned) from the three solar energy properties feeds into a single gen-tie line and a common intertie. X is party to a separate interconnection agreement with the utility for each solar energy property and each interconnection Bulletin No. 2023–52 1655 December 26, 2023 agreement allows for a maximum output of 4 MW (as measured in alternating current). X may include the costs it paid or incurred for qualified intercon- nection property for each solar energy property when calculating its section 48 credit for each of the three solar energy properties, subject to the terms of each interconnection agreement, because each of the solar energy properties has a maximum net output of not greater than 5 MW. (iii) Example 3. Application of Five-Megawatt Limitation to a single interconnection agreement for multiple energy properties. The facts are the same as Example 2, except that X is party to one inter- connection agreement with the utility with respect to the three solar energy properties and the intercon- nection agreement allows for a maximum output of 12 MW (as measured in alternating current). With respect to each of the three solar energy properties, X may include the costs it paid or incurred for qual- ified interconnection property for each solar energy property when calculating its section 48 credit for each of the three solar energy properties, subject to the terms of the interconnection agreement, because each of the solar energy properties has a maximum net output of not greater than 5 MW. (iv) Example 4. Application of Five-Megawatt Limitation to an Energy Project. The facts are the same as Example 3, except that the three solar energy properties are also subject to a common power pur- chase agreement and as a result, are considered an energy project (as defined in § 1.48-13(d)). With respect to each of the three solar energy properties, X may include the costs it paid or incurred for qual- ified interconnection property when calculating its section 48 credit for each of the three solar energy properties, subject to the terms of the interconnection agreement, because each of the solar energy prop- erties has a maximum net output of no greater than 5 MW. (h) Cross references. (1) For rules regarding the coordination of the section 42 credit and section 48 credit, see section 50(c)(3) of the Code. (2) For rules regarding the denial of double benefit for qualified biogas prop- erty, see section 45(e) of the Code. (3) To determine applicable recapture rules, see section 50(a) of the Code. (4) For rules regarding the credit eligi- bility of property used outside the United States, see section 50(b)(1) of the Code. (5) For rules regarding the credit eligibility of property used by certain tax-exempt organizations, see sec- tion 50(b)(3) of the Code. See section 6417(d)(2) of the Code for an exception to this rule in the case of an applica- ble entity making an elective payment election. (6) For application of the normalization rules to the section 48 credit when taken by certain regulated companies, including rules regarding the election not to apply the normalization rules to energy storage technology (as defined in section 48(c)(6) of the Code), see section 50(d)(2) of the Code. (i) Applicability date. This section applies with respect to property placed in service after December 31, 2022, and during a taxable year beginning after [DATE OF PUBLICATION OF FINAL RULE]. Par. 5. Section 1.6418-5, as proposed to be added at 88 FR 40496, June 21, 2023, is amended by: 1. Redesignating paragraphs (f) through (h) as paragraphs (g) through (i). 2. Adding new paragraph (f). The addition reads as follows: §1.6418-5 Special rules. * * * * * (f) Notification and impact of recap- ture under section 48(a)(10)(C) of the Code—(1) In general. In the case of any election under §1.6418-2 or §1.6418-3 with respect to any specified credit portion described in §1.6418-1(c)(2) (iii), if, during any taxable year, there is recapture under section 48(a)(10)(C) of the Code and §1.48-13(c)(3) of any increased credit amount under section 48(a)(9)(B)(iii) before the close of the recapture period (as described in §1.48- 13(c)(5)), such eligible taxpayer and the transferee taxpayer must follow the noti- fication process in paragraph (f)(2) of this section with recapture impacting the transferee taxpayer as described in para- graph (f)(3) of this section. (2) Notification requirements. The notification requirements for the eligi- ble taxpayer are the same as for an eligi- ble taxpayer that must report a recapture event as described in paragraph (d)(2)(i) of this section, except that the recapture amount that must be computed is defined in §1.48-13(c)(4). (3) Impact of recapture. The transferee taxpayer is responsible for any amount of tax increase under section 48(a)(10) (C) of the Code and §1.48-13(c)(3) upon the occurrence of a recapture event under §1.48-13(c)(3)(ii). (4) Applicability date. This section applies to taxable years ending on or after [DATE OF PUBLICATION OF FINAL RULE]. * * * * * Douglas W. O’Donnell, Deputy Commissioner for Services and Enforcement. (Filed by the Office of the Federal Register November 17, 2023, 8:45 a.m., and published in the issue of the Federal Register for November 22, 2023, 88 FR 82188) Bulletin No. 2023–52 i December 26, 2023 Definition of Terms Revenue rulings and revenue procedures (hereinafter referred to as “rulings”) that have an effect on previous rulings use the following defined terms to describe the effect: Amplified describes a situation where no change is being made in a prior pub- lished position, but the prior position is being extended to apply to a variation of the fact situation set forth therein. Thus, if an earlier ruling held that a principle ap- plied to A, and the new ruling holds that the same principle also applies to B, the earlier ruling is amplified. (Compare with modified, below). Clarified is used in those instances where the language in a prior ruling is be- ing made clear because the language has caused, or may cause, some confusion. It is not used where a position in a prior rul- ing is being changed. Distinguished describes a situation where a ruling mentions a previously pub- lished ruling and points out an essential difference between them. Modified is used where the substance of a previously published position is being changed. Thus, if a prior ruling held that a principle applied to A but not to B, and the new ruling holds that it applies to both A and B, the prior ruling is modified because it corrects a published position. (Compare with amplified and clarified, above). Obsoleted describes a previously pub- lished ruling that is not considered deter- minative with respect to future transactions. This term is most commonly used in a ruling that lists previously published rulings that are obsoleted because of changes in laws or regulations. A ruling may also be obsoleted because the substance has been included in regulations subsequently adopted. Revoked describes situations where the position in the previously published ruling is not correct and the correct position is being stated in a new ruling. Superseded describes a situation where the new ruling does nothing more than restate the substance and situation of a previously published ruling (or rulings). Thus, the term is used to republish under the 1986 Code and regulations the same position published under the 1939 Code and regulations. The term is also used when it is desired to republish in a single ruling a series of situations, names, etc., that were previously published over a period of time in separate rulings. If the new ruling does more than restate the sub- stance of a prior ruling, a combination of terms is used. For example, modified and superseded describes a situation where the substance of a previously published ruling is being changed in part and is continued without change in part and it is desired to restate the valid portion of the previous- ly published ruling in a new ruling that is self contained. In this case, the previously published ruling is first modified and then, as modified, is superseded. Supplemented is used in situations in which a list, such as a list of the names of countries, is published in a ruling and that list is expanded by adding further names in subsequent rulings. After the original ruling has been supplemented several times, a new ruling may be published that includes the list in the original ruling and the additions, and supersedes all prior rul- ings in the series. Suspended is used in rare situations to show that the previous published rul- ings will not be applied pending some future action such as the issuance of new or amended regulations, the outcome of cases in litigation, or the outcome of a Service study. Abbreviations The following abbreviations in current use and formerly used will appear in material published in the Bulletin. A—Individual. Acq.—Acquiescence. B—Individual. BE—Beneficiary. BK—Bank. B.T.A.—Board of Tax Appeals. C—Individual. C.B.—Cumulative Bulletin. CFR—Code of Federal Regulations. CI—City. COOP—Cooperative. Ct.D.—Court Decision. CY—County. D—Decedent. DC—Dummy Corporation. DE—Donee. Del. Order—Delegation Order. DISC—Domestic International Sales Corporation. DR—Donor. E—Estate. EE—Employee. E.O.—Executive Order. ER—Employer. ERISA—Employee Retirement Income Security Act. EX—Executor. F—Fiduciary. FC—Foreign Country. FICA—Federal Insurance Contributions Act. FISC—Foreign International Sales Company. FPH—Foreign Personal Holding Company. F.R.—Federal Register. FUTA—Federal Unemployment Tax Act. FX—Foreign corporation. G.C.M.—Chief Counsel’s Memorandum. GE—Grantee. GP—General Partner. GR—Grantor. IC—Insurance Company. I.R.B.—Internal Revenue Bulletin. LE—Lessee. LP—Limited Partner. LR—Lessor. M—Minor. Nonacq.—Nonacquiescence. O—Organization. P—Parent Corporation. PHC—Personal Holding Company. PO—Possession of the U.S. PR—Partner. PRS—Partnership. PTE—Prohibited Transaction Exemption. Pub. L.—Public Law. REIT—Real Estate Investment Trust. Rev. Proc.—Revenue Procedure. Rev. Rul.—Revenue Ruling. S—Subsidiary. S.P.R.—Statement of Procedural Rules. Stat.—Statutes at Large. T—Target Corporation. T.C.—Tax Court. T.D.—Treasury Decision. TFE—Transferee. TFR—Transferor. T.I.R.—Technical Information Release. TP—Taxpayer. TR—Trust. TT—Trustee. U.S.C.—United States Code. X—Corporation. Y—Corporation. Z—Corporation. December 26, 2023 ii Bulletin No. 2023–52 Numerical Finding List 1 Bulletin 2023–52 Announcements: 2023-18, 2023-30 I.R.B. 366 2023-19, 2023-30 I.R.B. 367 2023-20, 2023-30 I.R.B. 368 2023-17, 2023-31 I.R.B. 412 2023-21, 2023-31 I.R.B. 413 2023-22, 2023-32 I.R.B. 429 2023-23, 2023-34 I.R.B. 569 2023-24, 2023-35 I.R.B. 661 2023-25, 2023-37 I.R.B. 821 2023-26, 2023-37 I.R.B. 822 2023-28, 2023-37 I.R.B. 823 2023-29, 2023-41 I.R.B. 1064 2023-30, 2023-45 I.R.B. 1236 2023-31, 2023-46 I.R.B. 1251 2023-32, 2023-47 I.R.B. 1258 2023-33, 2023-47 I.R.B. 1261 2023-24, 2023-49 I.R.B. 1385 2023-35, 2023-52 I.R.B. 1615 Notices: 2023-29, 2023-29 I.R.B. 1 2023-45, 2023-29 I.R.B. 317 2023-47, 2023-29 I.R.B. 318 2023-37, 2023-30 I.R.B. 359 2023-50, 2023-30 I.R.B. 361 2023-51, 2023-30 I.R.B. 362 2023-54, 2023-31 I.R.B. 382 2023-53, 2023-32 I.R.B. 424 2023-55, 2023-32 I.R.B. 427 2023-57, 2023-34 I.R.B. 560 2023-58, 2023-34 I.R.B. 563 2023-59, 2023-34 I.R.B. 564 2023-52, 2023-35 I.R.B. 650 2023-61, 2023-35 I.R.B. 651 2023-62, 2023-37 I.R.B. 817 2023-56, 2023-38 I.R.B. 824 2023-63, 2023-39 I.R.B. 919 2023-64, 2023-40 I.R.B. 974 2023-66, 2023-40 I.R.B. 992 2023-68, 2023-41 I.R.B. 1060 2023-65, 2023-42 I.R.B. 1067 2023-67, 2023-42 I.R.B. 1074 2023-69, 2023-42 I.R.B. 1079 2023-71, 2023-44 I.R.B. 1191 2023-70, 2023-45 I.R.B. 1228 2023-72, 2023-45 I.R.B. 1228 2023-73, 2023-45 I.R.B. 1232 2023-75, 2023-47 I.R.B. 1256 2023-76, 2023-49 I.R.B. 1320 2023-74, 2023-51 I.R.B. 1484 2023-79, 2023-52 I.R.B. 1581 2023-80, 2023-52 I.R.B. 1583 Proposed Regulations: REG-124123-22, 2023-30 I.R.B. 369 REG-124930-21, 2023-31 I.R.B. 431 REG-120730-21, 2023-33 I.R.B. 491 REG-134420-10, 2023-34 I.R.B. 571 REG-109348-22, 2023-35 I.R.B. 662 REG-120727-21, 2023-36 I.R.B. 670 REG-122793-19, 2023-38 I.R.B. 829 REG-100908-23, 2023-39 I.R.B. 931 REG-115559-23, 2023-42 I.R.B. 1082 REG-106203-23, 2023-43 I.R.B. 1143 REG-113064-23, 2023-43 I.R.B. 1144 REG-117614-14, 2023-44 I.R.B. 1193 REG-127391-16, 2023-44 I.R.B. 1214 REG-103525-23, 2023-46 I.R.B. 1252 REG-115762-23, 2023-47 I.R.B. 1262 REG-120727-21, 2023-47 I.R.B. 1285 REG-112916-23, 2023-49 I.R.B. 1323 REG-128276-12, 2023-49 I.R.B. 1362 REG-142338-07, 2023-49 I.R.B. 1363 REG-131756-11, 2023-50 I.R.B. 1386 REG-132422-17, 2023-50 I.R.B. 1390 REG-104194-23, 2023-51 I.R.B. 1558 REG-132569-17, 2023-52 I.R.B. 1616 Revenue Procedures: 2023-31, 2023-25 I.R.B. 386 2023-26, 2023-33 I.R.B. 486 2023-27, 2023-35 I.R.B. 655 2023-17, 2023-37 I.R.B. 819 2023-30, 2023-40 I.R.B. 995 2023-31, 2023-40 I.R.B. 1057 2023-32, 2023-41 I.R.B. 1064 2023-35, 2023-42 I.R.B. 1079 2023-28, 2023-43 I.R.B. 1092 2023-33, 2023-43 I.R.B. 1135 2023-34, 2023-48 I.R.B. 1287 2023-36, 2023-51 I.R.B. 1485 2023-37, 2023-51 I.R.B. 1491 2023-38, 2023-51 I.R.B. 1544 2023-40, 2023-51 I.R.B. 1553 2023-39, 2023-52 I.R.B. 1590 2023-41, 2023-52 I.R.B. 1607 Revenue Rulings: 2023-13, 2023-32 I.R.B. 413 2023-14, 2023-33 I.R.B. 484 2023-15, 2023-34 I.R.B. 559 2023-15, 2023-34 I.R.B. 559 2023-16, 2023-37 I.R.B. 796 2023-17, 2023-37 I.R.B. 798 2023-18, 2023-40 I.R.B. 972 2023-19, 2023-41 I.R.B. 1059 2023-20, 2023-45 I.R.B. 1221 2023-21, 2023-49 I.R.B. 1299 2023-22, 2023-49 I.R.B. 1301 2023-23, 2023-51 I.R.B. 1472 Treasury Decisions: 9976, 2023-30 I.R.B. 354 9977, 2023-31 I.R.B. 375 9978, 2023-32 I.R.B. 415 9979, 2023-35 I.R.B. 602 9980, 2023-43 I.R.B. 1087 9981, 2023-44 I.R.B. 1174 9982, 2023-45 I.R.B. 1223 9983, 2023-46 I.R.B. 1237 1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2023–27 through 2023–52 is in Internal Revenue Bulletin 2023–52, dated December 27, 2023. Bulletin No. 2023–52 iii December 26, 2023 Finding List of Current Actions on Previously Published Items 1 Bulletin 2023–52 1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2023–27 through 2023–52 is in Internal Revenue Bulletin 2023–52, dated December 27, 2023. Internal Revenue Service Washington, DC 20224 Official Business Penalty for Private Use, $300 INTERNAL REVENUE BULLETIN The Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue Bulletins are available at www.irs.gov/irb/. We Welcome Comments About the Internal Revenue Bulletin If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, we would be pleased to hear from you. You can email us your suggestions or comments through the IRS Internet Home Page www.irs.gov) or write to the Internal Revenue Service, Publishing Division, IRB Publishing Program Desk, 1111 Constitution Ave. NW, IR-6230 Washington, DC 20224.
Continue your research in ChatGPT or Claude
Connect Omnilex to search the legal corpus from your AI assistant.