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TAX CLINIC

amount that can be increased up to five
The Inflation Reduction Act of 2022 times if the taxpayer can satisfy ap-
plicable prevailing wage or apprentice-
represents a monumental and ship requirements.
unprecedented investment in the adoption In general, under the prevailing
and expansion of renewable and wage requirements, the Inflation
Reduction Act requires all laborers,
alternative energy sources. mechanics, and workers to be paid the
prevailing wage rates that would be
earned by similarly employed workers
and employ qualified apprentices for ■ Provides for new technology-neutral, in the relevant area during project con-
a certain percentage of the work are clean-energy-related PTCs and ITCs struction (and, during the credit term,
met (or an exception applies); beginning in 2025; for repairs and alterations). Separately
■ Includes, for tax credits related to ■ Extends and modifies Sec. 45Q and subject to certain exceptions, to
certain technologies, an additional carbon capture, use, and sequestra- meet the apprenticeship requirements,
credit amount based on meeting tion–related tax credits (including qualified apprentices have to perform
domestic content requirements; higher credit amounts, a later an applicable percentage of total labor
■ Includes a direct-pay provision beginning-of-construction deadline hours for project construction. Further,
under a new Sec. 6417 (effectively of before Jan. 1, 2033, and lower the Inflation Reduction Act establishes
treating tax credits generated by annual capture requirements); certain options to cure the failure to
a renewable energy project as ■ Adds a specific clean hydrogen PTC meet either the prevailing wage or ap-
equivalent to taxes paid on a filed (new Sec. 45V); prenticeship requirements.
return), but it applies only in certain ■ Includes a zero-emission nuclear Implications: Taxpayers are
circumstances; power production credit (new Sec. “deemed” to have met the prevailing
■ Includes a new transferability provi- 45U); wage and apprenticeship requirements
sion under a new Sec. 6418, which ■ Makes changes for biodiesel, until 60 days after Treasury provides
permits, in certain circumstances, renewable diesel, and alternative fuel the required guidance. Although it is
the one-time sale or transfer of credits under Sec. 6426 and related difficult to anticipate how long it will
certain tax credits (including those provisions; and take to develop these rules, taxpayers
under Secs. 30C, 45, 45Q, 45U, 45V, ■ Includes provisions related to electric should begin to evaluate their ability to
48, and several others) in exchange vehicles and other energy-efficient satisfy these critical prevailing wage and
for cash; technologies and clean fuels. apprenticeship provisions now.
■ Extends the carryback period for Overall, many of the Inflation Re-
certain tax credits to three years; duction Act’s provisions, at least with Direct pay and transferability
■ Extends and modifies the Sec. 45 respect to energy transition and renew- The new energy- and climate-related
production tax credit (PTC) for able energy investments, ought to spur provisions allow a direct-pay election in
projects beginning construction development and investment. However, some circumstances and enable certain
before 2025, including a new PTC the new energy and climate rules can be credits to be transferred.
for solar property and the extension complex, and it is important for taxpay- Direct pay (new Sec. 6417):
of the geothermal-related PTC; ers to understand the rules and how they Under new Sec. 6417, an “applicable
■ Extends and modifies the Sec. 48 apply to their particular projects. entity” (see below) can make a direct-pay
investment tax credit (ITC) for The discussion below examines many election (effectively treating tax credits
projects beginning construction be- of the energy and climate aspects of the generated by a renewable energy project
fore 2025, including expanding the legislation in greater detail. as equivalent to taxes paid on a filed
definition of ITC-eligible property return), but only for certain tax cred-
to include energy storage, qualified Two-tiered credit structure its, including:
biogas property, and microgrid To begin with, the Inflation Reduc- ■ Certain portions of the Sec. 30C
controllers, and adds new rules for tion Act contains a two-tiered credit alternative fuel vehicle refueling
certain solar and wind facilities amount structure for many applicable property credit;
placed in service in connection with tax credits. Specifically, many of ■ The Sec. 45 PTC for facilities
low-income communities; the credits have a lower base credit placed in service after Dec. 31, 2022;

18 January 2023 The Tax Adviser