2023 Marcum Year-End Tax Guide

THE MARCUM YEAR-END TAX GUIDE 2023 109

The Inflation Reduction Act (“IRA”) was passed on August 16, 2022 and signed into law by President Biden. This historic piece of legislation is aimed at fighting the Climate Crisis by making significant investments in clean energy never seen before. The Congressional Budget Office officially scored the bill to cost some $369 billion over the next decade. However, Goldman Sachs puts the number close to $1.2 trillion. FROM TAX CREDITS TO JOBS: THE INFLATION REDUCTION ACT’S FIRST-YEAR IMPACT BY PETER DOWNING

The Inflation Reduction Act (“IRA”) was passed on August 16, 2022 and signed into law by President Biden. This historic piece of legislation is aimed at fighting the Climate Crisis by making significant investments in clean energy never seen before. The Congressional Budget Office officially scored the bill to cost some $369 billion over the next decade. However, Goldman Sachs puts the number close to $1.2 trillion. Included in the IRA was the expansion or creation of 22 tax credits for green energy production, zero-carbon energy production, electric vehicles and charging stations, residential clean energy, advanced manufacturing, and alternative fuels. These tax credits have two goals: increasing the development of low or zero emission technologies and strengthening the US economy by creating clean energy jobs from manufacturing these technologies and long-term construction jobs. Since its passage, more than 200 large utility-scale US clean energy projects have been announced, creating more than 70,000 jobs.

The American Clean Power Association estimates the Inflation Reduction Act has led to the deployment of more than 180,000 megawatts of utility-scale clean energy projects, resulting in $4.5 billion in customer savings. They also suggest that the IRA could lower US emissions by as much as 48% by 2035. CLEAN ENERGY CREDITS Five main tax credits in the Clean Energy Production space now have a 10-year runway. Before the IRA was passed, many of these tax credits had to be extended by Congress every year. Large utility scale developers had to operate with this uncertainty of when the tax credits would be available. The longer availability will stabilize the Clean Energy Marketplace as large utility-scale projects can take several years to plan, construct, and complete. The new tax credits have also created complexities, including the “bonus” tax credits, which can increase the overall Investment Tax Credit to 70% if a project checks all

the boxes. A 10% “bonus” credit is available if a clean energy project 1) meets domestic production content, 2) is located in a former energy community (former coal or oil site), EPA brownfield, or low-income area, or located on tribal lands. We are seeing many projects generating a 40% Investment Tax Credit in 2023 and some 50% ITC deals for 2024. Projects under 1 megawatt of production, which is most Commercial and Industrial projects, are grandfathered in at the 30% ITC rate. Projects over 1 megawatt of production must meet certain labor and apprenticeship standards by using either union labor or paying prevailing wages. If a developer does not satisfy this requirement, the ITC drops to 6%. Another provision of the IRA also includes a “Transferability” provision in which Investment Tax Credits can be transferred to another taxpayer. Typically, a developer does not have the tax capacity to claim its own Investment Tax Credits. Before the IRA, developers would sell projects to another taxpayer or enter into a tax equity transaction with a large commercial bank or