Overview of New “IRA” Law, Tax Elements

The recently passed law is unprecedented in terms of the ideas that have been included. A number of federal agencies will have to coordinate to make this successful. Companies must leverage their tax departments to take advantage of the various tax credits that are in the law. There are also some new taxes to pay for the credit provisions. The EU is looking into a minimum 15% tax on international companies. This is not finalized, but it is important to keep these provisions in mind. Many of the credits build on existing credits. It is important to make sure that the current version has not changed the basis for applicability. Guidance on many of these credits is expected. Many regulations have not been finalized.

The investment tax credit for PTC (production tax credit) has been 1.5 cents/Kwhr. The credit applies for 10 years. There is a bonus of 2.6 cents/Kwhr for certain provisions. Job training and apprentice programs are required for the bonus. Project commencement could be within 60 days of the guidance issuance. Private companies cannot use direct pay. Some companies can sell transfer credits to bring in other companies. Domestic content rules can allow additional credits. Steel production and energy communities may qualify.

The ITC (investment tax credit) is an upfront, onetime payment. The credit applies to most renewable energy projects. The existing ITC runs to 2024. A replacement credit is anticipated thereafter. There are apprenticeship requirements as well as domestic content requirements. The level of credit can vary from 6% all the way to 70% if an energy community is involved. The 45Q credit is for CO2 capture and sequestration. The prior guidance took 2 years to issue. The credit starts at $12/ton and now ranges up to $180/ton. Direct Air Capture is now included and can attract a higher level of credit. The amount of CO2 that needs to be captured has increased to qualify. There are prevailing wage and apprenticeship program requirements. Companies can use direct pay for this credit. The 45Q cannot be stacked with other credits. This bill was a reconciliation bill. That means that it will be difficult to fix any mistakes that may appear in the bill. Only the party that has control of the House, the Senate, and the White House can pass a reconciliation bill with only 50 Senate votes. A fix to a mistake would require 60 votes, which is unlikely.

Jeff McMillen, Akin Gump Law