On Friday, May 12, the Department of Treasury and the Internal Revenue Service issued Notice 2023-38 to outline their intended guidelines on the Domestic Content bonus credits under the Inflation Reduction Act (IRA) for taxable years after May 12, 2023.
While many conditions and criteria were expected, some nuances are a bit more surprising.
To qualify as Domestic Content, all structural steel and iron used in sustainable projects must be produced in the United States. Other Applicable Project Components (“Manufactured Products”) must meet a 2023 requirement of 40% US manufacturing, growing to 55% after 2025 (the near-term hurdle for offshore wind is only 20% until 2025).
Meeting these Domestic Content Requirements (plus the Davis-Bacon wage and Apprenticeship construction labor requirements under IRA) could make a qualified project eligible for an additional 10% Investment Tax Credit. Qualified projects could also claim a 10% Production Tax Credit bonus.
This bonus credit, like many other incentives, comes with fairly significant reporting and recordkeeping requirements (“substantiation”) for both developers and, indirectly, manufacturers.
Despite this burden, we see the domestic content bonus, along with other incentives under IRA, as an exciting and useful sustainable project financing tool as well as an exciting opportunity for US manufacturers producing energy transition components.
For more information, please contact:
Lance Healy, Managing Director, FD Real Asset Advisors | email@example.com