Blog

In Brief:  

• Increased Credit Amounts: Facilities in low-income communities or on Indian land can receive increased credit amounts. 

• Final Regulations Issued: The IRS issued final regulations for the Code Sec. 48E(h) program. 

• Eligible Credits: The bonus applies to the Clean Electricity Investment Tax Credit (ITC) under Code Sec. 48E. 

• Application Process: Details on the application process, allocation of capacity limitations, and required documentation for the 2025 program year. 

On January 8, the IRS issued final regulations for the Code Sec. 48E(h) Clean Electricity Low-Income Communities Bonus Credit Amount Program. This program provides additional incentives for clean electricity generation facilities located in low-income communities or on Indian land. 

Increased Credit Amounts 

The program allows investors in qualifying clean electricity generation facilities to apply for an allocation of capacity limitation, which increases the amount of the Clean Electricity Investment Tax Credit (ITC) under Code Sec. 48E for the tax year the facility is placed in service. Depending on the category of the facility, the increase is as follows: 

• 10% if the facility is located in a low-income community as defined by Code Sec. 45D(e) (Category 1). 
• 20% if the facility is located on Indian land pursuant to the Energy Policy Act of 1992 (Category 2). 
• 20% if the facility is part of a qualified low-income residential building project (Category 3). 
• 20% if the facility is part of a qualified low-income economic benefit project (Category 4). 

Final Regulations 

The final regulations define the requirements for the program and expand the list of zero-emission technologies eligible for the bonus credit. The regulations also provide guidance on the application process and selection criteria. 

Application Process 

The program’s annual allocation of 1.8 gigawatts will be distributed among the four categories as follows: 

• Category 1: Located in a Low-Income Community – 600 megawatts
  • Sub-Reservation 1: Eligible residential behind-the-meter facilities – 400 megawatts 
  • Sub-Reservation 2: Eligible front-of-the-meter facilities and non-residential behind-the-meter facilities – 200 megawatts 
• Category 2: Located on Indian Land – 200 megawatts 
• Category 3: Qualified Low-Income Residential Building Project – 200 megawatts 
• Category 4: Qualified Low-Income Economic Benefit Project – 800 megawatts 

The application period for the 2025 program year opens on January 16, 2025, and closes on August 1, 2025. Treasury expects the program to generate approximately $4 billion in public and private investment and offset energy costs by almost $350 million annually. 

Required Documentation 

Applicants need to provide the following information: 

• Facility Details: Description of the facility, including location, technology used, and expected output. 
• Category Selection: Indicate the category under which the facility qualifies (e.g., low-income community, Indian land, etc.). 
• Proof of Eligibility: Documentation supporting the facility’s eligibility for the selected category. 
• Project Plan: Detailed project plan, including timelines, budget, and expected benefits. 
• Compliance Assurance: Evidence of compliance with prevailing wage and apprenticeship (PWA) requirements, if applicable. 
• Additional Selection Criteria: Any additional information required for facilities meeting specific selection criteria, such as ownership or geographic location. 

Applications submitted within the first 30 days of the application period will be treated as submitted on the same date and time. Applications submitted after this period will be considered on a rolling basis, subject to remaining capacity. 

IRS Circular 230 Required Notice‐‐IRS regulations require that we inform you that to the extent this communication contains any statement regarding federal taxes, that statement was not written or intended to be used, and it cannot be used, by any person (i) for the purpose of avoiding federal tax penalties that may be imposed on that person, or (ii) to promote, market or recommend to another party any transaction or matter addressed herein. 

In Brief  

1. IRS Proposed Regulations: The IRS announced forthcoming proposed regulations on the Clean Fuels Production Credit, including initial guidance on emission rates for newly produced clean fuel. 

2. Code Sec. 45Z: Provides a tax credit for clean transportation fuel with lifecycle greenhouse gas emissions under set levels, produced in the U.S. after December 31, 2024, and sold by December 31, 2027. 

3. 45ZCF-GREET Model: Required for substantiating emissions rates, designated as a successor to the R&D GREET model. 

4. Certification Requirements: Producers must register under Code Sec. 4101 and sell the fuel to an unrelated person in a qualifying manner. SAF producers need additional certifications. 

5. Comment Deadline: The deadline for comment submissions is April 10, 2025.

Detailed Article 

Draft Regulations and Emissions Guidance on Clean Fuels Production Credit 

The IRS has announced forthcoming proposed regulations on the Clean Fuels Production Credit, along with initial guidance regarding emission rates for newly produced clean fuel. This announcement was made through Notices 2025-10 and 2025-11, dated January 10, 2025. 

Code Sec. 45Z: Enacted by the Inflation Reduction Act (P.L. 117-169), Code Sec. 45Z is a general business credit under Code Sec. 38. It provides a tax credit for clean transportation fuel with lifecycle greenhouse gas emissions under set levels, produced in the United States after December 31, 2024, and sold by December 31, 2027. For 2025, the Clean Fuels Production Credit applies to sustainable aviation fuel (SAF) and non-SAF transportation fuels. 

Certification Requirements: To qualify for the credit, a taxpayer must register as a producer of clean fuel under Code Sec. 4101 and sell the fuel to an unrelated person in a qualifying manner during the taxable year. SAF transportation fuel producers are required to provide additional certifications to comply. 

Proposed Regulations: Notice 2025-10 indicates that the IRS intends to issue proposed regulations incorporating key statutory definitions, setting credit calculation and timing rules, and clarifying which producers and types of fuel are credit eligible. The notice also discusses the Department of Energy’s 45ZCF-GREET model for determining Section 45Z emissions rates, designated as a successor to the R&D GREET model. 

45ZCF-GREET Model: The forthcoming regulations would require the use of the 45ZCF-GREET model to avoid confusion with other “GREET” models like R&D GREET. The IRS explained that while the R&D GREET model is valuable for characterizing energy technologies, it is not suitable for analyses requiring high precision and certainty. 

Safe Harbors: The proposed regulations include safe harbors for substantiating emissions rates and claiming credits upon reregistration application. One safe harbor allows taxpayers to substantiate emissions rates for non-SAF transportation fuel using the 45ZCF-GREET model by obtaining certification similar to SAF certification. Another safe harbor allows a person approved for reregistration to claim the credit from the date the IRS received the application, even if the approval is pending. 

Comments Requested: The IRS seeks public comments on two specific matters: adapting the EPA’s Renewable Fuel Standard program for emissions rate tables and identifying clean fuel production processes currently in commercial use that may be eligible under Section 45Z but are not included in the 45ZCF-GREET model. 

Initial Guidance: Notice 2025-11 provides initial guidance on emission rates under Code Sec. 45Z(b)(1)(B). It identifies the CORSIA program as an allowed methodology for determining emissions rates for SAF transportation fuel, offering two ways to obtain lifecycle emissions values: CORSIA Default and CORSIA Actual. The 45ZCF-GREET model is the second allowed methodology, with its first version expected to include the most commonly used fuel types and categories meeting Section 45Z eligibility requirements. 

Credit Amounts: Under Section 45Z, a production tax credit (PTC) is available for each gallon or gasoline gallon equivalent of transportation fuel produced after December 31, 2024, and sold before January 1, 2028. The credit amount equals $1 per gallon (or $1.75 for SAF), but the actual credit amount may vary depending on the emissions factor of the fuel. The credit amount is reduced to one-fifth of the otherwise available amount if prevailing wage and apprenticeship (PWA) requirements are not satisfied. 

Lifecycle Emissions Rate: To qualify for the Section 45Z credit, the transportation fuel must have a lifecycle greenhouse gas emissions rate of not greater than 50 kilograms of CO2e per MMBtu. 

Comment Deadline: The deadline for comment submissions is April 10, 2025. 

The IRS has requested general comments on the draft regulations and specific comments on the RFS program and clean fuel production processes. 

IRS Circular 230 Required Notice‐‐IRS regulations require that we inform you that to the extent this communication contains any statement regarding federal taxes, that statement was not written or intended to be used, and it cannot be used, by any person (i) for the purpose of avoiding federal tax penalties that may be imposed on that person, or (ii) to promote, market or recommend to another party any transaction or matter addressed herein.