Initial guidance released on clean energy project ‘low-income adders’

Windmills and solar panels illustrating renewable energy

The much-awaited IRS guidance on the so-called “low-income adders” under the Low-Income Communities Bonus Credit Program was officially released on the statutory deadline established by the Inflation Reduction Act, on the 180th day anniversary of its enactment. IRS Notice 2023-17 should be read closely by those who are actively looking at or involved in wind and solar clean energy generation for their respective companies.

While this initial guidance is welcome, it is unlikely to satisfy those awaiting it because it is primarily programmatic, with additional practical and detailed guidance still to come. Of note is that it will be the U.S. Department of Energy (DOE), not the IRS or Treasury, that will oversee many aspects of the application and approval program.

Because additional guidance will be needed in order to precisely define project-level tax benefits, businesses must continue to wait before finalizing their project plans.

In the meantime, what follows is what we can learn from the initial guidance.

Allocation categories, process, and timelines

The guidance creates a method for allocating the low-income adders (“allocation of the Capacity Limitation”) between four categories of project:


Category 1: Located in a Low-Income Community

700 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

700 megawatts

We do not know if there will be further sub-allocations between eligible wind or solar projects.
Per the Notice, applications for allocations of the low-income adders will be phased in during 2023, with a 60-day window for such applications. 

Treasury and IRS currently anticipate the timeline for accepting applications as follows:

  • Category 3 and 4 facilities: Third calendar quarter of 2023
  • Category 1 and 2 facilities: After the third calendar quarter of 2023

Forthcoming guidance on the application process and facility eligibility for all categories will be provided by Treasury and possibly DOE.

The notice indicates that additional criteria will be incorporated for determining how to allocate the Capacity Limitation reserved for each facility category among eligible applicants. These criteria, which will be fully described in future guidance, may include a focus on facilities that are (as listed in the Notice): 

  • Owned or developed by community-based organizations and mission-driven entities,
  • Have an impact on encouraging new market participants, 
  • Provide substantial benefits to low-income communities and individuals marginalized from economic opportunities, and 
  • Have a higher degree of commercial readiness.

Program processes

The Notice lays out the program allocation and administration process as follows:

1. DOE will review the applications for statutory eligibility – and the forthcoming additional criteria  – and will provide recommendations to the IRS regarding the selection of applications for an allocation of Capacity Limitation. 

a. If selected applications for facilities with a total megawatt nameplate capacity exceed the Capacity Limitation reserved for each category, then a lottery or other processes may be used to allocate the Capacity Limitation to applicants, the Notice states. 

b. In the event a facility category has excess Capacity Limitation, such excess may be reallocated between the categories to maximize 2023 calendar year allocations. If the annual Capacity Limitation for calendar year 2023 exceeds the aggregate amount allocated for the year, the excess will be carried forward to calendar year 2024.

2. Based on DOE’s recommendation and the process for allocation, the IRS will accept or reject the applicant’s request for an allocation of Capacity Limitation.  An acceptance notification will state the amount of Capacity Limitation allocated. 

Per the Notice, “The amount of Capacity Limitation allocated will not exceed the nameplate capacity of the facility (as measured in direct current) and will not be prorated.” 

Once accepted, applicants will have four years from the date of the acceptance notification to place the wind or solar energy equipment in service. Any Capacity Limitation that is allocated but expires because property is not placed in service within four years is considered as an excess or increase in excess, the Notice states.

Additional ‘Placed in Service’ details

The Notice makes clear that Wind or Solar facilities placed in service prior to being awarded an allocation of Capacity Limitation are not eligible to receive an allocation.

Eligible property is generally considered placed in service in the earlier of the following taxable years:

  • The taxable year in which the period for depreciation of the eligible property begins; or
  • The taxable year in which the eligible property is ready and available for its intended use, whether in a trade or business or in the production of income

For those using the so-called “inverted lease” structure, the Notice states that eligible property with respect to which an election is made to treat the lessee as having purchased such energy property is considered placed in service by the lessor in the taxable year in which possession is transferred to such lessee.

Future credits

The Inflation Reduction Act also includes a provision (IRC Section 48E) that generally provides for a program like the Low-Income Communities Bonus Credit Program for calendar years after 2024. The Secretary is required to issue guidance regarding the implementation of this program no later than Jan. 1, 2025.

Implications and next steps

The low-income adders were one of several new mechanisms that were put in place by the Inflation Reduction Act to create additional incentives for the adoption of clean energy while addressing social equity and justice concerns across the broader U.S. population. As noted above, there are several procedures and guidelines that need to be satisfied to be awarded the incremental credits associated with meeting the low-income adder requirements. 

As we wait for final program details, our team is ready to assist you in determining what qualifies as Eligible Tax Credit Property, confirming when a property is Placed in Service, developing estimates and calculations of energy investment tax credits with low-income bonus adders, and understanding how all this operates in the broader project and business context. Once further or final guidance is issued, professional guidance will likely be helpful in navigating the complex overall tax credit adder application process and determining whether a facility qualifies for Category 1, 2, 3, or 4.


Sasibeh Beyene, CPA, Partner


Stephanie Caragher, CPA, Partner, Project Finance & Consulting


Lee J. Peterson, JD, Senior Manager


Subject matter expertise

  • Sasibeh (Sas) Senay Beyene
    Contact Sasibeh Sasibeh+Beyene
    Sasibeh Beyene

    CPA, Partner

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