On May 16, 2024, the Internal Revenue Service (“IRS”) and Department of Treasury (“Treasury”) published Notice 2024-41 (the “2024 Guidance”), which provides new guidance for securing the domestic content bonus credit established by the Inflation Reduction Act (“IRA”).  As described in more detail below, the 2024 Guidance builds on the existing framework contained in Notice 2023-38 (the “2023 Guidance”), which was released last May.  Most notably, the 2024 Guidance expands the range of applicable projects subject to the safe harbor in the 2023 Guidance and adds a “New Elective Safe Harbor” to determine cost percentages for the domestic content calculation in solar, onshore wind, and battery storage projects.

As described in our previous blog post, the 2023 Guidance established a “Safe Harbor” table for classifications of certain Applicable Project Components (“APCs”) and Manufactured Product Components (“MPCs”) for specific types of clean energy projects.  The 2024 Guidance expands the technologies listed in the table to now include hydropower and pumped hydropower storage facilities, and changes the technology previously categorized as “utility scale photovoltaic system” to “ground-mount and rooftop photovoltaic system.”

In addition, the biggest change in the 2024 Guidance is the addition of the “New Elective Safe Harbor” table, which is a new method of calculating the domestic content threshold for manufactured products for specific types of projects: solar, land-based wind, and battery electric storage systems.  Under prior IRS guidance, the domestic content bonus credit has two prongs: (1) manufactured products, and (2) steel and iron products.  Under the first prong, a certain “adjusted percentage” of the manufactured products in the applicable project must be domestic (this adjusted percentage is 40% for most types of projects and 20% for offshore wind facilities started prior to 2025).  Under the second prong, all steel and iron products in the applicable project must be domestic.  The New Elective Safe Harbor significantly simplifies the calculation for determining the domestic content percentage of manufactured products.

The New Elective Safe Harbor was introduced to resolve practical issues following the 2023 Guidance and relies on information obtained from the Department of Energy (“DOE”) for the APCs and MPCs that go into different project types.  Under the 2023 Guidance, the taxpayer is required to determine the manufacturer’s direct cost for each APC and MPC.  Under the New Elective Safe Harbor, the taxpayer may instead consult the assigned cost percentages that IRS and Treasury have assigned to each item in consultation with DOE.  The taxpayer may then add together the assigned cost percentage of each of the domestically manufactured APCs and MPCs to determine if the relevant threshold (currently 40% for solar, onshore, and battery storage technologies) has been met.  This approach eliminates the need to look at a manufacturer’s direct costs, which the 2024 Guidance recognizes is something that “may present challenges for substantiation and verification.” 

For example, the 2024 Guidance indicates that a land-based wind project may include a Wind Turbine (an APC) divided into four smaller MPCs (the blades, rotor hub, nacelle, and power converter).  The assigned cost percentage of the blades is 31.2% and the assigned cost percentage of the rotor hub is 9.9%.  If the taxpayer can ensure that these two MPCs are domestic, then even if all other components are imported, the taxpayer still would meet the applicable 40% threshold, with no need for the taxpayer to collect direct cost information from its suppliers.  So long as the taxpayer also ensures that all of the iron and steel construction materials within the project (as identified in the 2024 Guidance) are domestic, then the taxpayer may claim the domestic content bonus credit.        

Importantly, if a taxpayer utilizing the New Elective Safe Harbor has MPCs or APCs in their applicable project that are not listed in the New Elective Safe Harbor, those MPCs or APCs do not count towards satisfying the adjusted percentage rule.  Similarly, if an Applicable Project does not contain one of the MPCs or APCs listed in the safe harbor table, that MPC or APC has a zero value in the calculation.

The 2024 Guidance also contains instructions regarding “mixed source items” that contain APCs and/or MPCs sourced from both the U.S. and abroad (e.g., a project that uses both domestic and foreign-sourced PV cells).  In those cases, the assigned percentage cost is calculated using a weighted average calculation.  This weighted average is based on nameplate capacity, so mixed source items without nameplate capacity must be treated as foreign sourced. 

The New Elective Safe Harbor also contains an additional “production” adder that can be claimed only if all of the MPCs that go into the APC are domestically sourced.  For example, an APC may have four smaller MPCs; if each of those MPCs are domestic, then the taxpayer also gets to claim an additional “production” percentage.  Helpfully, the 2024 Guidance also includes five examples with calculations, to demonstrate how the New Elective Safe Harbor operates in practice.

For solar, onshore wind, and battery storage projects, taxpayers have the option of using either the method established by the 2023 Guidance or the New Elective Safe Harbor to calculate the domestic content percentage.  For other technologies, including offshore wind, taxpayers currently must utilize the method prescribed in the 2023 Guidance, although Treasury said in a press release that it plans to assign cost percentages to components of these other technologies in the future.

In addition to the new guidance, IRS and Treasury have posed two specific questions on which interested parties are invited to comment:

  1. Are there any other technologies, or technology subsets, that should be addressed by the New Elective Safe Harbor table, and what criteria should be used for new additions? How often should these tables be updated?
  2. Are there instances in which the nameplate capacity allocation approach in section 4.03 of this notice for calculating domestic content for a mix of foreign and domestic Manufactured Product Components should be clarified, either for current technologies or technologies that may be addressed in the future?  In those instances, how should the Assigned Cost Percentages be allocated to Applicable Project Components with a mix of foreign and domestic Manufactured Product Components? 

Comments on these questions, or any other aspects of the 2024 Guidance, are due by July 15, 2024. 

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Photo of Michael Wagner Michael Wagner

Mike Wagner helps government contractors navigate high-stakes enforcement matters and complex regulatory regimes.

Combining deep regulatory knowledge with extensive investigations experience, Mr. Wagner works closely with contractors across a range of industries to achieve the efficient resolution of regulatory enforcement actions and government…

Mike Wagner helps government contractors navigate high-stakes enforcement matters and complex regulatory regimes.

Combining deep regulatory knowledge with extensive investigations experience, Mr. Wagner works closely with contractors across a range of industries to achieve the efficient resolution of regulatory enforcement actions and government investigations, including False Claims Act cases. He has particular expertise representing individuals and companies in suspension and debarment proceedings, and he has successfully resolved numerous such matters at both the agency and district court level. He also routinely conducts internal investigations of potential compliance issues and advises clients on voluntary and mandatory disclosures to federal agencies.

In his contract disputes and advisory work, Mr. Wagner helps government contractors resolve complex issues arising at all stages of the public procurement process. As lead counsel, he has successfully litigated disputes at the Armed Services Board of Contract Appeals, and he regularly assists contractors in preparing and pursuing contract claims. In his counseling practice, Mr. Wagner advises clients on best practices for managing a host of compliance obligations, including domestic sourcing requirements under the Buy American Act and Trade Agreements Act, safeguarding and reporting requirements under cybersecurity regulations, and pricing obligations under the GSA Schedules program. And he routinely assists contractors in navigating issues and disputes that arise during negotiations over teaming agreements and subcontracts.

Photo of Jamin Koo Jamin Koo

Jamin Koo advises clients across a broad range of tax issues, including international and domestic tax planning and acquisition and financing transactions. He works with numerous U.S. and non-U.S. clients (in particular, several Asia-based clients) on cross-border investments, joint ventures, and restructurings. His…

Jamin Koo advises clients across a broad range of tax issues, including international and domestic tax planning and acquisition and financing transactions. He works with numerous U.S. and non-U.S. clients (in particular, several Asia-based clients) on cross-border investments, joint ventures, and restructurings. His expertise includes taxation of debt instruments, derivatives, and other financial instruments, and he has been providing tax advice related to digital assets to a number of clients.

Most recently, with his background in engineering and environmental science, Jamin has been advising clients in a number of industries on various issues involving tax credits and other tax provisions of the Chips & Science Act and the Inflation Reduction Act and drafting comments to Treasury and the IRS.

Photo of Peter Terenzio Peter Terenzio

Mr. Terenzio advises contractors across a broad range of different issues. His practice includes bid protests, contract claims and disputes, regulatory counseling, and internal investigations.

Before joining the firm, Mr. Terenzio clerked for Chief Judge Susan G. Braden of the Court of Federal Claims.

Photo of Jennifer Bentley Jennifer Bentley

Jennifer Bentley is an associate in the firm’s Washington, DC office. She is a member of the Government Contracts Practice Group and Litigation and Investigations Practice Group. She also maintains an active pro bono practice.