The U.S. Department of the Treasury and Internal Revenue Service (IRS) have released additional guidance on the Inflation Reduction Act’s (IRA) domestic content bonus, a key component of President Biden’s economic strategy to stimulate American manufacturing and iron and steel production, thereby fortifying the clean energy economy.
The domestic content bonus applies to facilities and projects that utilize the required amounts of domestically produced steel, iron, and manufactured products. To qualify for the bonus, all manufacturing processes for steel and iron components must occur within the United States. Furthermore, a legally mandated minimum percentage of the costs of the manufactured products and components that comprise a facility must be mined, produced, or manufactured in the United States.
The Treasury Department collaborated with Biden-Harris Administration partners, including the Department of Energy (DOE), on this notice. The aim is to provide taxpayers with clarity and certainty to facilitate uptake of the bonus provision and unlock investments in American-made clean energy.
U.S. Deputy Secretary of the Treasury Wally Adeyemo said, “American workers and businesses are committed to making sure the United States economy benefits from the global transition to clean energy. That is why these incentives to bring clean energy manufacturing to America are jumpstarting investments across the country. Today’s guidance provides important clarity to companies and simplifies the process.”
John Podesta, Senior Advisor to the President for International Climate Policy, stated that “The Inflation Reduction Act’s domestic content bonus is a crucial tool for investing in American workers and American businesses."
Under certain tax credits for clean energy, facilities that meet domestic content requirements receive bonuses. Projects can only claim full value if they meet specific criteria related to output capacity or construction timelines.
This new guidance offers clarity on eligibility for this domestic content bonus by introducing an elective safe harbor that allows clean energy developers to rely on DOE-provided default cost percentages for various manufactured products and their components. This option eliminates needing direct cost information from suppliers. The guidance also expands safe harbor classifications and provides clarity for rooftop solar.
The Treasury and IRS, in collaboration with DOE and other agencies, continue to consider stakeholder comments and plan to issue further domestic content guidance to address issues not covered by this guidance, including the addition of more sectors such as offshore wind.
