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Treasury Quietly Changes Energy Community Guidance, Redefining Beginning of Construction Timing Rule

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In what appears to have been an update to previously released guidance, the Department of Treasury (the “Treasury”) and Internal Revenue Service (the “IRS”) posted an unexpected update to Notice 2023-29 (the “Notice”) providing guidance on the energy community bonus credit available for certain production and investment tax credits.

As described in our prior alert on the topic (restated below), there is a special rule that provides if a project or facility is located in an energy community as of the “beginning of construction date,” the location will continue to be treated as an energy community throughout the relevant determination date — thus making the project or facility eligible for the bonus credit. This beginning construction rule is meant to provide certainty for taxpayers as to the amount of credits available when they are beginning construction and making investment decisions.

However, the updated Notice limits this special rule to projects or facilities which begin construction after January 1, 2023.

Undoubtedly, the energy community bonus is meant to encourage investments in underserved areas and areas in need of economic revitalization. The effect of this change is to prevent any taxpayers from lucking into the energy community bonus by virtue of “beginning construction” in a prior year and just so happening to have been located in an energy community.

That said, the change may unduly disadvantage projects which technically began construction under existing guidance (e.g., by purchasing integral, manufactured components), but which still are in need of tax credit and financing certainty. It remains to be seen whether this will encourage taxpayers to attempt to “restart” their construction early this year in order to qualify for the energy community bonus under the special beginning of construction rule.1

1 Taxpayers would need to thread a needle of beginning construction after January 1, 2023 to attempt to qualify for the safe harbor for the energy community bonus, but prior to the end of January to be exempt from the labor requirements. See our prior alert on the labor requirements below.

Treasury Issues IRA Guidance on Energy Communities

On April 4, 2023, Treasury and IRS issued Notice 2023-29 (the “Notice”) providing guidance on the energy community bonus credit available under sections 45, 45Y, 48, and 48E of the Internal Revenue Code of 1986, as amended (the “Code”) for “qualified facilities” located in, or “energy projects” and “energy storage projects” placed in service in, an “energy community” (“EC Projects”).

The Notice states that the rules set forth therein are intended to be included in forthcoming proposed regulations with a proposed effective date retroactive to taxable years ending after the date of this Notice (i.e., April 4, 2023). The Notice indicates that, until the issuance of the proposed regulations, taxpayers may rely on this Notice to determine whether a project site is located in an energy community. In other words, while the Notice provides useful guidance for taxpayers to work with, there remains significant uncertainty on the final form of regulations and, as noted below, a number of open areas that require clarification and analysis.

The Notice also provides resources for determining whether a clean energy project constitutes an EC Project – namely, the Notice includes three Appendices: Appendix A delineating certain metropolitan statistical and non-metropolitan statistical area (“MSAs” and “non-MSAs”), Appendix B identifying MSAs and non-MSAs that meet the Fossil Fuel Employment Requirement (as defined below), and Appendix C listing the census tracts that meet the Coal Closure Category (as defined below). In addition to the Notice, there is a mapping tool here that helps taxpayers identify locations within certain categories that could be used as potential energy community sites.

As background, the Inflation Reduction Act of 2022 (the “IRA”), effective for projects placed in service after January 1, 2023, amended Code sections 45 and 48 and added new Code sections 45Y and 48E, inter alia, to provide a ten percent (10%) bonus Production Tax Credit (“PTC”) rate or Investment Tax Credit (“ITC”) amount for qualifying EC Projects (the “EC Bonus Credit”).1 Our prior coverage of the IRA can be found here and here and further coverage and details can be found here.

Generally, the Code provides that an “energy community” includes (i) a “brownfield site,” (ii) MSAs and non-MSAs that satisfy the Fossil Fuel Employment Requirement or Fossil Fuel Tax Revenue Requirement as well as the Unemployment Requirement (each as described further below) (the “Statistical Area Category”), and (iii) a census tract or adjacent census tract with a coal mine closure after December 31, 1999 or coal-fired electric generating unit retirement after December 31, 2009 (the “Coal Closure Category”). As described further below, being located in (in the case of Code sections 45 and 45Y) or being placed in service in (in the case of Code sections 48 or 48E) in one of the foregoing categories may qualify a facility or project for the EC Bonus Credit.

Brownfield Site

A “brownfield site” is defined by reference to section 101(39)(A), (B), and (D)(ii)(II) of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) as, generally, real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant and certain mine-scarred land.

The Notice provides a “brownfield site safe harbor” if (i) the site was previously assessed through federal, state, territory, or federally recognized Indian tribal brownfield resources as meeting the definition of a brownfield site under section 9601(39)(A) of CERCLA or (ii) a Phase II Environmental Site Assessment (or, for projects with nameplate capacity not greater than 5 MW (AC), a Phase I Environmental Site Assessment) confirms the presence on the site of a hazardous substance as defined under section 9601(14) of CERCLA or a pollutant or contaminant as defined under section 9601(33) of CERCLA.

The EPA lists areas that may qualify as a brownfield site and can be found here.

Statistical Area Category

An MSA or non-MSA (i.e., a “Statistical Area”) will be considered an energy community if it (i) has (or, at any time after December 31, 2009, had) 0.17% or greater direct employment (the “Fossil Fuel Employment Requirement”) or 25% or greater local tax revenues (the “Fossil Fuel Tax Revenue Requirement” and together with the Fossil Fuel Employment Requirement, the “Fossil Fuel Requirements”) related to the extraction, processing, transport, or storage of coal, oil, or natural gas and (ii) has an unemployment rate at or above the national average unemployment rate for the prior year (the “Unemployment Requirement”). Such Statistical Areas are grouped according to standards set forth by the Office of Management and Budget (OMB), as has been the prior practice. A list of the Statistical Areas can be found here.

Fossil Fuel Requirements

In determining whether the Fossil Fuel Employment Requirement is met, the Fossil Fuel Employment rate is determined by comparing the number of people employed in the industries identified by the 2017 NAICS codes specified below2 and as listed in the annual County Files of the County Business Patterns published by the Census Bureau to the total number of people employed in the applicable county.3 Such employment descriptions (and NAICS code) defined in the Notice include the following:

Oil and Gas Extraction (211)
Coal Mining (2121)
Drilling Oil and Gas Wells (213111)
Support Activities for Oil and Gas Operations (213112)
Support Activities for Coal Mining (213113)
Petroleum Refineries (32411)
Pipeline Transportation of Crude Oil (4861)
Pipeline Transportation of Natural Gas (4862)

A list of Statistical Areas that meet the requisite Fossil Fuel Employment Requirement based on the guidance from the Notice is found here.

While the Fossil Fuel Employment Requirement is well established by the Notice, the appropriate determination of the Fossil Fuel Revenue Requirement is still very uncertain. The Notice does not provide specific guidance on this requirement and, instead, explicitly states that determining the level of “Fossil Fuel Tax Revenue” presents certain data challenges and the Treasury and the IRS invite public comments addressing possible data sources, revenue categories, and procedures for the application of this requirement.4

Unemployment Requirement

In addition to the Fossil Fuel Requirements, taxpayers must satisfy the Unemployment Requirement to be eligible for the EC Bonus Credit under the Statistical Area Category.

Unfortunately, the 2022 annual unemployment numbers to be used to determine whether the Unemployment Requirement has been satisfied have not been released as of the date of the Notice and, as such, taxpayers remain unable to determine definitively whether they will be able to satisfy this prong.5

With respect to the Unemployment Requirement, the Notice provides that taxpayers may rely on the unemployment rates determined by the BLS Local Area Unemployment Statistics annual data for counties published here.

Coal Closure Category

This category includes a census tract or any adjoining tract in which (i) a coal mine closed after December 31, 1999 or (ii) a coal-fired electric power plant was retired after December 31, 2009.

A “closed coal mine” generally means a coal mine classified as a surface or underground mine that has ever had for any period of time, since December 31, 1999, a mine status of abandoned or abandoned and sealed by the U.S. Department of Labor’s Mine Safety and Health Administration in the Mine Data Retrieval System. However, closed coal mines listed thereunder are excluded from the Coal Closure Category if they have irregular location information (e.g., coal mines with listed latitude and longitude coordinates that do not place the mines in the listed county and state or that only extend to the tenths place).

A “retired coal-fired electric generating unit” generally means an electric generating unit classified as retired at any time since December 31, 2009 by the U.S. Energy Information Administration of the U.S. Department of Energy in the Preliminary Monthly Electric Generator Inventory or the Electric Generator Inventory. The Notice clarifies that this does not require the entire coal-fired plant to be retired in order to qualify; only one of the units.

For this purpose, a “directly adjoining” census tract means a census tract with a touching boundary at any single point.

Thankfully, Appendix C to the Notice here and the mapping tool here provides all eligible locations in the Coal Closure Category that would be an eligible energy community, including both the census tracts and the adjoining boundaries.

Special Rules


The Notice provides that, in the case of the EC Bonus Credit under Code sections 45 and 45Y, whether a qualified facility is eligible for the EC Bonus Credit is determined each year of the credit period.

Alternatively, in the case of the EC Bonus Credit under Code sections 48 and 48E, an energy project or energy storage technology may be eligible if it is located in an energy community as of the date it is placed in service. The Notice does not appear to contemplate any sort of recapture of the EC Bonus Credit if the project is no longer located in an energy community during any period after it is placed in service.

Special Timing Rule for Beginning of Construction

Notwithstanding the foregoing timing rules, if a taxpayer begins construction on an EC Project on or after January 1, 2023, in a location that is an energy community as of the “beginning of construction date,” the location will continue to be treated as an energy community throughout the credit period (with respect to the PTC) or on the placed in service date (with respect to the ITC).

Although the Notice cross references existing guidance for establishing the “beginning of construction,”6 it does not provide further clarity on the “date” on which beginning of construction might occur – specifically, the beginning of construction determination looks at whether significant physical work or at least 5% of costs have been incurred by a certain date, but has not historically been used to pick a specific date that construction has begun. As such, further guidance may be needed to help clarify and, ideally, would provide that, if a project or facility is located in an energy community at any point during the year construction begins, it will continue to be treated as located in an energy community under this special rule.


An EC Project will be considered to be located in an energy community if 50% or more of its nameplate capacity (or for projects that do not have nameplate capacity, square footage) is located in an energy community.

“Nameplate capacity” means the maximum electrical generating output in MW (or for energy storage projects, MWh) that the unit is capable of producing on a steady-state basis and during continuous operation under standard conditions, as measured by the manufacturer. Clean energy projects that convert DC power to AC power (e.g., solar PV projects) should use the nameplate capacity in DC power.

The Notice provides a favorable nameplate attribution rule for offshore energy projects: If an EC Project with offshore energy generation units has nameplate capacity, but none of the energy generation units are in a census tract or Statistical Area, all nameplate capacity of such EC Project is attributed to the land-based power conditioning equipment that conditions energy generated by the EC Project for transmission, distribution, or use, and that is closest to the point of interconnection.


Finally, although light on details as to what is required, the Notice provides that taxpayers must keep sufficient records in accordance with Code section 6001 to substantiate that an EC Project is eligible for the EC Bonus Credit.

1 The EC Bonus Credit with respect to the ITC is reduced to two percent (2%) if the prevailing wage and apprenticeship requirements are not satisfied with respect to an EC Project. See our prior coverage on the prevailing wage and apprenticeship requirements here.



The Fossil Fuel Employment and total employment for each county in an MSA or non-MSA is aggregated for each year to determine whether the MSA or non-MSA meets the Fossil Fuel Employment Requirement.

4 Comments must be submitted by May 4, 2023.

5 Annual unemployment rates for a calendar year generally are released in April of the following year. Such list will be provided for 2022 once the unemployment data becomes available and will be updated annually each May. The first issued list will apply to the period beginning on January 1, 2023 and each subsequent annual release will apply to the 12-month period starting in May through April of the following year.

6 A taxpayer is considered to “begin construction” when it has complied with beginning of construction requirements as set forth in Notice 2013-29, 2013-20 I.R.B. 1085; Notice 2013-60, 2013-44 I.R.B. 431; Notice 2014-46, 2014-36 I.R.B. 520; Notice 2015-25, 2015-13 I.R.B. 814; Notice 2016-31, 2016-23 I.R.B. 1025; Notice 2017-04, 2017-4 I.R.B. 541; Notice 2018-59, 2018-28 I.R.B. 196; Notice 2019-43, 2019-31 I.R.B. 487; Notice 2020-41, 2020-25 I.R.B. 954; Notice 2021-5, 2021-3 I.R.B. 479; Notice 2021-41, 2021-29 I.R.B. 17.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.