Many businesses investing in “advanced energy projects” have applied for tax credits under Internal Revenue Code Section 48C. Still, more businesses are applying for credit allocations in the second round of the Treasury Department’s approval process, even as first-round applicants have been receiving the allocation letters that inform them that they have met the initial criteria to claim a portion of the $10 billion allocated to this initiative.
An allocation letter represents an important milestone in the process of claiming these valuable credits, but in many ways, it merely signals the end of the beginning for a taxpayer that hopes to benefit from the program. IRS guidance outlines the comprehensive evidence that applicants must provide to demonstrate that they have met all certification requirements to support a claim for the credit. The required evidence must be uploaded into the 48C portal within two years of receipt of the initial allocation, and failure to fully document compliance with the myriad complex requirements of the credit could result in forfeiture of the allocated amount.
In order to focus on compliance from initial receipt of the allocation letter through to the final certification of a claim for the credit, a business should follow this four-step process to maintain conformity with IRS and DOE requirements at every stage of the process.
Step 1: Review all existing documentation and conduct a gap analysis
It may seem redundant to review documents once an allocation letter has been received, but it’s important for a business to make sure that the information already submitted to the IRS accurately describes the commitments that the taxpayer intends to fulfill over the life of the project. This step also includes a gap analysis to identify any additional documentation that may be required, including:
- Community benefits agreements.
- Collective bargaining agreements.
- Contracts and offtake agreements.
- Permits and certifications.
If changes have occurred in the project since the original application — such as modifications to the project design, location, or workforce plans — these will need to be documented and explained to demonstrate that they remain consistent with the original intent of the project.
Step 2: Prepare and organize all necessary documentation
The IRS guidance provides significant detail on the types of documentation that a business needs to file within two years of the allocation letter in order to have its claim for the credit certified. Beyond the documents identified in step 1 above, evidence collected at this phase should include:
- Detailed descriptions of any changes to the project since the original application, including explanations of how changes in size, scope, or capital funding align with the project’s original goals.
- Updated workforce and community engagement documentation such as agreements related to job creation, prevailing wage commitments, and any changes in workforce plans.
- Environmental impact reports to confirm that there have been no significant changes to the project’s environmental footprint in the interim between the issue of the allocation letter and the submission of documents for certification.
In cases where new agreements or changes in location are involved, a business looking to get its claim to the credit certified must craft a narrative that clearly explains the rationale behind the changes and how they don’t adversely impact the project’s commercial viability.
Step 3: Be timely when submitting necessary documentation to the 48C portal
Once all the documentation in the first two steps above has been prepared as required by the rules, it must be properly formatted, labeled, and uploaded to the 48C portal in accordance with IRS and DOE requirements. Businesses looking to certify a claim to the credit must comply with all submission deadlines to ensure compliance within the stipulated two-year time frame.
Step 4: Stay on track by continuously monitoring compliance
While the bulk of the claim certification work may be completed with the submission, it won’t always end there. Businesses need to monitor the status of a certification application. The IRS or DOE may make follow-up requests for further information, and affected taxpayers need to act quickly to ensure that any additional required documentation is promptly submitted. Timely, thorough responses to these additional requests will help to minimize any potential issues that could arise during the review process and secure the certification without further delay.
A trusted advisor can help with Section 48C compliance
Businesses facing a 48C certification may have little or no experience in navigating such a complex regulatory certification process for a tax credit claim. In many ways, an outside consultant that has supported multiple clients through this complicated process and similar regulatory approval exercises can make the difference between a successful claim for a valuable tax incentive and a costly attempt to qualify for a benefit that fails under the weight of administrative noncompliance.
