Alert: IRS Revised Regulations for Investment Tax Credit

Taxpayer Alert: The IRS Is Planning to Issue Revised Regulations Regarding the Investment Tax Credit

Tax credits, cost offsets, and other government policy can encourage or spur businesses to invest in money and energy saving technologies. This investment is a win-win for all involved parties. Businesses are provided with significant incentives to upgrade their practices and infrastructure so that the company remains competitive. Individual taxpayers that can take advantage of the incentive can lower their bills. Society at large benefits due to the more fortified tax base and the significant cost and resource savings that new technology can bring.

In particular, the investment tax credit (ITC), passed in 1987 and amended in 2005, can provide a 30 percent tax credit for investments into energy projects. However, there has been a growing sense of uncertainty regarding what types of technologies can qualify for the tax benefit. Such a situation has left business owners, taxpayers, and developers in an uncertain position as they must bear the risk of proceeding with projects and upgrades without the benefit of clear guidance. In recognition of this situation the IRS issued Notice 2015-70 seeking public comment on revisions to the ITC affected by amending  § 48 of the Internal Revenue Code to better define eligible energy technologies.

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Energy Technologies Currently Covered by ITC

The energy tax credit available under ITC, for any particular year, is the energy percentage of the basis of each energy generating source brought online and into service during that particular tax year. To maintain eligibility for the ITC Section 48(a)(3)(B) states that the construction or reconstruction of the property must be completed by the taxpayer. In the case that the taxpayer acquired the property, the property’s original use must begin with the taxpayer.  Furthermore, while Section 48(a)(3)(C) allows for the depreciation or amortization of the property, Section 48(a)(3)(D) sets forth performance and quality standards as issued by the Secretary of the Treasury.

Qualifying energy producing property as defined by 48(a)(3)(A) are:

  • Technologies currently covered by the ITC are
  • Equipment using solar energy to generate electricity
  • Equipment using solar energy to illuminate
  • Equipment using energy from geothermal sources
  • Qualified fuel cell property
  • Qualified microturbine property
  • Combined heat and power system property
  • Qualified small wind energy property
  • Equipment using the ground or ground water as a thermal energy source

As currently drafted, these are the qualifying types of energy producing property that can entitle a taxpayer to receive an ITC.

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Issues Upon Which the IRS is Seeking Comment

The clarifications provided by Section 1.48 in regard to the qualifying energy sources listed above have not been updated or revised since the original enactment of the law. Thus, the tax law is in need of an overhaul to reconcile the parts of the bill drafted at disparate times.

Areas where the IRS will seek comment include:

  • What types of energy technology should be eligible for the credit? Should ITC include only equipment that actually produces electricity or should energy storage and power conditioning devices receive the same tax treatment?
  • Should dual-use property be able to qualify for ITC? If so, how should the portions of dual use be handled and accounted for in regard to calculating the energy percentage.
  • Should the definitions for the qualifying energy producing technologies, as listed in the previous section, be updated to provide a more comprehensive definition of what qualifies? How should a comprehensive definition be presented?
  • Definitions for terms including: power conditioning equipment, transfer equipment, storage devices, and other terms in use throughout the law.

Interested parties may send comment to:


Internal Revenue Service

Courier’s Desk

1111 Constitution Ave., N.W.

Washington, DC 20224


(Notice 2015-70)


Businesses and taxpayers who were considering use of the ITC credit for a capital or other purchase should immediately consult with an experienced tax lawyer who can provide strategic guidance. To schedule a no-cost initial tax consultation call the Hoffman Law Offices at 800-897-3915 or contact us online.

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