AFSI Adjustments in Notice 2026-7 Mitigate CAMT Impact

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Summary

• New AFSI adjustments in Notice 2026-7 help mitigate the impact of CAMT and preserve the intended benefits of recent tax law changes, such as enhanced expensing for domestic R&E costs.
• There were several important domestic business provisions in OB3, and each of these changes operates to extend certain provisions of the Tax Cuts and Jobs Act.
• Developing a robust tariff mitigation strategy involves leveraging data and technology, implementing short and long-term duty mitigation strategies, minimizing tariff exposure, and ensuring supply chain resiliency.

Athanasios Alatsidis via Getty Images

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Introduction

Since the Fall 2025 IRIS update, there have been several significant developments in federal tax policy and administrative guidance. The IRS released additional interim guidance on the Corporate Alternative Minimum Tax (CAMT) as well as guidance addressing the calculation of the Material Assistance Cost Ratio (MACR) with respect to Sections 45Y, 48E, and 45X. Treasury and IRS also issued guidance regarding Section 45Z, while state conformity and decoupling considerations remain an evolving area for taxpayers. Additionally, the tariff environment has continued to be a volatile component of the tax landscape throughout the year with the Supreme Court ruling in February 2026. As a reminder, the passage of the One Big Beautiful Bill Act (OB3) saw the return of 100% bonus depreciation and full Section 174 expensing. OB3 changed the Section 163(j) interest limitation which is again based on earnings before interest, taxes, depreciation, and amortization (EBIDTA) and is more business friendly. The passage of OB3 also accelerated the timeline for when wind and solar projects can be built or repowered in order to qualify the projects for investment and production tax credits. However, OB3 did retain the nuclear production tax credits and also created a new nuclear energy community bonus. OB3 also introduced a new tax concept meant to deter purchases of components from foreign entities of concern or what are now referred to as the FEOC rules.

What follows is a detailed discussion of recent legislative, administrative, and trade actions affecting regulated utilities and energy companies, including interim CAMT guidance, MACR methodology for clean‑energy credits, the evolving tariff environment, and business tax changes enacted in OB3 (including a discussion on the 45Z Clean Fuel Credit guidance) along with state conformity considerations. Guidance around beginning of construction and the 80/20 repowering rule are also found below. Certain sections of the Fall Report continue to be relevant and are found beginning on page 15.

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Interim CAMT Guidance–Notice 2026-7

On February 18, 2026, Treasury and the IRS issued Notice 2026‑7, providing additional interim guidance on the corporate alternative minimum tax (CAMT) and new elective AFSI (Adjusted Financial Statement Income) adjustments. The notice aims to reduce book–tax timing mismatches and mitigate unintended CAMT results pending forthcoming regulations. It is applied on a section-by-section basis for tax years before new proposed regulations, with consistency and reporting requirements for taxpayers who elect to rely on any section.

The interim CAMT guidance in Notice 2026-7 expands taxpayer-favorable guidance and is aimed at addressing the disparities between financial accounting treatment and tax treatment in a number of areas. Of note, this notice responds to some of the taxpayer concerns regarding the likelihood that some of the favorable provisions in the One Big Beautiful Bill Act (OB3), specifically the elective acceleration of the deduction of unamortized domestic research and experimental (R&E) expenditures capitalized in prior years, may result in increased CAMT liabilities in 2025 and 2026 tax years.

Deductible Tax Repairs

Tax and financial accounting rules often differ in how repair and maintenance costs for tangible property are treated. Under tax regulations (Treas. Reg. § 1.263(a)-3 and § 1.162-4), costs for repairs and maintenance are generally deductible if they do not improve, restore, or adapt the property. In contrast, U.S. GAAP typically requires these costs to be capitalized and depreciated as part of the asset, especially when they extend the asset’s useful life or are combined with capital improvements. Because section 56A does not specifically allow an AFSI adjustment for tax repairs—only for tax depreciation in lieu of book depreciation for section 168 property—taxpayers must often bifurcate book depreciation for each asset to isolate the portion related to capitalized repairs. This creates complexity and potential mismatches between tax and financial statement income.

Notice 2026-7 supersedes Notice 2025-49 and expands the applicability of its guidance to any applicable corporation.

Importantly, the adjustment requires taxpayers to disregard related book items, such as depreciation expense, impairment losses, and impairment loss reversals, associated with these repairs when determining AFSI. This means that, for CAMT purposes, depreciation recorded in financial statements for capitalized repairs is not included in AFSI, preventing double-counting and aligning CAMT liability more closely with tax deductions.

Section 481(a) adjustments are included if they affect taxable income, and AFSI must be updated for any changes in accounting methods that alter the treatment of repair costs in future years. This broader provision simplifies compliance and ensures CAMT liability more accurately reflects tax deductions for repairs across industries.

It is important to note that this new AFSI adjustment is only applicable with respect to liability AFSI (i.e., not with respect to scope AFSI), and if a taxpayer makes the adjustment for deductible tax repairs, it must continue to do so for “all subsequent tax years or until such time as prescribed by the Treasury Department and the IRS in regulations or guidance published in the Internal Revenue Bulletin.”

AFSI Adjustment for Eligible Intangibles

Notice 2026-7 allows corporations to reduce their CAMT liability by making an AFSI adjustment for tax amortization of “eligible intangibles” under section 197. Section 197 intangibles include goodwill, patents, and other similar assets acquired in business transactions. For regular tax purposes, these assets are amortized over 15 years, but under U.S. GAAP, many (i.e., goodwill and indefinite-lived intangibles) are not amortized and are only written down if impaired or upon disposition. The new guidance expands previous relief to allow all corporations—not just those with pre-October 28, 2021 acquisitions—to reduce liability AFSI by the amount of deductible tax amortization for any eligible section 197 intangible that is capitalized for book purposes but amortized for tax. This prevents double-counting or mismatches between book and tax income for these assets. The adjustment also disregards related book expenses (such as book amortization or impairment charges) and takes into account certain section 481(a) adjustments related to eligible intangibles.

Special rules apply when eligible intangibles are held through partnerships. If a partnership has basis adjustments under section 743(b) or section 734(b), these must be separately stated to CAMT entity partners, ensuring that the CAMT calculation properly reflects the partner’s share of amortization and basis recovery. CAMT entity partners must apply any corresponding modifications when determining their section 197 intangibles AFSI adjustment, in line with the partnership rules in the 2024 Proposed Regulations.

Taxpayers who elect this adjustment must apply it consistently in all subsequent years and fulfill annual reporting requirements.

Domestic R&E Expenditures

Notice 2026-7 provides relief for corporations facing increased CAMT liability due to changes in the treatment of domestic research and experimentation (R&E) expenditures. Under prior rules, domestic R&E costs paid or incurred after 2021 had to be capitalized and amortized over five years (or 15 years for foreign research). The OB3 enacted new section 174A, allowing taxpayers to deduct domestic R&E expenditures immediately or elect to amortize them over 60 months or 10 years for tax years beginning after 2024. A transition adjustment also permits accelerated amortization of previously capitalized domestic R&E costs from 2022–2024.

Financial statement rules often require immediate expensing of R&E costs, but some software development and other R&E costs may be capitalized. Previously, no adjustment existed to align CAMT calculations with the new tax treatment, resulting in higher CAMT liability for many taxpayers during transition years.

Notice 2026-7 now allows taxpayers to reduce liability AFSI for tax years beginning after December 31, 2024, by the amount of tax amortization deductions for domestic R&E expenditures capitalized under former section 174(a) between 2022 and 2024. Taxpayers may reduce AFSI by (i) ongoing amortization deductions for these costs, or (ii) the accelerated transition adjustment if elected. The adjustment also disregards related book amortization reflected in financial statements and accounts for tax accounting method changes affecting domestic R&E costs.

AFSI Adjustment for Eligible Materials and Supplies

Notice 2026-7 provides relief for CAMT entities facing mismatches in the treatment of materials and supplies. For tax purposes, items with an acquisition cost of $200 or less—such as small tools, consumables, and incidental supplies—are generally deductible when paid or incurred. However, financial accounting rules may require these costs to be capitalized and depreciated over time, resulting in higher CAMT liability.

The new guidance allows CAMT entities to reduce liability AFSI by the amount of eligible materials and supplies costs deducted for tax purposes but capitalized for book purposes. The adjustment also disregards related book depreciation and incorporates section 481(a) adjustments for these items. If a CAMT entity changes its accounting method for materials and supplies in future years, AFSI must be adjusted to reflect cumulative differences.

Key Takeaways from Notice 2026-7

Notice 2026-7, together with the 2025 Notices, introduces significant and favorable changes to the CAMT regime. Applicable corporations should thoroughly review all recent CAMT guidance and the 2024 Proposed Regulations to determine the most beneficial positions for current, prior, and future tax years. The new AFSI adjustments in Notice 2026-7 help mitigate the impact of CAMT and preserve the intended benefits of recent tax law changes, such as enhanced expensing for domestic R&E costs. Note that the changes discussed here are retroactive to the beginning of the CAMT regime, which may have significant implications to regulated utilities that have already made rate submissions prior to the issuance of this guidance.

Importantly, Treasury’s responsiveness to taxpayer comments in shaping this guidance underscores the value of continued engagement in the comment process. Taxpayers are encouraged to provide feedback on proposed CAMT regulations and notices, as Treasury continues to consider input received on earlier guidance in developing future rules.

Notice 2026-15 (MACR Guidance)

On February 12, 2026, Treasury and the IRS released Notice 2026-15. The notice provides interim guidance outlining the methodology for taxpayers to calculate the MACR with respect to Sections 45Y, 48E, and 45X. The notice is narrowly focused on the MACR methodology and generally does not address other aspects of the PFE rules, such as rules related to debt issuances or the broader application of the effective control provisions. Taxpayers may rely on the guidance for facilities or energy storage technologies (EST) whose construction begins after December 31, 2025, and for eligible components sold in taxable years beginning after July 4, 2025, pending forthcoming proposed regulations regarding material assistance.

The notice sets out two distinct, step-by-step MACR calculation processes: one for taxpayers claiming credits under Sections 45Y or 48E (i.e., for clean electricity facilities and EST), and another for taxpayers claiming credits under Section 45X (i.e., for the production of eligible components). It clarifies that taxpayers must use their direct costs (for Sections 45Y/48E) or their direct material costs (for Section 45X), as applicable, to calculate the MACR and provides safe harbors to streamline compliance. Notice 2026-15 also addresses a range of specific scenarios, including the MACR computation for qualified interconnection property, the treatment of used property under the 80/20 rule, and contract manufacturing arrangements under 45X.

Additionally, the notice clarifies the licensing provisions regarding effective control are determined independently of one another and any agreement with an SFE for the provision of intellectual property with respect to a qualified facility could trigger effective control. Furthermore, the notice signals Treasury's intent to establish anti-abuse provisions to prevent circumvention of PFE restrictions, and requests public comments on several open questions and the general rules. The notice reminds taxpayers that they must retain records to support all cost allocations, safe harbor elections, and PFE determinations.

While the specific calculation processes differ for Sections 45Y/48E and Section 45X, both follow a similar five-step methodology. First, taxpayers identify every manufactured product, manufactured product component, or constituent material, as applicable, incorporated into the facility, EST, or production process, referencing safe harbor tables where applicable. Second, taxpayers track the relevant characteristics of each item — principally whether it is PFE-produced and its associated direct costs or direct material costs — while applying de minimis rules and averaging costs in certain instances. Third, taxpayers determine applicable costs attributable to each manufactured product, manufactured product component, or constituent material distinguishing between self-produced and acquired items and using assigned cost percentages for those electing the Cost Percentage Safe Harbor. Fourth, taxpayers compute the portion of those costs attributable to PFE-produced items. Finally, the MACR is calculated by subtracting total PFE-attributable costs from overall applicable costs, and dividing by total applicable costs, the result expressed as a percentage compared against the applicable threshold for the relevant year (based on when the facility or EST began construction or when the eligible component was sold).

Tariffs

In 2025, the President relied upon multiple statutory authorities to rapidly implement new and significant tariffs, including the International Emergency Economic Powers Act (often referred to as “IEEPA,”), as well as Section 232 of the Trade Expansion Act of 1962, and Section 301 of the Trade Act of 1974. Through a series of announcements, the Administration increased tariffs on certain goods by sector, or by country of origin, at rates ranging from 10% to 125%. The President also suspended the duty-free treatment for low-value de minimis shipments ($800 or less), requiring those imports to be subject to applicable duties as well. Imports from countries that engaged in negotiations or finalized trade agreements with the United States were typically subject to effective duty rates settling around 10% - 15%, while tariffs on goods from other countries remained subject to higher rates. In total, tariff revenue grew from $88.1 billion in 2024 to approximately $216.7 billion in 2025.

Tariff volatility will continue in 2026. In February 2026, the U.S. Supreme Court ruled that the President’s use of IEEPA to impose tariffs on other countries exceeded his authority, rendering them invalid. Whether and how refunds of the IEEPA-related tariffs might occur is not yet determined. In response to the ruling, the President quickly (e.g. 301 investigations or 202 sectoral tariffs).

The current tariff landscape, driven by the Trump Administration's "America First" trade policies, presents significant challenges for US companies. Tariffs are taxes imposed on goods imported from other countries. They are most often calculated based on the value of the goods, typically using a percentage rate applied to the customs value of the imported merchandise. This customs value is usually determined using the transaction value, which is the price actually paid or payable for the goods, or through other specific methods if the transaction value is not available. For decades the US has had a modest average effective duty rate, generally around 2.5%, which has surged to approximately 13-15%, a historically high rate harkening back to the 1930’s.

Notably, in 2025 the Trump administration implemented hefty tariffs, including 50% tariff on aluminum and steel imports, 25% on automotive imports, 50% tariffs on copper imports, and country-specific tariffs through the application of retaliatory tariffs or country-level frameworks. There are also exclusions on USMCA goods, or US content in goods. These tariffs were part of broader measures under the International Emergency Economic Powers Act (IEEPA) and industry-based tariffs under Sections 232 and 301.

In February 2026, the US Supreme Court ruled 6-3 that the President cannot use IEEPA to impose tariffs. IEEPA allows the President to “regulate importation” for extraordinary threats, but that does not include the power to implement tariffs. However, the Court did not clarify the full scope of the President’s authority to regulate importation under IEEPA, and it did not address whether or how refunds of the tariffs paid might be claimed or received. Companies face not only a complex tariff environment, but complex administrative or judicial procedures related to complex tariffs. In response to the ruling, the President signaled an intention to continue his trade policy approach by announcing a new 10% global tariff, under Section 122 of the Trade Act of 1974.

To mitigate the impact of remaining or future tariffs, and to preserve rights to potential IEEPA refunds, companies should leverage data and technology to conduct detailed impact assessments and understand how tariffs affect their supply chains and operational costs. Companies are increasingly relying on digital tools and analytics to gain insights into complex tariff scenarios and develop effective forward-looking mitigation strategies. Utilizing a data and technology strategy, businesses can monitor current tariff impacts and prepare for future changes while enhancing supply chain transparency and regulatory compliance. Moreover, integrating data-driven insights with strategic tariff classification and country-of-origin planning can optimize tariff liabilities and enhance compliance. These tools help organizations integrate their trade data and technology with their overall business objectives while lowering administrative burdens, driving efficiency and competitiveness in the global market.

Engaging cross-functional teams, including trade, supply chain, and tax specialists, is crucial for mapping global supply chains and collaboratively addressing tariff challenges. Immediate cost-saving measures, such as identifying exceptions like USMCA eligibility, are recommended to achieve immediate cost savings. Companies are advised to leverage valuation appraisement methodologies such as First Sale for Export, Foreign Trade Zones, duty drawback, and customs valuation adjustments for medium-term mitigation strategies.

For long-term resilience, companies should focus on building flexible frameworks to address tariffs upstream in the planning process. Exploring innovative diversification opportunities in sourcing and production, such as supply chain reconfiguration and increasing U.S. supplier capacity, can help mitigate tariff impacts. Strategic sourcing and supplier management become essential as companies navigate these complex tariff landscapes.

Adjusting inventory levels and engaging in contract negotiations for volumes and supply routes can help manage pricing increases. Supply chain visibility and traceability are vital for regulatory compliance with tariff and non-tariff measures, such as anti-dumping duties or forced labor compliance. Companies may also want to consider which party in its supply chains bears risk if additional tariffs are assessed, or which party bears responsibility or rights to claim or keep potential refunds if litigation invalidates paid tariffs.

Overall, developing a robust tariff mitigation strategy involves leveraging data and technology, implementing short and long-term duty mitigation strategies, minimizing tariff exposure, and ensuring supply chain resiliency. This approach enhances competitive edge in the global market while ensuring compliance and minimizing costs within this ever-changing trade landscape.

Passage of OB3 – 2025

Changes to TCJA provisions

There were several important domestic business provisions in OB3, and each of these changes operates to extend certain provisions of the Tax Cuts and Jobs Act (“TCJA”).

The first is to permanently reinstate 100% bonus depreciation for qualified property placed in service starting with January 19 th, 2025, reversing the TCJA phasedown that was in effect. OB3 also created a new 100% bonus deduction for qualified production property (certain 39-year life nonresidential property) if construction begins prior to January 1 st, 2029, and is placed in service by January 1 st, 2031. (Notice 2026-11). Qualified production property is property used by the taxpayer as an integral part of a qualified production activity which requires the manufacturing, production, or refining activities to result in a substantial transformation of the property comprising a qualified product. The new 100% bonus deduction for qualified production property is meant to reinvigorate manufacturing processes in the United States and onshore such activities. Both provisions will allow businesses to significantly accelerate deductions on large capital projects, thereby reducing cash taxes that such businesses will owe.

The second large change in OB3 was to create new code Section 174A to reverse the requirement of TCJA to amortize domestic research and development expenses, so that taxpayers can again fully deduct Section 174A expenses rather than amortizing over 5 years. Any foreign research and development costs continue to be amortizable over 15 years. Taxpayers do have the option to continue amortizing research and development costs under old Section 174. Taxpayers and especially multinationals will likely need to model the effects of Section 174A with other code provisions such as corporate alternative minimum tax (CAMT), 163(j) and certain international tax provisions such as base erosion and anti-abuse tax (BEAT) and global intangible low-taxed income (GILTI) in order to minimize their tax burdens. Lastly, under Section 174A, taxpayers may choose to deduct over a one- or two-year period, research costs that had been amortized since 2022.

Another change in OB3 was to allow for expanded interest deductions by returning to the EBIDTA calculation of adjusted taxable income, rather than limiting the deduction to the earnings before interest and taxes (EBIT) under Section 163(j). This is a business-friendly provision that allows for a larger interest deduction.

Another change in OB3 impacting businesses is to create a 1% floor on charitable contributions effectively disallowing (permanent disallowance) a deduction for the first 1% of charitable contributions based on the company’s taxable income.

The major international provisions of the TCJA were permanently extended as well with some slight modifications to the rates used for the Global Intangible Low-Taxed Income (“GILTI”), Foreign Derived Intangible Income (“FDII”) and Base Erosion & Anti-abuse Tax (“BEAT”) calculations.

OB3 and Changes to Other Credits – Sec. 45U, 45Y, 45Q and 45Z

There are a couple noteworthy updates to nuclear production tax credits (“PTCs”) that can be claimed under both Section 45U and 45Y (for nuclear uprates). Importantly, there was no rollback of nuclear PTCs in OB3 as Congress reaffirmed its commitment to the nuclear industry.

The passage of OB3 created a new 10% bonus tax credit for nuclear energy tax communities. The 10% adder is part of the broader energy community incentive so now a restart or uprate that is not in an already existing energy community could instead qualify for the 10% adder by being in a nuclear energy community. The IRS is yet to define how it will determine what qualifies as an energy community, but it will likely be published when the IRS updates the annual energy community listing.

The IRS has confirmed in guidance that nuclear restarts and uprates will qualify for the 45Y PTC based on the incremental increase in energy production. There is also a lower standard for calculating the increase in output and can now be based on a reasonable method including any reports submitted to the Nuclear Regulatory Commission (“NRC”). This will help nuclear operators more easily calculate the megawatts attributable to the 45Y PTCs for restart and uprate projects.

Specific to section 45Q, the credit for carbon oxide sequestration, the OB3 increased the credit rate to $17/$85 for capturing and storing carbon oxide in enhanced oil recovery or utilizing it a commercial product or process. This credit rate pares these uses with the credit rate for capturing and storing carbon oxide in the secure geological storage.

With respect to section 45Z, the credit for clean fuel production, various changes were made. Notably, however, the OB3 provided a two-year extension of the credit for transportation fuel sold through 2029. Furthermore, on February 3, 2026, Treasury and the IRS released proposed regulations under Section 45Z, the Clean Fuel Production Credit (the “Section 45Z Proposed Regulations”), providing rules for credit eligibility, lifecycle emissions determinations, and related certification and registration requirements. A public hearing is scheduled for May 28, 2026, and comments must be received by April 6, 2026.

The Section 45Z Proposed Regulations are substantively similar to the prior draft guidance in Notice 2025-10 released in January 2025, but incorporate statutory changes made by OB3 and make targeted revisions in response to stakeholder feedback.

Among other clarifications, the Section 45Z Proposed Regulations confirm that “low-GHG conventional or alternative natural gas” (“low-GHG CANG”), which includes renewable natural gas (“RNG”), is a qualifying non-SAF transportation fuel if it is pipeline-quality compressed or liquefied gas that is interchangeable with fossil natural gas, requires only minimal processing (e.g., further compression or liquefaction) to meet ASTM D8080, and has an emissions rate not greater than 50 kg CO2e per mmBTU. Relatedly, the Section 45Z Proposed Regulations clarify that, for alternative natural gas (including RNG), the relevant “producer” is generally the person that processes untreated sources to remove impurities such that the gas is interchangeable with fossil natural gas (and not a downstream compressor performing only further compression).

In describing non-SAF fuels more generally, the Section 45Z Proposed Regulations retain ASTM references (including for low-GHG CANG) but provide that the proposed ASTM specifications are “non-exhaustive and non-exclusive” for determining whether a fuel is a transportation fuel for Section 45Z purposes, and Treasury and the IRS request comments on this approach. The Section 45Z Proposed Regulations also define “suitable for use” based on practical and commercial fitness (including blending), and confirm that actual use in a highway vehicle or aircraft is not required. For CANG specifically, the Section 45Z Proposed Regulations treat CANG as “suitable for use” once it is interchangeable with fossil natural gas and would require only minimal processing to meet ASTM D8080.

The Section 45Z Proposed Regulations also refine the qualified sale rules in response to stakeholder feedback regarding sales through intermediaries. In particular, the Section 45Z Proposed Regulations revise the “sold for use in a trade or business” concept to remove “use as a fuel” language and clarify that sales to an unrelated purchaser that subsequently resells the fuel in its trade or business can qualify. In addition, Treasury and the IRS adopt a broader “look-through” rule so that, in certain cases, a taxpayer may be treated as making a qualified sale to an unrelated person where a related intermediary ultimately sells the fuel to an unrelated person. The Section 45Z Proposed Regulations also provide a safe harbor for qualified sales on a purchaser certificate (in the form set forth in the Section 45Z Proposed Regulations).

Finally, the Section 45Z Proposed Regulations reflect the statutory rule that a “transportation fuel” does not include a fuel produced from a fuel for which a Section 45Z credit is allowable (a rule intended to prevent double crediting through fuel-as-feedstock chains). The Section 45Z Proposed Regulations also provide that, for transportation fuel produced after December 31, 2025, an emissions rate generally may not be less than zero unless the fuel is produced from an animal-manure primary feedstock.

Link to KPMG booklet – Energy sector tax provisions in “One Big Beautiful Bill”: KPMG report: Energy sector tax provisions in “One Big Beautiful Bill”

State Tax Implications of OB3

The enactment of OB3 in July 2025 once again put pressure on state legislatures to determine how new federal income tax provisions should be incorporated into the state’s tax laws. While OB3 provisions related to Section 174, Section 163(j), and Section 168(n) can generally be viewed as taxpayer favorable, these provisions put strain on state budgets and anticipated revenues. Therefore, state legislatures must balance creating a favorable business environment for its taxpayers, while also ensuring the state can generate enough revenue to fund its operations.

State Conformity to Code

States generally incorporate the Code into their own tax laws through two main methodologies, “rolling conformity” and “static conformity.” States that utilize “rolling conformity” adopt the Code as amended and do not need the state legislature to act for new provisions of the Code to be incorporated into the states’ tax laws. Conversely, states that utilize “static conformity” adopt the Code as of a specific date. Here, the state legislature must act to advance the conformity date for any new provisions of the Code to be incorporated into the state’s tax laws. It should be noted that a small number of states utilize neither rolling conformity nor static conformity but rather conform to only specific provisions of the Code or adopt changes to the Code only if certain conditions are met such as revenue impact.

State Legislative Responses to OB3

Since the enactment of OB3, several states have already provided legislative updates to how the state will conform to the latest version of the Code. A few notable examples are as follows:

• California: California enacted legislation to update its static IRC conformity date from January 1, 2015, to January 1, 2025. This change is effective for taxable years beginning on or after January 1, 2025. The new law continues decoupling treatment for IRC section 174 research and experimental expenses and section 168(k) bonus depreciation expenses. Note also, the bill specifically decouples from section 163(j) business interest expense limitation for corporate income tax purposes, but not for personal income tax or for passthrough entities. Given that California conforms to the IRC as of January 1, 2025, partnership taxpayers filing in California will need to consider the business interest expense limitation provisions of 163(j) per the Tax Cuts and Jobs Act (i.e., adjusted taxable income is determined without addback for depreciation or amortization).
• Pennsylvania: Pennsylvania enacted legislation to decouple from specific OB3 provisions including IRC sections 163(j) and 174 for corporate income tax purposes. Pennsylvania conforms to these sections as they were written on December 31, 2024. Conversely, for personal income tax purposes, Pennsylvania does not incorporate the 163(j) provisions nor the 174 limitations. Accordingly, Pennsylvania personal income tax filers are able to deduct interest expense and research and experimental expenses as they paid or accrued each year.
• Virginia: In advance of OB3’s enactment, Virginia passed legislation which paused the state’s rolling conformity to the IRC, and instead, incorporated a version of the IRC that predated OB3’s enactment. In February 2026, the Virginia legislature acted to incorporate the December 31, 2025 version of the IRC into Virginia’s tax laws. As a result, Virginia will now conform to the OB3 version of 163(j) for both corporations and partnerships. As part of that updating its conformity to the IRC, Virginia will also allow corporations (but not other taxpayers) to deduct 20% of the disallowed interest expense for tax years starting on or after January 1, 2025 (previously was 50%). Virgina decouples from specific OB3 provisions including IRC sections 168(n), 174, and 179. The above states provide evidence that taxpayers must pay close attention to the specific rules which are applicable to the taxpayer’s tax entity type – especially as additional state responses to OB3 are expected over the coming months.

State Considerations to OB3 Changes

At the state level, taxpayers should be aware of how changes to Sections 174, 163(j) and 168(n) from OB3 can impact state calculations of taxable income, even without future state legislation. Beginning with state consideration to Section 174A, in states that previously decoupled from Section 174 as contemplated by TCJA, taxpayers were not required to amortize qualifying research and development expenses. In these instances, taxpayers were able to fully deduct such expenses. Under OB3, taxpayers must pay close attention to how previously unamortized expenses are treated in the determination of federal taxable income. To the extent taxpayers elect to deduct previously unamortized domestic expenses at the federal level, this same amount would likely be subject to addback in states that decoupled from Section 174 under TCJA. This could result in unexpected tax expense at the state level.

Related to Section 163(j), OB3 reinstates a more generous definition of “adjusted taxable income” as the amount is now computed without deductions for depreciation, amortization, and depletion. States that conform to a version of the I.R.C. after the enactment date of TCJA but before the enactment date of OB3 will require a separate calculation of adjusted taxable income to compute a state specific interest expense limitation. In these states, any limitation under Section 163(j) would still be computed using EBIT, rather than the EBITDA calculation per OB3. While the difference in calculations will produce a different amount of allowable interest expense in those states that decouple from OB3 but conform to TCJA, the calculations will also produce a state only excess business interest expense amount that taxpayers will need to track for use in future periods.

Finally, related to the new bonus depreciation provisions of OB3, taxpayers should confirm how a particular state interacts with the depreciation deductions taken at the federal level. If a state statute explicitly decouples from specific federal depreciation provisions, i.e., Section 168(k), and does not instruct taxpayers to adjust for depreciation expenses taken under Section 168(n), taxpayers should consider the possibility of being able to deduct the additional expense permitted under Section 168(n).

Beginning of Construction Guidance

Background

On August 15, 2025, the IRS issued Notice 2025-42 to provide updated rules on the “beginning of construction” requirement for renewable energy projects. The Notice was released in response to Executive Order 14315, which directed Treasury to strictly enforce the statutory phaseout of clean electricity credits for wind and solar facilities. The OB3 phases out Sections 45Y and 48E for wind and solar placed in service after December 31, 2027, unless construction begins before July 5, 2026. The Notice is intended to prevent taxpayers from relying on prior, more flexible safe harbors to extend the availability of these credits beyond the statutory deadline.

Physical Work Test

Under Notice 2025-42, the Physical Work Test remains the principal method for demonstrating that construction has begun. Projects are considered under construction when physical work of a significant nature commences, whether performed on-site (such as excavation, pouring foundations, or installing racking systems) or off-site under a binding written contract for project components not held in inventory. The determination is based on the nature of the work rather than the amount of costs incurred.

Five Percent Safe Harbor

The Notice significantly restricts the availability of the Five Percent Safe Harbor Test. This safe harbor is eliminated for all wind projects and for solar facilities over 1.5 megawatts (AC). It remains available only for low-output solar facilities (no greater than 1.5 MW AC). For those projects, taxpayers may still establish beginning of construction by incurring at least five percent of total project costs. The Notice also reaffirms the long-standing limitation that if final project costs substantially exceed expectations, only a portion of the project corresponding to the initial five percent expenditure will qualify as having begun construction. This rule is particularly important for modular projects, such as wind farms or solar arrays, to prevent minimal early expenditures from qualifying a much larger project.

Continuity Requirement

The Continuity Requirement is also addressed. Taxpayers relying on the Physical Work Test must demonstrate continuous construction, while those using the 5% Safe Harbor for low-output solar must show continuous efforts. Notice 2025-42 retains the Continuity Safe Harbor, under which projects are deemed to satisfy this requirement if placed in service within four years after construction begins. Certain delays beyond a taxpayer’s control, such as weather, permitting delays, interconnection delays, continue to be considered reasonable causes for interruption.

Implications

By eliminating the 5% Safe Harbor for most wind and solar projects and requiring reliance on objective evidence of physical work, Notice 2025-42 represents a material shift from prior guidance. For developers of wind and large-scale solar facilities, the change increases the importance of carefully documenting construction activities before the July 5, 2026 deadline in order to preserve eligibility for Section 45Y and 48E credits.

Repowering Update: Navigating the 80/20 Rule and Incremental Production Rule through the IRA to the New Tech-Neutral Tax Credits Regime

Treasury and the IRS have long recognized that existing facilities may receive such significant equipment upgrades and overhauls that they should receive at least some of the production or investment tax credits a similar brand-new facility receives. Achieving new tax credits at an existing facility is often referred to for tax purposes as “repowering” the facility.

Historically, there have been two ways to achieve repowering for an existing facility: The "80/20 Rule," and the "Incremental Production Rule." However, each rule was historically limited to certain technologies. Now, both repowering rules have been made available to additional technologies as a result of certain developments this year: First, the IRA shifted to the technology-neutral production and investment tax credits regime with Section 48E and Section 45Y phasing in in lieu of Section 48 and Section 45 for facilities placed in service on or after January 1, 2025. Secondly, on January 15, 2025, Treasury and the IRS issued the Final Section 48E and Section 45Y Treasury Regulations, T.D. 10024 or REG-2025-00196 (Jan. 15, 2025) (“Final Regulations”), which provided additional applications of the two repowering rules for Section 48E and Section 45Y tax credits only. Lastly, OB3, the Executive Order, and the Notice did not impact these new repowering applications to Section 48E and Section 45Y tax credits.

The 80/20 Rule for repowering generally allows an existing facility to claim new production or investment tax credits if the cost of new equipment constitutes at least 80% of the upgraded or overhauled facility's “total value,” which for these tax purposes is equal to the sum of new equipment costs plus the fair market value of the reused equipment at the facility. Prior to the phase in of the tech-neutral regime and the Final Regulations, the 80/20 Rule was primarily used in practice for wind but was available for and occasionally used for other technologies such as solar and carbon capture (the latter for Section 45Q tax credits).

The Incremental Production Rule for repowering generally allows an existing facility to claim new production or investment tax credits if new equipment results in an increase of electricity production at the facility. Prior to the phase in of the tech-neutral regime and the Final Regulations, the Incremental Production Rule was only available for dam-based hydroelectric generation facilities. Further, the investment tax credit was only available for new equipment when the increase in production was certified by the FERC to equal or exceed a 2% increase, and the production tax credit was limited in proportion to the increase in production (for example, if the increase in production was 10%, the facility received 10% of the production tax credit that a new facility would receive on the same total production).

For Section 45Y production tax credits and Section 48E investment tax credits, the Final Regulations explicitly make available the 80/20 Rule for not only wind and solar, but also for the first time other technologies such as hydro and nuclear. Additionally, the Final Regulations make available the Incremental Production Rule not only for hydro but also for other technologies such as wind, solar, and nuclear. Lastly, although they do continue to limit the investment tax credit to new equipment only and to limit the production tax credit proportionately to the increase in production, the Final Regulations do not include the 2% production increase requirement for investment tax credits and have provided additional ways to certify and be deemed to achieve incremental production.

For 2025 and beyond, both the 80/20 Rule and Incremental Production Rule for repowering should be considered for existing wind, solar, hydro, and nuclear facilities, as the tax credits they may provide could be a valuable source of financing significant equipment upgrades and overhauls to existing facilities.

Inflation Reduction Act

As shared in the last several IRIS reports, on August 16, 2022, US President Joe Biden signed the IRA into law, which includes $369 billion in energy and climate spending. The IRA includes several new and expanded sources of government support for the development of a domestic clean energy industry and for the gradual transition to a more sustainable energy economy.

Major provisions of the IRA of interest to the energy industry include an extension and expansion of existing investment and production tax credits for renewable energy; a mechanism to sell tax credits for renewable energy; a production tax credit for existing nuclear plants; newly created hydrogen tax credits and many more incentives. The IRA also implements a new alternative income tax on corporations and creates an excise tax on corporate stock buybacks.

The following chart provides update on published guidance and links to the documents.

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| Code Provision | Guidance Issued | Date Issued | Date Effective | Link |
| --- | --- | --- | --- | --- |
| 25E and 30D EV Credit | Final Regulations | 5/6/2024 | 7/5/2024 | TD 9995 |
| 45Q Carbon Capture | Final Regulations | 1/15/2021 | 1/15/2021 | TD 9944 |
| 45V Hydrogen | Final Regulations | 1/3/2025 | 1/10/2025 | TD 10023 |
| 45X Advanced Manufacturing | Final Regulations | 10/28/2024 | 12/27/2024 | TD 10010 |
| 48- ITCs | Final Regulations | 12/4/2024 | 12/12/2024 | TD 10015 |
| 48(e) (Low-Income Community) | Final Regulations | 8/15/2023 | 10/16/2023 | TD 9979 |
| 48D | Final Regulations | 10/23/2024 | 12/23/2024 | TD 10009 |
| 45Y and 48E Tech Neutral | Final Regulations | 1/7/2025 | 1/15/2025 | TD 10024 |
| 48E(h) (Low-Income Community) | Final Regulations | 1/8/2025 | 1/13/2025 | TD 10025 |
| 6417- Credit Refundability | Final Regulations | 3/11/2024 | 5/10/2024 | TD 9988 |
| 6418- Credit Transfers | Final Regulations | 4/30/2024 | 7/1/2024 | TD 9993 |
| PWA | Final Regulations | 6/25/2024 | 8/26/2024 | TD 9998 |
| 25C | Proposed Regulations | 10/25/2024 | | REG-118264-23 |
| 30C | Proposed Regulations | 9/19/2024 | | REG-118269-23 |
| 45W | Proposed Regulations | 1/14/2025 | | REG-123525-23 |
| 25C, 25D, 48C, 45L, 179D | Notice | 11/28/2022 | | Notice 2022-48 |
| 45Q – Carbon Capture | Notice (LCA) | 7/24/2024 | | Notice 2024-60 |
| 45Z – Clean Fuels | Notice | 1/10/2025 | | Notice 2025-11 |
| Domestic Content | Notice | 1/16/2025 | | Notice 2025-08 |
| Domestic Content | Notice | 5/16/2024 | | Notice 2024-41 |
| Domestic Content | Notice | 12/28/2023 | | Notice 2024-9 |
| Energy Community | Notice | 10/22/2024 | | Notice 2024-30 |
| Energy Community | Notice | 7/7/2024 | | Notice 2024-48 |
| Energy Community | Notice | 6/15/2023 | | Notice 2023-45 |
| Energy Community | Notice | 6/15/2023 | | Notice 2023-47 |
| 45U – Nuclear | Request for Comments | 10/24/2022 | | IRB 2022-43 |

As demonstrated by the list above, the IRS and Treasury Department were very busy drafting guidance implementing the IRA credits. As expected, there were a number of regulation packages finalized around the end of the prior administration. Those include, most notably, the final regulations for the tech-neutral credits (48E/45Y) and the credit for clean hydrogen production (45V). Other regulations finalized in 2024 include prevailing wage and apprenticeship rules, transferability, direct pay, and the investment tax credit.

Although a tremendous amount of guidance was issued, stakeholders in the nuclear and clean fuel space are left with either no guidance in the case of nuclear, or very limited guidance in the case of clean fuels. Especially in the clean fuel space, the Notice issued has left industry with a lot of unanswered questions. Complicating matters is that, given the Executive Order freezing unpublished guidance, we do not expect any additional guidance to be issued on the IRA credits in the near term.

The following are summaries of certain sections from the Fall Report that continue to be relevant.

Foreign Entity of Concern

Lawmakers have become increasingly worried about the influence of China and other foreign adversaries in the supply chains for essential US products. Starting in 2021, Congress addressed these concerns by creating a new category of entities that pose national security risks to the US. Dubbed foreign entities of concern (“FEOCs”), these entities have been subject to restrictions in multiple statutes, including the Bipartisan Infrastructure Law and the Inflation Reduction Act of 2022 (the IRA).

The OB3 significantly alters the clean energy tax provisions of the Internal Revenue Code by introducing similar restrictions under a new label, prohibited foreign entities (“PFEs”). For the carbon sequestration credit (Section 45Q), the zero-emission nuclear power production credit (Section 45U), and the clean fuel production credit (Section 45Z), PFEs themselves are ineligible for the credit. For the clean electricity production credit (Section 45Y), the clean electricity investment credit (Section 48E), and the advanced manufacturing production credit (Section 45X), the rules extend further: not only are PFEs ineligible, but facilities that receive material assistance from PFEs are also disqualified.

Definitions of PFE

Because of the breadth of these rules, the definitions of “PFE” and “material assistance” are critical. A PFE is defined in the OB3 as either a specified foreign entity (“SFE”) or a foreign-influenced entity (“FIE”). SFEs include five categories carried over from earlier statutes and sanctions regimes: entities already designated as FEOCs, Chinese military companies, certain Uyghur-related sanctions entities, certain prohibited battery entities, and foreign-controlled entities associated with “covered nations” (China, Russia, Iran, or North Korea). These categories draw on pre-OB3 legislation rather than creating new classes from scratch.

FIEs and SFEs

FIEs are domestic or foreign entities determined to be under the formal or effective control of an SFE. Formal control is established under Section 7701(a)(51)(D)(i) by reference to ownership thresholds of stock and debt, as well as appointment rights. Even if an entity does not meet the formal control test, it may still be deemed under effective control if contractual arrangements or payments give an SFE (or a related entity) authority over key aspects of production or storage of electricity. The statute directs Treasury to issue guidance clarifying the scope of effective control, but in the interim the standard is understood to cover contractual rights that provide operational influence at different stages of production.

Material Assistance

The OB3 also introduces the concept of material assistance, measured through the Material Assistance Cost Ratio (“MACR”). The MACR calculates the proportion of applicable direct project costs not attributable to a PFE, which must exceed a product-specific threshold percentage. These thresholds increase over time, gradually limiting the extent to which PFEs can participate in clean-energy projects. By the end of 2026, Treasury must issue safe harbor tables to guide taxpayers through these calculations. Until then, taxpayers may rely on two sources: the interim tables provided in IRS Notice 2025-08 and supplier certifications regarding production details and costs. (Practitioners note, however, that for Section 45X manufacturing credits, further “look-through” of supplier data may be necessary.)

Tax Normalization Rules Update: Recently Issued Private Letter Rulings require use of standalone net operating loss carryforwards

While no new major new private letter rulings (“PLRs”) or other tax law developments have impacted the tax normalization rules for rate-regulated utilities in 2025, rate-regulated utilities have continued to work through the impact in 2025 of a series of three tax normalization rules PLRs that were published in late 2024.

Generally, the tax normalization rules require rate-regulated utilities to reflect in customer rates after working through ratemaking with their public utility commissions certain federal income tax incentives in certain ways or face loss of such tax incentives. Although Treasury Regulation § 1.167(i)-1(h)(l)(iii) specifically requires utility ratemaking for accelerated tax depreciation tax incentives to reflect when such tax incentive has not been fully provided to the utility if a utility has net operating loss (“NOL”) carryforwards, the impact of NOL carryforwards on ratemaking had been a frequent source of tax normalization PLRs in the past.

Despite past NOL PLRs, one difference that had remained in practice with respect to ratemaking for NOL carryforwards had been that (1) some utilities that are part of larger consolidated tax return filing groups would reduce the NOL carryforwards they used for ratemaking if other members of the consolidated group had been able to use them to save taxes, while (2) other utilities would not reduce such NOL carryforwards until the utilities themselves would be able to use them to save taxes if they were not part of the consolidated group. However, the recent series of PLRs 202426002, 202426003, and 202426004, concluded that utilities must use the latter approach for computing inclusion of NOL carryforwards in ratemaking.

These three PLRs have required utilities taking the former approach above to consider in 2025 whether their past ratemaking has violated the tax normalization rules for NOL carryforwards. Fortunately, Rev. Proc. 2017-47 and/or Rev. Proc. 2020-39 provide pathways to remediating potential tax normalization rules violations for NOL carryforwards, and many utilities have begun taking steps under these Revenue Procedures in 2025.

Corporate Alternative Minimum Tax

The IRA introduces a new 15% corporate alternative minimum tax (Corporate AMT) on the “adjusted financial statement income” (AFSI) of certain “applicable corporations” (generally corporations reporting at least $1 billion average adjusted pre-tax net income on their consolidated financial statements) for tax years beginning after December 31, 2022. The Joint Committee on Taxation (JCT) has estimated that this provision would raise approximately $222.25 billion over the 10-year budget window.

Under the new law, a company’s Corporate AMT is equal to the amount by which the tentative minimum tax (15% of AFSI reduced by AMT foreign tax credits) exceeds the company’s regular tax for the year (including any Base Erosion and Anti-Abuse Tax (BEAT) liability, but before the consideration of general business credits).

Applicable Corporation

In general, the Corporate AMT applies to an “applicable corporation”—defined as any corporation that is not an S corporation, a regulated investment company, or a real estate investment trust, that meets the “average annual adjusted financial statement income test” (Income Test) in one or more tax years ending after December 31, 2021, but prior to the tax year at issue.

In general, the Income Test would be met for a tax year if the average annual AFSI of a corporation in the three tax years ending with the tax year at issue exceeded $1 billion (subject to certain adjustments for newly formed corporations, predecessor corporations, and short tax years). Once a corporation is an applicable corporation, it remains an applicable corporation for all future years, subject to certain limited exceptions. The new law explicitly provides that financial statement net operating losses are not to be taken into account for purposes of the Income Test.

ASFI

AFSI generally starts with the net income or loss of the taxpayer as reported on its applicable financial statement with certain modifications, including an addback for certain federal and foreign taxes and the ability to use tax depreciation instead of book depreciation. An applicable financial statement includes a corporation’s Form 10-K filed with the SEC, certain audited financial statements, and certain other similar financial statements filed with a federal agency. Companies may claim a credit against regular tax in future years for Corporate AMT previously paid, but the credit cannot reduce that future year’s tax liability below the computed minimum tax for that year.

General Business Credits

The IRA amends section 38, the general business credit (GBC) to take into account the Corporate AMT. The IRA limits the availability of GBCs to $25,000 plus 75% of a taxpayer’s net income tax that exceeds $25,000. This generally follows the pre-enactment law paradigm for the ability to use GBCs. For this purpose, net income tax means the sum of regular tax liability and the AMT, reduced by credits allowed under Subpart A and B of Part IV of the Code (credits against tax). Section 901 foreign tax credits are included among the taxes allowed under Subpart B.

1% Excise Tax

The IRA introduces a new 1% excise tax on corporate stock buybacks starting January 1, 2023. Generally, any domestic corporation which is publicly traded on a national securities exchange will be subject to the new buyback excise tax. A stock buyback or repurchase is defined as a redemption of the corporation stock for cash or property (defined in section 317(b)) and any other economically similar transaction. The excise tax is calculated based on the fair market value of stock repurchased less any stock issued during the year, measured at fair market value; therefore, companies should consider the timing of both stock buybacks and issuances. The excise tax also applies to preferred shares issued in connection with publicly traded stock. A few exceptions to the new 1% excise tax include tax-free reorganizations, stock repurchases which then transfer the shares to an employee-sponsored retirement plan or similar plan, and any repurchase where the total value of such transactions does not exceed $1 million in a single tax year.

Technology neutral renewable credits 45Y and 45E

After 2024, taxpayers will be able to take advantage of the PTC under section 45Y or the ITC under Section 48E for a power facility with any technology, so long as the facility’s greenhouse gas emissions rates are at or below zero. For this purpose, the greenhouse gas emissions rate means the amount of greenhouse gases emitted into the atmosphere by a facility in the production of electricity, expressed as grams of CO2e per kWh. In the case of a facility that produces electricity through combustion or gasification, the greenhouse gas emissions rate for such facility must be equal to the net rate of greenhouse gases emitted into the atmosphere by such facility, taking into account lifecycle greenhouse gas emissions as described under the Clean Air Act. Similar rules regarding PWA requirements will be applicable.

Prevailing Wage and Apprenticeship Requirements

The IRA also introduced for the first time the concept of a “base” and “bonus” credit amount, whereby taxpayers who comply with the “prevailing wage and apprenticeship” requirements will increase their base credit by a factor of five. In order to satisfy the requirements, any laborers employed by the taxpayer or any contractor or subcontractor in the construction of a qualified facility, and with respect to any taxable year during the “relevant period,” in the alteration or repair of such facility, must be paid wages that are not less than the prevailing wages for the construction, alteration, or repair of a similar character in the location in which such facility is located as most recently determined by the Department of Labor. For this purpose, the relevant period is the 10-year PTC period (12 years for Section 45Q carbon sequestration credits) or the five-year recapture period for the ITC. In order to satisfy the apprenticeship requirements, taxpayers must ensure that (i) the applicable percentage of the total labor hours of the construction, alteration, or repair of the qualified facility is performed by qualified apprentices (15% for facilities that begin construction after January 1, 2024), (ii) certain Department of Labor (or applicable state agency) apprentice-to-journeyworker ratios are met (e.g., two journeyworkers for each apprentice), and (iii) every taxpayer, contractor, or subcontractor that employs four or more individuals to perform construction, alteration, or repair of the qualified facility employs at least one apprentice.

The PWA requirements apply to all IRA credits and are a new concept in the tax law. Given the financial import of the 5x multiplier, taxpayers have been eagerly awaiting regulatory guidance on implementing these new concepts.

Projects that begin construction on or before January 29, 2023, need not comply with the requirements to receive the full value of the tax credit subsidies. The Notice defines beginning of construction by reference to a set of earlier IRS rules that have been published over the past decade. Those rules liberally permit projects to be treated as under construction when some amount of physical work has commenced either at the project site or by a manufacturer of certain critical project components. Project owners can also incur 5% or more of the project’s cost as a means of establishing that their project is under construction for purposes of those rules (safe harbor rule).

The PWA rules largely incorporate the well-established principles of the Davis-Bacon Act. The Davis-Bacon Act was enacted by Congress in 1931 and directs the Department of Labor to determine prevailing wage rates for most contractors and subcontractors performing on federally funded or assisted contracts for the construction, alteration, or repair of public works projects. The Department of Labor has issued numerous pieces of guidance interpreting the Davis-Bacon Act, including defining concepts such as “construction, alteration or repair” and “laborer or mechanic.” Nevertheless, the Notice leaves open a number of important questions that will need to be addressed in supplemental guidance, including the definitions of a contractor and subcontractor.

Finally, on a matter of practical importance, the Notice requires a taxpayer, along with any contractors and subcontractors, to maintain books of account and records of work performed in sufficient form to establish that the taxpayer, its contractors, and subcontractors have satisfied the PWA requirements with respect to the facility.

Bonus Tax Credit Adders

In addition to the increase in the base credit amount for satisfying the PWA requirements, energy projects can receive several bonus tax credits, such as the Domestic Content Bonus Credit, Energy Communities Bonus Credit, and Low-Income Communities Bonus Credit.

Domestic Content

The Domestic Content Bonus applies to qualified facilities under Section 45 or Section 45Y, energy projects under Section 48, and qualified facilities and energy storage technologies under Section 48E. The Domestic Content Bonus provides for up to an additional 10% increase in tax credit for certain qualified facilities or energy projects (together, Applicable Projects).

To qualify for the credit, a taxpayer must certify to the Secretary of the Treasury that any steel, iron, or manufactured product that is a component of an Applicable Project was produced in the United States by meeting the domestic content requirements described below. Applicable Projects are eligible for a 2% to 10% bonus credit depending on whether the Applicable Project also satisfies (or is deemed to satisfy) the PWA requirements. Generally, to qualify for the Domestic Content Bonus, the following must be satisfied:

• For products that are primarily iron or steel and structural in function, 100% of the steel and iron must be manufactured in the United States (Steel or Iron Requirement). For manufactured products, the product must be manufactured in the United States and initially at least 40% of all applicable project components must also be manufactured in the United States.

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Chair B. Benjamin Haas, Vice Chairs include Martha Groves Pugh, and Glenn Todd. Thank you for contributions from John Crossley, Michael Evans, France Beard Johnson, Rebecca Kim, and Vivian Bridges K&L Gates; Suraj Punjabi, Christian Ehehalt and Scarlett Tucker from Constellation; and Larry Joseph, Steve Howard, Jessica Libby, Praveen Ayyagari, and Julie Chapel from KPMG.

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Endnotes

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Authors

B Benjamin Haas

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Martha Groves Pugh

Martha Groves Pugh, Counsel, McDermott Will & Emery, Washington, DC Martha Groves Pugh is counsel in the law firm of McDermott Will & Emery LLP, and is based in its Washington, D.C., office. She focuses her practice...

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B Benjamin Haas

Martha Groves Pugh

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