SECTION 2. BACKGROUND

.01 In general . Section 48 provides that the ITC for any taxable year is the energy percentage of the basis of each energy property placed in service during such taxable year. For most types of energy property, eligibility for the ITC, and in some cases the amount of the ITC for which energy property is eligible, are dependent upon meeting certain deadlines for beginning construction on the energy property and placing the energy property in service. The table below summarizes these requirements, which are set forth in more detail in section 2.03 of this notice.

Type of Energy Property Date Construction Begins Placed in Service Date ITC Amount

Solar Before 1/1/20 Before 1/1/24 30%

1/1/20 - 12/31/20 Before 1/1/24 26%

1/1/21 - 12/31/21 Before 1/1/24 22%

Before 1/1/22 On or after 1/1/24 10%

On or after 1/1/22 Any 10%

Fiber-Optic Solar Before 1/1/20 Before 1/1/24 30%

1/1/20 - 12/31/20 Before 1/1/24 26%

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Type of Energy Property Date Construction Begins Placed in Service Date ITC Amount

1/1/21 - 12/31/21 Before 1/1/24 22%

Before 1/1/22 On or after 1/1/24 0%

On or after 1/1/22 Not applicable 0%

Geothermal Any Any 10%

Qualified Fuel Cell Before 1/1/20 Before 1/1/24 30%

1/1/20 - 12/31/20 Before 1/1/24 26%

1/1/21 - 12/31/21 Before 1/1/24 22%

Before 1/1/22 On or after 1/1/24 0%

On or after 1/1/22 Not applicable 0%

Qualified Microturbine Before 1/1/22 Any 10%

On or after 1/1/22 Not applicable 0%

CHP Before 1/1/22 Any 10%

On or after 1/1/22 Not applicable 0%

Qualified Small Wind Before 1/1/20 Before 1/1/24 30%

1/1/20 - 12/31/20 Before 1/1/24 26%

1/1/21 - 12/31/21 Before 1/1/24 22%

Before 1/1/22 On or after 1/1/24 0%

On or after 1/1/22 Not applicable 0%

Geothermal Heat Pump Before 1/1/22 Any 10%

After 1/1/22 Not applicable 0%

ergy percentage is 22 percent. For any solar energy property the construction of which begins before January 1, 2022, but that is not placed in service before January 1, 2024, the energy percentage is 10 percent. The energy percentage is also 10 percent for solar energy property the construction of which begins after December 31, 2021. (2) Fiber-Optic Solar Energy Property . Section 48(a)(3)(A)(ii) provides that energy property includes equipment which uses solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight, but only with respect to property the construction of which begins before January 1, 2022.

Section 48(a)(2)(A)(i)(III) provides that the energy percentage for fiber-optic solar energy property is 30 percent. However, § 48(a)(7) overlays a phase-down of the ITC for fiber-optic solar energy property the construction of which begins after December 31, 2019. For fiber-optic solar energy property the construction of which begins after December 31, 2019, and before January 1, 2021, and which is placed in service before January 1, 2024, the energy percentage is 26 percent; and for fiber-optic solar energy property the construction of which begins after December

Section 48(d)(1) provides that in the case of any energy property with respect to which the Secretary of the Treasury (Secretary) makes a grant under § 1603 of the American Recovery and Reinvestment Tax Act of 2009 (§ 1603 Grant), no § 45 or § 48 credit can be determined with respect to such energy property for the taxable year in which such grant is made or any subsequent taxable year. Section 48(d)(2) also provides for the recapture of a § 48 credit for qualified progress expenditures made before a § 1603 grant.

.02 Energy Property . Section 48(a)(3) provides that the term “energy property” means any property (A) listed in § 48(a) (3)(A), (B) the construction, reconstruction, or erection of which is completed by the taxpayer, or which is acquired by the taxpayer if the original use of such property commences with the taxpayer, (C) with respect to which depreciation (or amortization in lieu of depreciation) is allowable, and (D) which meets the performance and quality standards (if any) which have been prescribed by the Secretary by regulations (after consultation with the Secretary of Energy), and are in effect at the time of the acquisition of the property. Notably, the term “energy property” does not include any property which

is part of a facility the production from which is allowed as a credit under § 45 for the taxable year or any prior taxable year.

.03 Types of Energy Property . (1) Solar Energy Property . Section 48(a)(3)(A)(i) provides that energy property includes equipment which uses solar energy to generate electricity, to heat or cool (or provide hot water for use in) a structure, or to provide solar process heat, excepting property used to generate energy for the purposes of heating a swimming pool.

Section 48(a)(2)(A)(i)(II) provides that the energy percentage for solar energy property the construction of which begins before January 1, 2022, and which is placed in service before January 1, 2024, is 30 percent. However, § 48(a)(6) overlays a phase-down of the ITC for solar energy property the construction of which begins after December 31, 2019. For solar energy property the construction of which begins after December 31, 2019, and before January 1, 2021, and which is placed in service before January 1, 2024, the energy percentage is 26 percent; for solar energy property the construction of which begins after December 31, 2020, and before January 1, 2022, and which is placed in service before January 1, 2024, the en

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31, 2020, and before January 1, 2022, and which is placed in service before January 1, 2024, the energy percentage is 22 percent. For fiber-optic solar energy property the construction of which begins after December 31, 2021, and for fiber-optic solar energy property the construction of which begins before January 1, 2022, but that is not placed in service before January 1, 2024, the ITC is eliminated. (3) Geothermal Property . Section 48(a) (3)(A)(iii) provides that energy property includes equipment used to produce, distribute, or use energy derived from a geothermal deposit (within the meaning of § 613(e)(2)), but only, in the case of electricity generated by geothermal power, up to (but not including) the electrical transmission stage. Section 48(a)(2)(A)(ii) provides that the energy percentage for geothermal property is 10 percent.

(4) Qualified Fuel Cell Property . Section 48(a)(3)(A)(iv) provides that energy property includes qualified fuel cell property. Section 48(c)(1) generally defines qualified fuel cell property as a fuel cell power plant, which is an integrated system comprised of a fuel cell stack assembly and associated balance of plant components that converts a fuel into electricity using electrochemical means. To qualify for the ITC, qualified fuel cell property must have a nameplate capacity of at least 0.5 kilowatt of electricity using an electrochemical process and an electricityonly generation efficiency greater than 30 percent. Section 48(c)(1)(D) provides that qualified fuel cell property does not include any property the construction of which does not begin before January 1, 2022. Section 48(a)(2)(A)(i)(I) provides that the energy percentage for qualified fuel cell property is 30 percent. However, § 48(a)(7) overlays a phase-down of the ITC for qualified fuel cell property the construction of which begins after December 31, 2019. For qualified fuel cell property the construction of which begins after December 31, 2019, and before January 1, 2021, and which is placed in service before January 1, 2024, the energy percentage is 26 percent; and for qualified fuel cell property the construction of which begins after December 31, 2020, and before January 1, 2022, and which is placed in service before January 1, 2024,

the energy percentage is 22 percent. For qualified fuel cell property the construction of which begins before January 1, 2022, but that is not placed in service before January 1, 2024, the ITC is eliminated.

(5) Qualified Microturbine Property . Section 48(a)(3)(A)(iv) also provides that energy property includes qualified microturbine property. Section 48(c)(2) generally defines qualified microturbine property as a stationary microturbine power plant, which is an integrated system comprised of a gas turbine engine, a combustor, a recuperator or regenerator, a generator or alternator, and associated balance of plant components which converts a fuel into electricity and thermal energy. Such term also includes all secondary components located between the existing infrastructure for fuel delivery and the existing infrastructure for power distribution, including equipment and controls for meeting relevant power standards, such as voltage, frequency, and power factors.

To qualify for the ITC, qualified microturbine property must have a nameplate capacity of less than 2,000 kilowatts, and an electricity-only generation efficiency of not less than 26 percent at International Standard Organization conditions. Section 48(a)(2)(A)(ii) provides that the energy percentage for qualified microturbine property is 10 percent. Under section 48(c)(2)(D), the term “qualified microturbine property” shall not include any property the construction of which does not begin before January 1, 2022. (6) Combined Heat and Power System (CHP) Property . Section 48(a)(3)(A)(v) provides that energy property includes CHP property. Section 48(c)(3) generally defines CHP property as property comprising a system that uses the same energy source for the simultaneous or sequential generation of electrical power, mechanical shaft power, or both, in combination with the generation of steam or other forms of useful thermal energy (including heating and cooling applications).

To qualify for the ITC, CHP property must produce at least 20 percent of its total useful energy in the form of thermal energy which is not used to produce electrical or mechanical power (or combination thereof), and at least 20 percent of its

total useful energy in the form of electrical or mechanical power (or combination thereof). Additionally, CHP property must have an energy efficiency percentage that exceeds 60 percent, except in the case of CHP systems that use biomass (as provided in § 48(c)(3)(D)). The construction of CHP property must begin before January 1, 2022. Section 48(a)(2)(A)(ii) provides that the energy percentage for CHP property is 10 percent, though § 48(c) (3)(B) provides a special formula for determining the ITC of CHP property with certain electrical capacity, and § 48(c)(3) (D)(ii) provides a special formula for determining the ITC of CHP systems that use biomass.

(7) Qualified Small Wind Energy Prop- erty . Section 48(a)(3)(A)(vi) provides that energy property includes qualified small wind energy property. Section 48(c)(4) defines qualified small wind energy property as property which uses a qualifying small wind turbine to generate electricity. To qualify for the ITC, a qualifying small wind turbine must have a nameplate capacity of not more than 100 kilowatts. For additional information on performance and quality standards that certain small wind energy property must meet to qualify for the ITC under § 48 see Notice 2015–4, 2015–5 I.R.B. 407, as modified by Notice 2015–51, 2015–31 I.R.B. 133. Section 48(c)(4)(C) provides that qualified small wind energy property does not include any property the construction of which does not begin before January 1, 2022. Section 48(a)(2)(A)(i)(IV) provides that the energy percentage for qualified small wind energy property is 30 percent. However, § 48(a)(7) overlays a phase-down of the ITC for qualified small wind energy property the construction of which begins after December 31, 2019. For qualified small wind energy property the construction of which begins after December 31, 2019, and before January 1, 2021, and which is placed in service before January 1, 2024, the energy percentage is 26 percent; and for qualified small wind energy property the construction of which begins after December 31, 2020, and before January 1, 2022, and which is placed in service before January 1, 2024, the energy percentage is 22 percent. For qualified small wind energy property the construc

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tion of which begins prior to January 1, 2022, but that is not placed in service before January 1, 2024, the ITC is eliminated.

(8) Geothermal Heat Pump Property . Section 48(a)(3)(A)(vii) provides that energy property includes geothermal heat pump equipment which uses the ground or ground water as a thermal energy source to heat a structure or as a thermal energy sink to cool a structure, but only with respect to property the construction of which begins before January 1, 2022. Section 48(a)(2)(A)(ii) provides that the energy percentage for geothermal heat pump property is 10 percent.