SECTION 2. BACKGROUND

.01 Energy Efficient Home Improve- ment Credit Generally .

(1) Section 25C was originally enacted by § 1333(a) of the Energy Policy Act of 2005, Public Law 109-58, 119 Stat. 594, 1026 (August 8, 2005), to provide the nonbusiness energy property credit for the purchase and installation of certain energy efficient improvements in taxpayers’ principal residences. Section 25C has been amended several times, most recently by § 13301 of the IRA, which renamed this provision the “energy efficient home improvement credit” (§ 25C credit).

(2) Before the enactment of the IRA, § 25C had expired on December 31, 2021. Section 13301(a) of the IRA amended § 25C(g) to make the § 25C credit available from January 1, 2022, through December 31, 2032.

(3) Section 13301(b) of the IRA amended § 25C(a) to allow a credit for 30 percent of amounts paid or incurred by individual taxpayers during the tax

1 Unless otherwise specified, all “section” or “§” references are to sections of the Code.

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able year for qualified energy efficiency improvements and residential energy property expenditures. As amended by § 13301(c) of the IRA, the § 25C credit is generally limited to an annual cap of $1,200. Within this $1,200 limitation, § 25C(b) sets forth further annual caps for certain categories of improvements. As relevant to this notice, the caps and categories of improvements under these limitations are as follows:

(A) $600 for any item of qualified en­ergy property, as defined in § 25C(d)(2);

(B) $600 for exterior windows and skylights;

(C) $250 for any single exterior door; and

(D) $500 in the aggregate for all exterior doors.

(4) Notwithstanding the $1,200 annual limitation (and its internal limitations), amounts paid or incurred for heat pumps, heat pump water heaters, biomass stoves, and biomass boilers are allowed a separate and aggregate annual credit of up to $2,000.

(5) Section 13301(i) of the IRA provides the effective dates for the IRA amendments to § 25C. In general, except as provided in § 13301(i)(2) and (3), the IRA amendments apply to property placed in service after December 31, 2022. Section 13301(i)(2) of the IRA provides that amendments made by § 13301(a) of the IRA relating to the extension of the credit apply to property placed in service after December 31, 2021. Section 13301(i) (3) of the IRA provides that amendments made by § 13301(g) of the IRA relating to the PIN requirement apply to property placed in service after December 31, 2024.

.02 PIN Requirement for Specified Property .

(1) Section 13301(g) of the IRA adds new § 25C(h), which imposes the PIN requirement. Section 25C(h)(1) provides that no § 25C credit is allowed for any item of specified property placed in service after December 31, 2024, unless- (A) such item is produced by a qualified manufacturer, and

(B) the taxpayer includes the qualified PIN of such item on the return of tax for the taxable year.

(2) Section 25C(h)(2) defines “qualified product identification number” as, with respect to any item of specified

property, the product identification number assigned to such item by the qualified manufacturer pursuant to the methodology referred to in § 25C(h)(3).

(3) Section 25C(h)(3) defines “qualified manufacturer” as any manufacturer of specified property that enters into an agreement with the Secretary of the Treasury or her delegate (Secretary) that provides that such manufacturer will- (A) assign a PIN to each item of spec- ified property produced by such manufacturer utilizing a methodology that will ensure that such number (including any alphanumeric) is unique to each such item (by utilizing numbers or letters that are unique to such manufacturer or by such other method as the Secretary may provide),

(B) label such item with such number in such manner as the Secretary may provide, and

(C) make periodic written reports to the Secretary (at such times and in such manner as the Secretary may provide) of the PINs so assigned and including such information as the Secretary may require with respect to the item of specified property to which such number was so assigned.

(4) Section 25C(h)(4) defines “specified property” as any “qualified energy property” and any property described in § 25C(c)(3)(B) or (C) (exterior windows, including skylights, and exterior doors).

(5) Section 25C(d)(2) defines “qualified energy property” as:

(A) Any of the following that meets or exceeds the highest efficiency tier (not including any advanced tier) established by the Consortium for Energy Efficiency that is in effect as of the beginning of the calendar year in which the property is placed in service:

(i) an electric or natural gas heat pump water heater,

(ii) an electric or natural gas heat pump, (iii) a central air conditioner, (iv) a natural gas, propane, or oil water heater, or

(v) a natural gas, propane, or oil furnace or hot water boiler;

(B) A biomass stove or boiler that (i) uses the burning of biomass fuel to heat a dwelling unit located in the United States and used as a residence by the taxpayer, or to heat water for use in such a dwelling unit, and

(ii) has a thermal efficiency rating of at least 75 percent (measured by the higher heating value of the fuel);

(C) Any oil furnace or hot water boiler that- (i) is placed in service after December 31, 2022, and before January 1, 2027, meets or exceeds 2021 Energy Star efficiency criteria, and is rated by the manufacturer for use with fuel blends at least 20 percent of the volume of which consists of an eligible fuel, as defined in § 25C(d)(3) (eligible fuel), or

(ii) is placed in service after December 31, 2026, achieves an annual fuel utilization efficiency rate of not less than 90, and is rated by the manufacturer for use with fuel blends at least 50 percent of the volume of which consists of an eligible fuel ; and

(D) Any improvement to, or replacement of, a panelboard, sub-panelboard, branch circuits, or feeders that

(i) is installed in a manner consistent with the National Electric Code,

(ii) has a load capacity of not less than 200 amps, (iii) is installed in conjunction with (I) any qualified energy efficiency improvements, or

(II) any qualified energy property described in § 25C(d)(2)(A) through (C) for which a §25C credit is allowed for expenditures with respect to such property, and

(iv) enables the installation and use of any qualified energy efficiency improvements or any qualified energy property described in § 25C(d)(2)(A) through (C)).

(6) Property described in § 25C(c)(3) (B) or (C) includes:

(A) exterior windows, including skylights, and

(B) exterior doors. .03 Math Error Authority Section 6213(b)(1) authorizes the IRS to make certain assessments of mathematical or clerical errors without first issuing a notice of deficiency under section 6213(a). In lieu of a notice of deficiency giving the taxpayer 90 days to file a petition in the Tax Court, section 6213(b)(1) requires the IRS to provide the taxpayer notice that an assessment has been or will be made based on a mathematical or clerical error. Section 6213(b)(2)(A) provides that the taxpayer has 60 days to request an

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abatement of such assessment. If the taxpayer timely requests abatement, then the IRS must abate the assessment.

Section 13301(g)(2) of the IRA amended § 6213(g)(2) to expand the definition of a “mathematical or clerical error,” over which the IRS has math error authority, to include an “an omission of a correct product identification number required under section 25C(h) (relating to credit for nonbusiness energy property) to be included on a return.” Accordingly, the IRS will not issue a claimed credit if it appears that there is a PIN error.

.04 Notice 2022-48 and Comments Received

(1) In Notice 2022-48, 2022-43 I.R.B. 305, the Treasury Department and the IRS requested comments on various questions arising from the IRA’s energy efficiency provisions, including §§ 25C, 25D, 45L and 179D.

(2) Specific to § 25C(h), Notice 202248 requested comments on what the Treasury Department and the IRS should consider (1) in determining the manner of agreements between the IRS and a qualified manufacturer, (2) in developing a methodology to ensure that each PIN is unique to each item of specified property, (3) in prescribing the manner by which specified property must be labeled with a unique PIN, and (4) in developing the requirements for qualified manufacturers’ periodic written reports.

(3) In response, some commenters suggested the use of existing numbering systems to satisfy the PIN requirement. For example, commenters suggested using product serial numbers or stock-keeping unit numbers (SKUs) to satisfy the PIN requirement. Generally, manufacturers routinely assign serial numbers to specific items, which achieves the specificity suggested by the statutory text. The Treasury Department and the IRS, however, are concerned that the systems that manufacturers employ to assign serial numbers are not uniform by product or manufacturer. For example, a manufacturer of a particular product may use an 8-digit serial number consisting of numbers for each item of product line while a different manufacturer of a similar product may use a 14-digit serial number consisting of both numbers and letters. Additionally, some manufacturers change their serial num

bers for products over time. For example, a manufacturer may use a 9-digit serial number consisting partly of letters for certain years and an 8-digit serial number consisting only of numbers for other years. Similarly, SKUs are specific to each merchant or manufacturer. This lack of uniformity in serial numbers and SKUs would create processing challenges for the IRS and could also cause confusion for consumers claiming the § 25C credit. Additionally, certain categories of products, like exterior windows, doors, and skylights, do not currently have unique serial numbers for each window, door, or skylight manufactured but instead are assigned numbers that identify multiple windows, doors, or skylights as belonging to a specific product line of such items.

(4) Other commenters suggested using product line numbers or universal product codes (UPCs) to satisfy the PIN requirement. Regarding product line numbers, some commenters pointed to the National Fenestration Rating Council’s (NFRC) Certified Product Directory for exterior windows, doors, and skylights. However, because the NFRC system assigns the same product line number to multiple (or all) items in a specific product line, these numbers will not provide the specificity needed to satisfy the requirement of § 25C(h), which ensures that duplicate or fraudulent claims for the § 25C credit are not made for the same item. UPCs are a multi-digit code assigned to products by manufacturers. Manufacturers and others employ UPCs for tracking and selling inventory. Like the NFRC numbers, however, UPCs are generally assigned per product type, and not per specific item. Therefore, while UPCs can vary based on product differences, they also do not satisfy the specificity requirement of § 25C(h).

(5) To permit the IRS to adhere to and to sufficiently enforce the statutory PIN requirement, to use its math error authority in § 6213(g)(2), and to provide certainty to consumers who want to claim the § 25C credit, the Treasury Department and the IRS have determined that it is necessary to develop a system that assigns PINs to each unique item of specified property. The Treasury Department and the IRS seek to balance the administrative benefits and taxpayer clarity provided by a unique

PIN system against the burden that this requirement would impose on manufacturers and retailers.