IRA Guidance Watch: IRS Issues Notice 2023-29, Providing Preliminary Guidance on Energy Community

On Tuesday, April 4, 2023, the IRS issued Notice 2023-29 (the “Notice”), which provides guidance on the energy community enhancement for the investment tax credit (“ITC”) and production tax credit (“PTC”). The IRS intends to include such guidance in forthcoming proposed regulations, which will apply to taxable years ending after April 4, 2023; until such guidance is issued, taxpayers may rely on the Notice.1 This guidance was subsequently updated on April 10, 2023.     


Assuming that certain labor requirements are met, the ITC is increased by 10 percentage points, and the PTC is increased by 10% of the amount of the PTC otherwise generated, if the project or facility is located in an “energy community.” Section 45(b)(11), a PTC provision which is largely incorporated by reference into the ITC (Section 48) as well as the clean energy ITC (Section 48E) and clean energy PTC (Section 45Y), identifies three categories of energy community: (1) a brownfield site as defined in the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”) (the “Brownfield Category”), (2) a metropolitan statistical area (“MSA”) or non-metropolitan statistical area (“Non-MSA”) that (i) at any time since 2010 has had at least 0.17% direct employment or 25% local tax revenues related to the extraction, processing, transport or storage of coal, oil, or natural gas; and (ii) had an unemployment rate at or above the national average unemployment rate for the previous year (the “Statistical Area Category”), and (3) a census tract in which a coal mine has closed since 2000 or a coal-fired electric generation unit has been retired since 2010, or a directly adjoining census tract thereto (the “Coal Closure Category”).

Safe Harbor for the Brownfield Category

The Notice provides a safe harbor whereby any site meeting one of three criteria will be considered to be in the Brownfield Category and thus an energy community (so long as it does not meet certain exclusions in CERCLA, e.g., a facility that is subject to government control): (1) the site was previously assessed through federal, state, territory, or federally recognized Indian tribal brownfield resources as meeting the definition of a brownfield site, (2) an ASTM E1903 Phase II Environmental Site Assessment has been completed with respect to the site in accordance with specified standard practices and such assessment confirms the presence on the site of a hazardous substance, pollutant or contaminant, and (3) for projects with a nameplate capacity of 5MW (AC) or less, an ASTM E1527 Phase I Environmental Site Assessment has been completed with respect to the site in accordance with specified standard practices.2


  • While the safe harbor for brownfield sites is very welcome, the IRS stopped short of committing to create a listing of such sites. Developers continue to search for an efficient and comprehensive method for identifying brownfield sites.
Annual List of MSAs and Non-MSAs in Statistical Area Category

It is contemplated that each May, the Treasury Department and the IRS will issue a list identifying the MSAs and non-MSAs in the Statistical Area Category. The first list will apply to the stub period beginning on January 1, 2023 and will be updated the following May. Each update will use unemployment data from the previous year. It appears that such identifications of Statistical Area Category energy communities will be based on specified employment datasets published by the Census Bureau (focusing on eight fossil fuels-related 2017 NAICS codes), unemployment datasets published by the Bureau of Labor Statistics (“BLS”), and delineations of MSAs and Non-MSAs from the 2010 Decennial Census and the BLS, respectively.3

The Notice does not provide guidance on how to determine local tax revenue related to fossil fuels. The Notice recognizes that such a determination presents “certain data challenges” and requests public comments addressing the possible data sources, revenue categories, and procedures that might be used.4


  • The Notice cites fewer NAICS codes than some taxpayers may have anticipated. For example, there is no mention of Oil and Gas Pipeline and Related Structures Construction (237120), Pipeline Transportation of Refined Petroleum Products (486910), or Other Warehousing and Storage (493190, described as “Bulk petroleum storage”).
  • The Notice does not provide a user-friendly path of recourse for inaccuracies in the listing that may unintentionally arise from miscalculations or changes in data reporting by governmental agencies. Given the wide scope of the listing, such recourse may be helpful for taxpayers.
  • A list of MSAs and Non-MSAs that meet the fossil fuel employment test is in Appendix B of the Notice and depicted on a map at
Clarifying Definitions in Coal Closure Category

The Notice provides guidance for identifying both closed mines and retired coal-fired generating units. A “closed coal mine” is defined as a surface or underground mine that has ever had for any period of time, since December 31, 1999, a mine status of “abandoned” or “abandoned and sealed” by the Department of Labor’s Mine Safety and Health Administration. A “retired coal-fired electric generating unit” must be classified as retired at any time since December 31, 2009, by the U.S. Energy Information Administration (“EIA”) in EIA Form 860 or 860M. At the time of retirement, the generating unit must be specifically characterized as a coal-fired electric generating unit on Form 860 or 860M, as applicable. Both closed coal mines and retired coal-fired electric generating units with irregular location information are excluded, but can potentially be included if such informational deficiencies are remedied.

The Notice also provides confirmation that census tracts are considered to be “directly adjoining” if their boundaries touch at any single point.


  • As drafted, the Notice gives no indication that a retired coal-fired electric generating unit falls out of the Coal Closure Category if it is subsequently converted into another type of electric generating unit, e.g., a natural gas-fired power plant. While explicit confirmation in the form of an Example would still be helpful, the recourse to EIA principles is a promising development.
  • A list of Coal Closure Category sites is in Appendix C of the Notice and depicted on a map at
Timing of Energy Community Analysis

The Notice confirms, consistent with the plain language of the statute, that the determination of whether a facility or energy project is located or “placed in service” in an energy community is determined separately for each taxable year of the 10-year credit period (in the case of the PTC) or as of the placed in service date (in the case of the ITC), as applicable. However, the Notice also effectively provides a safe harbor stating that if a taxpayer begins construction of a project on or after January 1, 2023 in a location that is an energy community as of the beginning of construction date, then the location will continue to be considered an energy community for the duration of the credit period (for the PTC) or as of the placed in service date (for the ITC). The determination of “beginning of construction” for this purpose will use the same guidance associated with the pre-IRA phasedown.


  • The guidance provided by the Notice is, for the most part, highly taxpayer favorable, as it provides much-needed comfort for PTC projects by both (1) allowing a partial adder benefit on a prospective basis if an area becomes an energy community midway through the credit period (e.g., if a coal mine in the vicinity closes down) and (2) declining to require taxpayers to rerun the unemployment test annually for the 10-year credit period. (Query whether this development may motivate more taxpayers to elect the PTC over the ITC for solar projects in areas of high fossil fuel employment or in the vicinity of coal mines or coal-fired electric generating units that are not currently energy communities.) The guidance also alleviates concerns—present even for ITC projects—that an area may decrease its unemployment rate during the construction period and thus cease to be an energy community by the time it is placed in service. However, the guidance is less favorable for those projects that began construction prior to January 1, 2023 (in many cases, with an eye towards avoiding the prevailing wage and apprenticeship requirements that generally apply for projects beginning construction on or prior to January 28, 2023).
  • In allowing taxpayers effectively to “safe harbor” a project’s energy community status, the Notice brings back from the dead the “beginning of construction” analysis that was a key aspect of the pre-IRA PTC and ITC phasedown. Taxpayers wishing to preserve this enhancement should remain vigilant of the potential pitfalls in starting construction, including ensuring that any physical work is performed under a binding written contract, properly documenting any safe harbored equipment, and planning for projects to be placed in service within four years of construction beginning.
“Location” in an Energy Community

The Notice provides that in order for a facility or energy project to be considered “located in” or “placed in service within” an energy community, either at least 50% of its nameplate capacity (the “Nameplate Capacity Test”) or at least 50% of its square footage (the “Footprint Test”) must be located or placed in service in the energy community.

For offshore projects with nameplate capacity but no energy-generating units in a census tract, the Notice provides that the Nameplate Capacity Test is applied by attributing all the nameplate capacity of the facility or energy project to the land-based power conditioning equipment that conditions energy generated by the project for transmission, distribution, or use, and that is closest to the point of interconnection.


  • The introduction of the Nameplate Capacity Test and the Footprint Test effectively foreclose the possibility (at least for onshore projects) that a project can qualify for energy community status simply by locating the substation within the energy community.
  • The Nameplate Capacity Test, if rerun after an energy project is placed in service in the context of the ITC, can potentially create problems if the nameplate capacity of the project decreases (e.g. due to a casualty event) or increases after it is placed in service. The Notice does not appear to describe what mechanism (if any) would then be used to claw back the benefits of the enhancement. (The beginning of construction safe harbor described above, as drafted, applies only to the determination of whether a location is an energy community, not to the determination of whether a project is located in an energy community.)
  • The Footprint Test does not elaborate on what is included in the “square footage” of an energy project in the context of the ITC, i.e., whether it includes roads, easements, and empty areas (presumably included in the lease and permitting) on which no equipment or constructed item resides. It is also unclear how or whether this test can apply to offshore projects.

In providing guidance on energy communities, the Notice provides much-anticipated—and in many ways taxpayer-favorable—clarity on a topic with many cloudy areas. However, several important questions remain, and one of the most enigmatic provisions—the determination of local tax revenues for purposes of identifying projects in the Statistical Area Category—remains unresolved.

1 Notice 2022-29 at § 1. 

2 Id. at § 5.

3 Id. at § 3.

4 Id. at § 3.03(4).