Direct Pay & the ITC Bonus Adders Update: Q&A

	B	C
1	A CollectiveSun Webinar
2	Direct Pay & the ITC Bonus Adders Update: What You Need to Know
3	Question Details
4	11/2/2023
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6	Question	Answer
7	Are final details finally announced by IRS?	It depends on which provision of the IRA bill we're talking about. As of 11/2/23, Treasury has provided guidance and proposed regulations for Direct Pay. For the Low-Income Communities bonus adder, Treasury has provided guidance, proposed regulations and final regulations. For the Energy Community bonus adder, Treasury has provided guidance. For the Domestic Content bonus adder, Treasury has provided guidance.
8	Can homeowners use the low income community adder directly? If not what type of organizations can?	Unfortunately, bonus adders are not available directly to residential customers under Section 25D. However 3rd party ownership models (i.e. leases) can take advantage of bonus adders and pass through savings to the host customer. CollectiveSun has launced an LMI Residential Lease, so please contact us to learn more details.
9	Do these incentives apply to commercial solar thermal for industrial processes?	It depends on which "incentives". For the Low-Income Communities bonus adder, there are multiple eligible technologies, one of which is defined in section 48(a)(3)(A)(i), which says "(i)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,"
10	For direct pay, will the IRS open a portal like for low income adder or will it be a submission with a NPO's 990 or another filing or ? Seeking knowledge about the process for the NPO.	Both. The IRS will open a pre-filing registration portal in "late 2023". In addition, nonprofits will be required to file a form 990-T, along with 3800, 3468, etc. https://collectivesun.com/direct-pay-what-you-need-to-know-webinar/
11	Here are my questions : I am worried about installing on our roof and what potential problems can occur with putting holes in a roof for solar . Also worried about money for the project actually coming through after the project is started .	These are great questions. Roofing considerations are always critical with solar projects. It is important to review the warranty provided by the solar installer and also how the installation may affect existing roofing warranties. We also strongly recommend finalizing any questions about how to pay for the solar project before starting construction!
12	Is there a quota for these applications?	The Low-Income Communities bonus adder is the only "allocated" credit, meaning that it does have a limited capacity (1.8GW/year). Please see our webinar on the Low-Income Communities bonus adder for more details on the 4 categories (and sub-categories) for the allocation. https://collectivesun.com/event/low-income-communities-bonus-adder-what-you-need-to-know/
13	Re: Domestic adder: I'm interested in why Lee never mentioned the concept that the solar EPC/installer could be considered a manufacturer, and the 'solar array itself' is the manufactured product. This how I did a 100% BA project years ago!	Your point is well taken about the layers of abstraction in allocating costs. Unfortunately, the Treasury guidance specifically disalows costs from the solar EPC/installer from being considered in the Applicable Percentage Rate calculation. From the guidance: "Direct costs, including direct labor costs, of incorporating the Applicable Project Components into the Applicable Project are not counted in the Domestic Manufactured Products and Components Cost." https://collectivesun.com/event/webinar-domestic-content-what-you-need-to-know/
14	Combining ITC and REAP. Also, structuring NP projects for direct pay and REAP. A tough one.	The underlying question here is if REAP would be considered a Restricted Tax Exempt Amount. Please check with program administrators and validate with the definition in the guidance. If it's a grant "earmarked" for solar, it likely will be tagged as a Restricted Tax Exempt Amount.
15	Do projects in a New Markets Tax Credit zone automatically qualify for the energy community bonus adder?	No. NMTC eligibility is the foundation for the Low-Income Communities bonus adder. The eligibility and qualifications for the Energy Community bonus adder is not based on NMTC.
16	How long is direct payment expected to take.	This is still unknown at this time. It also depends on when the project is placed in service relative to the tax year end (12/31, 6/30, etc). Overall, we expect this will take 6-18 months from the placed in service date. https://collectivesun.com/direct-pay-what-you-need-to-know-webinar/
17	pre-filing registration for Direct Pay	The pre-filing registration portal for Direct Pay has not yet been released. It is expected in "Late 2023".
18	Calculate MACRS/Accelerated Depreciation - Can a for profit take 100% the first year?	Bonus depreciation was 100% in 2022 and is 80% in 2023. It goes down to 60% in 2024, etc. After bonus depreciation, the remaining depreciation is accelerated under 5-year MACRS treatment (over 6 years). Keep in mind that depreciation benefits are not particularly salient for tax exempt organizations.
19	Is there a exchange setup for the transfer of Tax credits	Yes, there are several at this stage, but at this time seem to be focused on larger projects (over $10M). Please note that any entity eligible for Direct Pay is, by definition, ineligible for Transferability.
20	A comparison of the ITC and PTC would be of interest. (i.e., how would you approach it?)	Historically PTC was only available to wind projects. The IRA changed this and made PTC available to PV projects as well. Generally speaking, projects with higher solar irradience and lower $/W may see more benefit from PTC. Also keep in mind that the Low-Income Communities bonus adder is ITC only.
21	curious to learn how ITC adders apply to direct pay	These are separate concepts. The bonus adders are "stackable" and increase the base 30% ITC (assuming project is under 1MW and/or labor and wage requirements are met). Once the total ITC is determined, Direct Pay is an optional feature available to certain entities (such as nonprofits).
22	Are there NFP's that are Not elidgeable?	In the intial guidance, there was a wide definition applied (any entity not subject to subtitle A). However in the proposed regulations, this was eligibility was narrowed to just those entities that qualify under 501(a), which includes 501(c) and 501(d).
23	Interested in learning more about the direct 30% credit for nonprofit projects.	Please see our webinar on Direct Pay. https://collectivesun.com/direct-pay-what-you-need-to-know-webinar/
24	Of all of the incentives (ITC/PTC/MACRS/etc.) provided by IIJA and IRA, etc. - which incentives are NOT ELIGIBLE for Direct Pay?	There are far too many IRA provisions that are not eligible to list here. The best way to answer your question is to see this list of 13 incentives that are eligible for Direct Pay: https://www.irs.gov/pub/irs-pdf/p5817g.pdf
25	Has guidance on the 2022 IRA 10% rebate on domestic content come out and how do we figure out which components qualify	Guidance for the Domestic Content bonus adder has been released. Please see our webinar on Domestic Content: https://collectivesun.com/event/webinar-domestic-content-what-you-need-to-know/
26	If you are funding all or part of your solar project with grants earmarked for solar, your Direct Pay benefits may be reduced	Correct.
27	do you offer other forms of financing?	Yes, please contact us for details on our loans and leases for nonprofit and mission-driven organizations.
28	Can you speak to the timing of direct payments to Tax-Exempt Eligible Clients	This is still unknown at this time. It also depends on when the project is placed in service relative to the tax year end (12/31, 6/30, etc). Overall, we expect this will take 6-18 months from the placed in service date. https://collectivesun.com/direct-pay-what-you-need-to-know-webinar/
29	Are IRS forms available for tax credit transfers?	We are still awaiting the pre-filing registration portal for Transferability. Please note that any entity eligible for Direct Pay is, by definition, ineligible for Transferability.
30	Any updated guidance on energy communities yet? Domestic content? Thank you!	So far, we just have preliminary guidance available from Treasury.
31	whether federal funds covering only a portion of a project's cost result in a cost basis reduction by the amount of the fed fund	Tax basis is reduced by 50% of any ITC. Hence a 30% ITC would lower tax basis by 15%.
32	Has the treasure given final approval for a 10% tax credit for American-made solar products?	At this time, we just have preliminary guidance. We expect proposed regulations to be issued in 2024.
33	Can you provide specific policy and tax code references that we can highlight and refer back to for our CPAs.	Yes, but it depends on which provision. Please contact us for further assistance. https://collectivesun.com/contact-us/
34	When is direct pay paid out in the process?	This is still unknown at this time. It also depends on when the project is placed in service relative to the tax year end (12/31, 6/30, etc). Overall, we expect this will take 6-18 months from the placed in service date. https://collectivesun.com/direct-pay-what-you-need-to-know-webinar/
35	Do heat pumps in k-12 qualify for direct pay?	Although there are multiple incentives for energy efficiency, heat pumps, etc, these are not "Energy Generation" assets. See here for a full list of Direct Pay eligible incentives: https://www.irs.gov/pub/irs-pdf/p5817g.pdf
36	Nicole, Will the recording of this webinar be available later. I am multi-booked right now and would love to get on my COP28 call.	Of course! We will send a recap email to all registered folks with a copy of the deck, the link to the webinar, and the fully answered Q&A list.
37	Are Renewable Energy Credit payments considered “Grant” money and need to be included in the bennefit calculations? Specifically - a 15 year REC contract with REC’s payed for in the first 7 years and based on energy production not project cost.	Please refer to the definition of "Restricted Tax Exempt Amount:" A payment for RECs would appear to be related the specific purpose of constructing solar, but does not appear to be income exempt from taxation. " a grant, forgivable loan, or other income exempt from taxation under subtitle A for the specific purpose of purchasing, constructing, reconstructing, erecting, or otherwise acquiring an investment-related credit property (Restricted Tax Exempt Amount), and the Restricted Tax Exempt Amount plus the applicable credit otherwise determined with respect to that investmentrelated credit property exceeds the cost of the investment-related credit property, then the amount of the applicable credit is reduced so that the total amount of applicable credit plus the amount of any Restricted Tax Exempt Amount equals the cost of investment-related credit property."
38	How about Tax Exempt Lease Purchase agreements that have been used to borrow money to pay for the solar?	Please refer to the definition of "Restricted Tax Exempt Amount:" " a grant, forgivable loan, or other income exempt from taxation under subtitle A for the specific purpose of purchasing, constructing, reconstructing, erecting, or otherwise acquiring an investment-related credit property (Restricted Tax Exempt Amount), and the Restricted Tax Exempt Amount plus the applicable credit otherwise determined with respect to that investmentrelated credit property exceeds the cost of the investment-related credit property, then the amount of the applicable credit is reduced so that the total amount of applicable credit plus the amount of any Restricted Tax Exempt Amount equals the cost of investment-related credit property."
39	How are SGIP grants treated in the excessive benefits qualification?	Please refer to the definition of "Restricted Tax Exempt Amount:" " a grant, forgivable loan, or other income exempt from taxation under subtitle A for the specific purpose of purchasing, constructing, reconstructing, erecting, or otherwise acquiring an investment-related credit property (Restricted Tax Exempt Amount), and the Restricted Tax Exempt Amount plus the applicable credit otherwise determined with respect to that investmentrelated credit property exceeds the cost of the investment-related credit property, then the amount of the applicable credit is reduced so that the total amount of applicable credit plus the amount of any Restricted Tax Exempt Amount equals the cost of investment-related credit property." SGIP is technically a rebate, not a grant. Note that SGIP has other rules related to interplay with ITC when tax benefits are claimed.
40	What if the grant is earmarked for solar but not for a specific solar project? Or is that an unlikely scenario?	Great question. The guidance does not address this specific use case, but it is probably assumed that if it's earmarked for undesignated solar, then at such time the project is identified, it would then be considered a Restricted Tax Exempt Amount.
41	If a nonprofit gets a loan equal to the cost of the project, not a gift, then does your tax credit still get cut back? Thanks!	No. A loan is not a grant, nor is it income. However, a recoverable grant would be considered a Restricted Tax Exempt Amount.
42	Please discuss this in terms of a typical NFP filing period of June 30 FY	A nonprofit with a 6/30 year end that has a project placed in service during its fiscal year would need to complete a pre-filing registration on the (yet to be released) portal prior to its tax return filing date.
43	In your non-legal, practical opinion: Do the “Significantly started” date consideration which applies for the ITC as a basis ..also apply here for Direct Pay?	Yes. There is lots of case law for "Begining of Construction" that creates precedent.
44	For projects put in service between Jan 1 and June 30 can't these qualify for direct pay in the following tax year, or is it lost altogether?	If you have a 6/30 year end and the project is placed in service during the fiscal year (7/1-6/30), then the tax filing must be made for that fiscal year.
45	What’s MSA mean?	Great Question! It's a Metropolitan Statistical Area. See https://collectivesun.com/event/low-income-communities-bonus-adder-what-you-need-to-know/ for more details.
46	if the property qualifies for option 1 AND 2 under the additional selection criteria is that better than just qualifying for one of the options. in other words, to get bumped to the very front of the line	Yes. The final regulations do include an "order of operations" for how projects will be selected and projects which meet two Additional Selection Criteria will have priority over projects that only meet one Additional Selection criteria.
47	What is the URL that you are using to map this opportunity? Can you send the link in the chat so we can do this search in real time with you?	Low-Income Communities Bonus Adder Map Energy Community Bonus Adder Map
48	Is the Low-Income Community adder only available to For Profit entities or is it also available to Non-Profits?	It is available to both for-profit and non-profit entities. However, non-profits qualify for one of the "Additional Selection Criteria" options. See https://collectivesun.com/event/low-income-communities-bonus-adder-what-you-need-to-know/ for more details.
49	What are the likely dates for the next open application window for Low Income Communities/Housing adder? It appears that any applicaiton for this year’s allocation will likely be filled up by applications received by Nov 19, 2023. So any project without a signed contract yet, may not meet this first window.	Treasury has said that they expect the 2023 program year allocations to be made in late 2023 and into 2024. As soon as those allocations are made, it is expected that Treasury will open the 2024 program year allocations.
50	does light green mean i have a deadline of august 31st 2024?	Not necessarily. The lighter green means there is only one "card", but that "card" could be eligibility based on 2015 or 2020 data.
51	In the loan option, does Collective Sun keep the full direct pay tax credit?	With the loan option, the nonprofit is the owner of the system and claims Direct Pay, however, those proceeds are remitted to CollectiveSun when received by the nonprofit borrower. This "one-time payment" helps to significantly lower the monthly loan payment amount starting from day 1.
52	Are these incentives available for solar thermal used in industrial processes? i.e. distillation.	It depends on which "incentives". For the Low-Income Communities bonus adder, there are multiple eligible technologies, one of which is defined in section 48(a)(3)(A)(i), which says "(i)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,"
53	do you have a minimum size for a project for the loan solution? For the lease solution?	We typically like to see projects starting around $100k, but please contact us with questions about specific projects so we can help point you in the right direction if it's not a fit for us.
54	Can an EPC be considered the manufacturer of the solar system	Unfortunately, that approach would not be consistent with the Treasury guidance.
55	How do we reach you?	https://collectivesun.com/contact-us/
56	If a portion of the solar modules for a project are donated (via endowment or "grant", let's say 20% of the modules are donated that are needed for a projec) but those modules are not included as part of the total project costs (as equipment is being donated), how do the Direct Pay provisions play into this type of scenario?	This is very facts and circumstances specific and there are some additional unknown details that need to be examined. However, if the value of the donated panels is not included in the tax basis, then the Direct Pay amount will be lowered accordingly.
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