Department of Treasury Issues Guidance on Section 45X Production Tax Credit

At a Glance

• The U.S. Department of Treasury, along with the Internal Revenue Service, released an updated proposed guidance on the Section 45X Production Tax Credit (PTC); the public can submit comments until February 13, 2024.
• The guidance expands the 45X PTC to a larger share of the solar industry supply chain by updating definitions of eligible solar panel components. 
• The guidance defines the amount of the credit that can be obtained by a company, including purity requirements for critical minerals. It also clarifies that companies can still obtain the 45X PTC even if they contracted with a third-party manufacturer.

The U.S. Department of the Treasury, in conjunction with the Internal Revenue Service (IRS), released updated proposed guidance on the Section 45X Production Tax Credit (PTC). The guidance addresses specific requirements around qualifying and eligible components, differentiates between primary and secondary production and further detail on the amount of tax credits for eligible components in solar panels and components containing critical minerals. The Section 45X Advanced Manufacturing PTC is a product of the Inflation Reduction Act (IRA) and is targeted to increase investments in clean energy manufacturing starting in 2023, with an eventual phase-out starting in 2030 and sunsetting at the end of 2032. 

The guidance provided updated definitions, including what constitutes a solar energy component. Specifically, electrode active materials, modules, cells, wafers and solar-grade polysilicon are eligible under the Section 45X PTC. This updated guidance expands the 45X PTC to a larger share of the solar industry supply chain, building on the Biden administration’s goals of “onshoring” a greater proportion of the industry. 

The IRS also defined the credit amount, in addition to the phase-out schedule, beginning in 2030 with full phase-out by the end of 2032: 

• 2030 – eligible entities can claim 75% of the credit value.
• 2031 – eligible entities can claim 50% of the credit value. 
• 2032 – eligible entities can claim 25% of the credit value.

At the end of 2032, the program will sunset. Like many other programs within the IRA, a 10% domestic content bonus exists, but will continue to be available to manufacturers past the 2032 sunsetting of the program. 

The proposal also offers additional guidance relating to “Related Person Election.” In prior guidance, it was unclear if manufacturers could claim the 45X PTC if they had contracted with a third-party manufacturer. The guidance released last week clarifies that manufacturers are eligible to receive the tax credit, provided the taxpaying entity meets specific recordkeeping and reporting requirements. 

The proposed guidance now enters a 60-day comment period, with interested parties having until February 13, 2024, to provide written comments to the IRS before a scheduled public hearing on February 20, 2024.