IRS modifies domestic content credit bonus safe harbor: PwC

In brief

What happened?

The IRS on January 16 released Notice 2025-8, which updates guidance in Notice 2023-38 and Notice 2024-41 on the domestic content credit bonus. The domestic content bonus may increase the credit amount for qualified facilities under Section 45 or Section 45Y, energy projects under Section 48, or qualified facilities and energy storage technologies under Section 48E (collectively, applicable projects).

Why is it relevant?

Notice 2025-8 updates and modifies the safe harbor in Notice 2024-41 for calculating a project’s domestic cost percentage and may impact the Notice 2023-38 safe harbor for classifying applicable projects as steel/iron or manufactured products. See the PwC Insights IRS provides preliminary guidance on domestic content bonus energy credit and IRS updates domestic content credit bonus guidance for a discussion of Notices 2023-38 and 2024-41.

Action to consider

Notice 2025-8 updates the data in Notice 2024-41 used to determine the assigned cost percentages for some components and a project’s domestic cost percentage. Taxpayers must exclusively apply only one safe harbor per applicable project and, thus, may wish to conduct modeling to determine which safe harbor provides a more favorable result.

In detail

Statutory background

To qualify for the domestic content bonus credit, a taxpayer must certify that any steel, iron, or manufactured product that is a component of an applicable project was produced in the United States. The bonus amount is an additional 10% of the basic credit rate or percentage. However, for the Section 48 and 48E credits, the bonus is 10% only if a taxpayer satisfies certain wage and apprenticeship requirements, and otherwise is 2%.

Steel or iron is produced in the United States only if all steel and iron manufacturing processes take place in the United States, except metallurgical processes involving refinement of steel additives. Manufactured products are treated as produced in the United States if at least an adjusted percentage of the total costs of all manufactured products are mined, produced, or manufactured in the United States. Under Sections 45, 48, and 48E, the adjusted percentage is 20% for offshore wind facilities and 40% for other applicable projects. For Section 45Y, the adjusted percentage for offshore wind facilities is 20% if construction of a project begins before 2025 and increases annually up to 55% for projects beginning construction after 2027, and ranges from 40% to 55% for other applicable projects.

Component classification

Notice 2023-38 defined “applicable project component” as any article, material, or supply (which may be iron, steel, or a manufactured product) that is directly incorporated into an applicable project. A “manufactured product component” is an article, material, or supply that is directly incorporated into a manufactured product.

Notice 2023-38 provided a safe harbor table (Table 2) that classified certain applicable project components found in certain applicable projects as steel/iron components subject to a 100% domestic content requirement or as manufactured product components for which only an adjusted percentage must be domestically produced. Notice 2024-41 modified Notice 2023-38 by changing certain terminology, expanding Table 2 to include additional applicable projects and components, and adding Table 1, which classified additional project components.

Notice 2025-8 replaces Table 1 with several tables and provides that taxpayers may treat the classifications in the new tables as being listed in Table 2 and may determine which set of classifications to use if there are inconsistencies.

Notice 2024-41 safe harbor

Notice 2023-38 provided that the adjusted percentage of an applicable project’s manufactured products produced in the United States (domestic cost percentage) is determined by dividing the direct material and labor cost of US-manufactured products and components by the direct material and labor cost of all manufactured products that are applicable project components.

Notice 2024-41 provided a new safe harbor table (Table 1) to assist taxpayers in determining the domestic cost percentages for some manufactured products and manufactured product components. Table 1 identifies three broad categories of applicable projects--solar photovoltaic systems, land-based wind projects, and battery electric storage systems—and applicable project components, manufactured products, and manufactured product components in each category. The manufactured products and components are each assigned cost percentages that are totaled for each domestically produced manufactured product or component in an applicable project to determine the domestic content percentage for the project.

Notice 2025-8 safe harbor

Notice 2025-8 provides a new safe harbor (Notice 2025-8 safe harbor) by replacing Table 1 with separate, updated tables for solar photovoltaic systems, land-based wind projects, and battery electric storage systems. Taxpayers may use the classifications and cost percentages in Table 1 or the Notice 2025-8 safe harbor to determine the domestic cost percentage for these types of applicable projects, but must use one safe harbor exclusively. A taxpayer using the Notice 2025-8 safe harbor must apply the relevant table for all classifications and assigned cost percentages that apply to the project.

Modifications to Table 1

Notice 2025-8 makes the following modifications to Table 1.

Applicable Project	Notice 2025-8 Modification
Solar photovoltaic systems	Creates separate tables for ground-mount photovoltaic systems and rooftop photovoltaic systems Updates assigned cost percentages Adds a new column with a second set of updated assigned cost percentages for each type of ground-mount and rooftop system, which may be used if a system has modules that incorporate c-Si photovoltaic cells and wafers manufactured within the United States Renames certain components and revises some definitions
Land-based wind projects	Renames certain components
Battery energy storage systems	Updates assigned cost percentages Renames certain components Recharacterizes certain manufactured product components under different applicable components Moves the cost value for “electrical parts and thermal management system for inverter”

Calculating the domestic content percentage

A taxpayer determines the domestic content percentage for an applicable project by totaling the cost percentages for each listed US-manufactured product and manufactured product component. An additional percentage is provided as “production” if all components of a manufactured product are domestically produced.

Any manufactured product or component that is not part of the project has a zero value. Any product or component not listed is disregarded. Only the new components in a retrofitted facility project are considered in calculating the domestic cost percentage. Used components are treated as foreign-sourced.

Like Notice 2024-41, Notice 2025-8 provides formulas to allow a taxpayer that procures the same manufactured product or component from both foreign and domestic sources for a particular applicable project to determine a single cost percentage for each type of mixed-source item.

A taxpayer that uses the Notice 2025-8 safe harbor for a project must treat all included products and components as an exclusive and exhaustive list of steel/iron products, manufactured products, and manufactured product components in an applicable project. A taxpayer may use Table 1 when a project does not include every item described in a Notice 2025-8 table or includes items not identified in a table, if the taxpayer follows the Notice 2025-8 procedures for computing the domestic content percentage.

Reliance

Notice 2025-8 provides that taxpayers may rely on (1) Sections 3 through 6 of Notice 2023-38 and the Notice 2024-41 modifications to Table 2 for applicable projects that begin construction within 90 days of publication of domestic content proposed regulations in the Federal Register, (2) Notice 2024-41 in its entirety, as modified by Notice 2025-8, for applicable projects that begin construction by April 16, 2025, and (3) Notice 2025-8 for applicable projects that begin construction within 90 days of modification, update, or withdrawal of the Notice 2025-8 safe harbor.

Certification

A taxpayer that wishes to rely on the Notice 2025-8 safe harbor must affirmatively elect the safe harbor in the certification statement described in Notice 2023-38 and required to be submitted to the IRS.