If you’re exploring the clean energy space or the U.S. manufacturing supply chain, you may have heard of the IRA domestic content requirements. These rules may look a bit complex at first, but they don’t have to be.

In this post, you will learn what domestic content requirements are and why they are important. Also, you will learn how clean energy businesses can stay compliant with the requirements without getting lost in the jargon.

Understanding What Are IRA Domestic Content Requirements?

The federal government offers domestic content bonus tax incentives to clean energy projects that use materials made in the U.S. To qualify for these extra benefits, a renewable energy project must meet certain IRA domestic content requirements. This means that a clean energy project must be built using a specific amount of steel, iron, or manufactured goods made in the U.S. Now, a domestic content bonus can be of two types.

First, it increases the Production Tax Credit by 10% for clean energy producers. Second, it increases the Investment Tax Credit for clean energy investments by 10 or 2 percentage points, depending on the project.

Now, these are the additional tax benefits you get when you ‘meet’ the domestic content requirements. The following points will help you understand how to determine whether a project has met the domestic content requirements:

• The steel and iron used in the clean energy project must be 100% produced in the United States
• The manufactured products used in the clean energy project must be at least 40% US-made initially. It can increase to 55% over time. For offshore wind projects, it starts at 20%.

This means that clean energy developers must start taking these requirements seriously if they want to claim optimum production and investment tax benefits.

Key Compliance Strategies to Meet Domestic Content Requirements

Do you want to meet the IRA domestic content requirements to make the most out of the tax benefits? If so, implement the following strategies to ensure complete compliance:

● Strong Partnerships with U.S. Manufacturers

Early in the procurement process, start building strong partnerships with U.S. manufacturers and suppliers. It helps ensure that the steel, iron, or manufactured goods that you are procuring for the project meet the U.S. origin requirements. Also, it ensures better transparency and pricing consistency, which is vital for meeting domestic content requirements without compliance issues.

● Maintain Documentation for Material Traceability

If you want bonus incentives based on domestic content, ensure that you implement a material traceability system. It must document every detail about the source and break down the cost of every component used in the project. From important bills and certifications to vendor affidavits, each document is important for proving compliance with domestic content requirements. Also, having these papers ready makes IRS audits and tax credit verification easier.

● Use the Elective Safe Harbor Guidelines

Follow the Elective Safe Harbor rules. These rules spell out standard content percentages for different projects. It makes compliance easy. For example, if the Department of Energy issues a table stating that solar panels need 40% U.S. content. Then, you can plan your purchases accordingly instead of calculating the exact costs for each panel.

● Engage Professional Help Early

It is crucial to involve tax and legal experts with knowledge of domestic content requirements right from the planning stage. These professionals have better experience and can easily interpret the evolving IRS notices. Their insights reduce the risk of misinterpretation and non-compliance, helping you meet all the domestic content requirements appropriately.

Conclusion

It was a smart move by the U.S. government to introduce the domestic content requirements for clean energy projects. It enhanced their financial viability while offering developers and investors a chance to support domestic manufacturing. The IRA domestic content requirements promote sustainability and economic growth. However, these requirements may change with time. Thus, it is important to stay updated with them. Contact an expert today and stay informed to ensure complete compliance.