Last week, the US Department of the Treasury and Internal Revenue Service (IRS) released additional guidance on the Inflation Reduction Act’s (IRA) domestic content bonus. This initiative supports President Biden’s strategy to enhance American manufacturing and boost the clean energy economy.

The domestic content bonus applies to projects using domestically produced steel, iron, and manufactured products. To qualify, all manufacturing processes for steel and iron components must occur in the US. Additionally, a statutory minimum percentage of the costs of manufactured products and components must be sourced domestically.

Under the Production Tax Credit (PTC), facilities meeting domestic content requirements receive a 10% bonus. Projects qualifying under the Investment Tax Credit (ITC) can receive up to a 10% bonus. Eligible projects must meet domestic content and additional requirements such as maximum output limits, start dates, or compliance with prevailing wage and apprenticeship standards.

To assist taxpayers in determining whether the minimum percentage of the costs of the manufactured products and components of manufactured products are met, this notice creates a new elective safe harbor, which allows clean energy developers to use DOE-provided cost percentages instead of direct supplier cost information. This guidance also expands classifications for technologies like hydropower and clarifies rooftop solar standards.

Treasury and the IRS are considering further stakeholder input to expand guidance, including adding offshore wind and addressing solar wafer production to support the IRA’s objectives.