Impact of Section 6417: IRA Domestic Content Requirements

calendar iconNovember 2, 2023

What Is Section 6417?

2023 has been an exciting year for clean energy investments as more guidance has been issued surrounding the Inflation Reduction Act (IRA). One of the most anticipated new provisions of the IRA is Internal Revenue Code Section 6417, known as the elective pay regime. This allows non-profits and certain governmental entities to receive credits in the form of cash payment rather than as nonrefundable credits. The amount of a credit eligible for elective pay for a project placed in 2024 or later may be limited to an amount less than the entire tax credit. This is unlike for projects placed in service in 2023. However, utilization of domestic content in the project may still allow for the entire credit to be monetized as a cash payment.

Domestic Content Bonus Tax Credit

For tax-exempt entities looking to take advantage of elective pay provisions, the impact of the new domestic content requirements should be considered.  Projects eligible for both the investment tax credit (ITC) and production tax credit (PTC) are entitled to a base tax credit rate. To qualify for the full base tax credit rate (30% ITC or a $0.0275/kWh PTC (2023 value)), the projects must satisfy prevailing wage and apprenticeship criteria. Projects may then earn bonus tax credits by fulfilling additional domestic content eligibility requirements.

If the project meets the ITC and PTC wage, apprenticeship and the domestic content requirements, the project is eligible for the full 10% bonus tax credit. If the ITC and PTC, wage and apprenticeship requirements are not met, the value of the domestic content bonus tax credit diminishes significantly. Dropping from 10% to around 2% in the case of ITC.

Two important criteria held define domestic content:

  • The project must use 100% domestic steel and iron for structural construction materials. For structural iron and steel, each item must be 100% manufactured in the U.S.


  • Projects that begin construction before 2025 must use at least 40% domestically manufactured products. This 40% domestic content requirement increases five percentage points annually for projects that begin in 2025, 2026, and 2027, capping out at 55%.

For a new energy credit-eligible construction beginning in 2024 on which a non-profit or municipality wishes to claim elective pay, satisfaction of the domestic content rules will be required for the full credit to be eligible for direct payment.

Elective Pay Phase Out

For construction subject to these new rules, the energy tax credit amount eligible for elective pay will be phased out, starting with a 90% limitation in 2024. Meaning that only 90% of the credit could be received in the form of a cash payment. Section 6417 provides a very important exception to this phase out requirement and allows for 100% of the credit to be eligible for direct pay if:

  • The inclusion of steel, iron or manufactured components and products which are produced in the U.S. increases the overall costs of construction of qualified facilities by more than 20%.


  • The relevant steel, iron or manufactured products are not produced in the U.S. in sufficient and reasonably available quantities or of a satisfactory quality.

The Internal Revenue Service (IRS) has provided guidelines on when a project has been determined to start construction. There is still time to meet the safe harbor and other tests for beginning of construction determinations in 2023 to avoid having the new domestic content requirements apply.

Anticipated IRS and Treasury Guidance

Taxpayers are still anticipating more Department of Treasury (Treasury) and IRS guidance as to how waivers will be issued for this exception to the phase-out limitation and what the process might be. It is possible that the Treasury will issue categorical waivers for certain materials and components it has pre-emptively deemed eligible for exemption. Alternatively, the IRS may provide another application process for the waivers, but it is always valuable to begin preparing for these changes the better.

Your Guide Forward

Cherry Bekaert’s Energy Tax Credits & Incentives team are working closely to monitor the continued rollout of IRA notices and regulations and look forward to serving as your guide.

Related Guidance

Sustainable Manufacturing: Harnessing Energy Tax Credits
Capitalizing on Elective Pay and Transferability of Tax Credits Under the Inflation Reduction Act
IRA Domestic Content Bonus Credit: How To Maximize Your Energy Tax Credits
How Real Estate and Construction Companies Can Take Advantage of the Expanded Section 45L Tax Credit
Understanding the Inflation Reduction Act and Other Energy Incentives
A Comprehensive Overview of Energy Tax Credits Under the Inflation Reduction Act of 2022

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