New IRS Guidance on Domestic Content Bonus Credit

The U.S. Department of the Treasury and the Internal Revenue Service have issued Notice 2025-08 (the “First Updated Elective Safe Harbor”), offering new guidance on the bonus credit for projects using domestically produced property, known as the “DC Adder,” and modifying the safe harbor provided in Notice 2024-41 (the “New Elective Safe Harbor”).

Background

The Inflation Reduction Act introduced the DC Adder, available for credits under Sections 45, 45Y, 48 and 48E of the Internal Revenue Code (the “Code”). The Domestic Content Bonus Credit requires all iron, steel and manufactured products to be produced in the United States (“Domestic Content Requirement”).

Notice 2023-38 outlined the two requirements to satisfy the Domestic Content Requirement:

1. Steel or Iron Requirement: All manufacturing processes with respect to steel or iron items in an Applicable Project (except metallurgical processes involving refinement of steel additives) must take place in the United States (“Steel or Iron Requirement”).
2. Manufactured Products Requirement: The “applicable percentage” of a project’s manufactured products must be produced in the U.S. (“Manufactured Products Requirement”). The applicable percentage is calculated based on the actual costs of the domestic and non-domestic components comprising the energy system. The domestic cost percentage is calculated by comparing the domestic costs to the total costs. If the domestic cost percentage meets or exceeds the applicable percentage, the project qualifies for the DC Adder. Notice 2023-38 also provides a safe harbor for the classification of specific components (“Applicable Project Components”) as either manufactured products (“Manufactured Products”) or components thereof (“Manufactured Product Components”) subject to the Manufactured Products Requirement, as well as steel or iron subject to the Steel or Iron Requirement.

Notice 2024-41 created the New Elective Safe Harbor for solar, wind and BESS projects, providing a table (“Table 1”) with assigned cost percentages to determine the domestic cost percentage for these types of projects to reduce the burden of determining actual costs from individual suppliers.

First Updated Elective Safe Harbor

Notice 2025-08 updates Table 1 as follows:

• Solar PV:
  • The Solar PV table is split into two tables: One for PV ground-mount (tracking and fixed) and one for PV rooftop (MLPE and string). New columns are added to each category for PV systems containing crystalline silicon photovoltaic cells and wafers, which have a higher domestic cost percentage than non- crystalline silicon photovoltaic cells and wafers.
  • Several Applicable Project Components and Manufactured Product Components are renamed or recategorized to more accurately represent their function and commercial use, and to clarify that non-rebar steel or iron is subject to the Steel or Iron Requirement.
  • The domestic cost percentages for the Manufactured Product Components are also revised. Of particular note, the domestic cost percentage for solar PV rooftop inverters has decreased.
• Land-Based Wind:
  • The Land-Based Wind table is modified to rename two line items:
    • The Applicable Project Component “Steel or iron rebar in foundation” is now “Steel or iron reinforcing products in foundation.”
    • The Manufactured Product Component “Material” within the Wind Tower Flanges is now “Preform.”
  • These revisions are intended to more accurately represent the function and commercial usage of the components and clarify that non-rebar steel or iron is subject to the Steel or Iron Requirement.
• BESS:
  • Several Applicable Project Components and Manufactured Product Components are renamed or recategorized to more accurately represent their function and commercial use, clarify that non-rebar steel or iron is subject to the Steel or Iron Requirement, and offer greater flexibility in the variety of components that may be used (e.g., “Inverter” is now “Inverter/Converter”).

In addition to the updated domestic cost percentages and categorization in Table 1, Notice 2025-08 provides definitions for Applicable Project Components and Manufactured Product Components as well as updated representative project examples.

• Orrick observation: Overall, the revised domestic cost percentages in the First Updated Elective Safe Harbor are not substantially different from Table 1. However, projects expecting to qualify based on solar PV rooftop inverters should pay close attention to the new domestic cost percentages for that Applicable Project Component.

80/20 Rule

Finally, Notice 2025-08 clarifies that projects seeking the DC Adder for retrofitted projects under the 80/20 Rule in Section 45, 45Y, 48 or 48E of the Code can rely on the classifications and cost percentages in Table 1 or the First Updated Elective Safe Harbor for new property added, subject to other requirements. When assessing compliance with the Steel or Iron Requirement, only the new property is considered to determine if the retrofitted project meets the criteria. For purposes of the Manufactured Products Requirement, all used property is assigned a domestic cost percentage of zero.

• Orrick observation: Depending on the specific components being replaced in a retrofitted project, it may be difficult to meet the Manufactured Products Requirement. For example, in a retrofitted land-based wind project, aside from the Nacelle, no other new Manufactured Product Component would meet the required domestic cost percentage on its own.

Applicability

The effective date of Notice 2025-08 is January 16, 2025. Taxpayers may continue to rely on Table 1 in Notice 2024-41 for projects beginning construction within 90 days of this date. For projects beginning on or after the effective date, taxpayers may rely on the First Updated Elective Safe Harbor. If a taxpayer has the ability to choose, the taxpayer must exclusively rely on the respective guidance and domestic cost percentages.

What’s Next

Although Notice 2025-08 is effective as of January 16, 2025, it is subject to the Congressional Review Act, which allows Congress to overturn administrative guidance through a joint resolution within a certain window of time after publication, subject to presidential approval. In addition, President Trump’s regulatory freeze executive order raises questions about implementation. We will continue to monitor and provide updates.

Want to know more? Reach out to a member of our Renewables Tax team.