IRS releases guidance on PIN requirement for energy efficiency home improvement credit

by | Jan 31, 2024

ARTICLE | January 31, 2024

Executive summary

Notice 2024-13 (Notice) announces that the Department of Treasury (Treasury) and the Internal Revenue Service (IRS) intend to propose regulations to implement the product identification number (PIN) requirement with respect to the energy efficiency home improvement credit under section 25C. The Notice requests comments on the PIN assignment system described in it and the potential provision of PIN information to consumers and the IRS. Comments received will help develop the proposed regulations. Comments must be submitted by Feb. 27, 2024.

IRS releases guidance on PIN requirement for energy efficiency home improvement credit

The Inflation Reduction Act of 2022 (IRA) amended the existing credit for energy efficient home improvements under section 25C. In general, the credit is equal to 30% of the aggregate amounts paid for qualifying expenditures. The IRA amended the credit to allow for an increase of up to $1,200 annually for qualifying property placed in service on or after Jan. 1, 2023, and before Jan. 1, 2033. See RSM US LLP’s prior alert on section 25C eligibility and credit calculations IRS releases fact sheet regarding residential energy credits (rsmus.com).

The Product Identification Number (PIN) Requirement and requirements for “Qualified Manufacturer”

The IRA added the PIN requirement under section 25C(h). It provides that for property placed in service after Dec. 31, 2024, no credit is allowed under section 25C for an item of specified property unless:

  • The item is produced by a “qualified manufacturer”; and
  • The taxpayer includes the PIN of the item on its tax return for the taxable year.

A manufacturer of specified property will be a “qualified manufacturer” if it enters into an agreement with the Secretary of Treasury (Secretary) confirming it will:

  • Assign a PIN to each item of specified property it produces;
  • Utilize a methodology that will ensure that the PIN assigned is unique to each item;
  • Label the item with the PIN in any manner that the Secretary requires; and
  • Makes periodic written reports to the Secretary of the PINs assigned and any additional information the Secretary requires.

“Specified Property” includes exterior windows (including skylights) and exterior doors. It also includes “qualified energy property” that is defined under section 25C(d)(2). Provided certain statutory requirements are met, this could include:

  • Electric or natural gas heat pump water heater
  • Electric or natural gas heat pump
  • Central air conditioner
  • Natural gas, propane or oil water heater
  • Natural gas, propane or oil furnace or hot water boiler
  • Biomass stove or boiler
  • Oil furnace or hot water boiler

Notice 2022-48

Treasury and the IRS previously issued Notice 2022-48 that requested comments on the “qualified manufacturer” requirements. See RSM US LLP’s prior alert on Notice 2022-48 IRS issues notices to request comments on energy-related incentives (rsmus.com). In reviewing the comments, Treasury and the IRS are concerned that the systems and methodologies suggested to assign serial numbers will result in lack of uniformity, creating processing challenges for the IRS and confusion for consumers claiming the section 25C credit.  In response, Treasury and the IRS have determined it is necessary to develop a system that assigns PINs to each unique item of specified property.

PIN assignment system

Section 4 of the Notice describes a potential PIN assignment system. As envisioned, this PIN assignment system would use 17-digit PINs assigned to each item of specified property that qualify for the section 25C credit. The PIN for each item of specified property would include:

  • a QM Number unique to the qualified manufacturer that would be issued to the qualified manufacturer upon their registration with the IRS;
  • a Product Number unique to the specified property product line that would be issued to the qualified manufacturer;
  • Year of manufacture; and
  • a Item Number that is unique to each item of specified property and is assigned by the qualified manufacturer in a methodology they determine.

The qualified manufacturer would have annual compliance, reporting and recordkeeping requirements. It would be required to stamp or label its products with their PINs. It may also be required to furnish the PINs to each consumer for the consumer to report on their tax returns when the section 25C credit is claimed.

Treasury and IRS are requesting comments that will assist in developing this system.

Washington National Tax takeaways

The potential PIN assignment system is complex. The annual compliance, reporting and recordkeeping requirements for manufacturers could create significant administrative burdens. Interested parties should consider submitting comments to the IRS regarding the practical application of the PIN assignment system. Consumers planning to claim the energy efficient home improvement credit should consult their tax advisors regarding the information necessary to claim the credit.

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This article was written by Deborah Gordon, Sara Hutton, Brent Sabot, Leo Rich and originally appeared on 2024-01-31. Reprinted with permission from RSM US LLP.
© 2024 RSM US LLP. All rights reserved. https://rsmus.com/insights/tax-alerts/2024/irs-releases-guidance-pin-requirement-energy-efficiency-home-improvement-credit.html

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The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

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