Overview
The Internal Revenue Service (IRS) has released its annual update to the list of energy communities eligible for the energy community bonus tax credit. Released as Notice 2025-31, the guidance updates:
- The list of metropolitan and non-metropolitan statistical areas that qualify as energy communities because of high unemployment and historical fossil fuel employment (Statistical Area Category).
- The list of census tracts that qualify because of the closure of coal mines or coal power plants (Coal Closure Category).
The notice also expands eligibility under the Statistical Area Category. Prior lists determined qualification using statistical areas from the 2010 census. The notice adds a parallel analysis using the revised statistical areas from the 2020 census. Projects located in counties that shifted statistical areas between the two census years may qualify for the energy community bonus if either statistical area meets the applicable criteria.
The notice does not provide new information regarding the brownfield energy community category.
The notice is immediately effective for the Statistical Area Category, with the new list of qualifying statistical areas effective from June 23, 2025, until the release of the next annual update. For the Coal Closure Category, the notice has a partially retroactive effect, with some added census tracts potentially qualifying projects placed in service in 2023 or later.
In Depth
Statistical Area Category
To qualify under the Statistical Area Category, a project must be located in a metropolitan or non-metropolitan statistical area that (1) has, at any time after 2009, had either at least 25% of local tax revenues related to certain fossil fuel activities (Fossil Fuel Tax Revenue) or at least 0.17% of local employment related to those activities (Fossil Fuel Employment) and (2) had an unemployment rate in the prior year equal or greater to the national average.
The IRS previously noted challenges in calculating which statistical areas meet the Fossil Fuel Tax Revenue threshold. The IRS has not issued a list of such areas, nor does the notice provide further guidance on this point.
However, the notice provides an updated list of counties that fall within statistical areas that meet the Fossil Fuel Employment threshold. For the first time, this list is calculated using statistical areas “generally based on” the 2020 census, in addition to the previously used 2010-based areas.
The notice further provides an updated list of counties that qualify as energy communities because they meet the Fossil Fuel Employment threshold and had above-average unemployment in 2024. This list calculates energy community status based on both the 2020 and 2010 statistical areas, listing counties that satisfy the requirements under either. The notice identifies approximately two dozen counties that qualify using the 2020-based areas that would not have qualified under the 2010 areas alone.
The notice’s list of energy communities for the Statistical Area Category is effective from June 23, 2025, until the release of next year’s annual update.
Coal Closure Category
The notice provides two lists of census tracts relevant to the Coal Closure Category.
One list identifies tracts added because of data corrections. These tracts qualify retroactively, and projects placed in service in any of these tracts in 2023 or later are potentially eligible for the energy community bonus.
The other list identifies all tracts added since the prior update, including those added via data corrections. The notice does not specify an effective date for the energy community status of the other listed tracts.
The McDermott team will continue to follow the development of the energy community guidance and provide relevant updates as necessary.
If you have questions about the tax implications of the notice or other energy community concerns, including project development or related investment structuring, please reach out to the authors of this article or your regular McDermott lawyer(s).
