The Inflation Reduction Act of 2022 (“IRA”) makes several clean energy tax credits available to businesses; tax-exempt organizations; state, local, and tribal governments; other entities; and individuals. The IRA also enables entities to take advantage of certain clean energy tax credits through its elective pay provision (also colloquially known as direct pay). Elective pay allows several types of entities, such as tax-exempts and governments, to treat the amount of certain credits as a payment against tax on their tax returns and as a result receive direct payments for certain clean energy tax credits.
STEPS TO RECEIVE A PAYMENT
- Identify and pursue the qualifying project or activity:You will need to know what applicable credit you intend to earn and use elective pay for. (See Publication 5817g for a list of tax credits that can be used for elective pay.)
- Determine your tax year, if not already known:Your tax year will determine the due date for your tax return.
- Complete pre-filing registration with the IRS:This will include providing information about yourself, which applicable credits you intend to earn, and each eligible project/property that will contribute to the applicable credit and other information required. Upon completing this process, the IRS will provide you with a registration number for each applicable credit property. You will need to provide that registration number on your tax return as part of making the elective pay election.
– Complete pre-filing registration in sufficient time to have a valid registration number at
the time you file your tax return.
– More information about this pre-filing registration process will be available by
late 2023. - Satisfy all eligibility requirements for the tax credit and any applicable bonus credits, if applicable, for a given tax year:For example, to claim an energy credit on a solar energy generating project, you would need to place the project in service before making an elective payment election.
– You will need the documentation necessary to properly substantiate any underlying
tax credit, including if bonus amounts increased the credit. - File Form 990-Tby the due date (or extended due date) and make a valid elective payment election.
Please visit IRS.gov/cleanenergy to learn more about credits and deductions under the Inflation Reduction Act of 2022.
Source: Publication 5817-G (6-2023) Catalog Number 94141A & Publication 5817-E (6-2023) Catalog Number 94133A
Department of the Treasury Internal Revenue Service www.irs.gov
