Jun 20 Guidance released that enables nonprofits to use clean energy tax credits
On June 14, 2023, Treasury and the IRS released long-awaited guidance on the changes to certain renewable energy tax credits enacted by the Inflation Reduction Act (“IRA”), which significantly impacts tax-exempt organizations. The IRA introduced two new credit delivery mechanisms: elective pay (also known as direct pay) and transferability. These new delivery mechanisms will now allow tax-exempt organizations to take advantage of clean energy tax credits. Tax-exempt organizations who qualify for the clean energy tax credits can elect to treat the tax credit as a direct payment of tax, which can create a refundable overpayment of tax when no tax liability exists. Elective payments can be made for the following credits:
- Section 30C “Alternative fuel refueling property credit”
- Section 45(a) “Renewable electricity production credit (PTC)”
- Section 45Q “Credit for carbon oxide sequestration”
- Section 45U “Zero-emission nuclear power production credit”
- Section 45V “Credit for production of clean hydrogen”
- Section 45W “Qualified commercial clean vehicles credit”
- Section 45X “Credit for advanced manufacturing production”
- Section 45Y “Clean electricity production credit”
- Section 45Z “Clean fuel production credit”
- Section 48 “Energy credit (ITC)”
- Section 48C “Qualifying advanced energy project credit”
- Section 48E “Clean energy investment credit”
More information about the credits eligible for elective pay can be found here.
Each of the credits above contains specific rules about qualification and the benefit amount. There are additional rules for certain credits to qualify for elective pay. As a result, the specifics of each credit would need to be evaluated on a case-by-case basis for tax-exempt organizations.
The guidance released by Treasury and IRS would allow all public charities, private foundations, social welfare organizations, labor organizations, business leagues, religious organizations, and others to take advantage of the clean energy tax credits for the first time through elective pay. Organizations that have earned an applicable tax credit must make an election for elective pay. The election for elective pay is to be made on the annual tax return, and the deadline is the due date for the tax return for the taxable year for which the election is made. An election must be made on an original return; no election is allowed on an amended return.
A pre-filing registration process is also required for organizations that intend to make an election for elective pay. As part of this pre-registration process, all applicable credits that are to be claimed and each applicable credit property that contributes or will contribute to the determination of credits must be listed. Other specific information about each applicable credit property will also be required. A registration number will be provided to all organizations that have successfully completed the pre-registration process, which will be necessary for making the election on the tax return. The actual pre-registration process will launch later in 2023.
For any questions, feel free to contact a member of our nonprofit team here.