Understanding Clean Energy Credits: A Comprehensive Guide to Claiming and Receiving Credits

In the realm of tax benefits, clean energy credits have emerged as a viable option for tax-exempt and governmental entities. The Inflation Reduction Act of 2022 (IRA) has ushered in new opportunities, allowing these entities to reap the benefits of clean energy tax credits through elective pay.

Starting from tax years that begin after December 31, 2022, qualifying entities can opt for an elective payment election for their clean energy tax credits. This essentially means that certain credits can be used as a payment against federal income tax liabilities, as opposed to being a nonrefundable credit. The credit amount will initially offset any tax liability of the entity, and any surplus will be refundable.

Exploring Available Clean Energy Credits

To understand which clean energy tax credits are available, one can refer to Publication 5817-G, which provides a comprehensive list of elective pay eligible tax credits.

Pre-filing Registration: What You Need to Know

Before making an elective payment election on an annual tax return, a pre-filing registration process must be completed. Entities will need their unique Employer Identification Number (EIN) or Tax Identification Number (TIN) to complete this process. It’s important to note that entities cannot use or borrow the EIN of a related entity.

The online pre-filing registration process is anticipated to be launched in late 2023. Once it’s live, entities can complete the registration as soon as they have all the required information. More details will be provided as the launch date nears.

In order to complete the pre-filing registration, entities must provide certain information about themselves, the credits they intend to earn, each eligible project or property contributing to the credit, and certain additional information. The IRS will review the provided information and issue a separate registration number for each credit property, provided that the entity or electing taxpayer has given sufficient verifiable information.

Making an Elective Payment Election for a Clean Energy Tax Credit: A Step-by-Step Guide

1. Identify and pursue the qualifying project or activity: Entities must know which credit they intend to earn.
2. Determine the tax year: The tax year will determine the due date for the tax return.
3. Complete pre-filing registration with the IRS.
4. Satisfy all eligibility requirements for the tax credit and any applicable bonus credits for a given tax year: For instance, to claim an energy credit on a solar energy generating project, the project must be placed in service before making an elective payment election. Entities will need the necessary documentation to substantiate any underlying tax credit, including if bonus amounts have increased the credit.
5. File the required annual tax return by the due date (or extended due date) and make a valid elective payment election. This includes properly completed and attached source credit forms, Form 3800 (including registration numbers), and required return attachments.

For additional information about clean energy credits, visit the IRS website at IRS.gov/cleanenergy.