Understanding Clean Energy Credits: A Guide to Claiming and Receiving
The Inflation Reduction Act of 2022 (IRA) has opened up new opportunities for tax-exempt and governmental entities to benefit from clean energy tax credits. The IRA has introduced elective pay, a mechanism that allows these entities to utilize certain clean energy tax credits in a more beneficial way. Starting from the tax years that commence after December 31, 2022, qualifying entities can opt for an elective payment election for their clean energy tax credit. This election transforms specific credits into a payment against federal income tax liabilities, rather than being a nonrefundable credit. The credit amount will initially offset any tax liability of the entity, and any excess will be refundable.
Available Clean Energy Credits
To find out which clean energy tax credits are available, refer to Publication 5817-G which provides a comprehensive list of elective pay eligible tax credits.
Pre-filing Registration Information
Before making an elective payment election on an annual tax return, a pre-filing registration process must be completed and a registration number obtained. Entities will need their own 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 set to launch in late 2023. Once it’s live, you can complete the pre-filing registration as soon as you have all the required information. More details will be provided as the launch date nears.
To complete the pre-filing registration, you must provide specific information about yourself, the credits you intend to earn, each eligible project or property that will contribute to the credit, and some additional information. The IRS will review the provided information and issue a separate registration number for each credit property for which sufficient verifiable information has been provided. Registration is not considered complete until a registration number is received. Each entity making an elective payment election must have a unique EIN.
How to Make an Elective Payment Election for a Clean Energy Tax Credit
1. Identify and pursue the qualifying project or activity: You need to know which credit you intend to earn.
2. Determine your tax year, if not already known: Your tax year will determine the due date for your tax return.
3. Complete pre-filing registration with the IRS.
4. Satisfy all eligibility requirements for the tax credit and any applicable bonus credits, if applicable, for a given tax year: For instance, to claim an energy credit on a solar energy generating project, you 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.
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 IRS.gov/cleanenergy.