Understanding Clean Energy Credits and Elective Pay

In the realm of clean energy tax credits, there are new opportunities for tax-exempt and governmental entities. These opportunities stem from the Inflation Reduction Act of 2022 (IRA), which has introduced new ways for these entities to benefit from clean energy tax credits. One of these methods is through elective pay.

Starting from the tax years that begin after December 31, 2022, entities that qualify for a clean energy tax credit can choose to make an elective payment election. This election allows the entities to use certain credits as a payment against their federal income tax liabilities, instead of treating them as a nonrefundable credit. The credit amount will first be used to offset any tax liability of the entity, and any excess will be refundable.

How to Make an Elective Pay Election

The process of making an elective payment election involves your annual tax return. It is done in the manner prescribed by the IRS, and it requires any form necessary to claim the relevant tax credit (source credit forms), a completed Form 3800, General Business Credit (or its successor), and any additional information, including supporting calculations, required in instructions to the relevant forms. The process of making an elective payment election involves several steps, including completing the required pre-filing registration process.

Determining the Taxable Year

To determine the taxable year, you should refer to the instructions for the annual tax return you are filing. For instance, tax-exempt entities filing Form 990-T must file the return using the organization’s established annual accounting period. If the organization doesn’t have an established accounting period, the return should be filed on the calendar-year basis.

Timely Filing of Returns

An elective payment election can only be made on an original, timely filed return (including extensions). This means the deadline is the due date (including extensions of time) for the tax return for the taxable year for which the election is made. For most tax exempt and government entities, including Indian tribal governments, this is generally 4.5 months (for example, May 15 for a calendar year taxpayer) (or up to 10.5 months with extensions) after the end of the entity’s tax year.

For more information about Clean Energy Credits, visit the IRS website at IRS.gov/cleanenergy.

If you have a technical or procedural question relating to government entities, please visit IRS.gov/fslg.

For questions related to employment tax and account, you can call the Business and Specialty Tax Line at 800-829-4933.

To request an affirmation letter, you can call Tax Exempt Government Entities Customer Account Services at 877-829-5500.

For guidance on the technical aspects of filing information returns through the Filing Information Return Electronically (FIRE) System, you can call Technical Services Operation at 866-455-7438.

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