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Clean energy credits: what you need to know about elective pay

Understanding Clean Energy Credits and Elective Pay

The Inflation Reduction Act of 2022 (IRA) has introduced new opportunities for tax-exempt and governmental entities to benefit from clean energy tax credits. This includes Indian tribal governments and Alaskan Native Corporations, who can now leverage these credits through an elective pay option. Starting from the tax year beginning after December 31, 2022, eligible entities that qualify for a clean energy tax credit can opt for an elective payment election. This transforms certain credits into payments against their federal income tax liabilities instead of being treated as nonrefundable credits. The credit amount first offsets any tax liability of the entity, and any remaining balance becomes refundable.

Procedure for Elective Pay Election

The elective payment election is a process that is carried out on your annual tax return as prescribed by the IRS. This involves completing 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, as required in instructions to the relevant forms. The elective payment election requires several steps, including the completion of the required pre-filing registration process.

The term ‘annual tax return’ encompasses:

– The annual return (including Form 990-T for organizations with unrelated business income tax or a proxy tax under section 6033(e)) for any person who is normally required to file an annual tax return with the IRS.
– The return that any person who is not normally required to file an annual tax return with the IRS (such as taxpayers located in the territories) would be required to file if they were not located in the territories. If no such return is required (such as for State, local, or Indian tribal governmental entities), the Form 990-T Exempt Organization Business Income Tax Return is used.
– The short year tax return for short tax year filers.

The IRS strongly encourages filing returns electronically.

Each entity that opts for an elective payment election must possess a unique EIN. More information on how to apply for an EIN can be found in this video.

Additional Information on Clean Energy Credits

For more details about clean energy credits, you can visit the IRS’s official pages at irs.gov/tribes and IRS.gov/cleanenergy.

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Clean energy credits: what you need to know about elective pay Tax-exempt and governmental entities can benefit from clean energy tax credits using new options enabled by the Inflation Reduction Act of 2022 (IRA). This newsletter is part of a series from the IRS to provide information to Indian tribal governments about clean energy tax credits and how to make elective payment elections. The IRA allows Indian tribal governments and Alaskan Native Corporations to benefit from certain clean energy tax credits through elective pay. For tax years beginning after December 31, 2022, an applicable entity that qualifies for a clean energy tax credit can make an elective payment election. This election will treat certain credits as a payment against their federal income tax liabilities rather than as a nonrefundable credit. The amount of the credit will first offset any tax liability of the entity and any excess will be refundable. How do I make an elective pay election? The elective payment election is made on your annual tax return in the manner prescribed by the IRS, along with any form required 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. As previously described, making an elective payment election requires completing multiple steps, including completing the required pre-filing registration process. The term annual tax return includes— for any person normally required to file an annual tax return with the IRS, such annual return (including Form 990-T for organizations with unrelated business income tax or a proxy tax under section 6033(e)). for any person that is not normally required to file an annual tax return with the IRS (such as taxpayers located in the territories), the return they would be required to file if they were not located in the territories, or, if no such return is required (such as for State, local, or Indian tribal governmental entities), the Form 990-T Exempt Organization Business Income Tax Return; and for short tax year filers, the short year tax return. Electronic return filing is strongly encouraged. Each entity making an elective payment election must have a unique EIN. More information about applying for an EIN is available in this video. Additional information about clean energy credits can be found at irs.gov/tribes and IRS.gov/cleanenergy.

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