Nationwide Tax Relief: 844-638-0800

Clean energy credits: what you need to know about eligibility

Understanding Clean Energy Credits and Their Eligibility

The Inflation Reduction Act of 2022 (IRA) has opened up new avenues for tax-exempt and governmental entities to leverage clean energy tax credits. This includes Indian tribal governments and Alaskan Native Corporations, who can use these credits to offset their federal income tax liabilities. This article aims to provide a comprehensive understanding of clean energy tax credits, their eligibility criteria, and how to make elective payment elections.

Benefits of the Inflation Reduction Act of 2022

The IRA has introduced an option for applicable entities that qualify for clean energy tax credits to make an elective payment election. This provision comes into effect for tax years beginning after December 31, 2022. The election allows these entities to use certain credits as payments against their federal income tax liabilities instead of nonrefundable credits. The credit amount will first be used to offset any tax liability of the entity, with any excess being refundable.

Who is Eligible?

Entities that can benefit from this provision include certain tax-exempt organizations, state and local governments, Indian tribal governments, Alaska Native Corporations, the Tennessee Valley Authority, and rural electric cooperatives.

Indian tribal governments, their political subdivisions, or any agency or instrumentality thereof are eligible for elective pay. The term “Indian tribal government” refers to the recognized governing body of any Indian or Alaska Native tribe, band, nation, pueblo, village, community, component band, or component reservation, as listed in the Federal Register by the Department of the Interior under the Federally Recognized Indian Tribe List Act of 1994. These tribal entities are also eligible if they are exempt from tax under section 501(a).

Alaska Native Corporations, as defined in section 3 of the Alaska Native Claims Settlement Act (43 U.S.C. 1602(m)), are also eligible for the elective payment election. However, Settlement Trusts are not eligible based on affiliation with an Alaska Native corporation. They do qualify if the Settlement Trust has exempt status under section 501(a) and has received a determination letter from the IRS recognizing any such tax-exempt status.

Property Ownership and Eligibility

To be eligible, the applicable entity must generally own the property that generates the eligible credit or conduct the activities that give rise to the underlying eligible credit. This ownership can take various forms. For instance, an applicable entity could directly own the property, own it through a disregarded entity, or own an undivided interest in an ownership arrangement treated as a tenancy-in-common or pursuant to a joint operating arrangement that has properly elected out of subchapter K of chapter 1 of the Code (subchapter K) under section 761.

For more information about elective pay, refer to Publication 5817-F (Indian Tribal Governments) and Publication 5817-C (Alaska Native Corporations).

Additional information about clean energy tax credits can be found at irs.gov/tribes and irs.gov/cleanenergy.

Facebook
Twitter
LinkedIn
Clean energy credits: what you need to know about eligibility 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. Eligibility Information Applicable entities generally include certain tax-exempt organizations, state and local governments, Indian tribal governments, Alaska Native Corporations, the Tennessee Valley Authority and rural electric cooperatives. An Indian tribal government, political subdivision thereof, or any agency or instrumentality of a Tribal government or political subdivision is eligible for elective pay. The term, "Indian tribal government", means: the recognized governing body of any Indian or Alaska Native tribe, band, nation, pueblo, village, community, component band, or component reservation, individually identified (including parenthetically) in the most recent list published in the Federal Register by the Department of the Interior under the Federally Recognized Indian Tribe List Act of 1994. Tribal entities are also eligible to the extent they are exempt from tax under section 501(a). Alaska Native Corporations (as defined in section 3 of the Alaska Native Claims Settlement Act (43 U.S.C. 1602(m)) are also applicable entities that are eligible for the elective payment election. Settlement Trusts are not eligible based on affiliation with an Alaska Native corporation, but do qualify if the Settlement Trust qualified for exempt status under section 501(a) and applied for and received a determination letter from the IRS recognizing any such tax-exempt status. The applicable entity generally must own the property that generates the eligible credit (or otherwise conduct the activities giving rise to the underlying eligible credit). That ownership can occur through various structures. For example, an applicable entity could directly own the property, or could own it through a disregarded entity, or could own an undivided interest in an ownership arrangement treated as a tenancy-in-common or pursuant to a joint operating arrangement that has properly elected out of subchapter K of chapter 1 of the Code (subchapter K) under section 761. See Publication 5817-F (Indian Tribal Governments) and Publication 5817-C (Alaska Native Corporations) for more information about elective pay. Additional information about clean energy tax credits can be found at irs.gov/tribes and irs.gov/cleanenergy.

Table of Contents