When the Inflation Reduction Act (IRA) was signed into law in 2022, it both created new clean energy tax incentives and expanded upon existing programs as well. The IRA’s incentive programs aim to promote green energy initiatives by encouraging the investment in wind, biomass, geothermal, solar, hydropower, and more alternative fuel sources. Importantly, a big change in the law allows certain entities historically excluded from tax credits to be able to take advantage of them. The IRA achieves this by creating a new elective pay option, which applies to 12 specific tax credit programs, allowing tax exempt organizations, including state and private colleges and universities, to receive cash payments of credit amounts.
Under the current regulations, entities wishing to use the elective pay option to secure tax credit dollars for an eligible clean energy project, must submit a prefiling registration to the IRS, as described in this user guidance and instruction document. The IRS will then assign the entity a registration number to be used on the forms necessary for filing the paperwork (including Form 990-T, Exempt Organization Business Income Tax Return). The direct payment option treats the credit amount like a payment toward federal taxes, such that for tax-exempt entities, the credit is then refunded to them just like an overpayment would be.
As mentioned, there are 12 specific tax credit programs that this process can be applied to for eligible projects. Those credits include the §45 Renewable Energy Production Credit (for production of electricity from renewable sources), §48 Energy Investment Credit (for investment in renewable energy projects), and §30C Alternative Fuel Refueling Property Credit (for alternative fuel charging property). These programs have base credit amounts of around 6% of the qualified investment with the potential for bonus credit amounts of up to 5 times that amount where additional bonus threshold requirements are met (i.e., paying prevailing wages, meeting apprenticeship requirements, placing the project in an energy community, or meeting domestic content requirements).
This is a great opportunity for potential cost offset for green energy initiatives that your institution may already be undertaking. Reviewing the information on the IRS’s info sheet here on Clean Energy Tax Incentives: Elective Pay Eligible Tax Credits, may help you identify potentially eligible projects and credit programs. Thereafter, be sure to compile, record, and document costs, basis, any bonus credit thresholds being met, and begin your prefiling registration process (see above). We look forward to helping you consider and apply for these tax credits, where applicable to your projects and plans, and assisting in this new opportunity for tax exempt entities to utilize tax credit programs at the federal level.
If you need further guidance or have any questions on this topic, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.