Treasury & IRS Simplify Clean Energy Tax Credits for Nonprofits & Governments
The Treasury Department and IRS have finalized rules enabling tax-exempt organizations and governments to receive direct payments for clean energy tax credits, following the Inflation Reduction Act of 2022. This new option, under Section 6417, simplifies access to incentives for renewable energy initiatives.
Organizations eligible for direct pay must meet specific criteria for each credit claimed and register with the IRS before filing. They can elect direct payment on their annual or original tax return using Form 990-T, but cannot do so retroactively on amended returns.
The final rules, released on March 11, 2024, clarify that organizations can benefit from credits like those for alternative fuel vehicles, production tax credits, and carbon sequestration. These rules also specify that certain tax credit rules applicable to most taxpayers differ for these entities, such as not reducing the tax basis of property or being subject to recapture rules under Section 50.
Depending on their structure and needs, organizations may choose to engage in tax credit-generating activities through a for-profit subsidiary or 'tax equity investment' transactions. Other clean energy tax credit-related issues are still under review.
The finalization of these rules allows tax-exempt organizations and governments to directly access clean energy tax credits, promoting investment in renewable energy projects. Organizations should seek specialist advice to navigate specific circumstances regarding these credits and direct payments.
