The Inflation Reduction Act (the “Act”), originally signed into law on August 16, 2022, outlined a proposal that allowed certain non-taxable entities to receive specific credits under the Act as direct payments. On June 14, 2023, the IRS issued proposed regulations that outline how these non-taxable organizations can file and make an election to either transfer or claim these credits as direct payments.
Pre-Filing Registration Requirements
The most important development in the June 14, 2023 proposed regulations was the introduction of the pre-filing registration requirements. For these applicable non-taxable entities to benefit and claim these credits from clean energy initiatives as direct payments or to transfer them, they must complete pre-filing registration requirements. Under the June 14, 2023 proposed regulations, the requirements state that:
- The non-taxable entity must complete the pre-filing registration process, which should be open by Fall of 2023;
- The IRS will then review the pre-filing and, if the non-taxable entity meets the requirements, the IRS will issue it a registration number; and,
- Once the non-taxable entity receives the registration number, it will then be eligible to either claim the credit as a direct payment or make an election to transfer the credit.
The regulations are clear that this registration number is valid only for the taxable year for which it is obtained.
Transfer or Sale of Tax Credits
It is important to note that, under the Act as well as the June 14, 2023 proposed regulations, not only may non-taxable organizations receive certain credits as direct payments but they may also benefit from clean energy initiatives through the transfer, or sale, of that tax credit in whole or in part to another party in exchange for cash. This provides non-taxable entities a different opportunity to monetize clean energy credits. The pre-filing registration requirements outlined above apply to the transfer of credits as well and must be completed prior.
If you have any questions, please contact Joshua England, LLM, Esq., Partner & Tax Attorney at 774.512.4109 or email@example.com, Chris Consoletti, Esq., Consulting Tax Attorney at 774.512.4180 or firstname.lastname@example.org—or your AAFCPAs tax advisor.