Nonprofits Can Transfer, Claim Direct Payments for Inflation Reduction Act Credits

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:

  1. The non-taxable entity must complete the pre-filing registration process, which should be open by Fall of 2023;
  2. 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,
  3. 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, Chris Consoletti, Esq., Consulting Tax Attorney at 774.512.4180 or—or your AAFCPAs tax advisor.

About the Authors

Joshua England, Tax Attorney
Josh is a tax strategist with extensive expertise advising high-net-worth individuals, nonprofits, and business owners and investors on effective strategies to ensure tax efficiency, asset protection, well-executed succession plans, and wealth preservation. He has been practicing law since 2000 and focuses his practice on the areas of wealth transfer planning, fiduciary and individual taxation, business structuring to maximize tax efficiency, and advising tax-exempt organizations, foundations and charitable donors.
Chris Consoletti
Chris, in conjunction with AAFCPAs’ multi-disciplinary team of CPAs, investment & business advisors, provides effective tax planning and research, tax compliance, charitable planning, and asset protection solutions for trusts & estates, corporations and partnerships. Chris provides clients with corporate law analysis and recommendations related to entity formation, management and board structure, executive compensation, limited liability protection, and the applicable laws of relevant states and jurisdictions. He evaluates and assesses opportunities and risks associated with complicated tax challenges or controversies.