Elective pay and transferability frequently asked questions: Elective pay

 

The answers to these frequently asked questions are based on final regulations that apply to taxable years that end on or after March 11, 2024. For taxable years ending prior to March 11, 2024, taxpayers must apply the temporary regulations related to the required pre-filing registration, but have the choice to apply the remainder of the rules in the final regulations or rely on the proposed regulations.

In general, the Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) do not provide personalized tax advice regarding whether a specific organization's project or activity is eligible for a tax credit. For more information about clean energy tax credits, please see Credits and deductions under the Inflation Reduction Act of 2022. You may also choose to consult with a tax advisor.

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Eligibility

Q1. Who is eligible to use elective pay? (updated March 5, 2024)

A. The statute lists six “applicable entities” that are eligible for and can use elective pay. Applicable entities include tax-exempt organizations, states, and political subdivisions such as local governments, Indian tribal governments and their subdivisions, Alaska Native Corporations, the Tennessee Valley Authority, rural electric cooperatives, U.S. territories and their political subdivisions, and agencies and instrumentalities of state, local, tribal, and U.S. territorial governments. See Q10 for information about other taxpayers.

Q2. What tax-exempt organizations are eligible? (updated March 5, 2024)

A. The final regulations provide that any organization described in sections 501 through 530 that meets the requirements to be recognized as exempt from tax under those sections is eligible for elective pay. This includes, among others, all organizations described in section 501(c), such as public charities, private foundations, social welfare organizations, labor organizations, and business leagues. It also includes homeowners associations exempt under section 528.

Under the proposed regulations, only organizations that are exempt from tax by section 501(a) are tax-exempt organizations eligible for elective pay.

Q3. What state, local, and political subdivisions are eligible? (added June 14, 2023)

A. States, political subdivisions, and their agencies and instrumentalities are all eligible for elective pay. This includes the District of Columbia. It also includes cities, counties, and other political subdivisions. Water districts, school districts, economic development agencies, and public universities and hospitals that are agencies and instrumentalities of states or political subdivisions are also included.

Q4. What Indian tribal governments or tribal tax-exempt entities are eligible? (updated March 5, 2024)

A. An Indian tribal government, subdivision thereof, or any agency or instrumentality of a Tribal government or political subdivision is eligible for elective pay. For this purpose, 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 by the Department of the Interior in the Federal Register under the Federally Recognized Indian Tribe List Act of 1994 prior to the date on which a relevant elective payment election is made.

An applicable entity that is the owner (directly or indirectly) of a disregarded entity that directly holds an applicable credit property can make an elective payment election for applicable credits determined with respect to the applicable credit property held directly by the disregarded entity. A Tribal corporation incorporated under section 17 of the Indian Reorganization Act of 1934, as amended, 25 U.S.C. 5124, or under section 3 of the Oklahoma Indian Welfare Act, as amended, 25 U.S.C. 5203, that is not recognized as an entity separate from the tribe for Federal tax purposes, is disregarded as an entity separate from its owner for purposes of section 6417.

Tribal entities are also eligible to the extent they are described in sections 501 through 530, (see Q2). Subdivisions, agencies, or instrumentalities of the Indian tribal government are also applicable entities.

Q5. What Alaska Native Corporations are eligible? (added June 14, 2023)

A. Any Alaska Native Corporation (as defined in section 3 of the Alaska Native Claims Settlement Act (43 U.S.C. 1602(m)) is eligible, meaning any regional corporation, any village corporation, any urban corporation, and any group corporation, which is organized under the laws of the State of Alaska.

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.

Q6. What U.S. territories are eligible? (added June 14, 2023)

A. U.S. territory governments, their political subdivisions, and their agencies and instrumentalities are eligible for elective payment.

Q7. Do any special rules limit application of the credits in the territories? (updated March 5, 2024)

A. Yes. There are tax rules outside of section 6417 that provide that investment-related tax credits (that is, section 30C, 45W, 48, 48C, and 48E credits) generally cannot be taken for property used predominantly outside the United States (the fifty states and the District of Columbia). Such property could, however, generate a credit to a US corporation or US citizen (other than a US citizen residing in a territory) if the US corporation or US citizen (other than a US citizen residing in a territory) owns the property and the property is used by the US corporation, the US citizen (other than a US citizen residing in a territory), or a territory corporation.

Note: These restrictions do not apply to the production credits eligible for elective pay (sections 45, 45Q, 45U, 45V, 45X, 45Y, and 45Z).

Q8. What rural electric cooperatives are eligible? (updated March 5, 2024)

A. A taxable corporation operating on a cooperative basis that is engaged in furnishing electric energy to persons in rural areas as described in section 1381(a)(2)(C) is eligible. A tax-exempt corporation operating on a cooperative basis that is engaged in furnishing electric energy to persons in rural areas descried in section 501(c)(12) is also eligible.

Tax-exempt rural electric cooperatives are eligible to use elective pay for all 12 credits listed in Q13. Taxable rural electric cooperatives are not eligible for the Commercial Clean Vehicles Credit (45W).

A rural electric cooperative's use of elective pay does not affect the 85-percent income test of a tax-exempt electric cooperative.

Q9. Is the Tennessee Valley Authority eligible? (added June 14, 2023)

A. Yes. The Tennessee Valley Authority is an eligible entity.

Q10. What types of businesses are eligible? What is an electing taxpayer? (updated March 5, 2024)

A. Generally, only "applicable entities" (the entities discussed in Q1-Q9) are eligible for elective pay. However, there are special rules for three of the clean energy tax credits. Specifically, taxpayers that are not "applicable entities" may make an election to be treated as an applicable entity for elective pay (in these FAQs those entities are described as "electing taxpayers") with respect to applicable credit property giving rise to:

  1. the section 45Q credit (credit for carbon oxide sequestration),
  2. the section 45V credit (credit for production of clean hydrogen), or
  3. the section 45X credit (advanced manufacturing production credit).

There are additional rules if the taxpayer is a partnership or S corporation.

Q11. What type of property ownership is required for projects using elective pay? (updated March 5, 2024)

A. Whether a taxpayer owns the underlying eligible credit property is determined based on the regulations for the particular applicable credit or bonus credit amount as well as Federal income tax principles. Ultimately, the applicable credit must have been determined with respect to the applicable entity or electing taxpayer making the elective payment election.

With the exception of a section 45X credit, the applicable entity or electing taxpayer must both own the underlying eligible credit property and conduct the activities giving rise to the credit. In the case of a section 45X credit, ownership is not required, but you must be considered (under the section 45X regulations) the taxpayer with respect to which the section 45X credit is determined.

Q12. Can I work with other organizations and still use elective pay? (updated March 11, 2024)

A. You must own the property that generates the eligible credit (with the exception of a section 45X credit, see Q11). That ownership can occur through various structures. For example, you could directly own the property, 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 under section 761. On March 5, 2024, the Treasury Department and IRS proposed regulations that would provide guidance on such an election out of subchapter K.

Partners of partnerships are not allowed to use elective pay. A partnership, even if all of the partners are applicable entities, is not an applicable entity. However, a partnership can make the elective pay election if it qualifies as an electing taxpayer with respect to the section 45Q credit, the section 45V credit, or the section 45X credit.

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Applicable credits for elective pay

Q13. For which tax credits can I use elective pay? (updated March 5, 2024)

A. The following applicable credits are eligible for elective pay:

  • Energy Credit (48), (Form 3468, Part VI)
  • Clean Electricity Investment Credit (48E), (Form 3468, Part V)
  • Renewable Electricity Production Credit (45), (Form 8835, Part II)
  • Clean Electricity Production Credit (45Y)
  • Commercial Clean Vehicle Credit (45W), (Form 8936, Part V)
  • Zero-emission Nuclear Power Production Credit (45U), (Form 7213, Part II)
  • Advanced Manufacturing Production Credit (45X), (Form 7207)
  • Clean Hydrogen Production Credit (45V), (Form 7210)
  • Clean Fuel Production Credit (45Z)
  • Carbon Oxide Sequestration Credit (45Q), (Form 8933)
  • Credit for Alternative Fuel Vehicle Refueling / Recharging Property (30C), (Part 8911, Part II)
  • Qualifying Advanced Energy Project Credit (48C), (Form 3468, Part III)

In general, an applicable entity can use elective pay with respect to these 12 credits as long as it meets the tax credit's underlying requirements. There are placed in service date restrictions for sections 45, 45Q, and 45V. Further, elective pay for the Commercial Clean Vehicle Credit (45W) is only available to an organization exempt from the tax imposed by subtitle A by reason of sections 501 through 530 of the Code; a State, the District of Columbia, a political subdivision thereof, or any agency or instrumentality of any of the foregoing; a U.S. territory, a political subdivision thereof, or any agency or instrumentality of any of the foregoing; or an Indian tribal government, a subdivision thereof, or any agency or instrumentality of any of the foregoing. Please see Q11 and Q12 for additional limitations.

An electing taxpayer (described in Q10), can only make the elective pay election with respect to the section 45V, 45Q, or 45X credit.

Q14. Where can I learn more about the applicable credits that are eligible for elective pay? (added June 14, 2023)

A. For up-to-date information and guidance on the clean energy tax credits available under the Inflation Reduction Act of 2022 that are applicable credits for elective pay, please visit IRS.gov/cleanenergy. A brief description of each of the applicable credits is also available at Publication 5817-GPDF.

Q15. Are there requirements or bonuses that affect the amount of the applicable credits that are eligible for elective pay? (updated March 5, 2024)

A. The amount of certain applicable credits can vary based on several factors. Certain applicable credits offer higher credit amounts to projects that

  1. pay prevailing wages and use registered apprentices,
  2. are located in low-income communities or energy communities, or
  3. meet certain domestic content requirements.

Starting in 2024, for taxpayers using elective pay, the domestic content requirement can also result in a reduction of the applicable credit amount (for sections 45, 45Y, 48, and 48E) if it is not met.

  • Prevailing Wage and Apprenticeship Requirements affect the amount of the credits listed below, and apply to projects that pay workers the "prevailing wage" (as published by the Department of Labor) and employ apprentices from registered apprenticeship programs for specific labor hour, apprentice-to-journeyworker ratios, and participation requirements. In general, the credit is increased by five times for projects that pay prevailing wages and use registered apprentices.
     

    This increase applies to certain applicable credits that are part of the Investment Credits for renewable energy (sections 48 and 48E), Production Credits for renewable electricity (sections 45, 45Y), Advanced Energy Project Credit (section 48C), Alternative Fuel Vehicle Refueling Property (section 30C), Carbon Oxide Sequestration Credit (section 45Q), Zero-emission Nuclear Power Production Credit (section 45U), Clean Hydrogen Production Credit (section 45V), and the Clean Fuel Production Credit (section 45Z). Exceptions apply for some applicable credits or projects.

    Learn more at Prevailing Wage and the Inflation Reduction Act.
     

  • Domestic content bonus is available for certain production credits for renewable electricity (sections 45, 45Y) and investment credits for renewable energy (sections 48, 48E) that are applicable credits. It applies to facilities or projects built using the required amounts of domestically produced steel or iron, and manufactured products. When the domestic content requirements are met, production tax credit facilities receive a 10 percent bonus, and Investment Tax Credit projects receive up to a 10-percentage point bonus. Starting in 2024, for taxpayers using elective pay, the domestic content requirement can also result in a reduction of the applicable credit amount (for sections 45, 45Y, 48, and 48E) if it is not met. Notice 2023-38 provides additional information. Also, Notice 2024-9 provides additional guidance on the domestic content bonus, including procedures for applicable entities to make an attestation with respect to an applicable credit property the construction of which begins before January 1, 2025 that the Treasury Department and the IRS will treat as establishing that a domestic content exception is met with respect to the applicable credit property.
     
  • Energy community bonus is available for certain Production Credits for renewable electricity (sections 45, 45Y) and Investment Credits for renewable energy (sections 48, 48E) that are applicable credits. It applies to projects located in historical energy communities, including areas with closed coal mines or coal-fired power plants. The bonus is also available to brownfield sites and to areas that have significant employment or local tax revenues from fossil fuels and higher than average unemployment. For more information, see Energy Community Tax Credit Bonus.
     
  • Low Income Communities Bonus Credit Program provides an increased credit of 10 percentage points or 20 percentage points to certain applicable credits that are part of the investment tax credit (sections 48, 48E) for certain facilities in one of four categories.
     
    1. located in a low-income community,
    2. located on Indian land,
    3. installed on certain federal housing projects, or
    4. serving low-income households.
       
    You must pre-apply, receive a capacity allocation, and then place your facility in service to claim this bonus. An increased credit under section 48(e) is available for eligible property which is part of qualified solar and wind energy facilities that receive capacity limitation allocations pursuant to the amounts allocated for 2023 and 2024. An increased credit under 48E(h) is available for a broader group of facilities that receive capacity limitation allocations in 2025 and later years. To learn more or apply, see the Low-Income Communities Bonus Credit Program website.

For more information about the Domestic Content, Low-Income Communities, and Energy Communities Bonus credits and the clean energy tax credits to which they apply, please visit IRS.gov/cleanenergy.

Q16. Are any of the applicable credits dependent on an allocation? In other words, do I need to pre-apply for any credits? (updated March 5, 2024)

A. Yes. Before claiming either the Low-Income Communities Bonus Credit under section 48(e) or the Qualifying Advanced Energy Project Credit under section 48C(e), taxpayers must apply and be awarded a tax credit allocation. For more information, please see IRS.gov/cleanenergy or the Department of Energy’s websites for the Low-Income Communities Bonus Credit Program and the Qualifying Advanced Energy Project Credit (48C) Program Clean Energy Infrastructure.

The application processes for these two tax credits are distinct from the pre-filing registration process described in these FAQs.

Q17. Are there any special rules relating to applicable credits that are part of the investment tax credit (sections 48, 48C, and 48E)? (updated March 5, 2024)

A. Yes, section 50(a) and (c) and the related regulations give special rules for all credits that are part of the investment tax credit under section 46 whether or not you made an elective pay election under 6417. Under section 50(c), the relevant applicable credit reduces the basis of the investment credit property as provided in section 50(c). Under section 50(a), if the investment credit property giving rise to the applicable credit is disposed of, or otherwise ceases to be investment credit property during the five years after the property is placed in service, then recapture applies.

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How do I make an elective payment election and receive an elective payment?

Q18. What are the steps in making a successful elective payment election? (updated March 5, 2024)

A. There are several steps to making a successful elective payment election. Not all steps need to occur in the order displayed below.

  1. Identify and pursue the qualifying project or activity. You will need to know what applicable credit you intend to earn and use elective pay for. For more information about the applicable tax credits, see Q13.
  2. Determine your tax year, if not already known. Your tax year will determine the due date for your tax return. Please see Q23 for information.
  3. Satisfy all eligibility requirements for the tax credit and any applicable bonus credits, if applicable, for a given tax year. For example, to claim an energy credit on a solar energy generating project, you would need to place the project in service before making an elective payment election.
    • You will need the documentation necessary to properly substantiate any underlying tax credit, including if bonus amounts increased the credit.
  4. Complete pre-filing registration with the IRS. This will include providing information about yourself, which applicable credits you intend to earn, and each eligible project/property that will contribute to the applicable credit, among other information required. Upon completing this process, the IRS will provide you with a registration number for each applicable credit property. You will need to provide that registration number on your tax return as part of making the elective pay election. 
    • The applicable credit property should be placed in service prior to submitting a pre-filing registration.
    • Complete pre-filing registration in sufficient time to have all of the valid registration numbers you need at the time you file your tax return. 
    • Please see Q32 through Q40 for more information about pre-filing registration
    • File the required annual tax return by the due date (or extended due date) and make a valid elective payment election. This includes properly completed and attached source credit forms, Form 3800, General Business Credit (or its successor), which should include registration number(s) and required return attachments. For general filing tips for exempt organization returns, see tax information, tools, and resources for charities and other tax-exempt organizations.

    Q19. How do I make the elective payment election? (added June 14, 2023)

    A. The elective payment election is made on your annual tax return in the manner prescribed by the IRS, along with any form required to claim the relevant tax credit (source credit forms), a completed Form 3800, General Business Credit (or its successor), and any additional information, including supporting calculations, required in instructions to the relevant forms. As previously described, making an elective payment election requires completing multiple steps, including completing the required pre-filing registration process.

    Q20. What is an annual tax return for those using elective payment? (updated March 5, 2024)

    A. The term annual tax return means, for purposes of section 6417 and the section 6417 regulations, the following returns (and for each, any successor return)—

    • For any taxpayer normally required to file a tax return with the IRS on an annual basis, such return, including:
      • the Form 1040 for individuals;
      • the Form 1120 for corporations, certain rural electric cooperatives, and certain agencies and instrumentalities;
      • the Form 1120-S for S corporations;
      • the Form 1065 for partnerships; and
      • the Form 990-T for organizations--
        • subject to tax imposed by section 511 of the Code or a proxy tax under section 6033(e) or
        • that are required to file a Form 990 pursuant to section 6033(a))
    • for any person located in the territories, the return they would be required to file if they were not located in the territories
    • For any other person that is not normally required to file a tax return on an annual basis with the IRS (such as for State, local, or Indian tribal governmental entities), the Form 990-T
    • For taxpayers filing a return for a taxable year of less than 12 months, the short year tax return

    Electronic return filing, if not otherwise already required, is strongly encouraged.

    Q21. When do I file that annual tax return? Is there a deadline for filing to claim elective pay? (updated March 5, 2024)

    A. An elective payment election may only be made on an original, timely filed return (including extensions). This means the deadline is the due date (including extensions of time) for the tax return for the taxable year for which the election is made. For most tax exempt and government entities including Indian tribal governments this is generally the 15th day of the fifth month after the end of the entity’s tax year (for example, May 15 for a calendar year taxpayer.  With an extension, the entity would have an additional 6 months to make an election (for example, November 15 for a calendar year taxpayer).

    An original return includes a so-called “superseding return” that must be filed on or before the due date (including extensions). The final regulations clarify that under certain circumstances, a taxpayer may be eligible for late-election relief under Treasury regulation section 301.9100-2(b).  Such relief is only available for taxpayers who do not have an extension of time to file, and who timely filed their original return, albeit without a valid election.

    Aside from this late-election relief, the final regulations clarify an elective payment election may not be made on an amended return or by filing an administrative adjustment request (AAR).  An entity that timely and properly made an elective payment election may, however, file an amended return or AAR to correct a reporting error made with their election  for example, miscalculating the amount of the credit on the original return or making a typographical error in the process of inputting a registration number).  Entities cannot file an amended return or AAR to revoke an election or to make an election for the first time (See Q30 for more information about revocations).  In addition, the taxpayer’s original return, which must be signed under penalties of perjury, must contain all of the information, including a registration number, required by the final regulations.  To properly correct an error on an amended return or in an AAR, an entity must have made an error in the information included on the original return such that there is a substantive item to correct; the entity cannot correct a blank item or an item that is described as being “available upon request.”

    Q22. How do I determine the due date for my annual tax return? How do I apply for an extension? (updated March 5, 2024)

    A. The return is due a certain period of time after the end of your tax year. Check the instructions for the annual tax return you are filing for the due date and how to apply for an extension.

    Subject to issuance of guidance that specifies the manner in which an entity for which no federal income tax return is required under section 6011 or no federal return is required pursuant to section 6033(a) can request an extension of time to file and make the elective payment election, an automatic, paperless 6-month extension from the 15th day of the fifth month after the end of the taxable year is deemed to be allowed. Examples of those entities are a State; the District of Columbia; an Indian tribal government; any U.S. territory; a political subdivision of a State, the District of Columbia, or a U.S. territory, or a subdivision of an Indian tribal government; certain agencies or instrumentalities of a State, the District of Columbia, an Indian tribal government, or a U.S. territory; or a taxpayer excluded from filing pursuant to section 6033(a)(3).

    Q23. How do I determine my tax year? (updated March 5, 2024)

    A. Check the instructions for the annual tax return you are filing. For example, for tax-exempt entities filing Form 990-T, the return must be filed using the organization's established annual accounting period. If the organization has no established accounting period, file the return on the calendar-year basis.

    An applicable entity that is not required to file a federal income tax return pursuant to section 6011 or Federal return pursuant to section 6033(a), but is filing solely to make an elective payment election, may choose whether to file its first Form 990-T (and thus adopt a taxable year) based upon a calendar or fiscal year, provided that the applicable entity maintains adequate book and records, including a reconciliation of any difference between its regular books of account and its chosen taxable year, to support making an elective payment election on the basis of its chosen taxable year.  This should allow an applicable entity that is not required to file a Federal income tax return pursuant to section 6011 or Federal return pursuant to section 6033(a), but has placed in service an applicable credit property in 2023, to file Form 990-T on a calendar year and make an elective payment election with respect to the applicable credit property regardless of when the property was placed in service during 2023.

    In other words, applicable entities that do not have a federal income tax filing or Form 990 filing obligation may choose to adopt a calendar year for purposes of elective pay, regardless of their fiscal year, provided they maintain adequate books and records. This applies to state and local governments, Indian tribal governments, and their agencies and instrumentalities, including school districts, that don’t file an income tax return. 

    Note that a taxpayer that has filed a federal income tax return under section 6011 or a federal return under 6033(a) with the IRS must continue to use that taxable year unless the taxpayer requests a change of annual accounting period pursuant to section 442 of the Code.

    Q24. What is the effect of making an elective payment election? (added June 14, 2023)

    A. An applicable entity that makes an elective payment election is treated as having made a payment against federal income taxes for the taxable year with respect to which an applicable credit was determined, in the amount of such credit. For example, if an applicable entity has any remaining federal income tax liability, then the amount of the credit first offsets that tax liability and the rest is refunded to the applicable entity. If the applicable entity has no federal income tax liability, the applicable entity's refund will be equal to the full amount of the applicable credit.

    Q25. When do I receive my payment if I use elective pay? Can I receive a payment before the due date for an annual return? (updated March 5, 2024)

    A. In general, payments occur after the tax return is processed (assuming requirements are met). Under the statute, the taxpayer is not entitled to the elective payment until the due date of the return, even if the taxpayer files the return before that date.

    For example, in the case of a tax-exempt or governmental entity that is not required to file a return and that keeps its books and records for purposes of the elective payment election on a calendar year basis, the entity’s original filing due date of May 15, 2024 would be the earliest that the entity is entitled to the payment for any tax credit for eligible activities occurring in 2023.

    In addition, applicable entities without an annual filing requirement will receive an automatic, paperless 6-month extension to file their return and make an elective pay election.  See also Q22 and Q23 for more information on entities not required to file.  

    In general, entities that file by the due date of their return and appropriately elect elective pay can anticipate payment issuance within 45 days of the due date of their annual return. In some cases, this may take less or more time.

    Q26. At what stage of development, construction, or operations are projects eligible for elective pay? (added June 14, 2023)

    A. Elective pay is only available after an applicable credit is earned and able to be claimed on the relevant annual tax return. In general, a tax credit is earned during the taxable year the applicable credit property is placed in service (investment tax credits) or eligible production occurs (production tax credits). As described in Q13, an applicable entity can use elective pay with respect to 12 credits as long as it meets the tax credit's underlying requirements.

    Q27. Can I apply elective pay to taxable years beginning before December 31, 2022? (added June 14, 2023)

    A. No. Elective pay is only effective for taxable years beginning after December 31, 2022. As a result, if your taxable year begins in the middle of the calendar year, even though one of your taxable years ends during 2023, section 6417 only applies to the taxable year that begins in 2023.  See Q23 for more information on determining a taxable year.

    Q28. My organization is not ordinarily required to file a tax return. Do I need to file a return to make an elective payment election? (added June 14, 2023)

    A. Yes. Entities not ordinarily required to file tax returns must file a tax return to make the elective payment election. Such an entity must file the return they would be required to file if they did have such a requirement (such as for an individual or business in the territories), or the Form 990-T, Exempt Organization Business Income Tax Return, if no such return is required (such as for governmental entities including Indian tribal governments), along with properly completed source credit forms, a properly completed Form 3800, General Business Credit (or its successor), and any required return attachments and information required in instructions to the relevant forms. For general filing tips for exempt organization returns, see Filing tips for exempt organization returns: Tax years after 2007.

    Q29. My organization is ordinarily required to file a U.S. Corporate Tax Return using Form 1120. What do I need to file to make an elective payment election? (added June 14, 2023)

    A. Entities that are ordinarily required to file a tax return must file that tax return. If you are ordinarily required to file Form 1120, U.S. Corporation Income Tax Return, you should claim elective pay using the Form 1120, along with properly completed source credit forms, a properly completed Form 3800, General Business Credit (or its successor), and any required return attachments and information required in instructions to the relevant forms.

    Q30. Can I revoke the election? (updated March 5, 2024)

    A. For applicable entities, any elective payment election is irrevocable and applies with respect to any applicable credit for the taxable year for which the election is made.

    For applicable entities making the elective payment election with respect to the section 45 credit or section 45Y credit, the election generally applies for 10 years. For applicable entities making the elective payment election with respect to the section 45Q credit, the election generally applies for 12 years. For applicable entities making the elective payment election with respect to the section 45V credit, the election applies to all subsequent taxable years with respect to the facility.

    There are different rules for electing taxpayers that do allow for a one-time revocation of the elective payment election during the 5-year period the election applies.

    Q31. Can the IRS audit an applicable entity or taxpayer that makes an elective payment election? (updated March 5, 2024)

    A. Yes. Entities that make an elective payment election could potentially be selected for an IRS audit. If the IRS identifies a problem with an applicable entity's or electing taxpayer's elective payment election, including the underlying tax credits or associated bonus credits, the IRS might need to collect payment from the applicable entity or electing taxpayer. The amount that needs to be repaid would vary based on the specific circumstances.

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    What is the pre-filing registration process?

    Q32. What is the pre-filing registration process? (updated March 5, 2024)

    A. Pre-filing registration is a required electronic process for all entities that intend to make an elective payment election (or those that intend to make a credit transfer). It is designed to expedite the processing of returns and prevent improper payments.

    As part of the pre-filing registration process, you will need to list all applicable credits you intend to claim on your income tax return or Form 990-T and each applicable credit property that contributed (or will contribute) to the determination of such credits. You will also need to provide any other specific information required, such as any required information about each applicable credit property. Once you successfully complete the pre-filing registration process, you will receive a registration number(s) that will be necessary for making the elective payment election or a transfer election on your tax return.

    To register or for more information about the pre-filing registration process, see Registering for elective payment or transfer of credits. There you can also find Publication 5884, Inflation Reduction Act (IRA) and CHIPS Act of 2022 (CHIPS) Pre-Filing Registration Tool User GuidePDF and Publication 5902, Clean Energy Authorization Permission Management User GuidePDF.

    Q33. What is the result of the elective pay pre-filing registration process? (updated March 5, 2024)

    A. After you complete the pre-filing registration process, the IRS will review the information provided and will issue a separate registration number for each applicable credit property for which you provided sufficient verifiable information.  If the IRS declines to issue a registration number because of insufficient verifiable information, you may revise or augment your pre-filing registration and resubmit it for consideration.

    Q34. Does receipt of a registration number guarantee that I am eligible for the credit and that payment will occur once I file a timely tax return making the elective pay election? (updated March 5, 2024)

    A. No, a registration number does not guarantee credit eligibility. Pre-filing registration provides the IRS with information that helps ensure the prompt processing of the election and payment after a tax return is filed. You still must establish eligibility for the credit on your tax return and make a timely, proper election before a payment will occur. In addition, you must substantiate your eligibility for the credit if selected for an IRS audit.

    Q35. How many registration numbers do I need? (updated March 5, 2024)

    A. In general, you must register and obtain a separate registration number for each applicable credit property that contributes to an applicable credit and for which you intend to make an elective payment election. The number of registration numbers required depends on how many applicable credit properties will generate those credits.

    For example, if you are planning to make an elective payment election to claim credits related to two applicable credit properties (for example, a solar energy property and a geothermal energy property), you would complete and list both properties during the pre-filing registration process to obtain registration numbers for each property. When making an elective payment election for the credit attributable to both properties, you must provide both registration numbers when filing your tax return.

    You may need multiple registration numbers if you have multiple projects.  To determine whether you can “group” projects under a single registration number, check the rules of the underlying credit.  As a general matter, the elective pay rules contemplate separate registrations.  For more information, see Publication 5884.

    Q36. When can I complete pre-filing registration? (updated March 5, 2024)

    A. The online pre-filing registration process launched in December of 2023. You may complete pre-filing registration as soon as you have all the information required, including the date your applicable credit property was placed in service.  

    To register or for more information about the pre-filing registration process, see Registering for elective payment or transfer of credits. There you can also find Publication 5884, Inflation Reduction Act (IRA) and CHIPS Act of 2022 (CHIPS) Pre-Filing Registration Tool User GuidePDF and Publication 5902, Clean Energy Authorization Permission Management User GuidePDF, as well as video tutorials and other useful information.

    Q37. Some elections last multiple years. How long is a registration number valid? (updated March 5, 2024)

    A. A registration number is only valid for the taxable year for which it is obtained. If the election for a particular applicable credit property lasts more than one year, its registration number must be renewed each year during the election period. For example, to make an elective payment election for the Renewable Electricity Production Credit with respect to a particular energy property over the course of the 10 years provided in the statute requires annually completing the pre-filing registration process to renew the registration number with respect to that property.

    Q38. What happens if I don't complete the pre-filing registration process?  (updated March 5, 2024)

    A. Completing the pre-filing process and receiving a registration number is a requirement to making an elective payment election. An elective payment election is not valid unless it contains the registration number assigned to you.  You may request an extension of time to file your annual tax return, if needed.

    Q39. Do I have to make an elective payment election if I receive a registration number through the pre-filing registration process? (updated March 5, 2024)

    A. No. Completing the pre-filing registration process does not require that you make an elective payment election when filing a return. Also, the pre-filing registration process is unnecessary if you will not be using elective pay (or making a transfer election) (for example, if you are using the credit against your annual Federal tax liability).

    Q40. My organization does not have reliable internet or electricity service. How can I complete electronic pre-filing registration and claim elective pay? (updated March 5, 2024)

    A. Please reach out to irs.elective.payment.or.transfer.of.credit@irs.gov for more information. While pre-filing registration is an entirely electronic process, the IRS will work with organizations that cannot find a way to submit their registrations electronically.

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    Additional elective payment election rules

    Q41. I funded the purchase of an investment-related credit property with grants and forgivable loans exempt from taxation. Can I include those amounts in the basis of the property for purposes of calculating the amount of the credit? (updated March 5, 2024)

    A. Yes. For purposes of section 6417, amounts that are exempt from taxation under subtitle A of the Internal Revenue Code or otherwise excluded from taxation (such as income from certain grants and forgivable loans), and used to purchase, construct, reconstruct, erect, or otherwise acquire an applicable credit property described in section 30C, 45W, 48, 48C, or 48E (investment-related credit property) are included in basis for purposes of computing the applicable credit amount determined with respect to the applicable credit property, regardless of whether basis is required to be reduced (in whole or in part) by such amounts under general tax principles.

    The final regulations, however, prevent an applicable entity from obtaining an excess benefit. If you receive a grant, forgivable loan, or other income exempt from taxation under subtitle A or otherwise excluded from taxation (tax exempt amount) for the specific purpose of purchasing, constructing, reconstructing, erecting, or otherwise acquiring an investment-related credit property (restricted tax exempt amount), and the sum of any restricted tax exempt amounts plus the applicable credit otherwise determined with respect to that investment-related credit property exceeds the cost of the investment-related credit property, then the amount of the applicable credit is reduced so that the total amount of applicable credit plus the amount of any restricted tax exempt amounts equals the cost of investment-related credit property. 

    Please note the following clarifications:

    • The determination of whether a tax-exempt grant is made for the specific purpose of purchasing, constructing, reconstructing, erecting, or otherwise acquiring an investment-related credit property is made at the time the grant is awarded to the applicable entity. 
    • A tax exempt grant awarded after the investment-related credit property is purchased, constructed, reconstructed, erected, or otherwise acquired is generally not a restricted tax exempt amount unless approval of the grant was perfunctory and the amount of the grant was virtually assured at the time of application. 
    • The determination of whether a loan is made for the specific purpose of purchasing, constructing, reconstructing, erecting, or otherwise acquiring an investment-related credit property and whether forgiveness of that loan is dependent on satisfying that specific purpose is made at the time the loan is approved. The excess benefit rule, however, does not apply if a tax exempt amount is not received for the specific purpose of purchasing, constructing, reconstructing, erecting, or otherwise acquiring a property eligible for an investment-related credit.
      • Examples of tax exempt amounts that are not restricted tax exempt amounts are:  
        • A tax exempt amount from the organization’s general funds is not a restricted tax exempt amount; and
        • A tax exempt amount’s use that is not restricted to the purpose of purchasing, constructing, reconstructing, erecting, or otherwise acquiring an investment-related credit property (such as purchasing an electric vehicle) and could be used for any of several different applicable credit properties (such as purchasing an electric vehicle or purchasing solar panels) or can be put to other purposes (such as purchasing an electric vehicle or making a building more energy efficient).

    To illustrate:

    • School district A receives a tax-exempt grant in the amount of $400,000 from a federal agency to purchase electric school bus B. A purchases B for $400,000. A's basis in B is $400,000. B qualifies for the maximum section 45W credit, $40,000. However, because the amount of the restricted tax-exempt grant plus the amount of the section 45W credit exceeds the cost of B, A's section 45W credit is reduced by the amount necessary so that the total amount of the section 45W credit plus the restricted tax-exempt amount equals the cost of B. A's section 45W credit is therefore reduced by $40,000 to zero.
    • Now assume that the grant above is in the amount of $300,000. A purchases B using the grant and $100,000 of A's unrestricted funds. A's basis in B is $400,000 and A's section 45W credit is $40,000. Since the amount of the restricted tax-exempt grant plus the amount of the section 45W credit ($340,000) is less than the cost of B, A's 45W credit under section 6417(b)(6) is not reduced.
    • Public charity B receives a $60,000 grant from a private foundation to build energy property, P, a qualified investment credit property that costs $80,000. B uses $20,000 of its own funds plus the $60,000 grant to build P. B's basis in P is $80,000. Based upon acquisition cost, B can earn a section 48 investment credit (with bonus credit amounts) of $40,000 (50% of basis). However, because the amount of the restricted tax-exempt grant ($60,000) plus the section 48 credit ($40,000) exceeds P's cost by $20,000, B's section 48 applicable credit is reduced by $20,000 so that the total amount of the section 48 investment credit plus the restricted tax-exempt amount equals the cost of P.

    Q42. What if my project needs bridge financing, debt financing, or tax-exempt bond financing before I receive payment, can I still claim the credit using elective pay? (added June 14, 2023)

    A. Yes. Using bridge or debt financing of the project generally does not affect the elective payment election. Tax-exempt bonds may result in a reduction of the underlying credit amount. Please check the requirements of the underlying credit.

    Q43. Can I make an elective payment election for credits that I purchased or that were transferred to me? (updated March 5, 2024)

    A. No. Any credits for which an election for elective payment election is made must have been determined with respect to you. You must both own the underlying eligible credit property and conduct the activities giving rise to the applicable credit or, in the case of a section 45X credit for which ownership of applicable credit property is not required, be considered (under the section 45X regulations) the taxpayer with respect to which the section 45X credit is determined.   No elective payment election may be made for credits purchased pursuant to section 6418, transferred pursuant to section 45Q(f)(3), acquired by a lessee from a lessor by means of an election to pass through the credit to a lessee under former section 48(d) (pursuant to section 50(d)(5)), owned by a third party, or otherwise not determined directly with respect to you.

    Q44. I was told I can't use business tax credits outside of an unrelated trade or business. Is that correct? (added June 14, 2023)

    A. Section 6417 provides special rules to address that problem. The statute provides that, for any applicable entity making an elective pay election, any applicable credit is determined

    1. without regard to the restrictions regarding use of property by tax-exempt organizations and government entities including Indian tribal governments found in sections 50(b)(3) and (4)(A)(i), and
    2. by treating any property with respect to which such credit is determined as used in a trade or business of the applicable entity.

    Q45. Are there special rules for partnerships and S corporations? (updated March 5, 2024)

    A. Partnerships and S corporations may make an elective payment election with respect to sections 45Q, 45V, or 45X and will receive a payment directly from the IRS equal to the amount of the applicable credit. This payment will be treated as tax-exempt income for purposes of section 705 and 1366 and will be allocated to the partners or shareholders based on their share of the otherwise applicable credit. A partner may not make an elective payment election with respect to any applicable credit determined with respect any facility or property held directly by a partnership or S corporation. More information on claiming these three tax credits is provided in the final regulations.

    Q46. For the credits for which taxable entities can claim elective pay (45X, 45V, 45Q), are there limits on the time period over which elective pay can be claimed? (updated March 5, 2024)

    A. Yes. Electing taxpayers make the election for five consecutive taxable years per eligible credit property and are allowed one revocation. More information on claiming these three tax credits is provided in the final regulations.

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