Public and tax-exempt entities can now access clean energy tax incentives. That means that governments, nonprofits, schools, churches, public power, rural coops, and more are eligible to receive cash from the IRS for installing solar, geothermal heat pumps, buying electric vehicles and trucks, and installing EV charging equipment.
Complete your project, place it into service, and determine the corresponding tax year.
You will need the documentation necessary to properly substantiate any underlying tax credit, including if bonus amounts increased the credit due to investing in an energy or low-income community, or using domestic content.
Determine when your tax return will be due.
For governmental public entities that do not currently file income taxes, this is likely to be 4.5 months after the accounting year. Entities that don’t currently file will have an automatic 6-month extension, totaling 10.5 months after the accounting year. For example, for a July-June accounting year entity with an accounting year ending June 30, 2023, the return due date would be November 15, 2024 and the 6-month extension would fall on May 15, 2025.
Complete pre-filing registration with the IRS before your tax return is due.
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. Entities can pre-file for any project that has been placed into service and the IRS recommends pre-filing at least 120 days before the return due date (including extensions). Upon completing this process, the IRS will provide you with a registration number for each property or facility.
File your tax return by the due date.
Entities that don’t currently file an income tax return should file a 990-T, a Form 3800 General Business Credit, and other any forms necessary. The regulations do not allow claiming direct pay on amended returns.
Receive your direct payment.
What taxable years does direct pay apply to?
Direct pay is available for taxable years beginning after December 31, 2022. Note that if your taxable year begins in the middle of the calendar year, even though one of your taxable years ends during 2023, direct pay only applies to the taxable year that begins in 2023.
Is there a filing deadline to claim direct pay?
A direct 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 4.5 months (for example, May 15 for a calendar year taxpayer) (or up to 10.5 months with extensions) after the end of the entity's tax year.
Can I partner with other organizations and still use direct pay?
Generally, partnerships and their partners are not eligible to claim direct pay. To be eligible, an entity must either directly own the property, own it through a disregarded entity, or 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 partnership treatment for tax purposes. Entities should consider whether their ownership structures or contractual agreements with other parties could constitute a partnership for Federal tax purposes.
If I’m a tax-exempt entity and I receive grants, forgivable loans, or issue bonds for the same activities, do I have to reduce my credits?
The credits are generally not reduced by amounts from grants or forgivable loans received - that is grants and tax credits can be stacked. However, if a restricted grant is used for that property and the combination of the grant and the value of the credit would exceed 100% of the property’s value, the tax credit is reduced so that it does not exceed 100%. Some examples are available in Q41 here. Grant and loan programs may have their own restrictions.
- On January 4, 2024 BEL hosted a third webinar on Treasury Guidance on Direct Pay Tax Credits with the NYU Tax Law Center. View the recording here. View the slides here.
- On June 20, 2023, after the latest guidance had been released, BEL held a second webinar on direct pay with the NYU Tax Law Center. View the recording here.
- On June 8, 2023, BEL held a webinar on direct pay with the NYU Tax Law Center. View the recording here.
Reach out to BEL if you have additional questions. These resources are intended to be informative and not tax advice. Always refer to IRS guidance and regulations for accurate information. Consult a tax professional to ensure compliance.