Tax Tip 2023-94: Certain energy credits under the Inflation Reduction Act are elective pay eligible

IRS Tax Tips

July 25, 2023

Issue Number: Tax Tip 2023-94

Certain energy credits under the Inflation Reduction Act are elective pay eligible

Elective pay allows applicable entities, including tax-exempt and governmental entities that would otherwise be unable to claim certain credits because they do not owe federal income tax, to benefit from some clean energy tax credits. By choosing this election, the amount of the credit is treated as a payment of tax and any overpayment will result in a refund.

Applicable entity eligibility
Applicable entities can use elective pay. Applicable entities include:

Tax-exempt organizations such as public charities, private foundations, social welfare organizations, labor organizations, business leagues and others
States and political subdivisions such as local governments or Indian tribal governments
U.S. territories and their political subdivisions
Agencies and instrumentalities of state, local, tribal and U.S. territorial governments
Alaska Native corporations
The Tennessee Valley Authority
Rural electric cooperatives

How to receive the elective payment
For an eligible entity to receive an elective payment, they need to take the following steps:

Identify the project or activity they are pursuing and satisfy all requirements for the applicable credit.
Determine the correct tax year, which determines the due date of the tax return.
Complete the pre-filing registration process with the IRS. More information about this process will be available later in 2023.

After the pre-filing registration process is complete and the requirements for the applicable credit have been satisfied, the eligible entity can claim and receive an elective payment by choosing the election on their annual tax return along with any form required to claim the relevant tax credit.

Applicable entities need their own Employee Identification Number (EIN) or Tax Identification Number (TIN) to complete the pre-filing registration process. Applicable entities that don?t otherwise have a filing requirement cannot use or borrow the EIN of a related entity.

Eligible credits:

Production Tax Credit for Electricity from Renewables
Clean Electricity Production Tax Credit
Investment Tax Credit for Energy Property
Clean Electricity Investment Tax Credit
Low-Income Communities Bonus Credit
Credit for Carbon Oxide Sequestration
Zero-Emission Nuclear Power Production Credit
Advanced Energy Project Credit
Advanced Manufacturing Production Credit
Credit for Qualified Commercial Clean Vehicles
Alternative Fuel Vehicle Refueling Property Credit
Clean Hydrogen Production Tax Credit
Clean Fuel Production Credit

More information:
Elective Pay Overview, Publication 5817
Elective Pay Clean Energy Credits, Publication 5817-G

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Issue Number: Tax Tip 2023-94