July 8, 2024
The Inflation Reduction Act of 2022 (“IRA”) includes a host of tax incentives intended to accelerate investments in clean energy solutions. Nonprofit organizations that participate in clean energy projects or investments may benefit from these incentives.
Proposed regulations under the IRA allow tax-exempt organizations to benefit from certain clean energy credits, by electing direct payment from the IRS in lieu of a tax credit. Before the IRA, exempt organizations with no tax liabilities typically could not benefit from tax credits. Direct pay (also referred to as elective pay) effectively results in a cash payment, in the form of a tax refund of the creditable amount.
Qualified Renewable Energy Projects
Renewable energy projects eligible for credit include solar, wind, small wind, geothermal, fuel cell, energy storage, biogas, microgrid controllers, and combined heat and power properties. See IRS Publication 5817-G for a full list of the clean energy tax incentives that are eligible for elective pay. Eligible projects must be placed in service after December 31, 2022, to qualify.
Credit Amount
The base credit amount for eligible projects is 6% of the qualified investment. The credit amount can be increased to as much as 70%, if a project meets specific additional requirements. Please visit irs.gov/cleanenergy for further details and eligibility requirements.
Elective Pay Process
To be eligible to make the elective pay election and claim a tax refund, an entity must first pre-register using the IRS online tool. Registration numbers received through the online tool must be included on the entity’s tax return claiming the credit. Each entity filing a return to make an elective payment election must have its own employer ID number.
For exempt organizations, the elective payment election must be made on a timely filed Form 990-T (including extensions). This is true even for organizations that do not typically file Form 990-T to report unrelated business income, or that are not required to file an annual Form 990.
Form 3800 (General Business Credit) must also be filed with the Form 990-T to report the credit. Other forms relating to the specific tax credit may also need to be filed in a timely manner.
Your Action Step
The IRA is a complicated piece of legislation, and guidance and compliance requirements continue to be released. We can help your organization understand these complexities and how to position your project to receive and maximize eligible credits.
Please join GRF and our trusted partner, Tri-Merit Specialty Tax Professionals, for a webinar on August 29 to learn more about renewable energy tax credits, qualified projects, and the elective pay process for nonprofit organizations.
Contact
If you have questions or would like additional assistance, please contact your GRF tax professional or reach out to our team below. For more information on GRF’s suite of ESG services, visit our services page.
