On December 22, 2023 the Internal Revenue Service (IRS)
announced the availability of the anticipated "IRA/CHIPS
Pre-filing Registration Tool" (the "Tool") relating
to elective payment of certain tax credits. State and local
governments and political subdivisions thereof, Indian tribal
governments, tax-exempt organizations and other applicable entities
will now be able to use the Tool to register tax credits expected
to be claimed as direct payments for eligible energy projects.
The IRS announcement and additional information regarding the Tool
may be found here.
There are 12 tax credits currently eligible for direct payments
(also referred to as "elective payment") including, for
example, the following credits: renewable electricity production
(I.R.C. § 45 – pre-2025); carbon oxide sequestration
(I.R.C. § 45Q); clean electricity production (I.R.C. §
45Y – 2025 onwards); energy credit (I.R.C. § 48 –
pre-2025); and clean electricity investment credit (I.R.C. §
48E – 2025 onwards). Elective payment of these tax credits
was made available through the Inflation Reduction Act of 2022,
Pub. L. No. 117-169 (IRA). These tax credits are general business
credits under I.R.C. § 38. Elective payment under I.R.C.
§ 6417 creates an alternative way for applicable entities that
have earned tax credits to receive the benefit of the credits even
if these entities cannot use the credit to offset tax liability.
Please see our publication of June 16, 2023 describing
elective pay tax credits generally. Please contact any member of
the firm's Energy Group to discuss general eligibility
for elective pay tax credits.
Projects eligible for elective payments may be combined with
tax-exempt bonds, subject to the potential reduction in the amount
of the elective payment depending on how bond proceeds are used or
allocated. Further guidance from the Treasury Department is
expected concerning the combination of elective pay tax credits and
tax-exempt bonds for projects. Please contact any member of the
firm's Public Finance Tax Group to discuss the
structuring of tax-exempt bond projects with elective pay tax
credits.
Before an applicable entity may claim an elective payment by filing
its tax return and IRS Form 3800 (General Business Credits), the
entity must register each proposed applicable credit property with
the IRS. Such pre-filing registration is intended to prevent
duplication, fraud, improper payments, or excessive payments.
Temporary regulations in Treas. Reg. § 1.6417-5T require the
use of the Tool to accomplish such registration. An entity
expecting to claim an elective payment must complete the
pre-registration filing using the Tool no earlier than the
beginning of the tax year in which the entity expects to earn and
claim the elective payment. No filing can therefore be made before
the project's placed in service date. To avoid a delay in being
able to file for elective payments, the IRS recommends that the
registration be submitted at least 120 days before the date the
entity plans to claim the elective payment. A new user guide
released by the IRS provides step-by-step instructions for using
the Tool. The user guide may be found here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
