On March 5, 2024, the Treasury Department and Internal Revenue Service issued final rules governing elective payment elections for certain energy tax credits. Through elective pay, entities traditionally ineligible for these tax credits, such as public power utilities and rural electric cooperatives, may now claim such tax credits. The tax credits are an important financing tool for renewable energy projects.
The final rules largely adopted the proposed rules, but made some clarifications. An important clarification is that entities who have not previously filed an income tax return, like public power utilities, may choose whether to file their first Form 990-T on a calendar or fiscal tax year basis. The final rules also clarify that the tax return for such entities is due on the 15th day of the 5th month after the end of the taxable year. This added guidance allows previously ineligible entities to better plan for the development, implementation, and expense of developing and building their own projects rather than working within the requirements and timing of third-party development partners.
To claim a tax credit through elective pay, entities must complete their energy project, complete the pre-filing registration process and receive a registration number for their project, and make an elective payment election on an original tax return (or Form 990-T) that includes the project’s registration number (along with the required source credit forms and Form 3800, General Business Credit).
The tax credit amount for many of the tax credits, such as the investment and production tax credits, may be increased by satisfying “bonus” requirements, including the prevailing wage and apprenticeship (PWA) and energy community requirements. Entities claiming tax credits through elective pay must also satisfy the domestic content requirements for projects beginning construction in 2024 or have their tax credit amount reduced. In 2023, Treasury and the IRS released proposed rules and initial guidance on the PWA and energy community requirements and how to claim exceptions to the domestic content requirements for entities making elective payment elections for projects beginning construction in 2024. DWGP attorneys are monitoring Treasury and the IRS’s activity on these issues, as we expect Treasury and the IRS to issue further guidance this year.
The elective pay final rules are available here.
For more information on elective pay, tax credits, and the registration and filing process under the Inflation Reduction Act, please contact Keith Gordon, Jeff Genzer, or Gelane Diamond.
