Clean energy credits: 5 things tax-exempt orgs can do now

In summary

Tax-exempt organizations have an opportunity to make the most of their clean energy credits through the direct-pay election.
Interested organizations need to familiarize themselves with the requirements and process.

The clean energy tax benefits enacted by the Inflation Reduction Act of 2022 (IRA) present valuable opportunities for tax-exempt organizations.

One key aspect of the IRA is that tax-exempt organizations can monetize the credits through the direct-pay election under IRC Section 6417, regardless of their unrelated business income (UBI) position. The direct-pay election is available for the following applicable clean energy tax credits:

Section 30C – Alternative fuel vehicle refueling property tax credit
Section 45 – Renewable electricity production tax credit
Section 45Q – Carbon capture and sequestration tax credit
Section 45U – Zero emissions nuclear power tax credit
Section 45V – Clean hydrogen tax credit
Section 45W – Qualified commercial clean vehicle tax credit

Section 45X – Advanced manufacturing production tax credit
Section 45Y – Clean electricity production tax credit
Section 45Z – Clean fuel production tax credit
Section 48 – Energy credit
Section 48C – Advanced energy project tax credit
Section 48E – Clean electricity investment tax credit

To benefit from claiming these credits, tax-exempt organizations must complete prefiling registration and obtain a registration number before making the election. A separate registration number is required to be obtained for each credit claimed. The prefiling registration process can be complex and might require corresponding with the IRS before a registration number is issued. Registration numbers must be renewed annually. The registration number must be included on the annual return claiming the credit. Receipt of a registration number does not guarantee credit eligibility or direct payment eligibility.

To simplify the registration process, the IRS launched the IRA and CHIPS Act of 2022 Pre-Filing Registration Tool. Organizations should submit prefiling registration no earlier than the start of the tax year in which they will claim the credit. The IRS recommends that taxpayers register at least 120 days before filing the return on which the credit will be claimed.

Crowe observation

Organizations with a calendar year-end that filed an extension might still have time to apply for a registration number.

5 things exempt organizations can do now

Understand the available opportunities. A significant number of clean energy tax benefits are eligible for direct payment, but each has its own specific criteria for eligibility. It is important to evaluate all potential energy tax credits to determine if any might be appropriate given the organization’s current operations and future goals.
Review current and planned construction projects. Clean energy tax incentives can cover up to 30%-50% of the cost of eligible property, so tax-exempt organizations should carefully evaluate current and planned construction projects to determine potential credit eligibility. Consult with a tax adviser to learn about all potentially applicable credits.
Register for each credit. Prefiling registration is required for each credit an organization intends to claim. Compliance with this process is crucial to claim the incentives offered by the IRA. The process is complex and time-consuming, so start the registration process well in advance of return filing due dates.
Make the direct pay election. Tax-exempt organizations can benefit from the direct-pay election regardless of their UBI position, reducing the net capital outlay of their clean energy projects.
Act now. The IRS recommends starting the registration process at least 120 days before the filing deadline for the return claiming the credit. Organizations eligible for credits that have not yet registered should consult with their tax advisers to see if there is still time to register to claim credits on returns to be filed in 2024.

Looking ahead

Organizations considering the direct-pay election should consult their tax advisers to determine eligibility, discuss compliance timelines, and initiate the prefiling registration process. Taking a proactive approach allows ample time for completion of the prefiling registration process.

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