Treasury Releases Final Rule Providing Clarity on How Nonprofits and Tribes Can Receive Payment for Clean Energy Credits

On March 5, 2024, Treasury released a final rule on the direct pay provision of the IRA that allows entities lacking federal tax liability – such as nonprofits, Native American tribes, and state and local governments – to benefit from the IRA’s clean energy tax credits. The final rule provides clarity on how tax-exempt entities can qualify to receive direct payments (also called “elective payments”) for IRA tax credits, including information on the pre-filing registration process, clarification on definitions and special rules for partnerships and S corporations, and information on the repayment of excess payments.

The IRA created two new procedures allowing entities lacking federal tax liability to take advantage of the tax credits – section 13801 of the IRA created both the direct pay procedure and a procedure allowing for the transfer of tax credits to other entities with tax liability. Treasury announced that it will be issuing final rules on transferability in the near future.