On March 5, 2024, Treasury released a notice of proposed rulemaking to provide guidance on how entities that co-own clean energy projects may qualify for direct payment of the IRA clean energy tax credits. While currently entities that are jointly owned may qualify for direct payment of IRA tax credits, Treasury’s proposed rule would create a broader and more accessible pathway for joint owners of clean energy projects to qualify through electing out of partnership tax treatment. Specifically, the proposed rule would allow direct pay when a jointly-owned clean energy project meets certain requirements, including that the partnership is designed exclusively for the purpose of producing electricity from the qualifying clean energy equipment, that at least one of the co-owners is eligible to receive direct payment (e.g., by being a nonprofit or Native American tribe), among other requirements.
The IRA created two new procedures allowing entities lacking federal tax liability to take advantage of the clean energy tax credits – section 13801 of the IRA created both the direct pay procedure and a procedure allowing for the transferability of tax credits to other entities with tax liability. Treasury announced that it will be issuing final rules on transferability in the near future.
Treasury invites public comment on the proposed rule through May 10, 2024.