Section 13801 of the IRA allows a taxpayer to elect to transfer certain tax credits to another, unrelated taxpayer beginning in tax year 2023. Transfers must be reported to the Internal Revenue Service (“IRS”) and only one transfer is allowed. Tax credits eligible for transfer include those established in section 30C (alternative fuel vehicle refueling property credit), 45 (renewable electricity production tax credit), 45Q (carbon oxide sequestration credit), 45U (zero emission nuclear power production credit), 45V (clean hydrogen production credit), 45X (advanced manufacturing production credit), 45Y (clean electricity production tax credit), 45Z (clean fuel production credit), 48 (energy investment tax credit), 48C (advanced energy project manufacturing investment tax credit), and 48E (clean electricity investment credit).
Section 13801 of the IRA also allows tax-exempt entities, state and local governments, Native American tribes, and Alaska native corporations to elect to treat certain tax credits as refundable payments of tax. In tax years 2023 through 2032, such entities are eligible to receive a direct payment for any amount paid in excess of their tax liability for credits under Sections 30C (alternative fuel refueling property), 45 (renewable electricity production credit), 45Q (carbon oxide sequestration credit), 45U (zero-emission nuclear power production credit), 45V (clean hydrogen production credit), 45W (commercial clean vehicle credit), 45X (advanced manufacturing production credit), 45Y (clean electricity production credit), 45Z (clean fuel production credit), 48 (energy investment tax credit), 48C (qualifying advanced energy project credit), and 48E (clean electricity investment credit) of the IRC. Certain tax-exempt entities may also elect to receive a direct payment of tax credits under Section 45W (qualified commercial vehicles). For the 45Q, 45V, and 45X tax credit programs, entities may elect to receive direct pay for five consecutive years (ending no later than 2032).
Eligible Entities:
Current Status:
Trump Administration Actions:
- IRS Finalizes Clean Energy Direct Pay Rules for Tribes [12/15/2025]
- Senate Parliamentarian Advises Several Provisions in Republicans’ “One Big, Beautiful Bill” Are Not Permissible, Subject to Byrd Rule [06/19/2025]
- Senate Finance Committee Releases Budget Reconciliation Draft Text [06/16/2025]
- IRS Offers Office Hours For IRA and CHIPS Act Credits [06/04/2025]
- OMB Orders Temporary Pause on Financial Assistance Programs, Later Rescinded [01/27/2025]
- OMB Clarifies Scope of the Order to Halt IRA Spending [01/21/2025]
- Trump Issues Executive Order to Halt All IRA Funding Disbursements [01/20/2025]
Implementation Status at End of Biden Administration:
IRS issued two final elective pay regulations, expanding elective pay access for entities usually lacking federal tax liability – Native American tribes, rural electric co-ops, public schools and tax-exempt organizations. Final regulations pertaining to elective pay clarified how co-owned clean energy projects could be treated as partnerships. Treasury also released final rules on transferability, allowing entities to transfer energy credits to third parties so they can take advantage of tax incentives even when lacking sufficient tax liability.
Treasury reported 900 entities requesting 59,000 registration numbers for various credits as of April 2024, 97% of which are “pursuing transferability.” 1,300 separate projects are using elective pay, including over 75 local and state governments seeking to “register approximately 650 clean buses and vehicles through elective pay.” As of May 2024, the Treasury Inspector General for Tax Administration highlighted elective payments and transfer of credits amounting to $381 million. Multiple organizations emphasize the positive impact of elective pay and transferability on nonprofits’ ability to install and utilize renewable energy sources.
Biden Administration Actions:
- Treasury Final Rules Provide Clarity on Direct Pay Eligibility for Tax Exempt Entities in Partnerships [11/19/2024]
- Treasury Releases Proposed Rules for Unincorporated Organizations Seeking Direct Pay [11/19/2024]
- IRS Announces Six-Month Extension for Elective Pay Filing [10/11/2024]
- Treasury Releases Proposed Rule Clarifying that Tribal-Owned Entities Are Eligible for Direct Pay [10/07/2024]
- FERC Publishes Guidance on IRA Tax Credit Transfer [09/19/2024]
- Treasury Releases Final Rules on Transferability of Clean Energy Tax Credits [04/25/2024]
- Treasury Releases Final Rule Providing Clarity on How Nonprofits and Tribes Can Receive Payment for Clean Energy Credits [03/05/2024]
- Treasury Releases Proposal to Allow Jointly-Owned Clean Energy Projects to Qualify for Direct Payment [03/05/2024]
- Treasury Seeks Comment on Clean Energy Credit Elective Pay and Credit Transfer [03/05/2024]
- IRS Issues Guidance on Elective Payment Statutory Exemption [12/28/2023]
- IRS Launches Pre-Filing Registration Tool for Direct Pay and Transfer of Clean Energy Tax Credits [12/22/2023]
- Treasury Proposes Elective Payment Regulations [06/14/2023]
- Treasury Proposes Regulations on the Transferability of Tax Credits [06/14/2023]
- Treasury Requests Comments on IRA Transferability and Direct Pay Provisions [10/05/2022]
Litigation:
In Hoffman v. Department of Treasury (filed January 15, 2025), three individuals sued the U.S. Department of Treasury and local government parties for implementing the IRA’s renewable energy tax credits in violation of the National Environmental Policy Act with respect to renewable projects in Kansas. On July 1, 2025, the court granted the defendants’ motion to dismiss for failure to state a claim and for lack of standing, and entered a judgment for the defendants. On August 6, Hoffman appealed the judgment in the Tenth Circuit Court of Appeals.