Investment Tax Credits - Elective (Direct) Pay

The process of registering for elective payment or transfer of credits has several requirements and involves several steps, guided by the IRS and the U.S. Department of the Treasury. Navigating this process correctly is crucial for entities seeking to monetize clean energy tax credits under the Inflation Reduction Act (IRA) and the CHIPS Act.

Eligibility Requirements

Entities that can qualify for elective payments or transfers of credits include:

• Tax-exempt organizations
• State and local governments
• Indian tribal governments
• Alaska Native Corporations
• Rural electric cooperatives
• Businesses (for certain credits)

Types of Credits

Eligible tax credits include:

• Clean energy tax credits (e.g., Investment Tax Credit (ITC), Production Tax Credit (PTC))
• Advanced Manufacturing Credit
• Carbon Oxide Sequestration Credit
• Clean Hydrogen Credit

Pre-Filing Registration Process

1. Identity Verification

   • First-time users must complete personal identity verification through ID.me, a third-party provider.

2. Creating Accounts

   • Create an ID.me account.
   • Set up an “Energy Credits Online” (ECO) account for the IRS portal.

3. Information Submission

   • General Information: Name, address, entity type, bank account details, tax period, type of tax returns filed.
   • Credit-Specific Information: Details about the credit property, including relevant dates (beginning of construction, placement in service) and property location.

4. Registration Number

   • Obtain a registration number for each eligible credit property, which must be included on the taxpayer’s annual return when making an elective payment or transfer election.

Elective Payment vs. Transfer of Credits

Elective Payment

• Applicable entities receive direct payments equal to the tax credit's value.
• The credit is treated as a payment against federal income tax liabilities, with any excess refunded.
• Requires pre-filing registration and inclusion of the registration number on the annual return.

Transfer of Credits

• Businesses can transfer all or a portion of their credits to a third party in exchange for immediate, tax-free funds.
• Also requires pre-filing registration and the inclusion of the registration number on the annual return.

Important Considerations

• Timing: Registration must be completed before filing the tax return for the year the credit is earned. The IRS recommends registration at least 120 days prior to the tax return due date.
• Amendments: While amendments to the registration are allowed, they should be avoided if possible to prevent delays. Any amendments should be made at least 120 days before filing the annual return.
• Multiple Projects: Each project site requires a separate registration number. However, bulk submissions are possible for multiple registrations.

Submission Process

1. Complete the pre-filing registration on the IRS portal.
2. Wait for the IRS to issue the registration number.
3. Include the registration number on the annual tax return and make the elective payment or transfer election as part of the filing.

Following these steps ensures that all necessary information is accurately provided. For further details, refer to the IRS website and specific user guides issued by the IRS and the U.S. Department of the Treasury.