IRS Direct Pay Final Rules

Direct Pay Final Rules

As part of the Biden-Harris Administration’s Investing in America agenda, the U.S. Department of the Treasury and the Internal Revenue Service (IRS) released final rules on elective pay, (otherwise known as “direct pay”).  Elective pay is an important mechanism in the Inflation Reduction Act (IRA) that helps enable state, local, and Tribal governments; non-profit organizations; Puerto Rico and other U.S. territories; and other entities to take advantage of clean energy tax credits. Treasury’s elective pay final rules provide certainty for applicable entities to understand the law’s scope and requirements for eligibility. Some highlights of the final regulations include:

1. Definition of “applicable entity”
2. Pre-filing registration process
3. Determining tax year for entities that do not have a Federal income tax or Form 990 filing obligation
4. Special rule on tax-exempt grants and forgivable loans
5. Applicable entities that co-own electricity-producing applicable credit property

Check out the following elective pay resources:

• Elective Pay Overview, Publication 5817
• Rural Electric Cooperatives, Publication 5817-A
• U.S. Territorial Governments, Publication 5817-B
• Alaska Native Corporations, Publication 5817-C
• Tax-Exempt Organizations, Publication 5817-D
• State and Local Government, Publication 5817-E
• Indian Tribal Governments, Publication 5817-F
• Clean Energy Tax Incentives: Elective Pay Eligible Tax Credits, Publication 5817-G
• IRS Elective Pay Frequently Asked Questions
• Treasury.gov/IRS-ResourcesHub
• IRS.gov/ElectivePay
• CleanEnergy.gov/DirectPay

In addition to these final rules, Treasury and the IRS also released a proposed rule that is intended to provide further clarity and flexibility for applicable entities that that co-own clean energy projects and would like to utilize elective pay.  Finally, the IRS is hosting upcoming office hours for direct pay applicable entities that have questions specifically about the pre-filing registration process. A schedule of those hours and links to register can be found below:   

• March 13, 2024, 1-2:30 PM EDT: Register Here
• March 20, 2024, 1-2:30 PM EDT: Register Here
• March 27, 2024, 1-2:30 PM EDT: Register Here
• April 3, 2024, 1-2:30 PM EDT: Register Here
• April 10, 2024, 1-2:30 PM EDT: Register Here
• April 17, 2024, 1-2:30 PM EDT: Register Here
• April 24, 2024, 1-2:30 PM EDT: Register Here

The final rules follow the proposed regulations on elective pay issued on June 14, 2023. Upon issuing the proposed guidance, Treasury received and carefully considered 151 written comments, conducted a public hearing, and held a Tribal consultation. 

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