Tax-exempt and governmental entities can benefit from clean energy tax credits using new options enabled by the Inflation Reduction Act of 2022 (IRA). The IRA allows certain exempt organizations to benefit from certain clean energy tax credits through elective pay. For tax years beginning after December 31, 2022, an applicable entity that qualifies for a clean energy tax credit can make an elective payment election. This election will treat certain credits as a payment against their federal income tax liabilities rather than as a nonrefundable credit. The amount of the credit will first offset any tax liability of the entity and any excess will be refundable.

How do I make an elective pay election?

The elective payment election is made on your annual tax return in the manner prescribed by the IRS, along with any form required to claim the relevant tax credit (source credit forms), a completed Form 3800, General Business Credit (or its successor), and any additional information, including supporting calculations, required in instructions to the relevant forms. Making an elective payment election requires completing multiple steps, including completing the required pre-filing registration process.

The term annual tax return includes:

for any person normally required to file an annual tax return with the IRS, such annual return (including Form 990-T for organizations with unrelated business income tax or a proxy tax under section 6033(e)); or
for any person that is not normally required to file an annual tax return with the IRS (such as taxpayers located in the territories), the return they would be required to file if they were not located in the territories, or, if no such return is required (such as for State, local, or Indian tribal governmental entities), the Form 990-T Exempt Organization Business Income Tax Return.

Electronic return filing is strongly encouraged.

Each entity making an elective payment election must have a unique EIN. More information about applying for an EIN is available at IRS.gov/ein.

How do I determine the taxable year?

Check the instructions for the annual tax return you are filing. For example, for tax-exempt entities filing Form 990-T, the return must be filed using the organization's established annual accounting period. If the organization has no established accounting period, file the return on the calendar-year basis.

How do I timely file my return?

An elective payment election may only be made on an original, timely filed return (including extensions). This means the deadline is the due date (including extensions of time) for the tax return for the taxable year for which the election is made. For most tax exempt and government entities including Indian tribal governments this is generally 4.5 months (for example, May 15 for a calendar year taxpayer) (or up to 10.5 months with extensions) after the end of the entity's tax year.

An original return includes a superseding return filed on or before the due date (including extensions). No election is permitted to be made on an amended return or by filing an administrative adjustment request under section 6227 of the Code. There is no relief available under §§ 301.9100-1 through 301.9100-3 of the Procedure and Administration Regulations (26 CFR part 301) for an elective payment election that is not timely filed.

Additional information about Clean Energy Credits can be found at IRS.gov/cleanenergy.

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