FAQ Released on Elective Pay, Transfers of Clean Energy Credits

Elective Pay and Transferability Frequently Asked Questions: Overview

Q1. What is an Elective Payment (also known as an "elective pay" and informally as "direct pay")? (added June 14, 2023)

A. Elective pay allows applicable entities (as defined), including tax-exempt and governmental entities that would otherwise be unable to claim these credits because they do not owe federal income tax, to benefit from some clean energy tax credits by treating the amount of the credit as a payment of tax and refunding any resulting overpayment.

For example, as a result of the Inflation Reduction Act, a local government that makes a clean energy investment that qualifies for the investment tax credit can file an annual tax return (via Form 990-T) with the IRS to claim elective pay for the full value of the investment tax credit, as long as it meets all of the requirements, including a pre-filing registration requirement. As the local government would not owe other federal income tax, the IRS would then make a refund payment in the amount of the credit to the local government. See Q15 on the Applicable Credits for Elective Pay page for a list of applicable tax credits.

Q2. What is Credit Transfer (also known as "transferability") and who can use it? (added June 14, 2023)

A. Transferability allows a taxpayer who generates certain clean energy tax credits to elect to transfer (i.e., sell) all or a portion of a tax credit to an unrelated third-party transferee (i.e., buyer) in exchange for cash. In such transactions, the buyer and seller negotiate and agree to the terms and pricing. The transferor is sometimes referred to as the "seller" and the transferee is sometimes referred to as the "buyer". Applicable entities cannot use transferability; they can only use elective pay.

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Elective Pay and Transferability Frequently Asked Questions: Elective Pay

Eligibility

Q1. Who is eligible to use elective pay? What is an applicable entity? (added June 14, 2023)

A. Applicable entities can use elective pay. Applicable entities include tax-exempt organizations, States, and political subdivisions such as local governments, Indian tribal governments, Alaska Native Corporations, the Tennessee Valley Authority, rural electric co-operatives, U.S. territories and their political subdivisions, and agencies and instrumentalities of state, local, tribal, and U.S. territorial governments. See Q10 for information about other taxpayers.

Q2. What tax-exempt organizations are eligible? (added June 14, 2023)

A. Organizations that are exempt from tax by § 501(a) are eligible for elective pay. This would include all organizations described in § 501(c), such as public charities, private foundations, social welfare organizations, labor organizations, business leagues, and others. It also includes religious or apostolic organizations under § 501(d).

Q3. What state, local, and political subdivisions are eligible? (added June 14, 2023)

A. States, political subdivisions, and their agencies and instrumentalities are all eligible for elective pay. This includes the District of Columbia. It also includes cities, counties, and other political subdivisions. Water districts, school districts, economic development agencies, and public universities and hospitals that are agencies and instrumentalities of states or political subdivisions are also included.

Q4. What Indian tribal governments or tribal tax-exempt entities are eligible? (added June 14, 2023)

A. An Indian tribal government, political subdivision thereof, or any agency or instrumentality of a Tribal government or political subdivision is eligible for elective pay. For this purpose, the term "Indian tribal government" means the recognized governing body of any Indian or Alaska Native tribe, band, nation, pueblo, village, community, component band, or component reservation, individually identified (including parenthetically) in the most recent list published by the Department of the Interior published in the Federal Register under the Federally Recognized Indian Tribe List Act of 1994.

Tribal entities are also eligible to the extent they are described in § 501(a), (see Q2).

Q5. What Alaska Native Corporations are eligible? (added June 14, 2023)

A. Any Alaska Native Corporation (as defined in section 3 of the Alaska Native Claims Settlement Act (43 U.S.C. 1602(m)) is eligible, meaning any Regional Corporation, any Village Corporation, any Urban Corporation, and any Group Corporation, which is organized under the laws of the State of Alaska.

Settlement Trusts are not eligible based on affiliation with an Alaska Native Corporation but do qualify if the Settlement Trust qualified for exempt status under section 501(a) and applied for and received a determination letter from the IRS recognizing any such tax-exempt status.

Q6. What U.S. territories are eligible? (added June 14, 2023)

A. U.S. territory governments, their political subdivisions, and their agencies and instrumentalities are eligible for elective payment.

Q7. Do any special rules limit application of the credits in the territories? (added June 14, 2023)

A. Yes. There are tax rules relating to the investment-related tax credits (that is, section 30C, 45W, 48, 48C, and 48E credits) that generally provide that credit-eligible property cannot be used predominantly outside the United States (the fifty states and the District of Columbia) unless the property is owned by a US corporation or US citizen (other than a citizen entitled to the benefits of section 931 (Guam, American Samoa, or the Northern Mariana Islands) or section 933 (Puerto Rico)). Therefore, property used in the territories and owned by a territory government, or an entity created in or organized under the laws of a U.S. territory generally would not qualify for the section 30C, 45W, 48, 48C, and 48E credits. However, these restrictions do not apply to the production credits eligible for elective pay (sections 45, 45Q, 45U, 45V, 45X, 45Y, and 45Z).

Q8. What rural electric cooperatives are eligible? (added June 14, 2023)

A. Any corporation operating on a cooperative basis that is engaged in furnishing electric energy to persons in rural areas is eligible. A rural electric cooperative's use of elective pay does not affect the 85-percent income test of a tax-exempt electric cooperative.

Tax exempt rural electric cooperatives are eligible to use elective pay for all 12 credits listed in Q13. Those that are not tax exempt may use elective pay for each of the credits listed except for the Commercial Clean Vehicles credit (45W).

Q9. Is the Tennessee Valley Authority eligible? (added June 14, 2023)

A. Yes. The Tennessee Valley Authority is an eligible entity.

Q10. What types of businesses are eligible? What is an electing taxpayer? (added June 14, 2023)

A. Generally, only "applicable entities" (the entities discussed in Q1-Q8) are eligible for Elective Pay. However, there are special rules for three of the clean energy tax credits. Specifically, other taxpayers that are not "applicable entities" may make an election to be treated as an applicable entity for elective pay (in these FAQs these are described as "electing taxpayers") with respect to applicable credit property giving rise to (1) the section 45Q credit (credit for carbon oxide sequestration), (2) the section 45V credit (credit for production of clean hydrogen), or (3) the section 45X credit (advanced manufacturing production credit). There are additional rules if the taxpayer is a partnership or S Corporation.

Q11. What type of property ownership is required for projects using elective pay? (added June 14, 2023)

A. The applicable entity or electing taxpayer generally must own the underlying eligible credit property. In some instances, ownership is not required, but you must perform the activities that result in the underlying eligible credit. (For example, to determine a section 45X credit, a taxpayer must produce eligible components and sell the components to an unrelated party.)

Q12. Can I work with other organizations and still use elective pay? (added June 14, 2023)

A. The applicable entity or electing taxpayer generally must own the property that generates the eligible credit (or otherwise conduct the activities giving rise to the underlying eligible credit). That ownership can occur through various structures. For example, an applicable entity or electing taxpayer could directly own the property, could own it through a disregarded entity, or could own an undivided interest in an ownership arrangement treated as a tenancy-in-common or pursuant to a joint operating arrangement that has properly elected out of subchapter K of chapter 1 of the Code (subchapter K) under section 761.

Partners of partnerships are not allowed to use elective pay. A partnership, even if all of the partners are applicable entities, is not an applicable entity. However, a partnership can make the elective pay election if it qualifies as an electing taxpayer with respect to the section 45Q credit, the section 45V credit, or the section 45X credit.

Applicable Credits for Elective Pay

Q13. For which tax credits can I use elective pay? (added June 14, 2023)

A. Applicable credits are.

• Energy Credit (48), (Form 3468, Part VI)

• Clean Electricity Investment Credit (48E), (Form 3468, Part V)

• Renewable Electricity Production Credit (45), (Form 8835, Part II)

• Clean Electricity Production Credit (45Y)

• Commercial Clean Vehicle Credit (45W), (Form 8936, Part V)

• Zero-emission Nuclear Power Production Credit (45U), (Form 7213, Part II)

• Advanced Manufacturing Production Credit (45X), (Form 7207)

• Clean Hydrogen Production Credit (45V), (Form 7210)

• Clean Fuel Production Credit (45Z)

• Carbon Oxide Sequestration Credit (45Q), (Form 8933)

• Credit for Alternative Fuel Vehicle Refueling / Recharging Property (30C), (Part 8911, Part II)

• Qualifying Advanced Energy Project Credit (48C), (Form 3468, Part III)

In general, an applicable entity can use elective pay with respect to these 12 credits as long as it meets the tax credit's underlying requirements. There are placed in service date restrictions for sections 45, 45Q, and 45V. Further, elective pay for the Commercial Clean Vehicle Credit (45W) is only available to an organization exempt from the tax imposed by subtitle A by reason of section 501(a) of the Code; a State, the District of Columbia, a political subdivision thereof, or any agency or instrumentality of any of the foregoing; a U.S. territory, a political subdivision thereof, or any agency or instrumentality of any of the foregoing; or an Indian tribal government, a subdivision thereof, or any agency or instrumentality of any of the foregoing. Please see Q9 and Q10 for additional limitations.

An electing taxpayer (described in Q10), can only make the elective pay election with respect to the section 45V, 45Q, or 45X credit.

Q14. Where can I learn more about the applicable credits that are eligible for elective pay? (added June 14, 2023)

A. For up-to-date information and guidance on the clean energy tax credits available under the Inflation Reduction Act of 2022 that are applicable credits for elective pay, please visit IRS.gov/cleanenergy. A brief description of each of the applicable credits is also available at Publication 5817-G.

Q15. Are there requirements or bonuses that affect the amount of the applicable credits that are eligible for elective pay? (added June 14, 2023)

A. The amount of certain applicable credits can vary based on several factors. Certain applicable credits offer higher credit amounts to projects that pay prevailing wages and use registered apprentices, are located in low-income communities or energy communities, or meet certain domestic content requirements. Starting in 2024, for taxpayers using elective pay, the domestic content requirement can also result in a reduction of the applicable credit amount (for sections 45, 45Y, 48, and 48E) if it is not met.

• Prevailing Wage and Apprenticeship Requirements affect the amount of a number of credits and apply to projects that pay workers the "prevailing wage" (as published by the Department of Labor) and employ apprentices from registered apprenticeship programs for specific labor hour, apprentice-to-journeyworker ratios, and participation requirements. In general, the credit is increased by five times for projects that pay prevailing wages and use registered apprentices. This increase applies to certain applicable credits that are part of the Investment Credits for renewable energy (§§ 48 and 48E), Production Credits for renewable electricity (§§ 45, 45Y), Advanced Energy Project Credit (§ 48C), Alternative Fuel Vehicle Refueling Property (§ 30C), Carbon Oxide Sequestration Credit (§ 45Q), Zero-emission Nuclear Power Production Credit (§ 45U), Clean Hydrogen Production Credit (§ 45V), and the Clean Fuel Production Credit (§ 45Z). Exceptions apply for some applicable credits or projects. Learn more at Prevailing Wage and the Inflation Reduction Act.

• Domestic Content Bonus is available for certain Production Credits for renewable electricity (§§ 45, 45Y) and Investment Credits for renewable energy (§§ 48, 48E) that are applicable credits. It applies to facilities or projects built using the required amounts of domestically produced steel or iron, and manufactured products. When the domestic content requirements are met, Production Tax Credit facilities receive a 10 percent bonus, and Investment Tax Credit projects receive up to a 10-percentage point bonus. Starting in 2024, for taxpayers using elective pay, the domestic content requirement can also result in a reduction of the applicable credit amount (for sections 45, 45Y, 48, and 48E) if it is not met. Notice 2023-38 provides additional information, and we plan for future guidance to address the exceptions process included in the statute.

• Energy Community Bonus is available for certain Production Credits for renewable electricity (§§ 45, 45Y) and Investment Credits for renewable energy (§§ 48, 48E) that are applicable credits. It applies to projects located in historical energy communities, including areas with closed coal mines or coal-fired power plants. The bonus is also available to brownfield sites and to areas that have significant employment or local tax revenues from fossil fuels and higher than average unemployment. For more information, see Energy Community Tax Credit Bonus.

• Low Income Communities Bonus Credit Program provides an increased credit of 10 percentage points or 20 percentage points to certain applicable credits that are part of the investment tax credit (§§ 48, 48E) for certain facilities in one of four categories. (1) located in a low-income community, (2) located on Indian land, (3) installed on certain federal housing projects, or (4) serving low-income households. You must pre-apply, receive a capacity allocation, and then place your facility in service to claim this bonus. An increased credit under section 48(e) is available for eligible property which is part of qualified solar and wind energy facilities that receive capacity limitation allocations pursuant to the amounts allocated for 2023 and 2024. An increased credit under 48E(h) is available for a broader group of facilities that receive capacity limitation allocations in 2025 and later years.

For more information about the Domestic Content, Low-Income Communities, and Energy Communities Bonus credits and the clean energy tax credits to which they apply, please visit IRS.gov/cleanenergy.

Q16. Are any of the applicable credits dependent on an allocation? In other words, do I need to pre-apply for any credits? (added June 14, 2023)

A. Yes. Before claiming either the Low-Income Communities Bonus Credit under section 48(e) or the Qualifying Advanced Energy Project Credit under section 48C(e), taxpayers must apply and be awarded a tax credit allocation. For more information, please see IRS.gov/cleanenergy. You can also learn more about the Qualifying Advanced Energy Project Credit on the Department of Energy's 48C webpage.

The application processes for these two tax credits are distinct from the pre-filing registration process described in these FAQs.

Q17. Are there any special rules relating to applicable credits that are part of the investment tax credit (sections 48, 48C, and 48E)? (added June 14, 2023)

A. Yes, section 50(a) and (c) and the related regulations give special rules for all credits that are part of the investment tax credit under section 46 whether or not you made an elective pay election under 6417. Under section 50(c), the relevant applicable credit reduces the basis of the investment credit property as provided in section 50(c). Under section 50(a), if the investment credit property giving rise to the applicable credit ceases to be investment credit property during the five years after the property is placed in service, then recapture applies.

How do I make an elective payment election and receive an elective payment?

Q18. What are the steps in making a successful elective payment election? (added June 14, 2023)

A. There are several steps to making a successful elective payment election. Not all steps need to occur in the order displayed below.

File the required annual tax return by the due date (or extended due date) and make a valid elective payment election. This includes properly completed and attached source credit forms, Form 3800 (including registration numbers) and required return attachments. For general filing tips for exempt organization returns, see tax information, tools, and resources for charities and other tax-exempt organizations.

Q19. How do I make the elective payment election? (added June 14, 2023)

A. 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. As previously described, making an elective payment election requires completing multiple steps, including completing the required pre-filing registration process.

Q20. What is an annual tax return for those using elective payment? (added June 14, 2023)

A. The term annual tax return means, for purposes of section 6417 and the section 6417 proposed regulations, the following returns (and for each, any successor return) —

Electronic return filing is strongly encouraged.

Q21. When do I file that annual tax return? Is there a deadline for filing to claim elective pay? (added June 14, 2023)

A. 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 an Administration Regulations (26 CFR part 301) for an elective payment election that is not timely filed.

Q22. How do I determine the due date for my annual tax return? How do I apply for an extension? (added June 14, 2023)

A. The return is due a certain period of time after the end of your tax year. Check the instructions for the annual tax return you are filing for the due date and how to apply for an extension. Those without an annual filing requirement will receive an automatic 6-month extension.

Q23. How do I determine my tax year? (added June 14, 2023)

A. 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.

Q24. What is the effect of making an elective payment election? (added June 14, 2023)

A. An applicable entity that makes an elective payment election is treated as having made a payment against Federal income taxes for the taxable year with respect to which an applicable credit was determined, in the amount of such credit. For example, if an applicable entity has any remaining federal income tax liability, then the amount of the credit first offsets that tax liability and the rest is refunded to the applicable entity. If the applicable entity has no federal income tax liability, the applicable entity's refund will be equal to the full amount of the applicable credit.

Q25. When do I receive my payment if I use elective pay? Can I receive a payment before the due date for an annual return? (added June 14, 2023)

A. In general, payments occur after the tax return is processed (assuming requirements are met). Under the statute, the taxpayer is not entitled to the elective payment until the due date of the return, even if the taxpayer files the return before that date.

Q26. At what stage of development, construction, or operations are projects eligible for elective pay? (added June 14, 2023)

A. Elective pay is only available after an applicable credit is earned and able to be claimed on the relevant annual tax return. In general, a tax credit is earned during the taxable year the applicable credit property is placed in service (investment tax credits) or eligible production occurs (production tax credits). As described in Q13, an applicable entity can use elective pay with respect to 12 credits as long as it meets the tax credit's underlying requirements.

Q27. Can I apply elective pay to taxable years beginning before December 31, 2022? (added June 14, 2023)

A. No. Elective pay is only effective for taxable years beginning after December 31, 2022. As a result, if your taxable year begins in the middle of the calendar year, even though one of your taxable years ends during 2023, section 6417 only applies to the taxable year that begins in 2023.

Q28. My organization is not ordinarily required to file a tax return. Do I need to file a return to make an elective payment election? (added June 14, 2023)

A. Yes. Entities not ordinarily required to file tax returns must file a tax return to make the elective payment election. Such an entity must file the return they would be required to file if they did have such a requirement (such as for an individual or business in the territories), or the Form 990-T, Exempt Organization Business Income Tax Return, if no such return is required (such as for governmental entities including Indian tribal governments), along with properly completed source credit forms, a properly completed Form 3800, General Business Credit (or its successor), and any required return attachments and information required in instructions to the relevant forms. For general filing tips for exempt organization returns, see Filing Tips for Exempt Organization Returns — Tax Years After 2007.

Q29. My organization is ordinarily required to file a U.S. Corporate Tax Return using Form 1120. What do I need to file to make an elective payment election? (added June 14, 2023)

A. Entities that are ordinarily required to file a tax return must file that tax return. If you are ordinarily required to file Form 1120, U.S. Corporation Income Tax Return, you should continue to do so and claim elective pay using Form along with properly completed source credit forms, a properly completed Form 3800, General Business Credit (or its successor), and any required return attachments and information required in instructions to the relevant forms.

Q30. Can I revoke the election? (added June 14, 2023)

A. No. For applicable entities, any elective payment election is irrevocable and applies with respect to any applicable credit for the taxable year for which the election is made.

For applicable entities making the elective payment election with respect to the section 45 credit or section 45Y credit, the election generally applies for 10 years. For applicable entities making the elective payment election with respect to the section 45Q credit, the election generally applies for 12 years. For applicable entities making the elective payment election with respect to the section 45V credit, the election applies to all subsequent taxable years with respect to the facility.

There are different rules for electing taxpayers that do allow for a one-time revocation of the elective payment election during the 5-year period the election applies.

Q31. Can the IRS audit an applicable entity or taxpayer that makes an elective payment election? (added June 14, 2023)

A. Yes. Entities and taxpayers that make an elective payment election could potentially be selected for an IRS audit. If the IRS identifies a problem with an applicable entity's or electing taxpayer's elective payment election, including the underlying tax credits or associated bonus credits, the IRS might need to collect payment from the applicable entity or electing taxpayer. The amount that needs to be repaid would vary based on the specific circumstances.

What is the pre-filing registration process?

Q32. What is the pre-filing registration process? (added June 14, 2023)

A. Pre-filing registration is a required electronic process for all entities that intend to make an elective payment election (or those that intend to make a credit transfer). It is designed to expedite the processing of returns and prevent improper payments.

As part of the pre-filing registration process, you will need to list all applicable credits you intend to claim on your income tax return or Form 990-T and each applicable credit property that contributed (or will contribute) to the determination of such credits. You will also need to provide any other specific information required, such as any required information about each applicable credit property. Once you successfully complete the pre-filing registration process, you will receive a registration number(s) that will be necessary for making the elective payment election or a transfer election on your tax return.

More information about the pre-filing registration process will be available when the process is released later in 2023.

Q33. What is the result of the elective pay pre-filing registration process? (added June 14, 2023)

A. After you complete the pre-filing registration process, the IRS will review the information provided and will issue a separate registration number for each applicable credit property for which the applicable entity or electing taxpayer provided sufficient verifiable information.

Q34. Does receipt of a registration number guarantee that I am eligible for the credit and that payment will occur once I file a timely tax return making the elective pay election? (added June 14, 2023)

A. No, a registration number does not confirm credit eligibility. Pre-filing registration provides the IRS with information that helps ensure the prompt processing of the election and payment after a tax return is filed. You still must establish eligibility for the credit on your tax return before a payment will occur. In addition, you must substantiate your eligibility for the credit if selected for an IRS audit.

Q35. How many registration numbers do I need? (added June 14, 2023)

A. In general, you must register and obtain a separate registration number for each applicable credit property that contributes to an applicable credit and for which you intend to make an elective payment election. The number of registration numbers required depends on how many applicable credit properties will generate those credits.

For example, an entity planning to make an elective payment election to claim credits related to two applicable credit properties — for example, a solar energy property and a geothermal energy property — would complete and list both properties during the pre-filing registration process to obtain registration numbers for each property. When making an elective payment election for the credit attributable to both properties, both registration numbers must then be provided when filing a tax return.

Q36. When can I complete pre-filing registration? (added June 14, 2023)

A. The online pre-filing registration process will launch in late 2023. After the launch, you may complete pre-filing registration as soon as you have all the information required. More detail will be provided as the launch approaches.

Q37. Some elections last multiple years. How long is a registration numbers valid? (added June 14, 2023)

A. A registration number is only valid for the taxable year for which it is obtained. Registration numbers must be renewed each year as necessary. For example, to make an elective payment election for the Renewable Electricity Production Credit with respect to a particular energy property over the course of the 10 years provided in the statute requires annually completing the pre-filing registration process to renew the registration number with respect to that property.

Q38. What happens if I don't complete the pre-filing registration process? (added June 14, 2023)

A. Completing the pre-filing process and receiving a registration number is a requirement to making an elective payment election. You may request an extension of time to file your income tax return or form 990-T, if needed.

Q39. Do I have to make an elective payment election if I receive a registration number through the pre-filing registration process? (added June 14, 2023)

A. No. Completing the pre-filing registration process does not require that you make an elective payment election when filing a return. Also, the pre-filing registration process is unnecessary if you will not be using elective pay (or a transfer election).

Q40. My organization does not have reliable internet or electricity service. How can I complete electronic pre-filing registration and claim elective pay? (added June 14, 2023)

A. More information about how organizations that lack reliable internet or electricity can complete the pre-filing process will be provided when pre-filing registration launches in late 2023. While this process is entirely electronic, the IRS will work with organizations that cannot find a way to submit their registrations electronically.

Additional Elective Payment Election Rules

Q41. I funded the purchase of an investment-related credit property with grants and forgivable loans exempt from taxation. Can I include those amounts in the basis of the property for purposes of calculating the amount of the credit? (added June 14, 2023)

A. Yes. For purposes of 6417, any income, including income from certain grants and forgivable loans, that is exempt from taxation (Tax-Exempt Amounts) used to purchase, construct, reconstruct, erect, or otherwise acquire an applicable credit property described in sections 30C, 45W, 48, 48C, or 48E (investment-related credit property) is included in basis for purposes of computing the applicable credit amount determined with respect to the investment-related credit property, regardless of whether basis is required to be reduced (in whole or in part) by such amounts under other provisions of the Code.

However, if you receive Tax-Exempt Amounts for the specific purpose of purchasing, constructing, reconstructing, erecting, or otherwise acquiring an investment credit property (Restricted Tax-Exempt Amount), and the Restricted Tax-Exempt Amount plus the applicable credit otherwise determined with respect to that investment-related credit property exceeds the cost of the investment-related credit property, then the amount of the applicable credit is reduced so that the total amount of applicable credit plus the amount of any Restricted Tax-Exempt Amount equals the cost of investment credit property.

For example, School district A receives a tax-exempt grant in the amount of $400,000 from a federal agency to purchase electric school bus B. A purchases B for $400,000. A's basis in B is $400,000. B qualifies for the maximum section 45W credit, $40,000. However, because the amount of the restricted tax-exempt grant plus the amount of the section 45W credit exceeds the cost of B, A's section 45W credit is reduced by the amount necessary so that the total amount of the section 45W credit plus the restricted tax-exempt amount equals the cost of B. A's section 45W credit is therefore reduced by $40,000 to zero.

Now assume that the grant above is in the amount of $300,000. A purchases B using the grant and $100,000 of A's unrestricted funds. A's basis in B is $400,000 and A's section 45W credit is $40,000. Since the amount of the restricted tax-exempt grant plus the amount of the section 45W credit ($340,000) is less than the cost of B, A's 45W credit under section 6417(b)(6) is not reduced.

In a third example, public charity B receives a $60,000 grant from a private foundation to build energy property, P, a qualified investment credit property that costs $80,000. B uses $20,000 of its own funds plus the $60,000 grant to build P. B's basis in P is $80,000. Based upon acquisition cost, B can earn a section 48 investment credit (with bonus credit amounts) of $40,000 (50% of basis). However, because the amount of the restricted tax-exempt grant ($60,000) plus the section 48 credit ($40,000) exceeds P's cost by $20,000, B's section 48 applicable credit is reduced by $20,000 so that the total amount of the section 48 investment credit plus the restricted tax-exempt amount equals the cost of P.

Q42. What if my project needs bridge financing, debt financing, or tax-exempt bond financing before I receive payment, can I still claim the credit using elective pay? (added June 14, 2023)

A. Yes. Using bridge or debt financing of the project generally does not affect the elective payment election. Tax-exempt bonds may result in a reduction of the underlying credit amount. Please check the requirements of the underlying credit.

Q43. Can I make an elective payment election for credits that I purchased or that were transferred to me? (added June 14, 2023)

A. No. Any credits for which an election for elective payment election is made must have been determined with respect to you. You must own the underlying eligible credit property or, if ownership is not required, you must otherwise conduct the activities giving rise to the underlying eligible credit. No election payment election may be made for credits purchased pursuant to section 6418, transferred pursuant to section 45Q(f)(3), acquired by a lessee from a lessor by means of an election to pass through the credit to a lessee under former section 48(d) (pursuant to section 50(d)(5)), owned by a third party, or otherwise not determined directly with respect to you.

Q44. I was told I can't use business tax credits outside of an unrelated trade or business. Is that correct? (added June 14, 2023)

A. Section 6417 provides special rules to address that problem. The statute provides that, for any applicable entity making an elective pay election, any applicable credit is determined (1) without regard to the restrictions regarding use of property by tax-exempt organizations and government entities including Indian tribal governments found in sections 50(b)(3) and (4)(A)(i), and (2) by treating any property with respect to which such credit is determined as used in a trade or business of the applicable entity.

Q45. Are there special rules for partnerships and S corporations? (added June 14, 2023)

A. Partnerships and S Corporations may make an elective payment election with respect to sections 45Q, 45V, or 45X and will receive a payment directly from the IRS equal to the amount of the applicable credit. This payment will be treated as tax-exempt income for purposes of section 705 and 1366 and will be allocated to the partners or shareholders based on their share of the otherwise applicable credit. A partner may not make an elective payment election with respect to any applicable credit determined with respect any facility or property held directly by a partnership or S corporation. More information on claiming these three tax credits is provided in the NPRM.

Q46. For the credits for which taxable entities can claim elective pay (45X, 45V, 45Q), are there limits on the time period over which elective pay can be claimed? (added June 14, 2023)

A. Yes. Electing taxpayers make the election for five consecutive taxable years per eligible credit property and are allowed one revocation. More information on claiming these three tax credits is provided in the NPRM.

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Elective Pay and Transferability Frequently Asked Questions: Transferability

Q1. What taxpayers are eligible to transfer tax credits? (added June 14, 2023)

A. A taxpayer eligible to transfer credits is one that is NOT an applicable entity. See Q1-Q8 on "Elective Pay Eligibility" for information about applicable entities. Generally, an applicable entity would include a tax-exempt organization, a State or political subdivision, a local government, an Indian tribal government, an Alaska Native Corporation, the Tennessee Valley Authority, a rural electric co-op, a U.S. territory, or an agency or instrumentality of a state, local, tribal, or territorial government.

Q2. What tax credits can I transfer? (added June 14, 2023)

A. Any taxpayer that is NOT an applicable entity as listed in Q1 can elect to transfer (sell) all or a portion of the following "eligible credits".

• Energy Credit (48), (Form 3468, Part VI)

• Clean Electricity Investment Credit (48E), (Form 3468, Part V)

• Renewable Electricity Production Credit (45), (Form 8835, Part II)

• Clean Electricity Production Credit (45Y),

• Zero-emission Nuclear Power Production Credit (45U), (Form 7213, Part II)

• Advanced Manufacturing Production Credit (45X), (Form 7207)

• Clean Hydrogen Production Credit (45V), (Form 7210)

• Clean Fuel Production Credit (45Z)

• Carbon Oxide Sequestration Credit (45Q), (Form 8933)

• Credit for Alternative Fuel Vehicle Refueling / Recharging Property (30C), (Part 8911, Part II)

• Qualified Advanced Energy Project Credit (48C), (Form 3468, Part III)

The amount of eligible credits a taxpayer can transfer can be affected by bonus or other requirements that may apply (including the Prevailing Wage and Apprenticeship Requirements, Domestic Content Bonus, the Energy Communities Bonus, and the Low-Income Communities Bonus).

Q3. Can a taxpayer transfer only a portion of an eligible credit related solely to a bonus credit amount? (added June 14, 2023)

A. While a taxpayer can transfer a portion of an eligible credit, a taxpayer cannot transfer a portion of an eligible credit related solely to a bonus credit amount. For example, the portion of an eligible tax credit related to the Domestic Context Bonus cannot be transferred separately from the rest of the eligible tax credit.

Q4. How can I make an election to transfer eligible credits? (added June 14, 2023)

A. There are several steps for transferring eligible credits (or a portion of a credit). Not all steps need to occur in the order displayed below.

Q5. How can I purchase eligible credits and claim transferred eligible credits? (added June 14, 2023)

A. To claim transferred credits.

Q6. What is a transfer election statement and how do I file one? (added June 14, 2023)

A. The form and substance of a transfer election statement is as described in the guidance and generally includes the following. name, address and taxpayer identification number for both the transferor and transferee, a description of the type and amount of the eligible tax credit transferred, the timing and amount of cash paid for the eligible tax credit transferred and the registration number related to the eligible credit property. The transfer election statement should also include certain statements and/or representations from the transferor and transferee as described in the guidance. The transfer election statement should be attached to the transferor's tax return for the year in which the transferor becomes entitled to the eligible credit. The transfer election statement should be attached to the transferee's tax return for the year in which the transferee takes the eligible credit into account.

Q7. Can I transfer only a portion of eligible tax credits generated from a single eligible credit property for a given tax year? Can I transfer eligible tax credits generated from a single eligible credit property to multiple unrelated parties in the same tax year? (added June 14, 2023)

A. Eligible taxpayers may transfer all or a portion of an eligible credit generated from a single eligible credit property. They may also sell an eligible credit generated from a single eligible credit property to multiple unrelated parties in the same tax year.

Q8. Can I use an elective pay registration number for transferability or vice-versa? (added June 14, 2023)

A. No.

Q9. Do I need multiple registration numbers for a single eligible credit property where eligible credits generated by it are transferred to multiple parties? (added June 14, 2023)

A. No. You will provide the same registration number to all transferees of an eligible tax credit generated by the same eligible credit property.

Q10. Do I need multiple registration numbers if I transfer eligible credits related to multiple facilities? (added June 14, 2023)

A. Separate registration numbers are required for each facility.

Q11. As both the transferor and transferee of an eligible credit must include the registration number on their return, does the order in which they file their returns matter?

A. The transferee and transferor may file their returns in any order, as long as the transferee return is for the taxable year in which the eligible credit is taken into account under the rules of section 6418.

Q12. Can the transferee incorporate eligible credits in their estimated tax payments?

A. Yes. A transferee taxpayer may take into account a credit that it has purchased, or intends to purchase, when calculating its estimated tax payments, though the transferee taxpayer remains liable for any additions to tax in accordance with sections 6654 and 6655 to the extent the transferee taxpayer has an underpayment of estimated tax

Q13. In the case of tax credits that have been transferred, who bears the financial responsibility for a subsequent recapture event?

A. For transferred eligible credits under sections 48, 48E or 48C or transferred carbon sequestration tax credits under section 45Q, the transferee bears the financial responsibility for a recapture event and is required to recapture an amount of previously claimed tax credits based on the timing and amount of the recapture event. The transferor is required to notify the transferee if a recapture event occurs. For other eligible credits, recapture is not relevant.

Q14. Can the transferee of an eligible credit claim tax depreciation associated with the project?

A. No. Only a taxpayer that has an ownership interest in the project may claim tax depreciation. Transferability does not allow depreciation benefits to be transferred.