Clean energy credits: what you need to know!
Harnessing the Power of Clean Energy Credits: A Guide for Tax-Exempt Entities
Under the Inflation Reduction Act of 2022 (IRA), tax-exempt entities have a unique opportunity to benefit from clean energy tax credits. In this blog, we’ll delve into what you need to know about claiming and receiving these valuable credits.
The Impact of the Inflation Reduction Act of 2022
Starting with tax years commencing after December 31, 2022, eligible entities can opt to make an elective payment election. This election essentially redefines how certain credits are treated – instead of being nonrefundable, they are recognized as payments against federal income tax liabilities. Any excess credit can even be refunded.
Exploring Available Clean Energy Credits
To gain insight into which clean energy tax credits you can leverage, Publication 5817-G provides a comprehensive list of elective pay eligible tax credits. This resource serves as a valuable reference point for organizations looking to embrace clean energy incentives.
Pre-Filing Registration: A Vital Step
Before embarking on the journey of claiming clean energy credits, a pre-filing registration process must be completed. This step is crucial as it helps ensure that you are well-prepared to make an elective payment election on your annual tax return.
Applicable entities must have their own Employer Identification Number (EIN) or Tax Identification Number (TIN) to successfully navigate this process. It’s important to note that using or borrowing the EIN of a related entity is not permissible.
The online pre-filing registration process is set to be launched in late 2023. After the launch, you can initiate pre-filing registration once you’ve gathered all the necessary information. You can sign up at the clean energy website to get updates.
Completing Pre-Filing Registration
To complete the pre-filing registration, you will need to provide specific information about your organization, the applicable credits you intend to earn, and details about each eligible project or property that will contribute to the applicable credit. The IRS will review the information you provide and issue a separate registration number for each applicable credit property where sufficient, verifiable information has been furnished.
Remember, the registration process is not complete until you receive your registration number. Each entity making an elective payment election must possess a unique Employer Identification Number (EIN).
Making an Elective Payment Election for Clean Energy Tax Credits
Now, let’s walk through the steps for making an elective payment election to claim clean energy tax credits:
1. Identify and Pursue the Qualifying Project or Activity: Start by determining which credit you intend to earn. This step sets the foundation for your clean energy journey.
2. Determine Your Tax Year: If you haven’t already, determine your organization’s tax year. This decision will influence the due date for your tax return.
3. Complete Pre-Filing Registration with the IRS: As mentioned earlier, this step is crucial in establishing your eligibility and ensuring a smooth process.
4. Satisfy Eligibility Requirements: Ensure you meet all eligibility requirements for the tax credit and any applicable bonus credits for the given tax year. For instance, if you plan to claim an energy credit for a solar energy generating project, make sure the project is in service before making an elective payment election. You should also have all the necessary documentation to substantiate the underlying tax credit, including any bonus amounts that may have increased the credit.
5. File the Required Annual Tax Return: Submit your annual tax return by the due date (or extended due date) and make a valid elective payment election. This includes properly completing and attaching source credit forms, form 3800 (including registration numbers), and all required return attachments.
By following these steps and staying informed about the opportunities presented by the Inflation Reduction Act of 2022, tax-exempt entities can harness the power of clean energy credits to make a positive impact on the environment while reaping financial benefits.
If you still have questions, contact the Online Stewardship team of accountants at 904-398-4747 or Lynn@OnlineStewardship.com; or, call our parent company, Patrick & Raines CPAs, at 904-396-5400.
