Tax-exempts to benefit from recent clean energy credit guidance, IRS updates credit portal user access

In brief

What happened?

Exempt organizations that develop energy credit elective pay projects whereby they receive cash payments instead of tax credits are being granted more time to meet the domestic content requirements while Treasury and the IRS work to issue guidance to apply the statutory exceptions provided under Sections 45(b)(10)(D), 48(a)(13), 45Y(g)(12)(D), and 48E(d)(5), as applicable.

The IRS on November 22 released Notice 2024-84 extending the transition relief provided in Notice 2024-9 for tax-exempt organizations and other applicable entities to claim the statutory exceptions to the application of the phaseouts for certain clean energy credits for elective payment projects that fail to satisfy the requirement that materials used in the projects come from domestic sources.

Notice 2024-9 provided transition relief for tax-exempt organizations and other applicable entities that began construction in 2024. Notice 2024-84 extends that relief for projects that begin construction before the later of (1) January 1, 2027 or (2) when Treasury and the IRS release additional guidance around the statutorily required exceptions to the phaseouts.   

Treasury and the IRS on November 19 issued final regulations under Section 761 permitting tax-exempt organizations and other applicable entities that indirectly own applicable credit property through an unincorporated organization to be treated as direct owners of such property for purposes of the direct pay election if the unincorporated organization qualifies as an “applicable unincorporated organization” and properly makes an election to be excluded from the partnership rules.

Separately, the IRS on December 16 issued a news release advising organizations to review annually their list of authorized users of the IRS Clean Energy Credits online tool (the “Portal”).  

Why is it relevant?

The relief provided by Notice 2024-84 prevents tax-exempt organizations and other applicable entities that receive a direct cash payment of their clean energy incentives from experiencing a reduction in their tax credit amount based on their inability to satisfy the domestic content rules due to inadequate supply or an excessive cost of doing so, provided the organization attests that requirements of an exception to direct payment phaseout are met.

The final Section 761 regulations allow certain arrangements to elect out of the partnership rules to allow tax-exempt organizations and other applicable entities that own such unincorporated entities to co-invest in projects and take advantage of the direct pay option. Electing out of the partnership rules allows each entity that is an owner of an unincorporated organization to elect direct pay with respect to its indirect ownership interest in the applicable credit property.

In the December 16 news release, the IRS cautions that if an organization’s only Portal user leaves the organization, the organization will have no user with authority to act on its behalf.

Observation: Losing access to the Portal could result in delays in the organization's ability to claim credits or its ability to claim credits at all.

Actions to consider 

Applicable entities that anticipate initiating elective payment projects should consider assessing their ability to meet the domestic content requirements and, if applicable, prepare documentation as to why the requirements cannot be met. In addition, applicable entities may wish to consider the feasibility of accelerating construction of projects to avail themselves of the transitional rules for claiming exceptions to credit phaseouts for failure to meet domestic sourcing rules.

Applicable entities that intend to become co-owners of applicable credit properties should review the requirements of the final Section 761 regulations as part of planning ownership structures.

Tax-exempt organizations and their clean energy officers should review annually the list of authorized Portal users and their contact information. Additionally, the IRS clarified in the December 16 news release that multiple people can register as users on behalf of their organization. Thus, some tax-exempt organizations may find it helpful to add additional users to the Clean Energy Officer role in the Portal.

Transitional relief

Notice 2024-9 addressed the phaseout relating to direct payment and the domestic content credit bonus for the clean energy credits under Sections 45, 45Y, 48, and 48E. It provided that, for an applicable property that begins construction before 2025, an applicable entity may attach an attestation to the appropriate form filed with its federal income tax return providing that it is familiar with the phaseout exceptions and has made a good faith determination that the property meets the requirements for an exception. Treasury and the IRS will treat the attestation as establishing a phaseout exception for that property. See our Tax Insight, Transitional guidance issued, comments requested on direct payment phaseout of clean energy credits, for more information.

Notice 2024-84 provides that if a tax-exempt organization or another applicable entity provides an attestation with respect to an applicable credit property that begins construction before the later of (1) January 1, 2027 or (2) the issuance of more guidance, Treasury and the IRS will treat the attestation as establishing that one or both statutory exceptions to the application of the statutory elective payment phaseouts are met with respect to the applicable credit property.