US Treasury, US IRS issued proposal intended to provide further clarity, flexibility for applicable entities that co-own clean energy projects, would like to utilize elective pay.
Under Inflation reduction act (IRA), entities treated as partnerships for tax purposes not eligible for elective pay, regardless of whether one/more of partners is applicable.
Follows US Treasury, US IRS Mar. 2024 rules on clean energy credits, see #203573.
Elective Pay Options
Proposed amendments to 26 CFR 1 under section 761(a) of the Internal revenue code.
Pathways exist for entities to access elective pay for credits earned through a joint ownership arrangement including validly electing out of partnership tax treatment.
Rules allow renewable energy investments to be made through a noncorporate entity, rather than requiring direct co-ownership of property/facility by the applicable entity.
Would also change joint marketing restrictions to allow multi-year power purchase agreements to not violate the requirements to elect out of partnership tax treatment.
Consultation
Comments on proposal open until May 10, 2024, hearing scheduled for May 20, 2024.
Requests to attend the public hearing on proposal must be received by May 16, 2024.
Mar. 11, 2024 US IRS Fed Reg Proposal, Hearing
On Mar. 11, 2024, US IRS published proposed rule, notice of hearing in federal register
Apr. 2024 US IRS Fed Reg Correction
On Apr. 8, 2024, US IRS published proposal correction in federal register, makes minor spelling and reference corrections; comments on proposal are due May 10, 2024.
May 17, 2024 US IRS Hearing Cancellation
On May 17, 2024, US IRS published cancellation of hearing on proposal to modify regulations allowing unincorporated organization's exclusion of partnership tax rules.
Re organizations organized exclusively to produce electricity from certain property.
The public hearing which was scheduled for May 20, 2024, at 10 am ET is cancelled.
Nov. 2024 US Treasury, US IRS Final Rule
On Nov. 19, 2024, US Treasury, US IRS issued final regulations to expand access to clean energy tax credits through elective pay (commonly referred to as direct pay).
In response to comments received from proposed regulations, final regulations clarify eligible co-ownership arrangements can be organized to own and operate property.
Giving rise to any of the clean energy tax credits for which elective pay is available.
Enable arrangements to invest in clean energy projects through noncorporate entity.
Effective date will be published with publication in federal register, expected Nov. 20.
Nov. 20, 2024 US IRS Fed Reg Final Rule
On Nov. 20, 2024, US IRS published rule in federal register, effective Jan. 19, 2025.
Except as provided in 1.761-2(d), apply to taxable years ending on/after Mar. 11, 2024
Dec. 2024 US IRS Fed Reg Correction
On Dec. 17, 2024, US IRS published correction to the clean energy elective pay rules.
Corrects reference to section in 26 CFR 1.761-2; correction effective on Jan. 19, 2025.
