Tax Byte

Happy Friday, tax pros. In case you missed the major guidance drop out of the IRS this week, temporary and proposed regulations as well as FAQs were issued on June 14 that address direct-pay elections and transferability of certain clean energy tax credits under the Inflation Reduction Act (IRA) (P.L. 117-169) and the CHIPS and Science Act of 2022 (P.L. 117-167).

The package of guidance on the Inflation Reduction Act of 2022 (P.L. 117-169) and the CHIPS and Science Act of 2022 (P.L. 117-167) includes:

• Proposed regulations addressing applicable entities that earn certain clean energy credits and make an elective payment election under IRC section 6417, (REG-101607-23);
• Proposed regulations addressing eligible taxpayers who elect to transfer certain credits to unrelated parties under IRC section 6418, (REG-101610-23);
• Frequently asked questions on direct pay and transferability (FAQs),
• Temporary regulations providing rules for the mandatory IRS pre-filing registration process required before making an elective payment election or an election to transfer eligible credits, (TD 9975); and
• Proposed regulations for the advance manufacturing investment credit under section 48D, (REG-105595-23).

Generally, under the IRA businesses not using direct pay may transfer all or a portion of any of 11 clean energy credits to a third-party in exchange for cash or tax-free immediate funds. Thus, businesses may enjoy tax incentives even if they do not have sufficient tax liability to fully utilize the credits themselves. Previously, businesses without sufficient tax liability were unable to realize the full value of these credits, which created additional costs and challenges for financing projects, according to the U.S. Treasury Department.

Stay tuned for a deeper dive into these provisions and related guidance in Western CPE eTax Alerts and the 2023 Federal Tax Update.