U.S. Department of Treasury Releases Final Direct Pay Guidance

Source: RL Martin

On March 5, 2024, the U.S. Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) issued final guidelines on elective pay, a key provision of the Inflation Reduction Act aimed at expanding the accessibility of clean energy tax credits. Also known as "direct pay," elective pay is one of two new credit delivery mechanisms enabled by the Inflation Reduction Act. Elective pay allows tax-exempt entities, including government agencies and instrumentalities of state governments, to receive cash payments for 12 clean energy tax credits, including the production and investment tax credits as well as tax credits for electric vehicles and charging stations. Tax-paying businesses are also eligible to take advantage of direct pay for three of those 12 credits: the credits for Advanced Manufacturing (45X), Carbon Oxide Sequestration (45Q), and Clean Hydrogen (45V). The final guidance provides clarity on the scope and eligibility requirements for elective pay, including the definition of "applicable entity;" pre-filing registration processes; tax year determinations for entities without federal income tax obligations; the use of “chaining” and transferability of tax credits; and specific rules for tax-exempt grants and forgivable loans.

Treasury and the IRS have developed several resources to help stakeholders understand the details of direct pay, including an FAQ page and one-pagers for specific applicable entities. Eligible entities can also attend the upcoming office hours listed below to learn more about the direct pay pre-filing registration process.

  • March 13, 2024, 1:00-2:30 p.m. ET (register here)
  • March 20, 2024, 1:00-2:30 p.m. ET (register here)
  • March 27, 2024, 1:00-2:30 p.m. ET (register here)
  • April 3, 2024, 1:00-2:30 p.m. ET (register here)
  • April 10, 2024, 1:00-2:30 p.m. ET (register here)
  • April 17, 2024, 1:00-2:30 p.m. ET (register here)
  • April 24, 2024, 1:00-2:30 p.m. ET (register here)

Additionally, Lawyers for Good Government has updated its Elective Pay & IRA Tax Incentives Resources Page with resources and information to assist applicable entities.