The US Treasury Department and the IRS announced this today final regulations for the direct wage provisions in the Inflation Reduction Act that will help entities that co-own clean energy projects access clean energy tax credits.
Before the Inflation Reduction Act, many entities—such as state and local governments, tribes and territories, public school districts, rural electric cooperatives, and tax-exempt organizations such as churches, hospitals, institutions of higher education, and nonprofits—could not take advantage of tax credits for clean energy because they had little or no federal tax liability. Direct payment allows these entities and organizations to access the full value of clean energy incentives and helps projects build faster and more affordably to reduce costs and benefit businesses and communities.
The guidance issued by the Treasury Department today provides greater clarity and flexibility for entities eligible for direct payments that wish to jointly invest in clean energy projects – for example, a tax-exempt entity investing in a project jointly with a for-profit developer for clean energy. or multiple tax-exempt entities or governments that want to jointly invest in clean energy projects.
“The Biden-Harris Administration is focused on continuing the boom in clean energy investment and ensuring that all Americans benefit from this sector’s growth. Direct pay allows more clean energy projects to be built quickly and affordably, and American communities benefit. Today’s rules will increase the availability of capital for clean energy projects by providing certainty and flexibility for state and local governments, tribes and territories, nonprofits and more to benefit from these resources,” said the U.S. Deputy Secretary of the Treasury Wally Adeyemo.
Specifically, the Treasury Department’s final regulations make targeted changes to existing partnership tax rules, clarifying how co-owned clean energy projects can elect not to be treated as partnerships for tax purposes, and such projects offered additional flexibility. These changes are important because partnerships are not among the entities typically eligible for direct compensation under the Inflation Reduction Act. By collectively electing out of partnership status, co-owners who qualify for direct payment can take advantage of direct payment for the portion of the project they own, while co-owners who do not qualify for elective payment can take advantage of portability.
In response to comments received, the final regulations clarify that qualifying co-ownership arrangements may be organized to own and operate property that gives rise to one of the Inflation Reduction Act credits for which an elective allowance is available. It also allows such schemes to invest in clean energy projects through a non-corporate entity.
News item from the US Treasury Department
