IRS Elective Payment (Direct Pay)

What is IRS Elective Pay?

IRS Elective Pay, also known as Direct Pay, allows tax-exempt entities to receive a direct payment from the IRS for eligible projects.  Under the Inflation Reduction Act of 2022, for the first time tax-exempt entities can receive a rebate from the IRS for investments in eligible technologies.  

 

Eligible Organizations

Final IRS regulations (IR-2024-120) provide that any organization described in sections 501 through 530 that meets the requirements to be recognized as exempt from tax under those sections is eligible.  This includes, among others, the following:

• State / Local Governments
• School Districts
• Nonprofit organizations
• Tribal Entities
• Private Foundations
• Homeowners Associations

 

Eligible Projects

The Inflation Reduction Act expanded Elective Pay benefits to include many new eligible investments including solar, electric vehicles, electric buses, and EV charging infrastructure. 

 

Elective Pay Process and Timeline

IRS Elective Pay works as a rebate program and is paid after the project is placed in service.  It is paid through a specialized tax return filed with annual reporting, during the reporting period following the fiscal year where the project was placed in service. 

Step 1: Project Planning / Design

When the luxury of time is available, pre-purchase / pre-construction planning can incorporate bonus credits and set up documentation protocols that maximize ease of compliance for various program guidelines, including prevailing wage and apprenticeship (PWA) requirements.

Step 2: Place Eligible Project in Service

Complete the installation and ensure the property or vehicle is operational and documented as placed in service.  IRS Elective Pay is based on when property is placed in service, not when it was purchased.  For example, an electric school bus that is purchased by a school district in 2022 and placed in service in 2023 would be eligible for Elective Pay based on the 2023 placed in service date. 

Step 3: Submit IRS Pre-Filing Registration

In order to ultimately file a specialized tax return for IRS Elective Payment, the IRS requires a pre-filing registration process.  After the eligible project is placed in service, the eligible organization can gather documentation and register the project(s) with the IRS.  

Through the Pre-Filing Registration, the IRS will provide Registration Number(s) for eligible projects, that are required to file final application. 

The IRS recommends completing the Pre-Filing Registration at least 120 days before the final filing deadline to ensure adequate time for review and processing.

For projects placed in service in 2023, most of which have a final filing deadline of November 15, 2024, this means submitting the Pre-Filing Registration by July 18, 2024.

Step 4: Receive IRS Registration Numbers

The IRS will review the Pre-Filing Registration application within 120 days of submission.  During that process, no changes can be made to the submitted pre-filing registration.  After review, the IRS will issue registration numbers for each eligible project, necessary for the final application.

Step 5: File for Elective Pay

With IRS Elective Pay registration number(s) in hand, file the appropriate tax forms with your tax professional.  These forms vary by specific tax credits claimed.  Typically, taxes are due 4.5 months after the end of the applicable fiscal year, which is May 15^th for calendar years. 

For 2023 taxes, the IRS granted an automatic 6-month filing deadline extension to November 15, 2024.  If Elective Pay for 2023 is not filed with the IRS by November 15, 2024, the IRS is clear it cannot be claimed by amended return. 

 

Our Elective Pay (Direct Pay) Consulting Services

We offer comprehensive consulting services tailored to your organization’s unique needs. We provide end-to-end support to ensure you navigate the Elective Pay process smoothly and effectively.

 

Service Offerings

1. Project Pre-Planning
   • Before contracts are signed, we can assist in strategic planning to maximize benefits and build cooperation with designers and contractors around compliance.
2. Eligibility Assessment
   • We evaluate your projects to determine eligibility for Elective Pay.
   • Detailed analysis of your investments to identify qualifying credits.
3. Documentation Preparation
   • Comprehensive support in gathering and preparing all necessary documentation.
   • Verification of compliance with IRS requirements.
4. IRS Pre-Filing Registration Assistance
   • Step-by-step guidance through the IRS Pre-Filing Registration process.
   • Ensure timely and accurate submission to meet IRS deadlines.
5. Ongoing Compliance Support
   • Regular updates on IRS regulations and requirements.
   • Annual renewal support for credits that span multiple years.
6. Financial Analysis and Planning
   • Detailed financial projections and analysis to optimize your funding.
   • Strategic planning to maximize the financial benefits of your clean energy investments.

 

Get Started Today

Unlock the full potential of your clean energy investments through IRS Elective Pay.

Contact us today to schedule a consultation and learn how we can help your organization maximize its financial benefits.