Inflation Reduction Act Funding Explorer & Elective Pay Hub

Counties will need to ensure that their project qualifies for one of the 12 clean energy tax credits eligible for elective pay (see the table below). Counties will also have to collect and provide all the necessary documentation to demonstrate to the IRS that their project meets all the requirements of the applicable credit.  

NOTE: Elective pay is only effective for taxable years beginning after December 31, 2022.   

EXAMPLE: 

Washington County is seeking to install solar panels on the roof of the county library to provide power to the building. They determine this project meets the requirements of the investment tax credit for energy property, which provides a tax credit of up to 30 percent for investment in certain renewable energy property, including solar panels. 

Counties must place their project into service prior to making an elective pay election. Once the project is placed into service, counties must determine the corresponding tax year. For tax-exempt entities claiming elective pay, the tax year generally corresponds with the entity’s internal accounting period. However, according to the Final Rule, if a county has never filed a federal income tax return and is only filing to make an elective payment election then a county can choose whether to file using a fiscal year or a calendar year.

NOTE: Elective pay is only effective for taxable years beginning after December 31, 2022.  

EXAMPLE

Washington County installs solar panels on the roof of the county library in March of 2023. The county operates under a fiscal year, meaning the first applicable tax year for Washington County to claim elective pay begins on July 1, 2023. To claim elective pay for these solar panels, the county opts to file using a calendar year.  

For most counties, tax returns are due on the 15th day of the fifth month after the end of their tax year. For a county filing using a calendar year, the initial deadline would be May 15th. For counties filing using a fiscal year, the initial deadline would be November 15th.  

Counties can also request a 6-month extension. 

EXAMPLE

Washington County has determined that the corresponding tax year for their project is calendar year therefore their initial filing is due May 15, 2024. Washington County requests a 6-month extension and files on November 15, 2024. 

Counties will need to complete a pre-filing registration process with the IRS prior to making an elective pay election. Eligible projects or properties must be placed in service prior to completing the pre-filing registration process.  

To do so, counties must authorize an IRS Energy Credits Online account and must log-on using ID.me. If an authorized representative for the county has an ID.me account from SLFRF, it can be used to log into Energy Credits Online to authorize the county’s account and registrant.  

NOTE: At this time, only one authorized representative can be registered to complete the pre-filing registration process on behalf of the county.  

After completing the process, counties will receive a registration number that corresponds to a single project in a single tax year that will need to be provided with the county’s tax return. Simply put, a county will need to receive a pre-registration number for each of the eligible credit properties they are claiming elective pay for. Additionally, Iif the county plans to claim a credit on the same project in future years, they will need to receive a new registration number for each year. 

Click here to access the pre-filing registration portal user guide. 

EXAMPLE

Washington County has determined that their filing will be due November 15, 2024. They now must complete the pre-filing registration process with the IRS prior to that date. The IRS recommends completing this process at least 120 days prior to when the return is due. 

Once a county receives a registration number from the IRS, they can make an elective pay election on their tax return. Counties, who generally do not have tax liability and do not formally file returns, will use IRS Form 990-T. They will also be required to complete and attach IRS Form 3800, General Business Credit, in addition to other required information.  

The return must be filed by the due date, or any extension date. An elective pay election can only be made on an original return, not an amended return, and late returns will not be accepted.  

EXAMPLE: 

Washington County has completed the pre-filing registration process and received a registration number from the IRS. They now make an elective pay election for the investment tax credit for energy property using Form 990-T and submit the form, and any information required to certify they have met the requirements of the investment tax credit for energy property, to the IRS by February November 15, 2024.  

If the return is filed successfully – meaning that the pre-filing registration was completed, the project meets all the requirements of the credit being claimed, and the return was filed in a timely manner – then the county will receive a payment directly from the IRS, either electronically or through the mail. According to the IRS, entities can expect elective payments within 45 days of the annual filing due date.  

NOTE: The IRS is not required to provide a direct payment until the due date of the return, so even if a county files a return early, they are not guaranteed a payment before the due date. 

EXAMPLE:

Washington County successfully filed their return and has now received a direct payment from the IRS electronically. 

Yes. 

Agencies and instrumentalities of county governments are eligible to make an elective pay election. Examples of these entities include hospitals, school districts and economic development corporations. 

No.

Unlike a federal grant program, in which a county may be competing against other entities for funding, counties are guaranteed a direct payment equal to the amount of the credit if they successfully complete all the steps outlined above. 

Yes. 

Counties can combine tax-free grants and forgivable loans with elective pay to finance a clean energy project. This means that if a county is funding a project using a grant or a loan and successfully makes an elective pay election, they will still receive the full credit amount as a direct payment from IRS, as long as the direct payment amount combined with the tax-free grant and/or loan does not exceed the total project cost. 

A county must generally own the project for which they are claiming the applicable credit. However, that ownership can take on different forms, including owning the project directly or through a disregarded entity.  

Partnerships are generally ineligible to claim elective pay, even if the individual members are applicable entities (i.e. entities eligible to make an elective pay election). However, proposed regulations issued by the IRS provide unincorporated organizations with the ability to make an elective pay election for certain applicable credits* by outlining how they can elect out of the partnership rules under subchapter K of the Internal Revenue Code.

The proposed regulations allow unincorporated organizations, such as partnerships and LLCs, to be excluded from the partnership provisions of the IRC if the following requirements are met:

• At least one of the owners of the unincorporated organization must be an applicable entity;
• The members of the unincorporated organization must enter into a joint operating agreement with regard to the applicable credit property in which they reserve the right to separately take in kind or dispose of their pro rata shares of the electricity produced, or any associated renewable energy credits;  
• The unincorporated organization must, pursuant to the joint operating agreement, be organized exclusively to jointly produce electricity from its applicable credit property;  
• At least one of the applicable entities that makes up the unincorporated organization must make an elective payment election for an applicable credit.  

If the above requirements are met, counties would be able to make an elective pay election for clean energy property they own as a member of an unincorporated organization.  

Comments on the proposed regulations are due by May 10, 2024.

*Applies only to the Production Tax Credit for Electricity from Renewables (§ 45), the Clean Electricity Production Tax Credit (§ 45Y), the Zero-Emission Nuclear Power Production Credit (§ 45U), the Investment Tax Credit for Energy Property (§ 48) and the Clean Electricity Investment Tax Credit (§ 48E). 

No, it does not. Completing the pre-registration process simply means a county has provided the IRS with adequate, verifiable information to ensure prompt processing and payment. Eligibility for the credit is determined through the information provided by the county on the tax return and through timely filing of the return.  

Eligible renewable energy projects include solar, geothermal, small wind, fuel cell, microtrubine, energy storage, waste energy recovery, biogas, microgrid controllers, electrochromic glass and combined heat and power properties. 

In November 2023, the IRS published proposed regulations outline in detail what types of energy property are eligible for the ITC. 

NOTE: The ITC will be replaced by the technology-neutral clean electricity investment tax credit (§ 48E) beginning January 1, 2025. 

The base credit amount is 6 percent of the investment. However, if labor and apprenticeship requirements are met, the base credit is 30 percent. For projects with a maximum net output of less than 1 megawatt, the base credit is 30 percent (no matter whether the project meets the required labor requirements or not). 

Counties should note that the credit is reduced if the facility is financed with tax-exempt bonds, with the maximum reduction set at 15 percent. Additionally, the base credit for geothermal heat property is reduced to 5.2 percent in 2033 and 4.4 percent in 2034 and phases out completely in 2035.  

Yes. 

Domestic Content Bonus 

The credit is increased by 10 percentage points if the certain domestic content requirements are met. to qualify for the bonus: 

• All structural steel or iron products used must have been produced in the United States; and 
• A percentage of the total costs of manufactured products (including components) used must have been mined, produced or manufactured in the United States. The required percentage is:
  • 40 percent for all projects beginning construction before 2025; 
  • 45 percent for all projects beginning construction in 2025; 
  • 50 percent for all projects beginning construction in 2026; and 
  • 55 percent for projects beginning construction after 2026 

Click here to view IRS guidance on the domestic content bonus.

NOTE: Projects beginning construction in 2024 and have a maximum net output of 1 megawatt and above must meet domestic content requirements or the elective payment received by the county will be reduced to 90 percent. This percentage will lower to 85 percent for projects beginning in 2025 and 0 percent for projects beginning after 2025.

There are certain exceptions to this reduction, including if the domestic content is not available or if would it increase the project cost by more than 25 percent. Click here to view guidance from the IRS on how counties can claim these exceptions. 

Energy Community Bonus 

The credit is increased by 10 percentage points if the project is located in an energy community. An energy community is defined as:

1. A brownfield site; 
2. A metropolitan or non-metropolitan statistical area that has (or has had at any point after 2009):
   1. 0.17 percent or greater direct employment or 25 percent or greater local tax revenues related to the extraction, process, transport or storage of coal, oil or natural gas; and 
   2. An unemployment rate at or above the national average unemployment rate for the previous year; or 
3. A census tract, or directly adjoining census tract, in which:
   1. A coal mine closed after 1999; or 
   2. A coal-fired electric generating unit that retired after 2009 

Click here to view a map of eligible energy communities (excluding brownfields).

To claim the credit using elective pay, counties should follow the steps listed above. Counties will also need to fill out a form specific to the credit. They will also need to fill out and submit IRS Form 3468.

Eligible renewable energy projects include solar, wind, biomass, geothermal, small irrigation, landfill and trash, hydropower and marine and hydrokinetic energy. 

NOTE: The PTC will be replaced by the technology-neutral clean electricity production tax credit (§ 45Y) beginning January 1, 2025.

The base credit amount is 0.55 cents per kilowatt, adjusted annually for inflation. However, if labor and apprenticeship requirements are met, the base credit is 2.75 cents per kilowatt. For projects with a maximum net output of less than 1 megawatt the base cred it is 2.75 cents per kilowatt, no matter whether the project meets the required labor requirements or not. The base credit amount is reduced by half for electricity produced from open loop biomass, small irrigation and landfill and trash. 

Counties should note that the credit is reduced if the facility is financed with tax-exempt bonds, with the maximum reduction set at 15 percent. 

Yes. 

Domestic Content Bonus 

The credit is increased by 10 percent if the certain domestic content requirements are met. to qualify for the bonus: 

• All structural steel or iron products used must have been produced in the United States; and 
• A percentage of the total costs of manufactured products (including components) used must have been mined, produced or manufactured in the United States. The required percentage is:
  • 40 percent for all projects beginning construction before 2025; 
  • 45 percent for all projects beginning construction in 2025; 
  • 50 percent for all projects beginning construction in 2026; and 
  • 55 percent for projects beginning construction after 2026 

Click here to view IRS guidance on the domestic content bonus.

NOTE: Projects beginning construction in 2024 and have a maximum net output of 1 megawatt and above must meet domestic content requirements or the elective payment received by the county will be reduced to 90 percent. This percentage will lower to 85 percent for projects beginning in 2025 and 0 percent for projects beginning after 2025.

There are certain exceptions to this reduction, including if the domestic content is not available or if would it increase the project cost by more than 25 percent. Click here to view guidance from the IRS on how counties can claim these exceptions. 

Energy Community Bonus 

The credit is increased by 10 percent if the project is located in an energy community. An energy community is defined as:

1. A brownfield site; 
2. A metropolitan or non-metropolitan statistical area that has (or has had at any point after 2009):
   1. 0.17 percent or greater direct employment or 25 percent or greater local tax revenues related to the extraction, process, transport or storage of coal, oil or natural gas; and 
   2. An unemployment rate at or above the national average unemployment rate for the previous year; or 
3. A census tract, or directly adjoining census tract, in which:
   1. A coal mine closed after 1999; or 
   2. A coal-fired electric generating unit that retired after 2009 

Click here to view a map of eligible energy communities (excluding brownfields).

To claim the credit using elective pay, counties should follow the steps listed above. Counties will also need to fill out a form specific to the credit. They will also need to fill out and submit IRS Form 8835. 

 Qualified commercial clean vehicles are those that are: 

• Made by a qualified manufacturer 
• Acquired for use or lease by the county and not for resale; and 
• Manufactured primarily for use on public streets, roads and highways or are mobile machinery

The vehicle or machinery must also be either: 

• A plug-in electric vehicle that is propelled by a significant extent by an electric motor with a battery capacity of:
  • 7 kWh for vehicles weighing under 14,000 pounds
  • 15 kWh for vehicles weighing 14,000 pounds or more 
• A fuel cell motor vehicle 

The vehicle must have also been placed in service after January 1, 2023, and purchased before January 1, 2033. 

The credit is equal to the lesser of:

• 15 percent of the taxpayer's basis in the vehicle (30 percent for vehicles not powered by a gasoline or diesel internal combustion engine); or 
• The incremental cost of the vehicle 

The credit is limited to $7,500 for vehicles weighing less than 14,000 pounds and $40,000 for all other vehicles. 

To claim the credit using elective pay, counties should follow the steps listed above. Counties will also need to fill out a form specific to the credit. The IRS is in the process of finalizing this form for 2023. 

Qualified refueling and charging property is defined as property that is used to store or dispense clean-burning fuel or to recharge electric motor vehicles. This includes bidirectional charging equipment and charging sttaions for 2- and 3-wheeled vehicles. 

The property must also be placed in an eligible census tract, which are either:

1. Low-income community census tracts; or 
2. Non-urban census tracts 

View eligible census tracts here.

The property must also have been placed in service before January 1, 2033.

The credit for qualified refueling and charging property subject to depreciation equals 6 percent (30 percent if prevailing wage and apprenticeship requirements are met) with a maximum credit of $100,000 per single item of property. 

The credit for qualified refueling and charging property not subject to depreciation equals 30 percent with a maximum amount of $1,000 per single item of property. 

To claim the credit using elective pay, counties should follow the steps listed above. Counties will also need to fill out a form specific to the credit. The IRS is in the process of finalizing this form for the 2023 tax year.