Energy provisions in the inflation reduction act not-for-profits can use

On Aug. 16, 2022, President Biden signed into law the Inflation Reduction Act (the Act) which contains numerous provisions that afford opportunities to tax-exempt organizations. While the bill itself contains over 70 separate tax credits that may benefit our tax-exempt community, it is the enhanced credit opportunities and ability to monetize these credits that will have the most significant impact to tax-exempt organizations. The Act also contains enhancements to the USDA and Department of Energy loan programs providing for direct, low interest loan funding. These tax credit and loan opportunities are available tax-exempt organizations including governments, Tribes, not-for-profits, colleges and universities and others, depending on the nature of the project.

Under the section of energy security, the act modifies and extends certain tax credits for non-fossil fuels:

• for producing electricity from renewable resources (wind, biomass, geothermal and solar, landfill gas, trash, qualified hydropower, and marine and hydrokinetic resources);
• for investment in certain energy properties (solar, fuel cells, waste energy recovery, combined heat and power, small wind property, and microturbine property); and
• for alternative fuels and fuel mixtures, and biodiesel and renewable diesel.

Most of the tax credits are available through 2032, but it is important to note that both current and future construction projects may be credit eligible since the placed in-service date is critical in determining whether the enhanced credit opportunity applies. The amount of credit available is also increased for projects placed in service in low-income communities, where prevailing wages and apprenticeship requirements are met and other specific provisions.

The tax credit rules are extremely complex, and the minutiae can be overwhelming. There are several nuanced definitions and technical requirements in each area of the rules. In addition, multiple credits may be available for certain technologies, but there are rules to prevent double dipping. Careful analysis must be conducted to ensure the right mix of credits is claimed in order to maximize the tax benefits.

Monetization of credits through refund opportunities or transferability

The Act allows certain tax-exempt entities, state and local governments and Tribal governments to treat various tax credit amounts as payments of tax with any payments in excess of an organization’s tax liability being refundable. The monetization of credit opportunities for tax-exempt entities is only allowed for certain types of tax credits. The Act also provides for transferability whereby allowing an organization to sell the credit to other parties.