Article
IRS proposes partnership rule workaround for entities that qualify for direct pay
May 16, 2024 · Authored by Craig Lammlin
The IRS proposed rules on March 11, 2024, to exclude certain unincorporated organizations owned by applicable entities from being subject to partnership rules as they relate to energy property under the Inflation Reduction Act.
The proposed rules apply to taxable years ending on or after March 11, 2024. Written comments will be accepted through May 10, 2024, and a public hearing on the proposed rules is scheduled for May 20, 2024.
Explore the requirements needed for your organization to meet the proposed exclusion as well as how the guidance could impact your energy-related projects and their tax benefits.
Who is affected by the proposed regulations?
Under Internal Revenue Code (IRC) Section 6417, applicable entities can receive cash refunds of as much as 70% of the qualifying costs of eligible green energy projects, a benefit referred to within the industry as direct pay or refundable tax credit or what the IRS terms as an elective payment.
Generally, applicable entities include:
- Tax-exempt organizations
- States or political subdivisions
- The Tennessee Valley Authority
- Tribal governments
- Alaska Native Corporations
- Rural electric cooperatives
The proposed rules provide a way for applicable entities to partner with other entities to complete energy projects while also maintaining their ability to claim the direct pay benefit.
Background on the proposed regulations
The IRS and the U.S. Department of Treasury published proposed regulations June 21, 2023, to provide guidance on the direct payment of energy tax credits.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.