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Treasury, IRS Release Final Elective Payment Rules

The U.S. Department of Treasury and the Internal Revenue Service on March 5 released final regulations relating to the implementation of elective payment of energy tax credits.

As part of the release, Treasury and IRS also issued a Notice of Proposed Rulemaking providing additional clarity for owners seeking elective payment for their portion of co-owned energy projects.

Of immediate note is that the final regulations address the problem faced by public power utilities operating on a fiscal year, but that placed energy property – including commercial electric vehicles – into service early in 2023.

Because of the mechanics of elective payment’s effective date, such entities were at risk of being unable to claim credit for such property. 

Under the final regulations, an entity that had not previously filed an income tax return, may choose whether to file its first Form 990-T based upon either a calendar or a fiscal year.

Adopting a calendar year tax year under these circumstances would not require changing accounting year to match.

This should allow affected public power utilities that placed in service applicable energy credit property early in 2023 to file Form 990-T based on a calendar year and make an elective payment election with respect to the applicable credit property.

The final regulations are primarily focused on the process and timeline for claiming and receiving an elective payment of energy tax credits.

They do not provide guidance for meeting domestic content requirements for claiming elective payment, nor does it discuss the exceptions to those requirements.

Treasury and IRS issued draft proposed rules for the domestic content bonus credit in 2023 but have not clarified whether this bonus credit domestic content requirements would also apply for purposes of qualifying for elective payment.

Likewise, while Treasury and IRS have sought comments on exceptions to the domestic content requirements for elective payment, they have not issued any guidance -- draft or otherwise.

The American Public Power Association will provide a summary of the final regulations and the NPRM.

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