March 5, 2024

Treasury Department and IRS Release Final Regulations on the Direct Payment of Tax Credits

Holland & Knight Alert
Nicole M. Elliott | Amish Shah | Brad M. Seltzer | Roger David Aksamit | Kenneth W. Parsons | Bryan Marcelino | Mary Kate Nicholson | Joshua David Odintz | Daniel Graham Strickland | Rachel T. Provencher

The U.S. Department of the Treasury and IRS on March 5, 2024, released final regulations regarding the direct payment of tax credits under Section 6417 of the Internal Revenue Code (Elective Payment of Applicable Credits). The final regulations adopt the proposed regulations issued in June 2023, with changes, and remove the temporary regulations. (See Holland & Knight's previous alerts, “Inflation Reduction Act: Answers to Key Questions on Direct Pay and Transferability,” June 26, 2023, and “Inflation Reduction Act Direct Pay and Transfer Pre-Filing Registration Is Open for Business,” Feb. 6, 2024.)

In addition, the Treasury Department and IRS also issued proposed regulations regarding elections by certain unincorporated organizations that are owned by one or more applicable entities to be excluded from the application of the partnership tax rules. Under the proposed regulations, exceptions would allow certain unincorporated organizations with one or more applicable entities to make a direct pay election. For purposes of Section 6417, “applicable entities” include tax-exempt entities, state or local governments (or political subdivisions thereof), the Tennessee Valley Authority, tribal governments and any Alaska Native corporation may make an election for direct pay.

The IRS also issued Notice 2024-27 that requests comments on situations in which a direct pay election could be made for a credit transferred under Section 6418, a process referred to as “chaining.” Prior proposed regulations disallowed a taxpayer who had purchased credits from a transferor under Section 6418 to claim direct payment of such purchased credits.

The IRS also updated the elective payment frequently asked questions based on the final regulations.

The Holland & Knight Energy Tax Team is reviewing the regulations and will provide additional analysis. To be sure you receive this forthcoming analysis, please subscribe to our alerts.

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