On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (IRA) into law. The IRA represents a watershed in the development and deployment of clean energy technologies with major expansions of existing federal tax credits and the invocation of many new credits. Those tax credits include solar, wind, hydropower, carbon sequestration, hydrogen, and various other energy sources, as well as robust manufacturing credits for clean energy products. In addition to the numerous credits, the IRA provides groundbreaking methods of monetizing those credits in addition to the traditional tax structures.

The presentation will cover the IRA’s new transfer and elective payment rules. Importantly, taxpayers may now sell tax credits to other taxpayers under the transferability provisions. The ability to sell tax credits will allow taxpayers who cannot currently use the tax credits to offset their own taxes to transfer those credits to taxpayers who can. Moreover, the IRA provides a payment election similar to a refundable credit or a grant that would provide a direct payment of the credit amount to the project owner or other eligible party. Although this direct payment election is generally available to tax-exempt entities, it also is available to certain electing taxpayers with respect to three of the IRA credits (the clean hydrogen, carbon sequestration, and advanced manufacturing credits). The presentation will cover the key areas of the proposed and temporary regulations issued by the U.S. Treasury Department and IRS on June 21, 2023, with respect to the transferability and elective payment rules.