By Jayme Mika, CPA, Tax Manager
Overview of IRS refund for renewable energy projects
Is your organization thinking about new clean energy source installation? The Inflation Reduction Act (IRA) of 2022 includes a direct pay provision under a new Sec. 6417, effectively treating tax credits generated by a renewable energy project as equivalent to a refund for nonprofit organizations.
Two energy related tax credits available for nonprofit organizations
1. Investment Tax Credit (ITC)
The ITC is based on a percentage of the cost of a solar system or other qualifying technologies that are installed during the tax year (upfront tax credit is not based on system performance). This credit is generally better for smaller scale projects.
2. Production Tax Credit (PTC)
The PTC is a per kilowatt-hour tax credit. The PTC is a better option for large scale projects.
How your nonprofit can qualify for the direct pay provision
Solar systems or other qualifying technologies placed in service in 2022 or later and begin construction before 2023 are eligible for up to a 30% ITC or a 2.75₵/kWh PTC if they meet labor requirements issued by the Treasury. The projects must also be located in the United States, use new and limited previously used equipment, and not be leased to a tax-exempt entity.
The direct pay provision allows the organization to receive a refund from the Internal Revenue Service (IRS) for the tax credits on projects placed in service after 2022.
- Nonprofit organizations must pre-register with the IRS before the tax return (with extension) is due for the year the project was placed in service and receive a registration number.
- There is a significant supporting documentation requirement for the pre-registration process (permits, leases, evidence of credit qualification).
- Once the IRS accepts the pre-registration, they will issue a registration number to include on the annual 990T filing to claim the credit and request the refund.
- Learn more about the tax credits and requirements.
Questions on taking advantage of the clean energy refund for your nonprofit? Contact your Keiter Nonprofit Opportunity Advisor.
About the Author
Jayme Mika, CPA, Tax Manager
Jayme Mika is a member of our not-for-profit industry team and applies her industry insights to provide tax advice and opportunities to the Firm’s not-for-profit clients. Read more of Jayme’s not-for-profit tax insights on our blog.
More Insights from Jayme MikaThe information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.
