The Situation
A Wisconsin-based community center constructed a new facility and installed a geothermal heat pump system to improve energy efficiency and reduce long-term operating costs. Like many tax-exempt organizations, leadership initially assumed federal energy credits would not apply because the organization does not pay income tax. Under the Inflation Reduction Act (IRA), that assumption is no longer correct.
The Opportunity
The IRA introduced Direct Pay (elective payment), allowing certain tax-exempt organizations to receive clean energy credits as a cash refund, even without tax liability.
However, eligibility is not automatic.
Key questions needed to be answered:
- Does the geothermal system qualify as an energy property under Section 48?
- What portion of the project cost qualifies as an eligible basis?
- Are the Domestic Content and Energy Community bonus credits available?
- Are there financing adjustments that reduce the credit?
- How does the Direct Pay filing process work?
These determinations require both technical and tax analysis. Missteps can reduce the benefit or create compliance exposure.
Tri-Merit’s Approach
Tri-Merit performed a full technical and tax credit review of the project, including:
- Confirming that the geothermal heat pump system met the definition of a qualifying energy property
- Applying the Functionally Interdependent Test to treat interconnected components as one system
- Calculating the project’s qualified basis under IRS rules
- Evaluating Domestic Content and Energy Community bonus eligibility
- Confirming no bond financing adjustments applied
- Guiding the organization through the Direct Pay process
Project Snapshot
- Total Project Cost: $1.4 million
- Qualified Basis: $1.2 million
(“Qualified basis” represents the portion of total cost eligible for credit under federal rules.)
The Financial Impact
Based on a $1.2 million qualified basis, the credit was calculated as follows:
- Base ITC (30%): $360,000
- Domestic Content Bonus (10%): $120,000
- Energy Community Bonus (10%): $120,000
Total Refundable Investment Tax Credit: $600,000
Because the organization qualified for Direct Pay, the full $600,000 was received as a cash refund from the IRS, despite having no federal income tax liability.
That refund strengthened reserves and provided additional capital to support ongoing community programs and facility initiatives.
Why This Matters for Tax-Exempt Organizations
The IRA fundamentally changed what clean energy incentives can mean for nonprofits:
- No tax liability required
- Credits can be converted directly to cash
- Bonus adders can significantly increase the benefit
- A properly qualified basis analysis is essential
- Documentation and substantiation matter
Many nonprofits are still operating under outdated assumptions. The opportunity exists, but it requires careful evaluation and defensible calculation.
How Tri-Merit Supports Nonprofits
Tri-Merit partners with tax-exempt organizations nationwide to:
- Evaluate clean energy eligibility
- Accurately calculate the qualified basis
- Identify and substantiate bonus credits
- Model expected refundable benefits
- Navigate Direct Pay filings
- Deliver audit-ready documentation
Clean energy projects can now generate meaningful refundable federal dollars, even for organizations that do not pay income tax.
If your organization has completed (or is planning) a clean energy project, it may be eligible for refundable federal credits.
Schedule a clean energy eligibility review with Tri-Merit to determine what your project could generate.
