Written by Natalie Grumhaus

On March 11, 2024, and effective as of May 10, 2024, the IRS published the finalized regulations allowing tax-exempt organizations, along with a select number of for-profit companies, to elect to treat tax credits as a payment of Federal income tax rather than a nonrefundable tax credit. These regulations amend the Income Tax Regulations and the Procedure and Administration Regulations to implement the Inflation Reduction Act, which has been instrumental in combatting climate change and promoting renewable energy initiatives. For the first time, tax-exempt and state entities can take advantage of Clean Energy tax credits under these new regulations.

What is elective payment of applicable credits?

Elective payment of tax credits, also known as “direct pay”, allows eligible organizations (typically tax-exempt organizations) to receive the full amount of tax credits for which they would otherwise likely be ineligible. While taxpaying organizations are able to take nonrefundable credits and use them to offset their federal tax liabilities, tax-exempt organizations often do not have the same ability due to considerably lower or nonexistent tax liabilities, which would leave a large portion of the credit unusable. If an eligible organization, however, makes an elective pay election then it will be able to receive the full value of the credit. This full value of the credit would be considered a direct payment against any owed federal income taxes, and would generate a refund for the organization if there is excess, unlike other, nonrefundable credits. These new regulations greatly expand access to clean energy tax credits and will incentivize transitions to clean energy and zero emissions, as well as boost cash flow in small organizations that may have difficulty sustaining clean energy initiatives without it.

What credits are eligible for this election?

All twelve of the clean energy tax credits available to taxpayers are eligible under the new regulations:

  • Section 30C – the credit for alternative fuel vehicle refueling property;
  • Section 45 – the renewable electricity production credit, applicable to facilities placed in service after December 31, 2022;
  • Section 45Q – the credit for carbon oxide sequestration, as is attributable to carbon capture equipment placed in service after December 31, 2022;
  • Section 45U – the credit provided for zero-emission nuclear power production;
  • Section 45V – the clean hydrogen production credit for facilities placed in service after December 31, 2012;
  • Section 45W – the credit provided for qualified commercial vehicles (available only to tax-exempt entities, including those affected by these new regulations);
  • Section 45X – the credit for advanced manufacturing production;
  • Section 45Y – the clean electricity production credit;
  • Section 45Z – the clean fuel production credit;
  • Section 48 – the investment tax credit;
  • Section 48C – the credit provided for facilities that make and recycle energy products;
  • Section 48E – the clean electricity investment credit.

Tri-Merit’s RETC team of specialists provides services related to Sections 48, 48C, and 45X. However, Tri-Merit is still expanding its renewable energy department and may add service lines for other credits in this sector.

What entities are eligible to take advantage of these new regulations?

For purposes of the entire section, an “applicable entity” is any organization that falls within Sections 501-530 of the Internal Revenue Code and is thereby considered “tax-exempt” is eligible for elective pay on these credits. Additionally, it includes any states or other political subdivisions or territories, along with any Indian tribal governments, Alaska Native Corporations, and the Tennessee Valley Authority. Any local electric cooperatives that provide electricity to rural communities are also eligible, whether they are considered tax-exempt under Section 501(c)(12) or not. Finally, taxpayers who own property that gives rise to a credit under Sections 45Q, 45V, or 45X may elect to be treated as an applicable entity despite their nonexempt status.

Limitations and Exclusions

Entities that purchased renewable energy tax credits through Section 6418(a) transfers are ineligible to take advantage of elective pay. While the IRS and Treasury did consider comments advocating for ‘chaining’ of tax credits – that is, the ability to purchase clean energy tax credits through a Section 6418(a) transfer – it ultimately determined that Sections 6418(a) and 6417 were “mutually exclusive” regimes. In short, anyone who wants to use these new regulations to make an elective payment election must actually own the underlying property that gives rise to the credits (or, in the case of Section 45(x) credits, conduct the activities that give rise to the credit).

Additionally, federal agencies and instrumentalities, except for the Tennessee Valley Authority, are not included among the applicable entities by Treasury and the IRS.


Any time new regulations are issued, there will be ambiguity and concerns about how they will work and how they will be interpreted later by the IRS, especially if you get audited. Tri-Merit and its team of experts know this, and we are here to support you and help you reduce your tax liability and increase cash flow for your company. If you are a nonprofit business that would like to take advantage of this new opportunity to maximize your Renewable Energy Tax Credits and apply them directly against your Federal Income Tax – potentially years into the future – reach out to us today!