October 16, 2023
3 min read

Is it Possible for a Non-Profit to Trade Tax Credits?

While ineligible for transferability, non-profits can monetize clean energy tax credits through the Inflation Reduction Act’s “elective pay” mechanism.

As the leading marketplace for clean energy tax credits, Reunion has been approached by many non-profit organizations to help them monetize clean energy credits, primarily from distributed solar projects. Unfortunately, non-profits are not able to transfer tax credits to third parties.

But non-profits have an alternative. The elective pay provision, sometimes called direct pay, allows “applicable entities,” including tax-exempt entities, to benefit from IRA clean energy tax credits even though they are not traditional taxpayers. This provision allows non-profits to receive refund payments directly from the IRS for the amount of eligible credits claimed.

Unlike transferable tax credits, where credits are purchased at a discount to their face value, applicable entities are entitled to receive the full amount of the credits from the IRS.

In order to qualify for elective pay, an applicable entity needs to pre-register its project with the IRS and receive a registration number. The direct payment election is made on Form 990-T, and the amount of credit would be treated as a payment of tax, which would be refundable, absent any other tax liability.

The elective payment provisions of the IRA are codified in IRC §6417. The internal revenue code (IRC) defines six applicable entities that are eligible for elective pay:

  • Organizations exempt from income tax
  • Any state or political subdivision thereof
  • The Tennessee Valley Authority
  • An Indian tribal government
  • Rural energy cooperatives
  • Alaska Native Corporations

Most nonprofits, including 501(c)(3) and 501(d) entities, fall into the first category.

12 credits are available for elective pay:

  • §48: Energy Credit
  • §48E: Clean Electricity Investment Credit
  • §45: Renewable Electricity Production Credit
  • §45Y: Clean Electricity Production Credit
  • §45W: Commercial Clean Vehicle Credit
  • §45U: Zero-emission Nuclear Power Production Credit
  • §45X: Advanced Manufacturing Production Credit
  • §45V: Clean Hydrogen Production Credit
  • §45Z: Clean Fuel Production Credit
  • §45Q: Carbon Oxide Sequestration Credit
  • §30C: Credit for Alternative Fuel Vehicle Refueling/Recharging Property
  • §48C: Qualifying Advanced Energy Project Credit

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