The U.S. Department of the Treasury and the Internal Revenue Service (IRS) have announced the release of final rules on a key provision aimed at broadening access and boosting returns on clean energy tax credits as part of President Biden's Investing in America agenda. The provision, known as transferability, is already proving to be instrumental in advancing the clean energy transition in the United States.
Secretary of the Treasury Janet L. Yellen highlighted the significance of the Inflation Reduction Act's new tools in expanding access to clean energy tax credits, stating, “The Inflation Reduction Act’s new tools to access clean energy tax credits are a catalyst for meeting President Biden’s historic economic and climate goals.”
White House National Economic Advisor Lael Brainard emphasized the positive impact of the Inflation Reduction Act on businesses, stating, “Thanks to President Biden’s Inflation Reduction Act, more small businesses, startups, and other businesses can now benefit from game-changing clean energy tax credits by using the innovative transferability tool.”
The transferability provisions introduced by the Inflation Reduction Act allow businesses to transfer clean energy credits to a third party in exchange for immediate funds, providing a pathway for entities without sufficient tax liability to fully utilize the credits themselves. This mechanism is facilitating the realization of the full value of credits, thereby reducing costs and overcoming financing challenges for projects.
The Inflation Reduction Act also enables tax-exempt and governmental entities to receive elective payments for various clean energy tax credits, including those for electric vehicles and charging stations. The IRS has developed an online platform, IRS Energy Credits Online (ECO), to streamline the registration process for taxpayers looking to transfer credits or receive direct payments.
As of April 19, more than 900 entities have requested approximately 59,000 registration numbers for clean energy projects across the United States. The majority of projects are pursuing transferability, with solar and wind projects utilizing the investment or production tax credit being prominent among them. Additionally, over 1,300 projects are seeking elective pay, including initiatives by state and local governments to register clean buses and vehicles through elective pay.
The issuance of registration numbers on a rolling basis aims to expedite return processing and prevent improper payments, ensuring that entities qualifying for these credit monetization mechanisms can access their benefits efficiently.
