On December 22, 2023, the IRS opened the pre-filing registration portal for credits to be claimed under the Inflation Reduction Act of 2022 (IRA). Registration through the portal is required to obtain a registration number to be included on the income tax return filings needed to claim the tax credits.
This registration impacts both tax exempt entities going the elective pay route to receive a direct cash payment from the IRS and those entities seeking to transfer credits to a third-party buyer in exchange for cash.
IRA background
The IRA has breathed new life into energy credits. Prior to the IRA, solar and other clean energy tax credits that had been in place for many years were starting down a path to sunset.
Two of the most significant new components embedded within the IRA legislation is the ability for non-profit entities to pursue elective pay credits, and for-profit entities to transfer tax credits earned in exchange for cash. However, like many of the other new aspects of the tax code promulgated through the IRA, it has come with new processes and requirements for those seeking to take advantage of these opportunities.
Prior experience suggests we should expect a bit of turbulence as the tools created by the IRS go live.
The registration process
The IRS released a 73-page registration guidebook outlining the details of the rules. Moving forward on energy projects requires the guidance to be broken down and a detailed review of the new guidebook will map the process for thousands of taxpayers over the next decade. All registrations will be processed through a newly created IRA pre-registration filing portal.
One taxpayer – one registration
Organizations and taxpayers are allowed only one pre-filing registration for the applicable tax period. As such, a taxpayer must apply for the registration numbers for every credit it intends to claim within one filling.
This pre-registration can be amended or updated, but only after the review of the initial submission has been reviewed by the IRS. Once a registration number has been assigned to a taxpayer, updates or amendments to that registration number must be made prior to it being used in a filing.
Pre-filing registration should occur after a project is “placed in service” and at the beginning of the tax period in which the tax credit is earned. In terms of a “deadline,” it is suggested that a pre-filing registration should be submitted at least 120 days prior to the due date for the tax return on which the credit will be reported, including any allowable extension periods.
The details
Taxpayers will need to fill out two sections to complete the pre-filing registration. The first section collects general information regarding the taxpayer. The second section, based on the inputs from the general section, will allow the taxpayer to input all relevant information for specific credits to be claimed.
The first section asks for basic information, such as: the tax period of the election; the filer’s EIN; any information about subsidiaries included in a consolidated group of corporations; the entities name as it will appear on the ultimate tax return; the entities (not project) address (this must be the address used on the last income tax return filed by the entity, if this isn’t a newly formed organization or first time filer);bank account information.
In a situation where there is a parent of a consolidated group of corporations as the registrant, the EIN and name must be that of the parent. Information regarding the subsidiaries can be captured during the subsequent credit-specific information input. The parent of a consolidated group of corporations will register on behalf of itself and will act as an “agent” for subsidiaries included in the group. When entering subsequent credit-specific information, the parent corporation will provide the subsidiary name and EIN for each facility or property being registered that is owned by the subsidiary.
I’m through the General Registration Section, now what?
This is where the fun really starts. The IRS portal offers two options at this juncture, manual entry or bulk upload. Think of this as the difference of entering a set of an individual set of data for a single project (on a project-by-project basis) versus uploading a spreadsheet file with all of this information for each project embedded into it.
Project information required for this section includes; choice of election (e.g., elective pay or transfer); if applicable, confirmation of the entity as a subsidiary in a consolidated group of corporations; the date construction began; the date the project was placed in service; the property location; details on any joint ownership in the project; and finally (and an interesting requirement) the sources of funds.
You aren’t done yet!
Aside from the information discussed in the “general” and “detailed” sections, each credit type will request supporting documentation. With the IRA, a number of new and enhanced credits are going to be registered, including: Section 30C (alternative fuel refueling property), Section 45 (production tax credit), 45Q (carbon oxide sequestration credit), Section 45U (nuclear power production), Section 45V (clean hydrogen), Section 45W (commercial clean vehicles), Section 45X (advanced manufacturing production), Section 48C (qualifying advanced energy projects), and the Section 48 energy investment tax credit we have all come to know and love.
The additional supporting documentation required to register includes:
- Proof of ownership of the facility/property with respect to which the credit is computed
- Construction permit showing commencement of construction
- Permits to operate from utility (only if connected to the grid, or if not connected to the grid electrical permits to operate from an authority having jurisdiction)
A learning process
As more and more guidance comes out, the associated requirements that come along with the opportunity to harvest substantial tax credits will be a learning process.
While elective pay or transferable credit registration requirements don’t appear to be significant, they are another step that needs careful consideration. Complete registrations are more likely to be approved and not questioned for resubmittal.
Prior experience indicates that there may be delays in turnaround of registration requests regardless, those that don’t register with correct and complete information can only anticipate even longer delays prior to ultimately accessing the credits. And in this case, time is literally money.
Joel Laubenstein is a principal and a leader in Baker Tilly’s Development and Community Advisory – Energy practice. He and his team specialize in compliance, energy, and infrastructure project execution advisory, outsourced grant writing, outsourced project development, and additional capital procurement.
