Elective Pay Overview
Elective pay, also referred to as ‘direct pay’ enables tax-exempt organizations, states, and government organizations to directly receive monetary payment for eligible clean energy tax credits.
An organization who meets all the requirements can file an annual tax return with the IRS to claim elective pay and be eligible for a payment in lieu of the tax credit. Since the amount of the credit is treated as a payment of tax, any overpayment results in a refund.
The tax provisions include solar facilities and qualified energy storage technologies. The Low-Income Communities Bonus Credit offers an additional investment tax credit for small-scale solar facilities in low-income communities and benefits low-income households. This bonus credit is allocated through an application process.
Preparing for Elective Pay
Organizations that do not have an annual tax filing obligation can determine eligibility on the IRS Elective Pay and Transferability FAQ.
Gather information that will be needed for filing, including:
- Solar project details including facility output and date placed in service
- Credit intended to be earned for each property
- Name of the person authorized to attest to the information
Navigating the Elective Pay Process
- IRS’s Pre-Filing Registration tool: Used to register the intention to make an elective payment election
- IRS User Guide: A resource for using the pre-filing tool
When to Complete the Pre-Filing Registration Process
Allow time for the IRS to review your submission and provide the registration number(s). In general, you should register:
- After placing the solar project(s) in service, but no earlier than the beginning of the tax period when you earn the credit
- At least 120 days before the due date (including extensions) for the tax return where you report the credits. This should allow time for the IRS review, and for the registrant to respond if the IRS requires additional information before issuing the registration number(s)
Important considerations:
- A registration submission can be amended after it has been processed by the IRS.
- A registrant cannot request expedited handling.
- The registrant must wait until the most recent pre-filing submission is processed by the IRS before making additional pre-filing registration submissions for different facilities/properties.
- Government entities receive an automatic, paperless 6-month extension for the due date of their tax return; it is unnecessary for them to request an extension using Form 8868.
Additional Resources and Forms
Additional Guidance on Low-Income Communities Bonus Credit
Definition of Energy Property and Rules Applicable to the Energy Credit
Fact Sheets and FAQs for Elective Pay
Form 990-T, Exempt Organization Business Income Tax Return
Form 3800, General Business Credits
Form 8868, Application for Automatic Extension of Time to File an Exempt Organization Return (Not yet revised to allow extension requests)
IRS’s Pre-Filing Registration tool
L4GG & USCA Info Sheet: Identifying ITC-Eligible Renewable Energy Generation Projects
Disclaimer: The information is strictly provided as a convenience to our customers. Solect/Pattern does not represent or warrant the accuracy of information provided by these external websites. Solect/Pattern does not provide legal, tax or investment advice. Always consult your tax, financial and legal professionals.
January 17, 2024