Bulletin No. 2024–15

HIGHLIGHTS

OF THIS ISSUE





Bulletin No. 2024–15

April 8, 2024

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be

relied upon as authoritative interpretations.

EXEMPT ORGANIZATIONS

Announcement 2024-15, page 876.

Revocation of IRC 501(c)(3) Organizations for failure to meet

the code section requirements. Contributions made to the

organizations by individual donors are no longer deductible

under IRC 170(b)(1)(A).

INCOME TAX

Notice 2024-31, page 869.

Notice 2024-31 provides for adjustments to the limitation

on housing expenses for purposes of section 911 of the

Internal Revenue Code for the 2024 tax year. These adjustments are made on the basis of geographic differences

in housing costs relative to housing costs in the United

States. If the limitation on housing expenses is higher for

the 2024 tax year than the adjusted limitations on housing

expenses provided in Notice 2023-26, qualified taxpayers

may apply the adjusted limitations in this notice for the

2024 tax year to their 2023 tax year.

Rev. Proc. 2024-17, page 873.

Generally, U.S. citizens or resident aliens living and working abroad are taxed on their worldwide income. However,

if their tax home is in a foreign country and they meet either

the bona fide residence test or the physical presence test,

they can choose to exclude from their income a limited

amount of their foreign earned income (up to $120,000

for 2023). Both the bona fide residence test and the physical presence test contain minimum time requirements.

Revenue Procedure 2024-17 provides a waiver under

section 911(d)(4) for the time requirements for individuals electing to exclude their foreign earned income who

Finding Lists begin on page ii.

must leave a foreign country because of war, civil unrest,

or similar adverse conditions in that country. Rev. Proc.

2024-17 adds Ukraine, Belarus, Sudan, Haiti, Niger, and

Iraq to the list of waiver countries for tax year 2023 for

which the minimum time requirements are waived.

Rev. Proc. 2024-18, page 874.

This revenue procedure supplements Rev. Proc. 2023-32,

2023-41 I.R.B. 1064, by publishing amounts of unused

housing credit carryovers allocated to qualified states

under § 42(h)(3)(D) of the Internal Revenue Code for calendar year 2023 in addition to those amounts published in

Rev. Proc. 2023-32.

T.D. 9988, page 794.

The final regulations describe the rules for the elective

payment of applicable credit amounts in a taxable year,

including definitions and special rules applicable to partnerships and S corporations. In addition, the final regulations provide rules related to a required IRS pre-filing

registration process. Temporary regulations that were

previously issued to describe rules for the pre-filing registration process are removed. The pre-filing registration

process is necessary to complete before filing an effective

elective payment election for applicable credits.

T.D. 9989, page 850.

These final regulations describe the rules for the elective

payment election under section 48D(d) of the Internal Revenue Code, as established by the CHIPS Act of 2022. The

final regulations describe rules related to an IRS pre-filing

registration process as a condition of, and prior to, any

amount being treated as a payment made by or to the

taxpayer. The final regulations also describe special rules

applicable to partnerships and S corporations, repayment

of excessive payments, and basis reduction and r­ ecapture.

The IRS Mission

Provide America’s taxpayers top-quality service by helping

them understand and meet their tax responsibilities and

enforce the law with integrity and fairness to all.

Introduction

The Internal Revenue Bulletin is the authoritative instrument

of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service

and for publishing Treasury Decisions, Executive Orders, Tax

Conventions, legislation, court decisions, and other items of

general interest. It is published weekly.

It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application

of the tax laws, including all rulings that supersede, revoke,

modify, or amend any of those previously published in the

Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements of

internal practices and procedures that affect the rights and

duties of taxpayers are published.

Revenue rulings represent the conclusions of the Service

on the application of the law to the pivotal facts stated in

the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices,

identifying details and information of a confidential nature are

deleted to prevent unwarranted invasions of privacy and to

comply with statutory requirements.

Rulings and procedures reported in the Bulletin do not have the

force and effect of Treasury Department Regulations, but they

may be used as precedents. Unpublished rulings will not be

relied on, used, or cited as precedents by Service personnel in

the disposition of other cases. In applying published rulings and

procedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be considered,

and Service personnel and others concerned are cautioned

against reaching the same conclusions in other cases unless

the facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.

This part includes rulings and decisions based on provisions

of the Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.

This part is divided into two subparts as follows: Subpart A,

Tax Conventions and Other Related Items, and Subpart B,

Legislation and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.

To the extent practicable, pertinent cross references to these

subjects are contained in the other Parts and Subparts. Also

included in this part are Bank Secrecy Act Administrative

Rulings. Bank Secrecy Act Administrative Rulings are issued

by the Department of the Treasury’s Office of the Assistant

Secretary (Enforcement).

Part IV.—Items of General Interest.

This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative index

for the matters published during the preceding months. These

monthly indexes are cumulated on a semiannual basis, and are

published in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

April 8, 2024 

Bulletin No. 2024–15

Part I

26 CFR 1.6417-1 through 1.6417-6; 26 CFR

301.6241-1(a)(6)(iii) and (b)(1); 26 CFR 301.62417(j) through (k)

T.D. 9988

DEPARTMENT OF THE

TREASURY

Internal Revenue Service

26 CFR Parts 1 and 301

Elective Payment of

Applicable Credits

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final regulations and removal

of temporary regulations.

SUMMARY: This document contains

final regulations concerning the election under the Inflation Reduction Act of

2022 to treat the amount of certain tax

credits as a payment of Federal income

tax. The regulations describe rules for the

elective payment of these credit amounts

in a taxable year, including definitions

and special rules applicable to partnerships and S corporations and regarding

repayment of excessive payments. In

addition, the regulations describe rules

related to a required IRS pre-filing registration process. These regulations affect

tax-exempt organizations, State and local

governments, Indian tribal governments,

Alaska Native Corporations, the Tennessee Valley Authority, rural electric cooperatives, and, in the case of three of these

credits, certain taxpayers eligible to elect

the elective payment of credit amounts in

a taxable year.

DATES: Effective date: These regulations

are effective May 10, 2024.

Applicability date: For dates of applicability, see §§1.6417-1(q), 1.6417-2(f),

1.6417-3(f), 1.6417-4(f), 1.6417-5(d),

1.6417-6(e), 301.6241-1(b)(1), and 301.

6241-7(k)(3).

FOR FURTHER INFORMATION

CONTACT: Concerning these final regulations, Jeremy Milton at (202) 317-5665

and James Holmes at (202) 317-5114 (not

toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

This document contains final regulations that amend the Income Tax Regulations (26 CFR part 1) and the Procedure

and Administration Regulations (26 CFR

part 301) to implement the statutory provisions of section 6417 of the Internal

Revenue Code (Code), as enacted by section 13801(a) of Public Law 117-169, 136

Stat. 1818, 2003 (August 16, 2022), commonly known as the Inflation Reduction

Act of 2022 (IRA).

I. Overview of Section 6417

An applicable entity that meets all the

requirements of section 6417 is permitted

to make an election under section 6417

with respect to any applicable credit

determined with respect to the applicable entity for the taxable year (elective

payment election). If an applicable entity

makes an elective payment election, the

applicable entity is treated as making a

payment against Federal income taxes

imposed by subtitle A of the Code (subtitle A) for the taxable year with respect to

which such credit was determined that is

equal to the amount of such credit (elective payment amount). An election under

section 6417 must be made at such time

and in such manner as provided by the

Secretary of the Treasury or her delegate

(Secretary).

Section 6417(b) defines the term

“applicable credit” to mean each of the

following 12 credits:

(1) So much of the credit for alternative

fuel vehicle refueling property allowed

under section 30C of the Code that, pursuant to section 30C(d)(1), is treated as a

credit listed in section 38(b) of the Code

(section 30C credit);

(2) So much of the renewable electricity production credit determined under

section 45(a) of the Code as is attributable

to qualified facilities that are originally

placed in service after December 31, 2022

(section 45 credit);

(3) So much of the credit for carbon

oxide sequestration determined under section 45Q(a) of the Code as is attributable

to carbon capture equipment that is originally placed in service after December 31,

2022 (section 45Q credit);

(4) The zero-emission nuclear power

production credit determined under section 45U(a) of the Code (section 45U

credit);

(5) So much of the credit for production of clean hydrogen determined under

section 45V(a) of the Code as is attributable to qualified clean hydrogen production facilities that are originally placed in

service after December 31, 2012 (section

45V credit);

(6) In the case of a “tax-exempt entity”

described in section 168(h)(2)(A)(i), (ii),

or (iv) of the Code, the credit for qualified

commercial vehicles determined under

section 45W of the Code by reason of section 45W(d)(3)1 (section 45W credit);

(7) The credit for advanced manufacturing production under section 45X(a) of

the Code (section 45X credit);

(8) The clean electricity production

credit determined under section 45Y(a) of

the Code (section 45Y credit);

(9) The clean fuel production credit

determined under section 45Z(a) of the

Code (section 45Z credit);

(10) The energy credit determined

under section 48 of the Code (section 48

credit);

(11) The qualifying advanced energy

project credit determined under section

48C of the Code (section 48C credit); and

(12) The clean electricity investment

credit determined under section 48E of the

Code (section 48E credit).

As described in part II of this Background, section 6417(d) defines an “applicable entity” and provides generally

applicable rules for making elective payment elections. Section 6417(e) through

1

The reference was intended to be to section 45W(d)(2). See General Explanation of Tax Legislation Enacted in the 117th Congress, JCS-1-23 (December 21, 2023) at 282. Thus, the final

regulations refer to section 45W(d)(2).

April 8, 2024

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(h) provide special rules applicable under

section 6417 that are described in part II

of this Background. As described in parts

III and IV of this Background, section

6417(c), (d)(1)(B) through (D), and (d)

(3) also contain special rules allowing

a taxpayer, including for this purpose a

partnership or S corporation, that is not

an applicable entity (electing taxpayer) to

elect to be treated as an applicable entity

for the limited purpose of making an

elective payment election under section

6417, but only with respect to section 45Q

credits, section 45V credits, and section

45X credits. Part V of this Background

describes Notice 2022-50, 2022-43 I.R.B.

325, which, in part, requested feedback

from the public on potential issues with

respect to the elective payment election

provisions under section 6417. Part VI of

this Background describes proposed regulations (REG-101607-23) and temporary

regulations (TD 9975) issued under section 6417.

II. Applicable Entities and General

Elective Payment Election Rules

Section 6417(d)(1)(A) defines the term

“applicable entity” to mean:

(1) Any organization exempt from tax

imposed by subtitle A;

(2) Any State or political subdivision

thereof;

(3) The Tennessee Valley Authority;

(4) An Indian tribal government (as

defined in section 30D(g)(9) of the Code);

(5) Any Alaska Native Corporation

(as defined in section 3 of the Alaska

Native Claims Settlement Act (43 U.S.C.

1602(m)); or

(6) Any corporation operating on a

cooperative basis that is engaged in furnishing electric energy to persons in rural

areas.

Section 6417(d)(2) provides that, in

the case of any applicable entity that

makes the election described in section

6417(a), any applicable credit amount

is determined (1) without regard to section 50(b)(3) and (4)(A)(i) of the Code

(that is, restrictions on property used by

tax-exempt organizations and governmental units), and (2) by treating any

property with respect to which such

credit is determined as used in a trade or

business of the applicable entity.

Bulletin No. 2024–15

Section 6417(d)(3)(A)(i) provides

rules regarding the due date for making

any elective payment election. In the case

of any government (such as a State, the

District of Columbia, an Indian tribal government, any U.S. territory) or any political subdivision, agency or instrumentality of the foregoing described in section

6417(d)(1) and for which no return is

required under section 6011 or 6033(a)

of the Code, any election under section

6417(a) cannot be made later than the date

as is determined appropriate by the Secretary. In any other case, any election under

section 6417(a) cannot be made later than

the due date (including extensions of time)

for the tax return for the taxable year for

which the election is made, but in no event

earlier than 180 days after the date of the

enactment of section 6417 (that is, in no

event earlier than 180 days after August

16, 2022, which is February 13, 2023).

Section 6417(d)(3)(A)(ii) provides that

any election under section 6417(a), once

made, is irrevocable, and applies (except

as otherwise provided in section 6417(d)

(3)) with respect to any credit for the taxable year for which the election is made.

Section 6417(d)(3)(B) provides that, in

the case of section 45 credits, any election

under section 6417(a): (1) applies separately with respect to each qualified facility; (2) must be made for the taxable year

in which such qualified facility is originally placed in service; and (3) applies to

such taxable year and to any subsequent

taxable year that is within the 10-year

credit period described in section 45(a)

(2)(A)(ii) with respect to such qualified

facility.

Section 6417(d)(3)(C) provides that, in

the case of section 45Q credits, any election under section 6417(a): (1) applies separately with respect to the carbon capture

equipment originally placed in service by

the applicable entity during a taxable year;

and (2) applies to such taxable year and to

any subsequent taxable year that is within

the 12-year credit period described in section 45Q(a)(3)(A) or (4)(A) with respect

to such equipment. Section 6417(d)(3)(C)

(i)(II)(aa), (d)(3)(C)(ii), and (d)(3)(C)(iii)

provides special rules for a taxpayer making the election to be treated as an applicable entity for purposes of section 6417

with respect to a section 45Q credit (see

part III of this Background).

795

Section

6417(d)(3)(D)

provides

that, in the case of section 45V credits,

any election under section 6417(a): (1)

applies separately with respect to each

qualified clean hydrogen production

facility; (2) must be made for the taxable

year in which such facility is placed in

service (or within the 1-year period subsequent to the date of enactment of section 6417 in the case of facilities placed

in service before December 31, 2022);

and (3) applies to the taxable year and

all subsequent taxable years with respect

to such facility. Section 6417(d)(3)(D)

(i)(III)(aa), (ii), and (iii) provide special

rules for a taxpayer making the election

to be treated as an applicable entity for

purposes of section 6417 with respect to

the 45V credit (see part III of this Background).

Section 6417(d)(3)(E) provides that, in

the case of section 45Y credits, any election under section 6417(a): (1) applies

separately with respect to each qualified

facility; (2) must be made for the taxable

year in which such facility is placed in service; and (3) applies to such taxable year

and to any subsequent taxable year that is

within the 10-year credit period described

in section 45Y(b)(1)(B) with respect to

such facility.

Section 6417(d)(4) provides rules

regarding when the elective payment is

treated as made. Section 6417(d)(4)(A)

provides that, in the case of any government or political subdivision described

in section 6417(d)(1), and for which no

return is required under section 6011 or

6033(a), the payment described in section

6417(a) is treated as made on the later of

the date that a return would be due under

section 6033(a) if such government or subdivision were described in section 6033

or the date on which such government or

subdivision submits a claim for credit or

refund (at such time and in such manner as

the Secretary provides). Section 6417(d)

(4)(B) provides that, in any other case, the

payment described in section 6417(a) is

treated as made on the later of the due date

(determined without regard to extensions)

of the return of tax for the taxable year or

the date on which such return is filed with

the IRS.

Section 6417(d)(5) provides that, as

a condition of, and prior to, any amount

being treated as a payment that is made by

April 8, 2024

an applicable entity under section 6417(a),

the Secretary may require such information or registration as the Secretary deems

necessary for purposes of preventing

duplication, fraud, improper payments, or

excessive payments under section 6417.

Section 6417(d)(6) provides rules

relating to excessive payments. In the case

of any amount treated as a payment that is

made by the applicable entity under section 6417(a), or the amount of the payment

made pursuant to section 6417(c), that is

determined to constitute an excessive payment, the tax imposed on such entity by

chapter 1 of the Code (chapter 1), regardless of whether such entity would otherwise be subject to chapter 1 tax, for the

taxable year in which such determination

is made is increased by an amount equal to

the sum of (1) the amount of such excessive payment, plus (2) an amount equal

to 20 percent of such excessive payment.

The increase equal to 20 percent of the

excessive payment does not apply if the

applicable entity can demonstrate that the

excessive payment resulted from reasonable cause.

An excessive payment is defined as,

with respect to a facility or property for

which an election is made under section

6417 for any taxable year, an amount

equal to the excess of (1) the amount

treated as a payment that is made by the

applicable entity under section 6417(a),

or the amount of the payment made pursuant to section 6417(c), with respect to

such facility or property for such taxable

year, over (2) the amount of the credit

that, without application of section 6417,

would be otherwise allowable (as determined pursuant to section 6417(d)(2)

and without regard to section 38(c)) with

respect to such facility or property for

such taxable year.

Section 6417(e) provides a denial of

double benefit rule providing that, in the

case of an applicable entity making an

election under section 6417 with respect to

an applicable credit, such credit is reduced

to zero and, for any other purpose under

the Code, is deemed to have been allowed

to such entity for such taxable year.

Section 6417(f) provides a special rule

relating to any territory2 of the United

States with a mirror code tax system (as

defined in section 24(k) of the Code).

Under this rule, section 6417 will not be

treated as part of the income tax laws of

the United States for purposes of determining the income tax law of any such

U.S. territory unless such U.S. territory

elects to have section 6417 be so treated.

Currently, the U.S. Virgin Islands, Guam,

and the Commonwealth of the Northern

Mariana Islands have mirror code tax systems.

Section 6417(g) provides basis reduction

and recapture rules. It states that, except as

otherwise provided in section 6417(c)(2)

(A),3 rules similar to the rules of section 50

apply for purposes of section 6417.

Section 6417(h) authorizes the Secretary to issue regulations or other guidance

as may be necessary to carry out the purposes of section 6417, including guidance

to ensure that the amount of the payment

or deemed payment made under section

6417 is commensurate with the amount of

the credit that would be otherwise allowable (determined without regard to section

38(c)).

III. Special Rules Relating to Electing

Taxpayers Making An Election Under

Section 6417(d)(1)(B), (C), or (D)

A taxpayer other than an applicable

entity under section 6417(d)(1)(A) (electing taxpayer) may make an election to

be treated as an applicable entity for the

limited purpose of making an elective

payment election with respect to a section

45V credit, a section 45Q credit, or a section 45X credit under section 6417(d)(1)

(B), (C), or (D), respectively. An electing

taxpayer may make an elective payment

election under section 6417(d)(1)(B), (C),

or (D) at such time and in such manner

as the Secretary provides (but no election

may be made with respect to any taxable

year beginning after December 31, 2032).

The special rules for such an election are

described in parts III.A, III.B, and III.C of

this Background.

A. Electing taxpayers making an election

with respect to section 45V credits

Section 6417(d)(1)(B) allows an electing taxpayer to make an elective payment

election for any taxable year in which

such taxpayer has placed in service a

qualified clean hydrogen production facility (as defined in section 45V(c)(3)), but

only with respect to a section 45V credit

determined in such year with respect to

the electing taxpayer. Pursuant to section 6417(d)(3)(D)(i)(III), such electing

taxpayer is treated as having made such

election for the taxable year with respect

to which the election is made and each of

the four subsequent taxable years ending

before January 1, 2033. Under section

6417(d)(3)(D)(iii), an electing taxpayer

may elect to revoke the application of

such election, but any such election to

revoke, if made, applies to the applicable

year specified in such election (but not any

prior taxable year) and each subsequent

taxable year within the 5-year period and

cannot be revoked.

Section 6417(d)(3)(D)(ii) prohibits an

electing taxpayer from making a transfer

election under section 6418(a) of the Code

with respect to a section 45V credit for

any year for which the electing taxpayer’s

election under section 6417(d)(1)(B) is in

effect.

B. Electing taxpayers making an election

with respect to section 45Q credits

Section 6417(d)(1)(C) allows an electing taxpayer to make an elective payment

election for any taxable year in which the

electing taxpayer has, after December

31, 2022, placed in service carbon capture equipment at a qualified facility (as

defined in section 45Q(d)), but only with

respect to a section 45Q credit determined

in such year with respect to such taxpayer.

Pursuant to section 6417(d)(3)(C)(i)(II)

(aa), such electing taxpayer is treated as

having made such election for the taxable

year with respect to which the election

is made and each of the four subsequent

taxable years ending before January 1,

Section 6417(f) uses the term “possession,” but the proposed regulations and these final regulations use the alternative term “territory.”

There is no section 6417(c)(2)(A) and the Treasury Department and the IRS believe Congress intended to refer instead to section 6417(d)(2)(A). See General Explanation of Tax Legislation

Enacted in the 117th Congress, JCS-1-23 (December 21, 2023) at 284. Thus, the proposed and final regulations refer to section 6417(d)(2)(A).

2

3

April 8, 2024

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Bulletin No. 2024–15

2033. Under section 6417(d)(3)(C)(iii), an

electing taxpayer may elect to revoke the

application of such election, but any such

election to revoke, if made, applies to the

applicable year specified in such election

(but not any prior taxable year) and each

subsequent taxable year within the 5-year

period and cannot be revoked.

Section 6417(d)(3)(C)(ii) prohibits an

electing taxpayer from making a transfer election under section 6418(a) with

respect to a section 45Q credit for any year

for which the electing taxpayer’s election

under section 6417(d)(1)(C) is in effect.

C. Electing taxpayers making an election

with respect to section 45X credits

Section 6417(d)(1)(D) allows an electing taxpayer to make an elective payment

election for any taxable year in which the

electing taxpayer has, after December 31,

2022, produced eligible components (as

defined in section 45X(c)(1)), but only

with respect to a section 45X credit determined in such year with respect to such

taxpayer. Pursuant to section 6417(d)

(1)(D)(ii)(I), such electing taxpayer is

treated as having made such election for

the taxable year with respect to which the

election is made and each of the four subsequent taxable years ending before January 1, 2033. Under section 6417(d)(1)(D)

(ii)(II), an electing taxpayer may elect to

revoke the application of such election,

but any such election to revoke, if made,

applies to the applicable year specified in

such election (but not any prior taxable

year) and each subsequent taxable year

remaining within the 5-year period and

cannot be revoked.

Section 6417(d)(1)(D)(iii) prohibits an

electing taxpayer from making a transfer election under section 6418(a) with

respect to a section 45X credit for any year

for which the electing taxpayer’s election

under section 6417(d)(1)(D) is in effect.

IV. Section 6417 Rules for Partnerships

and S corporations

Section 6417(c) provides special rules

for partnerships and S corporations that

hold directly (as determined for Federal

tax purposes) a facility or property for

which an applicable credit is determined.

Section 6417(c)(1) provides that, in the

Bulletin No. 2024–15

case of any applicable credit determined

with respect to any facility or property held

directly by a partnership or S corporation,

any elective payment election must be

made by such partnership or S corporation

in the manner provided by the Secretary.

If a partnership or S corporation makes

an elective payment election with respect

to any applicable credit, (1) a payment is

made to such partnership or S corporation

equal to the applicable credit amount; (2)

section 6417(e) is applied with respect to

the applicable credit before determining

any partner’s distributive share, or S corporation shareholder’s pro rata share, of

such applicable credit; (3) any applicable credit amount with respect to which

the election in section 6417(a) is made is

treated as tax exempt income for purposes

of sections 705 and 1366 of the Code; and

(4) a partner’s distributive share of such

tax exempt income is based on such partner’s distributive share of the otherwise

applicable credit for each taxable year (an

S corporation shareholder’s share of tax

exempt income is based on the shareholder’s pro rata share).

Section 6417(c)(2) provides that, in

the case of any facility or property held

directly by a partnership or S corporation,

no election by any partner or shareholder

is allowed under section 6417(a) with

respect to any applicable credit determined with respect to such facility or

property.

V. Notice 2022-50

On October 24, 2022, the Department

of the Treasury (Treasury Department)

and the IRS published Notice 2022-50,

2022-43 I.R.B. 325, to, among other

things, request feedback from the public

on potential issues with respect to the elective payment election provisions under

section 6417 that may require guidance.

Stakeholders submitted more than 200

comments in response to Notice 2022-50.

Feedback in those comments informed the

development of the proposed regulations

and is described in the preamble to the

proposed regulations as appropriate.

VI. Proposed and Temporary Regulations

On June 21, 2023, the Treasury Department and the IRS published proposed

797

regulations under section 6417 (REG101607-23) in the Federal Register (88

FR 40528) to provide guidance on elective

payment elections (proposed regulations).

Those proposed regulations included proposed §1.6417-5, which contained proposed rules identical to the temporary regulations at §1.6417-5T. Those temporary

regulations also were published on June

21, 2023, in the Federal Register (88 FR

40093) to provide guidance on the mandatory information and registration requirements for elective payment elections. The

provisions of the proposed regulations are

explained in greater detail in the preamble

to the proposed regulations.

Summary of Comments and

Explanation of Revisions

This Summary of Comments and

Explanation of Revisions summarizes

the proposed regulations and all the substantive comments submitted in response

to the proposed regulations. The Treasury Department and the IRS received

151 written comments in response to the

proposed regulations. The comments are

available for public inspection at www.

regulations.gov or upon request. A hearing was conducted in person and telephonically on August 21, 2023, during

which 10 presenters provided comments.

After full consideration of the comments

received, these final regulations adopt the

proposed regulations with modifications

in response to the comments described in

this Summary of Comments and Explanation of Revisions.

Comments merely summarizing the

proposed regulations, recommending statutory revisions to section 6417 or other

statutes, or addressing issues that are outside the scope of this rulemaking, such

as the calculation of applicable credits

(including any bonus credit amounts) or

recommended changes to IRS forms, are

beyond the scope of these regulations and

are not adopted.

I. General Rules and Definitions

A. Applicable entities

Section 6417(d)(1) defines applicable entity. Proposed §1.6417-1(c) clarified the statutory definition of applicable

April 8, 2024

entity pursuant to the Secretary’s authority

under section 6417(h) to issue regulations

necessary to carry out the purposes of section 6417. Commenters addressed several

aspects of the proposed definitions, as

described in this Part I.A of the Summary

of Comments and Explanation of Revisions.

1. Any Organization Exempt from the

Tax Imposed by Subtitle A

Section

6417(d)(1)(A)(i)

defines

“applicable entity” as including any organization exempt from the tax imposed

by subtitle A. The proposed regulations

would have clarified that “any organization exempt from the tax imposed by

subtitle A” meant (1) any organization

exempt from the tax imposed by subtitle

A by reason of section 501(a) of the Code

and (2) any organization exempt from the

tax imposed by subtitle A because it is

the government of any U.S. territory or a

political subdivision thereof.

A few commenters asked that Puerto

Rico-registered nonprofits (those with

Puerto Rico 1101.01 nonprofit status) be

allowed to file for elective payment of

renewable energy tax credits without having to acquire section 501(c)(3) status.

As the preamble to the proposed regulations noted, stakeholders had previously

responded to Notice 2022-50 by asking

whether an entity classified as a nonprofit

under State law but that does not have Federal tax-exempt status would be described

in section 6417(d)(1)(A). The preamble to

the proposed regulations stated that such

an entity would not be described in section

6417(d)(1)(A) because it is not exempt

from the tax imposed by subtitle A (but

that some of these entities might meet the

requirements of another type of applicable entity, such as a State instrumentality,

and might be an applicable entity on those

grounds). This same answer applies to a

Puerto Rico-registered nonprofit that does

not have section 501(c)(3) status.

Multiple commenters urged that homeowners’ associations described in section

528 of the Code be considered applicable entities under section 6417(d)(1)(A)

because they are “exempt from the tax

4

imposed by subtitle A” by their statutory language. Two of these commenters

noted that other sections within subchapter F of chapter 1 have similar statutory

language, and one of these commenters

thus requested that the final regulations

be modified to include all organizations

considered exempt from income taxes

pursuant to subchapter F of chapter 1. In

response, these final regulations adopt this

comment and define “any organization

exempt from the tax imposed by subtitle

A” to include organizations exempt from

the tax imposed by subtitle A by reason

of subchapter F of chapter 1. Thus, under

these final regulations, any organization

described in sections 501 through 530 of

the Code that meets the requirements to

be recognized as exempt from tax under

those sections is an applicable entity eligible to make an elective payment election.

No commenters opposed the inclusion

of the government of any U.S. territory or

a political subdivision thereof in this definition; thus, these final regulations adopt

this definition as proposed. However,

several commenters recommended that

the final regulations provide an exception

to the general rule in section 50(b)(1) for

territorial applicable entities making elections under section 6417 for investment

tax credits, advocating that such a rule

would provide better parity with domestic

applicable entities making such elections

and would advance the IRA’s purpose by

improving access to clean energy investment tax credits in U.S. territories.

Since before the IRA, investment tax

credits, vehicle-related credits, and energy

efficiency incentives have included

restrictions with respect to property

located or used in U.S. territories by reference to section 50(b)(1). Section 50(b)(1)

provides that “no [investment tax] credit

shall be determined . . . with respect to

any property which is used predominantly

outside the United States”4 unless section 168(g)(4) applies (which provides an

exception for any property that is owned

by a domestic corporation or by a United

States citizen other than a citizen entitled

to the benefits of section 931 or 933 of

the Code, and that is used predominantly

in a possession of the United States by

such a corporation or such a citizen, or

by a corporation created or organized in,

or under the law of, a possession of the

United States). The IRA did not amend

these provisions; instead, the IRA specifically referenced 50(b)(1) in section 30C,

incorporated section 50(b)(1) into section

45W, and did not exclude section 48, 48C,

or 48E from the application of section

50(b)(1). Furthermore, section 6417(d)(2)

provides special rules that enable tax-exempt and government entities to benefit

from section 30C, 45W, 48, 48C, and 48E

because it provides that applicable credits

are determined without regard to sections

50(b)(3) and (4)(A)(i). However, there is

no provision lifting the territory-related

restrictions of section 50(b)(1). Without

specific language in section 6417 or in the

underlying applicable credits addressing

section 50(b)(1), or other compelling evidence of Congressional intent, a special

rule turning off the application of section

50(b)(1) is not supported by the Code.

Therefore, these final regulations do not

adopt this recommendation.

One commenter asked for a process

under which the Puerto Rico Department

of Treasury (or any other agency designated by the Governor of Puerto Rico)

is designated to receive, process, and/or

administer elections for elective payments

from applicable entities and instrumentalities of Puerto Rico, similar to the process

for disbursements of Coronavirus Relief

Funds under the Coronavirus Aid, Relief,

and Economic Security Act, Public Law

116-136, 134 Stat. 281 (March 27, 2020).

The Treasury Department and the IRS

have determined that creating the suggested process is inappropriate for elective

payment elections because section 6417

involves the filing of a tax return with the

IRS. Accordingly, these final regulations

do not adopt this comment.

2. Any State or Political Subdivision

Thereof

Section 6417(d)(1)(A)(ii) defines

“applicable entity” to include any State

or political subdivision thereof. The proposed regulations would have clarified

that this includes the District of Columbia.

Under section 7701(a)(9) of the Code, “[t]he term ‘United States’ when used in a geographical sense includes only the States and the District of Columbia.”

April 8, 2024

798

Bulletin No. 2024–15

No comments addressed this definition, so

these final regulations adopt the definition

as proposed.

3. Indian Tribal Governments

Section 6417(d)(1)(A)(iv) states that an

applicable entity includes an Indian tribal

government (as defined in section 30D(g)

(9)). To provide Indian tribal governments

parity with State governments, proposed

§1.6417-1(c)(3) would have included

subdivisions of Indian tribal governments

in this definition. Proposed §1.6417-1(k)

defined the term Indian tribal government as the recognized governing body of

any Indian or Alaska Native tribe, band,

nation, pueblo, village, community, component band, or component reservation,

individually identified (including parenthetically) in the most recent list published by the Department of the Interior in

the Federal Register pursuant to section

104 of the Federally Recognized Indian

Tribe List Act of 1994 (25 U.S.C. 5131).

Although no comments were received

that directly addressed the definition of

an Indian tribal government provided in

proposed §1.6417-1(c)(3), these final regulations clarify the proposed definition by

specifying that the most recent list published by the Department of the Interior in

the Federal Register is the one prior to the

date on which a relevant elective payment

election is made. (Comments regarding

Tribal entities other than Indian tribal governments are discussed elsewhere in this

Summary of Comments and Explanation

of Revisions.)

4. Alaska Native Corporations

Section 6417(d)(1)(A)(v) provides that

any Alaska Native Corporation (as defined

in section 3 of the Alaska Native Claims

Settlement Act (43 U.S.C. 1602(m))

(ANC) is an applicable entity. The proposed regulations would have adopted

this definition. The proposed regulations

requested comments regarding the definition in proposed §1.6417-1(c)(4) and

whether additional guidance is necessary

regarding consolidated groups with ANC

common parents. The Treasury Department and the IRS did not receive comments related to this definition, but these

final regulations adopt the proposed reg-

Bulletin No. 2024–15

ulation and broaden it to apply to consolidated groups with any applicable entity

as a common parent, as described in part

I.B.5. of this Summary of Comments and

Explanation of Revisions.

5. Rural Electric Cooperatives

Section 6417(d)(1)(A)(vi) provides

that any corporation operating on a cooperative basis that is engaged in furnishing

electric energy to persons in rural areas is

an applicable entity. The proposed regulations did not elaborate on this definition

but requested comments on whether further clarification of the definition in proposed §1.6417-1(c)(6) is necessary.

A few commenters addressed this definition. Some of these commenters stated

that “clarity would be better achieved”

if the Treasury Department and the IRS

would refer to tax-exempt electric cooperatives as applicable entities described

in 501(c)(12) and taxable electric cooperatives as applicable entities described in

section 1381(a)(2)(C) of the Code. One of

these commenters stated that an electric

cooperative may be described in section

45(e)(2)(A)(iii) as a not-for-profit electric

utility that had or has received a loan or

loan guarantee under the Rural Electrification Act of 1936. Another commenter

asked that the final regulations also allow

a “pre-1962” rural electric cooperative

under section 1381(a)(2)(C) to be eligible to make an elective payment election.

Another commenter asked that the final

regulations clarify that rural electric cooperatives that file either Form 1120, U.S.

Corporation Income Tax Return, or Form

990, Return of Organization Exempt from

Income Tax, be eligible to make an elective payment election.

The Treasury Department and the IRS

have concluded that rural electric cooperatives as described in section 6417(d)

(1)(A)(vi) include rural electric cooperatives that do not meet the requirements

under section 501(c)(12), as cooperatives

that meet the requirements under section

501(c)(12) are already considered tax-exempt entities in section 6417(d)(1)(A)

(i). To avoid rendering section 6417(d)

(1)(A)(vi) superfluous, it is necessary to

include taxable (nonexempt) rural electric

cooperatives in section 6417(d)(1)(A)(vi).

Taxable (nonexempt) rural electric coop-

799

eratives are described in section 1381(a)

(2)(C) as “any corporation operating on

a cooperative basis that is engaged in

furnishing electric energy to persons in

rural areas.” Thus, these final regulations

under §1.6417-1(c)(6) clarify that section

6417(d)(1)(A)(vi) means “any corporation operating on a cooperative basis that

is engaged in furnishing electric energy

to persons in rural areas as described in

section 1381(a)(2)(C) of the Code.” These

final regulations do not include “any electric cooperative described in section 45(e)

(2)(A)(iii)” in the definition because such

section does not exist in the Code, and

the Treasury Department and the IRS are

unsure what cooperatives the commenter

is referencing.

One commenter recommended that the

final regulations clarify that local, publicly

owned utilities (for example, water and

electric) and electric cooperatives (other

than rural) are eligible entities under section 6417(d)(1)(A)(vi), stating that the

proposed definition aligns with Congressional intent and that there are more than

2,800 public owned utilities and cooperatives in operation combined serving

millions of customers across the United

States. Because section 6417(d)(1)(A)(vi)

requires that a cooperative be engaged in

furnishing electric energy to persons “in

rural areas,” these final regulations do not

include these entities in the definition of

rural electric cooperative. However, it

is possible that publicly owned utilities

and non-profit co-ops could qualify as

applicable entities under other definitions

described in these rules, such as if they are

considered agencies or instrumentalities

of a State, local, territorial, or Tribal government.

Multiple commenters asked that the

final regulations expand rural electric

cooperatives to cover workers cooperatives that install solar panels. These commenters also requested clarification as

to how to determine an organization is

(1) operating on a cooperative basis; (2)

furnishing electricity; and (3) furnishing

electricity in a rural area. The commenters

generally suggest adopting existing rules

under subchapter T of chapter 1 of the

Code (subchapter T).

These final regulations do not adopt a

specific rule covering workers cooperatives that install solar panels because the

April 8, 2024

revision to the definition of rural electric

cooperatives in the final regulations is

sufficient to clarify the meaning of the

term. As these final regulations include

any corporation operating on a cooperative basis that is engaged in furnishing

electric energy to persons in rural areas

as described in section 1381(a)(2)(C), it is

the law that applies to those corporations

that will apply in making the determination with respect to any respective corporation.

With respect to operating on a cooperative basis, a summary of the taxation of

nonexempt rural electric cooperatives may

be helpful in explaining the key principles.

The rules for tax treatment of most nonexempt cooperatives and their patrons were

codified with the enactment of subchapter

T as part of the Revenue Act of 1962. Public Law No. 87-834 (H.R. 10650). However, section 1381(a)(2)(C) states that

subchapter T is not applicable to an organization engaged in furnishing electric

energy (or providing telephone service)

to persons in rural areas. According to the

Senate Finance Committee Report accompanying the 1962 Act, the intent of Congress was that nonexempt rural electric

cooperatives would continue to be treated

as under “present law” as of 1962. While

subchapter T does not expressly control

the taxation of nonexempt rural electric

cooperatives, its foundations rest upon

pre-1962 cooperative tax law. As a result,

there are certain basic parallels between

the tax treatment of nonexempt utility

(electric and telephone) cooperatives and

treatment of other cooperative organizations under subchapter T. Therefore, to

extent that subchapter T reflects cooperative taxation as it existed prior to 1962,

it is instructive in resolving certain issues

facing rural electric cooperatives. This is

because Congress stated that, in enacting

subchapter T, it was merely codifying the

long common law history of cooperative

taxation (with the exception of ensuring at

least one annual level of tax at the cooperative or patron level. See S. Rep. No.

1881, 87th Cong., 1st Sess. 113 (1962)).

Arguably, the case law post-enactment is

merely a continuation and refinement of

the pre-enactment common law.

Perhaps the most succinct definition of

the term “cooperative” for Federal income

tax purposes was provided by the U.S.

April 8, 2024

Tax Court in Puget Sound Plywood, Inc.

v. Commissioner, 44 T.C. 305 (1965), acq.

1966-1 C.B. 3:

 nder the cooperative association form

U

or organization . . . , the worker-members of the association supply their own

capital at their own risk; select their

own management and supply their own

direction for the enterprise, through

worker meetings conducted on a democratic basis; and then themselves

receive the fruits of their cooperative

endeavors, through allocations of the

same among themselves as coworkers,

in proportion to the amounts of their

active participation in the cooperative

undertaking.

The Tax Court went on to describe

three guiding principles at the core of economic cooperative theory as, id. at 308:

(1) Subordination of capital, both as

regards control over the cooperative

undertaking, and as regards the ownership of the pecuniary benefits arising therefrom; (2) democratic control

by the worker-members themselves;

and, (3) the vesting in and allocation

among the worker-members of all

fruits and increases arising from their

cooperative endeavor (i.e., the excess

of operating revenues over the costs

incurred in generating those revenues),

in proportion to the worker-members

active participation in the cooperative

endeavor.

The mechanism by which rural electric

cooperatives achieve operation at cost is

the patronage dividend (or capital credit).

The payment of patronage dividends (and

operation at cost) is critical to achieving

cooperative status as defined by Puget

Sound, so any organization must analyze

this issue to determine whether it is operating on a cooperative basis.

The comments related to the definition

of “furnishing” electricity for purposes

of section 6417(d)(1)(A)(vi) varied. For

example, some commenters suggested

using the language in §1.1381-1(b)(4) as

the standard, and some suggested the term

should not be limited to generating and

transmitting electricity. One commenter

suggested that a percentage of rural name-

800

plate capacity be applied for purposes of

the definition of “furnishing” electricity, while another commenter stated that

a more than de minimis standard should

be used to meet furnishing requirements.

Consistent with the determination that

section 6417(d)(1)(A)(vi) will cover rural

electric cooperatives described in section

1381(a)(2)(C), the Treasury Department

and the IRS conclude that “furnishing”

electricity under section 6417(d)(1)(A)

(vi) should be interpreted in the same manner as the language in §1.1381-1(b)(4),

which provides “[a]ny organization which

is engaged in generating, transmitting, or

otherwise furnishing electric energy.” The

purpose of this language in §1.1381-1(b)

(4) is to identify rural electric cooperatives described in section 1381(a)(2)(C).

Using a similar interpretation for purposes

of section 6417 means that a cooperative

furnishing electric energy under §1.13811(b)(4) would meet this portion of the

definition. Such a cooperative would not

be subject to subchapter T as a result of

section 1381(a)(2)(C), assuming the electricity is provided to rural areas.

With respect to this conclusion, the

Treasury Department and the IRS note that

some of the commenters identified themselves as cooperatives subject to the provisions of subchapter T. The definition of

applicable entity in section 6417(d)(1)(A)

(vi) would not include a cooperative that

is subject to subchapter T, as a cooperative

cannot be both subject to subchapter T and

excepted from subchapter T. Further, the

definition of furnishing in §1.1381-1(b)

(4), and thus for purposes of section 6417,

does not include the activity of installation

of energy equipment (such as the installation of solar panels), as that alone is

not the generation or other furnishing of

electricity. Thus, organizations evaluating whether their operations include furnishing electricity for purposes of section

6417 should take this into account.

Consistent with including rural electric

cooperatives described in section 1381(a)

(2)(C) and the use of §1.1381-1(b)(4) to

determine whether a cooperative is “furnishing” electricity, the Treasury Department and the IRS reach a similar conclusion with respect to defining “rural” for

purposes of section 6417 by reference

to §1.1381-1(b)(4). Section 1.1381-1(b)

(4) provides that the term rural area has

Bulletin No. 2024–15

the meaning assigned to [it] in section 5

of the Rural Electrification Act of 1936,

as amended (7 U.S.C. 924). Currently

7 U.S.C. 924(b) provides that the term

‘rural area’ is deemed to mean any area

of the United States not included within

the boundaries of any incorporated or

unincorporated city, village, or borough

having a population in excess of 5,000

inhabitants.

6. Tennessee Valley Authority

Section 6417(d)(1)(A)(iii) states that

the Tennessee Valley Authority is an

applicable entity. The proposed regulations would have adopted this definition.

No commenters addressed this definition,

so these final regulations adopt the definition as proposed.

7. An Agency or Instrumentality of

Certain Applicable Entities

Proposed §1.6417-1(c)(7) would have

clarified that an agency or instrumentality of (1) any U.S. territory or a political

subdivision thereof; (2) any State, the District of Columbia, or political subdivision

thereof; or (3) an Indian tribal government

or a subdivision thereof is also an applicable entity eligible to make an elective payment election. The proposed regulations

requested comments on this approach

to defining applicable entities and on

whether further guidance is necessary.

Commenters addressed both the scope

of the definition and whether it should be

expanded to include Federal agencies and

instrumentalities.

i. Scope of the definition of “agency” and

“instrumentality”

Several commenters asked for additional clarity on the definition of agencies

and instrumentalities, such as whether

joint powers authorities, housing authorities, transit authorities, air authorities,

publicly owned utilities, or tax-exempt

entities in the water sector are included

(and one commenter requested a similar

clarification pertaining to political subdivisions). Various commenters mentioned

application of Rev. Rul. 57-128, 1957-1

C.B. 311, while two of these commenters

asked how the facts and circumstances

Bulletin No. 2024–15

analysis in the revenue ruling would apply

to their specific facts. One commenter

requested a rule stating that whether an

entity is an agency or an instrumentality

is determined based on (or at least influenced by) State or local law. Finally, one

commenter asked that the final regulations allow tribes to determine what is

an agency or instrumentality of an Indian

tribal government.

The determination of whether an entity

is an agency, instrumentality, or a political subdivision (or subdivision in the

case of an Indian tribal government) is

governed by Federal tax law that is outside the scope of these final regulations.

Federal tax determinations of whether an

entity is an agency or instrumentality of

any government typically are analyzed on

a facts and circumstances basis. In determining whether an entity is an agency or

instrumentality for Federal tax purposes,

Federal courts have applied a test similar

to the six-factor test in Rev. Rul. 57-128,

which generally provides guidance on

whether an entity is an instrumentality for

purposes of the exemption from employment taxes under sections 3121(b)(7) and

3306(c)(7). See, e.g., Bernini v. Federal

Reserve Bank of St. Louis, Eighth District,

420 F. Supp. 2d 1021 (E.D. Mo. 2005)

and Rose v. Long Island Railroad Pension

Plan, 828 F.2d 910, 918 (2d Cir. 1987),

cert. denied, 485 U.S. 936 (1988).

Rev. Rul. 57-128 looks to the following

six factors:

(1) Whether the organization is used for a

governmental purpose and performs a

governmental function;

(2) Whether performance of the organization’s function is on behalf of one

or more States or political subdivisions;

(3) Whether there are any private interests involved, or whether the States or

political subdivisions involved have

the powers and interests of an owner;

(4) Whether control and supervision of

the organization is vested in public

authority or authorities;

(5) If express or implied statutory or

other authority is necessary for the

creation and/or use of such an instrumentality, and whether such authority

exists; and

(6) The degree of financial autonomy and

the source of its operating expenses.

801

The Treasury Department and the IRS

are unaware of any different Federal tax

authority or standard that applies to determine whether an entity qualifies as an

instrumentality of an Indian tribal government for Federal tax purposes. The

application of the facts-and-circumstances

analysis in Rev. Rul. 57-128 to any particular entity is outside the scope of this

rulemaking.

With respect to political subdivisions,

Rev. Rul. 78-276, 1978-2 C.B. 256, states

that the term “political subdivision” has

been defined consistently for all Federal tax

purposes as denoting either (1) a division of

a State or local government that is a municipal corporation, or (2) a division of such

State or local government that has been

delegated the right to exercise sovereign

power by the State or local government.

The three generally acknowledged sovereign powers are the power to tax, the power

of eminent domain, and the police power.

See Commissioner v. Estate of Shamberg,

3 T.C. 131 (1944), acq., 1945 C.B. 6, aff’d

144 F.2d 998 (2d Cir. 1944), cert. denied,

323 U.S. 792 (1945). It is not necessary

that all three sovereign powers enumerated

in Shamberg be delegated. See Rev. Rul.

77-164, 1977-1 C.B. 20. However, possession of only an insubstantial amount of any

or all sovereign powers is not sufficient.

In determining whether an entity is a

division of a State or local governmental unit, important considerations are the

extent that the entity is (1) controlled by

the State or local government unit, and

(2) motivated by a wholly public purpose.

See., e.g., Rev. Rul. 78-276, 1978-2 C.B.

256 and Rev. Rul. 83-131, 1983-2 C.B.

184.

Determination of agency, instrumentality, or political subdivision (or subdivision

in the case of an Indian tribal government)

status is based on all the facts and circumstances, and additional guidance on

this subject is beyond the scope of these

final regulations. Generally, however, taxpayers may request a private letter ruling

from the IRS Office of Chief Counsel to

apply applicable law to the organization’s

specific set of facts. See Rev. Proc. 20241, I.R.B. 2024-1 (containing procedures

for letter rulings) and Rev. Proc. 2024-3,

I.R.B. 2024-1 (containing a list of areas of

the Code relating to matters on which the

IRS will not issue letter rulings).

April 8, 2024

One commenter asked that an instrumentality be eligible to make an elective

payment election with respect to its assets

that are operated and maintained by a private partner under a public-private partnership. While it is not clear what kind

of entity the commenter means by “public-private partnership,” if the arrangement is treated as a partnership for Federal

tax purposes, then the partnership would

not be an applicable entity listed in section 6417(d)(1)(A). See part I.B.4 of this

Summary of Comments and Explanation

of Revisions.

ii. Federal agencies and instrumentalities

Several commenters asked that the

final regulations include Federal agencies

and instrumentalities within the definition

of applicable entity. Commenters specifically mentioned the United States Postal

Service, Federal hydropower agencies,

Federal Power Marketing Administrations

(PMAs), the Army Corps of Engineers,

and the Bureau of Reclamation.

One commenter stated that the proposed

regulations did not provide a justification

for why Federal agencies or instrumentalities were not included. This commenter

did, however, note that, absent statutory

authorization to the contrary, agency-collected user fees and charges already must

be deposited in the Treasury General

Fund. Several commenters suggested that

the cross-reference in section 6417(b)

(6) – the provision setting out the list of

applicable credits – to section 168(h)(2)

(A)(i) should be read to provide Federal

agencies and instrumentalities with the

ability to make an elective payment election for at least section 45W credits. Similarly, one commenter asked that PMAs be

able to apply, file, and receive all elective

payments under section 6417 on behalf of

the power generating agencies of regional

Federal power programs. This commenter

stated that PMAs serve as the Federal entities responsible for facilitating the funding

of and ensuring repayment for the regional

power program, both expensed annual

maintenance and capital improvements,

and that it would be beneficial to eliminate unnecessary overlap, confusion, and

administrative burdens to efficiently use

elective payments for applicable projects.

Section 6417(a)(1), however, authorizes

April 8, 2024

an election of an applicable credit only by

an applicable entity under section 6417(d)

(1)(A). Although the Treasury Department and the IRS solicited comments on

the issue, no commenter addressed how

appropriations issues raised by including

Federal agencies and instrumentalities

(beyond the Tennessee Valley Authority,

which is specifically listed in the statute)

or PMAs within the definition of applicable entities could or should be resolved.

The Treasury Department and the IRS

have thus retained the proposed approach

and have not extended the definition of

applicable entities to those additional entities in these final regulations.

8. Electing Taxpayers

Certain taxpayers that are not listed

in section 6417(d)(1)(A) or described

in the preceding paragraphs may nevertheless make an election to be treated

as an applicable entity with respect to

applicable credit property giving rise to

a section 45Q credit, section 45V credit,

or section 45X credit, as described more

fully in part III of this Summary of Comments and Explanation of Revisions. Proposed §1.6417-1(g) would have defined

an “electing taxpayer” as any taxpayer

that is not an applicable entity, but makes

an election in accordance with proposed

§§1.6417-2(b), 1.6417-3, and, if applicable, 1.6417-4, to be treated as an applicable entity for a taxable year with respect to

applicable credits determined with respect

to an applicable credit property described

in proposed §1.6417-1(e)(3), (5), or (7).

No commenters addressed this definition;

thus, these final regulations adopt the definition as proposed.

B. Entities related to an applicable entity

or an electing taxpayer

Proposed §1.6417-2(a) would have

provided rules for elective payment elections made by entities related to applicable

entities or electing taxpayers. Commenters addressed several of these proposed

rules.

1. Disregarded Entities

Proposed §1.6417-1(f) defined “disregarded entity” as an entity that is dis-

802

regarded as an entity separate from its

owner for Federal income tax purposes.

Proposed §1.6417-2(a)(1)(ii) would have

provided that, if an applicable entity or

electing taxpayer is the owner (directly

or indirectly) of a disregarded entity that

directly holds an applicable credit property, the applicable entity may make an

elective payment election for applicable

credits determined with respect to the

applicable credit property held directly by

the disregarded entity.

Several commenters asked that the

final regulations clarify whether Tribal

corporations formed under section 17 of

the Indian Reorganization Act of 1934

are considered applicable entities. In

response, these final regulations clarify

the definition of disregarded entity under

§1.6417-1(f), consistent with the current

rule in §301.7701-1(a)(3), to expressly

state that the term includes a Tribal corporation incorporated under section 17 of

the Indian Reorganization Act of 1934,

as amended (25 U.S.C. 5124), or under

section 3 of the Oklahoma Indian Welfare

Act, as amended (25 U.S.C. 5203), that is

not recognized as an entity separate from

the tribe for Federal tax purposes, and

therefore is disregarded as an entity separate from its owner for purposes of section

6417.

One commenter asked that the final

regulations treat an applicable entity that is

the sole shareholder of an S corporation as

eligible to make an elective payment election for all applicable credits determined

with respect to applicable property held

by the S corporation, in the same manner

as an applicable entity that is the owner of

a disregarded entity would be eligible to

make an elective payment election for all

applicable credits determined with respect

to applicable credit property held by the

disregarded entity. Another commenter

asked that any entity wholly owned by an

applicable entity be treated as an applicable entity. This commenter anticipated

that many applicable entities will want to

create special purpose entities to own their

tax credit eligible projects, but that the

classification of such entities as an applicable entity can be uncertain. As an example, the commenter suggested that a city

that would normally issue bonds through

an industrial development authority that is

treated as an agency or instrumentality of

Bulletin No. 2024–15

the city may want the industrial development authority to create a wholly-owned

corporation or limited liability company

to be the owner of the project. The commenter stated that it may be difficult to

determine whether such wholly-owned

entity of an industrial development authority would also be treated as an agency or

instrumentality since it is based on a facts

and circumstances analysis. Moreover,

under §301.7701-2(b)(6), the commenter

pointed out that a limited liability company that is wholly owned by an agency

or instrumentality of a State or local governmental unit may be treated as a separate corporation and, therefore, may not

be treated as a disregarded entity. In sum,

the commenter stated that it saw no policy

reason why an entity wholly owned by an

applicable entity should not be treated as

an applicable entity.

The Treasury Department and the IRS

have determined that special rules disregarding an entity’s Federal tax status for

purposes of section 6417(d)(1)(A) are

not appropriate. Section 6417(d)(1)(A) is

specific as to the types of entities afforded

applicable entity status. Any regarded

entity that has a Federal tax status separate from its owner(s) and is not separately

listed in section 6417(d)(1)(A) cannot be

treated as an applicable entity. This is

consistent with the rule for taxable C corporations discussed in part I.B.2 of this

Summary of Comments and Explanation

of Revisions.

2. Taxable C Corporations

The proposed regulations would have

provided that, because a taxable C corporation is an entity separate from its owner, proposed §1.6417-1(c)(1) would not include a

C corporation that is not itself an applicable entity described in proposed §1.64171(c)(1) as an applicable entity, even if its

owner is an applicable entity described in

proposed §1.6417-1(c)(1). However, an

electing taxpayer may include a taxable C

corporation (including a member of a consolidated group). These final regulations

adopt §1.6417-1(c)(1) as proposed.

3. Undivided Ownership Interests

Proposed §1.6417-2(a)(1)(iii) would

have provided that, if an applicable entity

is a co-owner in an applicable credit property through an arrangement properly

treated as a tenancy-in-common (TIC) for

Federal income tax purposes, or through

an organization that has made a valid election under section 761(a) of the Code to be

excluded from the application of subchapter K of chapter 1 (subchapter K), then the

applicable entity’s undivided ownership

share of the applicable credit property will

be treated as a separate applicable credit

property owned by such applicable entity,

and the applicable entity may make an

elective payment election for the applicable credits determined with respect to such

applicable credit property. Commenters

addressed TICs, valid section 761(a) elections, and joint ownership under section

48E.

i. Tenancies in common and organizations

that have made a valid election under

section 761(a)

Several commenters asked for additional guidance and examples illustrating

how an applicable entity’s undivided ownership share of applicable credit property

is determined in the context of renewable energy projects such as wind and

solar projects, clean hydrogen projects,

and electric vehicle infrastructure. These

comments are beyond the scope of these

final regulations. The ownership share of

a party to a transaction will be determined

based upon the agreement of the parties and other relevant facts and circumstances.

Several commenters stated that the

mechanisms for co-ownership allowed

under the proposed regulations are in common practice today and would allow applicable entities to join with other entities in

developing applicable credit properties

without precluding elective payment election choices by project participants. However, other commenters stated that TICs

and joint operating agreements (JOAs)

that have validly elected out of subchapter

K are not commonly used in the renewable energy marketplace (even by private

entities) and can deprive participants of

limited liability. These commenters stated

that these arrangements may be less familiar to applicable entities as compared to

traditional partnership structures used

between public and private entities for

the development of clean energy projects.

Commenters also opined that applicable

entities may not be sufficiently resourced

to navigate these newer commercial law

relationships and would be disadvantaged

compared to non-applicable entities, who

can avail themselves of partnership structures in the form of limited partnerships

or limited liability companies, which provide most members with limited liability

for State law purposes.

Commenters asked for clear guidance

and clarifications as to how a renewable

energy project could meet the requirements for electing out of subchapter K.

For example, one commenter asked how

§1.761-2(a) could be applicable in the

context of a jointly operated renewable

energy project. Section 1.761-2(a) provides, in relevant part, that an unincorporated organization the members of which

are able to compute their income without

the necessity of computing partnership

taxable income, and that is not an organization classifiable as an association,

may be excluded from the application of

subchapter K if the organization is availed

of (1) for investment purposes only and

not for the active conduct of a business,

or (2) for the joint production, extraction,

or use of property, but not for the purpose

of selling services or property produced

or extracted. Specifically, the commenter

stated that it is unclear how parties jointly

operating a renewable energy project can

do so without conducting a business selling services or property produced (that is,

selling electricity).5

Another commenter asked for clarity

on what a delegation of authority under

§1.761-2(a)(3)(iii) would cover for a JOA

of applicable credit property that produces

electricity. Section 1.761-2(a)(3)(iii) pro-

The commenter also raised Rev. Proc. 2002-22, 2002-1 CB 733 (specifying the conditions under which the IRS will consider a request for a private letter ruling that an undivided fractional

interest in rental real property is not an interest in a business entity), and noted that: “if the parties to a joint venture combine capital or services with the intent of conducting a business or

enterprise and of sharing the profits and losses from the venture, a partnership (or other business entity) is created.”

5

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803

April 8, 2024

vides, in relevant part, that a participant

to a JOA may delegate authority to sell

its share of any property produced or

extracted, but not for a period in excess

of the minimum needs of the industry, and

in no event for more than one year. This

commenter also asked for examples of

compliant JOAs that would allow electricity generated through the joint ownership

of applicable credit property to be sold

pursuant to a power purchase agreement.

Commenters also requested guidance

permitting a single entity or taxpayer

to handle the administrative affairs and

day-to-day management activities of

operating an applicable credit property

on behalf of the other joint owners without impacting the owners’ ability to be

properly excluded from the application of

subchapter K. One commenter stated that

it would be useful to illustrate a range of

JOAs likely to result in exclusion from the

application of subchapter K and suggested

that key elements of such fact patterns

might include: an agreement to share revenues in proportion with the co-owners’

respective ownership interests; an agreement to share revenues out of proportion

with the co-owners’ respective ownership

interests; an agreement in which rights to

dispose of property or take other significant actions are reserved to a subset of the

co-owners; and/or an agreement to receive

debt financing based on the anticipation of

funds expected to result from an elective

payment election in a case in which the

lender is not a co-owner.

A commenter stated that it would also

be helpful to clarify the application of

§1.761-2(a)(3)(iii) to co-ownership ventures in cases in which co-owners generate and sell power as a collective rather

than on their separate accounts, or alternatively if the collective entity sells power

to each of the participating co-owners

and then those co-owners sell power to

third parties on their own accounts but the

collective may sell some other services

or property incidental to the activity for

which the credit is determined. This commenter highlighted that, in California and

some other States, local government agencies often pool resources under a Joint

Powers Authority (JPA). The commenter

asked that guidance clarify the conditions

under which a JPA could be treated as an

organization that has made a valid elec-

April 8, 2024

tion under section 761(a) of the Code to

be excluded from the application of subchapter K, including if the JPA is a separate legal entity and sells power under its

own account.

One commenter stated that existing guidance allowing for clean energy

arrangements to validly elect out of subchapter K, including through the use of

TIC structures, is limited and should be

updated. This commenter stated that a

partnership is defined in the Code and in

the Treasury Regulations under sections

761 and 7701, but the distinction between

an arrangement treated as a partnership for

Federal tax purposes and one that has validly elected out of subchapter K, including a valid TIC, is not well defined in the

energy generation context. The commenter

pointed out that pre-IRA partnership guidance, including guidance allowing for the

use of tax-equity partnership structures,

is widely used as a basis for structuring

projects within the renewable industry

and is well understood. However, existing

guidance for arrangements in the energy

generation context that will not be treated

as a partnership for Federal tax purposes

is limited and outdated. The commenter

urged the Treasury Department and the

IRS to provide clear, updated, and timely

guidance on clean energy arrangements

that would not be treated as partnerships

for Federal tax purposes.

The Treasury Department and the IRS

agree that additional guidance is needed on

joint ownership arrangements of applicable credit property that produce electricity

that can be excluded from the application

of subchapter K. As a result, the Treasury

Department and the IRS have proposed

regulations in the Proposed Rules section

of this edition of the Federal Register

that would add certain exceptions to the

requirements contained in the regulations

under section 761(a) and provide an example. These exceptions generally would

allow any applicable entity described in

section 6417(d)(1)(A) and §1.6417-1(c)

that jointly owns applicable credit property that produces electricity to (1) own

its interests through an entity (other than

an entity required to be treated as a corporation under the Code) and (2) delegate

its authority to an agent to sell its share of

the electricity produced from such applicable credit property for a period of more

804

than 1 year, provided that the delegation

authority to the agent is not for more than

1 year. See Election to Exclude Certain

Unincorporated Organizations Owned by

Applicable Entities from the Application

of Subchapter K, REG-101552-24, in the

Proposed Rules section of this edition of

the Federal Register.

ii. Applying the undivided ownership

interests rule to qualified property

One commenter requested some clarifying edits to address how proposed

§1.6417-2(a)(1)(iii), the rule for undivided

ownership interests, would operate with

respect to a section 48E credit. This commenter noted that proposed §1.6417-1(e)

(12) defines “applicable credit property”

for purposes of section 48E as “a qualified facility described in section 48E(b)

(3);” however, section 48E(b) allows a

section 48E credit to be claimed only with

respect to a qualified investment in a qualified facility. The commenter asked for

clarification on what part of the qualified

investment is owned by such joint tenant,

and suggested adding language to the final

regulations to clarify that an applicable

entity should be able to claim applicable credits with respect to the applicable

credit property in proportion to its share of

qualified property.

The Treasury Department and the IRS

agree with the commenter that a section

48E credit is determined, in part, based on

an applicable entity’s qualified investment

with respect to a qualified facility, but do

not believe that further language is needed

because this concept is already covered in

the language under proposed §1.6417-2(a)

(1)(iii), which provides that an applicable

entity will be treated as owning a separate applicable credit property equal to

its undivided ownership share. An applicable entity’s undivided ownership share

is determined under Federal income tax

ownership principles and is outside the

scope of these final regulations. Thus,

these final regulations do not adopt the

commenter’s suggestion.

4. Partnerships

The proposed regulations would have

provided that partnerships and S corporations are not applicable entities described

Bulletin No. 2024–15

in section 6417(d)(1)(A), but requested

comments on whether any entity described

in section 6417(d)(1)(A)(i) through (vi)

or proposed §1.6417-1(c) could include

an entity organized as a partnership or S

corporation for Federal tax purposes. No

commenter stated that an entity described

in section 6417(d)(1)(A)(i) through (vi) or

proposed §1.6417-1(c) could include an

entity organized as a partnership or S corporation for Federal tax purposes. Therefore, these final regulations adopt the rule

as proposed.

Under the proposed regulations and

these final regulations, a partnership or an

S corporation is eligible to make the elective payment election only with respect to

a section 45V credit, section 45Q credit,

and section 45X credit (assuming all the

other requirements to make the election

with respect to these credits are met). This

rule applies no matter how many of the

partners or shareholders are applicable

entities described in section 6417(d)(1)

(A) and §1.6417-1(c), including if all of

the partners or shareholders are applicable entities described in section 6417(d)

(1)(A) and §1.6417-1(c). However, as the

proposed regulations noted, because section 6418(f)(2) defines “eligible taxpayer”

for purposes of transfer eligibility as “any

taxpayer which is not described in section

6417(d)(1)(A)” (and thus not in proposed

§1.6417-1(c)), such a partnership or S

corporation would be an eligible taxpayer

described in section 6418(f)(2) and may

be eligible to transfer eligible credits.6

A number of commenters requested

that the final regulations allow applicable

entities to make elective payment elections through an entity treated as a partnership for Federal tax purposes, either

if all the partners in the partnership are

applicable entities described in section

6417(d)(1)(A) or if at least one partner

in the partnership is an applicable entity

described in section 6417(d)(1)(A). Commenters advocating for including partnerships composed entirely of applicable

entities as an applicable entity stated that

such a rule would help cover capital needs,

diversify risk, and fill gaps in expertise

between applicable entities. Commenters

advocating for mixed partnerships (that is,

partnerships consisting of both applicable

entities and entities that are not applicable entities) said that not allowing applicable entities to make elective payment

elections for applicable credit property

held through mixed partnerships would

reduce economic incentives to invest in

clean energy, undermining the objectives

of the IRA. Several commenters stated

that applicable entities lack the required

resources to engage in green energy projects themselves and asked that the final

regulations permit a partnership to make

an elective payment election with respect

to the portion of the underlying credits

allocable to an applicable entity. A few

commenters stated that structures eligible

to elect out of subchapter K have numerous requirements and complexities that

limit their usefulness. One commenter

recommended that the final regulations

either (1) allow a partnership to make an

elective payment election on one hundred

percent of the credits so long as the partnership is majority owned by an applicable entity, or (2) allow a partnership with

majority applicable entity ownership to

make an elective payment election on the

portion of credits allocable to such applicable entities.

Based on the language in section

6417(c)(1) that treats a partnership as

the owner of any applicable credit property held directly by the partnership and

requires a partnership to make any elective payment election with respect to such

property, these final regulations retain

the proposed regulations’ entity view of

partnerships under section 6417(c)(1).

Because an entity described in section

6417(d)(1)(A)(i) through (vi) or proposed

§1.6417-1(c) does not include an entity

treated as a partnership for Federal tax

purposes (or as an S corporation), these

final regulations do not adopt commenters’ suggestions and do not allow entities

treated as partnerships for Federal tax purposes (or S corporations) to make elective

payment elections, except with respect

to a section 45V credit, section 45Q

credit, and section 45X credit. However,

these restrictions do not apply to entities,

whether comprised of only applicable

entities or comprised of a mix of applicable and non-applicable entities, that have

made a valid election out of subchapter K

under section 761(a), including through

the exception for certain joint ownership

arrangements of applicable credit property identified in the proposed regulations

under section 761 described in part I.B.3.i

of this Summary of Comments and Explanation of Revisions.

A few commenters asked that taxable

entities be permitted to serve as an administrative member or manager of a State law

entity to which an applicable entity owns

all of the other interests without creating

a partnership for Federal tax purposes,

provided that such taxable entities do not

receive distributive shares of partnership

items or partnership distributions. These

final regulations do not attempt to establish any additional criteria by which a taxpayer can provide administrative or managerial services for an applicable entity

without creating a partnership between the

taxpayers for Federal tax purposes. However, as previously described, the Treasury

Department and the IRS are simultaneously issuing proposed regulations under

section 761 in the Proposed Rules section

of this edition of the Federal Register that

provide additional guidance for certain

renewable energy arrangements that can

validly elect out of subchapter K.

Multiple commenters asked that the

final regulations provide further clarity

on Tribal entities and allow co-ownership

of projects. A few commenters asked that

the final regulations allow Tribal Energy

Development Organizations (TEDOs), or

other wholly owned Tribal enterprises,

to be applicable entities regardless of

how they are chartered. Some commenters asked that the final regulations allow

tribes to form special purpose vehicles

under an LLC structure to jointly own

renewable energy projects and employ

the distributive share rules for allocating the “applicable credit” to each LLC

member, regardless of the tax status of

that member. Commenters also asked that

inter-governmental partnerships, whether

formed under State law such as JPAs, or

The Treasury Department and the IRS acknowledge that section 6418 does not contain a provision parallel to section 6417(d)(2) providing that section 50(b)(3) and (4)(A)(i) do not apply

to limit the determination of a credit in section 6417. Thus, section 50(b)(3) and (4)(A)(i) may limit eligible investment tax credits determined with respect to a partnership or S corporation

with applicable entity partners or shareholders for purposes of section 6418.

6

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805

April 8, 2024

formed under Tribal law as inter-tribal

consortiums, should be eligible to make

an elective payment election.

While it is possible that in certain cases

a Tribal law entity (including a TEDO)

and/or inter-governmental partnership

could be an applicable entity, such a determination is outside the scope of these

final regulations. However, the Treasury

Department and the IRS are actively working on guidance regarding the Federal tax

status of Tribal law entities organized and

controlled by tribes. The Treasury Department and the IRS will not release final

guidance in advance of additional Tribal

consultation.

Commenters also stated that, if the

Treasury Department and the IRS allow

for section 6417 elections to be made on

behalf of applicable entity partners, the

final regulations should make conforming

clarifications, including clarifying that the

“applicable credit” that is reduced to zero

under section 6417(e) is only the portion

of the credit for which a section 6417 election has been made and clarifying the distributive share rules. Because these final

regulations do not allow section 6417

elections to be made on behalf of applicable entity partners, these final regulations

do not adopt the suggested conforming

changes.

5. Consolidated Groups

Proposed §1.6417-2(a)(1)(v) would

have provided that, for members of a consolidated group (as defined in §1.1502-1)

the common parent of which is an Alaska

Native Corporation, any member that is

an electing taxpayer may make an elective

payment election with respect to applicable credits determined with respect to

the member. Proposed §1.6417-2(a)(2)

(vi) would have provided the same rule

with respect to electing taxpayers. See

§1.1502-77 (providing rules regarding the

status of the common parent as agent for

its members). The proposed regulations

would also have provided that a member of a consolidated group is required to

complete pre-filing registration as a condition of, and prior to, making an elective

payment election.

The preamble to the proposed regulations stated that an ANC may be the

common parent of a consolidated group

April 8, 2024

of corporations (ANC-parented group)

and noted that some stakeholders had

inquired whether non-ANC members of

an ANC-parented group may separately

make an elective payment election with

respect to a section 45V credit, section

45Q credit, or section 45X credit determined with respect to such member. In

response, the preamble to the proposed

regulations stated that a non-ANC member of an ANC-parented group may qualify as an electing taxpayer eligible to

make elections under section 6417(d)(1)

(B), (C), or (D), based on its own corporate status. See §1.1502-80(a). As

with any other electing taxpayer, a nonANC member of an ANC-parented group

would be required to complete pre-filing

registration (as would be required under

proposed §1.6417-5) and must make its

elective payment election under section

6417(d)(1)(B), (C), or (D) with respect to

an applicable section 45V credit, section

45Q credit, or section 45X credit determined with respect to the member. See

§1.1502-77 (providing rules regarding

the status of the common parent as agent

for its members).

The preamble to the proposed regulations requested comments (1) regarding

the definition in proposed §1.6417-1(c)

(4) and whether additional guidance is

necessary regarding consolidated groups

with ANC common parents; (2) whether

additional guidance is necessary to

address any uncertainty that may exist

regarding the application of section 6417

in the context of a consolidated group

with members that are cooperatives subject to the rules of subchapter T of chapter 1; and (3) regarding the application

of section 6417 to consolidated groups

with electing taxpayers (for example,

whether special rules are necessary for

consolidated groups to apply the “denial

of double benefit” rule under proposed

§1.6417-2(e)(2)).

No commenter addressed these issues

relating to ANCs. However, the Treasury

Department and the IRS have determined

that the text of proposed §1.6417-2(a)

(1)(v), which referred to consolidated

groups “of which an Alaska Native Corporation is the common parent,” was too

limiting and should apply to any consolidated group with an applicable entity

parent. Therefore, these final regula-

806

tions expand the definition by removing

the specific reference to Alaska Native

Corporations in §1.6417-2(a)(1)(v) and

broaden the rule to apply to any consolidated group of which an applicable entity

is the common parent.

A few commenters requested confirmation that the “entity-specific” rules of

section 6417 apply to an elective payment

election made by a partnership that has as

its only partners two or more members of

the same consolidated group and suggested

an example confirming the treatment. The

commenters wanted confirmation that the

election would be made by the partnership, as required by section 6417(c)(1)

and proposed §1.6417-4(a), rather than by

the partnership’s members, as provided in

proposed §1.6417-2(a)(2)(vi). The Treasury Department and the IRS agree that

any entity treated as a partnership for Federal tax purposes, and not any of its partners (regardless of the identity or Federal

tax status of the partners), would make an

elective payment election with respect to

section 45Q credits, section 45V credits,

or section 45X credits pursuant to section

6417(c)(1) and §1.6417-4(a), but disagree

that an example illustrating this point is

needed.

6. Pooled Investment Vehicles

The proposed regulations did not provide a special rule for employee plans that

are subject to the Employee Retirement

Income Security Act of 1974 (ERISA)

if they choose to invest through pooled

investment vehicles, whether the vehicles

are organized as partnerships or otherwise. One commenter stated that ERISA

plans typically make investments through

pooled investment vehicles, which often

are organized as limited partnerships or

LLCs, and take minority interests in them

in order to avoid subjecting the vehicles to

fiduciary, prohibited transaction, and other

rules under ERISA’s “plan asset’’ rules.

The commenter believed that, if pooled

investment vehicles are not considered

to be applicable entities, then employee

plans generally cannot benefit from elective payment elections under section 6417

with respect to some or all of the applicable credits listed in section 6417(b). The

commenter suggested that ERISA plan

fiduciaries might choose not to invest in

Bulletin No. 2024–15

applicable credit activities at all. The commenter requested that the final regulations

provide a mechanism by which ERISA

plan investors indirectly investing through

pooled investment vehicles can make an

elective payment election.

The Treasury Department and the IRS

understand the commenter’s concern that

ERISA plans may be discouraged from

investing in certain entities engaged in

applicable credit activities under the

proposed regulations. Other applicable

entities have similar concerns that investments in certain entities engaged in applicable credit activities under the proposed

regulations will not be investments in

applicable entities. While there are rules

outside of these final regulations that may

impact how ERISA plans make investments, there is no indication in section

6417 that ERISA plans can or should be

subject to rules different than those that

apply to other applicable entities. Thus,

these final regulations do not provide a

special rule for ERISA plans investing

in pooled investment vehicles that would

allow ERISA plans to be eligible to make

an elective payment election if investing

through a partnership structure.

II. Rules for Making Elective Payment

Elections

A. In general

Proposed §1.6417-2 would have provided general rules for an applicable entity

or electing taxpayer to make an elective

payment election under section 6417 with

respect to any applicable credit determined with respect to such entity. Commenters addressed many aspects of these

proposed rules, which are discussed in this

part II of the Summary of Comments and

Explanation of Revisions. These final regulations adopt the rules as proposed, with

the modifications described in this part II.

B. Manner of making the election

Section 6417(a) provides that the elective payment election is made “at such

time and in such manner as the Secretary

may provide,” and proposed §1.64172(b) would have provided the particular requirements for properly and timely

making the election.

Bulletin No. 2024–15

1. Return Requirements

Proposed §1.6417-2(b)(1)(i) would

have provided that an applicable entity

makes an elective payment election on the

applicable entity’s or electing taxpayer’s

annual tax return, as defined in proposed

§1.6417-1(b), in the manner prescribed

by the IRS in guidance, along with any

required completed source credit form(s)

with respect to the applicable credit property, a completed Form 3800, General

Business Credit (or its successor), and any

additional information, including supporting calculations, required in instructions

to the relevant forms.

To avoid any confusion about how

the elective payment election should

be made, proposed §1.6417-1(b) would

have defined “annual tax return,” for

purposes of the section 6417 regulations, as follows: (1) for any taxpayer

normally required to file an annual tax

return with the IRS, such annual return

(including the Form 1065, U.S. Return of

Partnership Income, for partnerships and

the Form 990-T, Exempt Organization

Business Income Tax Return (and proxy

tax under section 6033(e)), for organizations with unrelated business income tax

or a proxy tax under section 6033(e));

(2) for any taxpayer that is not normally

required to file an annual tax return with

the IRS (such as taxpayers located in the

U.S. territories), the return they would

be required to file if they were located

in the United States, or, if no such return

is required (such as for a State; the District of Columbia; or local or Indian tribal

governments), the Form 990-T; and (3)

for taxpayers filing a return for a taxable

year of less than 12 months (short year),

the short year tax return. These final regulations make minor, nonsubstantive edits

to the definition in the proposed regulations to avoid using the phrase annual tax

return in defining the term.

Several commenters requested that the

IRS use a new or different form than Form

990-T or revise certain forms (including

Forms 990, 990-T, 1120, 3468, 3800,

8038-CP, and 8911). Several commenters

also requested a detailed list of the documents required to complete the filing

process, information on how to complete

required forms, or reduced information

requirements for filers who had previously

807

not been required to file any returns with

the IRS.

The Treasury Department and the IRS

recognize that some taxpayers may not

have experience or a historical filing obligation and will consider providing simplified instructions or the need for a new form

in future years. The Treasury Department

and IRS are committed to developing educational and outreach tools to assist tribes,

government entities, their instrumentalities, and exempt organizations to complete the forms required solely to make

an elective payment election. It is outside

of the scope of these final regulations to

address comments related to individual

forms or the kind of documentation that

may be required to complete those forms.

Thus, these final regulations adopt the

rules as proposed.

Several commenters requested confirmation that, for those taxpayers that normally file the Form 1120 with the IRS,

the Form 1120 can be used to make the

elective payment election. The Treasury

Department and the IRS confirm that this

is the intent of the language in §1.64171(b)(1), which states “[f]or any taxpayer

normally required to file an annual tax

return with the IRS, such annual return,”

and have added the Form 1120, as well as

other examples of annual tax forms, to the

parenthetical.

Other commenters requested that the

elective payment election could be made

on the Form 1120-W. As the Form 1120-W

is not an annual income tax return, these

final regulations do not adopt that suggestion.

2. Original Return Requirements

Proposed §1.6417-2(b)(1)(ii) would

have provided that an elective payment

election must be made on an original

return (including any revisions on a superseding return) filed not later than the due

date (including extensions of time) for

the original return for the taxable year

for which the applicable credit is determined. The proposed regulations stated

that no elective payment election may be

made “or revised” on an amended return

or by filing an administrative adjustment

request (AAR) under section 6227 of the

Code. The proposed regulations also did

not provide for relief under §301.9100-1

April 8, 2024

through 301.9100-3 (9100 relief) for

an elective payment election that is not

timely filed.

Multiple commenters asked that an

elective payment election be permitted on

an amended return or AAR and/or that a

taxpayer be permitted an extension of time

under the 9100 relief procedures to make

a late election. Commenters stated that not

allowing a late election is an unreasonable

result for new market entrants and creates significant barriers for entities with

limited resources. Some commenters recommended that applicable entities should

be allowed to make the elective payment

election on late returns and also be able to

claim a six-month automatic extension of

time to file the election under §301.91002(b). Commenters requested that the final

regulations provide some form of relief for

taxpayers that acted in good faith and made

a reasonable effort in complying, particularly for new filers who may not have had a

prior filing obligation. Commenters further

suggested that providing additional time to

make an election would increase market

participation and promote equity.

In response to these comments, these

final regulations remove the words “or

revised” in §1.6417-2(b)(1)(ii) and provide “[n]o elective payment election may

be made for the first time on an amended

return, withdrawn on an amended return,

or made or withdrawn by filing an administrative adjustment request under section

6227, although a numerical error with

respect to a properly claimed elective

payment election may be corrected on an

amended return or by filing an administrative adjustment request under section

6227 if necessary.” This clarification is

intended to address situations in which

a taxpayer intended to make an elective

payment election but made a reporting

error with respect to an element of a valid

election (for example, miscalculating the

amount of the credit on the original return

or making a typographical error in the process of inputting a registration number),

and to allow the taxpayer to correct any

errors that would result in a disallowance

of the election or to correct an excessive

payment before an excessive payment

determination is made by the IRS. Consistently, it is appropriate to allow taxpayers to correct errors that would result

in a larger payment than indicated on

April 8, 2024

the original return as long as such larger

amount is accurate. This provision cannot be used to revoke an election or to

make an election for the first time on an

amended return. In addition, the taxpayer’s original return, which must be signed

under penalties of perjury, must contain

all of the information, including a registration number, required by these final

regulations. To properly correct an error

on an amended return or AAR, a taxpayer

must have made an error in the information included on the original return such

that there is a substantive item to correct; a

taxpayer cannot correct a blank item or an

item that is described as being “available

upon request.”

These final regulations also modify the

proposed regulations to permit an extension of time under §301.9100-2(b) to

allow for an automatic six-month extension of time from the due date of the

return (excluding extensions) to make the

election prescribed in section 6417(d)(3),

which provides relief for applicable entities or electing taxpayers who have a filing

obligation and file by the due date of the

return. The elective payment election is a

statutory election because its due date is

prescribed by statute. As such, the section

9100 relief procedures apply only insofar

as the late election is being filed pursuant

to §301.9100-2(b), which requires that

the taxpayer timely filed its return for the

year the election should have been made.

Relief under this provision applies only to

taxpayers that have not received an extension of time to file a return after the original due date. Taxpayers eligible for this

relief must take corrective action under

§301.9100-2(c) within the six-month

extension period and follow the procedural requirements of §301.9100-2(d).

A few commenters requested clarification on superseding returns. One

commenter stated that the proposed regulations appeared ambiguous regarding

whether a return filed after the original

due date, but within the automatic extension period, is considered a superseding

return. This commenter recommended

clarifying that this would be considered a

superseding return.

Neither the Code nor regulations define

a superseding return, but administrative

IRS guidance provides that a superseding return is a return filed subsequent to

808

the originally-filed return but before the

due date for filing the return (including

extensions). For example, if an applicable entity subject to an automatic 6-month

extension files an original return on the

due date (excluding extensions) and then

files a subsequent return within the automatic extension period, the subsequent

return would generally be considered a

superseding return. Unlike a superseding

return, an amended return is a return filed

after the taxpayer filed an original return

and after the due date for filing the return

(including extensions).

One commenter stated that the reference to a superseding return seems to be

an acknowledgment that some taxpayers

will use a provisional tax return filed on

the due date (before extensions) to hasten the election process. This commenter

asked whether, if a taxpayer files a provisional return on March 15, 2024, and

files a superseding return on September

15, 2024, the taxpayer would be treated

as making payment against tax under section 6417(d)(4) on March 15, 2024. The

Treasury Department and the IRS note

that the designation “provisional” return

has no basis in the Code or regulations

and accordingly, such returns are not

treated differently by the IRS upon filing.

Taxpayers are reminded that a tax return

is signed under penalties of perjury that

the return is true, correct, and complete.

If an original return is filed on March 15,

2024, and contains a valid elective payment election, the taxpayer is treated as

making a payment against tax on that day.

A superseding return could increase or

reduce the amount of the net elective payment election. If the amount is increased,

the additional elective payment is treated

as paid on the date the superseding return

was filed. Taxpayers should be aware that

filing a superseding return could result in

a delay in processing the additional elective payment amount. If the net elective

payment amount is reduced because of the

superseding return, the taxpayer could be

subject to interest and, if the taxpayer fails

to pay the difference with the superseding

return, penalties.

3. Pre-filing Registration Requirements

Proposed §1.6417-2(b)(2) would have

specified that pre-filing registration (as is

Bulletin No. 2024–15

required under §1.6417-5T and would be

required under proposed §1.6417-5) is a

condition of any amount being treated as

a payment that is made by an applicable

entity under section 6417(a). The proposed regulations stated that an elective

payment election will not be effective

with respect to applicable credits determined with respect to an applicable credit

property unless the applicable entity or

electing taxpayer receives a valid registration number for the applicable credit property and provides the registration number

for each applicable credit property on its

Form 3800 (or its successor) attached to

the tax return, in accordance with guidance. These final regulations clarify in

§1.6417-2(b)(2) that a valid registration

number must also be included on any

required completed source credit form(s)

with respect to the applicable credit property. Additional information about the

pre-filing registration process is described

in part V of this Summary of Comments

and Explanation of Revisions.

4. Due Date Requirements

Section 6417(d)(3)(A)(i) provides that

any election under section 6417(a) must

be made not later than (1) in the case of

any government, or political subdivision,

described in section 6417(d)(1) and for

which no return is required under section

6011 or 6033(a), such date as is determined appropriate by the Secretary, or (2)

in any other case, the due date (including

extensions of time) for the return of tax for

the taxable year for which the election is

made, but in no event earlier than 180 days

after the date of the enactment of section

6417 (February 13, 2023). Section 6417 is

applicable to taxable years beginning after

December 31, 2022.

Proposed §1.6417-2(b)(3) would have

implemented this provision as follows.

In the case of any taxpayer for which no

income tax return is required under section 6011 or 6033(a) of the Code (such as

a governmental entity), the elective payment election must be made no later than

the due date (including an extension of

time) for the original return that would be

due under section 6033(a) if such applicable entity were described in that section. Under section 6072(e) of the Code,

that date is the 15th day of the fifth month

Bulletin No. 2024–15

after the taxable year determined by section 441 of the Code. Subject to the issuance of guidance that specifies the manner

in which an entity for which no Federal

income tax return is required under section

6011 or 6033(a) of the Code could request

an extension of time to file, the proposed

regulations would have provided that an

automatic paperless six-month extension

from the original due date is deemed to be

allowed.

In the case of any taxpayer that is not

normally required to file an annual tax

return with the IRS (such as those located

in the U.S. territories), the proposed regulations would have provided that the

elective payment election must be made

no later than the due date (including

extensions of time) that would apply if the

taxpayer was located in the United States

(such as the 15th day of the fourth month

after the end of the year for individuals filing Form 1040 or for corporations filing

Form 1120). For example, an individual in

a U.S. territory would be required to make

the elective payment election on or before

the 15th day of April following the close

of the calendar year, or, if the individual

filed an extension, on or before the 15th

day of October following the close of the

calendar year.

The proposed regulations would have

provided that, in any other case, the elective payment election must be made no

later than the due date (including extensions of time) for the original return for

the taxable year for which the election is

made, but in no event earlier than February 13, 2023.

Commenters did not address the second or third provisions, and they are

adopted without change. However, with

respect to the first provision, these final

regulations simplify the provision in proposed §1.6417-2(b)(3), which stated that

an elective payment elective must be

made no later than, “[i]n the case of any

taxpayer for which no Federal income

tax return is required under section 6011

or 6033(a) of the Code, the due date

(including an extension of time) for the

original return that would be due under

section 6033(a) if such applicable entity

were described in that section. Under

section 6072(e), that date is the 15th day

of the fifth month after the taxable year

determined by section 441 of the Code,”

809

to simply provide that an elective payment election must be made no later than,

“[i]n the case of any taxpayer for which

no Federal income tax return is required

under sections 6011 or no Federal return

is required under 6033(a) of the Code . . . ,

the 15th day of the fifth month after the

taxable year.”

Commenters asked that the final regulations clarify the determination of taxable year for an entity that does not have

a filing requirement under section 6011 or

6033(a), stating that the reference to “the

taxable year determined by section 441 of

the Code” is confusing and that the Code

provides latitude to taxpayers in determining their applicable taxable year (including calendar year, fiscal year, and short

years as applicable). Commenters gave

the example of an applicable entity that

is filing Form 990-T for the sole reason

of making an elective payment election

for an applicable credit. If the applicable

entity uses a fiscal year beginning July 1

and ending June 30, placed in service a

project for which an applicable credit was

determined during the first six months

of 2023, and used its fiscal year for purposes of establishing a taxable year, then

the applicable entity would be ineligible

to make an elective payment election for

such project because the fiscal year during

which the project was placed in service

began on July 1, 2022, which is a fiscal

year beginning before December 31,

2022. Commenters noted that similarly

situated taxpayers who file their returns on

a calendar year basis would be eligible to

make an elective payment election. Commenters requested that they be allowed

to choose a calendar taxable year for

purposes of making an elective payment

election, or, alternatively, that they be permitted to file using a short year beginning

January 1, 2023, and ending on the date of

their next fiscal year.

These final regulations delete the reference to section 441 and clarify that, for

purposes of section 6417, an applicable

entity that is not required to file a Federal income tax return pursuant to section

6011 or Federal return pursuant to section

6033(a) (such as a State; the District of

Columbia; an Indian tribal government;

any U.S. territory; a political subdivision of a State, the District of Columbia,

or a U.S. territory, or a subdivision of an

April 8, 2024

Indian tribal government; certain agencies

or instrumentalities of a State, the District

of Columbia, an Indian tribal government,

or a U.S. territory; or a taxpayer excluded

from filing pursuant to section 6033(a)

(3)), but is filing solely to make an elective

payment election, may choose whether to

file its first Form 990-T (and thus adopt

a taxable year for purposes of section

6417) based upon a calendar or fiscal

year, provided that such entity maintains

adequate books and records, including a

reconciliation of any difference between

its regular books of account and its chosen taxable year, to support making an

elective payment election on the basis of

its chosen taxable year. This should allow

an applicable entity that is not required to

file a Federal income tax return pursuant

to section 6011 or Federal return pursuant

to section 6033, but has placed in service

an applicable credit property in 2023, to

file Form 990-T based on a calendar year

and make an elective payment election

with respect to the applicable credit property regardless of when the property was

placed in service during 2023.

These final regulations continue to

provide, consistent with the proposed regulations, that, subject to issuance of guidance that specifies the manner in which

an entity for which no Federal income

tax return is required under section 6011

or no Federal return is required under

section 6033(a) could request an extension of time to file and make the elective

payment election, an automatic paperless

six-month extension from the 15th day

of the fifth month after the taxable year is

deemed to be allowed.

The Treasury Department and the IRS

note that a taxpayer that has filed a Federal

income tax return under section 6011 or a

Federal return under section 6033(a) with

the IRS must continue to use that taxable

year unless the taxpayer requests a change

of annual accounting period pursuant to

section 442 of the Code.

5. Irrevocability Requirement

Proposed §1.6417-2(b)(4) would have

provided that any election under section

6417(a), once made, is irrevocable and

applies with respect to any applicable

credit for the taxable year for which the

election is made.

April 8, 2024

Under section 6417, the election period

applies for a period of years with respect

to certain applicable credits. Specifically,

for a section 45 credit or section 45Y

credit, the election applies to the 10-year

period beginning on the date the facility

was originally placed in service. For a section 45Q credit, the election applies to the

12-year period beginning on the date the

equipment was originally placed in service. For a section 45V credit, the election

applies to all subsequent taxable years

with respect to the facility.

Electing taxpayers make the election

for one five-year period per applicable

credit property, but are allowed one revocation per applicable credit property, as

provided in section 6417(d)(1)(D), (d)

(3)(C), and (d)(3)(D), and would have

been provided in proposed §1.6417-3 (as

described in part III of this Explanation of

Provisions).

No commenters addressed the irrevocability rule, and these final regulations

adopt the rule without change.

making an election is treated as making

a payment against the income tax “equal

to the amount of” the applicable credit,

which does not provide the flexibility to

make an election equal to a portion of the

applicable credit. Thus, these final regulations adopt the proposed regulations without change.

6. No Partial Elections

In accordance with section 6417(d)

(2), proposed §1.6417-2(c)(1) would have

provided that, in the case of any applicable

entity that makes the election described

in section 6417(a), any applicable credit

is determined (1) without regard to the

restrictions regarding use of property by

tax-exempt organizations and government

entities found in sections 50(b)(3) and (4)

(A)(i); and (2) by treating any property

with respect to which such credit is determined as used in a trade or business of the

applicable entity.

Proposed §1.6417-2(c)(2) would have

elaborated on the effect of the “trade or

business” rule in section 6417(d)(2) and

proposed §1.6417-2(c)(1)(ii). Proposed

§1.6417-2(c)(2)(i) would have allowed

tax-exempt and government entities to

take advantage of applicable credits even

outside of the unrelated business taxable

income context (provided other requirements are met) by allowing the entity

to treat an item of property as if it is of

a character subject to an allowance of

depreciation (such as under sections 30C

and 45W); to produce items “in the ordinary course of a trade or business of the

taxpayer” (such as in sections 45V and

45X); and to state that an item of property

is one for which depreciation (or amorti-

Proposed §1.6417-2(b)(5) would have

provided that an elective payment election

applies to the entire amount of applicable

credit(s) determined with respect to each

applicable credit property that was properly registered for the taxable year, resulting in an elective payment amount that is

the entire amount of applicable credit(s)

determined with respect to the applicable

entity or electing taxpayer for a taxable

year. As a result, the proposed regulations

would require that an applicable entity

make an elective payment election for the

entire amount of the credit determined

with respect to each applicable credit

property.

A few commenters advocated for

allowing partial elections, stating that this

flexibility would be helpful. The Treasury

Department and the IRS note that the statute and the proposed regulations already

provide considerable flexibility because

taxpayers can register none, some, or

all of their applicable credit properties.

Further, as opposed to section 6418(a),

which allows an eligible taxpayer to elect

to transfer all (or any portion specified in

the election) of an eligible credit, section

6417(a) provides that an applicable entity

810

C. Determination of applicable credit

Proposed §1.6417-2(c) would have

provided three rules relating to the determination of any applicable credit: (1) special rules for tax-exempt organizations

and government entities; (2) a special

rule for investment-related credit property acquired with income that is exempt

from taxation under subtitle A; and (3) a

rule that credits must be determined with

respect to the applicable entity or electing

taxpayer.

1. Special Rules for Tax-exempt

Organizations and Government Entities

Bulletin No. 2024–15

zation in lieu of depreciation) is allowable

(such as in sections 48, 48C, and 48E). No

commenter addressed this rule, but these

final regulations made nonsubstantive

edits to this proposed version.

Proposed §1.6417-2(c)(2)(ii) would

have allowed the entity to apply the capitalization and accelerated depreciation rules

(such as sections 167, 168, 263 and 263A

of the Code) that apply to determining the

basis and the depreciation allowance for

property used in a trade or business. One

commenter asked whether applicable entities can use section 266 of the Code to capitalize carrying charges. In response, these

final regulations add section 266 to the list

of capitalization and accelerated depreciation rules that applicable entities can use in

§1.6417-2(c)(2)(ii).

Proposed §1.6417-2(c)(2)(iii) would

have made limitations on the use of credits

generally applicable to persons engaged in

the conduct of a trade or business applicable to the making of an elective payment

election under section 6417, such as the

at-risk rules of section 49 of the Code in

the context of investment credits determined under sections 48, 48C, and 48E,

and the passive activity rules under section 469 of the Code that apply to all applicable credits. For section 49 to apply to

investment tax credits for which an elective payment election is made, the property must be placed in service by an applicable entity or electing taxpayer described

in section 465(a)(1) of the Code (for

example, an individual or a C corporation

with respect to which the stock ownership

requirements of section 542(a)(2) of the

Code are met). For section 469 to apply

to applicable credits for which an elective

payment election is made, the applicable

entity or electing taxpayer would need to

be described in section 469(a)(2) (that is,

an individual, estate or trust, a closely held

C corporation, or a personal service corporation). Thus, for any applicable entity

or electing taxpayer for which section 49

or 469 generally applies, those limitations

apply with respect to the determination of

applicable credits for purposes under section 6417.

The proposed regulations requested

comments on whether any additional clarification is needed regarding the application of sections 49 and 469 to applicable

entities or electing taxpayers determining

Bulletin No. 2024–15

the amount of an applicable credit. Two

commenters asked that the final regulations clarify that section 49 does not apply

to limit credits available to tribes or Tribal

entities that use direct loan or Federal

loan guarantee programs. The Treasury

Department and the IRS note that section

49 generally applies only to individuals and C corporations meeting the stock

ownership requirements of section 542(a)

(2), and that section 49 reduces the credit

base only by the amount of nonqualified

nonrecourse financing, as defined in section 49(a)(1)(D)(ii). Both of these determinations are dependent on the facts and

circumstances and are outside of the scope

of these final regulations.

Proposed §1.6417-2(c)(2)(iv) would

have stated that the trade or business rule

does not create any presumption that the

trade or business is related (or unrelated)

to a tax-exempt entity’s exempt purpose.

One commenter asked whether nonprofits

will owe tax on Solar Renewable Energy

Credits (SREC) sales and how selling the

SRECs upfront versus selling them over

time might change the result. This comment is outside the scope of these final

regulations. Another commenter asked that

the final regulations provide that income

from applicable credit property does not

give rise to unrelated business income tax

(UBIT). Whether income from applicable credit property gives rise to UBIT is a

fact-intensive inquiry under sections 511

through 514 of the Code and it is outside

the scope of these final regulations. As

these comments do not require revisions

to the proposed rule, these final regulations

adopt the §1.6417-2(c)(2)(iv) as proposed.

In addition, these final regulations clarify that the trade or business rule subjects

the applicable entity to the credit limitation that applies when there is an excess

benefit, as described in part II.C.2 of this

Summary of Comments and Explanation

of Revisions. See §1.6417-2(c)(2)(v) and

(c)(3)(ii).

2. Special Rule for Investment-related

Credit Property Acquired with Amounts,

Including Income from Certain Grants

and Forgivable Loans, that are Exempt

from Taxation Under Subtitle A

Proposed §1.6417-2(c)(3) would have

provided a special rule for investment

811

credit property acquired with amounts,

including income from certain grants and

forgivable loans, that are exempt from

taxation under subtitle A (tax exempt

amounts) and would have expanded the

rule to “investment-related tax credits”

(that is, to other credits that are determined

as a percentage of a property’s basis).

The special rule stated that, for purposes

of section 6417, any tax exempt amounts

used to purchase, construct, reconstruct,

erect, or otherwise acquire an applicable

credit property described in sections 30C,

45W, 48, 48C, or 48E (investment-related

credit property) are included in basis for

purposes of computing the applicable

credit amount determined with respect

to the investment-related credit property,

regardless of whether basis is required to

be reduced (in whole or in part) by such

amounts under general tax principles.

Without this rule, applicable entities that

use tax exempt amounts to purchase, construct, reconstruct, erect, or otherwise

acquire investment-related credit property

may not be able to take full advantage of

investment-related tax credits with respect

to such property because general tax principles may require applicable entities

to reduce the basis in such property, for

general business credit purposes, by the

amount paid for with tax exempt amounts.

This special rule, by not reducing basis

for tax exempt amounts for purposes of

computing the applicable credit amount,

conferred excess tax benefits under general tax principles applicable to taxable

entities. The proposed regulations contained a “no excess benefit” rule in proposed §1.6417-2(c)(3) to give effect to the

requirement in section 6417(d)(2)(B) that

the investment-related credit property be

treated as used in a trade or business of

an applicable entity (and thus subject to

general tax principles that apply to taxable

entities). The proposed no excess benefit

rule would have reduced the applicable

credit amount with respect to “restricted

tax exempt amounts,” which taxable entities are generally not entitled to include in

the basis of corresponding investment-related credit property under general tax

principles, if the sum of such restricted tax

exempt amounts plus the applicable credit

exceeded the cost of the applicable credit

property. Specifically, proposed §1.64172(c)(3) would have provided that, if an

April 8, 2024

applicable entity receives tax exempt

amounts for the specific purpose of purchasing, constructing, reconstructing,

erecting, or otherwise acquiring an investment-related credit property (restricted

tax exempt amount), and any restricted

tax exempt amounts plus the applicable

credit otherwise determined with respect

to that investment-related credit property

exceeds the cost of the investment-related credit property, then the amount of

the applicable credit is reduced so that

the total amount of applicable credit plus

the amount of any restricted tax exempt

amounts equals the cost of investment-related credit property. This no excess benefit rule was a subset of the special rule

for investment credit property acquired

with tax exempt amounts in that it applied

only to restricted tax exempt amounts; in

other words, it only applied to tax exempt

amounts that are conditioned on being

used for the specific purpose of purchasing, constructing, reconstructing, erecting, or otherwise acquiring an investment

credit property and did not apply to other

tax exempt amounts. Proposed §1.64172(c)(5) contained three examples illustrating these rules.

One commenter strongly supported the

special rule for investment-related credit

property acquired with income that is

exempt from taxation as reasonable and

necessary, stating that it (1) places applicable entities on similar footing as taxable entities with respect to impacts on

basis, (2) makes funding count equally for

investment tax credits (that are determined

as a percentage of basis) and production

tax credits (which are not tied to basis),

and (3) is consistent with the purposes in

section 6417. Several other commenters

expressed appreciation for this “stackability” feature of the proposed regulations.

However, some commenters did not

support the no excess benefit part of the

rule, stating that section 6417 does not

contain any limitation on determining

the amount of an elective payment for an

applicable credit if the applicable entity

has received grants or forgivable loans not

subject to Federal income tax. These commenters opined that not only does section

6417 not authorize promulgation of such

a rule, but the proposed rule is inconsistent with the intent of section 6417, which,

in the commenters’ view, is generally to

April 8, 2024

permit applicable entities to receive an

elective payment of an applicable credit in

an amount otherwise allowable under the

Code.

These final regulations generally adopt

the proposed special rule for investment-related credit property acquired with

amounts, including income from certain

grants and forgivable loans, that are exempt

from taxation, with modifications discussed in this Part II.C.2 of the Summary

of Comments and Explanation of Provisions section. First, these final regulations

seek to clarify that the no excess benefit

rule is a subset of the general rule by separating the special rule into two parts: (1) an

“amounts included in basis” rule (allowing

tax exempt amounts to count toward basis)

and (2) a “no excess benefit from restricted

tax exempt amounts” rule (not allowing

restricted tax exempt amounts plus the

amount of the credit to exceed the cost of

the investment-related credit property).

With respect to the second part of the

rule, the Treasury Department and the

IRS conclude that section 6417(d)(2)(B)

effectively places a limitation on determining the amount of an applicable credit

by treating the property as being used in a

trade or business of an applicable entity,

which otherwise subjects the investment-related credit property and the applicable credit to general tax principles that

apply to taxable entities. Taxable entities

that receive restricted tax exempt amounts

are generally required to reduce their basis

in the corresponding investment-related

credit property under general tax principles, which would limit the amount of

the applicable credit. While the no excess

benefit rule does not go so far as to require

basis in investment-related credit property

to be reduced by the restricted tax exempt

amount, it limits the applicable credit so

that an applicable entity that receives a

restricted tax exempt amount does not

receive more than the cost of the investment-related credit property financed

without those non-taxable funds. The

alternative to the no excess benefit rule

would be to disallow restricted tax exempt

amounts from counting toward the basis

in investment-related credit property (a

more severe limitation), which would still

give effect to section 6417(d)(2)(B) but

not accomplish the goals of the IRA as

well as the no excess benefit rule does.

812

However, these final regulations clarify the no excess benefit rule in several

ways. These final regulations provide that

the determination of whether a tax exempt

grant is made for the specific purpose of

purchasing, constructing, reconstructing,

erecting, or otherwise acquiring an investment-related credit property is made at the

time the grant is awarded to the applicable

entity. (If only a portion of a tax exempt

amount is restricted and another portion

is unrestricted, then only the restricted tax

exempt amount is considered for purposes

of this rule.)

Similarly, these final regulations clarify how to treat a grant that is awarded

after investment-related credit property

is purchased, constructed, reconstructed,

erected, or otherwise acquired. One commenter requested clarification of whether

the excessive payment addition to tax

may apply if an applicable entity received

a Federal grant after the elective payment election submission. Although the

comment was unclear, it appears that the

commenter was asking whether a grant

received after the acquisition of investment-related credit property might be considered a “restricted tax exempt amount”

that could affect the amount of the applicable credit claimed on the annual return.

Similarly, two commenters asked that

applicable entities be allowed to self-identify during the pre-filing registration

process or the elective payment election

process, or both, if they are preparing

to apply for a Federal grant that could

potentially impact their elective payment

amount. These commenters stated that an

entity could then amend its return based

on whether the grant was received to better determine if the entity should receive

the full elective payment amount or be

required to recalculate the elective payment amount so as not to incur an addition

to tax due to a possible excessive payment

in subsequent taxable years.

A grant awarded after acquisition of

the property is generally not a restricted

tax exempt amount because a restricted

tax exempt amount is one made for the

specific purpose of purchasing, constructing, reconstructing, erecting, or otherwise

acquiring an investment-related credit

property and, in the commenters’ examples, the applicable entity would already

have acquired the investment-related

Bulletin No. 2024–15

credit property before receiving the grant

funds. However, to avoid allowing taxpayers to circumvent the no excess benefit

rule by acquiring applicable credit property in cases in which the receipt of the

grant is assured if an application is made

and the applicable entity only needs to

finance the purchase until the money is

received, these final regulations provide

that a grant awarded after acquisition of

the property is a restricted tax exempt

amount if approval of the grant was perfunctory and the amount of the grant was

virtually assured at the time of application.

Commenters asked whether the credit

reduction applies to a loan that is not a

forgivable loan or to a taxable loan. The

Treasury Department and the IRS clarify

that loans that need to be repaid are not

tax exempt amounts and, thus, will not

be restricted tax exempt amounts for purposes of this rule. Commenters also asked

about the timing of the credit reduction

and whether there is any potential tax

credit recapture if a loan for a project that

was not intended to be forgivable is later

forgiven by the lender. In response, these

final regulations add a sentence clarifying

that the determination of whether a loan is

made for the specific purpose of purchasing, constructing, reconstructing, erecting,

or otherwise acquiring an investment-related credit property, and whether forgiveness of that loan is contingent upon the

specific purpose being satisfied, is made at

the time the loan is approved.

Several commenters did not appear to

understand that the no excess benefit rule

is a subset of the special rule for investment-related credit property because

it applies only to restricted tax-exempt

amounts. For example, one commenter

opined that, if an applicable entity’s general revenue (from charitable donations) is

not taxable and does not reduce the credit

amount, then the concern of an excessive

benefit for specific grants is unfounded.

Multiple commenters expressed confusion by the definitions in the rule, asking

for further definition (or a safe harbor)

of “restricted tax exempt amount” or

for a definition of “unrestricted funds.”

Restricted gifts are distinguishable from

unrestricted gifts because of the restrictions donors place on the use of the funds.

In response to these comments, however,

these final regulations add a sentence to

Bulletin No. 2024–15

the end of §1.6417-2(c)(3)(ii) stating that

the no excess benefit rule does not apply

if the tax exempt amount is not received

for the specific purpose of purchasing,

constructing, reconstructing, erecting,

or otherwise acquiring a property eligible for an investment-related credit. This

sentence includes two examples of a tax

exempt amount that is not considered to

be a restricted tax exempt amount: (1) a

tax exempt amount from the organization’s general funds and (2) a tax exempt

amount the use of which is not restricted

to the purpose of purchasing, constructing, reconstructing, erecting, or otherwise

acquiring an investment-related credit

property (such as purchasing an electric

vehicle) and could be used for any of several different applicable credit properties

(such as purchasing an electric vehicle

or purchasing solar panels) or can be put

to other purposes (such as purchasing an

electric vehicle or making a building more

energy efficient). In addition, these final

regulations add an example with unrestricted funds to clarify that unrestricted

funds do not implicate the no excess benefit rule.

One commenter thought that the no

excess benefit rule is administratively

impractical and will lead certain applicable entities and their donors to structure

donations as unrestricted grants (with an

unenforceable expectation that the grant

will still be used to fund the energy property). The commenter stated that this lack

of a legally enforceable obligation by

donors will lead to more opportunities for

the misuse of funds and further frustrate

Congressional intent to encourage applicable entities to actually build and operate

energy property. The Treasury Department and the IRS recognize that unrestricted funds are not impacted by the no

excess benefit rule; thus, taxpayers could

structure around the no excess benefit rule

by requesting unrestricted funds rather

than restricted ones. However, these final

regulations maintain the decision that,

when a restricted tax exempt amount plus

a general business credit exceeds the cost

of the applicable credit property that was

purchased with the restricted tax exempt

amount, then the no excess benefit rule is

reasonable and necessary, gives effect to

section 6417(d)(2)(B), and is consistent

with general tax principles.

813

In response to the commenters asking that applicable entities be allowed to

self-identify if they are preparing to apply

for a Federal grant that could potentially

impact their elective payment amount,

as provided in part V of this Summary of

Comments and Explanation of Revisions,

§1.6417-5(b)(5)(vii)(E) provides that an

applicable entity must provide information on the source of funds the taxpayer

used to acquire the property as part of the

pre-filing registration process if the applicable credit property is an investment-related credit property. However, the reporting of an actual credit amount is done on

the annual tax return. In addition, if an

applicable entity makes a valid elective

payment election but later determines the

amount was calculated incorrectly, these

final regulations provide the opportunity

to file an amended return or AAR to make

the appropriate adjustments to the elective

payment amount. See part II.B.2 of this

Summary of Comments and Explanation

of Revisions. As described in part VI of

this Summary of Comments and Explanation of Revisions, these final regulations

clarify that, if an applicable entity or electing taxpayer amends its tax return or files

an AAR to properly adjust an excessive

elective payment amount before the IRS

opens an examination, then the excessive

payment provisions of section 6417(d)(6)

and §1.6417-6(a) would not apply.

A commenter recommended that the

final regulations limit or eliminate the proposed rule that tax-exempt funds raised

to pay for the cost of a system must be

subtracted from the installed system cost

before calculating the value of the investment tax credit. The commenter’s summary of the proposed rule is not accurate.

The excess benefit determination is made

after the investment tax credit is calculated

and reduces the amount of the calculated

credit only to the extent that an excess

benefit was created by any restricted tax

exempt amounts used to fund the purchase.

One commenter asked how the credit

reduction relates to tax-exempt bond

financing (which, for certain credits,

results in a reduction of the credit amount).

The Treasury Department and the IRS

confirm that the no excess benefit rule

applies after application of any rule, such

as sections 45(b)(3), 45Q(f)(8), 45V(d)

April 8, 2024

(3), 45Y(g)(8), 48(a)(4), and 48E(d)(2),

that relates to the determination of the

underlying applicable credit.

A few commenters said that only

Federal grants should be considered in

applying the no excess benefit rule. The

Treasury Department and the IRS have

concluded that all restricted tax exempt

amounts should be treated the same way,

as any could lead to an excess benefit.

Two commenters stated that an applicable credit property financed with “recoverable grants” should not result in the

reduction of the applicable credit, stating

that recoverable grants are similar to loans

although some nonprofits and schools

cannot enter into loan agreements. These

final regulations do not adopt this comment because, without knowing the conditions upon which the grant proceeds are

returned to the grantor, it is not possible to

conclude whether such amounts would be

considered restricted tax exempt amounts.

For example, if a grantor requires return

of the grant proceeds to the extent of

an excess benefit created, the proceeds

required to be repaid would likely not be

considered a restricted tax exempt amount

for purposes of §1.6417-2(c)(3), as those

amounts are more similar to debt repayment.

One commenter asked that the final

regulations provide more specific information about “other amounts generally

exempt from taxation under subtitle A,”

stating that all revenues earned by section

501(c) entities that are not subject to the

unrelated business income provisions of

sections 511 through 514 are generally

exempt from tax. The commenter noted

that Examples 2 and 3 in the proposed

regulations contained an exempt organization’s own unrestricted funds, which the

commenter presumed was from income

exempt from taxation under subtitle A. The

Treasury Department and the IRS agree

that the types of income mentioned by the

commenter are examples of income “that

is exempt from taxation under subtitle A”

that are intended to be included in basis

for purposes of computing the applicable

credit amount determined with respect to

the applicable credit property, regardless

of whether basis is required to be reduced

(in whole or in part) by such amounts

7

under general tax principles. However,

the Treasury Department and the IRS

have identified that certain governmental

entities, including Indian tribal governments, may have income that is excluded

from Federal income taxation rather than

exempt from taxation under subtitle A.

The intent of the special rule was to have

all of this income count towards the basis

of investment-related credit property.

Thus, these final regulations add “or otherwise excluded from taxation” to the text

of §1.6417-2(c)(3).

A commenter asked how the special

rule works if grant or loan proceeds are

paid directly to the contractor building the

property, providing an example in which

(1) another entity helped cover the cost of

the applicable credit property for the applicable entity by paying a vendor directly,

and (2) the remaining funds were provided by a lender to the applicable entity,

with the lender providing the proceeds of

the loan directly to the vendor. The commenter asked whether these arrangements

would affect the cost basis for determining the credit amount, which could then

impact the applicable entity’s ability to

make an elective payment election. These

final regulations do not address this question since it requires analysis of the details

surrounding the contractual arrangements

(for example, the terms of the gift and the

terms of the loan), as the results depend on

the underlying facts.

One commenter asked whether there are

any restrictions on the use of elective payment amounts once they are received by the

applicable entity; for example, whether they

can be used to repay grant match requirements or to pay off debt used specifically

to purchase applicable credit property. Section 6417 imposes no restriction on the use

an applicable entity makes of the elective

payment amount after it has been paid to

the entity (although the entity bears the risk

that any excessive payments are subject to

repayment plus a 20-percent tax).

3. Credits Must be Determined with

Respect to the Applicable Entity or

Electing Taxpayer

Proposed §1.6417-2(c)(4) would have

stated that any credit for which an elec-

tion is made under section 6417(a) must

have been “determined with respect to”

the applicable entity or electing taxpayer,

meaning that the applicable entity or electing taxpayer must own the underlying

eligible credit property or, in the case of

section 45X, conduct the activities giving

rise to the underlying eligible credit.7 This

proposed rule, which is consistent with the

proposed regulations under section 6418,

would prohibit an applicable entity or

electing taxpayer from making an election

under section 6417(a) for credits transferred pursuant to section 6418, transferred

pursuant to section 45Q(f)(3), acquired by

a lessee from a lessor by means of an election to pass through the credit to a lessee

under former section 48(d) (pursuant to

section 50(d)(5)), owned by a third party,

or otherwise not determined directly with

respect to the applicable entity or electing

taxpayer, which the proposed regulations

labeled “chaining.”

The preamble to the proposed regulations noted several potential obstacles to

permitting chaining, but requested comments on any limited situations in which

exceptions to this proposed rule may be

appropriate because they are consistent

with the text, design, and intent of the

IRA, while also ensuring that such exceptions are not subject to fraud or abuse.

i. Credits transferred pursuant to section

6418

One commenter agreed with the proposed rule, stating that chaining will

likely create practical and administrative

challenges and make the applicable credits more vulnerable to fraud and abuse.

However, multiple commenters stated that

chaining is consistent with the text, design,

and intent of the IRA and requested that it

be allowed. Some commenters advocated

for enacting a limited exception tailored

to certain situations or limited to certain

types of taxpayers, such as (1) a taxpayer

whose receipt of credits is directly tied to

the taxpayer’s involvement in the manufacturing process and its contractual agreements with third-party producers under

section 45X, if not considered a producer

under section 45X; (2) public-private

partnership arrangements under which a

The section 45X credit requires that the taxpayer produce eligible components. Thus, an applicable entity or electing taxpayer must produce eligible components to claim the credit.

April 8, 2024

814

Bulletin No. 2024–15

governmental entity or nonprofit entity

can be treated as the owner of the project while receiving private capital from

the private, for-profit partner to finance

the project; (3) governmental entities and

unrelated section 501(c)(3) entities on

whose premises the project is located; (4)

green banks and other public financing

entities; (5) governmental agencies; (6)

public power systems that entered into a

long-term power purchase agreement with

respect to the electricity to be produced at

a qualifying facility; (7) entities conducting the activity that do not own the applicable credit property; (8) a transferor and

transferee that are joint tenants or partners

in a partnership completing a single return,

or cross-referencing returns, in which the

transfer and elective payment elections

are made concurrently on the due date of

the return (or later filing date under a valid

extension); or (9) in cases in which an

ERISA plan, entity holding plan assets, or

an entity in which an ERISA plan or entity

holding plan assets is the primary equity

holder, the transferee would not own more

than 50 percent of the seller, the transferee

does the same due diligence required of all

transferees, the transferee pays a minimum

of 90 percent of the face value of the credit

in cash, and, if the purchasing ERISA plan

has an indirect interest in the proceeds of

the sale, it is not permitted to buy more

than the commensurate share of the proceeds it would have received if the seller

had elected to sell the tax credit to another

person or entity with no relationship to the

seller. One commenter asked that any rule

prohibiting chaining be limited to potentially abusive situations in which a principal purpose of the structure is to avoid the

transfer election rules or otherwise allow

taxpayers that are not applicable entities

to make elective payment elections.

After considering comments, the

Treasury Department and the IRS have

determined that sections 6417 and 6418,

read together, are most straightforwardly

understood as creating two separate,

mutually exclusive regimes regarding

credit monetization. While the Treasury

Department and the IRS acknowledge

that no specific language in section 6417

or 6418 directly prohibits chaining, not

permitting chaining allows for more

straightforward application of the statute as a whole. This interpretation reads

Bulletin No. 2024–15

“determined with respect to” in both sections 6417 and 6418 to require the entity

to own the underlying applicable credit

property with respect to which the applicable credit is determined and conduct

the activities giving rise to the applicable credit or, in the case of section 45X,

for which ownership of applicable credit

property is not required, to be considered

(under the section 45X regulations) the

taxpayer with respect to which the section 45X credit is determined.

The Treasury Department and the IRS

also remain concerned about the administrability of chaining and the scope for

fraud and abuse. The Treasury Department and the IRS considered commenters’ suggestions on how chaining might

be limited to certain types of taxpayers

or certain situations. While there may be

ways in which limiting chaining to certain types of entities or those performing

certain activities could potentially reduce

risks of fraud and abuse, the Treasury

Department and the IRS have concluded,

based on the comments, statutory text, and

available information, that the IRS would

face substantial challenges in attempting

to distinguish those types of taxpayers or

situations from other applicable entities or

other situations. For example, the existing

pre-filing registration process and portal,

a key anti-fraud and anti-abuse feature

specifically authorized by sections 6417

and 6418, are not capable of administering such distinctions as, for example, the

proposed requisite relationships between

the parties, many of which would require

assessments of particular circumstances or

other fact-dependent inquiries. The Treasury Department and the IRS have not

determined how the proposed distinctions

or criteria could be sufficiently verified

in an administratively reasonable manner

during the pre-filing registration process.

Thus, based on available information, the

Treasury Department and the IRS could

not conclude that any chaining rule could

be limited in the manner taxpayers proposed.

Furthermore, any chaining rule would

need ancillary rules to address operational differences between the two statutory provisions and complications that

would necessarily arise from chaining.

For example, absent ancillary rules to

address differences between the two stat-

815

utes, there would be inconsistencies in

the requirements for elective payment

elections made by applicable entities for

applicable credits that are determined with

respect to the applicable entity and elective payment elections made by applicable entities for transferred credits (even if

a taxpayer was making both elections for

the same type of credit). Transfer elections

under section 6418 with respect to credits determined under sections 45, 45Q,

45X, 45V, and 45Y are made on an annual

basis, whereas elective payment elections

under section 6417 with respect to these

credits are made for a multi-year period

and are irrevocable. Additionally, transfer

elections under section 6418 are permitted

to be made for a portion of eligible credits determined with respect to an eligible

credit property, whereas section 6417 does

not on its face permit partial elections. A

partnership making the election under

section 6417 must hold the applicable

credit property “directly,” language that is

not a clear fit for transferred credits. If a

chaining rule were permitted, the rules in

section 6418 would need to accommodate

the election requirements in section 6417,

but the Treasury Department and the IRS

could not determine, based on comments

received and available information, how

the differences between elective payment

elections and transfer elections could be

addressed in an administratively reasonable manner.

Similarly, an applicable entity that is

both a transferee under section 6418 and

an applicable entity under section 6417

could be subject to both the excessive

credit transfer addition to tax under section 6418(g)(2) and the excessive payment addition to tax under section 6417(d)

(6). None of the comments addressed how

the excessive credit transfer or excessive

payment additions to tax should apply

in the case of a chaining rule, including

whether there would be authority to avoid

application of both additions to tax by the

same applicable entity.

Additionally, none of the comments

addressed how the basis reduction and

recapture rules under sections 6418(g)(3)

and 6417(g) would work in the case of a

chaining rule, given that transferred credits presumably would need to be treated as

“determined with respect to” the applicable entity for purposes of section 6417(g).

April 8, 2024

A chaining rule would also create

administrative challenges with regard to

the pre-filing registration process that are

separate from the challenge of potentially

distinguishing types of entities or situations, and which were not addressed in

comments. A facility or property intended

to produce credits that would be chained

would appear to need to be registered

twice – first, under section 6418 as an eligible credit property and second, under

section 6417 as an applicable credit property – which would result in two different

registration numbers with respect to the

same facility or property. Both of these

registrations would presumably need to

occur after the eligible/applicable credit

property was placed in service, but before

either taxpayer filed their annual tax

return.

Finally, the Treasury Department and

the IRS remain concerned that a rule

allowing for chaining could increase risks

of fraudulent elective payment elections

as well as fraudulent transfers of credits

(such as transferring credits that have not

been earned by the transferor and therefore do not exist), given a range of factors

including the limited time before filing

season that the IRS would have to verify

information as part of the pre-filing registration process, the transferor’s incentives

to shift risk to the transferee, and the difficulties of recovering monies once already

paid out to applicable entities. Comments

received by the Treasury Department and

the IRS have not provided information

that addresses these concerns.

Thus, these final regulations adopt the

rule as proposed. However, the Treasury

Department and the IRS will continue

to consider potential chaining rules that

would address these concerns and be consistent with the statutory framework, as

well as the legislative purpose, of sections

6417 and 6418. In particular, the Treasury

Department and the IRS will be monitoring uptake and efficiency of the market for

transferred credits and whether additional

or different approaches may be useful to

improve the functioning of the market to

ensure that the provisions are functioning

consistent with Congress’s intent in enacting the IRA. The Treasury Department and

the IRS will also be monitoring uptake of

the elective payment election, including

whether additional or different regulatory

April 8, 2024

approaches may be useful to ensure broad

access to the clean energy tax credits consistent with Congress’s intent in enacting

the IRA. At the same time, the Treasury

Department and the IRS will be monitoring the risk of improper payments with

respect to sections 6417 and 6418 and will

consider additional regulatory or administrative action to reduce such risk as

experience is gained with respect to these

novel provisions.

ii. Credits allowed pursuant to section

45Q(f)(3)

As described in part II.C.3 of this

Summary of Comments and Explanation

of Revisions, proposed §1.6417-2(c)(4)

would have provided that no election may

be made under section 6417(a) for credits

transferred pursuant to section 45Q(f)(3).

Multiple commenters opined that section 45Q credits transferred pursuant to

section 45Q(f)(3)(B) should be considered

“determined with respect to” the transferee. Commenters posited that this is the

correct result because those transferees

conduct carbon capture activities necessary to give rise to a section 45Q credit,

citing the language in proposed §1.64172(c)(4) that “[a]n applicable credit is

determined with respect to an applicable

entity or electing taxpayer in cases where

the applicable entity or electing taxpayer

owns the underlying eligible credit property or, if ownership is not required, otherwise conducts the activities giving rise to

the underlying eligible credit.” Commenters further stated that performing those

carbon capture activities makes them distinguishable from taxpayers that are transferred a credit under section 6418 or an

election under section 50(d)(5).

The Treasury Department and the IRS

have concluded that a taxpayer that is

transferred a section 45Q credit as a result

of an election under section 45Q(f)(3) is

not the taxpayer with respect to which the

section 45Q credit is determined. Under

section 45Q(f)(3)(A)(ii), a section 45Q

credit is attributable to the person that

owns the carbon capture equipment and

physically or contractually ensures the

capture and disposal, utilization, or use

as a tertiary injectant of such qualified

carbon oxide (emphasis added). Further,

under §1.45Q-1(h)(3), it is the taxpayer

816

described in §1.45Q-1(h)(1) to whom the

section 45Q credit is attributable (electing taxpayer), that may elect to allow the

person that enters into a contract with the

electing taxpayer to dispose of the qualified carbon oxide (disposer), utilize the

qualified carbon oxide (utilizer), or use

the qualified carbon oxide as a tertiary

injectant (injector) to claim the credit

(credit claimant) (section 45Q(f)(3)(B)

election). Contrary to commenters’ assertions, it is not sufficient for a party to only

conduct carbon capture activities to be

eligible for a section 45Q credit. Further,

the requirement of ownership in the section 45Q statute and regulations means the

commenters’ argument that the language

in §1.6417-2(c)(4) allows a section 45Q

credit to be determined with respect to an

applicable entity or electing taxpayer when

the party “otherwise conducts the activities giving rise to the underlying applicable credit” is misplaced. That language in

§1.6417-2(c)(4) applies only in the case

of an applicable credit for which ownership of property is not required, which is

not the case with respect to a section 45Q

credit. Thus, these final regulations clarify

in §1.6417-2(c)(4) that the only applicable

credit for which ownership is not required

is the section 45X credit. While the activities of a contractor may be necessary for

a section 45Q credit to be determined,

ultimately, the credit is attributable to and

determined by the person that both owns

the equipment and physically or contractually ensures the capture and disposal,

injection, or utilization of such qualified

carbon oxide. Thus, these final regulations

adopt the proposed regulations without

change on this issue.

Other commenters implied that a section 45Q(f)(3) election is not a transfer,

just the attribution of the credit to the

claimant. The Treasury Department and

the IRS note that the relevant standard

under section 6417 for making an elective payment election is that a section 45Q

credit must be determined with respect to

the applicable entity or electing taxpayer.

Thus, while the proposed regulations used

the term “transfer,” the result would have

remained unchanged if the proposed regulations used the term ‘attributed’ in referring to a party that receives the credit as a

result of a section 45Q(f)(3)(B) election.

To maintain consistency with §1.45Q-1(h)

Bulletin No. 2024–15

(3), these final regulations use the word

“allowed,” but the result is unchanged

from the proposed regulations.

One commenter asked that, in the case

of a taxpayer that is registering a single

process train for purposes of a section 45Q

credit and will make a section 45Q(f)(3)

(B) election to allow all or a portion of that

credit to disposers/utilizers, the final regulations require information about such

election, as well as an acknowledgment by

the owner of the single process train that

the disposer(s)/utilizer(s) may make a section 6417 election for its portion of section

45Q credit allowed, using the registration

number obtained by the owner of the single process train. As described previously,

a section 45Q credit that is received as the

result of a section 45Q(f)(3)(B) election is

not determined with respect to the recipient, and therefore the recipient is ineligible to make a section 6417 election and

has no need to complete pre-filing registration.

Commenters stated, citing Rev. Rul.

2021-13, 2021-30 IRB 152, that a taxpayer does not need to own every component of a single process train to claim

a section 45Q credit. The Treasury

Department and the IRS agree that guidance under section 45Q does not require

a taxpayer to own every component of a

single process train and have revised the

language under §1.6417-1(e)(3) (defining

appli

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