Proposed Rule2023-12798
Section 6417 Elective Payment of Applicable Credits
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
June 21, 2023
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document contains proposed 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 proposed 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 proposed regulations describe rules related to an IRS pre-filing registration process that would be required. These proposed 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. This document also provides notice of a public hearing on the proposed regulations.
Full Text
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<title>Federal Register, Volume 88 Issue 118 (Wednesday, June 21, 2023)</title>
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[Federal Register Volume 88, Number 118 (Wednesday, June 21, 2023)]
[Proposed Rules]
[Pages 40528-40558]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-12798]
[[Page 40527]]
Vol. 88
Wednesday,
No. 118
June 21, 2023
Part IV
Department of the Treasury
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Internal Revenue Service
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26 CFR Parts 1 and 301
Section 6417 Elective Payment of Applicable Credits; Proposed Rule
Federal Register / Vol. 88, No. 118 / Wednesday, June 21, 2023 /
Proposed Rules
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 301
[REG-101607-23]
RIN 1545-BQ63
Section 6417 Elective Payment of Applicable Credits
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
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SUMMARY: This document contains proposed 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 proposed
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 proposed regulations describe
rules related to an IRS pre-filing registration process that would be
required. These proposed 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. This document also provides notice of a public hearing on
the proposed regulations.
DATES: Written or electronic comments must be received by August 14,
2023. The public hearing on these proposed regulations is scheduled to
be held on August 21, 2023, at 10 a.m. ET. Requests to speak and
outlines of topics to be discussed at the public hearing must be
received by August 14, 2023. If no outlines are received by August 14,
2023, the public hearing will be cancelled. Requests to attend the
public hearing must be received by 5 p.m. ET on August 17, 2023. The
public hearing will be made accessible to people with disabilities.
Requests for special assistance during the hearing must be received by
August 16, 2023.
ADDRESSES: Stakeholders are strongly encouraged to submit public
comments electronically. Submit electronic submissions via the Federal
eRulemaking Portal at <a href="https://www.regulations.gov">https://www.regulations.gov</a> (indicate IRS and
REG-101607-23) by following the online instructions for submitting
comments. Once submitted to the Federal eRulemaking Portal, comments
cannot be edited or withdrawn. The Department of the Treasury (Treasury
Department) and the IRS will publish for public availability any
comments submitted, whether electronically or on paper, to the IRS's
public docket. Send paper submissions to: CC:PA:LPD:PR (REG-101607-23),
Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin
Station, Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Jeremy Milton at (202) 317-5665 and James Holmes at (202) 317-5114 (not
toll-free numbers); concerning submissions of comments or the public
hearing, Vivian Hayes at (202) 317-6901 (not a toll-free number) or by
email to <a href="/cdn-cgi/l/email-protection#05757067696c666d6064776c6b6276456c77762b626a73"><span class="__cf_email__" data-cfemail="7d0d081f11141e15181c0f14131a0e3d140f0e531a120b">[email protected]</span></a> (preferred).
SUPPLEMENTARY INFORMATION:
Background
Section 6417 was added to the Internal Revenue Code (Code) on
August 16, 2022, by section 13801(a) of Public Law 117-169, 136 Stat.
1818, 2003, commonly referred to as the Inflation Reduction Act of 2022
(IRA). Section 6417 allows ``applicable entities'' (including tax-
exempt organizations, State and local governments, Indian tribal
governments, Alaska Native Corporations, the Tennessee Valley
Authority, and rural electric cooperatives) to make an election to
treat an applicable credit determined with respect to such entity as
making a payment against the tax imposed by subtitle A of the Code
(subtitle A), for the taxable year with respect to which such credit
was determined, equal to the amount of such credit. Section 6417 also
allows certain taxpayers to elect to be treated as applicable entities
for limited purposes, as described in part III of this background
section. Section 6417 also provides special rules relating to
partnerships and S corporations and directs the Secretary of the
Treasury or her delegate (Secretary) to provide rules for making
elections under section 6417 and to require information or registration
necessary for purposes of preventing duplication, fraud, improper
payments, or excessive payments under section 6417. Section 13801(g) of
the IRA provides that section 6417 applies to taxable years beginning
after December 31, 2022. This document contains proposed regulations
that would amend the Income Tax Regulations (26 CFR part 1) and the
Procedure and Administration Regulations (part 301) to implement the
statutory provisions of section 6417.
In the Rules and Regulations section of this issue of the Federal
Register, the Treasury Department and the IRS are issuing temporary
regulations under Sec. 1.6417-5T that implement the pre-filing
registration process described in proposed Sec. 1.6417-5 of the
proposed regulations. The temporary regulations require applicable
entities that want to elect the elective payment of applicable credit
amounts to register with the IRS through an IRS electronic portal in
advance of the applicable entity filing the return on which the
election under section 6417 is made.
I. Overview of Section 6417
Section 6417(a) provides that, in the case of an applicable entity
that makes an elective payment election under section 6417 with respect
to any applicable credit determined with respect to the applicable
entity for the taxable year, the applicable entity is treated as making
a payment against the tax imposed by subtitle A, that is, Federal
income taxes, 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.
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
[[Page 40529]]
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);
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\1\ The reference should be to 45W(d)(2). This has been
corrected in the proposed regulations.
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(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, section 6417(d)
defines an ``applicable entity'' and provides generally applicable
rules for making elective payment elections. Sections 6417(e) through
(h) provide special rules applicable under section 6417 that are
described in part II of this Background section. As described in parts
III and IV of this Background section, section 6417(c), (d)(1)(B), (C),
and (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 section 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.
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.
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 agency or instrumentality of the
foregoing), or political subdivision, described in section 6417(d)(1)
and for which no Federal income tax return is required under sections
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 the 45Q credit (see part III of this
Background section).
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), (d)(3)(D)(ii), and (d)(3)(D)(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).
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
section 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
[[Page 40530]]
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 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 territory
\2\ 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.
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\2\ Section 6417(f) uses the term ``possession,'' but this
proposed regulation uses the alternative term ``territory.''
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Section 6417(g) provides basis reduction and recapture rules. It
states that, except as otherwise provided in section 6417(d)(2)(A),\3\
rules similar to the rules of section 50 apply for purposes of section
6417.
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\3\ Section 6417(g) actually states ``subsection (c)(2)(A),''
but there is no section 6417(c)(2)(A); thus, the proposed
regulations correct the reference to state``(d)(2)(A).''
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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 Certain Taxpayers Making an Election
Under Section 6417(d)(1)(B), (C), or (D) (Electing Taxpayers)
A taxpayer other than an applicable entity under section
6417(d)(1)(A) may make an 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 election allows the electing taxpayer to be
treated as an applicable entity for the limited purpose of making an
elective payment election under section 6417 with respect to a section
45V credit, a section 45Q credit, or a section 45X credit,
respectively. The special rules for such an election are described in
paragraphs III.A, III.B, and III.C of this background section.
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) 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, 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.
[[Page 40531]]
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 income tax
purposes) a facility or property for which an applicable credit is
determined. Section 6417(c)(1) provides that, in the 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 such 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 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. Over 200 comment letters were received in response to
Notice 2022-50. Based in part on the feedback received, the Treasury
Department and the IRS are issuing these proposed regulations regarding
the elective payment election provisions under section 6417. The major
areas with respect to which public stakeholders provided letters are
discussed in the following Explanation of Provisions.
Explanation of Provisions
I. General Rules and Definitions
A. Applicable Entity
Section 6417(d)(1) defines ``applicable entity'' as (1) any
organization exempt from the 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)), (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. Proposed Sec.
1.6417-1(c) would clarify these statutory definitions pursuant to the
Secretary's authority under section 6417(h) to issue regulations
necessary to carry out the purposes of section 6417, as discussed
below.
1. Any Organization Exempt From the Tax Imposed by Subtitle A
Stakeholders asked for clarification on the scope of the phrase
``any organization exempt from the tax imposed by subtitle A'' for
purposes of determining whether a taxpayer is an applicable entity.
Entities may be exempt from tax or have their income exempt from tax
under various authorities. For example, an organization could be exempt
from taxation by section 501(a) of the Code or by other provisions of
the Code. An organization could also have its income excluded from
taxation by section 115.
The Treasury Department and the IRS propose to define the term
``any organization exempt from the tax imposed by subtitle A'' to
include all organizations exempt from the tax imposed by subtitle A by
section 501(a) of the Code, commonly referred to as ``tax-exempt
organizations.''
Several stakeholders requested clarification that tax-exempt
entities in the U.S. territories are eligible to make an election under
section 6417. Under these proposed regulations, such entities would be
considered organizations exempt from the tax imposed by subtitle A as
long as they are exempt from taxation by section 501(a) and as long as
they meet the requirements to claim an applicable credit (such as being
an appropriate owner of an investment credit property under sections
50(b)(1)(B) and 168(g)(4)(G)).\4\
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\4\ Section 50(b)(1) provides that no investment tax credit can
be determined with respect to property used predominantly outside of
the United States, but section 50(b)(1)(B) provides an exception for
property described in section 168(g)(4). In the case of entities,
section 168(g)(4)(G) describes property which is owned by a domestic
corporation and which is used predominantly in a U.S. territory by
such a corporation, or by a corporation created or organized in, or
under the law of, a U.S. territory.
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Stakeholders also asked 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). 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 (unless it met the requirements of another
type of applicable entity discussed below, such as a state
instrumentality).
Stakeholders also specifically sought clarification as to whether
governments of U.S. territories would be treated as applicable
entities, based on their unique status and the importance of their
energy security. These stakeholders noted that the renewable energy
credits generally may be claimed for activities in the U.S. territories
provided the underlying requirements are met, including the specific
ownership requirements for investment tax credits.\5\ In response, the
proposed regulations would interpret the term ``organization exempt
from the tax
[[Page 40532]]
imposed by subtitle A'' as used in section 6417(d)(1)(A) to include the
governments of the U.S. territories. Since section 115(2) excludes the
income accruing to the government of any territory of the United
States, or any political subdivision thereof, from gross income, it
effectively exempts these governments from the tax imposed by subtitle
A. In addition, these governments may properly be viewed as
organizations.\6\ Accordingly, proposed Sec. 1.6417-1(c)(1)(ii) would
provide that the government of any U.S. territory, or a political
subdivision thereof, is an applicable entity for purposes of section
6417 or provisions of law referencing section 6417(d)(1)(A).
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\5\ See footnote 2.
\6\ The Code and the regulations under 26 CFR part 1
occasionally refer to governmental entities as organizations. For
example, section 509(a)(1) refers to ``an organization described in
section 170(b)(1)(A),'' which includes a governmental unit described
in sections 170(b)(1)(A)(v) and 170(c)(1). See corresponding rules
in Sec. 1.170A-9(a) and (e).
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The Treasury Department and the IRS request comments on this
definition of any organization exempt from the tax imposed by subtitle
A, including as to whether the term should encompass the United States,
federal agencies, or other organizations beyond those listed in these
proposed rules.
2. Any State or Political Subdivision Thereof
Section 6417(d)(1)(A)(ii) states that ``any State or political
subdivision thereof'' is an applicable entity for purposes of section
6417.
The Treasury Department and the IRS note that section 7701(a)(10)
provides that the term ``State'' must be construed to include the
District of Columbia where such construction is necessary to carry out
provisions of Title 26, and thus propose that the definition of State
would include the District of Columbia. The Treasury Department and the
IRS request comments on whether additional clarification is needed.
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 Sec. 1.6417-1(c)(3) would include subdivisions of Indian
tribal governments in this definition.
Section 30D(g)(9) provides that ``the term ``Indian tribal
government'' means 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 list published most recently as of
the date of enactment of this subsection pursuant to section 104 of the
Federally Recognized Indian Tribe List Act of 1994 (25 U.S.C. 5131).
Thus, proposed Sec. 1.6417-1(k) would incorporate this definition into
the 6417 regulations. See Rev. Proc. 2008-55, 2008-39 I.R.B. 768
(generally providing that an Indian tribal entity that appears on the
most recent list published by the Department of the Interior in the
Federal Register pursuant to the requirements of the List Act is
designated an Indian tribal government for purposes of section
7701(a)(40)).
The Treasury Department and the IRS request comments regarding the
definitions in proposed Sec. 1.6417-1(c)(3) and (k), including as to
whether any further clarification would be warranted. The Treasury
Department and the IRS further request comments on whether the proposed
definitions encompass the entity structures that Indian tribal
governments employ in activities that would give rise to elective
payments, including entities with partial Indian tribal government
ownership.
4. Alaska Native Corporations
Section 6417(d)(1)(A)(v) provides that an applicable entity for
purposes of section 6417(a) includes ``any Alaska Native Corporation
(as defined in section 3 of the Alaska Native Claims Settlement Act (43
U.S.C. 1602(m)).'' A ``Native Corporation'' is defined in 43 U.S.C.
1602(m) to mean ``any Regional Corporation, any Village Corporation,
any Urban Corporation, and any Group Corporation,'' which are organized
under the laws of the State of Alaska. Although 43 U.S.C. 1606(d)
provides that a Regional Corporation is incorporated to conduct
business for profit, each of a Village Corporation, Urban Corporation,
and Group Corporation may be organized as a business for profit or
nonprofit corporation to hold rights and assets for Native villages,
urban communities of Natives, or members of a Native group.
A few stakeholders requested that a Settlement Trust (within the
meaning of 43 U.S.C. 1602(t)) that is established by an Alaska Native
Corporation (ANC) for the benefit of its shareholders also be treated
as an applicable entity. The stakeholders stated that an ANC is a
separate legal entity that is required to be a C corporation for
Federal income tax purposes, and as such, it is an entity different
from the Settlement Trust established by the ANC. However, the
beneficiaries of the ANC Settlement Trust are typically the same Native
individuals as the shareholders of the ANC. the stakeholders thus asked
that an ANC Settlement Trust be added as an applicable entity in cases
in which the Settlement Trust is directly affiliated with an applicable
ANC.
Unlike the case of the statutory definitions of ``Indian Tribal
government,'' the statutory definition of ANC is not ambiguous.
Accordingly, the proposed regulations would not treat Settlement Trusts
as ANCs. However, Settlement Trusts could themselves be applicable
entities not based on their relationship with an ANC if they qualified
for exempt status under section 501(a) and applied for and received a
determination letter from the IRS recognizing any such tax-exempt
status.
Separately, an ANC may be the common parent of a consolidated group
of corporations (ANC-parented group) that, in many ways, is treated
similarly to a single taxpayer for Federal income tax purposes by the
consolidated return regulations (Sec. Sec. 1.1502-1, et seq.). For
example, the members of a consolidated group report their consolidated
taxable income on a single Federal income tax return that the common
parent files with the IRS as the agent for the group under Sec.
1.1502-77. In this regard, some stakeholders have inquired whether non-
ANC members of an ANC-parented group may separately make an elective
payment election with respect to a section 45V credit, a section 45Q
credit, or section 45X credit determined with respect to such member.
The concern appears to be that, by reason of their affiliation with an
ANC common parent, the non-ANC members might be prevented from making
an election under section 6417(d)(1)(B), (C), or (D).
The proposed regulations would clarify 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 Sec. 1.1502-80(a). As with any other electing
taxpayer, a non-ANC member of an ANC-parented group would be required
to complete pre-filing registration (as would be required under
proposed Sec. 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 Sec. 1.1502-77 (providing
rules regarding the status of the common parent as agent for its
members).
The Treasury Department and the IRS request comments regarding the
definition in proposed Sec. 1.6417-1(c)(4) and whether additional
guidance is
[[Page 40533]]
necessary regarding consolidated groups with ANC common parents.
5. Tennessee Valley Authority
As per section 6417(d)(1)(A)(iii), the Tennessee Valley Authority
would be an applicable entity under proposed Sec. 1.6417-1(c)(5).
6. Rural Electrical Co-Ops
Section 6417(d)(1)(A)(vi) provides that ``any corporation operating
on a cooperative basis which is engaged in furnishing electric energy
to persons in rural areas'' is an applicable entity. These proposed
regulations do not elaborate on this definition, but request comments
on whether further clarification of the definition in proposed Sec.
1.6417-1(c)(6) is necessary.
Stakeholders asked that any payment under section 6417(a) not be
considered income for purposes of the 85-percent income test under
section 501(c)(12) for electric cooperatives. Because the section
6417(a) election results in a credit being treated as a payment against
the tax imposed by subtitle A for the taxable year with respect to
which such credit was determined, any such payment that results in a
refund being issued by the IRS to an electric cooperative under section
6417(a) will not affect the application of the 85-percent income test
determined with respect to the electric cooperative.
The Treasury Department and the IRS request comments on 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.
7. Agencies and Instrumentalities
Based on feedback from stakeholders, the Treasury Department and
the IRS believe that, in many instances, States, Indian tribal
governments, U.S. territories, or political subdivisions thereof are
likely to make investments or engage in activities that qualify for
applicable credits through their agencies and instrumentalities.
Multiple stakeholders requested that State and local government
agencies and instrumentalities be included as applicable entities under
a variety of theories, including cross-references to sections
50(b)(4)(A)(i) and 168(h)(2)(A)(i) in section 6417, the fact that the
income of an instrumentality is generally excluded from tax by section
115 of the Code, and the authority provided by section 6417(h) to issue
regulations necessary to carry out the purposes of section 6417. In
particular, stakeholders stated that the term ``Indian tribal
government'' should be defined to include, in part, economic
subdivisions of a tribe (such as a utility, housing authority, energy
division or authority, or other enterprise) regardless of how the
entity is formed (whether by Federal, Tribal or State law).
It would be administratively burdensome, both for stakeholders and
for the IRS, to determine what is part of a State, Indian tribal
government, U.S. territory, or political subdivision, on the one hand,
and what is an agency or instrumentality thereof on the other hand.\7\
For example, stakeholders expressed uncertainty about whether certain
entities, such as school districts, public utility districts, and
special purpose entities established by governments (such as joint
action agencies, economic development corporations, and joint powers
authorities) would qualify as political subdivisions or would be viewed
as agencies or instrumentalities. Stakeholders also noted that the
status of such entities as political subdivisions may turn on
differences in state law, such as whether a school district has taxing
authority.
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\7\ The definitions of political subdivision under Sec. 1.103-
1(b) and of instrumentality under Rev. Rul. 57-128, 1957-1 C.B. 311,
are frequently cited for Federal tax purposes.
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In addition, different States may structure ownership of relevant
property differently (for example, a school district or the county of
the school district may own the electric school buses), and it would be
inequitable for entities to be eligible or ineligible for elective
payment on the basis of such differences in ownership structures.
Furthermore, if agencies and instrumentalities were not specifically
listed as applicable entities, States and political subdivisions may
decide to create new entities or reorganize the administration of their
activities to perform applicable credit eligible activities directly,
which would be administratively burdensome without a commensurate
public benefit. For these reasons, and to promote uniform treatment
throughout the United Sates, proposed Sec. 1.6417-1(c)(7) would
provide that applicable entities include any agency or instrumentality
of any State, the District of Columbia, Indian tribal government, U.S.
territory, or political subdivision thereof.
The Treasury Department and the IRS request comments on this
approach to defining applicable entities and on whether further
guidance is necessary.
8. Electing Taxpayers
Certain taxpayers may make an election to be treated as an
applicable entity with respect to applicable credit property giving
rise to the section 45Q credit, section 45V credit, or section 45X
credit, as described in part III of this Explanation of Provisions.
Proposed Sec. 1.6417-1(g) defines an ``electing taxpayer'' as any
taxpayer that is not an applicable entity, but makes an election in
accordance with proposed Sec. Sec. 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 Sec. 1.6417-
1(e)(3), (5), or (7). Section 7701(a)(14) defines a ``taxpayer'' as any
person subject to any internal revenue tax, including income taxes,
employment taxes, and excise taxes.
Members of a consolidated group that is not an ANC-parented group
also may make an election to be treated as an applicable entity with
respect to the section 45Q credit, section 45V credit, or section 45X
credit. A member of the consolidated group would be required to
complete pre-filing registration (as would be required under proposed
Sec. 1.6417-5) and must make its elective payment election with
respect to an applicable section 45V credit, section 45Q credit, or
section 45X credit determined with respect to the member. See Sec.
1.1502-77 (providing rules regarding the status of the common parent as
agent for its members). The Treasury Department and the IRS request
comments regarding the application of section 6417 to consolidated
groups with electing taxpayers (for example, whether special rules are
necessary for consolidated groups under proposed Sec. 1.6417-2(e)(2)
(the denial of double benefit rule).
B. Entities Formed by an Applicable Entity or by an Electing Taxpayer
1. Disregarded Entities
Several stakeholders asked whether an entity disregarded as
separate from its owner (disregarded entity) is described in section
6417(d)(1)(A) if its owner is described in section 6417(d)(1)(A). Since
a disregarded entity is disregarded for Federal income tax purposes and
its attributes are attributed to the owner regarded for Federal income
tax purposes, the disregarded entity's activities would be attributed
to the owner and the owner could claim the credit as long as the owner
is described in section 6417(d)(1)(A). This would also include property
that an electing taxpayer that is a partnership or
[[Page 40534]]
S corporation holds through a disregarded entity or multiple
disregarded entities, including tiers of multiple disregarded entities
owned though chains of ownership. Thus, proposed Sec. Sec. 1.6417-
2(a)(1)(ii) and -2(a)(2)(iv) would provide 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.
2. Taxable C Corporations
Stakeholders also asked whether an entity described in section
6417(d)(1)(A) could create an entity that is a taxable C corporation to
perform the applicable credit activity and still qualify for the
section 6417 election. Because a taxable C corporation is an entity
separate from its owner, proposed Sec. 1.6417-1(c)(1) would not
include a C corporation that is not itself an applicable entity
described in proposed Sec. 1.6417-1(c)(1), even if its owner is an
applicable entity described in proposed Sec. 1.6417-1(c)(1). However,
an electing taxpayer may include a taxable C corporation (including a
member of a consolidated group).
3. Undivided Ownership Interests
Stakeholders also asked whether entities such as unincorporated
joint ventures could provide applicable entities access to earning
applicable credits available for an elective payment election,
including by partnering with other applicable entities or with for-
profit entities. Proposed Sec. 1.6417-2(a)(1)(iii) would provide that,
if an applicable entity is a co-owner of an applicable credit property
through an ownership arrangement treated as a tenancy-in-common or
pursuant to a joint operating arrangement that has properly elected out
of subchapter K of chapter 1 of the Code (subchapter K) under section
761, then each owner is considered to own an undivided interest in or
share of the underlying applicable credit property and thus, any
applicable credits are determined separately with respect to each
owner. As a result, an applicable entity may make an elective payment
election under section 6417(a) in the manner provided in paragraph (b)
with respect to its share of the applicable credits determined with
respect to its undivided ownership interest in or share of the
underlying applicable credit property.
4. Partnerships
Many stakeholders questioned whether a partnership that contains
partners described in section 6417(d)(1)(A) could make an elective
payment election under section 6417 with respect to those partners,
pointing to the ``determined with respect to such entity'' language in
section 6417(a). Stakeholders stated that clarity around the treatment
of these partnerships is of particular importance as many applicable
entities choose to partner with non-applicable entities in investment
and development of credit generating projects, that applicable entities
may not have the expertise or resources to own such projects outright,
and that the ability to partner is key to their meaningful
participation in the energy transition.
The Treasury Department and the IRS believe that the better
interpretation of the ``determined with respect to such entity''
language in section 6417(a), as well as the rules in sections 6417(c),
is to apply entity-specific rules under section 6417. Section 6417(c)
refers to a credit determined with respect to any facility or property
``held directly by a partnership or S corporation,'' meaning that the
partnership or S corporation, not its owners, is the relevant entity
for these purposes. Additionally, section 6417(c) provides that the
partnership or S corporation, not the partners or shareholders, makes
the section 6417 election. Furthermore, because section 6417 elections
are made for a particular applicable credit property, allowing a
section 6417 election for a portion of an applicable credit property
would be contrary to section 6417(a) and, if permitted, would be
difficult to administer, particularly in tiered partnership structures.
Thus, proposed Sec. 1.6417-2(a)(1)(iv) would provide that
partnerships and S corporations are not applicable entities described
in section 6417(d)(1)(A) and proposed Sec. 1.6417-1(c). This proposed
rule would apply no matter how many of the partners or shareholders are
described in section 6417(d)(1)(A) and proposed Sec. 1.6417-1(c),
including if all partners or shareholders are described in section
6417(d)(1)(A) and proposed Sec. 1.6417-1(c). However, because section
6418(f)(2) defines ``eligible taxpayer'' as any taxpayer that is not
described in section 6417(d)(1)(A) (and thus not in proposed Sec.
1.6417-1(c)), such a partnership would be an eligible taxpayer
described in section 6418(f)(2).
In addition, as described in part I.B.3. of this Explanation of
Provision, an applicable entity may engage with other entities,
including with for-profit partners, in an ownership arrangement that
has properly elected out of subchapter K and make an elective payment
election under section 6417(a) with respect to its share of the
applicable credits determined with respect to its share of the
underlying applicable credit property. This type of arrangement
provides some flexibility for tax-exempt and government entities to
participate in section 6417 with other entities. The Treasury
Department and the IRS request comments on whether any additional rules
are needed. Comments are also requested regarding whether any entity
described in section 6417(d)(1)(A)(i)-(vi) or proposed Sec. 1.6417-
1(c) could include an entity organized as a partnership for Federal tax
purposes.
As described in part IV of this Explanation of Provisions, an
electing taxpayer may include a partnership or S corporation.
C. Applicable Credit
Section 6417(b) lists the applicable credits for which a section
6417(a) election is available. Proposed Sec. 1.6417-1(d) lists those
credits, with minor changes to account for erroneous cross-references
in the statute.
Stakeholders asked for clarification on the scope of the credit for
qualified commercial vehicles. Section 6417(b)(6) states that the term
``applicable credit'' includes the credit for qualified commercial
vehicles determined under section 45W by reason of subsection (d)(2)
\8\ thereof, ``in the case of a tax-exempt entity described in clause
(i), (ii), or (iv) of section 168(h)(2)(A).'' In order to qualify for
elective pay for the section 45W credit, an entity would need to be
both be an applicable entity, as defined in proposed Sec. 1.6417-1(c),
and a tax-exempt entity described in clause (i), (ii), or (iv) of
section 168(h)(2)(A) (in other words, an organization exempt from the
tax imposed by subtitle A by reason of section 501(a) of the Code; a
State, the District of Columbia, a political subdivision thereof, or
any agency or instrumentality of any of the foregoing; a U.S.
territory, a political subdivision thereof, or any agency or
instrumentality of any of the foregoing; or an Indian tribal
government, a subdivision thereof, or any agency or instrumentality of
any of the foregoing), and would also need to otherwise qualify for the
section 45W credit.
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\8\ While section 6417(b)(6) refers to section 45W(d)(3), the
reference should be to section 45W(d)(2). This has been corrected in
the proposed regulations.
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One stakeholder asked whether the elective payment election applies
to
[[Page 40535]]
both the applicable credit and any eligible bonus credit amounts. The
amount of applicable credit is determined, in part, under the Code by
including any eligible bonus credit amounts. The entire amount of any
applicable credit is eligible under the Code for the elective payment
election, assuming all the relevant requirements are met.
Several stakeholders asked whether the applicable entity could
treat the applicable credits arising during a quarter as a payment
against quarterly estimated tax (assuming such an amount was due).
These proposed regulations do not contain a special rule because
taxpayers can determine, based on their projected tax liability, the
correct amount of estimated tax to pay in order to avoid a section 6654
or section 6655 estimated tax penalty at the end of the year.
Because registration must be made with respect to each facility or
property giving rise to an applicable credit, proposed Sec. 1.6417-
1(e) defines ``applicable credit property'' for purposes of each of the
applicable credits, and the section 6417 regulations use the term
``applicable credit property'' throughout for clarity.
D. Definitions Pertaining to the Election
Proposed Sec. 1.6417-1(i) would provide that the ``elective
payment election'' is the election provided in proposed Sec. 1.6417-
2(b). Proposed Sec. 1.6417-1(h) would provide that the ``elective
payment amount'' means, with respect to an applicable entity or an
electing taxpayer that is not a partnership or an S corporation, the
applicable credit(s) for which an applicable entity or electing
taxpayer makes an elective payment election to be treated as making a
payment against the tax imposed by subtitle A for the taxable year,
which would be equal to the sum of (1) the amount (if any) of the
current year applicable credit(s) allowed as a general business credit
(GBC) under section 38 for the taxable year, and (2) the amount (if
any) of unused current year applicable credits which would otherwise be
carried back or carried forward from the unused credit year under
section 39 and that are treated as a payment against tax. With respect
to an electing taxpayer that is a partnership or an S corporation, the
term ``elective payment amount'' would mean the sum of the applicable
credit(s) for which the partnership or S corporation makes an elective
payment election and results in a payment to such partnership or S
corporation equal to the amount of such credit(s) (unless the
partnership or S corporation owes a Federal tax liability, in which
case the payment may be reduced by such tax liability).
E. Guidance
Interpretations and procedures pertaining to section 6417 and the
section 6417 regulations may be issued through guidance, as
appropriate. Proposed Sec. 1.6417-1(j) would define ``guidance'' for
purposes of these regulations as guidance published in the Federal
Register or Internal Revenue Bulletin, as well as administrative
guidance such as forms, instructions, publications, or other guidance
on the <a href="http://IRS.gov">IRS.gov</a> website.
F. Annual Tax Return
To avoid any confusion about where the elective payment election
should be made, proposed Sec. 1.6417-1(b) would define ``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 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 State, District of Columbia, local, or Indian
tribal governmental entities), the Form 990-T; and (3) for short tax
year filers, the short year tax return. For example, an individual in a
U.S. territory would file a Form 1040, ``U.S. Individual Income Tax
Return,'' a corporation in a U.S. territory would file a Form 1120,
``U.S. Corporation Income Tax Return,'' and the U.S. territory itself
would file Form 990-T, ``Exempt Organization Business Income Tax Return
(and proxy tax under section 6033(e).'' Similarly, a tax-exempt entity
would file the Form 990-T even if not otherwise required to file the
Form 990-T.
II. Rules for Making Elective Payment Elections
A. In General
Proposed Sec. 1.6417-2 would provide general rules for an
applicable entity or electing taxpayer to make an elective payment
election under section 6417 in accordance with the rules of proposed
Sec. 1.6417-2(b) with respect to any applicable credit determined with
respect to such entity.
Proposed Sec. 1.6417-2(a)(1) would provide the rules for
applicable entities making elective payment elections. An applicable
entity that makes an elective payment election in the manner described
in Part II.B. of this Explanation of Provisions would be treated as
making a payment against the Federal income taxes imposed by subtitle
A, for the taxable year with respect to which an applicable credit was
determined, in the amount of such credit as determined under the rules
discussed in Part II.C. of this Explanation of Provisions. Proposed
Sec. 1.6417-2(d)(1) would provide that the payment described in
proposed Sec. 1.6417-2(a)(1) is treated as made (1) in the case of an
entity for which no return is required under sections 6011 or 6033(a),
on the later of the date that a return would be due under section
6033(a) (determined without regard to extensions) if such entity were
described in that section, or the date on which such entity submits a
claim for credit or refund, and (2) in any other case, 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.
Special rules are provided in proposed Sec. 1.6417-2(a)(1)(ii)
through (v) that would apply for applicable entities if the election is
made for applicable credit property held by a disregarded entity; if
the applicable entity is a co-owner in an applicable credit property
through an ownership arrangement properly treated as a tenancy-in-
common, or pursuant to a joint operating arrangement that has properly
elected out of subchapter K under section 761; and for members of a
consolidated group of which an Alaska Native Corporation is the common
parent.
As discussed in Part I.B.4 of this Explanation of Provisions,
partnerships and S corporations would not be applicable entities
described in proposed Sec. 1.6417-1(c)(1), and thus would not be
eligible to make an elective payment election unless the partnership or
S corporation is an electing taxpayer.
Proposed Sec. 1.6417-2(a)(2) would provide the rules for electing
taxpayers making an elective payment election. An electing taxpayer
other than a partnership or an S corporation that has made an elective
payment election in accordance with proposed Sec. Sec. 1.6417-3 and
Sec. 1.6417-2(b) would be treated as making a payment against the
Federal income taxes imposed by subtitle A for the taxable year with
respect to which the applicable credit is determined in
[[Page 40536]]
the amount determined under proposed Sec. 1.6417-2(c). Proposed Sec.
1.6417-2(d)(1) would provide that the payment described in proposed
Sec. 1.6417-2(a)(2) is treated as made at the same time as made by an
applicable entity. However, in the case of an electing taxpayer that is
a partnership or S corporation that has made an elective payment
election in accordance with proposed Sec. Sec. 1.6417-3, 1.6417-4, and
1.6417-2(b), the IRS will make a payment to such partnership or S
corporation equal to the amount of such credit determined under
proposed Sec. Sec. 1.6417-2(b) and 1.6417-4(d)(3) (unless the
partnership or S corporation owes any Federal income tax liability, in
which case the payment may be reduced by such tax liability).
Proposed Sec. 1.6417-2(a)(2) also provides special rules for
electing taxpayers that would apply if the election is made for
applicable credit property held by a disregarded entity; if the
applicable entity is a co-owner in an applicable credit property
through an ownership arrangement properly treated as a tenancy-in-
common, or pursuant to a joint operating arrangement that has properly
elected out of subchapter K under section 761; and for members of a
consolidated group.
Proposed Sec. 1.6417-2(a)(3)(i)-(iv) would address the special
rules with regard to the election for credits under section 45, 45V,
45Q, or 45Y, as provided in section 6417(d)(3). However, the special
rules in section 6417(d)(3) that relate to electing taxpayers are set
forth in proposed Sec. 1.6417-3, for clarity.
Consistent with the special rule for electing taxpayers that may
elect to be treated as an applicable entity for purposes of section
6417 for up to five years with respect to a facility placed in service
that produces eligible components (as defined in section 45X(c)(1)),
proposed Sec. 1.6417-2(a)(3)(v) would clarify that a section 45X
election is made, for purposes of section 6417, with respect to a
facility (whether the facility existed on or before, or after, December
31, 2022) at which a taxpayer produces, after December 31, 2022,
eligible components as defined in section 45X(c)(1) during the taxable
year.
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 Sec. 1.6417-2(b) would provide those rules. First, proposed
Sec. 1.6417-2(b)(1) provides that an applicable entity or electing
taxpayer would make an elective payment election on the applicable
entity's or electing taxpayer's annual tax return, as defined in Sec.
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.
Proposed Sec. 1.6417-2(b)(1)(iv) would provide that an elective
payment election may only 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. No elective payment
election may be made or revised on an amended return or by filing an
administrative adjustment request under section 6227 of the Code. There
also would be no relief available under Sec. Sec. 301.9100-1 through
301.9100-3 of the Procedure and Administration Regulations (26 CFR part
301) for an elective payment election that is not timely filed.
Second, proposed Sec. 1.6417-2(b)(2) would specify that pre-filing
registration (as would be required under proposed Sec. 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). 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 received a valid registration number for
the applicable credit property and provided the registration number for
each applicable credit property on its Form 3800 (or its successor)
attached to the tax return in accordance with guidance.
Third, proposed Sec. 1.6417-2(b)(3) would provide the due date for
the election under section 6417(a). In the case of any entity for which
no Federal income tax return is required under sections 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), that date is the 15th day of the fifth
month after the taxable year determined by section 441 of the Code.
Subject to issuance of guidance that specifies the manner in which an
entity for which no Federal income tax return is required under
sections 6011 or 6033(a) of the Code could request an extension of time
to file, 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 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 filling Form
1040 or for corporations filling 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 they filed an extension, on or before the 15th
day of October following the close of the calendar year.
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.
Fourth, proposed Sec. 1.6417-2(b)(4) would provide 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.
Under section 6417, the election period applies for a period of
years with respect to certain applicable credits. Specifically, for the
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 the section 45Q credit, the election applies to the 12-
year period beginning on the date the equipment was originally placed
in service. For the 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) and
(d)(3)(C) and (D), and would be provided in proposed Sec. 1.6417-3 (as
described in part III of this Explanation of Provisions).
Fifth, proposed Sec. 1.6417-2(b)(5) would provide 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
[[Page 40537]]
amount of applicable credit(s) determined with respect to the
applicable entity or electing taxpayer for a taxable year.
C. Determination of Applicable Credit
Proposed Sec. 1.6417-2(c) would provide three rules relating to
the determination of any applicable credit.
1. Special Rules for Tax-Exempt Organizations and Government Entities
In accordance with section 6417(d)(2), proposed Sec. 1.6417-
2(c)(1) would provide 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 Sec. 1.6417-2(c)(2) elaborates on the effect of the
``trade or business'' rule in section 6417(d)(2) and proposed Sec.
1.6417-2(c)(1)(ii). First, the rule would allow 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 amortization in lieu of depreciation) is
allowable (such as in sections 48, 48C, and 48E).
Second, the rule allows the entity to apply the capitalization and
accelerated depreciation rules (such as sections 167, 168, 263 and
263A) that apply to determining the basis and the depreciation
allowance for property used in a trade or business.
Third, the rule makes applicable general limitations on the use of
credits by those persons engaged in the conduct of a trade or business,
such as section 49 in the context of investment tax credits, and
section 469 for all applicable credits. For section 49 to apply for
purposes of section 6417, the property must be placed in service by an
applicable entity or electing taxpayer described in section 465(a)(1)
(that is, an individual or a C corporation with respect to which the
stock ownership requirements of section 542(a)(2) are met). For section
469 to apply for purposes of section 6417, 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
sections apply with respect to the determination of applicable credits
under section 6417. The Treasury Department and the IRS request
comments on whether any additional clarification is needed regarding
the application of sections 49 and 469 to applicable entities or
electing taxpayers determining the amount of an applicable credit.
Lastly, the rule does not create any presumption that the trade or
business is related (or unrelated) to a tax-exempt entity's exempt
purpose.
2. Special Rule for Investment-Related Credit Property Acquired With
Income, Including Income From Certain Grants and Forgivable Loans, That
Is Exempt From Taxation Under Subtitle A
Multiple stakeholders asked that regulations clarify whether an
applicable entity that funded the purchase of an investment credit
property with income, including income from certain grants and
forgivable loans, that is exempt from taxation under subtitle A (Tax-
Exempt Amounts \9\) can include those amounts in the basis of the
property for purposes of calculating the amount of the investment tax
credit. Stakeholders also noted that in some cases the full cost of the
investment credit property can be paid through Tax-Exempt Amounts.
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\9\ For this purpose, ``Tax-Exempt Amounts'' do not include the
proceeds of loans, which are not included in income as long as they
need to be repaid.
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Generally, the basis of property is the cost of such property. See
section 1012 of the Code. However, for a taxable entity, cost basis in
property may need to be reduced if Tax-Exempt Amounts are used for the
purpose of purchasing, constructing, or otherwise acquiring such
property. See for example, sections 118(a) and 362(c)(2) of the Code.
However, grants and forgivable loans received by taxable entities are
generally taxable, and thus generally do not result in a reduction in
basis. See generally section 61 of the Code.
For tax-exempt and government entities, for which grants,
forgivable loans, and other amounts are generally exempt from taxation
under subtitle A, the treatment of such Tax-Exempt Amounts with respect
to basis in property is less clear. Because these entities may acquire
investment credit properties eligible for the section 6417(a) election,
in whole or in part, with Tax-Exempt Amounts, if such amounts were not
included in the basis of the investment credit property (that is, they
resulted in a reduction in the basis of the investment credit
property), the applicable entity may have little or no basis with
respect to which to calculate the credit, which would frustrate
Congressional intent to provide the section 6417(a) election for
investment credit properties owned by such entities. However, as
stakeholders noted, allowing an elective payment for an applicable tax
credit when the investment credit property was fully purchased with
Tax-Exempt Amounts subject to donor restrictions for that purpose would
result in an aggregate benefit to the applicable entity in excess of
the cost of the property. As a result, a few stakeholders suggested
that local, State, and Federal government grants received as Tax-Exempt
Amounts by applicable entities specifically for acquisition of
investment credit property should not be included in the basis of such
property for purposes of calculating the applicable credit for the
elective payment under section 6417.
Proposed Sec. 1.6417-2(c)(3) would provide a special rule for
investment credit property acquired with Tax-Exempt Amounts and would
expand the rule to other credits that are determined on the basis of
property. The rule states that, for purposes of 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 other provisions of the Code.
However, to prevent an excessive benefit, proposed Sec. 1.6417-
2(c)(3) would provide that, if an applicable entity receives Tax Exempt
Amounts for the specific purpose of purchasing, constructing,
reconstructing, erecting, or otherwise acquiring an investment credit
property (Restricted Tax Exempt Amount), and the Restricted Tax-Exempt
Amount 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
[[Page 40538]]
Restricted Tax Exempt Amount equals the cost of investment credit
property.
Proposed Sec. 1.6417-2(c)(5) contains three examples illustrating
these rules.
3. Credits Must Be Determined With Respect to the Applicable Entity or
Electing Taxpayer
Multiple stakeholders asked that regulations clarify whether
applicable entities may ``chain'' an election under section 6417(a) for
credits obtained from other sources. For example, stakeholders
questioned whether an applicable entity may make an elective payment
election under section 6417(a) with respect to purchased credits under
section 6418(a) or credits allowable to the applicable entity because
of an election under section 45Q(f)(3)(B) or former section 48(d)
(pursuant to section 50(d)(5)). Stakeholders also asked whether an
applicable entity may make an elective payment election in the case of
a third-party ownership arrangement, such as an energy project owned by
a for-profit developer but developed by a government entity.
The Treasury Department and the IRS propose that such chaining will
not be permissible and seek further comment on the issue. Proposed
Sec. 1.6417-2(c)(4) would state that any credits for which an election
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 owns the underlying eligible credit
property or, if ownership is not required, otherwise conducts the
activities giving rise to the underlying eligible credit.\10\ This
proposed rule, which is consistent with the proposed regulations under
section 6418, would mean that no election may be made under section
6417(a) for credits purchased 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.
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\10\ 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.
---------------------------------------------------------------------------
Stakeholders noted several administrative and practical reasons why
making an elective payment election with respect to credits transferred
under section 6418 would present challenges. For example, stakeholders
noted that businesses electing to be treated as applicable entities
with respect to applicable credit property giving rise to section 45V,
45Q, or 45X credits must do so in the taxable year in which such
taxpayer has placed in service such property, and the election
generally lasts through the following four taxable years, whereas the
duration of the section 6418 transfer election is limited to the tax
year. In addition, any credit determined with respect to an electing
taxpayer that is a partnership or S corporation must be determined with
respect to only applicable credit property held directly by the
partnership or S corporation. Allowing a partnership or S corporation
to make an elective payment election with respect to transferred
credits would conflict with this rule. Furthermore, the elective
payment election under section 6417 with respect to a section 45 credit
or section 45Q credit only applies to applicable credit property that
is originally placed in service after December 31, 2022, and the
elective payment election under section 6417 with respect to a section
45V credit only applies to clean hydrogen attributable to applicable
credit property that is originally placed in service after December 31,
2012, whereas there are no such restrictions under section 6418. In
addition, stakeholders contended that section 6417(d)(3)(ii)'s
requirement that a section 6417(a) election be ``irrevocable'' would
seem to prohibit an applicable entity from making a section 6417(a)
election with respect to any transferred credit for which the 6417(a)
election spans more than one year (such as credits determined under
sections 45, 45Q, 45V, 45Y, and, for electing taxpayers only, under
section 45X), because elections to transfer all or a portion of
eligible credits under section 6418(a) are annual and the transferee
does not own the property or engage in the activities that originally
gave rise to the eligible credits. Finally, stakeholders noted that a
transferee may purchase only a portion of a credit determined with
respect to an eligible credit property pursuant to section 6418(a),
which they argued is inconsistent with the requirement under section
6417(a) that the elective payment election be with respect to the
entire applicable credit determined with respect to applicable credit
property for a taxable year.
These administrative and practical reasons have informed the
proposed conclusion of the Treasury Department and the IRS that
sections 6417 and 6418 are best interpreted to not allow an applicable
entity under section 6417 to make an elective payment election for a
transferred credit under section 6418. Furthermore, the pre-filing
registration process contemplated by section 6417(d)(5) and by section
6418(g)(1) is not currently designed to allow an applicable entity
purchasing eligible credits under section 6418 to make an elective
payment election under section 6417.
Other stakeholders have suggested that the Code may allow a
transferee taxpayer under section 6418 to make an elective payment
election under section 6417 for a transferred credit because section
6418(a) provides that ``the transferee taxpayer specified in such
election (and not the eligible taxpayer) shall be treated as the
taxpayer for purposes of this title with respect to such credit.''
These stakeholders argue the transferee taxpayer steps into the shoes
of the eligible taxpayer transferring the credit, such that a
transferee taxpayer may be viewed as the taxpayer earning the credit
for purposes of section 6417 and therefore is able to make an elective
payment election with respect to such credit. They further noted that
section 6417 does not expressly prohibit an applicable entity from
making an elective payment election with respect to a transferred
credit and that allowing applicable entities to make an elective
payment election with respect to a transferred credit may further the
policy goals of the IRA by expanding the financing methods available to
renewable energy projects.
The Treasury Department and the IRS agree with stakeholders who
noted that there is no restriction on who can be a transferee under
section 6418, other than that the transferee cannot be related (within
the meaning of section 267(b) or 707(b)(1) of the Code) to the eligible
taxpayer transferring the credit. Thus, an applicable entity could be
transferred credits under 6418, at least to offset any Federal income
tax liability. However, the statute does not address whether an
applicable entity can make an elective payment election under section
6417 with respect to transferred credits. Based on the reasons
previously discussed in this part II.C.3. of this Explanation of
Provisions, the Treasury Department and the IRS believe that a
transferred credit is not properly interpreted as an applicable credit
that is ``determined with respect to'' an applicable entity or electing
taxpayer under section 6417(a) because the credit is not determined
with respect to underlying applicable credit property owned by the
applicable entity or electing taxpayer, or, if ownership is not
required, activities otherwise conducted by the applicable entity or
[[Page 40539]]
electing taxpayer. Section 6418(a) and the proposed regulations under
section 6418 provide that a transferred credit is determined with
respect to the eligible taxpayer transferring the credit. Although the
transferee taxpayer uses the credit, the proposed regulations under
section 6418 provide that the transferee taxpayer is not considered to
have owned an interest in the underlying eligible credit property or
have otherwise conducted any of the activities that give rise to the
credit.
The Treasury Department and the IRS seek comments on limited
situations where exceptions to this proposed rule may be appropriate
because it is consistent with the text, design, and intent of the IRA,
while also ensuring that such exceptions are not subject to fraud or
abuse. Stakeholders could consider appropriate limitations such as (1)
the type of applicable entity that may be allowed to make an elective
payment election with respect to credits transferred under section
6418, such as a government entity; (2) the involvement of the
transferee taxpayer in the project's development; (3) the level of due
diligence conducted by the transferee taxpayer regarding whether the
project qualifies for the applicable credit and any bonus credits and
whether the amount of transferred credits was properly determined with
respect to the eligible taxpayer transferring the credit; (4) the fact
that the transferee taxpayer is paying close to the face value of the
credit (and what minimum percentage of face value should be required);
and (5) there are no other special financial arrangements between the
parties. Stakeholders should address legal considerations, as well as
practical and administrative challenges, to any such exception to the
proposed rule.
D. Denial of Double Benefit
Section 6417(a) allows an applicable entity or electing taxpayer
other than a partnership or S corporation to be treated as making a
payment against the tax imposed by subtitle A for the taxable year with
respect to which such credit was determined equal to the amount of such
credit. Section 6417(c)(1)(A) provides that, for an electing taxpayer
that is a partnership or S corporation, the Secretary will make a
payment to such partnership or S corporation with respect to a credit
determined with respect to applicable credit property held directly by
the partnership or S corporation equal to the amount of such credit.
Sections 6417(e) and 6417(c)(1)(B) each provide that such credit is
reduced to zero and, for any other purposes of the Code, is deemed to
have been allowed to such entity for such taxable year. Section 6417(h)
provides that the Secretary must issue guidance necessary to carry out
the purposes of section 6417, including guidance to ensure that the
amount of the payment (in the case of an electing taxpayer that is a
partnership or S corporation) or deemed payment (in the case of all
other electing taxpayers and applicable entities) made under section
6417 is commensurate with the amount of the credit that would be
otherwise allowable (determined without regard to section 38(c)).
Proposed Sec. 1.6417-2(e)(2) and (3) would address the methodology
for determining the amount of the elective payment election, reducing
the elective payment election amount to zero, and treating the
applicable credit as a credit allowed for the taxable year for all
other purposes of the Code with respect to applicable entities and
electing taxpayers other than partnerships or S corporations. The
methodology with respect to a payment made to a partnership or S
corporation is provided in proposed Sec. 1.6417-4(c), as described in
part IV of this Explanation of Provisions.
An applicable entity or electing taxpayer (other than an electing
taxpayer that is a partnership or S corporation) making an elective
payment election applies section 6417(e) by taking the following steps.
First, the taxpayer would compute the amount of the Federal income tax
liability (if any) for the taxable year, without regard to the GBC,
that is payable on the due date of the return (without regard to
extensions), and the amount of the Federal income tax liability that
may be offset by GBCs pursuant to the limitation based on amount of tax
under section 38. Second, the taxpayer would compute the allowed amount
of GBC carryforwards carried to the taxable year plus the amount of
current year GBCs (including current applicable credits) allowed for
the taxable year under section 38 (that is, in accordance with all the
rules in section 38, including the ordering rules provided in section
38(d)). Since the election would be required to be made on an original
return, any business credit carrybacks would not be considered when
determining the elective payment amount for the taxable year. Third,
the taxpayer would apply the GBCs allowed for the taxable year as
computed in step 2, including those attributable to applicable credits
as GBCs, against the tax liability computed in step 1. Fourth, the
taxpayer would identify the amount of any excess or unused current year
business credit, as defined under section 39, attributable to current
year applicable credit(s) for which the applicable entity is making an
elective payment election. The amount of such unused applicable credits
would be treated as a payment against the tax imposed by subtitle A for
the taxable year with respect to which such credits are determined
(rather than having them available for carryback or carryover) (net
elective payment amount). Fifth, the taxpayer would reduce the
applicable credits for which an elective payment election is made by
the amount (if any) allowed as a GBC under section 38 for the taxable
year, as provided in step 3, and by the net elective payment amount (if
any) that is treated as a payment against tax, as provided in step 4,
which results in the applicable credits being reduced to zero.
The proposed regulations would provide, consistent with section
6417(e), that the full amount of the applicable credits for which an
elective payment election is made is deemed to have been allowed for
all other purposes of the Code, including, but not limited to, the
basis reduction and recapture rules imposed by section 50 and
calculation of any underpayment of estimated tax under sections 6654
and 6655 of the Code. The proposed regulations would give several
examples illustrating these rules.
The Treasury Department and the IRS request comments on whether
future guidance should expand or clarify the methodology that an
applicable entity follows to compute the amount of its elective
payment. Comments are also requested on additional Code sections under
which it may be necessary to consider the applicable credit to have
been deemed to have been allowed for the taxable year in which an
elective payment election is made.
III. Elective Payment Election by Electing Taxpayers
Section 6417(d)(1)(B), (C), and (D) provides that a taxpayer that
is not an applicable entity described in section 6417(d)(1)(A) and
that, with respect to any taxable year, places in service applicable
credit property that qualifies for the section 45V credit or the
section 45Q credit, or, with respect to any taxable year in which such
taxpayer has, after December 31, 2022, produced eligible components (as
defined in section 45X(c)(1)), respectively, may elect to be treated as
an applicable entity for purposes of section 6417 for such taxable
year, but only with respect to the applicable credit property and only
with respect to the credit under section 45V(a), 45Q(a), or 45X(a),
respectively. Proposed Sec. 1.6417-1(g)
[[Page 40540]]
would define such a taxpayer as an ``electing taxpayer.''
The special rules for electing taxpayers are found in section
6417(d)(1) and (d)(3). Proposed Sec. 1.6417-3 would combine these
rules for clarity.
Proposed Sec. 1.6417-3(b), (c), and (d) would provide the specific
rules regarding the election under section 6417(d)(1)(B), (C), or (D).
Proposed Sec. 1.6417-3(e) would provide the rules relating to the
election for electing taxpayers. Proposed Sec. 1.6417-4 would provide
additional rules for electing taxpayers that are partnerships or S
corporations.
Proposed Sec. 1.6417-3(b) would provide that an electing taxpayer
that has placed in service a qualified clean hydrogen production
facility as defined in section 45V(c)(3) during the taxable year may
make an elective payment election for such taxable year (or by August
16, 2023, in the case of facilities placed in service before December
31, 2022), but only with respect to the qualified clean hydrogen
production facility, only with respect to the section 45V credit, and
only if the pre-filing registration process that would be required by
proposed Sec. 1.6417-5 was properly completed. An electing taxpayer
that elects to treat qualified property that is part of a specified
clean hydrogen production facility as energy property under section
48(a)(15) would not be able to make an elective payment election with
respect to such facility.
Proposed Sec. 1.6417-3(c) would provide that an electing taxpayer
that has, after December 31, 2022, placed in service a single process
train described in Sec. 1.45Q-2(c)(3) at a qualified facility (as
defined in section 45Q(d)) during the taxable year may make an elective
payment election for such taxable year, but only with respect to the
single process train, only with respect to the section 45Q credit, and
only if the pre-filing registration process that would be required by
proposed Sec. 1.6417-5 was properly completed.
Proposed Sec. 1.6417-2(a)(3)(v) and -3(d) would provide that an
electing taxpayer that produces, after December 31, 2022, eligible
components (as defined in section 45X(c)(1)) at a facility during the
taxable year may make an elective payment election for such taxable
year, but only with respect to the facility at which the eligible
components are produced by the electing taxpayer in that year, only
with respect to the section 45X credit, and only if the pre-filing
registration process that would be required by proposed Sec. 1.6417-5
was properly completed.
Proposed Sec. 1.6417-3(e) would provide rules on how the electing
taxpayer makes the elective payment election. First, if an electing
taxpayer makes an elective payment election under proposed Sec.
1.6417-2(b) with respect to any taxable year in which the electing
taxpayer places in service a qualified clean hydrogen production
facility for which a section 45V credit is determined, places in
service a single process train at a qualified facility for which a
section 45Q credit is determined, or produces, after December 31, 2022,
eligible components (as defined in section 45X(c)(1)) at a facility,
respectively, the electing taxpayer will be treated as an applicable
entity for purposes of making an elective payment election for such
taxable year and during the election period described in proposed Sec.
1.6417-3(e)(3), but only with respect to the applicable credit property
described in proposed Sec. 1.6417-1(e)(3), (5), or (7), respectively,
that is the subject of the election. The taxpayer would be required to
otherwise meet all requirements to earn the credit in the electing year
and in each succeeding year during the election period described in
proposed Sec. 1.6417-3(e)(3).
Second, the election would be made separately for each applicable
credit property, which is, respectively, a qualified clean hydrogen
production facility placed in service for which a section 45V credit is
determined, a single process train placed in service at a qualified
facility for which a section 45Q credit is determined, or a facility in
which eligible components are produced for which a section 45X credit
is determined. Only one election may be made with respect to any
specific applicable credit property.
Third, the elective payment election generally would apply for an
election period consisting of the taxable year in which the election is
made and each of the four subsequent taxable years that end before
January 1, 2033. The election period would not be able to be less than
a taxable year but may be made for a taxable period of less than 12
months within the meaning of section 443 of the Code.
However, an electing taxpayer may, during a subsequent year of the
election period, revoke the elective payment election with respect to
an applicable credit property described in proposed Sec. 1.6417-
1(e)(3), (5), or (7) in accordance with forms and instructions. Any
such revocation, if made, applies to the taxable year in which the
revocation is made (which cannot be less than a taxable year but may be
made for a taxable period of less than 12 months within the meaning of
section 443 of the Code) and each subsequent taxable year within the
election period. Any such revocation may not be subsequently revoked.
An electing taxpayer would not be able to make a transfer election
under section 6418(a) with respect to any applicable credit under
proposed Sec. 1.6417-1(d)(3), (5), or (7) determined with respect to
applicable credit property described in proposed Sec. 1.6417-1(e)(3),
(5), or (7) during the election period for that applicable credit
property. However, if the election period is no longer in effect with
respect to an applicable credit property, any credit determined with
respect to such applicable credit property would be able to be
transferred pursuant to a transfer election under section 6418(a), as
long as the taxpayer meets the requirements of section 6418 and the
6418 regulations.
IV. Elective Payment Election for Partnerships and S Corporations
A. Overview
Section 6417(c)(1) provides that, in the case of any applicable
credit determined with respect to any applicable credit property held
directly by a partnership or S corporation, any election under section
6417(a) is made by such partnership or S corporation. These proposed
regulations would clarify that partnerships or S corporations are not
applicable entities described in section 6417(d)(1)(A); thus, any
partnership or S corporation making an elective payment election must
be an electing taxpayer, and as such, the only applicable credits with
respect to which the partnership or S corporation can make an elective
payment election are a section 45V credit, a section 45Q credit, and a
section 45X credit.
If a partnership or S corporation makes an election under section
6417(a) and proposed Sec. 1.6417-2(b), the special rules of section
6417(c)(1)(A) through (D) apply. In that regard, proposed Sec. 1.6417-
4(c) would provide that (1) the IRS will make a payment to such
partnership or S corporation equal to the amount of such credit; (2)
before determining any partner's distributive share, or shareholder's
pro rata share, of such credit, such credit is reduced to zero and is,
for any other purposes under this title, deemed to have been allowed
solely to such entity (and not allocated by such entity, or otherwise
allowed, to any partner or shareholder) for such taxable year (for
example, if a partnership pays a Federal tax liability to the IRS in a
year for which an elective payment election is made and cash is
[[Page 40541]]
received, it treats the payment to the IRS as if it paid the liability
with the same amount of underlying credit for which the elective
payment election is made); (3) any amount with respect to which the
election under section 6417(a) is made is treated as tax exempt income
for purposes of sections 705 and 1366; and (4) a partner's distributive
share of such tax exempt income is equal to such partner's distributive
share of the otherwise applicable credit for each taxable year as
determined under Sec. 1.704-1(b)(4)(ii). The tax exempt income would
be taken into account by the partnership or S corporation at the same
time as the underlying credit would have been taken into account by the
partnership or S corporation absent an elective payment election. The
proposed regulations provide an example illustrating this rule. Because
it is the applicable credits, and not the tax exempt income, that arise
from the conduct of the trade or business, the proposed regulations
would treat the tax exempt income resulting from an elective payment
election by a partnership or an S corporation as arising from an
investment activity and not from the conduct of a trade or business
within the meaning of section 469(c)(1)(A). As such, the tax exempt
income would not be treated as passive income to any partners or
shareholders who do not materially participate within the meaning of
section 469(c)(1)(B).
As requested by stakeholders, the Treasury Department and the IRS
clarify here that there are no restrictions imposed under section 6417
or the section 6417 regulations on how a partnership or S corporation
that receives a payment from the IRS pursuant to an elective payment
election may use the cash payments in its operations (including on when
it makes distributions to its partners or shareholders).
Section 6417(h) requires that the Secretary issue regulations or
other guidance to ensure that the amount of the payment to a
partnership or S corporation is commensurate with the amount of the
credit that would otherwise be allowable (without regard to section
38(c)). Therefore, proposed Sec. 1.6417-4(d)(1) would provide that, in
determining the applicable credit amount that will result in a payment
to a partnership or S corporation, the partnership or S corporation
must compute the amount of the applicable credit allowable (without
regard to section 38(c)) as if an elective payment election were not
made. Because a partnership or S corporation is not subject to section
469 (that is, section 469 applies at the partner or shareholder level),
the amount of an applicable credit determined with respect to an
applicable credit property held directly by a partnership or S
corporation is not subject to limitation by section 469. In addition,
because the credits to which a partnership or S corporation may make
the elective payment election (that is, section 45V, 45Q, and 45X) are
not investment tax credits under section 46, sections 49 and 50 do not
apply to limit the amount of the credits.
B. BBA Partnerships
Many partnerships are subject to the centralized partnership audit
regime found in subchapter C of chapter 63 of the Code as amended by
the Bipartisan Budget Act of 2015 (BBA).\11\ In connection with the
implementation of section 6417, the Treasury Department and the IRS
identified several areas of the BBA regulations that require updates to
administer section 6417 in the case of a partnership subject to the BBA
(BBA Partnership). Section 6221 of the Code provides that any
adjustment to a partnership-related item with respect to a BBA
Partnership, and any tax attributable thereto, is assessed and
collected at the partnership-level except to the extent provided under
the BBA. The BBA outlines centralized audit procedures which generally
must be followed before the IRS can adjust a partnership-related item
(as defined in Sec. 301.6241-1). In order to implement section 6417,
the Treasury Department and the IRS propose updates to the regulations
under Sec. Sec. 301.6241-1 and 301.6241-7.
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\11\ See section 1101 of the BBA, Public Law 114-74, 129 Stat.
584, 625-638 (2015), as amended by section 411 of the Protecting
Americans from Tax Hikes Act of 2015, Public Law 114-113, 129 Stat.
2242, 3121 (2015), and sections 201 through 207 of the Tax Technical
Corrections Act of 2018, Public Law 115-141, 132 Stat. 348, 1171-
1183 (2018).
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1. Partnership-Related Items
Under Sec. 301.6241-1(a)(6)(ii), a partnership-related item is any
item or amount that is, with respect to the BBA Partnership, relevant
in determining the tax liability of any person under chapter 1. Because
the partnership-related item definition is based on relevance to the
chapter 1 liability of any person, the liability could belong to the
BBA Partnership or its partners. While partnerships do not typically
pay chapter 1 tax pursuant to section 701 of the Code, a BBA
Partnership is eligible to be an electing taxpayer under section 6417
and is thus subject to the excessive payment rule under section
6417(d)(6), which could result in a chapter 1 tax liability to the BBA
Partnership. In addition, if a partnership makes an election under
section 6417, the partnership must reduce its applicable credit under
section 6417(e), which would impact the amount of credit and tax exempt
income that the partners would be allocated, thereby affecting the
partners' chapter 1 liability. Because the application of section 6417
may be relevant in determining the chapter 1 liabilities of a BBA
Partnership and its partners, any item or amount relevant to section
6417 that is ``with respect to the partnership'' would be a
partnership-related item as defined under Sec. 301.6241-1(a)(6)(ii).
Section 301.6241-1(a)(6)(iii) provides than an item or amount is
``with respect to the partnership'' if the item or amount is shown or
reflected, or required to be shown or reflected, on a return of the
partnership under section 6031 of the Code or is required to be
maintained in the partnership's books and records. Because the
definition of a partnership-related item is based on the item's
relevance to the chapter 1 tax liability of any person, this definition
ensures that the definition of a partnership-related item is not so
broad as to include items that are wholly unrelated to a BBA
Partnership, such as a partner's unrelated income. While the limitation
in this definition works well to ensure partner-level items are not
inadvertently swept into the definition of a partnership related item,
this definition may inadvertently exclude a chapter 1 liability of a
BBA Partnership if, for instance, the liability is not required to be
shown or reflected on the BBA Partnership's return. The BBA
Partnership's own chapter 1 tax liability, in contrast with a partner's
liability, is undoubtedly ``with respect to the partnership'' and a
partnership-related item.
Accordingly, these proposed regulations propose to add a sentence
to Sec. 301.6241-1(a)(6)(iii) (regarding items or amounts with respect
to a BBA Partnership) to provide that any chapter 1 tax that is the
liability of the BBA Partnership is an item with respect to the BBA
Partnership regardless of whether that chapter 1 tax is required to be
reflected or shown on the partnership return or required to be
maintained in the BBA Partnership's books and records.
2. Special Enforcement Rule for the Elective Payment Election
As noted in part IV.B.1. of this Explanation of Provisions, the
BBA's centralized partnership audit regime requires the IRS to follow
certain procedures before adjusting partnership-related items of a BBA
Partnership.
[[Page 40542]]
Under section 6241(11), in the case of partnership-related items that
the Secretary determines involve a special enforcement matter, the
Secretary is authorized to prescribe regulations pursuant to which the
BBA audit procedures do not apply, and such partnership-related items
are subject to special rules (including rules related to assessment and
collection) as the Secretary determines necessary for the effective and
efficient enforcement of the Code. Section 6241(11)(A). Section
6241(11)(B) provides a list of certain ``special enforcement matters,''
including the failure to comply with information reporting obligations
of tiered partnerships, jeopardy assessments of tax in exigent
circumstances, and matters involving foreign partners and partnerships.
Sections 6241(11)(B)(i), (ii), and (v). Section 6241(11)(B)(vi) also
provides a grant of authority to the Secretary for ``other matters that
the Secretary determines by regulation present special enforcement
considerations.''
Proposed Sec. 1.6417-2(b) would provide that the elective payment
election must be made on an original return and that the election may
not be made on an amended return or administrative adjustment request.
Under the existing BBA regulations, a BBA Partnership's elective
payment election under section 6417 is a partnership-related item
because the existence of the election is relevant in determining
chapter 1 tax and because the election is required to be made on the
BBA Partnership's return. Because the elective payment election is a
partnership-related item, the only way for the IRS to make an
adjustment upon the determination of an ineffective election would be
to follow the audit procedures of the centralized partnership audit
regime. To prevent duplication, fraud, improper payments, or excessive
payments in an effective manner, the IRS must be able to determine
whether a BBA Partnership's elective payment election is ineffective in
an expeditious manner. The procedural requirements of the BBA would
require the IRS to treat BBA Partnerships that have made an ineffective
election payment election differently from other electing taxpayers
that are not subject to the centralized partnership audit regime but
that are otherwise similarly situated. The Treasury Department and the
IRS are proposing that, due to the unique nature of the section 6417
election, which, pursuant to proposed Sec. 1.6417-2(d), would result
in a payment treated as having been made on the later of the due date
of the return or the date the return was filed, the special enforcement
matters described in section 6241(11) would apply, and the BBA
centralized partnership audit regime should not apply to adjustments
with respect to partnership-related items that affect the amount or
existence of a payment to the BBA Partnership, or credit or refund of a
payment to the BBA Partnership under section 6417. Accordingly, these
proposed regulations would add new paragraph (j) to Sec. 301.6241-7 to
provide that an election by a BBA Partnership under section 6417 can be
adjusted outside of the BBA audit rules. These proposed regulations
also would redesignate existing paragraph (j) (regarding applicability
dates) to a new paragraph (k) and update that paragraph (k) to reflect
an applicability date for these proposed regulations.
V. Pre-Filing Registration Requirements and Additional Information
Section 6417(d)(5) provides that as a condition of, and prior to,
any amount being treated as a payment that is made by the taxpayer
under section 6417(a) or any payment being made pursuant to section
6417(c), the Secretary may require such information or registration as
the Secretary deems necessary or appropriate for purposes of preventing
duplication, fraud, improper payments, or excessive payments.
In general, stakeholders requested additional information about
this provision and requested that the regulations balance the need to
prevent fraud and abuse with the burden on taxpayers. Stakeholders
recommended that the information required to be provided to the IRS
should be provided in a manner that facilitates automated procedures to
help catch potential fraud, discourages abusive or otherwise
illegitimate claims, and allows efficient and prompt review (both
before payment and through audits). Stakeholders recommended that all
required documents and information should be able to be submitted
easily via an online portal. Stakeholders recommended that information
or registration should be as consistent as possible across sections
48D(d)(1), 6417(d)(5), and 6418(g)(1).
Proposed Sec. 1.6417-5 would provide the mandatory pre-filing
registration process that, except as provided in guidance, an
applicable entity or electing taxpayer would be required to complete as
a condition of, and prior to (1) any amount being treated as a payment
against the tax imposed by subtitle A that is made by an applicable
entity or electing taxpayer (other than a partnership of S corporation)
under proposed Sec. Sec. 1.6417-2(a)(1)(i) or -2(a)(2)(i), or (2) any
amount being paid to a partnership or S corporation pursuant to
proposed Sec. 1.6417-2(a)(2)(ii).
Proposed Sec. 1.6417-5(a) provides an overview of this process and
would require an applicable entity or electing taxpayer to satisfy the
pre-filing registration requirements as a condition of, and prior to,
making an elective payment election. An applicable entity or electing
taxpayer would be required to use the pre-filing registration process
to register itself as intending to make the elective payment election,
to list all applicable credits it intends to claim, and to list each
applicable credit property that contributed to the determination of
such credits as part of the pre-filing submission (or amended
submission). An applicable entity or electing taxpayer that does not
obtain a registration number and report the registration number on its
annual tax return with respect to an applicable credit property would
be ineligible to make an elective payment election to treat any credit
determined with respect to that applicable credit property as a payment
of tax. However, completion of the pre-filing registration requirements
and receipt of a registration number would not, by itself, mean that
the applicable entity or electing taxpayer would receive a payment with
respect to the applicable credits determined with respect to the
applicable credit property.
Proposed Sec. 1.6417-5(b) would provide the following pre-filing
registration requirements.
First, an applicable entity or electing taxpayer must complete the
pre-filing registration process electronically through an IRS
electronic portal in accordance with the instructions provided therein,
unless otherwise provided in guidance. If the election is by a member
of a consolidated group, the member must complete the pre-filing
registration process as a condition of, and prior to, making an
elective payment election. See Sec. 1.1502-77 (providing rules
regarding the status of the common parent as agent for its members).
Second, an applicable entity or electing taxpayer must satisfy the
registration requirements and receive a registration number prior to
making an elective payment election on the applicable entity's tax
return for the taxable year at issue.
Third, an applicable entity or electing taxpayer is required to
obtain a registration number for each applicable credit property with
respect to which an applicable credit will be determined
[[Page 40543]]
and for which the applicable entity or electing taxpayer intends to
make an elective payment election.
Finally, an applicable entity or electing taxpayer must provide the
specific information required to be provided as part of the pre-filing
registration process. The provision of such information, which includes
information about the taxpayer, about the applicable credits, and about
the applicable credit property, would allow the IRS to prevent
duplication, fraud, improper payments, or excessive payments under
section 6417. For example, verifying information about the taxpayer
would allow the IRS to mitigate the risk of fraud or improper payments
to entities that are not applicable entities or electing taxpayers.
Information about the taxpayer's taxable year would allow the IRS to
ensure that an elective payment election is timely made on the entity's
annual tax return. Information about applicable credit properties,
including their address and coordinates (longitude and latitude),
supporting documentation, beginning of construction date, and placed in
service date would allow the IRS to mitigate the risk of duplication,
fraud, and improper payments for properties that are not applicable
credit properties. Information about whether an investment tax credit
property was acquired using any Restricted Tax Exempt Amounts would
allow the IRS to prevent improper payments.
Proposed Sec. 1.6417-5(c) would provide information about the
required registration number. Proposed Sec. 1.6417-5(c)(1) would
provide that, after an applicable entity or electing taxpayer completes
the pre-filing registration process as provided in proposed Sec.
1.6417-5(b) for the applicable credit properties with respect to which
the entity intends to make an elective payment election in the taxable
year, the IRS will review the information provided and will issue a
separate registration number for each applicable credit property for
which the applicable entity or electing taxpayer provided sufficient
verifiable information, as provided in guidance.
Proposed Sec. 1.6417-5(c)(2) would provide that a registration
number is valid only for the taxable year for which it is obtained.
Proposed Sec. 1.6417-5(c)(3) would provide that, if an elective
payment election will be made with respect to an applicable credit
property for which a registration number under proposed Sec. 1.6417-5
has been previously obtained, the applicable entity or electing
taxpayer would be required to renew the registration each year in
accordance with applicable guidance, including attesting that all the
facts previously provided are still correct or updating any facts.
Proposed Sec. 1.6417-5(c)(4) would provide that, if specified changes
occur with respect to one or more applicable credit properties for
which a registration number has been previously obtained but not yet
used, an applicable entity or electing taxpayer would be required to
amend the registration (or may need to submit a new registration) to
reflect these new facts. For example, one stakeholder asked that, if a
taxpayer becomes a party to an internal reorganization under section
368(a) (such as a merger or distribution in a nonrecognition
transaction) during the election period, the elective payment election
should carry over to the successor entity. The proposed regulations
would provide that if a facility previously registered for an elective
payment election undergoes a change of ownership (incident to a
corporate reorganization or an asset sale) such that the new owner has
a different employer identification number (EIN) than the owner who
obtained the original registration, the original owner would be
required to amend the original registration to disassociate its EIN
from the credit property and the new owner must submit an original
registration (or if the new owner previously registered other credit
properties, must amend its original registration) to associate the new
owner's EIN with the previously registered credit property.
Lastly, proposed Sec. 1.6417-5(c)(5) would provide that the
applicable entity or electing taxpayer would be required to include the
registration number of the applicable credit property on their annual
tax return for the taxable year. The IRS will treat an elective payment
election as ineffective with respect to the portion of a credit
determined with respect to an applicable credit property for which the
applicable entity or electing taxpayer does not include a valid
registration number on the annual tax return.
The corresponding temporary regulations under Sec. 1.6417-5T
published in the Rules and Regulations section of this edition of the
Federal Register apply rules to taxable years ending on or after June
21, 2023, that are identical to those that would apply under proposed
Sec. 1.6417-5. The temporary regulations under Sec. 1.6417-5T expire
on June 12, 2026.
VI. Special Rules
Proposed Sec. 1.6417-6 would provide special rules relating to
excessive payment as well as basis reduction and recapture.
A. Excessive Payment
Pursuant to 6417(d)(6), proposed Sec. 1.6417-6 would provide that
the IRS may determine that an amount treated as a payment made by an
applicable entity under proposed Sec. 1.6417-2(a)(1)(i) or an electing
taxpayer under proposed Sec. 1.6417-2(a)(2)(i), or the amount of the
payment made pursuant to proposed Sec. 1.6417-2(a)(2)(ii), constitutes
an excessive payment. Proposed Sec. 1.6417-6(a) would provide that in
the case of an excessive payment determined by the IRS, the amount of
chapter 1 tax imposed on the applicable entity or electing taxpayer for
the taxable year in which the excessive payment determination is made
will be 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 (additional 20-percent chapter 1 tax). This would be
the case even if the applicable entity or electing taxpayer is
otherwise not subject to chapter 1 tax. The additional 20-percent
chapter 1 tax amount would not apply if the applicable entity or
electing taxpayer demonstrates to the satisfaction of the IRS that the
excessive payment resulted from reasonable cause. If the additional 20-
percent chapter 1 tax is applicable, it would apply in addition to any
penalties, additions to tax, or other amounts applicable under the
Code. The Treasury Department and the IRS anticipate that existing
standards of reasonable cause will inform the determination by the IRS
of whether reasonable cause has been demonstrated for this purpose.
The term ``excessive payment'' is proposed to be defined as an
amount equal to the excess of (1) the amount treated as a payment under
proposed Sec. 1.6417-2(a)(1)(i) or -2(a)(2)(i), or the amount of the
payment made pursuant to proposed Sec. 1.6417-2(a)(2)(ii), 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 described in part II.C and II.D. or
IV. of this Explanation of Provisions and without regard to section
38(c)) under the Code with respect to such facility or property for
such taxable year.
Several stakeholders asked that the term ``excessive payment'' be
determined without any tax credit utilization rules, such as those
found in sections 38, 49, and 469. Because the statute provides that
the amount of the credit should not exceed the amount ``otherwise
allowable'' (without application of sections 38(c), without
[[Page 40544]]
regard to sections 50(b)(3) and (4)(A)(i), and by treating any property
with respect to which such credit is determined as used in a trade or
business of the applicable entity), the Treasury Department and the IRS
are proposing that all other relevant code sections, including sections
38 (but not 38(c)), 49, and 469, would apply to the amount treated as a
payment that is made by the applicable entity or electing taxpayer as
described in part II of this Explanation of Provisions. Thus, if an
applicable entity or electing taxpayer is an individual, trust, closely
held corporation, or other taxpayer subject to the rules of section
469, or if an applicable credit is an investment tax credit that is
determined including the rules of section 49, then those rules would
apply. However, proposed Sec. 1.6417-2(c) would provide additional
rules relating to the determination of applicable credits, such as the
special rule for investment credit property acquired by a tax-exempt or
government entity using nontaxable grants or other nontaxable proceeds,
as described in part II.C. of this Explanation of Provisions.
In contrast, the amount of the payment to partnerships and S
corporations described in part IV of this Explanation of Provisions has
different proposed rules. As discussed in part IV of this Explanation
of Provisions, in determining the applicable credit amount that will
result in a payment to a partnership or S corporation, the partnership
or S corporation would be required to compute the amount of the
applicable credit allowable (without regard to section 38(c)) as if an
elective payment election were not made. However, because a partnership
or S corporation is not subject to section 469 (that is, section 469
applies at the partner or shareholder level), the amount of the credit
determined by a partnership or S corporation would not be subject to
limitation by section 469. In addition, because the only applicable
credits for which a partnership or S corporation may make the elective
payment election are the section 45V credit, section 45Q credit, and
section 45X credit, which are production tax credits, sections 49 and
50 (applicable to investment tax credits) would not apply to limit
these applicable credit amounts.
Stakeholders asked for clarification on how the excessive payment
would be determined and in which year the adjustment applies. The
Treasury Department and the IRS anticipate that excessive payments may
arise in a variety of situations, such as an improperly claimed bonus
credit amount, an error in calculating a credit, inflated basis,
failure to apply the section 38(d) ordering rules, or a misapplication
of the credit utilization rules, among other things. The statute
provides that the tax is imposed on the applicable entity in the year
the determination of the excessive payment is made, despite the fact
that this is a later year than the year in which the credit was
allowable. The Treasury Department and the IRS request comments on
whether additional guidance on excessive payments is needed.
B. Basis Reduction and Recapture
Proposed Sec. 1.6417-6(b) would provide rules similar to the rules
of section 50 (without regard to section 50(b)(3) and (4)(A)(i)) apply
for purposes of section 6417. (Section 6417(g) erroneously refers to
section 6417(c)(2)(A), a provision that does not exist, and it is
evident that such reference was intended to be to section
6417(d)(2)(A). That error is accounted for in these proposed
regulations.)
One stakeholder asked how entities that don't normally file tax
returns should report recapture events. The stakeholder asked that the
reporting and payment of the recapture amount should be consistent with
the rules applicable to taxable entities (that is, no reporting or
payment due until a tax return would be due for the related calendar
year). Proposed Sec. 1.6417-6(b)(2) would clarify that any reporting
of recapture is made on the taxpayer's annual tax return in the manner
prescribed by the IRS in future guidance, along with supplemental forms
such as Form 4255, Recapture of Investment Credit.
Stakeholders asked whether recapture is considered an excessive
payment event. The excessive payment rules operate separately from the
recapture rules. The excessive payment rules apply where the credit
amount reported on the original credit source form by the applicable
entity or electing taxpayer was excessive. Recapture of a tax credit
occurs when the original tax credit reported would have been correct
without the occurrence of a subsequent recapture event. Thus, recapture
events, including recapture events under sections 45Q(f)(4) or 50(a),
do not result in an excessive payment.
Stakeholders asked that the proposed regulations clarify that basis
reduction and recapture applies only to the investment tax credits. The
section 50 rules, including basis reduction and recapture, only apply
to investment tax credits so no clarification on this point is
required.
Stakeholders also asked that guidance be provided in the form of
examples that illustrate the manner in which section 50 will be applied
for purposes of basis reduction and recapture. Proposed Sec. 1.6417-
6(b)(3) would provide an example.
Proposed Applicability Dates
Each of proposed Sec. Sec. 1.6417-1 through 1.6417-6 is proposed
to apply to taxable years ending on or after the date the Treasury
decision adopting these regulations as final regulations is published
in the Federal Register. Entities may rely on these proposed
regulations for elective payments of applicable credit amounts after
December 31, 2022, in taxable years ending before the date the Treasury
decision adopting these regulations as final regulations is published
in the Federal Register, provided the entities follow the proposed
regulations in their entirety and in a consistent manner with respect
to all elections made under section 6417. Sections 301.6241-1 and
301.6241-7 are proposed to apply to taxable years ending on or after
the date these proposed regulations are published in the Federal
Register.
Special Analyses
I. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (``PRA'')
generally requires that a federal agency obtain the approval of the
Office of Management and Budget (OMB) before collecting information
from the public, whether such collection of information is mandatory,
voluntary, or required to obtain or retain a benefit. An agency may not
conduct or sponsor, and a person is not required to respond to, a
collection of information unless the collection of information displays
a valid control number.
The collections of information in these proposed regulations
contain reporting and recordkeeping requirements. The recordkeeping
requirements mentioned within these proposed regulations are considered
general tax records under Section 1.6001-1(e). These records are
required for the IRS to validate that taxpayers have met the regulatory
requirements and are entitled to make an elective payment election. For
PRA purposes, general tax records are already approved by OMB under
1545-0047 for tax-exempt organizations and government entities; 1545-
0074 for individuals; and under 1545-0123 for business entities.
These proposed regulations also mention reporting requirements
related to making elections as detailed in
[[Page 40545]]
Sec. Sec. 1.6417-2 and 1.6417-3 and calculating the claim amounts as
detailed in Sec. Sec. 1.6417-2 and 1.6417-4. These elections will be
made by taxpayers on Forms 990-T, 1040, 1120-S, 1065, and 1120; and
credit calculations will be made on Form 3800 and supporting forms.
These forms are approved under 1545-0047 for tax-exempt organizations
and governmental entities; 1545-0074 for individuals; and 1545-0123 for
business entities.
These proposed regulations also mention recapture procedures as
detailed in Sec. 1.6417-6. These recaptures are performed using Form
4255. This form is approved under 1545-0047 for tax-exempt
organizations and governmental entities; 1545-0074 for individuals; and
1545-0123 for business entities. These proposed regulations are not
changing or creating new collection requirements not already approved
by OMB.
These proposed regulations mention a requirement to register with
the IRS to be able to elect payments as detailed in Sec. 1.6417-5. For
further information concerning the registration, where to submit
comments on the collection of information and the accuracy of the
estimated burden, and suggestions for reducing this burden, please
refer to the preamble to the corresponding temporary regulations (T.D.
9975) published in the Rules and Regulations section of this issue of
the Federal Register. These proposed regulations are not changing or
creating new collection requirements beyond the requirements that are
being reviewed and approved by OMB under the temporary regulations.
II. Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to Federal rules that are subject to
the notice and comment requirements of section 553(b) of the
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely
to have a significant economic impact on a substantial number of small
entities. Unless an agency determines that a proposal is not likely to
have a significant economic impact on a substantial number of small
entities, section 603 of the RFA requires the agency to present an
initial regulatory flexibility analysis (IRFA) of the proposed rule.
The Treasury Department and the IRS have not determined whether the
proposed rule, when finalized, will likely have a significant economic
impact on a substantial number of small entities. This determination
requires further study. However, because there is a possibility of
significant economic impact on a substantial number of small entities,
an IRFA is provided in these proposed regulations. The Treasury
Department and the IRS invite comments on both the number of entities
affected and the economic impact on small entities.
Pursuant to section 7805(f), this notice of proposed rulemaking has
been submitted to the Chief Counsel of Advocacy of the Small Business
Administration for comment on its impact on small business.
1. Need for and Objectives of the Rule
The proposed regulations would provide greater clarity to taxpayers
that intend to take advantage of section 6417's credit monetization
mechanism. It provides needed definitions, the time and manner to make
the election, and information about the pre-filing registration
process, among other items. The Treasury Department and the IRS intend
and expect that giving taxpayers guidance that allows them to use
section 6417 will beneficially impact various industries, delivering
benefits across the economy, and reduce economy-wide greenhouse gas
emissions.
In particular, section 6417 allows applicable entities to treat an
applicable credit as a payment against Federal income taxes and defines
applicable entities to include many entities that may not have any tax
liability. Allowing entities without sufficient federal income tax
liability to use a business tax credit to instead make an election to
receive a refund of any overpayment of taxes created by the elective
payment election will increase the incentive for taxpayers to invest in
clean energy projects that generate eligible credits because it will
increase the amount of cash available to those entities, thereby
reducing the amount of financing needed for clean energy projects.
2. Affected Small Entities
The RFA directs agencies to provide a description of, and where
feasible, an estimate of, the number of small entities that may be
affected by the proposed rules, if adopted. The Small Business
Administration's Office of Advocacy estimates in its 2023 Frequently
Asked Questions that 99.9 percent of American businesses meet its
definition of a small business. The applicability of these proposed
regulations does not depend on the size of the business, as defined by
the Small Business Administration. As described more fully in the
preamble to this proposed regulation and in this IRFA, section 6417 and
these proposed regulations may affect a variety of different entities
across several different industries as there are 12 different
applicable credits for which an elective payment election may be made.
Further, the elective payment election for 3 of the applicable credits
may be made both by applicable entities and by taxpayers other than
applicable entities. Although there is uncertainty as to the exact
number of small businesses within this group, the current estimated
number of respondents to these proposed rules is 20,000 taxpayers, as
described in the Paperwork Reduction Act section of the preamble.
The Treasury Department and the IRS expect to receive more
information on the impact on small businesses through comments on this
proposed rule and again when taxpayers start to make the elective
payment election using the guidance and procedures provided in these
proposed regulations.
3. Impact of the Rules
The proposed regulations provide rules for how taxpayers can take
advantage of the section 6417 credit monetization regime. Taxpayers
that elect to take advantage of section 6417 will have administrative
costs related to reading and understanding the rules as well as
recordkeeping and reporting requirements because of the pre-filing
registration and tax return requirements. The costs will vary across
different-sized entities and across the type of project(s) in which
such entities are engaged.
The pre-filing registration process requires a taxpayer to register
itself as intending to make the elective payment election, to list all
applicable credits it intends to claim, and to list each applicable
credit property that contributed to the determination of such credits.
This process must be completed to receive a registration number for
each applicable credit property with respect to which the applicable
taxpayer intends to make an elective payment election. To make the
elective payment election and claim the credit, the taxpayer must file
an annual tax return. The reporting and recordkeeping requirements for
that return would be required for any taxpayer that is claiming a
general business credit, regardless of whether the taxpayer was making
an elective payment election under section 6417.
Although the Treasury Department and the IRS do not have sufficient
data to determine precisely the likely extent of the increased costs of
compliance, the estimated burden of complying with the recordkeeping
and reporting requirements are described in the Paperwork Reduction Act
section of the preamble.
[[Page 40546]]
4. Alternatives Considered
The Treasury Department and the IRS considered alternatives to the
proposed regulations. For example, in adopting the pre-filing
registration requirements, the Treasury Department and the IRS
considered whether such information could be obtained at the filing of
the relevant annual tax return. However, the Treasury Department and
the IRS decided that such an option would increase the opportunity for
duplication fraud, improper payments, or excessive payments under
section 6417 as well as potentially delaying payments to qualifying
taxpayers. Section 6417(d)(5) specifically authorizes the IRS to
require such information or registration as the Secretary deems
necessary for purposes of preventing duplication, fraud, improper
payments, or excessive payments under section 6417 as a condition of,
and prior to, any amount being treated as a payment which is made by an
applicable entity under section 6417. As described in the preamble to
these proposed regulations, these proposed rules carry out that
Congressional intent as pre-filing registration allows for the IRS to
verify certain information in a timely manner and then process the
annual tax return with minimal delays. Having a distinction between
applicable entities or electing entities that are small businesses
versus others making an elective payment election would create a
scenario where a subset of taxpayers seeking to make an elective
payment election would not have been verified or received registration
numbers, potentially delaying payment not only to them but to other
taxpayers seeking to use section 6417.
Additionally, when considering how taxpayers should claim the
credits and make the elective payment election, the Treasury Department
and the IRS considered creating an election system outside of the tax
return filing system. However, it was determined that such a process
would not be an efficient use of resources, especially given the
statutory due date to make an election, which is the return filing date
for the taxpayers with a filing obligation (which would include small
business taxpayers). The Treasury Department and the IRS decided that
the most efficient and reliable method is to use the existing method
for claiming business tax credits; that is, the filing of the annual
tax return. To create a different method for small businesses making an
elective payment election than for a small business claiming the credit
(or a larger business making an elective payment election or claiming
the credit) would create an additional burden for both small businesses
and the IRS, without any commensurate benefit.
Comments are requested on the requirements in the proposed
regulations, including specifically whether there are less burdensome
alternatives that do not increase the risk of duplication, fraud,
improper payments, or excessive payments under section 6417.
5. Duplicative, Overlapping, or Conflicting Federal Rules
The proposed rule would not duplicate, overlap, or conflict with
any relevant Federal rules. As discussed above, the proposed rule would
merely provide procedures and definitions to allow taxpayers to take
advantage of the ability to make an elective payment election. The
Treasury Department and the IRS invite input from interested members of
the public about identifying and avoiding overlapping, duplicative, or
conflicting requirements.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA)
requires that agencies assess anticipated costs and benefits and take
certain other actions before issuing a final rule that includes any
Federal mandate that may result in expenditures in any one year by a
State, local, or Indian tribal government, in the aggregate, or by the
private sector, of $100 million (updated annually for inflation). This
proposed rule does not include any Federal mandate that may result in
expenditures by State, local, or Indian tribal governments, or by the
private sector in excess of that threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (Federalism) prohibits an agency from
publishing any rule that has federalism implications if the rule either
imposes substantial, direct compliance costs on State and local
governments, and is not required by statute, or preempts State law,
unless the agency meets the consultation and funding requirements of
section 6 of the Executive Order. This proposed rule does not have
federalism implications and does not impose substantial direct
compliance costs on State and local governments or preempt State law
within the meaning of the Executive Order.
VI. Executive Order 13175: Consultation and Coordination With Indian
Tribal Governments
Executive Order 13175 (Consultation and Coordination With Indian
Tribal Governments) prohibits an agency from publishing any rule that
has Tribal implications if the rule either imposes substantial, direct
compliance costs on Indian tribal governments, and is not required by
statute, or preempts Tribal law, unless the agency meets the
consultation and funding requirements of section 5 of the Executive
Order. This proposed rule does not have substantial direct effects on
one or more federally recognized Indian tribes and does not impose
substantial direct compliance costs on Indian tribal governments within
the meaning of the Executive Order.
Nevertheless, on November 28, 2022, and November 29, 2022, the
Treasury Department and the IRS held consultations with Tribal leaders
requesting assistance in addressing questions related to the elective
payment election under section 6417. Consultation was also held with
Alaska Native Corporations on December 2, 2022. These consultations
informed the development of these proposed regulations.
The Treasury Department and the IRS will hold additional
consultations with Tribal leaders and Alaska Native Corporations after
providing an opportunity for review of the proposed regulations and
early in the process of publishing final regulations under section
6417.
VII. Regulatory Planning and Review
Pursuant to the Memorandum of Agreement, Review of Treasury
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory
actions issued by the IRS are not subject to the requirements of
section 6 of Executive Order 12866, as amended. Therefore, a regulatory
impact assessment is not required.
Comments and Public Hearing
Before these proposed amendments to the regulations are adopted as
final regulations, consideration will be given to comments that are
submitted timely to the IRS as prescribed in this preamble under the
ADDRESSES section. The Treasury Department and the IRS request comments
on all aspects of the proposed regulations. Any electronic comments
submitted, and any paper comments submitted, will be made available at
<a href="https://www.regulations.gov">https://www.regulations.gov</a> or upon request.
Announcement 2023-16, 2023-20 I.R.B. 854 (May 15, 2023), provides
that public hearings will be conducted in person, although the IRS will
continue to provide a telephonic option for individuals who wish to
attend or testify at a hearing by telephone. Any
[[Page 40547]]
telephonic hearing will be made accessible to people with disabilities.
A public hearing is scheduled to be held in person on August 21,
2023, beginning at 10:00 a.m. ET, unless no outlines are received by
August 14, 2023. Due to building security procedures, visitors must
enter at the Constitution Avenue entrance. In addition, all visitors
must present photo identification to enter the building. Because of
access restrictions, visitors will not be admitted beyond the immediate
entrance area more than 30 minutes before the hearing starts.
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who
wish to comment by telephone at the hearing must submit written or
electronic comments and an outline of the topics to be discussed as
well as the time to be devoted to each topic by August 14, 2023, as
prescribed in the preamble under the ADDRESSES section.
A period of ten minutes will be allocated to each person for making
comments. After the deadline for receiving outlines has passed, the IRS
will prepare an agenda containing the schedule of speakers. Copies of
the agenda will be made available at <a href="https://www.regulations.gov">https://www.regulations.gov</a>,
search IRS and REG-101607-23. Copies of the agenda will also be
available by emailing a request to <a href="/cdn-cgi/l/email-protection#403035222c292328252132292e2733002932336e272f36"><span class="__cf_email__" data-cfemail="38484d5a54515b505d594a51565f4b78514a4b165f574e">[email protected]</span></a>. Please put
``REG-101607-23 Agenda Request'' in the subject line of the email.
Individuals who want to testify in person at the public hearing
must send an email to <a href="/cdn-cgi/l/email-protection#05757067696c666d6064776c6b6276456c77762b626a73"><span class="__cf_email__" data-cfemail="334346515f5a505b5652415a5d5440735a41401d545c45">[email protected]</span></a> to have your name added to
the building access list. The subject line of the email must contain
the regulation number REG-101607-23 and the language TESTIFY In Person.
For example, the subject line may say: Request to TESTIFY In Person at
Hearing for REG-101607-23.
Individuals who want to testify by telephone at the public hearing
must send an email to <a href="/cdn-cgi/l/email-protection#19696c7b75707a717c786b70777e6a59706b6a377e766f"><span class="__cf_email__" data-cfemail="92e2e7f0fefbf1faf7f3e0fbfcf5e1d2fbe0e1bcf5fde4">[email protected]</span></a> to receive the telephone
number and access code for the hearing. The subject line of the email
must contain the regulation number REG-101607-23 and the language
TESTIFY Telephonically. For example, the subject line may say: Request
to TESTIFY Telephonically at Hearing for REG-101607-23.
Individuals who want to attend the public hearing in person without
testifying must also send an email to <a href="/cdn-cgi/l/email-protection#aadadfc8c6c3c9c2cfcbd8c3c4cdd9eac3d8d984cdc5dc"><span class="__cf_email__" data-cfemail="d4a4a1b6b8bdb7bcb1b5a6bdbab3a794bda6a7fab3bba2">[email protected]</span></a> to have
your name added to the building access list. The subject line of the
email must contain the regulation number REG-101607-23 and the language
ATTEND In Person. For example, the subject line may say: Request to
ATTEND Hearing In Person for REG-101607-23. Requests to attend the
public hearing must be received by 5:00 p.m. EST on August 17, 2023.
Individuals who want to attend the public hearing by telephone
without testifying must also send an email to <a href="/cdn-cgi/l/email-protection#027277606e6b616a6763706b6c6571426b70712c656d74"><span class="__cf_email__" data-cfemail="c2b2b7a0aeaba1aaa7a3b0abaca5b182abb0b1eca5adb4">[email protected]</span></a> to
receive the telephone number and access code for the hearing. The
subject line of the email must contain the regulation number REG-
101607-23 and the language ATTEND Hearing Telephonically. For example,
the subject line may say: Request to ATTEND Hearing Telephonically for
REG-101607-23. Requests to attend the public hearing must be received
by 5:00 p.m. EST on August 17, 2023.
Hearings will be made accessible to people with disabilities. To
request special assistance during a hearing please contact the
Publications and Regulations Branch of the Office of Associate Chief
Counsel (Procedure and Administration) by sending an email to
<a href="/cdn-cgi/l/email-protection#b4c4c1d6d8ddd7dcd1d5c6dddad3c7f4ddc6c79ad3dbc2"><span class="__cf_email__" data-cfemail="760603141a1f151e1317041f181105361f040558111900">[email protected]</span></a> (preferred) or by telephone at (202) 317-6901
(not a toll-free number) at least August 16, 2023.
Statement of Availability of IRS Documents
Guidance cited in this preamble is published in the Internal
Revenue Bulletin and is available from the Superintendent of Documents,
U.S. Government Publishing Office, Washington, DC 20402, or by visiting
the IRS website at <a href="https://www.irs.gov">https://www.irs.gov</a>.
Drafting Information
The principal authors of theses proposed regulations are Jeremy
Milton and James Holmes, Office of the Associate Chief Counsel
(Passthroughs and Special Industries), IRS. However, other personnel
from the Treasury Department and the IRS participated in their
development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes, Penalties, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, the Treasury Department and the IRS propose to amend
26 CFR parts 1 and 301 as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
0
Par. 2. Sections 1.6417-0 through 1.6417-6 are added under the
undesignated heading ``Abatements, Credits, and Refunds'' to read as
follows:
Sec. 1.6417-0 Table of contents
This section lists the table of contents for Sec. Sec. 1.6417-1
through 1.6417-6.
Sec. 1.6417-1 Elective Payment of Applicable Credits.
(a) In general.
(b) Annual tax return.
(c) Applicable entity.
(d) Applicable credit.
(e) Applicable credit property.
(f) Disregarded entity.
(g) Electing taxpayer.
(h) Elective payment amount.
(i) Elective payment election.
(j) Guidance.
(k) Indian tribal government.
(l) Partnership.
(m) S corporation.
(n) Section 6417 regulations.
(o) Statutory references.
(p) U.S. territory.
(q) Applicability date.
Sec. 1.6417-2 Rules for making elective payment elections.
(a) Elective payment elections.
(b) Manner of making election.
(c) Determination of applicable credit.
(d) Timing of payment.
(e) Denial of double benefit.
(f) Applicability date.
Sec. 1.6417-3 Special rules for electing taxpayers.
(a) In general.
(b) Election with respect to credit for production of clean
hydrogen.
(c) Election with respect to credit for carbon oxide
sequestration.
(d) Election with respect to the advanced manufacturing
production credit.
(e) Election for electing taxpayers.
(f) Applicability date.
Sec. 1.6417-4 Elective payment election for electing taxpayers that
are partnerships or S corporations.
(a) In general.
(b) Elections.
(c) Effect of election.
(d) Determination of amount of the credit.
(e) Partnerships subject to subchapter C of chapter 63.
(f) Applicability Date.
Sec. 1.6417-5 Additional information and registration.
(a) Pre-filing registration and election.
(b) Pre-filing registration requirements.
(c) Registration number.
(d) Applicability date.
(e) Expiration date.
Sec. 1.6417-6 Special rules.
[[Page 40548]]
(a) Excessive payment.
(b) Basis reduction and recapture.
(c) Mirror code territories.
(d) Partnerships subject to subchapter C of chapter 63 of the
Code.
(e) Applicability date.
Sec. 1.6417-1 Elective payment election of applicable credits.
(a) In general. An applicable entity may make an elective payment
election with respect to any applicable credit determined with respect
to such applicable entity in accordance with section 6417 of the Code
and the section 6417 regulations. Paragraphs (b) through (p) of this
section provide definitions. See Sec. 1.6417-2 for rules and
procedures under which all elective payment elections must be made,
rules for determining the amount and the timing of payments, and
statutory rules denying double benefits. See Sec. 1.6417-3 for special
rules pertaining to electing taxpayers. See Sec. 1.6417-4 for special
rules pertaining to electing taxpayers that are partnerships or S
corporations. See Sec. 1.6417-5 for pre-filing registration
requirements and other information required to make any elective
payment election effective. See Sec. 1.6417-6 for special rules
related to excessive payments, basis reduction and recapture, any U.S.
territory with a mirror code tax system, and payments made to
partnerships subject to subchapter C of chapter 63 of the Code.
(b) Annual Tax Return. The term annual tax return means, for
purposes of section 6417 and the section 6417 regulations, the
following returns (and for each, any successor return)--
(1) For any taxpayer normally required to file an annual tax return
with the IRS, such annual return (including the Form 1065 for
partnerships and the Form 990-T 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 governmental entities), the Form 990-T; and
(3) For short tax year filers, the short year tax return.
(c) Applicable entity. The term applicable entity means--
(1) Any organization exempt from the tax imposed by subtitle A--
(i) By reason of section 501(a) of the Code; or
(ii) Because it is the government of any U.S. territory or a
political subdivision thereof;
(2) Any State, the District of Columbia, or political subdivision
thereof;
(3) An Indian tribal government or a subdivision thereof;
(4) Any Alaska Native Corporation (as defined in section 3 of the
Alaska Native Claims Settlement Act, 43 U.S.C. 1602(m));
(5) The Tennessee Valley Authority;
(6) Any corporation operating on a cooperative basis that is
engaged in furnishing electric energy to persons in rural areas; and
(7) An agency or instrumentality of any applicable entity described
in paragraphs (1)(ii), (2), or (3).
(d) Applicable credit. The term applicable credit means each of the
following:
(1) So much of the credit for alternative fuel vehicle refueling
property determined 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) 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) 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) (section 45U credit);
(5) So much of the credit for production of clean hydrogen
determined under section 45V(a) 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 by reason of section
45W(d)(2) (section 45W credit);
(7) The credit for advanced manufacturing production determined
under section 45X(a) (section 45X credit);
(8) The clean electricity production credit determined under
section 45Y(a) (section 45Y credit);
(9) The clean fuel production credit determined under section
45Z(a) (section 45Z credit);
(10) The energy credit determined under section 48 (section 48
credit);
(11) The qualifying advanced energy project credit determined under
section 48C (section 48C credit); and
(12) The clean electricity investment credit determined under
section 48E (section 48E credit).
(e) Applicable credit property. The term applicable credit property
means each of the following units of property with respect to which the
amount of an applicable credit is determined:
(1) In the case of a section 30C credit, a qualified alternative
fuel vehicle refueling property described in section 30C(c).
(2) In the case of a section 45 credit, a qualified facility
described in section 45(d).
(3) In the case of a section 45Q credit, a single process train
described in Sec. 1.45Q-2(c)(3).
(4) In the case of a section 45U credit, a qualified nuclear power
facility described in section 45U(b)(1).
(5) In the case of a section 45V credit, a qualified clean hydrogen
production facility described in section 45V(c)(3).
(6) In the case of a section 45W credit, a qualified commercial
clean vehicle described in section 45W(c).
(7) In the case of a section 45X credit, a facility that produces
eligible components, as described in guidance under sections 48C and
45X.
(8) In the case of a section 45Y credit, a qualified facility
described in section 45Y(b)(1).
(9) In the case of a section 45Z credit, a qualified facility
described in section 45Z(d)(4).
(10) Section 48 credit property--(i) In general. In the case of a
section 48 credit and except as provided in paragraph (d)(10)(ii) of
this section, an energy property described in section 48.
(ii) Pre-filing registration and elections. At the option of an
applicable entity or electing taxpayer, and to the extent consistently
applied for purposes of the pre-filing registration requirements of
Sec. 1.6417-5 and the elective payment election requirements of
Sec. Sec. 1.6417-2 through 1.6417-4, an energy project as described in
section 48(a)(9)(A)(ii) and defined in guidance.
(11) In the case of a section 48C credit, an eligible property
described in section 48C(c)(2).
(12) In the case of a section 48E credit, a qualified facility
described in section 48E(b)(3) or, in the case of a section 48E credit
relating to a qualified investment with respect to energy storage
technology, an energy storage technology described in section
48E(c)(2).
(f) Disregarded entity. The term disregarded entity means an entity
that is disregarded as an entity separate from
[[Page 40549]]
its owner for Federal income tax purposes.
(g) Electing taxpayer. The term electing taxpayer means any
taxpayer that is not an applicable entity described in paragraph (b) of
this section but makes an election in accordance with Sec. Sec.
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 Sec. 1.6417-1(e)(3), (5), or (7).
(h) Elective payment amount--(1) In general. The term elective
payment amount means, with respect to an applicable entity or an
electing taxpayer that is not a partnership or an S corporation, the
applicable credit(s) for which an applicable entity or electing
taxpayer makes an elective payment election to be treated as making a
payment against the tax imposed by subtitle A for the taxable year,
which is equal to the sum of--
(i) The amount (if any) of the current year applicable credit(s)
allowed as a general business credit under section 38 for the taxable
year, as provided in Sec. 1.6417-2(e)(2)(iii), and
(ii) The amount (if any) of unused current year applicable credits
which would otherwise be carried back or carried forward from the
unused credit year under section 39 and that are treated as a payment
against tax, as provided in Sec. 1.6417-2(e)(2)(iv).
(2) Elective payment amount with respect to partnerships and S
corporations. With respect to an electing taxpayer that is a
partnership or an S corporation, the term elective payment amount means
the sum of the applicable credit(s) for which the partnership or S
corporation makes an elective payment election and that results in a
payment to such partnership or S corporation equal to the amount of
such credit(s) (unless the partnership owes a Federal tax liability, in
which case the payment may be reduced by such tax liability).
(i) Elective payment election. The term elective payment election
means an election made in accordance with Sec. 1.6417-2(b) for
applicable credit(s) determined with respect to an applicable entity or
electing taxpayer.
(j) Guidance. The term guidance means guidance published in the
Federal Register or Internal Revenue Bulletin, as well as
administrative guidance such as forms, instructions, publications, or
other guidance on the <a href="http://IRS.gov">IRS.gov</a> website. See Sec. Sec. 601.601 and
601.602 of this chapter.
(k) Indian tribal government. The term Indian tribal government
means 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).
(l) Partnership. The term partnership has the meaning provided in
section 761 of the Code.
(m) S corporation. The term S corporation has the meaning provided
in section 1361(a)(1) of the Code.
(n) Section 6417 regulations. The term section 6417 regulations
means Sec. Sec. 1.6417-1 through 1.6417-6.
(o) Statutory references--(1) Chapter 1. The term chapter 1 means
chapter 1 of the Code.
(2) Code. The term Code means the Internal Revenue Code.
(3) Subchapter K. The term subchapter K means subchapter K of
chapter 1.
(4) Subtitle A. The term subtitle A means subtitle A of the Code.
(p) U.S. territory. The term U.S. territory means the Commonwealth
of Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa, and the
Commonwealth of the Northern Mariana Islands.
(q) Applicability date. This section applies to taxable years
ending on or after date of publication of final rule.
Sec. 1.6417-2 Rules for making elective payment elections.
(a) Elective payment elections--(1) Elections by applicable
entities--(i) In general. An applicable entity that makes an elective
payment election in the manner provided in paragraph (b) of this
section will be treated as making a payment against the Federal income
taxes imposed by subtitle A for the taxable year with respect to which
an applicable credit is determined in the amount determined under
paragraph (c) of this section.
(ii) Disregarded entities. If an applicable entity 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 in the manner provided in paragraph (b) of this
section for applicable credits determined with respect to the
applicable credit property held directly by the disregarded entity.
(iii) Undivided ownership interests. If an applicable entity is a
co-owner in an applicable credit property through an arrangement
properly treated as a tenancy-in-common 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, 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 in the manner provided in
paragraph (b) of this section for the applicable credits determined
with respect such applicable credit property.
(iv) Partnerships and S corporations not applicable entities.
Partnerships and S corporations are not applicable entities described
in Sec. 1.6417-1(c), and thus are not eligible to make any election
under paragraph (b) of this section, unless the partnership or S
corporation is an electing taxpayer. This is the case no matter how
many of the partners of a partnership are described in Sec. 1.6417-
1(c)(1), including if all of a partnership's partners are so described.
(v) Members of a consolidated group of which an Alaska Native
Corporation is the common parent. In the case of a consolidated group
(as defined in Sec. 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. See Sec. 1.1502-77 (providing rules
regarding the status of the common parent as agent for its members).
(2) Electing taxpayers--(i) Electing taxpayers that are not
partnerships or S corporations. An electing taxpayer other than a
partnership or an S corporation that has made an elective payment
election in accordance with Sec. 1.6417-3 and paragraph (b) of this
section will be treated as making a payment against the Federal income
taxes imposed by subtitle A for the taxable year with respect to which
the applicable credit is determined in the amount determined under
paragraph (c) of this section.
(ii) Electing taxpayers that are partnerships or S corporations. In
the case of an electing taxpayer that is a partnership or S corporation
that has made an elective payment election in accordance with
Sec. Sec. 1.6417-3 and 1.6417-4 and paragraph (b) of this section, the
Internal Revenue Service will make a payment to such partnership or S
corporation equal to the amount of such credit determined under
paragraph (c) of this section and Sec. 1.6417-4(d) (unless the
partnership owes any Federal income tax liability, in which case the
payment may be reduced by such tax liability).
[[Page 40550]]
(iii) Partners and S corporation shareholders prohibited from
making any elective payment election. Under section 6417(c)(1) of the
Code, any elective payment election with respect to applicable credit
property held directly by a partnership or S corporation must be made
by the partnership or S corporation. As provided under section
6417(c)(2) of the Code, no partner in a partnership, or shareholder of
an S corporation, may make an elective payment election with respect to
any applicable credit determined with respect to such applicable credit
property.
(iv) Disregarded entities. If an electing taxpayer is the owner
(directly or indirectly) of a disregarded entity that directly holds
any applicable credit property, the electing taxpayer may make an
elective payment election in the manner provided in paragraph (b) of
this section for applicable credits determined with respect to the
applicable credit property held directly by the disregarded entity.
(v) Undivided ownership interests. If an electing taxpayer is a co-
owner in an applicable credit property through an arrangement properly
treated as a tenancy-in-common 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,
then the electing taxpayer's undivided ownership interest in or share
of the applicable credit property will be treated as a separate
applicable credit property owned by such electing taxpayer, and the
electing taxpayer may make an elective payment election in the manner
provided in paragraph (b) of this section for the applicable credits
determined with respect to such applicable credit property.
(vi) Members of a consolidated group. A member of a consolidated
group may make an elective payment election with respect to applicable
credits determined with respect to the member. See Sec. 1.1502-77
(providing rules regarding the status of the common parent as agent for
its members).
(3) Special rules for certain credits--(i) Renewable electricity
production credit. Any election under this paragraph (a) with respect
to a section 45 credit--
(A) Applies separately with respect to each qualified facility;
(B) Must be made in the manner provided in paragraph (b) of this
section for the taxable year in which such qualified facility is
originally placed in service; and
(C) Applies to such taxable year and to any subsequent taxable year
that is within the period described in section 45(a)(2)(A)(ii) with
respect to such qualified facility.
(ii) Credit for carbon oxide sequestration. Except as provided in
Sec. 1.6417-3(c), which provides a special rule for electing
taxpayers, any election under this paragraph (a) with respect to a
section 45Q credit--
(A) Applies separately with respect to the carbon capture equipment
originally placed in service by the applicable entity during a taxable
year;
(B) Must be made in the manner provided in paragraph (b) of this
section for the taxable year in which such qualified facility is
originally placed in service; and
(C) Applies to such taxable year and to any subsequent taxable year
that is within the period described in section 45Q(3)(A) or (4)(A) with
respect to such equipment.
(iii) Credit for production of clean hydrogen. Except as provided
in Sec. 1.6417-3(b), which provides a special rule for electing
taxpayers, any election under this paragraph (a) with respect to a
section 45V credit--
(A) Applies separately with respect to each qualified clean
hydrogen production facility;
(B) Must be made in the manner provided in paragraph (b) of this
section for the taxable year in which such facility is placed in
service (or within the 1-year period after August 16, 2022, for
facilities placed in service before December 31, 2022); and
(C) Applies to such taxable year and all subsequent taxable years
with respect to such facility.
(iv) Clean electricity production credit. Any elective payment
election with respect to a section 45Y credit--
(A) Applies separately with respect to each qualified facility;
(B) Must be made in the manner provided in paragraph (b) of this
section for the taxable year in which such facility is placed in
service; and
(C) Applies to such taxable year and to any subsequent taxable year
which is within the period described in section 45Y(b)(1)(B) with
respect to such facility.
(v) Advanced manufacturing production credit. Any elective payment
election with respect to a section 45X credit applies separately with
respect to each facility (whether the facility existed on or before, or
after, December 31, 2022) at which a taxpayer produces, after December
31, 2022, eligible components (as defined in section 45X(c)(1)) during
the taxable year.
(b) Manner of making election--(1) In general--(i) Election is made
on the annual tax return. An elective payment election is made on the
annual tax return, as defined in Sec. 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.
(ii) Election must be made on original return. An 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. No elective payment election may be
made or revised on an amended return or by filing an administrative
adjustment request under section 6227 of the Code. There is no relief
available under Sec. Sec. 301.9100-1 through 301.9100-3 of this
chapter for an elective payment election that is not timely filed.
(2) Pre-filing registration required. Pre-filing registration in
accordance with Sec. 1.6417-5 is a condition for making an elective
payment election. An elective payment election will not be effective
with respect to credits determined with respect to an applicable credit
property unless the applicable entity or electing taxpayer received a
valid registration number for the applicable credit property in
accordance with Sec. 1.6417-5(c) and provided the registration number
for each applicable credit property on its Form 3800 (or its successor)
attached to the tax return, in accordance with guidance.
(3) Due date for making the election. To be effective, an elective
payment election must be made no later than:
(i) In the case of any taxpayer for which no Federal income tax
return is required under sections 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. Subject to issuance of guidance that specifies the manner
in which an entity for which no Federal income tax return is required
under sections 6011 or 6033(a) of the Code could request an extension
of time to file, an automatic paperless six-month extension from the
original due date is deemed to be allowed.
[[Page 40551]]
(ii) In the case of 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 due date (including extensions of time) that
would apply if the taxpayer was located in the United States.
(iii) In any other case, 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.
(4) Election is not revocable--(i) In general. Except as provided
in subparagraphs (ii) and (iii) of this paragraph, any elective payment
election, once made, is irrevocable and applies with respect to any
applicable credit for the taxable year for which the election is made.
(ii) Election lasts for a period of years for certain credits. For
elective payment elections with respect to section 45 credits described
in Sec. 1.6417-1(d)(2) or section 45Y credits described in Sec.
1.6417-1(d)(8), the election applies to each taxable year in the 10-
year period provided in section 45(a)(2)(A)(ii) or 45Y(b)(1)(B),
respectively, beginning on the date the facility was originally placed
in service. For elective payment elections with respect to section 45Q
credits described in Sec. 1.6417-1(d)(3), the election applies to each
taxable year in the 12-year period provided in section 45Q(a)(3)(A) or
(4)(A) beginning on the date the carbon capture equipment was
originally placed in service. For elective payment elections with
respect to section 45V credits described in Sec. 1.6417-1(d)(5), the
election applies to the taxable year in which the qualified clean
hydrogen production facility was originally placed in service and all
subsequent taxable years.
(iii) Electing taxpayers. For electing taxpayers who make an
elective payment election, the election applies for one five-year
period per applicable credit property, but such election may be revoked
once per applicable credit property, as provided in Sec. 1.6417-3.
(5) Scope of election. 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.
(c) Determination of applicable credit--(1) In general. In the case
of any applicable entity making an elective payment election, any
applicable credit is determined--
(i) Without regard to section 50(b)(3) and (4)(A)(i) of the Code,
and
(ii) By treating any property with respect to which such credit is
determined as used in a trade or business of the applicable entity.
(2) Effect of trade or business rule. The trade or business rule in
paragraph (c)(1)(ii) of this section--
(i) Allows the applicable 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
amortization in lieu of depreciation) is allowable (such as in sections
48, 48C, and 48E);
(ii) Allows the applicable 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;
(iii) Makes applicable general credit limitations by those persons
engaged in the conduct of a trade or business and to which such
limitations apply, such as section 49 in the context of investment tax
credits and section 469 for all applicable credits; and
(iv) Does not create any presumption that the trade or business is
related (or unrelated) to a tax-exempt entity's exempt purpose.
(3) Special rule for investment-related credit property acquired
with income, including income from certain grants and forgivable loans,
that is exempt from taxation. For purposes of section 6417, income,
including income from certain grants and forgivable loans, that is
exempt from taxation under subtitle A and 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 applicable
credit property, regardless of whether basis is required to be reduced
(in whole or in part) by such amounts under general tax principles.
However, if an applicable entity receives a grant, forgivable loan, or
other income exempt from taxation under subtitle A for the specific
purpose of purchasing, constructing, reconstructing, erecting, or
otherwise acquiring an investment-related credit property (Restricted
Tax Exempt Amount), and the Restricted Tax Exempt Amount 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 Amount equals the cost of investment-related
credit property.
(4) Credits must be determined with respect to the applicable
entity or electing taxpayer. Any credits for which an elective payment
election is made must have been determined with respect to the
applicable entity or electing taxpayer. An 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. Thus, no election may be made under this section for
any credits purchased 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 with respect to the applicable entity or
electing taxpayer.
(5) Examples. The following examples illustrate the rules of this
paragraph (c).
(i) Example 1. School district A receives a tax exempt grant in the
amount of $400,000 from the Environmental Protection Agency to purchase
electric school bus B. A purchases B for $400,000. A's basis in B is
$400,000. B qualifies for the maximum section 45W credit, $40,000.
However, because the amount of the restricted tax exempt grant plus the
amount of the section 45W credit exceeds the cost of B, A's section 45W
credit is reduced by the amount necessary so that the total amount of
the section 45W credit plus the restricted tax exempt amount equals the
cost of B. A's section 45W credit is therefore reduced by $40,000 to
zero.
(ii) Example 2. Assume the same facts as in paragraph (c)(5)(i) of
this section (Example 1), except that the grant is in the amount of
$300,000. A purchases B using the grant and $100,000 of A's
unrestricted funds. A's basis in B is $400,000 and A's section 45W
credit is $40,000. Since the amount of the restricted tax exempt grant
plus the amount of the section 45W credit ($340,000) is less than the
cost of B, A's 45W credit under section 6417(b)(6) is not reduced.
[[Page 40552]]
(iii) Example 3. Public charity B receives a $60,000 grant from a
private foundation to build energy property, P, a qualified investment
credit property that costs $80,000. B uses $20,000 of its own funds
plus the $60,000 grant to build P. B's basis in P is $80,000. Based
upon acquisition cost, B can earn a section 48 investment credit (with
bonus credit amounts) of $40,000 (50% of basis). However, because the
amount of the restricted tax exempt grant ($60,000) plus the section 48
credit ($40,000) exceeds P's cost by $20,000, B's section 48 applicable
credit is reduced by $20,000 so that the total amount of the section 48
investment credit plus the restricted tax exempt grant equals the cost
of P.
(iv) Example 4. Taxpayer Q is engaged in the business of capturing
carbon oxide. Q properly elects to be treated as an applicable entity
with respect to the section 45Q credit determined with respect to
single process trains A, B, and C for 2024. In the same year, Q also
purchases section 45Q credits under section 6418 from an unrelated
taxpayer and has section 45Q credits transferred to itself pursuant to
section 45Q(f)(3). Q can make an elective payment election only with
respect to section 45Q applicable credits determined with respect to A,
B, and C. Q cannot make an elective payment election with respect to
any credits transferred to Q pursuant to sections 6418 and 45Q(f)(3).
(d) Timing of payment. Except as provided in Sec. 1.6417-4(d)
(relating to payments to partnerships and S corporations), the elective
payment amount will be treated as made--
(1) In the case of any taxpayer for which no return is required
under sections 6011 or 6033(a), on the later of--
(i) The date that a return would be due under section 6033(a)
(determined without regard to extensions) if the taxpayer were
described in that section, or
(ii) The date on which such taxpayer submits a claim for credit or
refund in accordance with paragraph (b) of this section.
(2) In any other case, on the later of--
(i) The due date (determined without regard to extensions) of the
return for the taxable year, or
(ii) The date on which such return is filed.
(e) Denial of double benefit--(1) In general. Under section
6417(e), in the case of an applicable entity or electing taxpayer
making an elective payment election with respect to an applicable
credit, such credit is reduced to zero and is, for any other purposes
of the Code, deemed to have been allowed as a credit to such entity or
taxpayer for such taxable year. Paragraphs (e)(2) and (e)(3) of this
section explain the application of the section 6417(e) denial of double
benefit rule to an applicable entity or electing taxpayer (other than a
partnership or S corporation). The application of section 6417(e) for
an electing taxpayer that is a partnership or S corporation is provided
in Sec. 1.6417-4(c)(1)(ii).
(2) Application of the Denial of Double Benefit Rule. An applicable
entity or electing taxpayer (other than an electing taxpayer that is a
partnership or S corporation) making an elective payment election
applies section 6417(e) by taking the following steps:
(i) Compute the amount of the Federal income tax liability (if any)
for the taxable year, without regard to the GBC, that is payable on the
due date of the return (without regard to extensions), and the amount
of the Federal income tax liability that may be offset by GBCs pursuant
to the limitation based on amount of tax under section 38.
(ii) Compute the allowed amount of GBC carryforwards carried to the
taxable year plus the amount of current year GBCs (including current
applicable credits) allowed for the taxable year under section 38
(including, for clarity purposes, the ordering rules in section 38(d)).
Because the election is made on an original return for the taxable year
for which the applicable credit is determined, any business credit
carrybacks are not considered when determining the elective payment
amount for the taxable year.
(iii) Apply the GBCs allowed for the taxable year as computed under
paragraph (e)(2)(ii) of this section, including those attributable to
applicable credits as GBCs, against the tax liability computed in
paragraph (e)(2)(i) of this section.
(iv) Identify the amount of any excess or unused current year GBC,
as defined under section 39, attributable to current year applicable
credit(s) for which the applicable entity is making an elective payment
election. Treat the amount of such unused applicable credits as a
payment against the tax imposed by subtitle A for the taxable year with
respect to which such credits are determined (rather than having them
available for carryback or carryover) (net elective payment amount).
(v) Reduce the applicable credits for which an elective payment
election is made by the amount (if any) allowed as a GBC under section
38 for the taxable year, as provided in paragraph (e)(2)(iii) of this
section, and by the net elective payment amount (if any) that is
treated as a payment against tax, as provided in paragraph (e)(2)(iv)
of this section, which results in the applicable credits being reduced
to zero.
(3) Use of applicable credit for other purposes. The full amount of
the applicable credits for which an elective payment election is made
is deemed to have been allowed for all other purposes of the Code,
including, but not limited to, the basis reduction and recapture rules
imposed by section 50 and calculation of any underpayment of estimated
tax under sections 6654 and 6655 of the Code.
(4) Examples. The following examples illustrate the rules of this
paragraph (e).
(i) Example 1. U is a tax-exempt university described in section
501(c)(3) whose fiscal year runs from July 1 to June 30. U places in
service P, energy property eligible for a section 48 credit, in June
2024. P is an asset used in connection with its unrelated business. U
completes the pre-filing registration in accordance with Sec. 1.6417-5
as an applicable entity that has placed P into service and intends to
make an elective payment election with respect to section 48 credits
determined with respect to P. U timely files its 2024 Form 990-T on
November 15, 2024. On its return, U properly determines that it has
$500,000 of Unrelated Business Income Tax (UBIT) under section 512. On
its Form 3800 attached to its return, U calculates its limitation of
GBC under section 38(c) (simplified) is $375,000 (paragraph (e)(2)(i)
of this section). U attaches Form 3468 to claim a section 48 credit of
$100,000 with respect to P (its GBC for the taxable year) (paragraph
(e)(2)(ii) of this section). Under paragraph (e)(2)(iii) of this
section, the section 48 credit reduces U's UBIT liability to $400,000.
U pays its $400,000 tax liability on November 15, 2024. Because there
is no unused current year applicable credit, paragraph (e)(2)(iv) of
this section does not apply. Under paragraph (e)(2)(v) of this section,
the $100,000 of section 48 credit is reduced by the $100,000 of
applicable credits claimed as GBCs for the taxable year, which results
in the applicable credits being reduced to zero. However, the $100,000
of current year section 48 credit is deemed to have been allowed to U
for 2024 for all other purposes of the Code (paragraph (e)(3) of this
section).
(ii) Example 2. Assume the same facts as in paragraph (e)(4)(i) of
this section (Example 1), except that U has $80,000 of Unrelated
Business Income Tax (UBIT) under section 512, and calculates its
limitation of GBC under section 38(c) (simplified) is $60,000
(paragraph (e)(2)(i) of this section). U uses $60,000 of its $100,000
of section
[[Page 40553]]
48 credit against its tax liability (paragraph (e)(2)(iii) of this
section). U's net elective payment amount is $40,000 (paragraph
(e)(2)(iv) of this section). U reduces its applicable credit by the
$60,000 claimed against tax in paragraph (e)(2)(iii) of this section
and by the $40,000 net elective payment amount determined in paragraph
(e)(2)(iv) of this section, resulting in the applicable credit being
reduced to zero (paragraph (e)(2)(v) of this section). When the IRS
processes U's 2024 Form 990-T, the net elective payment amount results
in a $40,000 refund to U. However, for other purposes of the Code, the
$100,000 section 48 credit is deemed to have been allowed to U for 2024
(paragraph (e)(3) of this section).
(iii) Example 3. V is a city located in the United States that
never has Federal income tax liability, so paragraph (e)(2)(i) of this
section does not apply. V timely completes pre-filing registration in
accordance with Sec. 1.6417-5 as an applicable entity that will be
eligible to make an elective payment election, with regard to its
annual accounting period ending in 2024, for the credit determined
under section 30C(a) from properties A, B, and C; the credit determined
under section 45(a) for facility D; the credit determined under section
45U(a) for facility E; the credit determined under section 45W(a) with
respect to vehicles F, G, and H; and the credit determined under
section 48(a) with respect to property I and J. V timely files its 2024
Form 990-T. V properly completes and attaches the relevant source
credit forms and Form 3800 with registration numbers and all required
information in the instructions, properly making the elective payment
election for all of the credits, and properly determining that the
amount of applicable credits determined with respect to A, B, C, D, E,
F, G, H, I, and J is $500,000 (its GBC for the taxable year) (paragraph
(e)(2)(ii) of this section). Paragraph (e)(2)(iii) of this section does
not apply. Under paragraph (e)(2)(iv) of this section, the entire
$500,000 is a net elective payment amount. When the IRS processes V's
2024 Form 990-T, the net elective payment amount results in a $500,000
refund to V. V's elective payment amount is reduced by the net elective
payment amount, so all applicable credits for 2024 are reduced to zero.
However, for other purposes of the Code, the $500,000 of applicable
credits are deemed to have been allowed to V for its annual accounting
period ending in 2024 (paragraph (e)(3) of this section).
(iv) Example 4. W is a business taxpayer engaged in the
manufacturing of components, including eligible components as defined
in section 45X(c)(1) at facility F. W completes pre-filing registration
in accordance with Sec. 1.6417-5 stating that it intends to elect to
be treated as an applicable entity with respect to eligible components
produced at F in 2024. In 2024, W timely files its 2024 return electing
to be treated as an applicable entity, calculating its federal income
tax before GBCs of $125,000 and that its limitation of GBC under
section 38(c) (simplified) is $100,000 (paragraph (e)(2)(i) of this
section). W attaches Form 7207 to claim a current section 45X credit of
$50,000 with respect to eligible components produced at F (its
applicable credits). W also attaches Form 5884 to claim a current work
opportunity tax credit (WOTC) of $50,000 (WOTC is not an applicable
credit). W also completes and attaches Form 3800 which shows the amount
of each current credit, including current section 45X credit with
registration number, and business credit carryforwards of $25,000 (its
GBC for the taxable year) (paragraph (e)(2)(ii) of this section). Using
the ordering rules in sections 38(d), W is allowed $25,000 of the
carryforwards, $50,000 of WOTC plus only $25,000 of section 45X credit
against net income tax, as defined under section 38(c)(1)(B), leaving
$25,000 of tax liability (paragraph (e)(2)(iii) of this section). The
$25,000 of unused section 45X credit is the net elective payment amount
that results in a $25,000 payment against tax by W (paragraph
(e)(2)(iv) of this section). On its return, W shows net tax liability
of $25,000 ($125,000-$100,000 allowed GBC) and the net elective payment
of $25,000 which W applied to net tax liability, resulting in zero tax
owed on the return. Under paragraph (e)(2)(v) of this section, W's
applicable credit is reduced by the $25,000 of section 45X credit
claimed as a GBC for the taxable year, as provided in paragraph
(e)(2)(iii) of this section, as well as by the $25,000 net elective
payment amount determined in paragraph (e)(2)(iv) of this section,
resulting in the $50,000 of applicable credit being reduced to zero.
However, for all other purposes of the Code, the $50,000 of 45X
applicable credits are deemed to have been allowed to W for 2024
(paragraph (e)(3) of this section).
(v) Example 5. Assume the same facts as in paragraph (e)(4)(iv) of
this section (Example 4), except W filed the return on a timely filed
extension after the due date of the return (without extensions). Even
though W did not owe tax after applying the net elective payment amount
against its net tax liability, W may be subject to the section 6655
penalty for failure to pay estimated income tax. The net elective
payment is not an estimated tax installment, rather, it is treated as a
payment made at the filing of the return.
(f) Applicability date. This section applies to taxable years
ending on or after date of publication of final rule.
Sec. 1.6417-3 Special rules for electing taxpayers.
(a) In general. This section relates to the election available to
electing taxpayers. An electing taxpayer that makes an elective payment
election in accordance with this section is treated as an applicable
entity for the duration of the election period, but only with respect
to the applicable credit property described in proposed Sec. 1.6417-
1(e)(3), (5), or (7), respectively, that is the subject of the
election. See paragraphs (b), (c), and (d) of this section for the
specific rules regarding taxpayers making an election under section
6417(d)(1)(B), (C), or (D), respectively. See paragraph (e) for rules
relating to the making the election. See Sec. 1.6417-4 for special
rules related to electing taxpayers that are partnerships or S
corporations.
(b) Elections with respect to the credit for production of clean
hydrogen. An electing taxpayer that has placed in service applicable
credit property described in Sec. 1.6417-1(e)(5) (in other words, a
qualified clean hydrogen production facility as defined in section
45V(c)(3)) during the taxable year may make an elective payment
election for such taxable year (or by August 16, 2023, in the case of
facilities placed in service before December 31, 2022), but only with
respect to the qualified clean hydrogen production facility, only with
respect to the applicable credit described in Sec. 1.6417-1(d)(5) (in
other words, the section 45V credit), and only if the pre-filing
reg
[…truncated; see source link]Indexed from Federal Register on June 21, 2023.
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