The Internal Revenue Service (IRS) has issued revised, final rules pertaining to Elective Pay, also known as “Direct Pay,” under the Inflation Reduction Act. This mechanism enables tax-exempt entities—including cities, states, school districts, nonprofits, Tribal governments, and religious institutions—to receive direct payments from the IRS for tax credits associated with clean energy projects, such as electric vehicle purchases, EV charging stations, solar, and wind farms. The Final Rule, largely in alignment with the proposed regulations from June of the previous year, introduces several significant amendments and addresses some of the feedback from stakeholders. The Treasury Department has indicated that additional guidance on Transferability rules is forthcoming.

This summary reflects Lawyers for Good Government (L4GG)’s preliminary analysis of the IRS Final Rule on Elective Pay. For further details and updates, stakeholders are encouraged to consult the full document and FAQs available on L4GG’s Elective Pay and IRA Resources Page.

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Date: March 6, 2024

Sector(s): Other Climate

State(s): None