This overview of the Inflation Reduction Act's new Clean Energy Tax Credits focuses on the IRS's newly proposed "Elective Pay" (aka "Direct Pay") rules. This highly anticipated financial mechanism provides a historical opportunity for local governments to benefit from clean energy operations and investments.
Elective pay makes certain clean energy tax credits effectively refundable. With elective pay, an eligible entity (such as a local government) that qualifies for a clean-energy investment tax credit can notify the IRS of its intent to claim the credit and then file an annual tax return to claim the full value of the credit. The IRS would then pay the local government the value of the credit.