IRS issues new regs for manufacturing investment, clean energy credits

The Treasury and the Internal Revenue Service have released final regulations guidance for choosing the elective payment for the advanced manufacturing investment credit, as well as final regs for one aspect of the elective payment elections for certain clean energy credits.

The manufacturing investment credit regs include special rules for partnerships and S corps, as well as rules related to the mandatory pre-filing registration requirement that were previously issued as temporary regulations.

Established by the CHIPS Act of 2022, this credit incentivizes manufacturing of semiconductors and semiconductor manufacturing equipment within the U.S for taxpayers that meet certain eligibility requirements.

Taxpayers can make an elective payment election to be treated as making a refundable payment against the tax equal to the amount of the credit. A partnership or S corporation can make an elective payment election to receive a payment, instead of claiming the credit.

The final regs provide guidance related to the IRS pre-filing registration process (available through the pre-filing registration tool) that must be completed before making an elective payment election.

The final regulations for applicable entities that earn certain clean energy credits and choose an elective payment election are also out. Starting with tax year 2023, applicable entities can choose to make an elective payment election that will treat certain clean energy credits as a payment against their federal income tax liabilities, rather than as a nonrefundable credit.

Applicable entities generally include tax-exempt organizations, state and local governments, Indian tribal governments, Alaska Native corporations, the Tennessee Valley Authority and rural electric cooperatives. Electing taxpayers, which includes other taxpayers, may elect to be treated as an applicable entity for a limited number of credits.

The IRS also updated the elective payment frequently asked questions based on the final regulations.

Again, a pre-filing registration process must be completed, and the registration number must be received, prior to making an elective payment election.

Proposed regulations have also been issued regarding elections by certain unincorporated organizations owned by one or more applicable entities to be excluded from the application of the partnership tax rules. These proposed regulations would provide certain exceptions to the existing regulations for certain unincorporated organizations with one or more applicable entities and would allow such entities to make an elective payment election.

Meanwhile, Notice 2024-27  requests additional comments on any situations in which an elective payment election could be made for a clean energy credit that was purchased in a transfer, which is referred to as chaining.