The final regulations are effective on May 10, 2024.

Last week, the Department of the Treasury issued final regulations that address the Elective Pay program (also called direct pay), predominantly under Internal Revenue Code Section 6417 and associated Treasury Regulations. The final regulations can be found here and are effective on May 10, 2024.

The final regulations clarify some procedural aspects of Elective Pay. Alaska Native Corporations remain entities eligible for Elective Pay (called “applicable entities” in the regulations). Under the final regulations, ANCs and other eligible entities can expect any Elective Pay credit to pay out 45 days or fewer from the due date of their annual tax return. All eligible entities have to pre-file with the IRS to receive Elective Pay credits. To pre-file, please visit the link here. You may review IRS Publication 5884 for detailed instructions on how to pre-file. For an eligible entity that does not incur a filing obligation, such as a town or other local municipality, the final regulations describe how to determine that entity’s tax year.

The amount of Elective Pay credit is determined with respect to the eligible entity that holds the property that qualifies. For entities that co-own eligible property, the final regulations allow for such co-owners to elect out-of-joint-ownership treatment under Treas. Reg. Section 1.6417-2(a)(1)(iii). Electing out-of-joint-ownership may be beneficial for parties that co-own eligible property through a partnership. Even if it owns the property, the partnership generally may not participate in Elective Pay, because partnerships are generally not treated as eligible entities under Treas. Reg. Section 1.6417-2(a)(1)(iv). If an election for out-of-joint-ownership is made, any eligible entity co-owner of a partnership is allowed to participate in Elective Pay for its share of the property.

However, under the proposed rules for IRC Section 761, partnerships are eligible entities for the electricity Elective Pay credits in IRC Sections 45Q, 45V, and 45X. The final regulations do not clarify how co-ownership works for the credits. Instead, Treasury has issued a Notice of Proposed Rule Making for applicable entities that co-own applicable credit property which produces electricity. The comment period is open until May 10, 2024. To submit a written comment on the proposed IRC Section 761—the application of co-ownership rules to the electricity credits—please visit the link here or regulations.gov.

We also anticipate that, in the near future, Treasury will issue additional final regulations, intended to clarify how to transfer Elective Pay credits between applicable entities.