can be claimed if the property is placed in service by a specific deadline (usually within four years after the construction began).6 A 30% ITC is available for taxpayers who “began construction” by Dec. 31, 2019, with reduced percentages available for projects begun after this date.7 There are two methods to determine when construction begins: the “Physical Work Test” and the “5% Safe Harbor.”8 Continual progress towards completion is mandatory for both methods, generally requiring the project to be “placed in service” within the fourth calendar year after commencement of construction. B. General PTC Requirements To qualify for the PTC, eligible energy properties must satisfy three criteria: (i) electricity must be produced from a qualified energy resource (including wind, closed-loop biomass, open-loop biomass, geothermal energy, solar energy, small irrigation power, municipal solid waste, qualified hydropower production, and marine and hydrokinetic renewable energy); (ii) the project must be a qualified facility; and (iii) the electricity produced must be sold to an unrelated person.9 A Qualified Facility is an energy property that is: (i) owned by the tax payer; (ii) placed in service after 1992; and (iii) construction of which begins before Jan. 1, 2025.10 The PTC, like the ITC, also uses the “Physical Work Test” or the “5% Safe Harbor” method to determine the beginning of construction date. Lastly, the electricity must be sold to an unrelated person, generally requiring that the energy is not sold to an entity under common control or ownership, such as a parent-subsidiary, brother-sister corporation, or combined groups of corporations.11 The PTC is equal to the product of 0.3 cent multiplied by the kilowatt hours of electricity (a) produced by the taxpayer from qualified energy resources and at a qualified facility during the 10-year period beginning on the date the facility was originally placed in service, and (b) sold by the taxpayer to an unrelated person, increased by an inflation factor.12 If an energy project meets the prevailing wage requirements set forth in the Code, the amount of the credit can increase further.13 FINAL REGULATIONS FOR TRANSFERABILITY AND DIRECT PAY Transferability allows eligible taxpayers to transfer all or a portion of their eligible tax credits to unrelated taxpayers in exchange for cash payments, beginning after Dec. 31, 2022.14 These cash payments are excluded from the gross income of the eligible taxpayers and are not deductible by the transferee.15 Direct pay, also referred to as elective pay, allows “applicable entities,”16 to receive a direct payment from the IRS in lieu of a tax credit.17 On April 25, 2024, the Treasury and the IRS issued final regulations (T.D. 9993) related to the election to transfer certain tax credits. This follows the recent issuance of final regulations (T.D. 9988) on March 6, 2024, concerning the direct pay of certain tax credits. A. Transferability A taxpayer can elect to transfer all or a portion of an eligible credit to an unrelated transferee taxpayer. However, the following requirements, attributes, and impacts apply: Partnerships and entities with tax-exempt partners may qualify as transferors, if the entity has not made a direct pay election for eligible credits; Energy storage technology is eligible credit property; The transfer must be a one-time event, but transferors may transfer to multiple transferees; Bonus credit amounts, additional credits earned from meeting specific requirements such as prevailing wage and apprenticeship requirements, cannot be transferred separately from the base credit amounts; Grantor trusts can make transfer elections for eligible tax credits; There is an automatic six-month extension from the original due date of the tax return, excluding any other extensions, for making a transfer election; The initial transfer election cannot be made on an amended return; however, adjustments to the amount of the credit can be made on an amended return if the election was made timely on the original or superseding return; and Transferees may carry forward any unused credit amounts by applying the rules of Code Section 39(a)(4). B. Direct Pay An eligible business may elect for direct payment in lieu of a tax credit. However, the following requirements, attributes, and impacts apply: “Applicable entities” include all organizations exempt from tax under Section 501(a) of the Code. Federal agencies and state-law non-profits without federal tax‑exempt status are not “applicable entities” for Section 6717. Additionally, partnerships and S corporations are not “applicable entities,” regardless of whether their partners or shareholders are applicable entities; The initial transfer election cannot be made on an amended return; however, adjustments to the amount of the credit can be made on an amended return if the election was made timely on the original or superseding return; There is an automatic six-month extension from the original due date of the tax return, excluding any other extensions, for making a direct pay election; Applicable entities can choose their taxable year based on calendar or fiscal year, if they maintain adequate CONTINUED FROM PAGE 15 16 Nebraska CPA
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