The Inflation Reduction Act and Its Impact on Nonprofits
Under the Inflation Reduction Act of 2022, nonprofit organizations have the opportunity to receive credits for the production of investment in electricity from renewables or clean energy, including the purchase of qualified commercial “clean” vehicles.
More specifically, the Inflation Reduction Act includes 12 different credits that are available for “elective pay,” meaning organizations can receive a payment that is equal to the full value of the tax credits. This is different from credits that have been issued in the past, where organizations had to meet certain qualifications before applying and were not guaranteed an award.
Under the Inflation Reduction Act of 2022, nonprofits that meet the criteria laid out are guaranteed a credit—so long as they register and file their claims in accordance with guidelines.
How to Use the New Pre-Filing Tool to Claim Credits
For nonprofit organizations that have invested in clean energy, now is the time to pre-file using the free IRA/CHIPS Pre-Filing Registration Tool now available on the IRS website. Pre-filing allows nonprofits and other qualifying businesses to take advantage of elective pay or transfer of credits for things like:
- clean energy investments
- solar panel installation
- geothermal HVAC installation or replacement
- electric vehicle purchase
- charging infrastructure
To complete registration, nonprofits will need to log into their existing IRS online clean energy accounts or authorize creation of a new account (if one has not already been created). From there, some additional information will be needed, including documentation to support the credits the entity will report on its tax return. It is also important to note that only authorized representatives of nonprofit entities may use the tool to register and provide information.
Documentation (such as purchase receipts) can be uploaded directly from a computer or smart device. Depending on specific credits being claimed, additional supporting information or documentation may be requested.
Once the registration filing has been processed by the IRS, a registration number will be provided to the entity taxpayer that can be used when filing taxes. Some nonprofits may need more than one registration number, so it’s important to read the instructions carefully and confirm how many registration numbers the entity will need before proceeding. After all, this number can vary based on many factors, including how the entity reports and computes its tax credits.
When Should Nonprofits Register?
In general, nonprofit organizations should register for these tax credits using the IRS’s free tool no earlier than the beginning of the tax period when the credit is to be claimed. This means that for those claiming a credit on their 2024 taxes, registration should be completed no sooner than January 1, 2024.
Likewise, it is recommended that pre-registration/filing be completed at least 120 days prior to filing the tax return where credits are being claimed. Failing to register within at least 120 days could result in claims being delayed. The full 120 days is needed for the IRS to review the request, issue registration numbers (where applicable) and request more information when needed. It is also worth noting that the due date includes any time provided for filing extensions
The Bottom Line on Nonprofits and Green Energy Credits
New green energy credits available through the Inflation Reduction Act of 2022 aim to reward nonprofits and other business entities for investing in clean and renewable energy initiatives. For nonprofits that have made purchases or investments in clean energy within the past year (or plan to do so in the coming tax year), taking the time to pre-file through the IRS is crucial to securing these elective payouts.
For more information or assistance with pre-filing for credits as a nonprofit, consult with a financial advisor or tax preparation expert.
Contact Frankel to learn more about how we can support your business at www.frankel.cpa or call us at (402) 469-9100.