Taxpayers can now register federal tax credits eligible for elective payment or transfer under Internal Revenue Code (IRC) Section 6417 and IRC Section 6418 respectively. The IRS released the long-anticipated online prefiling portal on December 22, 2023.
The IRS also issued Publication 5884, Inflation Reduction Act and CHIPS Act of 2022 Pre-Filing Registration Tool User Guide and Instructions, which outlines the registration process and provides ample insight into the process and its mechanics.
Background
The Inflation Reduction Act of 2022 (IRA) allows eligible taxpayers to monetize certain energy related federal tax credits by either transferring those credits to an unrelated third-party or electing to treat the credits as refundable and receiving a direct payment of the credit amount.
Eligible taxpayers must preregister and obtain a registration number for IRA credits before filing the tax return on which an election for direct payment or transfer is made. Both the elective payment and transfer elections are generally made on an annual tax return using Form 3800, general business credits, where the registration number is identified upon filing.
Registration numbers are required for each eligible property for which the credit is claimed and is only valid for one taxable year. For taxpayers placing multiple projects into service annually, or receiving 10-year production tax credits, the annual registration process could potentially become a significant compliance burden.
Planning Considerations
The IRS clarified that registration numbers aren’t instantly generated upon submission. In fact, the IRS recommends submitting prefiling registration at least 120 days prior to filing a return.
Taxpayers submitting prefiling registration, as well as potential transferees, should be aware of this substantial review period and begin compiling the necessary information as early as possible.
Another complicating feature of the portal and the preregistration process is that each registration number is unique to the election type. Taxpayers must indicate at the time of registration whether they intend to transfer or pursue elective payment.
A credit with elective payment registration number, for example, may not be transferred without amending the registration. Such an amendment should be made at least 120 days prior to filing a return to avoid a situation where a registration number is not obtained by the time a return is due.
Taxpayers expecting to earn credits should determine as early as possible the type of credit they expect to earn, whether a transfer or elective pay election is allowed for that type of credit, and which option makes the best sense for their business. An incorrect election in the portal could result in the inability to transfer or receive a refund for that taxable year.
We’re Here to Help
If you have questions about the portal or the registration process itself, or if you need assistance managing this new annual compliance burden, please contact your Moss Adams professional.