Under the IRA rules, 12 applicable tax credits for Direct Pay are in the following four categories. H.R. 1 updates most likely to impact state agency have been notated below but it is not an exhaustive list of the changes to Direct Pay credits or related energy policy included in H.R. 1. 

• Energy Generation & Carbon Capture
  • Production Tax Credit for Electricity from Renewables (45)
  • Clean Electricity Production Tax Credit (45Y) 2025 onwards *H.R. 1 requires solar and wind project to be placed in service by 12/31/2027.
  • Investment Tax Credit for Energy Property (48) pre-2025
  • Clean Electricity Investment Tax Credit (48E) 2025 onwards *H.R. 1 requires solar and wind projects to be placed in service by 12/31/2027.
  • Low-Income Communities Bonus Credits (48e, 48E(h))
  • Carbon Oxide Sequestration (45Q)
  • Zero-Emission Nuclear Power Production Credits (45U)
• Manufacturing
  • Advanced Energy Project Credit (48C)
  • Advanced Manufacturing Production Credit (45X)
• Vehicles
  • Credit for Qualified Commercial Clean Vehicles (45W) *H.R. 1 terminates this effective 9/30/2025
  • Alternative Fuel Vehicle Refueling Property Credit (30C) *H.R. 1 terminates this effective 6/30/2026
• Fuels
  • Clean Hydrogen Production Tax Credits(45V)
  • Clean Fuel Production Credit (45Z) 2025 onwards

Entities will use the amount of these credits as a payment against tax on their tax returns and receive them as direct payments from the U.S. Treasury. IRS Publication 5817-G has details of the tax provisions and descriptions of the 12 types of tax credits.

Agency Role

Agencies are responsible for filing tax returns so the state can receive direct pay tax credits. The agency is responsible for:

• Subscribing to the IRS and relevant organizations for updates about Direct Pay
• Determining at every stage of the project(s) whether legal counsel or subject matter experts will be needed to help determine eligibility and complete tax returns. Procure the necessary services accordingly.
• Identifying projects that qualify for direct pay tax credits and reporting this information to OFM during the budget process and once the work is completed and placed in service.
• Preregistering for direct pay tax credits for each eligible project.
• Submitting tax return for direct pay tax credits for each eligible project.
• Sharing a copy of the pre-filing and the tax return with OFM for tracking.
• Depositing tax credit money to Fund 28V - Inflation Reduction Elective Pay Account.

Process and Timeline of Tax Return

• Agencies identify projects that qualify for direct pay tax credits and notify OFM. This will build on the list of projected created in early 2024, and updated in June 2025 for the report to the legislature.
  • The report included a summary of tax return(s) submitted for the fiscal year ended (include a list of projects claimed, total dollar value of projects and total dollar amount of credits sought).
• Agencies will continue to use the state fiscal year as their tax year. Once the tax year was established, it can’t be changed
• The next tax returns are due on November 15th, 2025. If an extension is granted from the IRS, the tax return is due May 15th of the following year. This will be the last tax return with electric vehicles purchase included due to the changes in HR1.

Annual Timeline

Agencies can work on the tax return as soon as the IRS opens the portal for the tax year. This is typically September, or about three months before the end of the tax year. The pre-filing work coincides with year-end closing and budget build, so we encourage agencies to complete this step as soon as they know the project is placed in service and the IRS portal is open.

An eligible entity must complete IRS’s pre-registration to help streamline the process during regular filing. Eligible entities obtain a separate registration number for each project site/property to be used on the annual tax return to get the Direct Pay tax credit. The registration numbers required depend on how many applicable credit properties will generate those credits.

In general, you should pre-register:

• No earlier than the beginning of the tax period when you earn the credit. For example, if you do a project in 2024, you should only pre-register in the 2025 tax filing season. 
• After placing an investment property or production facility in service, electricity is produced, or the electric charger is installed and ready to charge vehicles.  

IRS Publication 5884 and the FAQs published have detailed information on the pre-filing registration. This external website also has good information about the process.

Here is a step-by-step guidance on the registration process: Direct Pay Pre-filing Registration Step-by-step guidance

Pre-Filing Registration System

• Register for elective payment or transfer of credits | Internal Revenue Service
• Publication 5884, Inflation Reduction Act (IRA) and CHIPS Act of 2022 (CHIPS) Pre-Filing Registration Tool User Guide
• Publication 5902, Clean Energy Authorization Permission Management User Guide

The provisions of Direct Pay can be found in Sec 8008 of Engrossed Substitute Senate Bill 5949 which is the 2024 Supplemental Capital Budget that was passed in March 2024.

IRS Publication 5817 provides a brief description of tax credit provisions for direct pay/elective pay. Initial analysis indicated that tax credits for Washington State fell mainly in three areas:

1. Investment Tax Credit for Energy Property (48) pre-2025 / Clean Electricity Investment Tax Credit (48E) 2025 onwards
2. Credit for Qualified Commercial Clean Vehicles (45W)
3. Alternative Fuel Vehicle Refueling Property Credit (30C)

See brief descriptions of the tax provisions: Brief description of tax credit provisions for Washington State

Form 990-T for Elective Payment Election Only Presentation

Applicable entities filing Form 990-T by mail

Elective pay and transferability | Internal Revenue Service (irs.gov)

Elective Pay and Transferability Frequently Asked Questions: Elective Pay | Internal Revenue Service (irs.gov)

Credits and deductions under the Inflation Reduction Act of 2022 | Internal Revenue Service (irs.gov)

Instructions for Filing Form 3800 for Certain 2023 Short Tax Years (irs.gov)

Register for elective payment or transfer of credits | Internal Revenue Service (irs.gov)

Publication 5902 (Rev. 1-2024) (irs.gov)

Treasury, IRS issue guidance for the advanced manufacturing investment credit | Internal Revenue Service

Publication 5817_Elective Pay Overview

Publication 5817-A_Rural Electric Cooperatives

Publication 5817-B_ U.S. Territorial Governments

Publication 5817-C_Alaska Native Corporations

Publication 5817-D_Tax-Exempt Organizations

Publication 5817-E_State and Local Governments

Publication 5817-F_Indian Tribal Governments

Publication 5817-G_Elective Pay Eligible Tax Credits

Publication 5902_Clean Energy Authorization Permission Management

E-file options | Internal Revenue Service (irs.gov)

Direct Pay

Cheat sheet for filing year and due date

Direct Pay Webinar for State Agencies 

Special thanks to WA Department of Commerce and Lawyers for Good Governance in hosting this webinar for our state agencies!

Frequently Asked Questions

• Use of employee personal information to complete registration and tax returns: what are the implications and can employee refuse to register/file under their name?

Agency will need a main preparer, a backup, and a signer for the tax return.

Response: Employee is acting in their official capacity, not a personal liability

• Who should sign the tax return for the agency filing? And what risks/liabilities would be implied?

Response: Agency head/designee at director’s level

Employee is acting in their official capacity, not a personal liability

• Can this process be centralized (at OFM)?

Response: Whoever owns the property has to be the one to file under their own tax identification number

• The University already files a tax return annually and the credits from Direct Pay could help offset any tax liability. Would the University still be required to deposit the Direct Pay incentive portion to fund 28V - Inflation Reduction Elective Pay Account per ESB 6098.

Response: Sec. 5, which creates the account, does not provide for any exceptions.  So on the plain meaning of the section, if the funds are received from elective pay provided under the federal act, the funds “must” be deposited into that account.

• For an entity like the University, does the requirement to deposit Direct Pay tax credits in fund 28V apply to projects that are not funded by the state (such as money from donors or local accounts)?

Response: If the project is not funded by state money, then the money received back does not need to be deposited into the account.  Although money provided through private donations are not state funds, money in local accounts may or may not be state funds.  They should check with accounting to help make that determination.

• Can we include projects from previous years that were eligible but omitted in previous years’ filings by mistake?

Response: Based on guidance from Lawyers for Good Government, unfortunately not. Elective pay credits must be claimed on an original, timely filed return for the year in which the credit is earned.  Credits from past years cannot be claimed on current return even if the credit was not previously claimed.