[Federal Register Volume 88, Number 118 (Wednesday, June 21, 2023)]
[Proposed Rules]
[Pages 40528-40558]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-12798]



[[Page 40527]]

Vol. 88

Wednesday,

No. 118

June 21, 2023

Part IV





Department of the Treasury





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Internal Revenue Service





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26 CFR Parts 1 and 301





Section 6417 Elective Payment of Applicable Credits; Proposed Rule

  Federal Register / Vol. 88, No. 118 / Wednesday, June 21, 2023 / 
Proposed Rules  

[[Page 40528]]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 301

[REG-101607-23]
RIN 1545-BQ63


Section 6417 Elective Payment of Applicable Credits

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed regulations concerning the 
election under the Inflation Reduction Act of 2022 to treat the amount 
of certain tax credits as a payment of Federal income tax. The proposed 
regulations describe rules for the elective payment of these credit 
amounts in a taxable year, including definitions and special rules 
applicable to partnerships and S corporations and regarding repayment 
of excessive payments. In addition, the proposed regulations describe 
rules related to an IRS pre-filing registration process that would be 
required. These proposed regulations affect tax-exempt organizations, 
State and local governments, Indian tribal governments, Alaska Native 
Corporations, the Tennessee Valley Authority, rural electric 
cooperatives, and, in the case of three of these credits, certain 
taxpayers eligible to elect the elective payment of credit amounts in a 
taxable year. This document also provides notice of a public hearing on 
the proposed regulations.

DATES: Written or electronic comments must be received by August 14, 
2023. The public hearing on these proposed regulations is scheduled to 
be held on August 21, 2023, at 10 a.m. ET. Requests to speak and 
outlines of topics to be discussed at the public hearing must be 
received by August 14, 2023. If no outlines are received by August 14, 
2023, the public hearing will be cancelled. Requests to attend the 
public hearing must be received by 5 p.m. ET on August 17, 2023. The 
public hearing will be made accessible to people with disabilities. 
Requests for special assistance during the hearing must be received by 
August 16, 2023.

ADDRESSES: Stakeholders are strongly encouraged to submit public 
comments electronically. Submit electronic submissions via the Federal 
eRulemaking Portal at https://www.regulations.gov (indicate IRS and 
REG-101607-23) by following the online instructions for submitting 
comments. Once submitted to the Federal eRulemaking Portal, comments 
cannot be edited or withdrawn. The Department of the Treasury (Treasury 
Department) and the IRS will publish for public availability any 
comments submitted, whether electronically or on paper, to the IRS's 
public docket. Send paper submissions to: CC:PA:LPD:PR (REG-101607-23), 
Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin 
Station, Washington, DC 20044.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Jeremy Milton at (202) 317-5665 and James Holmes at (202) 317-5114 (not 
toll-free numbers); concerning submissions of comments or the public 
hearing, Vivian Hayes at (202) 317-6901 (not a toll-free number) or by 
email to [email protected] (preferred).

SUPPLEMENTARY INFORMATION: 

Background

    Section 6417 was added to the Internal Revenue Code (Code) on 
August 16, 2022, by section 13801(a) of Public Law 117-169, 136 Stat. 
1818, 2003, commonly referred to as the Inflation Reduction Act of 2022 
(IRA). Section 6417 allows ``applicable entities'' (including tax-
exempt organizations, State and local governments, Indian tribal 
governments, Alaska Native Corporations, the Tennessee Valley 
Authority, and rural electric cooperatives) to make an election to 
treat an applicable credit determined with respect to such entity as 
making a payment against the tax imposed by subtitle A of the Code 
(subtitle A), for the taxable year with respect to which such credit 
was determined, equal to the amount of such credit. Section 6417 also 
allows certain taxpayers to elect to be treated as applicable entities 
for limited purposes, as described in part III of this background 
section. Section 6417 also provides special rules relating to 
partnerships and S corporations and directs the Secretary of the 
Treasury or her delegate (Secretary) to provide rules for making 
elections under section 6417 and to require information or registration 
necessary for purposes of preventing duplication, fraud, improper 
payments, or excessive payments under section 6417. Section 13801(g) of 
the IRA provides that section 6417 applies to taxable years beginning 
after December 31, 2022. This document contains proposed regulations 
that would amend the Income Tax Regulations (26 CFR part 1) and the 
Procedure and Administration Regulations (part 301) to implement the 
statutory provisions of section 6417.
    In the Rules and Regulations section of this issue of the Federal 
Register, the Treasury Department and the IRS are issuing temporary 
regulations under Sec.  1.6417-5T that implement the pre-filing 
registration process described in proposed Sec.  1.6417-5 of the 
proposed regulations. The temporary regulations require applicable 
entities that want to elect the elective payment of applicable credit 
amounts to register with the IRS through an IRS electronic portal in 
advance of the applicable entity filing the return on which the 
election under section 6417 is made.

I. Overview of Section 6417

    Section 6417(a) provides that, in the case of an applicable entity 
that makes an elective payment election under section 6417 with respect 
to any applicable credit determined with respect to the applicable 
entity for the taxable year, the applicable entity is treated as making 
a payment against the tax imposed by subtitle A, that is, Federal 
income taxes, for the taxable year with respect to which such credit 
was determined that is equal to the amount of such credit (elective 
payment amount). An election under section 6417 must be made at such 
time and in such manner as provided by the Secretary.
    Section 6417(b) defines the term ``applicable credit'' to mean each 
of the following 12 credits:
    (1) So much of the credit for alternative fuel vehicle refueling 
property allowed under section 30C of the Code that, pursuant to 
section 30C(d)(1), is treated as a credit listed in section 38(b) of 
the Code (section 30C credit);
    (2) So much of the renewable electricity production credit 
determined under section 45(a) of the Code as is attributable to 
qualified facilities that are originally placed in service after 
December 31, 2022 (section 45 credit);
    (3) So much of the credit for carbon oxide sequestration determined 
under section 45Q(a) of the Code as is attributable to carbon capture 
equipment that is originally placed in service after December 31, 2022 
(section 45Q credit);
    (4) The zero-emission nuclear power production credit determined 
under section 45U(a) of the Code (section 45U credit);
    (5) So much of the credit for production of clean hydrogen 
determined under section 45V(a) of the Code as is attributable to 
qualified clean hydrogen production facilities that are

[[Page 40529]]

originally placed in service after December 31, 2012 (section 45V 
credit);
    (6) In the case of a ``tax-exempt entity'' described in section 
168(h)(2)(A)(i), (ii), or (iv) of the Code, the credit for qualified 
commercial vehicles determined under section 45W of the Code by reason 
of section 45W(d)(3) \1\ (section 45W credit);
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    \1\ The reference should be to 45W(d)(2). This has been 
corrected in the proposed regulations.
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    (7) The credit for advanced manufacturing production under section 
45X(a) of the Code (section 45X credit);
    (8) The clean electricity production credit determined under 
section 45Y(a) of the Code (section 45Y credit);
    (9) The clean fuel production credit determined under section 
45Z(a) of the Code (section 45Z credit);
    (10) The energy credit determined under section 48 of the Code 
(section 48 credit);
    (11) The qualifying advanced energy project credit determined under 
section 48C of the Code (section 48C credit); and
    (12) The clean electricity investment credit determined under 
section 48E of the Code (section 48E credit).
    As described in part II of this Background section, section 6417(d) 
defines an ``applicable entity'' and provides generally applicable 
rules for making elective payment elections. Sections 6417(e) through 
(h) provide special rules applicable under section 6417 that are 
described in part II of this Background section. As described in parts 
III and IV of this Background section, section 6417(c), (d)(1)(B), (C), 
and (D), and (d)(3) also contain special rules allowing a taxpayer, 
including for this purpose a partnership or S corporation, that is not 
an applicable entity (electing taxpayer) to elect to be treated as an 
applicable entity for the limited purpose of making an elective payment 
election under section 6417, but only with respect to section 45Q 
credits, section 45V credits, and section 45X credits. Part V of this 
Background section describes Notice 2022-50, 2022-43 I.R.B. 325, which, 
in part, requested feedback from the public on potential issues with 
respect to the elective payment election provisions under section 6417.

II. Applicable Entities and General Elective Payment Election Rules

    Section 6417(d)(1)(A) defines the term ``applicable entity'' to 
mean:
    (1) Any organization exempt from tax imposed by subtitle A;
    (2) Any State or political subdivision thereof;
    (3) The Tennessee Valley Authority;
    (4) An Indian tribal government (as defined in section 30D(g)(9) of 
the Code);
    (5) Any Alaska Native Corporation (as defined in section 3 of the 
Alaska Native Claims Settlement Act (43 U.S.C. 1602(m)); or
    (6) Any corporation operating on a cooperative basis that is 
engaged in furnishing electric energy to persons in rural areas.
    Section 6417(d)(2) provides that, in the case of any applicable 
entity that makes the election described in section 6417(a), any 
applicable credit amount is determined (1) without regard to section 
50(b)(3) and (4)(A)(i) of the Code (that is, restrictions on property 
used by tax-exempt organizations and governmental units), and (2) by 
treating any property with respect to which such credit is determined 
as used in a trade or business of the applicable entity.
    Section 6417(d)(3)(A)(i) provides rules regarding the due date for 
making any elective payment election. In the case of any government 
(such as a State, the District of Columbia, an Indian Tribal 
government, any U.S. territory, or any agency or instrumentality of the 
foregoing), or political subdivision, described in section 6417(d)(1) 
and for which no Federal income tax return is required under sections 
6011 or 6033(a) of the Code, any election under section 6417(a) cannot 
be made later than the date as is determined appropriate by the 
Secretary. In any other case, any election under section 6417(a) cannot 
be made later than the due date (including extensions of time) for the 
tax return for the taxable year for which the election is made, but in 
no event earlier than 180 days after the date of the enactment of 
section 6417 (that is, in no event earlier than 180 days after August 
16, 2022, which is February 13, 2023).
    Section 6417(d)(3)(A)(ii) provides that any election under section 
6417(a), once made, is irrevocable, and applies (except as otherwise 
provided in section 6417(d)(3)) with respect to any credit for the 
taxable year for which the election is made.
    Section 6417(d)(3)(B) provides that, in the case of section 45 
credits, any election under section 6417(a): (1) applies separately 
with respect to each qualified facility; (2) must be made for the 
taxable year in which such qualified facility is originally placed in 
service; and (3) applies to such taxable year and to any subsequent 
taxable year that is within the 10-year credit period described in 
section 45(a)(2)(A)(ii) with respect to such qualified facility.
    Section 6417(d)(3)(C) provides that, in the case of section 45Q 
credits, any election under section 6417(a): (1) applies separately 
with respect to the carbon capture equipment originally placed in 
service by the applicable entity during a taxable year; and (2) applies 
to such taxable year and to any subsequent taxable year that is within 
the 12-year credit period described in section 45Q(a)(3)(A) or (4)(A) 
with respect to such equipment. Section 6417(d)(3)(C)(i)(II)(aa), 
(d)(3)(C)(ii), and (d)(3)(C)(iii) provides special rules for a taxpayer 
making the election to be treated as an applicable entity for purposes 
of section 6417 with respect to the 45Q credit (see part III of this 
Background section).
    Section 6417(d)(3)(D) provides that, in the case of section 45V 
credits, any election under section 6417(a): (1) applies separately 
with respect to each qualified clean hydrogen production facility; (2) 
must be made for the taxable year in which such facility is placed in 
service (or within the 1-year period subsequent to the date of 
enactment of section 6417 in the case of facilities placed in service 
before December 31, 2022); and (3) applies to the taxable year and all 
subsequent taxable years with respect to such facility. Section 
6417(d)(3)(D)(i)(III)(aa), (d)(3)(D)(ii), and (d)(3)(D)(iii) provide 
special rules for a taxpayer making the election to be treated as an 
applicable entity for purposes of section 6417 with respect to the 45V 
credit (see part III of this Background section).
    Section 6417(d)(3)(E) provides that, in the case of section 45Y 
credits, any election under section 6417(a): (1) applies separately 
with respect to each qualified facility; (2) must be made for the 
taxable year in which such facility is placed in service; and (3) 
applies to such taxable year and to any subsequent taxable year that is 
within the 10-year credit period described in section 45Y(b)(1)(B) with 
respect to such facility.
    Section 6417(d)(4) provides rules regarding when the elective 
payment is treated as made. Section 6417(d)(4)(A) provides that in the 
case of any government or political subdivision described in section 
6417(d)(1), and for which no return is required under section 6011 or 
section 6033(a), the payment described in section 6417(a) is treated as 
made on the later of the date that a return would be due under section 
6033(a) if such government or subdivision were described in section 
6033 or the date on which such government or subdivision submits a 
claim for credit or refund (at such time and in such manner as the 
Secretary provides). Section 6417(d)(4)(B) provides that, in any other 
case, the payment described in section 6417(a) is

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treated as made on the later of the due date (determined without regard 
to extensions) of the return of tax for the taxable year or the date on 
which such return is filed with the IRS.
    Section 6417(d)(5) provides that, as a condition of, and prior to, 
any amount being treated as a payment that is made by an applicable 
entity under section 6417(a), the Secretary may require such 
information or registration as the Secretary deems necessary for 
purposes of preventing duplication, fraud, improper payments, or 
excessive payments under section 6417.
    Section 6417(d)(6) provides rules relating to excessive payments. 
In the case of any amount treated as a payment that is made by the 
applicable entity under section 6417(a), or the amount of the payment 
made pursuant to section 6417(c), that is determined to constitute an 
excessive payment, the tax imposed on such entity by chapter 1 of the 
Code (chapter 1), regardless of whether such entity would otherwise be 
subject to chapter 1 tax, for the taxable year in which such 
determination is made is increased by an amount equal to the sum of (1) 
the amount of such excessive payment, plus (2) an amount equal to 20 
percent of such excessive payment. The increase equal to 20 percent of 
the excessive payment does not apply if the applicable entity can 
demonstrate that the excessive payment resulted from reasonable cause.
    An excessive payment is defined as, with respect to a facility or 
property for which an election is made under section 6417 for any 
taxable year, an amount equal to the excess of (1) the amount treated 
as a payment that is made by the applicable entity under section 
6417(a), or the amount of the payment made pursuant to section 6417(c), 
with respect to such facility or property for such taxable year, over 
(2) the amount of the credit that, without application of section 6417, 
would be otherwise allowable (as determined pursuant to section 
6417(d)(2) and without regard to section 38(c)) with respect to such 
facility or property for such taxable year.
    Section 6417(e) provides a denial of double benefit rule providing 
that, in the case of an applicable entity making an election under 
section 6417 with respect to an applicable credit, such credit is 
reduced to zero and, for any other purpose under the Code, is deemed to 
have been allowed to such entity for such taxable year.
    Section 6417(f) provides a special rule relating to any territory 
\2\ of the United States with a mirror code tax system (as defined in 
section 24(k) of the Code). Under this rule, section 6417 will not be 
treated as part of the income tax laws of the United States for 
purposes of determining the income tax law of any such U.S. territory 
unless such U.S. territory elects to have section 6417 be so treated. 
Currently, the U.S. Virgin Islands, Guam, and the Commonwealth of the 
Northern Mariana Islands have mirror code tax systems.
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    \2\ Section 6417(f) uses the term ``possession,'' but this 
proposed regulation uses the alternative term ``territory.''
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    Section 6417(g) provides basis reduction and recapture rules. It 
states that, except as otherwise provided in section 6417(d)(2)(A),\3\ 
rules similar to the rules of section 50 apply for purposes of section 
6417.
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    \3\ Section 6417(g) actually states ``subsection (c)(2)(A),'' 
but there is no section 6417(c)(2)(A); thus, the proposed 
regulations correct the reference to state``(d)(2)(A).''
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    Section 6417(h) authorizes the Secretary to issue regulations or 
other guidance as may be necessary to carry out the purposes of section 
6417, including guidance to ensure that the amount of the payment or 
deemed payment made under section 6417 is commensurate with the amount 
of the credit that would be otherwise allowable (determined without 
regard to section 38(c)).

III. Special Rules Relating to Certain Taxpayers Making an Election 
Under Section 6417(d)(1)(B), (C), or (D) (Electing Taxpayers)

    A taxpayer other than an applicable entity under section 
6417(d)(1)(A) may make an election under section 6417(d)(1)(B), (C), or 
(D) at such time and in such manner as the Secretary provides (but no 
election may be made with respect to any taxable year beginning after 
December 31, 2032). The election allows the electing taxpayer to be 
treated as an applicable entity for the limited purpose of making an 
elective payment election under section 6417 with respect to a section 
45V credit, a section 45Q credit, or a section 45X credit, 
respectively. The special rules for such an election are described in 
paragraphs III.A, III.B, and III.C of this background section.
A. Electing Taxpayers Making an Election With Respect to Section 45V 
Credits
    Section 6417(d)(1)(B) allows an electing taxpayer to make an 
elective payment election for any taxable year in which such taxpayer 
has placed in service a qualified clean hydrogen production facility 
(as defined in section 45V(c)(3)), but only with respect to a section 
45V credit determined in such year with respect to the electing 
taxpayer. Pursuant to section 6417(d)(3)(D)(i)(III), such electing 
taxpayer is treated as having made such election for the taxable year 
with respect to which the election is made and each of the four 
subsequent taxable years ending before January 1, 2033. Under section 
6417(d)(3)(D)(iii), an electing taxpayer may elect to revoke the 
application of such election, but any such election to revoke, if made, 
applies to the applicable year specified in such election (but not any 
prior taxable year) and each subsequent taxable year within the 5-year 
period and cannot be revoked.
    Section 6417(d)(3)(D)(ii) prohibits an electing taxpayer from 
making a transfer election under section 6418(a) with respect to a 
section 45V credit for any year for which the electing taxpayer's 
election under section 6417(d)(1)(B) is in effect.
B. Electing Taxpayers Making an Election With Respect to Section 45Q 
Credits
    Section 6417(d)(1)(C) allows an electing taxpayer to make an 
elective payment election for any taxable year in which the electing 
taxpayer has, after December 31, 2022, placed in service carbon capture 
equipment at a qualified facility (as defined in section 45Q(d)), but 
only with respect to a section 45Q credit determined in such year with 
respect to such taxpayer. Pursuant to section 6417(d)(3)(C)(i)(II)(aa), 
such electing taxpayer is treated as having made such election for the 
taxable year with respect to which the election is made and each of the 
four subsequent taxable years ending before January 1, 2033. Under 
section 6417(d)(3)(C)(iii), an electing taxpayer may elect to revoke 
the application of such election, but any such election to revoke, if 
made, applies to the applicable year specified in such election (but 
not any prior taxable year) and each subsequent taxable year within the 
5-year period and cannot be revoked.
    Section 6417(d)(3)(C)(ii) prohibits an electing taxpayer from 
making a transfer election under section 6418(a) with respect to a 
section 45Q credit for any year for which the electing taxpayer's 
election under section 6417(d)(1)(C) is in effect.

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C. Electing Taxpayers Making an Election With Respect to Section 45X 
Credits
    Section 6417(d)(1)(D) allows an electing taxpayer to make an 
elective payment election for any taxable year in which the electing 
taxpayer has, after December 31, 2022, produced eligible components (as 
defined in section 45X(c)(1)), but only with respect to a section 45X 
credit determined in such year with respect to such taxpayer. Pursuant 
to section 6417(d)(1)(D)(ii)(I), such electing taxpayer is treated as 
having made such election for the taxable year with respect to which 
the election is made and each of the four subsequent taxable years 
ending before January 1, 2033. Under section 6417(d)(1)(D)(ii)(II), an 
electing taxpayer may elect to revoke the application of such election, 
but any such election to revoke, if made, applies to the applicable 
year specified in such election (but not any prior taxable year) and 
each subsequent taxable year remaining within the 5-year period and 
cannot be revoked.
    Section 6417(d)(1)(D)(iii) prohibits an electing taxpayer from 
making a transfer election under section 6418(a) with respect to a 
section 45X credit for any year for which the electing taxpayer's 
election under section 6417(d)(1)(D) is in effect.

IV. Section 6417 Rules for Partnerships and S Corporations

    Section 6417(c) provides special rules for partnerships and S 
corporations that hold directly (as determined for Federal income tax 
purposes) a facility or property for which an applicable credit is 
determined. Section 6417(c)(1) provides that, in the case of any 
applicable credit determined with respect to any facility or property 
held directly by a partnership or S corporation, any elective payment 
election must be made by such partnership or S corporation in the 
manner provided by the Secretary. If such a partnership or S 
corporation makes an elective payment election with respect to any 
applicable credit, (1) a payment is made to such partnership or S 
corporation equal to the applicable credit amount, (2) section 6417(e) 
is applied with respect to the applicable credit before determining any 
partner's distributive share, or S corporation shareholder's pro rata 
share, of such applicable credit, (3) any applicable credit amount with 
respect to which the election in section 6417(a) is made is treated as 
tax exempt income for purposes of sections 705 and 1366 of the Code, 
and (4) a partner's distributive share of such tax exempt income is 
based on such partner's distributive share of the otherwise applicable 
credit for each taxable year (an S corporation shareholder's share of 
tax exempt income is based on the shareholder's pro rata share).
    Section 6417(c)(2) provides that, in the case of any facility or 
property held directly by a partnership or S corporation, no election 
by any partner or shareholder is allowed under section 6417(a) with 
respect to any applicable credit determined with respect to such 
facility or property.

V. Notice 2022-50

    On October 24, 2022, the Treasury Department and the IRS published 
Notice 2022-50, 2022-43 I.R.B. 325, to, among other things, request 
feedback from the public on potential issues with respect to the 
elective payment election provisions under section 6417 that may 
require guidance. Over 200 comment letters were received in response to 
Notice 2022-50. Based in part on the feedback received, the Treasury 
Department and the IRS are issuing these proposed regulations regarding 
the elective payment election provisions under section 6417. The major 
areas with respect to which public stakeholders provided letters are 
discussed in the following Explanation of Provisions.

Explanation of Provisions

I. General Rules and Definitions

A. Applicable Entity
    Section 6417(d)(1) defines ``applicable entity'' as (1) any 
organization exempt from the tax imposed by subtitle A, (2) any State 
or political subdivision thereof, (3) the Tennessee Valley Authority, 
(4) an Indian tribal government (as defined in section 30D(g)(9)), (5) 
any Alaska Native Corporation (as defined in section 3 of the Alaska 
Native Claims Settlement Act (43 U.S.C. 1602(m)), or (6) any 
corporation operating on a cooperative basis that is engaged in 
furnishing electric energy to persons in rural areas. Proposed Sec.  
1.6417-1(c) would clarify these statutory definitions pursuant to the 
Secretary's authority under section 6417(h) to issue regulations 
necessary to carry out the purposes of section 6417, as discussed 
below.
1. Any Organization Exempt From the Tax Imposed by Subtitle A
    Stakeholders asked for clarification on the scope of the phrase 
``any organization exempt from the tax imposed by subtitle A'' for 
purposes of determining whether a taxpayer is an applicable entity. 
Entities may be exempt from tax or have their income exempt from tax 
under various authorities. For example, an organization could be exempt 
from taxation by section 501(a) of the Code or by other provisions of 
the Code. An organization could also have its income excluded from 
taxation by section 115.
    The Treasury Department and the IRS propose to define the term 
``any organization exempt from the tax imposed by subtitle A'' to 
include all organizations exempt from the tax imposed by subtitle A by 
section 501(a) of the Code, commonly referred to as ``tax-exempt 
organizations.''
    Several stakeholders requested clarification that tax-exempt 
entities in the U.S. territories are eligible to make an election under 
section 6417. Under these proposed regulations, such entities would be 
considered organizations exempt from the tax imposed by subtitle A as 
long as they are exempt from taxation by section 501(a) and as long as 
they meet the requirements to claim an applicable credit (such as being 
an appropriate owner of an investment credit property under sections 
50(b)(1)(B) and 168(g)(4)(G)).\4\
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    \4\ Section 50(b)(1) provides that no investment tax credit can 
be determined with respect to property used predominantly outside of 
the United States, but section 50(b)(1)(B) provides an exception for 
property described in section 168(g)(4). In the case of entities, 
section 168(g)(4)(G) describes property which is owned by a domestic 
corporation and which is used predominantly in a U.S. territory by 
such a corporation, or by a corporation created or organized in, or 
under the law of, a U.S. territory.
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    Stakeholders also asked whether an entity classified as a nonprofit 
under State law but that does not have Federal tax-exempt status would 
be described in section 6417(d)(1)(A). Such an entity would not be 
described in section 6417(d)(1)(A) because it is not exempt from the 
tax imposed by subtitle A (unless it met the requirements of another 
type of applicable entity discussed below, such as a state 
instrumentality).
    Stakeholders also specifically sought clarification as to whether 
governments of U.S. territories would be treated as applicable 
entities, based on their unique status and the importance of their 
energy security. These stakeholders noted that the renewable energy 
credits generally may be claimed for activities in the U.S. territories 
provided the underlying requirements are met, including the specific 
ownership requirements for investment tax credits.\5\ In response, the 
proposed regulations would interpret the term ``organization exempt 
from the tax

[[Page 40532]]

imposed by subtitle A'' as used in section 6417(d)(1)(A) to include the 
governments of the U.S. territories. Since section 115(2) excludes the 
income accruing to the government of any territory of the United 
States, or any political subdivision thereof, from gross income, it 
effectively exempts these governments from the tax imposed by subtitle 
A. In addition, these governments may properly be viewed as 
organizations.\6\ Accordingly, proposed Sec.  1.6417-1(c)(1)(ii) would 
provide that the government of any U.S. territory, or a political 
subdivision thereof, is an applicable entity for purposes of section 
6417 or provisions of law referencing section 6417(d)(1)(A).
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    \5\ See footnote 2.
    \6\ The Code and the regulations under 26 CFR part 1 
occasionally refer to governmental entities as organizations. For 
example, section 509(a)(1) refers to ``an organization described in 
section 170(b)(1)(A),'' which includes a governmental unit described 
in sections 170(b)(1)(A)(v) and 170(c)(1). See corresponding rules 
in Sec.  1.170A-9(a) and (e).
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    The Treasury Department and the IRS request comments on this 
definition of any organization exempt from the tax imposed by subtitle 
A, including as to whether the term should encompass the United States, 
federal agencies, or other organizations beyond those listed in these 
proposed rules.
2. Any State or Political Subdivision Thereof
    Section 6417(d)(1)(A)(ii) states that ``any State or political 
subdivision thereof'' is an applicable entity for purposes of section 
6417.
    The Treasury Department and the IRS note that section 7701(a)(10) 
provides that the term ``State'' must be construed to include the 
District of Columbia where such construction is necessary to carry out 
provisions of Title 26, and thus propose that the definition of State 
would include the District of Columbia. The Treasury Department and the 
IRS request comments on whether additional clarification is needed.
3. Indian Tribal Governments
    Section 6417(d)(1)(A)(iv) states that an applicable entity includes 
an Indian tribal government (as defined in section 30D(g)(9)). To 
provide Indian tribal governments parity with state governments, 
proposed Sec.  1.6417-1(c)(3) would include subdivisions of Indian 
tribal governments in this definition.
    Section 30D(g)(9) provides that ``the term ``Indian tribal 
government'' means the recognized governing body of any Indian or 
Alaska Native tribe, band, nation, pueblo, village, community, 
component band, or component reservation, individually identified 
(including parenthetically) in the list published most recently as of 
the date of enactment of this subsection pursuant to section 104 of the 
Federally Recognized Indian Tribe List Act of 1994 (25 U.S.C. 5131). 
Thus, proposed Sec.  1.6417-1(k) would incorporate this definition into 
the 6417 regulations. See Rev. Proc. 2008-55, 2008-39 I.R.B. 768 
(generally providing that an Indian tribal entity that appears on the 
most recent list published by the Department of the Interior in the 
Federal Register pursuant to the requirements of the List Act is 
designated an Indian tribal government for purposes of section 
7701(a)(40)).
    The Treasury Department and the IRS request comments regarding the 
definitions in proposed Sec.  1.6417-1(c)(3) and (k), including as to 
whether any further clarification would be warranted. The Treasury 
Department and the IRS further request comments on whether the proposed 
definitions encompass the entity structures that Indian tribal 
governments employ in activities that would give rise to elective 
payments, including entities with partial Indian tribal government 
ownership.
4. Alaska Native Corporations
    Section 6417(d)(1)(A)(v) provides that an applicable entity for 
purposes of section 6417(a) includes ``any Alaska Native Corporation 
(as defined in section 3 of the Alaska Native Claims Settlement Act (43 
U.S.C. 1602(m)).'' A ``Native Corporation'' is defined in 43 U.S.C. 
1602(m) to mean ``any Regional Corporation, any Village Corporation, 
any Urban Corporation, and any Group Corporation,'' which are organized 
under the laws of the State of Alaska. Although 43 U.S.C. 1606(d) 
provides that a Regional Corporation is incorporated to conduct 
business for profit, each of a Village Corporation, Urban Corporation, 
and Group Corporation may be organized as a business for profit or 
nonprofit corporation to hold rights and assets for Native villages, 
urban communities of Natives, or members of a Native group.
    A few stakeholders requested that a Settlement Trust (within the 
meaning of 43 U.S.C. 1602(t)) that is established by an Alaska Native 
Corporation (ANC) for the benefit of its shareholders also be treated 
as an applicable entity. The stakeholders stated that an ANC is a 
separate legal entity that is required to be a C corporation for 
Federal income tax purposes, and as such, it is an entity different 
from the Settlement Trust established by the ANC. However, the 
beneficiaries of the ANC Settlement Trust are typically the same Native 
individuals as the shareholders of the ANC. the stakeholders thus asked 
that an ANC Settlement Trust be added as an applicable entity in cases 
in which the Settlement Trust is directly affiliated with an applicable 
ANC.
    Unlike the case of the statutory definitions of ``Indian Tribal 
government,'' the statutory definition of ANC is not ambiguous. 
Accordingly, the proposed regulations would not treat Settlement Trusts 
as ANCs. However, Settlement Trusts could themselves be applicable 
entities not based on their relationship with an ANC if they qualified 
for exempt status under section 501(a) and applied for and received a 
determination letter from the IRS recognizing any such tax-exempt 
status.
    Separately, an ANC may be the common parent of a consolidated group 
of corporations (ANC-parented group) that, in many ways, is treated 
similarly to a single taxpayer for Federal income tax purposes by the 
consolidated return regulations (Sec. Sec.  1.1502-1, et seq.). For 
example, the members of a consolidated group report their consolidated 
taxable income on a single Federal income tax return that the common 
parent files with the IRS as the agent for the group under Sec.  
1.1502-77. In this regard, some stakeholders have inquired whether non-
ANC members of an ANC-parented group may separately make an elective 
payment election with respect to a section 45V credit, a section 45Q 
credit, or section 45X credit determined with respect to such member. 
The concern appears to be that, by reason of their affiliation with an 
ANC common parent, the non-ANC members might be prevented from making 
an election under section 6417(d)(1)(B), (C), or (D).
    The proposed regulations would clarify that a non-ANC member of an 
ANC-parented group may qualify as an electing taxpayer eligible to make 
elections under section 6417(d)(1)(B), (C), or (D), based on its own 
corporate status. See Sec.  1.1502-80(a). As with any other electing 
taxpayer, a non-ANC member of an ANC-parented group would be required 
to complete pre-filing registration (as would be required under 
proposed Sec.  1.6417-5) and must make its elective payment election 
under section 6417(d)(1)(B), (C), or (D) with respect to an applicable 
section 45V credit, section 45Q credit, or section 45X credit 
determined with respect to the member. See Sec.  1.1502-77 (providing 
rules regarding the status of the common parent as agent for its 
members).
    The Treasury Department and the IRS request comments regarding the 
definition in proposed Sec.  1.6417-1(c)(4) and whether additional 
guidance is

[[Page 40533]]

necessary regarding consolidated groups with ANC common parents.
5. Tennessee Valley Authority
    As per section 6417(d)(1)(A)(iii), the Tennessee Valley Authority 
would be an applicable entity under proposed Sec.  1.6417-1(c)(5).
6. Rural Electrical Co-Ops
    Section 6417(d)(1)(A)(vi) provides that ``any corporation operating 
on a cooperative basis which is engaged in furnishing electric energy 
to persons in rural areas'' is an applicable entity. These proposed 
regulations do not elaborate on this definition, but request comments 
on whether further clarification of the definition in proposed Sec.  
1.6417-1(c)(6) is necessary.
    Stakeholders asked that any payment under section 6417(a) not be 
considered income for purposes of the 85-percent income test under 
section 501(c)(12) for electric cooperatives. Because the section 
6417(a) election results in a credit being treated as a payment against 
the tax imposed by subtitle A for the taxable year with respect to 
which such credit was determined, any such payment that results in a 
refund being issued by the IRS to an electric cooperative under section 
6417(a) will not affect the application of the 85-percent income test 
determined with respect to the electric cooperative.
    The Treasury Department and the IRS request comments on whether 
additional guidance is necessary to address any uncertainty that may 
exist regarding the application of section 6417 in the context of a 
consolidated group with members that are cooperatives subject to the 
rules of subchapter T of chapter 1.
7. Agencies and Instrumentalities
    Based on feedback from stakeholders, the Treasury Department and 
the IRS believe that, in many instances, States, Indian tribal 
governments, U.S. territories, or political subdivisions thereof are 
likely to make investments or engage in activities that qualify for 
applicable credits through their agencies and instrumentalities. 
Multiple stakeholders requested that State and local government 
agencies and instrumentalities be included as applicable entities under 
a variety of theories, including cross-references to sections 
50(b)(4)(A)(i) and 168(h)(2)(A)(i) in section 6417, the fact that the 
income of an instrumentality is generally excluded from tax by section 
115 of the Code, and the authority provided by section 6417(h) to issue 
regulations necessary to carry out the purposes of section 6417. In 
particular, stakeholders stated that the term ``Indian tribal 
government'' should be defined to include, in part, economic 
subdivisions of a tribe (such as a utility, housing authority, energy 
division or authority, or other enterprise) regardless of how the 
entity is formed (whether by Federal, Tribal or State law).
    It would be administratively burdensome, both for stakeholders and 
for the IRS, to determine what is part of a State, Indian tribal 
government, U.S. territory, or political subdivision, on the one hand, 
and what is an agency or instrumentality thereof on the other hand.\7\ 
For example, stakeholders expressed uncertainty about whether certain 
entities, such as school districts, public utility districts, and 
special purpose entities established by governments (such as joint 
action agencies, economic development corporations, and joint powers 
authorities) would qualify as political subdivisions or would be viewed 
as agencies or instrumentalities. Stakeholders also noted that the 
status of such entities as political subdivisions may turn on 
differences in state law, such as whether a school district has taxing 
authority.
---------------------------------------------------------------------------

    \7\ The definitions of political subdivision under Sec.  1.103-
1(b) and of instrumentality under Rev. Rul. 57-128, 1957-1 C.B. 311, 
are frequently cited for Federal tax purposes.
---------------------------------------------------------------------------

    In addition, different States may structure ownership of relevant 
property differently (for example, a school district or the county of 
the school district may own the electric school buses), and it would be 
inequitable for entities to be eligible or ineligible for elective 
payment on the basis of such differences in ownership structures. 
Furthermore, if agencies and instrumentalities were not specifically 
listed as applicable entities, States and political subdivisions may 
decide to create new entities or reorganize the administration of their 
activities to perform applicable credit eligible activities directly, 
which would be administratively burdensome without a commensurate 
public benefit. For these reasons, and to promote uniform treatment 
throughout the United Sates, proposed Sec.  1.6417-1(c)(7) would 
provide that applicable entities include any agency or instrumentality 
of any State, the District of Columbia, Indian tribal government, U.S. 
territory, or political subdivision thereof.
    The Treasury Department and the IRS request comments on this 
approach to defining applicable entities and on whether further 
guidance is necessary.
8. Electing Taxpayers
    Certain taxpayers may make an election to be treated as an 
applicable entity with respect to applicable credit property giving 
rise to the section 45Q credit, section 45V credit, or section 45X 
credit, as described in part III of this Explanation of Provisions. 
Proposed Sec.  1.6417-1(g) defines an ``electing taxpayer'' as any 
taxpayer that is not an applicable entity, but makes an election in 
accordance with proposed Sec. Sec.  1.6417-2(b), 1.6417-3, and, if 
applicable, 1.6417-4, to be treated as an applicable entity for a 
taxable year with respect to applicable credits determined with respect 
to an applicable credit property described in proposed Sec.  1.6417-
1(e)(3), (5), or (7). Section 7701(a)(14) defines a ``taxpayer'' as any 
person subject to any internal revenue tax, including income taxes, 
employment taxes, and excise taxes.
    Members of a consolidated group that is not an ANC-parented group 
also may make an election to be treated as an applicable entity with 
respect to the section 45Q credit, section 45V credit, or section 45X 
credit. A member of the consolidated group would be required to 
complete pre-filing registration (as would be required under proposed 
Sec.  1.6417-5) and must make its elective payment election with 
respect to an applicable section 45V credit, section 45Q credit, or 
section 45X credit determined with respect to the member. See Sec.  
1.1502-77 (providing rules regarding the status of the common parent as 
agent for its members). The Treasury Department and the IRS request 
comments regarding the application of section 6417 to consolidated 
groups with electing taxpayers (for example, whether special rules are 
necessary for consolidated groups under proposed Sec.  1.6417-2(e)(2) 
(the denial of double benefit rule).
B. Entities Formed by an Applicable Entity or by an Electing Taxpayer
1. Disregarded Entities
    Several stakeholders asked whether an entity disregarded as 
separate from its owner (disregarded entity) is described in section 
6417(d)(1)(A) if its owner is described in section 6417(d)(1)(A). Since 
a disregarded entity is disregarded for Federal income tax purposes and 
its attributes are attributed to the owner regarded for Federal income 
tax purposes, the disregarded entity's activities would be attributed 
to the owner and the owner could claim the credit as long as the owner 
is described in section 6417(d)(1)(A). This would also include property 
that an electing taxpayer that is a partnership or

[[Page 40534]]

S corporation holds through a disregarded entity or multiple 
disregarded entities, including tiers of multiple disregarded entities 
owned though chains of ownership. Thus, proposed Sec. Sec.  1.6417-
2(a)(1)(ii) and -2(a)(2)(iv) would provide that, if an applicable 
entity or electing taxpayer is the owner (directly or indirectly) of a 
disregarded entity that directly holds an applicable credit property, 
the applicable entity may make an elective payment election for 
applicable credits determined with respect to the applicable credit 
property held directly by the disregarded entity.
2. Taxable C Corporations
    Stakeholders also asked whether an entity described in section 
6417(d)(1)(A) could create an entity that is a taxable C corporation to 
perform the applicable credit activity and still qualify for the 
section 6417 election. Because a taxable C corporation is an entity 
separate from its owner, proposed Sec.  1.6417-1(c)(1) would not 
include a C corporation that is not itself an applicable entity 
described in proposed Sec.  1.6417-1(c)(1), even if its owner is an 
applicable entity described in proposed Sec.  1.6417-1(c)(1). However, 
an electing taxpayer may include a taxable C corporation (including a 
member of a consolidated group).
3. Undivided Ownership Interests
    Stakeholders also asked whether entities such as unincorporated 
joint ventures could provide applicable entities access to earning 
applicable credits available for an elective payment election, 
including by partnering with other applicable entities or with for-
profit entities. Proposed Sec.  1.6417-2(a)(1)(iii) would provide that, 
if an applicable entity is a co-owner of an applicable credit property 
through an ownership arrangement treated as a tenancy-in-common or 
pursuant to a joint operating arrangement that has properly elected out 
of subchapter K of chapter 1 of the Code (subchapter K) under section 
761, then each owner is considered to own an undivided interest in or 
share of the underlying applicable credit property and thus, any 
applicable credits are determined separately with respect to each 
owner. As a result, an applicable entity may make an elective payment 
election under section 6417(a) in the manner provided in paragraph (b) 
with respect to its share of the applicable credits determined with 
respect to its undivided ownership interest in or share of the 
underlying applicable credit property.
4. Partnerships
    Many stakeholders questioned whether a partnership that contains 
partners described in section 6417(d)(1)(A) could make an elective 
payment election under section 6417 with respect to those partners, 
pointing to the ``determined with respect to such entity'' language in 
section 6417(a). Stakeholders stated that clarity around the treatment 
of these partnerships is of particular importance as many applicable 
entities choose to partner with non-applicable entities in investment 
and development of credit generating projects, that applicable entities 
may not have the expertise or resources to own such projects outright, 
and that the ability to partner is key to their meaningful 
participation in the energy transition.
    The Treasury Department and the IRS believe that the better 
interpretation of the ``determined with respect to such entity'' 
language in section 6417(a), as well as the rules in sections 6417(c), 
is to apply entity-specific rules under section 6417. Section 6417(c) 
refers to a credit determined with respect to any facility or property 
``held directly by a partnership or S corporation,'' meaning that the 
partnership or S corporation, not its owners, is the relevant entity 
for these purposes. Additionally, section 6417(c) provides that the 
partnership or S corporation, not the partners or shareholders, makes 
the section 6417 election. Furthermore, because section 6417 elections 
are made for a particular applicable credit property, allowing a 
section 6417 election for a portion of an applicable credit property 
would be contrary to section 6417(a) and, if permitted, would be 
difficult to administer, particularly in tiered partnership structures.
    Thus, proposed Sec.  1.6417-2(a)(1)(iv) would provide that 
partnerships and S corporations are not applicable entities described 
in section 6417(d)(1)(A) and proposed Sec.  1.6417-1(c). This proposed 
rule would apply no matter how many of the partners or shareholders are 
described in section 6417(d)(1)(A) and proposed Sec.  1.6417-1(c), 
including if all partners or shareholders are described in section 
6417(d)(1)(A) and proposed Sec.  1.6417-1(c). However, because section 
6418(f)(2) defines ``eligible taxpayer'' as any taxpayer that is not 
described in section 6417(d)(1)(A) (and thus not in proposed Sec.  
1.6417-1(c)), such a partnership would be an eligible taxpayer 
described in section 6418(f)(2).
    In addition, as described in part I.B.3. of this Explanation of 
Provision, an applicable entity may engage with other entities, 
including with for-profit partners, in an ownership arrangement that 
has properly elected out of subchapter K and make an elective payment 
election under section 6417(a) with respect to its share of the 
applicable credits determined with respect to its share of the 
underlying applicable credit property. This type of arrangement 
provides some flexibility for tax-exempt and government entities to 
participate in section 6417 with other entities. The Treasury 
Department and the IRS request comments on whether any additional rules 
are needed. Comments are also requested regarding whether any entity 
described in section 6417(d)(1)(A)(i)-(vi) or proposed Sec.  1.6417-
1(c) could include an entity organized as a partnership for Federal tax 
purposes.
    As described in part IV of this Explanation of Provisions, an 
electing taxpayer may include a partnership or S corporation.
C. Applicable Credit
    Section 6417(b) lists the applicable credits for which a section 
6417(a) election is available. Proposed Sec.  1.6417-1(d) lists those 
credits, with minor changes to account for erroneous cross-references 
in the statute.
    Stakeholders asked for clarification on the scope of the credit for 
qualified commercial vehicles. Section 6417(b)(6) states that the term 
``applicable credit'' includes the credit for qualified commercial 
vehicles determined under section 45W by reason of subsection (d)(2) 
\8\ thereof, ``in the case of a tax-exempt entity described in clause 
(i), (ii), or (iv) of section 168(h)(2)(A).'' In order to qualify for 
elective pay for the section 45W credit, an entity would need to be 
both be an applicable entity, as defined in proposed Sec.  1.6417-1(c), 
and a tax-exempt entity described in clause (i), (ii), or (iv) of 
section 168(h)(2)(A) (in other words, an organization exempt from the 
tax imposed by subtitle A by reason of section 501(a) of the Code; a 
State, the District of Columbia, a political subdivision thereof, or 
any agency or instrumentality of any of the foregoing; a U.S. 
territory, a political subdivision thereof, or any agency or 
instrumentality of any of the foregoing; or an Indian tribal 
government, a subdivision thereof, or any agency or instrumentality of 
any of the foregoing), and would also need to otherwise qualify for the 
section 45W credit.
---------------------------------------------------------------------------

    \8\ While section 6417(b)(6) refers to section 45W(d)(3), the 
reference should be to section 45W(d)(2). This has been corrected in 
the proposed regulations.
---------------------------------------------------------------------------

    One stakeholder asked whether the elective payment election applies 
to

[[Page 40535]]

both the applicable credit and any eligible bonus credit amounts. The 
amount of applicable credit is determined, in part, under the Code by 
including any eligible bonus credit amounts. The entire amount of any 
applicable credit is eligible under the Code for the elective payment 
election, assuming all the relevant requirements are met.
    Several stakeholders asked whether the applicable entity could 
treat the applicable credits arising during a quarter as a payment 
against quarterly estimated tax (assuming such an amount was due). 
These proposed regulations do not contain a special rule because 
taxpayers can determine, based on their projected tax liability, the 
correct amount of estimated tax to pay in order to avoid a section 6654 
or section 6655 estimated tax penalty at the end of the year.
    Because registration must be made with respect to each facility or 
property giving rise to an applicable credit, proposed Sec.  1.6417-
1(e) defines ``applicable credit property'' for purposes of each of the 
applicable credits, and the section 6417 regulations use the term 
``applicable credit property'' throughout for clarity.
D. Definitions Pertaining to the Election
    Proposed Sec.  1.6417-1(i) would provide that the ``elective 
payment election'' is the election provided in proposed Sec.  1.6417-
2(b). Proposed Sec.  1.6417-1(h) would provide that the ``elective 
payment amount'' means, with respect to an applicable entity or an 
electing taxpayer that is not a partnership or an S corporation, the 
applicable credit(s) for which an applicable entity or electing 
taxpayer makes an elective payment election to be treated as making a 
payment against the tax imposed by subtitle A for the taxable year, 
which would be equal to the sum of (1) the amount (if any) of the 
current year applicable credit(s) allowed as a general business credit 
(GBC) under section 38 for the taxable year, and (2) the amount (if 
any) of unused current year applicable credits which would otherwise be 
carried back or carried forward from the unused credit year under 
section 39 and that are treated as a payment against tax. With respect 
to an electing taxpayer that is a partnership or an S corporation, the 
term ``elective payment amount'' would mean the sum of the applicable 
credit(s) for which the partnership or S corporation makes an elective 
payment election and results in a payment to such partnership or S 
corporation equal to the amount of such credit(s) (unless the 
partnership or S corporation owes a Federal tax liability, in which 
case the payment may be reduced by such tax liability).
E. Guidance
    Interpretations and procedures pertaining to section 6417 and the 
section 6417 regulations may be issued through guidance, as 
appropriate. Proposed Sec.  1.6417-1(j) would define ``guidance'' for 
purposes of these regulations as guidance published in the Federal 
Register or Internal Revenue Bulletin, as well as administrative 
guidance such as forms, instructions, publications, or other guidance 
on the IRS.gov website.
F. Annual Tax Return
    To avoid any confusion about where the elective payment election 
should be made, proposed Sec.  1.6417-1(b) would define ``annual tax 
return,'' for purposes of the section 6417 regulations, as follows: (1) 
for any taxpayer normally required to file an annual tax return with 
the IRS, such annual return (including the Form 1065, ``U.S. Return of 
Partnership Income,'' for partnerships and the Form 990-T for 
organizations with unrelated business income tax or a proxy tax under 
section 6033(e)); (2) for any taxpayer that is not normally required to 
file an annual tax return with the IRS (such as taxpayers located in 
the U.S. territories), the return they would be required to file if 
they were located in the United States, or, if no such return is 
required (such as for State, District of Columbia, local, or Indian 
tribal governmental entities), the Form 990-T; and (3) for short tax 
year filers, the short year tax return. For example, an individual in a 
U.S. territory would file a Form 1040, ``U.S. Individual Income Tax 
Return,'' a corporation in a U.S. territory would file a Form 1120, 
``U.S. Corporation Income Tax Return,'' and the U.S. territory itself 
would file Form 990-T, ``Exempt Organization Business Income Tax Return 
(and proxy tax under section 6033(e).'' Similarly, a tax-exempt entity 
would file the Form 990-T even if not otherwise required to file the 
Form 990-T.

II. Rules for Making Elective Payment Elections

A. In General
    Proposed Sec.  1.6417-2 would provide general rules for an 
applicable entity or electing taxpayer to make an elective payment 
election under section 6417 in accordance with the rules of proposed 
Sec.  1.6417-2(b) with respect to any applicable credit determined with 
respect to such entity.
    Proposed Sec.  1.6417-2(a)(1) would provide the rules for 
applicable entities making elective payment elections. An applicable 
entity that makes an elective payment election in the manner described 
in Part II.B. of this Explanation of Provisions would be treated as 
making a payment against the Federal income taxes imposed by subtitle 
A, for the taxable year with respect to which an applicable credit was 
determined, in the amount of such credit as determined under the rules 
discussed in Part II.C. of this Explanation of Provisions. Proposed 
Sec.  1.6417-2(d)(1) would provide that the payment described in 
proposed Sec.  1.6417-2(a)(1) is treated as made (1) in the case of an 
entity for which no return is required under sections 6011 or 6033(a), 
on the later of the date that a return would be due under section 
6033(a) (determined without regard to extensions) if such entity were 
described in that section, or the date on which such entity submits a 
claim for credit or refund, and (2) in any other case, on the later of 
the due date (determined without regard to extensions) of the return of 
tax for the taxable year, or the date on which such return is filed.
    Special rules are provided in proposed Sec.  1.6417-2(a)(1)(ii) 
through (v) that would apply for applicable entities if the election is 
made for applicable credit property held by a disregarded entity; if 
the applicable entity is a co-owner in an applicable credit property 
through an ownership arrangement properly treated as a tenancy-in-
common, or pursuant to a joint operating arrangement that has properly 
elected out of subchapter K under section 761; and for members of a 
consolidated group of which an Alaska Native Corporation is the common 
parent.
    As discussed in Part I.B.4 of this Explanation of Provisions, 
partnerships and S corporations would not be applicable entities 
described in proposed Sec.  1.6417-1(c)(1), and thus would not be 
eligible to make an elective payment election unless the partnership or 
S corporation is an electing taxpayer.
    Proposed Sec.  1.6417-2(a)(2) would provide the rules for electing 
taxpayers making an elective payment election. An electing taxpayer 
other than a partnership or an S corporation that has made an elective 
payment election in accordance with proposed Sec. Sec.  1.6417-3 and 
Sec.  1.6417-2(b) would be treated as making a payment against the 
Federal income taxes imposed by subtitle A for the taxable year with 
respect to which the applicable credit is determined in

[[Page 40536]]

the amount determined under proposed Sec.  1.6417-2(c). Proposed Sec.  
1.6417-2(d)(1) would provide that the payment described in proposed 
Sec.  1.6417-2(a)(2) is treated as made at the same time as made by an 
applicable entity. However, in the case of an electing taxpayer that is 
a partnership or S corporation that has made an elective payment 
election in accordance with proposed Sec. Sec.  1.6417-3, 1.6417-4, and 
1.6417-2(b), the IRS will make a payment to such partnership or S 
corporation equal to the amount of such credit determined under 
proposed Sec. Sec.  1.6417-2(b) and 1.6417-4(d)(3) (unless the 
partnership or S corporation owes any Federal income tax liability, in 
which case the payment may be reduced by such tax liability).
    Proposed Sec.  1.6417-2(a)(2) also provides special rules for 
electing taxpayers that would apply if the election is made for 
applicable credit property held by a disregarded entity; if the 
applicable entity is a co-owner in an applicable credit property 
through an ownership arrangement properly treated as a tenancy-in-
common, or pursuant to a joint operating arrangement that has properly 
elected out of subchapter K under section 761; and for members of a 
consolidated group.
    Proposed Sec.  1.6417-2(a)(3)(i)-(iv) would address the special 
rules with regard to the election for credits under section 45, 45V, 
45Q, or 45Y, as provided in section 6417(d)(3). However, the special 
rules in section 6417(d)(3) that relate to electing taxpayers are set 
forth in proposed Sec.  1.6417-3, for clarity.
    Consistent with the special rule for electing taxpayers that may 
elect to be treated as an applicable entity for purposes of section 
6417 for up to five years with respect to a facility placed in service 
that produces eligible components (as defined in section 45X(c)(1)), 
proposed Sec.  1.6417-2(a)(3)(v) would clarify that a section 45X 
election is made, for purposes of section 6417, with respect to a 
facility (whether the facility existed on or before, or after, December 
31, 2022) at which a taxpayer produces, after December 31, 2022, 
eligible components as defined in section 45X(c)(1) during the taxable 
year.
B. Manner of Making the Election
    Section 6417(a) provides that the elective payment election is made 
``at such time and in such manner as the Secretary may provide,'' and 
proposed Sec.  1.6417-2(b) would provide those rules. First, proposed 
Sec.  1.6417-2(b)(1) provides that an applicable entity or electing 
taxpayer would make an elective payment election on the applicable 
entity's or electing taxpayer's annual tax return, as defined in Sec.  
1.6417-1(b), in the manner prescribed by the IRS in guidance, along 
with any required completed source credit form(s) with respect to the 
applicable credit property, a completed Form 3800, General Business 
Credit, (or its successor), and any additional information, including 
supporting calculations, required in instructions to the relevant 
forms.
    Proposed Sec.  1.6417-2(b)(1)(iv) would provide that an elective 
payment election may only be made on an original return (including any 
revisions on a superseding return) filed not later than the due date 
(including extensions of time) for the original return for the taxable 
year for which the applicable credit is determined. No elective payment 
election may be made or revised on an amended return or by filing an 
administrative adjustment request under section 6227 of the Code. There 
also would be no relief available under Sec. Sec.  301.9100-1 through 
301.9100-3 of the Procedure and Administration Regulations (26 CFR part 
301) for an elective payment election that is not timely filed.
    Second, proposed Sec.  1.6417-2(b)(2) would specify that pre-filing 
registration (as would be required under proposed Sec.  1.6417-5) is a 
condition of any amount being treated as a payment that is made by an 
applicable entity under section 6417(a). An elective payment election 
will not be effective with respect to applicable credits determined 
with respect to an applicable credit property unless the applicable 
entity or electing taxpayer received a valid registration number for 
the applicable credit property and provided the registration number for 
each applicable credit property on its Form 3800 (or its successor) 
attached to the tax return in accordance with guidance.
    Third, proposed Sec.  1.6417-2(b)(3) would provide the due date for 
the election under section 6417(a). In the case of any entity for which 
no Federal income tax return is required under sections 6011 or 6033(a) 
of the Code (such as a governmental entity), the elective payment 
election must be made no later than the due date (including an 
extension of time) for the original return that would be due under 
section 6033(a) if such applicable entity were described in that 
section. Under section 6072(e), that date is the 15th day of the fifth 
month after the taxable year determined by section 441 of the Code. 
Subject to issuance of guidance that specifies the manner in which an 
entity for which no Federal income tax return is required under 
sections 6011 or 6033(a) of the Code could request an extension of time 
to file, an automatic paperless six-month extension from the original 
due date is deemed to be allowed.
    In the case of any taxpayer that is not normally required to file 
an annual tax return with the IRS (such as those located in the U.S. 
territories), the elective payment election must be made no later than 
the due date (including extensions of time) that would apply if the 
taxpayer was located in the United States (such as the 15th day of the 
fourth month after the end of the year for individuals filling Form 
1040 or for corporations filling Form 1120). For example, an individual 
in a U.S. territory would be required to make the elective payment 
election on or before the 15th day of April following the close of the 
calendar year, or, if they filed an extension, on or before the 15th 
day of October following the close of the calendar year.
    In any other case, the elective payment election must be made no 
later than the due date (including extensions of time) for the original 
return for the taxable year for which the election is made, but in no 
event earlier than February 13, 2023.
    Fourth, proposed Sec.  1.6417-2(b)(4) would provide that any 
election under section 6417(a), once made, is irrevocable and applies 
with respect to any applicable credit for the taxable year for which 
the election is made.
    Under section 6417, the election period applies for a period of 
years with respect to certain applicable credits. Specifically, for the 
section 45 credit or section 45Y credit, the election applies to the 
10-year period beginning on the date the facility was originally placed 
in service. For the section 45Q credit, the election applies to the 12-
year period beginning on the date the equipment was originally placed 
in service. For the section 45V credit, the election applies to all 
subsequent taxable years with respect to the facility.
    Electing taxpayers make the election for one five-year period per 
applicable credit property, but are allowed one revocation per 
applicable credit property, as provided in section 6417(d)(1)(D) and 
(d)(3)(C) and (D), and would be provided in proposed Sec.  1.6417-3 (as 
described in part III of this Explanation of Provisions).
    Fifth, proposed Sec.  1.6417-2(b)(5) would provide that an elective 
payment election applies to the entire amount of applicable credit(s) 
determined with respect to each applicable credit property that was 
properly registered for the taxable year, resulting in an elective 
payment amount that is the entire

[[Page 40537]]

amount of applicable credit(s) determined with respect to the 
applicable entity or electing taxpayer for a taxable year.
C. Determination of Applicable Credit
    Proposed Sec.  1.6417-2(c) would provide three rules relating to 
the determination of any applicable credit.
1. Special Rules for Tax-Exempt Organizations and Government Entities
    In accordance with section 6417(d)(2), proposed Sec.  1.6417-
2(c)(1) would provide that, in the case of any applicable entity that 
makes the election described in section 6417(a), any applicable credit 
is determined (1) without regard to the restrictions regarding use of 
property by tax-exempt organizations and government entities found in 
sections 50(b)(3) and (4)(A)(i), and (2) by treating any property with 
respect to which such credit is determined as used in a trade or 
business of the applicable entity.
    Proposed Sec.  1.6417-2(c)(2) elaborates on the effect of the 
``trade or business'' rule in section 6417(d)(2) and proposed Sec.  
1.6417-2(c)(1)(ii). First, the rule would allow tax-exempt and 
government entities to take advantage of applicable credits even 
outside of the unrelated business taxable income context (provided 
other requirements are met) by allowing the entity to treat an item of 
property as if it is of a character subject to an allowance of 
depreciation (such as under sections 30C and 45W); to produce items 
``in the ordinary course of a trade or business of the taxpayer'' (such 
as in sections 45V and 45X); and to state that an item of property is 
one for which depreciation (or amortization in lieu of depreciation) is 
allowable (such as in sections 48, 48C, and 48E).
    Second, the rule allows the entity to apply the capitalization and 
accelerated depreciation rules (such as sections 167, 168, 263 and 
263A) that apply to determining the basis and the depreciation 
allowance for property used in a trade or business.
    Third, the rule makes applicable general limitations on the use of 
credits by those persons engaged in the conduct of a trade or business, 
such as section 49 in the context of investment tax credits, and 
section 469 for all applicable credits. For section 49 to apply for 
purposes of section 6417, the property must be placed in service by an 
applicable entity or electing taxpayer described in section 465(a)(1) 
(that is, an individual or a C corporation with respect to which the 
stock ownership requirements of section 542(a)(2) are met). For section 
469 to apply for purposes of section 6417, the applicable entity or 
electing taxpayer would need to be described in section 469(a)(2) (that 
is, an individual, estate or trust, a closely held C corporation, or a 
personal service corporation). Thus, for any applicable entity or 
electing taxpayer for which section 49 or 469 generally applies, those 
sections apply with respect to the determination of applicable credits 
under section 6417. The Treasury Department and the IRS request 
comments on whether any additional clarification is needed regarding 
the application of sections 49 and 469 to applicable entities or 
electing taxpayers determining the amount of an applicable credit.
    Lastly, the rule does not create any presumption that the trade or 
business is related (or unrelated) to a tax-exempt entity's exempt 
purpose.
2. Special Rule for Investment-Related Credit Property Acquired With 
Income, Including Income From Certain Grants and Forgivable Loans, That 
Is Exempt From Taxation Under Subtitle A
    Multiple stakeholders asked that regulations clarify whether an 
applicable entity that funded the purchase of an investment credit 
property with income, including income from certain grants and 
forgivable loans, that is exempt from taxation under subtitle A (Tax-
Exempt Amounts \9\) can include those amounts in the basis of the 
property for purposes of calculating the amount of the investment tax 
credit. Stakeholders also noted that in some cases the full cost of the 
investment credit property can be paid through Tax-Exempt Amounts.
---------------------------------------------------------------------------

    \9\ For this purpose, ``Tax-Exempt Amounts'' do not include the 
proceeds of loans, which are not included in income as long as they 
need to be repaid.
---------------------------------------------------------------------------

    Generally, the basis of property is the cost of such property. See 
section 1012 of the Code. However, for a taxable entity, cost basis in 
property may need to be reduced if Tax-Exempt Amounts are used for the 
purpose of purchasing, constructing, or otherwise acquiring such 
property. See for example, sections 118(a) and 362(c)(2) of the Code. 
However, grants and forgivable loans received by taxable entities are 
generally taxable, and thus generally do not result in a reduction in 
basis. See generally section 61 of the Code.
    For tax-exempt and government entities, for which grants, 
forgivable loans, and other amounts are generally exempt from taxation 
under subtitle A, the treatment of such Tax-Exempt Amounts with respect 
to basis in property is less clear. Because these entities may acquire 
investment credit properties eligible for the section 6417(a) election, 
in whole or in part, with Tax-Exempt Amounts, if such amounts were not 
included in the basis of the investment credit property (that is, they 
resulted in a reduction in the basis of the investment credit 
property), the applicable entity may have little or no basis with 
respect to which to calculate the credit, which would frustrate 
Congressional intent to provide the section 6417(a) election for 
investment credit properties owned by such entities. However, as 
stakeholders noted, allowing an elective payment for an applicable tax 
credit when the investment credit property was fully purchased with 
Tax-Exempt Amounts subject to donor restrictions for that purpose would 
result in an aggregate benefit to the applicable entity in excess of 
the cost of the property. As a result, a few stakeholders suggested 
that local, State, and Federal government grants received as Tax-Exempt 
Amounts by applicable entities specifically for acquisition of 
investment credit property should not be included in the basis of such 
property for purposes of calculating the applicable credit for the 
elective payment under section 6417.
    Proposed Sec.  1.6417-2(c)(3) would provide a special rule for 
investment credit property acquired with Tax-Exempt Amounts and would 
expand the rule to other credits that are determined on the basis of 
property. The rule states that, for purposes of 6417, any Tax-Exempt 
Amounts used to purchase, construct, reconstruct, erect, or otherwise 
acquire an applicable credit property described in sections 30C, 45W, 
48, 48C, or 48E (investment-related credit property) are included in 
basis for purposes of computing the applicable credit amount determined 
with respect to the investment-related credit property, regardless of 
whether basis is required to be reduced (in whole or in part) by such 
amounts under other provisions of the Code.
    However, to prevent an excessive benefit, proposed Sec.  1.6417-
2(c)(3) would provide that, if an applicable entity receives Tax Exempt 
Amounts for the specific purpose of purchasing, constructing, 
reconstructing, erecting, or otherwise acquiring an investment credit 
property (Restricted Tax Exempt Amount), and the Restricted Tax-Exempt 
Amount plus the applicable credit otherwise determined with respect to 
that investment-related credit property exceeds the cost of the 
investment-related credit property, then the amount of the applicable 
credit is reduced so that the total amount of applicable credit plus 
the amount of any

[[Page 40538]]

Restricted Tax Exempt Amount equals the cost of investment credit 
property.
    Proposed Sec.  1.6417-2(c)(5) contains three examples illustrating 
these rules.
3. Credits Must Be Determined With Respect to the Applicable Entity or 
Electing Taxpayer
    Multiple stakeholders asked that regulations clarify whether 
applicable entities may ``chain'' an election under section 6417(a) for 
credits obtained from other sources. For example, stakeholders 
questioned whether an applicable entity may make an elective payment 
election under section 6417(a) with respect to purchased credits under 
section 6418(a) or credits allowable to the applicable entity because 
of an election under section 45Q(f)(3)(B) or former section 48(d) 
(pursuant to section 50(d)(5)). Stakeholders also asked whether an 
applicable entity may make an elective payment election in the case of 
a third-party ownership arrangement, such as an energy project owned by 
a for-profit developer but developed by a government entity.
    The Treasury Department and the IRS propose that such chaining will 
not be permissible and seek further comment on the issue. Proposed 
Sec.  1.6417-2(c)(4) would state that any credits for which an election 
is made under section 6417(a) must have been determined with respect to 
the applicable entity or electing taxpayer, meaning that the applicable 
entity or electing taxpayer owns the underlying eligible credit 
property or, if ownership is not required, otherwise conducts the 
activities giving rise to the underlying eligible credit.\10\ This 
proposed rule, which is consistent with the proposed regulations under 
section 6418, would mean that no election may be made under section 
6417(a) for credits purchased pursuant to section 6418, transferred 
pursuant to section 45Q(f)(3), acquired by a lessee from a lessor by 
means of an election to pass through the credit to a lessee under 
former section 48(d) (pursuant to section 50(d)(5)), owned by a third 
party, or otherwise not determined directly with respect to the 
applicable entity or electing taxpayer.
---------------------------------------------------------------------------

    \10\ The section 45X credit requires that the taxpayer produce 
eligible components. Thus, an applicable entity or electing taxpayer 
must produce eligible components to claim the credit.
---------------------------------------------------------------------------

    Stakeholders noted several administrative and practical reasons why 
making an elective payment election with respect to credits transferred 
under section 6418 would present challenges. For example, stakeholders 
noted that businesses electing to be treated as applicable entities 
with respect to applicable credit property giving rise to section 45V, 
45Q, or 45X credits must do so in the taxable year in which such 
taxpayer has placed in service such property, and the election 
generally lasts through the following four taxable years, whereas the 
duration of the section 6418 transfer election is limited to the tax 
year. In addition, any credit determined with respect to an electing 
taxpayer that is a partnership or S corporation must be determined with 
respect to only applicable credit property held directly by the 
partnership or S corporation. Allowing a partnership or S corporation 
to make an elective payment election with respect to transferred 
credits would conflict with this rule. Furthermore, the elective 
payment election under section 6417 with respect to a section 45 credit 
or section 45Q credit only applies to applicable credit property that 
is originally placed in service after December 31, 2022, and the 
elective payment election under section 6417 with respect to a section 
45V credit only applies to clean hydrogen attributable to applicable 
credit property that is originally placed in service after December 31, 
2012, whereas there are no such restrictions under section 6418. In 
addition, stakeholders contended that section 6417(d)(3)(ii)'s 
requirement that a section 6417(a) election be ``irrevocable'' would 
seem to prohibit an applicable entity from making a section 6417(a) 
election with respect to any transferred credit for which the 6417(a) 
election spans more than one year (such as credits determined under 
sections 45, 45Q, 45V, 45Y, and, for electing taxpayers only, under 
section 45X), because elections to transfer all or a portion of 
eligible credits under section 6418(a) are annual and the transferee 
does not own the property or engage in the activities that originally 
gave rise to the eligible credits. Finally, stakeholders noted that a 
transferee may purchase only a portion of a credit determined with 
respect to an eligible credit property pursuant to section 6418(a), 
which they argued is inconsistent with the requirement under section 
6417(a) that the elective payment election be with respect to the 
entire applicable credit determined with respect to applicable credit 
property for a taxable year.
    These administrative and practical reasons have informed the 
proposed conclusion of the Treasury Department and the IRS that 
sections 6417 and 6418 are best interpreted to not allow an applicable 
entity under section 6417 to make an elective payment election for a 
transferred credit under section 6418. Furthermore, the pre-filing 
registration process contemplated by section 6417(d)(5) and by section 
6418(g)(1) is not currently designed to allow an applicable entity 
purchasing eligible credits under section 6418 to make an elective 
payment election under section 6417.
    Other stakeholders have suggested that the Code may allow a 
transferee taxpayer under section 6418 to make an elective payment 
election under section 6417 for a transferred credit because section 
6418(a) provides that ``the transferee taxpayer specified in such 
election (and not the eligible taxpayer) shall be treated as the 
taxpayer for purposes of this title with respect to such credit.'' 
These stakeholders argue the transferee taxpayer steps into the shoes 
of the eligible taxpayer transferring the credit, such that a 
transferee taxpayer may be viewed as the taxpayer earning the credit 
for purposes of section 6417 and therefore is able to make an elective 
payment election with respect to such credit. They further noted that 
section 6417 does not expressly prohibit an applicable entity from 
making an elective payment election with respect to a transferred 
credit and that allowing applicable entities to make an elective 
payment election with respect to a transferred credit may further the 
policy goals of the IRA by expanding the financing methods available to 
renewable energy projects.
    The Treasury Department and the IRS agree with stakeholders who 
noted that there is no restriction on who can be a transferee under 
section 6418, other than that the transferee cannot be related (within 
the meaning of section 267(b) or 707(b)(1) of the Code) to the eligible 
taxpayer transferring the credit. Thus, an applicable entity could be 
transferred credits under 6418, at least to offset any Federal income 
tax liability. However, the statute does not address whether an 
applicable entity can make an elective payment election under section 
6417 with respect to transferred credits. Based on the reasons 
previously discussed in this part II.C.3. of this Explanation of 
Provisions, the Treasury Department and the IRS believe that a 
transferred credit is not properly interpreted as an applicable credit 
that is ``determined with respect to'' an applicable entity or electing 
taxpayer under section 6417(a) because the credit is not determined 
with respect to underlying applicable credit property owned by the 
applicable entity or electing taxpayer, or, if ownership is not 
required, activities otherwise conducted by the applicable entity or

[[Page 40539]]

electing taxpayer. Section 6418(a) and the proposed regulations under 
section 6418 provide that a transferred credit is determined with 
respect to the eligible taxpayer transferring the credit. Although the 
transferee taxpayer uses the credit, the proposed regulations under 
section 6418 provide that the transferee taxpayer is not considered to 
have owned an interest in the underlying eligible credit property or 
have otherwise conducted any of the activities that give rise to the 
credit.
    The Treasury Department and the IRS seek comments on limited 
situations where exceptions to this proposed rule may be appropriate 
because it is consistent with the text, design, and intent of the IRA, 
while also ensuring that such exceptions are not subject to fraud or 
abuse. Stakeholders could consider appropriate limitations such as (1) 
the type of applicable entity that may be allowed to make an elective 
payment election with respect to credits transferred under section 
6418, such as a government entity; (2) the involvement of the 
transferee taxpayer in the project's development; (3) the level of due 
diligence conducted by the transferee taxpayer regarding whether the 
project qualifies for the applicable credit and any bonus credits and 
whether the amount of transferred credits was properly determined with 
respect to the eligible taxpayer transferring the credit; (4) the fact 
that the transferee taxpayer is paying close to the face value of the 
credit (and what minimum percentage of face value should be required); 
and (5) there are no other special financial arrangements between the 
parties. Stakeholders should address legal considerations, as well as 
practical and administrative challenges, to any such exception to the 
proposed rule.
D. Denial of Double Benefit
    Section 6417(a) allows an applicable entity or electing taxpayer 
other than a partnership or S corporation to be treated as making a 
payment against the tax imposed by subtitle A for the taxable year with 
respect to which such credit was determined equal to the amount of such 
credit. Section 6417(c)(1)(A) provides that, for an electing taxpayer 
that is a partnership or S corporation, the Secretary will make a 
payment to such partnership or S corporation with respect to a credit 
determined with respect to applicable credit property held directly by 
the partnership or S corporation equal to the amount of such credit. 
Sections 6417(e) and 6417(c)(1)(B) each provide that such credit is 
reduced to zero and, for any other purposes of the Code, is deemed to 
have been allowed to such entity for such taxable year. Section 6417(h) 
provides that the Secretary must issue guidance necessary to carry out 
the purposes of section 6417, including guidance to ensure that the 
amount of the payment (in the case of an electing taxpayer that is a 
partnership or S corporation) or deemed payment (in the case of all 
other electing taxpayers and applicable entities) made under section 
6417 is commensurate with the amount of the credit that would be 
otherwise allowable (determined without regard to section 38(c)).
    Proposed Sec.  1.6417-2(e)(2) and (3) would address the methodology 
for determining the amount of the elective payment election, reducing 
the elective payment election amount to zero, and treating the 
applicable credit as a credit allowed for the taxable year for all 
other purposes of the Code with respect to applicable entities and 
electing taxpayers other than partnerships or S corporations. The 
methodology with respect to a payment made to a partnership or S 
corporation is provided in proposed Sec.  1.6417-4(c), as described in 
part IV of this Explanation of Provisions.
    An applicable entity or electing taxpayer (other than an electing 
taxpayer that is a partnership or S corporation) making an elective 
payment election applies section 6417(e) by taking the following steps. 
First, the taxpayer would compute the amount of the Federal income tax 
liability (if any) for the taxable year, without regard to the GBC, 
that is payable on the due date of the return (without regard to 
extensions), and the amount of the Federal income tax liability that 
may be offset by GBCs pursuant to the limitation based on amount of tax 
under section 38. Second, the taxpayer would compute the allowed amount 
of GBC carryforwards carried to the taxable year plus the amount of 
current year GBCs (including current applicable credits) allowed for 
the taxable year under section 38 (that is, in accordance with all the 
rules in section 38, including the ordering rules provided in section 
38(d)). Since the election would be required to be made on an original 
return, any business credit carrybacks would not be considered when 
determining the elective payment amount for the taxable year. Third, 
the taxpayer would apply the GBCs allowed for the taxable year as 
computed in step 2, including those attributable to applicable credits 
as GBCs, against the tax liability computed in step 1. Fourth, the 
taxpayer would identify the amount of any excess or unused current year 
business credit, as defined under section 39, attributable to current 
year applicable credit(s) for which the applicable entity is making an 
elective payment election. The amount of such unused applicable credits 
would be treated as a payment against the tax imposed by subtitle A for 
the taxable year with respect to which such credits are determined 
(rather than having them available for carryback or carryover) (net 
elective payment amount). Fifth, the taxpayer would reduce the 
applicable credits for which an elective payment election is made by 
the amount (if any) allowed as a GBC under section 38 for the taxable 
year, as provided in step 3, and by the net elective payment amount (if 
any) that is treated as a payment against tax, as provided in step 4, 
which results in the applicable credits being reduced to zero.
    The proposed regulations would provide, consistent with section 
6417(e), that the full amount of the applicable credits for which an 
elective payment election is made is deemed to have been allowed for 
all other purposes of the Code, including, but not limited to, the 
basis reduction and recapture rules imposed by section 50 and 
calculation of any underpayment of estimated tax under sections 6654 
and 6655 of the Code. The proposed regulations would give several 
examples illustrating these rules.
    The Treasury Department and the IRS request comments on whether 
future guidance should expand or clarify the methodology that an 
applicable entity follows to compute the amount of its elective 
payment. Comments are also requested on additional Code sections under 
which it may be necessary to consider the applicable credit to have 
been deemed to have been allowed for the taxable year in which an 
elective payment election is made.

III. Elective Payment Election by Electing Taxpayers

    Section 6417(d)(1)(B), (C), and (D) provides that a taxpayer that 
is not an applicable entity described in section 6417(d)(1)(A) and 
that, with respect to any taxable year, places in service applicable 
credit property that qualifies for the section 45V credit or the 
section 45Q credit, or, with respect to any taxable year in which such 
taxpayer has, after December 31, 2022, produced eligible components (as 
defined in section 45X(c)(1)), respectively, may elect to be treated as 
an applicable entity for purposes of section 6417 for such taxable 
year, but only with respect to the applicable credit property and only 
with respect to the credit under section 45V(a), 45Q(a), or 45X(a), 
respectively. Proposed Sec.  1.6417-1(g)

[[Page 40540]]

would define such a taxpayer as an ``electing taxpayer.''
    The special rules for electing taxpayers are found in section 
6417(d)(1) and (d)(3). Proposed Sec.  1.6417-3 would combine these 
rules for clarity.
    Proposed Sec.  1.6417-3(b), (c), and (d) would provide the specific 
rules regarding the election under section 6417(d)(1)(B), (C), or (D). 
Proposed Sec.  1.6417-3(e) would provide the rules relating to the 
election for electing taxpayers. Proposed Sec.  1.6417-4 would provide 
additional rules for electing taxpayers that are partnerships or S 
corporations.
    Proposed Sec.  1.6417-3(b) would provide that an electing taxpayer 
that has placed in service a qualified clean hydrogen production 
facility as defined in section 45V(c)(3) during the taxable year may 
make an elective payment election for such taxable year (or by August 
16, 2023, in the case of facilities placed in service before December 
31, 2022), but only with respect to the qualified clean hydrogen 
production facility, only with respect to the section 45V credit, and 
only if the pre-filing registration process that would be required by 
proposed Sec.  1.6417-5 was properly completed. An electing taxpayer 
that elects to treat qualified property that is part of a specified 
clean hydrogen production facility as energy property under section 
48(a)(15) would not be able to make an elective payment election with 
respect to such facility.
    Proposed Sec.  1.6417-3(c) would provide that an electing taxpayer 
that has, after December 31, 2022, placed in service a single process 
train described in Sec.  1.45Q-2(c)(3) at a qualified facility (as 
defined in section 45Q(d)) during the taxable year may make an elective 
payment election for such taxable year, but only with respect to the 
single process train, only with respect to the section 45Q credit, and 
only if the pre-filing registration process that would be required by 
proposed Sec.  1.6417-5 was properly completed.
    Proposed Sec.  1.6417-2(a)(3)(v) and -3(d) would provide that an 
electing taxpayer that produces, after December 31, 2022, eligible 
components (as defined in section 45X(c)(1)) at a facility during the 
taxable year may make an elective payment election for such taxable 
year, but only with respect to the facility at which the eligible 
components are produced by the electing taxpayer in that year, only 
with respect to the section 45X credit, and only if the pre-filing 
registration process that would be required by proposed Sec.  1.6417-5 
was properly completed.
    Proposed Sec.  1.6417-3(e) would provide rules on how the electing 
taxpayer makes the elective payment election. First, if an electing 
taxpayer makes an elective payment election under proposed Sec.  
1.6417-2(b) with respect to any taxable year in which the electing 
taxpayer places in service a qualified clean hydrogen production 
facility for which a section 45V credit is determined, places in 
service a single process train at a qualified facility for which a 
section 45Q credit is determined, or produces, after December 31, 2022, 
eligible components (as defined in section 45X(c)(1)) at a facility, 
respectively, the electing taxpayer will be treated as an applicable 
entity for purposes of making an elective payment election for such 
taxable year and during the election period described in proposed Sec.  
1.6417-3(e)(3), but only with respect to the applicable credit property 
described in proposed Sec.  1.6417-1(e)(3), (5), or (7), respectively, 
that is the subject of the election. The taxpayer would be required to 
otherwise meet all requirements to earn the credit in the electing year 
and in each succeeding year during the election period described in 
proposed Sec.  1.6417-3(e)(3).
    Second, the election would be made separately for each applicable 
credit property, which is, respectively, a qualified clean hydrogen 
production facility placed in service for which a section 45V credit is 
determined, a single process train placed in service at a qualified 
facility for which a section 45Q credit is determined, or a facility in 
which eligible components are produced for which a section 45X credit 
is determined. Only one election may be made with respect to any 
specific applicable credit property.
    Third, the elective payment election generally would apply for an 
election period consisting of the taxable year in which the election is 
made and each of the four subsequent taxable years that end before 
January 1, 2033. The election period would not be able to be less than 
a taxable year but may be made for a taxable period of less than 12 
months within the meaning of section 443 of the Code.
    However, an electing taxpayer may, during a subsequent year of the 
election period, revoke the elective payment election with respect to 
an applicable credit property described in proposed Sec.  1.6417-
1(e)(3), (5), or (7) in accordance with forms and instructions. Any 
such revocation, if made, applies to the taxable year in which the 
revocation is made (which cannot be less than a taxable year but may be 
made for a taxable period of less than 12 months within the meaning of 
section 443 of the Code) and each subsequent taxable year within the 
election period. Any such revocation may not be subsequently revoked.
    An electing taxpayer would not be able to make a transfer election 
under section 6418(a) with respect to any applicable credit under 
proposed Sec.  1.6417-1(d)(3), (5), or (7) determined with respect to 
applicable credit property described in proposed Sec.  1.6417-1(e)(3), 
(5), or (7) during the election period for that applicable credit 
property. However, if the election period is no longer in effect with 
respect to an applicable credit property, any credit determined with 
respect to such applicable credit property would be able to be 
transferred pursuant to a transfer election under section 6418(a), as 
long as the taxpayer meets the requirements of section 6418 and the 
6418 regulations.

IV. Elective Payment Election for Partnerships and S Corporations

A. Overview
    Section 6417(c)(1) provides that, in the case of any applicable 
credit determined with respect to any applicable credit property held 
directly by a partnership or S corporation, any election under section 
6417(a) is made by such partnership or S corporation. These proposed 
regulations would clarify that partnerships or S corporations are not 
applicable entities described in section 6417(d)(1)(A); thus, any 
partnership or S corporation making an elective payment election must 
be an electing taxpayer, and as such, the only applicable credits with 
respect to which the partnership or S corporation can make an elective 
payment election are a section 45V credit, a section 45Q credit, and a 
section 45X credit.
    If a partnership or S corporation makes an election under section 
6417(a) and proposed Sec.  1.6417-2(b), the special rules of section 
6417(c)(1)(A) through (D) apply. In that regard, proposed Sec.  1.6417-
4(c) would provide that (1) the IRS will make a payment to such 
partnership or S corporation equal to the amount of such credit; (2) 
before determining any partner's distributive share, or shareholder's 
pro rata share, of such credit, such credit is reduced to zero and is, 
for any other purposes under this title, deemed to have been allowed 
solely to such entity (and not allocated by such entity, or otherwise 
allowed, to any partner or shareholder) for such taxable year (for 
example, if a partnership pays a Federal tax liability to the IRS in a 
year for which an elective payment election is made and cash is

[[Page 40541]]

received, it treats the payment to the IRS as if it paid the liability 
with the same amount of underlying credit for which the elective 
payment election is made); (3) any amount with respect to which the 
election under section 6417(a) is made is treated as tax exempt income 
for purposes of sections 705 and 1366; and (4) a partner's distributive 
share of such tax exempt income is equal to such partner's distributive 
share of the otherwise applicable credit for each taxable year as 
determined under Sec.  1.704-1(b)(4)(ii). The tax exempt income would 
be taken into account by the partnership or S corporation at the same 
time as the underlying credit would have been taken into account by the 
partnership or S corporation absent an elective payment election. The 
proposed regulations provide an example illustrating this rule. Because 
it is the applicable credits, and not the tax exempt income, that arise 
from the conduct of the trade or business, the proposed regulations 
would treat the tax exempt income resulting from an elective payment 
election by a partnership or an S corporation as arising from an 
investment activity and not from the conduct of a trade or business 
within the meaning of section 469(c)(1)(A). As such, the tax exempt 
income would not be treated as passive income to any partners or 
shareholders who do not materially participate within the meaning of 
section 469(c)(1)(B).
    As requested by stakeholders, the Treasury Department and the IRS 
clarify here that there are no restrictions imposed under section 6417 
or the section 6417 regulations on how a partnership or S corporation 
that receives a payment from the IRS pursuant to an elective payment 
election may use the cash payments in its operations (including on when 
it makes distributions to its partners or shareholders).
    Section 6417(h) requires that the Secretary issue regulations or 
other guidance to ensure that the amount of the payment to a 
partnership or S corporation is commensurate with the amount of the 
credit that would otherwise be allowable (without regard to section 
38(c)). Therefore, proposed Sec.  1.6417-4(d)(1) would provide that, in 
determining the applicable credit amount that will result in a payment 
to a partnership or S corporation, the partnership or S corporation 
must compute the amount of the applicable credit allowable (without 
regard to section 38(c)) as if an elective payment election were not 
made. Because a partnership or S corporation is not subject to section 
469 (that is, section 469 applies at the partner or shareholder level), 
the amount of an applicable credit determined with respect to an 
applicable credit property held directly by a partnership or S 
corporation is not subject to limitation by section 469. In addition, 
because the credits to which a partnership or S corporation may make 
the elective payment election (that is, section 45V, 45Q, and 45X) are 
not investment tax credits under section 46, sections 49 and 50 do not 
apply to limit the amount of the credits.
B. BBA Partnerships
    Many partnerships are subject to the centralized partnership audit 
regime found in subchapter C of chapter 63 of the Code as amended by 
the Bipartisan Budget Act of 2015 (BBA).\11\ In connection with the 
implementation of section 6417, the Treasury Department and the IRS 
identified several areas of the BBA regulations that require updates to 
administer section 6417 in the case of a partnership subject to the BBA 
(BBA Partnership). Section 6221 of the Code provides that any 
adjustment to a partnership-related item with respect to a BBA 
Partnership, and any tax attributable thereto, is assessed and 
collected at the partnership-level except to the extent provided under 
the BBA. The BBA outlines centralized audit procedures which generally 
must be followed before the IRS can adjust a partnership-related item 
(as defined in Sec.  301.6241-1). In order to implement section 6417, 
the Treasury Department and the IRS propose updates to the regulations 
under Sec. Sec.  301.6241-1 and 301.6241-7.
---------------------------------------------------------------------------

    \11\ See section 1101 of the BBA, Public Law 114-74, 129 Stat. 
584, 625-638 (2015), as amended by section 411 of the Protecting 
Americans from Tax Hikes Act of 2015, Public Law 114-113, 129 Stat. 
2242, 3121 (2015), and sections 201 through 207 of the Tax Technical 
Corrections Act of 2018, Public Law 115-141, 132 Stat. 348, 1171-
1183 (2018).
---------------------------------------------------------------------------

1. Partnership-Related Items
    Under Sec.  301.6241-1(a)(6)(ii), a partnership-related item is any 
item or amount that is, with respect to the BBA Partnership, relevant 
in determining the tax liability of any person under chapter 1. Because 
the partnership-related item definition is based on relevance to the 
chapter 1 liability of any person, the liability could belong to the 
BBA Partnership or its partners. While partnerships do not typically 
pay chapter 1 tax pursuant to section 701 of the Code, a BBA 
Partnership is eligible to be an electing taxpayer under section 6417 
and is thus subject to the excessive payment rule under section 
6417(d)(6), which could result in a chapter 1 tax liability to the BBA 
Partnership. In addition, if a partnership makes an election under 
section 6417, the partnership must reduce its applicable credit under 
section 6417(e), which would impact the amount of credit and tax exempt 
income that the partners would be allocated, thereby affecting the 
partners' chapter 1 liability. Because the application of section 6417 
may be relevant in determining the chapter 1 liabilities of a BBA 
Partnership and its partners, any item or amount relevant to section 
6417 that is ``with respect to the partnership'' would be a 
partnership-related item as defined under Sec.  301.6241-1(a)(6)(ii).
    Section 301.6241-1(a)(6)(iii) provides than an item or amount is 
``with respect to the partnership'' if the item or amount is shown or 
reflected, or required to be shown or reflected, on a return of the 
partnership under section 6031 of the Code or is required to be 
maintained in the partnership's books and records. Because the 
definition of a partnership-related item is based on the item's 
relevance to the chapter 1 tax liability of any person, this definition 
ensures that the definition of a partnership-related item is not so 
broad as to include items that are wholly unrelated to a BBA 
Partnership, such as a partner's unrelated income. While the limitation 
in this definition works well to ensure partner-level items are not 
inadvertently swept into the definition of a partnership related item, 
this definition may inadvertently exclude a chapter 1 liability of a 
BBA Partnership if, for instance, the liability is not required to be 
shown or reflected on the BBA Partnership's return. The BBA 
Partnership's own chapter 1 tax liability, in contrast with a partner's 
liability, is undoubtedly ``with respect to the partnership'' and a 
partnership-related item.
    Accordingly, these proposed regulations propose to add a sentence 
to Sec.  301.6241-1(a)(6)(iii) (regarding items or amounts with respect 
to a BBA Partnership) to provide that any chapter 1 tax that is the 
liability of the BBA Partnership is an item with respect to the BBA 
Partnership regardless of whether that chapter 1 tax is required to be 
reflected or shown on the partnership return or required to be 
maintained in the BBA Partnership's books and records.
2. Special Enforcement Rule for the Elective Payment Election
    As noted in part IV.B.1. of this Explanation of Provisions, the 
BBA's centralized partnership audit regime requires the IRS to follow 
certain procedures before adjusting partnership-related items of a BBA 
Partnership.

[[Page 40542]]

Under section 6241(11), in the case of partnership-related items that 
the Secretary determines involve a special enforcement matter, the 
Secretary is authorized to prescribe regulations pursuant to which the 
BBA audit procedures do not apply, and such partnership-related items 
are subject to special rules (including rules related to assessment and 
collection) as the Secretary determines necessary for the effective and 
efficient enforcement of the Code. Section 6241(11)(A). Section 
6241(11)(B) provides a list of certain ``special enforcement matters,'' 
including the failure to comply with information reporting obligations 
of tiered partnerships, jeopardy assessments of tax in exigent 
circumstances, and matters involving foreign partners and partnerships. 
Sections 6241(11)(B)(i), (ii), and (v). Section 6241(11)(B)(vi) also 
provides a grant of authority to the Secretary for ``other matters that 
the Secretary determines by regulation present special enforcement 
considerations.''
    Proposed Sec.  1.6417-2(b) would provide that the elective payment 
election must be made on an original return and that the election may 
not be made on an amended return or administrative adjustment request. 
Under the existing BBA regulations, a BBA Partnership's elective 
payment election under section 6417 is a partnership-related item 
because the existence of the election is relevant in determining 
chapter 1 tax and because the election is required to be made on the 
BBA Partnership's return. Because the elective payment election is a 
partnership-related item, the only way for the IRS to make an 
adjustment upon the determination of an ineffective election would be 
to follow the audit procedures of the centralized partnership audit 
regime. To prevent duplication, fraud, improper payments, or excessive 
payments in an effective manner, the IRS must be able to determine 
whether a BBA Partnership's elective payment election is ineffective in 
an expeditious manner. The procedural requirements of the BBA would 
require the IRS to treat BBA Partnerships that have made an ineffective 
election payment election differently from other electing taxpayers 
that are not subject to the centralized partnership audit regime but 
that are otherwise similarly situated. The Treasury Department and the 
IRS are proposing that, due to the unique nature of the section 6417 
election, which, pursuant to proposed Sec.  1.6417-2(d), would result 
in a payment treated as having been made on the later of the due date 
of the return or the date the return was filed, the special enforcement 
matters described in section 6241(11) would apply, and the BBA 
centralized partnership audit regime should not apply to adjustments 
with respect to partnership-related items that affect the amount or 
existence of a payment to the BBA Partnership, or credit or refund of a 
payment to the BBA Partnership under section 6417. Accordingly, these 
proposed regulations would add new paragraph (j) to Sec.  301.6241-7 to 
provide that an election by a BBA Partnership under section 6417 can be 
adjusted outside of the BBA audit rules. These proposed regulations 
also would redesignate existing paragraph (j) (regarding applicability 
dates) to a new paragraph (k) and update that paragraph (k) to reflect 
an applicability date for these proposed regulations.

V. Pre-Filing Registration Requirements and Additional Information

    Section 6417(d)(5) provides that as a condition of, and prior to, 
any amount being treated as a payment that is made by the taxpayer 
under section 6417(a) or any payment being made pursuant to section 
6417(c), the Secretary may require such information or registration as 
the Secretary deems necessary or appropriate for purposes of preventing 
duplication, fraud, improper payments, or excessive payments.
    In general, stakeholders requested additional information about 
this provision and requested that the regulations balance the need to 
prevent fraud and abuse with the burden on taxpayers. Stakeholders 
recommended that the information required to be provided to the IRS 
should be provided in a manner that facilitates automated procedures to 
help catch potential fraud, discourages abusive or otherwise 
illegitimate claims, and allows efficient and prompt review (both 
before payment and through audits). Stakeholders recommended that all 
required documents and information should be able to be submitted 
easily via an online portal. Stakeholders recommended that information 
or registration should be as consistent as possible across sections 
48D(d)(1), 6417(d)(5), and 6418(g)(1).
    Proposed Sec.  1.6417-5 would provide the mandatory pre-filing 
registration process that, except as provided in guidance, an 
applicable entity or electing taxpayer would be required to complete as 
a condition of, and prior to (1) any amount being treated as a payment 
against the tax imposed by subtitle A that is made by an applicable 
entity or electing taxpayer (other than a partnership of S corporation) 
under proposed Sec. Sec.  1.6417-2(a)(1)(i) or -2(a)(2)(i), or (2) any 
amount being paid to a partnership or S corporation pursuant to 
proposed Sec.  1.6417-2(a)(2)(ii).
    Proposed Sec.  1.6417-5(a) provides an overview of this process and 
would require an applicable entity or electing taxpayer to satisfy the 
pre-filing registration requirements as a condition of, and prior to, 
making an elective payment election. An applicable entity or electing 
taxpayer would be required to use the pre-filing registration process 
to register itself as intending to make the elective payment election, 
to list all applicable credits it intends to claim, and to list each 
applicable credit property that contributed to the determination of 
such credits as part of the pre-filing submission (or amended 
submission). An applicable entity or electing taxpayer that does not 
obtain a registration number and report the registration number on its 
annual tax return with respect to an applicable credit property would 
be ineligible to make an elective payment election to treat any credit 
determined with respect to that applicable credit property as a payment 
of tax. However, completion of the pre-filing registration requirements 
and receipt of a registration number would not, by itself, mean that 
the applicable entity or electing taxpayer would receive a payment with 
respect to the applicable credits determined with respect to the 
applicable credit property.
    Proposed Sec.  1.6417-5(b) would provide the following pre-filing 
registration requirements.
    First, an applicable entity or electing taxpayer must complete the 
pre-filing registration process electronically through an IRS 
electronic portal in accordance with the instructions provided therein, 
unless otherwise provided in guidance. If the election is by a member 
of a consolidated group, the member must complete the pre-filing 
registration process as a condition of, and prior to, making an 
elective payment election. See Sec.  1.1502-77 (providing rules 
regarding the status of the common parent as agent for its members).
    Second, an applicable entity or electing taxpayer must satisfy the 
registration requirements and receive a registration number prior to 
making an elective payment election on the applicable entity's tax 
return for the taxable year at issue.
    Third, an applicable entity or electing taxpayer is required to 
obtain a registration number for each applicable credit property with 
respect to which an applicable credit will be determined

[[Page 40543]]

and for which the applicable entity or electing taxpayer intends to 
make an elective payment election.
    Finally, an applicable entity or electing taxpayer must provide the 
specific information required to be provided as part of the pre-filing 
registration process. The provision of such information, which includes 
information about the taxpayer, about the applicable credits, and about 
the applicable credit property, would allow the IRS to prevent 
duplication, fraud, improper payments, or excessive payments under 
section 6417. For example, verifying information about the taxpayer 
would allow the IRS to mitigate the risk of fraud or improper payments 
to entities that are not applicable entities or electing taxpayers. 
Information about the taxpayer's taxable year would allow the IRS to 
ensure that an elective payment election is timely made on the entity's 
annual tax return. Information about applicable credit properties, 
including their address and coordinates (longitude and latitude), 
supporting documentation, beginning of construction date, and placed in 
service date would allow the IRS to mitigate the risk of duplication, 
fraud, and improper payments for properties that are not applicable 
credit properties. Information about whether an investment tax credit 
property was acquired using any Restricted Tax Exempt Amounts would 
allow the IRS to prevent improper payments.
    Proposed Sec.  1.6417-5(c) would provide information about the 
required registration number. Proposed Sec.  1.6417-5(c)(1) would 
provide that, after an applicable entity or electing taxpayer completes 
the pre-filing registration process as provided in proposed Sec.  
1.6417-5(b) for the applicable credit properties with respect to which 
the entity intends to make an elective payment election in the taxable 
year, the IRS will review the information provided and will issue a 
separate registration number for each applicable credit property for 
which the applicable entity or electing taxpayer provided sufficient 
verifiable information, as provided in guidance.
    Proposed Sec.  1.6417-5(c)(2) would provide that a registration 
number is valid only for the taxable year for which it is obtained. 
Proposed Sec.  1.6417-5(c)(3) would provide that, if an elective 
payment election will be made with respect to an applicable credit 
property for which a registration number under proposed Sec.  1.6417-5 
has been previously obtained, the applicable entity or electing 
taxpayer would be required to renew the registration each year in 
accordance with applicable guidance, including attesting that all the 
facts previously provided are still correct or updating any facts. 
Proposed Sec.  1.6417-5(c)(4) would provide that, if specified changes 
occur with respect to one or more applicable credit properties for 
which a registration number has been previously obtained but not yet 
used, an applicable entity or electing taxpayer would be required to 
amend the registration (or may need to submit a new registration) to 
reflect these new facts. For example, one stakeholder asked that, if a 
taxpayer becomes a party to an internal reorganization under section 
368(a) (such as a merger or distribution in a nonrecognition 
transaction) during the election period, the elective payment election 
should carry over to the successor entity. The proposed regulations 
would provide that if a facility previously registered for an elective 
payment election undergoes a change of ownership (incident to a 
corporate reorganization or an asset sale) such that the new owner has 
a different employer identification number (EIN) than the owner who 
obtained the original registration, the original owner would be 
required to amend the original registration to disassociate its EIN 
from the credit property and the new owner must submit an original 
registration (or if the new owner previously registered other credit 
properties, must amend its original registration) to associate the new 
owner's EIN with the previously registered credit property.
    Lastly, proposed Sec.  1.6417-5(c)(5) would provide that the 
applicable entity or electing taxpayer would be required to include the 
registration number of the applicable credit property on their annual 
tax return for the taxable year. The IRS will treat an elective payment 
election as ineffective with respect to the portion of a credit 
determined with respect to an applicable credit property for which the 
applicable entity or electing taxpayer does not include a valid 
registration number on the annual tax return.
    The corresponding temporary regulations under Sec.  1.6417-5T 
published in the Rules and Regulations section of this edition of the 
Federal Register apply rules to taxable years ending on or after June 
21, 2023, that are identical to those that would apply under proposed 
Sec.  1.6417-5. The temporary regulations under Sec.  1.6417-5T expire 
on June 12, 2026.

VI. Special Rules

    Proposed Sec.  1.6417-6 would provide special rules relating to 
excessive payment as well as basis reduction and recapture.
A. Excessive Payment
    Pursuant to 6417(d)(6), proposed Sec.  1.6417-6 would provide that 
the IRS may determine that an amount treated as a payment made by an 
applicable entity under proposed Sec.  1.6417-2(a)(1)(i) or an electing 
taxpayer under proposed Sec.  1.6417-2(a)(2)(i), or the amount of the 
payment made pursuant to proposed Sec.  1.6417-2(a)(2)(ii), constitutes 
an excessive payment. Proposed Sec.  1.6417-6(a) would provide that in 
the case of an excessive payment determined by the IRS, the amount of 
chapter 1 tax imposed on the applicable entity or electing taxpayer for 
the taxable year in which the excessive payment determination is made 
will be increased by an amount equal to the sum of (1) the amount of 
such excessive payment, plus (2) an amount equal to 20 percent of such 
excessive payment (additional 20-percent chapter 1 tax). This would be 
the case even if the applicable entity or electing taxpayer is 
otherwise not subject to chapter 1 tax. The additional 20-percent 
chapter 1 tax amount would not apply if the applicable entity or 
electing taxpayer demonstrates to the satisfaction of the IRS that the 
excessive payment resulted from reasonable cause. If the additional 20-
percent chapter 1 tax is applicable, it would apply in addition to any 
penalties, additions to tax, or other amounts applicable under the 
Code. The Treasury Department and the IRS anticipate that existing 
standards of reasonable cause will inform the determination by the IRS 
of whether reasonable cause has been demonstrated for this purpose.
    The term ``excessive payment'' is proposed to be defined as an 
amount equal to the excess of (1) the amount treated as a payment under 
proposed Sec.  1.6417-2(a)(1)(i) or -2(a)(2)(i), or the amount of the 
payment made pursuant to proposed Sec.  1.6417-2(a)(2)(ii), with 
respect to such facility or property for such taxable year, over (2) 
the amount of the credit that, without application of section 6417, 
would be otherwise allowable (as described in part II.C and II.D. or 
IV. of this Explanation of Provisions and without regard to section 
38(c)) under the Code with respect to such facility or property for 
such taxable year.
    Several stakeholders asked that the term ``excessive payment'' be 
determined without any tax credit utilization rules, such as those 
found in sections 38, 49, and 469. Because the statute provides that 
the amount of the credit should not exceed the amount ``otherwise 
allowable'' (without application of sections 38(c), without

[[Page 40544]]

regard to sections 50(b)(3) and (4)(A)(i), and by treating any property 
with respect to which such credit is determined as used in a trade or 
business of the applicable entity), the Treasury Department and the IRS 
are proposing that all other relevant code sections, including sections 
38 (but not 38(c)), 49, and 469, would apply to the amount treated as a 
payment that is made by the applicable entity or electing taxpayer as 
described in part II of this Explanation of Provisions. Thus, if an 
applicable entity or electing taxpayer is an individual, trust, closely 
held corporation, or other taxpayer subject to the rules of section 
469, or if an applicable credit is an investment tax credit that is 
determined including the rules of section 49, then those rules would 
apply. However, proposed Sec.  1.6417-2(c) would provide additional 
rules relating to the determination of applicable credits, such as the 
special rule for investment credit property acquired by a tax-exempt or 
government entity using nontaxable grants or other nontaxable proceeds, 
as described in part II.C. of this Explanation of Provisions.
    In contrast, the amount of the payment to partnerships and S 
corporations described in part IV of this Explanation of Provisions has 
different proposed rules. As discussed in part IV of this Explanation 
of Provisions, in determining the applicable credit amount that will 
result in a payment to a partnership or S corporation, the partnership 
or S corporation would be required to compute the amount of the 
applicable credit allowable (without regard to section 38(c)) as if an 
elective payment election were not made. However, because a partnership 
or S corporation is not subject to section 469 (that is, section 469 
applies at the partner or shareholder level), the amount of the credit 
determined by a partnership or S corporation would not be subject to 
limitation by section 469. In addition, because the only applicable 
credits for which a partnership or S corporation may make the elective 
payment election are the section 45V credit, section 45Q credit, and 
section 45X credit, which are production tax credits, sections 49 and 
50 (applicable to investment tax credits) would not apply to limit 
these applicable credit amounts.
    Stakeholders asked for clarification on how the excessive payment 
would be determined and in which year the adjustment applies. The 
Treasury Department and the IRS anticipate that excessive payments may 
arise in a variety of situations, such as an improperly claimed bonus 
credit amount, an error in calculating a credit, inflated basis, 
failure to apply the section 38(d) ordering rules, or a misapplication 
of the credit utilization rules, among other things. The statute 
provides that the tax is imposed on the applicable entity in the year 
the determination of the excessive payment is made, despite the fact 
that this is a later year than the year in which the credit was 
allowable. The Treasury Department and the IRS request comments on 
whether additional guidance on excessive payments is needed.
B. Basis Reduction and Recapture
    Proposed Sec.  1.6417-6(b) would provide rules similar to the rules 
of section 50 (without regard to section 50(b)(3) and (4)(A)(i)) apply 
for purposes of section 6417. (Section 6417(g) erroneously refers to 
section 6417(c)(2)(A), a provision that does not exist, and it is 
evident that such reference was intended to be to section 
6417(d)(2)(A). That error is accounted for in these proposed 
regulations.)
    One stakeholder asked how entities that don't normally file tax 
returns should report recapture events. The stakeholder asked that the 
reporting and payment of the recapture amount should be consistent with 
the rules applicable to taxable entities (that is, no reporting or 
payment due until a tax return would be due for the related calendar 
year). Proposed Sec.  1.6417-6(b)(2) would clarify that any reporting 
of recapture is made on the taxpayer's annual tax return in the manner 
prescribed by the IRS in future guidance, along with supplemental forms 
such as Form 4255, Recapture of Investment Credit.
    Stakeholders asked whether recapture is considered an excessive 
payment event. The excessive payment rules operate separately from the 
recapture rules. The excessive payment rules apply where the credit 
amount reported on the original credit source form by the applicable 
entity or electing taxpayer was excessive. Recapture of a tax credit 
occurs when the original tax credit reported would have been correct 
without the occurrence of a subsequent recapture event. Thus, recapture 
events, including recapture events under sections 45Q(f)(4) or 50(a), 
do not result in an excessive payment.
    Stakeholders asked that the proposed regulations clarify that basis 
reduction and recapture applies only to the investment tax credits. The 
section 50 rules, including basis reduction and recapture, only apply 
to investment tax credits so no clarification on this point is 
required.
    Stakeholders also asked that guidance be provided in the form of 
examples that illustrate the manner in which section 50 will be applied 
for purposes of basis reduction and recapture. Proposed Sec.  1.6417-
6(b)(3) would provide an example.

Proposed Applicability Dates

    Each of proposed Sec. Sec.  1.6417-1 through 1.6417-6 is proposed 
to apply to taxable years ending on or after the date the Treasury 
decision adopting these regulations as final regulations is published 
in the Federal Register. Entities may rely on these proposed 
regulations for elective payments of applicable credit amounts after 
December 31, 2022, in taxable years ending before the date the Treasury 
decision adopting these regulations as final regulations is published 
in the Federal Register, provided the entities follow the proposed 
regulations in their entirety and in a consistent manner with respect 
to all elections made under section 6417. Sections 301.6241-1 and 
301.6241-7 are proposed to apply to taxable years ending on or after 
the date these proposed regulations are published in the Federal 
Register.

Special Analyses

I. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (``PRA'') 
generally requires that a federal agency obtain the approval of the 
Office of Management and Budget (OMB) before collecting information 
from the public, whether such collection of information is mandatory, 
voluntary, or required to obtain or retain a benefit. An agency may not 
conduct or sponsor, and a person is not required to respond to, a 
collection of information unless the collection of information displays 
a valid control number.
    The collections of information in these proposed regulations 
contain reporting and recordkeeping requirements. The recordkeeping 
requirements mentioned within these proposed regulations are considered 
general tax records under Section 1.6001-1(e). These records are 
required for the IRS to validate that taxpayers have met the regulatory 
requirements and are entitled to make an elective payment election. For 
PRA purposes, general tax records are already approved by OMB under 
1545-0047 for tax-exempt organizations and government entities; 1545-
0074 for individuals; and under 1545-0123 for business entities.
    These proposed regulations also mention reporting requirements 
related to making elections as detailed in

[[Page 40545]]

Sec. Sec.  1.6417-2 and 1.6417-3 and calculating the claim amounts as 
detailed in Sec. Sec.  1.6417-2 and 1.6417-4. These elections will be 
made by taxpayers on Forms 990-T, 1040, 1120-S, 1065, and 1120; and 
credit calculations will be made on Form 3800 and supporting forms. 
These forms are approved under 1545-0047 for tax-exempt organizations 
and governmental entities; 1545-0074 for individuals; and 1545-0123 for 
business entities.
    These proposed regulations also mention recapture procedures as 
detailed in Sec.  1.6417-6. These recaptures are performed using Form 
4255. This form is approved under 1545-0047 for tax-exempt 
organizations and governmental entities; 1545-0074 for individuals; and 
1545-0123 for business entities. These proposed regulations are not 
changing or creating new collection requirements not already approved 
by OMB.
    These proposed regulations mention a requirement to register with 
the IRS to be able to elect payments as detailed in Sec.  1.6417-5. For 
further information concerning the registration, where to submit 
comments on the collection of information and the accuracy of the 
estimated burden, and suggestions for reducing this burden, please 
refer to the preamble to the corresponding temporary regulations (T.D. 
9975) published in the Rules and Regulations section of this issue of 
the Federal Register. These proposed regulations are not changing or 
creating new collection requirements beyond the requirements that are 
being reviewed and approved by OMB under the temporary regulations.

II. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to Federal rules that are subject to 
the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely 
to have a significant economic impact on a substantial number of small 
entities. Unless an agency determines that a proposal is not likely to 
have a significant economic impact on a substantial number of small 
entities, section 603 of the RFA requires the agency to present an 
initial regulatory flexibility analysis (IRFA) of the proposed rule. 
The Treasury Department and the IRS have not determined whether the 
proposed rule, when finalized, will likely have a significant economic 
impact on a substantial number of small entities. This determination 
requires further study. However, because there is a possibility of 
significant economic impact on a substantial number of small entities, 
an IRFA is provided in these proposed regulations. The Treasury 
Department and the IRS invite comments on both the number of entities 
affected and the economic impact on small entities.
    Pursuant to section 7805(f), this notice of proposed rulemaking has 
been submitted to the Chief Counsel of Advocacy of the Small Business 
Administration for comment on its impact on small business.
1. Need for and Objectives of the Rule
    The proposed regulations would provide greater clarity to taxpayers 
that intend to take advantage of section 6417's credit monetization 
mechanism. It provides needed definitions, the time and manner to make 
the election, and information about the pre-filing registration 
process, among other items. The Treasury Department and the IRS intend 
and expect that giving taxpayers guidance that allows them to use 
section 6417 will beneficially impact various industries, delivering 
benefits across the economy, and reduce economy-wide greenhouse gas 
emissions.
    In particular, section 6417 allows applicable entities to treat an 
applicable credit as a payment against Federal income taxes and defines 
applicable entities to include many entities that may not have any tax 
liability. Allowing entities without sufficient federal income tax 
liability to use a business tax credit to instead make an election to 
receive a refund of any overpayment of taxes created by the elective 
payment election will increase the incentive for taxpayers to invest in 
clean energy projects that generate eligible credits because it will 
increase the amount of cash available to those entities, thereby 
reducing the amount of financing needed for clean energy projects.
2. Affected Small Entities
    The RFA directs agencies to provide a description of, and where 
feasible, an estimate of, the number of small entities that may be 
affected by the proposed rules, if adopted. The Small Business 
Administration's Office of Advocacy estimates in its 2023 Frequently 
Asked Questions that 99.9 percent of American businesses meet its 
definition of a small business. The applicability of these proposed 
regulations does not depend on the size of the business, as defined by 
the Small Business Administration. As described more fully in the 
preamble to this proposed regulation and in this IRFA, section 6417 and 
these proposed regulations may affect a variety of different entities 
across several different industries as there are 12 different 
applicable credits for which an elective payment election may be made. 
Further, the elective payment election for 3 of the applicable credits 
may be made both by applicable entities and by taxpayers other than 
applicable entities. Although there is uncertainty as to the exact 
number of small businesses within this group, the current estimated 
number of respondents to these proposed rules is 20,000 taxpayers, as 
described in the Paperwork Reduction Act section of the preamble.
    The Treasury Department and the IRS expect to receive more 
information on the impact on small businesses through comments on this 
proposed rule and again when taxpayers start to make the elective 
payment election using the guidance and procedures provided in these 
proposed regulations.
3. Impact of the Rules
    The proposed regulations provide rules for how taxpayers can take 
advantage of the section 6417 credit monetization regime. Taxpayers 
that elect to take advantage of section 6417 will have administrative 
costs related to reading and understanding the rules as well as 
recordkeeping and reporting requirements because of the pre-filing 
registration and tax return requirements. The costs will vary across 
different-sized entities and across the type of project(s) in which 
such entities are engaged.
    The pre-filing registration process requires a taxpayer to register 
itself as intending to make the elective payment election, to list all 
applicable credits it intends to claim, and to list each applicable 
credit property that contributed to the determination of such credits. 
This process must be completed to receive a registration number for 
each applicable credit property with respect to which the applicable 
taxpayer intends to make an elective payment election. To make the 
elective payment election and claim the credit, the taxpayer must file 
an annual tax return. The reporting and recordkeeping requirements for 
that return would be required for any taxpayer that is claiming a 
general business credit, regardless of whether the taxpayer was making 
an elective payment election under section 6417.
    Although the Treasury Department and the IRS do not have sufficient 
data to determine precisely the likely extent of the increased costs of 
compliance, the estimated burden of complying with the recordkeeping 
and reporting requirements are described in the Paperwork Reduction Act 
section of the preamble.

[[Page 40546]]

4. Alternatives Considered
    The Treasury Department and the IRS considered alternatives to the 
proposed regulations. For example, in adopting the pre-filing 
registration requirements, the Treasury Department and the IRS 
considered whether such information could be obtained at the filing of 
the relevant annual tax return. However, the Treasury Department and 
the IRS decided that such an option would increase the opportunity for 
duplication fraud, improper payments, or excessive payments under 
section 6417 as well as potentially delaying payments to qualifying 
taxpayers. Section 6417(d)(5) specifically authorizes the IRS to 
require such information or registration as the Secretary deems 
necessary for purposes of preventing duplication, fraud, improper 
payments, or excessive payments under section 6417 as a condition of, 
and prior to, any amount being treated as a payment which is made by an 
applicable entity under section 6417. As described in the preamble to 
these proposed regulations, these proposed rules carry out that 
Congressional intent as pre-filing registration allows for the IRS to 
verify certain information in a timely manner and then process the 
annual tax return with minimal delays. Having a distinction between 
applicable entities or electing entities that are small businesses 
versus others making an elective payment election would create a 
scenario where a subset of taxpayers seeking to make an elective 
payment election would not have been verified or received registration 
numbers, potentially delaying payment not only to them but to other 
taxpayers seeking to use section 6417.
    Additionally, when considering how taxpayers should claim the 
credits and make the elective payment election, the Treasury Department 
and the IRS considered creating an election system outside of the tax 
return filing system. However, it was determined that such a process 
would not be an efficient use of resources, especially given the 
statutory due date to make an election, which is the return filing date 
for the taxpayers with a filing obligation (which would include small 
business taxpayers). The Treasury Department and the IRS decided that 
the most efficient and reliable method is to use the existing method 
for claiming business tax credits; that is, the filing of the annual 
tax return. To create a different method for small businesses making an 
elective payment election than for a small business claiming the credit 
(or a larger business making an elective payment election or claiming 
the credit) would create an additional burden for both small businesses 
and the IRS, without any commensurate benefit.
    Comments are requested on the requirements in the proposed 
regulations, including specifically whether there are less burdensome 
alternatives that do not increase the risk of duplication, fraud, 
improper payments, or excessive payments under section 6417.
5. Duplicative, Overlapping, or Conflicting Federal Rules
    The proposed rule would not duplicate, overlap, or conflict with 
any relevant Federal rules. As discussed above, the proposed rule would 
merely provide procedures and definitions to allow taxpayers to take 
advantage of the ability to make an elective payment election. The 
Treasury Department and the IRS invite input from interested members of 
the public about identifying and avoiding overlapping, duplicative, or 
conflicting requirements.

IV. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires that agencies assess anticipated costs and benefits and take 
certain other actions before issuing a final rule that includes any 
Federal mandate that may result in expenditures in any one year by a 
State, local, or Indian tribal government, in the aggregate, or by the 
private sector, of $100 million (updated annually for inflation). This 
proposed rule does not include any Federal mandate that may result in 
expenditures by State, local, or Indian tribal governments, or by the 
private sector in excess of that threshold.

V. Executive Order 13132: Federalism

    Executive Order 13132 (Federalism) prohibits an agency from 
publishing any rule that has federalism implications if the rule either 
imposes substantial, direct compliance costs on State and local 
governments, and is not required by statute, or preempts State law, 
unless the agency meets the consultation and funding requirements of 
section 6 of the Executive Order. This proposed rule does not have 
federalism implications and does not impose substantial direct 
compliance costs on State and local governments or preempt State law 
within the meaning of the Executive Order.

VI. Executive Order 13175: Consultation and Coordination With Indian 
Tribal Governments

    Executive Order 13175 (Consultation and Coordination With Indian 
Tribal Governments) prohibits an agency from publishing any rule that 
has Tribal implications if the rule either imposes substantial, direct 
compliance costs on Indian tribal governments, and is not required by 
statute, or preempts Tribal law, unless the agency meets the 
consultation and funding requirements of section 5 of the Executive 
Order. This proposed rule does not have substantial direct effects on 
one or more federally recognized Indian tribes and does not impose 
substantial direct compliance costs on Indian tribal governments within 
the meaning of the Executive Order.
    Nevertheless, on November 28, 2022, and November 29, 2022, the 
Treasury Department and the IRS held consultations with Tribal leaders 
requesting assistance in addressing questions related to the elective 
payment election under section 6417. Consultation was also held with 
Alaska Native Corporations on December 2, 2022. These consultations 
informed the development of these proposed regulations.
    The Treasury Department and the IRS will hold additional 
consultations with Tribal leaders and Alaska Native Corporations after 
providing an opportunity for review of the proposed regulations and 
early in the process of publishing final regulations under section 
6417.

VII. Regulatory Planning and Review

    Pursuant to the Memorandum of Agreement, Review of Treasury 
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory 
actions issued by the IRS are not subject to the requirements of 
section 6 of Executive Order 12866, as amended. Therefore, a regulatory 
impact assessment is not required.

Comments and Public Hearing

    Before these proposed amendments to the regulations are adopted as 
final regulations, consideration will be given to comments that are 
submitted timely to the IRS as prescribed in this preamble under the 
ADDRESSES section. The Treasury Department and the IRS request comments 
on all aspects of the proposed regulations. Any electronic comments 
submitted, and any paper comments submitted, will be made available at 
https://www.regulations.gov or upon request.
    Announcement 2023-16, 2023-20 I.R.B. 854 (May 15, 2023), provides 
that public hearings will be conducted in person, although the IRS will 
continue to provide a telephonic option for individuals who wish to 
attend or testify at a hearing by telephone. Any

[[Page 40547]]

telephonic hearing will be made accessible to people with disabilities.
    A public hearing is scheduled to be held in person on August 21, 
2023, beginning at 10:00 a.m. ET, unless no outlines are received by 
August 14, 2023. Due to building security procedures, visitors must 
enter at the Constitution Avenue entrance. In addition, all visitors 
must present photo identification to enter the building. Because of 
access restrictions, visitors will not be admitted beyond the immediate 
entrance area more than 30 minutes before the hearing starts.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who 
wish to comment by telephone at the hearing must submit written or 
electronic comments and an outline of the topics to be discussed as 
well as the time to be devoted to each topic by August 14, 2023, as 
prescribed in the preamble under the ADDRESSES section.
    A period of ten minutes will be allocated to each person for making 
comments. After the deadline for receiving outlines has passed, the IRS 
will prepare an agenda containing the schedule of speakers. Copies of 
the agenda will be made available at https://www.regulations.gov, 
search IRS and REG-101607-23. Copies of the agenda will also be 
available by emailing a request to [email protected]. Please put 
``REG-101607-23 Agenda Request'' in the subject line of the email.
    Individuals who want to testify in person at the public hearing 
must send an email to [email protected] to have your name added to 
the building access list. The subject line of the email must contain 
the regulation number REG-101607-23 and the language TESTIFY In Person. 
For example, the subject line may say: Request to TESTIFY In Person at 
Hearing for REG-101607-23.
    Individuals who want to testify by telephone at the public hearing 
must send an email to [email protected] to receive the telephone 
number and access code for the hearing. The subject line of the email 
must contain the regulation number REG-101607-23 and the language 
TESTIFY Telephonically. For example, the subject line may say: Request 
to TESTIFY Telephonically at Hearing for REG-101607-23.
    Individuals who want to attend the public hearing in person without 
testifying must also send an email to [email protected] to have 
your name added to the building access list. The subject line of the 
email must contain the regulation number REG-101607-23 and the language 
ATTEND In Person. For example, the subject line may say: Request to 
ATTEND Hearing In Person for REG-101607-23. Requests to attend the 
public hearing must be received by 5:00 p.m. EST on August 17, 2023.
    Individuals who want to attend the public hearing by telephone 
without testifying must also send an email to [email protected] to 
receive the telephone number and access code for the hearing. The 
subject line of the email must contain the regulation number REG-
101607-23 and the language ATTEND Hearing Telephonically. For example, 
the subject line may say: Request to ATTEND Hearing Telephonically for 
REG-101607-23. Requests to attend the public hearing must be received 
by 5:00 p.m. EST on August 17, 2023.
    Hearings will be made accessible to people with disabilities. To 
request special assistance during a hearing please contact the 
Publications and Regulations Branch of the Office of Associate Chief 
Counsel (Procedure and Administration) by sending an email to 
[email protected] (preferred) or by telephone at (202) 317-6901 
(not a toll-free number) at least August 16, 2023.

Statement of Availability of IRS Documents

    Guidance cited in this preamble is published in the Internal 
Revenue Bulletin and is available from the Superintendent of Documents, 
U.S. Government Publishing Office, Washington, DC 20402, or by visiting 
the IRS website at https://www.irs.gov.

Drafting Information

    The principal authors of theses proposed regulations are Jeremy 
Milton and James Holmes, Office of the Associate Chief Counsel 
(Passthroughs and Special Industries), IRS. However, other personnel 
from the Treasury Department and the IRS participated in their 
development.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, the Treasury Department and the IRS propose to amend 
26 CFR parts 1 and 301 as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority:  26 U.S.C. 7805 * * *
* * * * *
0
Par. 2. Sections 1.6417-0 through 1.6417-6 are added under the 
undesignated heading ``Abatements, Credits, and Refunds'' to read as 
follows:


Sec.  1.6417-0  Table of contents

    This section lists the table of contents for Sec. Sec.  1.6417-1 
through 1.6417-6.

Sec.  1.6417-1 Elective Payment of Applicable Credits.

    (a) In general.
    (b) Annual tax return.
    (c) Applicable entity.
    (d) Applicable credit.
    (e) Applicable credit property.
    (f) Disregarded entity.
    (g) Electing taxpayer.
    (h) Elective payment amount.
    (i) Elective payment election.
    (j) Guidance.
    (k) Indian tribal government.
    (l) Partnership.
    (m) S corporation.
    (n) Section 6417 regulations.
    (o) Statutory references.
    (p) U.S. territory.
    (q) Applicability date.

Sec.  1.6417-2 Rules for making elective payment elections.

    (a) Elective payment elections.
    (b) Manner of making election.
    (c) Determination of applicable credit.
    (d) Timing of payment.
    (e) Denial of double benefit.
    (f) Applicability date.

Sec.  1.6417-3 Special rules for electing taxpayers.

    (a) In general.
    (b) Election with respect to credit for production of clean 
hydrogen.
    (c) Election with respect to credit for carbon oxide 
sequestration.
    (d) Election with respect to the advanced manufacturing 
production credit.
    (e) Election for electing taxpayers.
    (f) Applicability date.

Sec.  1.6417-4 Elective payment election for electing taxpayers that 
are partnerships or S corporations.

    (a) In general.
    (b) Elections.
    (c) Effect of election.
    (d) Determination of amount of the credit.
    (e) Partnerships subject to subchapter C of chapter 63.
    (f) Applicability Date.

Sec.  1.6417-5 Additional information and registration.

    (a) Pre-filing registration and election.
    (b) Pre-filing registration requirements.
    (c) Registration number.
    (d) Applicability date.
    (e) Expiration date.

Sec.  1.6417-6 Special rules.


[[Page 40548]]


    (a) Excessive payment.
    (b) Basis reduction and recapture.
    (c) Mirror code territories.
    (d) Partnerships subject to subchapter C of chapter 63 of the 
Code.
    (e) Applicability date.


Sec.  1.6417-1  Elective payment election of applicable credits.

    (a) In general. An applicable entity may make an elective payment 
election with respect to any applicable credit determined with respect 
to such applicable entity in accordance with section 6417 of the Code 
and the section 6417 regulations. Paragraphs (b) through (p) of this 
section provide definitions. See Sec.  1.6417-2 for rules and 
procedures under which all elective payment elections must be made, 
rules for determining the amount and the timing of payments, and 
statutory rules denying double benefits. See Sec.  1.6417-3 for special 
rules pertaining to electing taxpayers. See Sec.  1.6417-4 for special 
rules pertaining to electing taxpayers that are partnerships or S 
corporations. See Sec.  1.6417-5 for pre-filing registration 
requirements and other information required to make any elective 
payment election effective. See Sec.  1.6417-6 for special rules 
related to excessive payments, basis reduction and recapture, any U.S. 
territory with a mirror code tax system, and payments made to 
partnerships subject to subchapter C of chapter 63 of the Code.
    (b) Annual Tax Return. The term annual tax return means, for 
purposes of section 6417 and the section 6417 regulations, the 
following returns (and for each, any successor return)--
    (1) For any taxpayer normally required to file an annual tax return 
with the IRS, such annual return (including the Form 1065 for 
partnerships and the Form 990-T for organizations with unrelated 
business income tax or a proxy tax under section 6033(e));
    (2) For any taxpayer that is not normally required to file an 
annual tax return with the IRS (such as taxpayers located in the U.S. 
territories), the return they would be required to file if they were 
located in the United States, or, if no such return is required (such 
as for governmental entities), the Form 990-T; and
    (3) For short tax year filers, the short year tax return.
    (c) Applicable entity. The term applicable entity means--
    (1) Any organization exempt from the tax imposed by subtitle A--
    (i) By reason of section 501(a) of the Code; or
    (ii) Because it is the government of any U.S. territory or a 
political subdivision thereof;
    (2) Any State, the District of Columbia, or political subdivision 
thereof;
    (3) An Indian tribal government or a subdivision thereof;
    (4) Any Alaska Native Corporation (as defined in section 3 of the 
Alaska Native Claims Settlement Act, 43 U.S.C. 1602(m));
    (5) The Tennessee Valley Authority;
    (6) Any corporation operating on a cooperative basis that is 
engaged in furnishing electric energy to persons in rural areas; and
    (7) An agency or instrumentality of any applicable entity described 
in paragraphs (1)(ii), (2), or (3).
    (d) Applicable credit. The term applicable credit means each of the 
following:
    (1) So much of the credit for alternative fuel vehicle refueling 
property determined under section 30C of the Code that, pursuant to 
section 30C(d)(1), is treated as a credit listed in section 38(b) of 
the Code (section 30C credit);
    (2) So much of the renewable electricity production credit 
determined under section 45(a) as is attributable to qualified 
facilities that are originally placed in service after December 31, 
2022 (section 45 credit);
    (3) So much of the credit for carbon oxide sequestration determined 
under section 45Q(a) as is attributable to carbon capture equipment 
that is originally placed in service after December 31, 2022 (section 
45Q credit);
    (4) The zero-emission nuclear power production credit determined 
under section 45U(a) (section 45U credit);
    (5) So much of the credit for production of clean hydrogen 
determined under section 45V(a) as is attributable to qualified clean 
hydrogen production facilities that are originally placed in service 
after December 31, 2012 (section 45V credit);
    (6) In the case of a tax-exempt entity described in section 
168(h)(2)(A)(i), (ii), or (iv) of the Code, the credit for qualified 
commercial vehicles determined under section 45W by reason of section 
45W(d)(2) (section 45W credit);
    (7) The credit for advanced manufacturing production determined 
under section 45X(a) (section 45X credit);
    (8) The clean electricity production credit determined under 
section 45Y(a) (section 45Y credit);
    (9) The clean fuel production credit determined under section 
45Z(a) (section 45Z credit);
    (10) The energy credit determined under section 48 (section 48 
credit);
    (11) The qualifying advanced energy project credit determined under 
section 48C (section 48C credit); and
    (12) The clean electricity investment credit determined under 
section 48E (section 48E credit).
    (e) Applicable credit property. The term applicable credit property 
means each of the following units of property with respect to which the 
amount of an applicable credit is determined:
    (1) In the case of a section 30C credit, a qualified alternative 
fuel vehicle refueling property described in section 30C(c).
    (2) In the case of a section 45 credit, a qualified facility 
described in section 45(d).
    (3) In the case of a section 45Q credit, a single process train 
described in Sec.  1.45Q-2(c)(3).
    (4) In the case of a section 45U credit, a qualified nuclear power 
facility described in section 45U(b)(1).
    (5) In the case of a section 45V credit, a qualified clean hydrogen 
production facility described in section 45V(c)(3).
    (6) In the case of a section 45W credit, a qualified commercial 
clean vehicle described in section 45W(c).
    (7) In the case of a section 45X credit, a facility that produces 
eligible components, as described in guidance under sections 48C and 
45X.
    (8) In the case of a section 45Y credit, a qualified facility 
described in section 45Y(b)(1).
    (9) In the case of a section 45Z credit, a qualified facility 
described in section 45Z(d)(4).
    (10) Section 48 credit property--(i) In general. In the case of a 
section 48 credit and except as provided in paragraph (d)(10)(ii) of 
this section, an energy property described in section 48.
    (ii) Pre-filing registration and elections. At the option of an 
applicable entity or electing taxpayer, and to the extent consistently 
applied for purposes of the pre-filing registration requirements of 
Sec.  1.6417-5 and the elective payment election requirements of 
Sec. Sec.  1.6417-2 through 1.6417-4, an energy project as described in 
section 48(a)(9)(A)(ii) and defined in guidance.
    (11) In the case of a section 48C credit, an eligible property 
described in section 48C(c)(2).
    (12) In the case of a section 48E credit, a qualified facility 
described in section 48E(b)(3) or, in the case of a section 48E credit 
relating to a qualified investment with respect to energy storage 
technology, an energy storage technology described in section 
48E(c)(2).
    (f) Disregarded entity. The term disregarded entity means an entity 
that is disregarded as an entity separate from

[[Page 40549]]

its owner for Federal income tax purposes.
    (g) Electing taxpayer. The term electing taxpayer means any 
taxpayer that is not an applicable entity described in paragraph (b) of 
this section but makes an election in accordance with Sec. Sec.  
1.6417-2(b), 1.6417-3, and, if applicable, 1.6417-4, to be treated as 
an applicable entity for a taxable year with respect to applicable 
credits determined with respect to an applicable credit property 
described in Sec.  1.6417-1(e)(3), (5), or (7).
    (h) Elective payment amount--(1) In general. The term elective 
payment amount means, with respect to an applicable entity or an 
electing taxpayer that is not a partnership or an S corporation, the 
applicable credit(s) for which an applicable entity or electing 
taxpayer makes an elective payment election to be treated as making a 
payment against the tax imposed by subtitle A for the taxable year, 
which is equal to the sum of--
    (i) The amount (if any) of the current year applicable credit(s) 
allowed as a general business credit under section 38 for the taxable 
year, as provided in Sec.  1.6417-2(e)(2)(iii), and
    (ii) The amount (if any) of unused current year applicable credits 
which would otherwise be carried back or carried forward from the 
unused credit year under section 39 and that are treated as a payment 
against tax, as provided in Sec.  1.6417-2(e)(2)(iv).
    (2) Elective payment amount with respect to partnerships and S 
corporations. With respect to an electing taxpayer that is a 
partnership or an S corporation, the term elective payment amount means 
the sum of the applicable credit(s) for which the partnership or S 
corporation makes an elective payment election and that results in a 
payment to such partnership or S corporation equal to the amount of 
such credit(s) (unless the partnership owes a Federal tax liability, in 
which case the payment may be reduced by such tax liability).
    (i) Elective payment election. The term elective payment election 
means an election made in accordance with Sec.  1.6417-2(b) for 
applicable credit(s) determined with respect to an applicable entity or 
electing taxpayer.
    (j) Guidance. The term guidance means guidance published in the 
Federal Register or Internal Revenue Bulletin, as well as 
administrative guidance such as forms, instructions, publications, or 
other guidance on the IRS.gov website. See Sec. Sec.  601.601 and 
601.602 of this chapter.
    (k) Indian tribal government. The term Indian tribal government 
means the recognized governing body of any Indian or Alaska Native 
tribe, band, nation, pueblo, village, community, component band, or 
component reservation, individually identified (including 
parenthetically) in the most recent list published by the Department of 
the Interior in the Federal Register pursuant to section 104 of the 
Federally Recognized Indian Tribe List Act of 1994 (25 U.S.C. 5131).
    (l) Partnership. The term partnership has the meaning provided in 
section 761 of the Code.
    (m) S corporation. The term S corporation has the meaning provided 
in section 1361(a)(1) of the Code.
    (n) Section 6417 regulations. The term section 6417 regulations 
means Sec. Sec.  1.6417-1 through 1.6417-6.
    (o) Statutory references--(1) Chapter 1. The term chapter 1 means 
chapter 1 of the Code.
    (2) Code. The term Code means the Internal Revenue Code.
    (3) Subchapter K. The term subchapter K means subchapter K of 
chapter 1.
    (4) Subtitle A. The term subtitle A means subtitle A of the Code.
    (p) U.S. territory. The term U.S. territory means the Commonwealth 
of Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa, and the 
Commonwealth of the Northern Mariana Islands.
    (q) Applicability date. This section applies to taxable years 
ending on or after date of publication of final rule.


Sec.  1.6417-2  Rules for making elective payment elections.

    (a) Elective payment elections--(1) Elections by applicable 
entities--(i) In general. An applicable entity that makes an elective 
payment election in the manner provided in paragraph (b) of this 
section will be treated as making a payment against the Federal income 
taxes imposed by subtitle A for the taxable year with respect to which 
an applicable credit is determined in the amount determined under 
paragraph (c) of this section.
    (ii) Disregarded entities. If an applicable entity is the owner 
(directly or indirectly) of a disregarded entity that directly holds an 
applicable credit property, the applicable entity may make an elective 
payment election in the manner provided in paragraph (b) of this 
section for applicable credits determined with respect to the 
applicable credit property held directly by the disregarded entity.
    (iii) Undivided ownership interests. If an applicable entity is a 
co-owner in an applicable credit property through an arrangement 
properly treated as a tenancy-in-common for Federal income tax 
purposes, or through an organization that has made a valid election 
under section 761(a) of the Code to be excluded from the application of 
subchapter K, then the applicable entity's undivided ownership share of 
the applicable credit property will be treated as a separate applicable 
credit property owned by such applicable entity, and the applicable 
entity may make an elective payment election in the manner provided in 
paragraph (b) of this section for the applicable credits determined 
with respect such applicable credit property.
    (iv) Partnerships and S corporations not applicable entities. 
Partnerships and S corporations are not applicable entities described 
in Sec.  1.6417-1(c), and thus are not eligible to make any election 
under paragraph (b) of this section, unless the partnership or S 
corporation is an electing taxpayer. This is the case no matter how 
many of the partners of a partnership are described in Sec.  1.6417-
1(c)(1), including if all of a partnership's partners are so described.
    (v) Members of a consolidated group of which an Alaska Native 
Corporation is the common parent. In the case of a consolidated group 
(as defined in Sec.  1.1502-1) the common parent of which is an Alaska 
Native Corporation, any member that is an electing taxpayer may make an 
elective payment election with respect to applicable credits determined 
with respect to the member. See Sec.  1.1502-77 (providing rules 
regarding the status of the common parent as agent for its members).
    (2) Electing taxpayers--(i) Electing taxpayers that are not 
partnerships or S corporations. An electing taxpayer other than a 
partnership or an S corporation that has made an elective payment 
election in accordance with Sec.  1.6417-3 and paragraph (b) of this 
section will be treated as making a payment against the Federal income 
taxes imposed by subtitle A for the taxable year with respect to which 
the applicable credit is determined in the amount determined under 
paragraph (c) of this section.
    (ii) Electing taxpayers that are partnerships or S corporations. In 
the case of an electing taxpayer that is a partnership or S corporation 
that has made an elective payment election in accordance with 
Sec. Sec.  1.6417-3 and 1.6417-4 and paragraph (b) of this section, the 
Internal Revenue Service will make a payment to such partnership or S 
corporation equal to the amount of such credit determined under 
paragraph (c) of this section and Sec.  1.6417-4(d) (unless the 
partnership owes any Federal income tax liability, in which case the 
payment may be reduced by such tax liability).

[[Page 40550]]

    (iii) Partners and S corporation shareholders prohibited from 
making any elective payment election. Under section 6417(c)(1) of the 
Code, any elective payment election with respect to applicable credit 
property held directly by a partnership or S corporation must be made 
by the partnership or S corporation. As provided under section 
6417(c)(2) of the Code, no partner in a partnership, or shareholder of 
an S corporation, may make an elective payment election with respect to 
any applicable credit determined with respect to such applicable credit 
property.
    (iv) Disregarded entities. If an electing taxpayer is the owner 
(directly or indirectly) of a disregarded entity that directly holds 
any applicable credit property, the electing taxpayer may make an 
elective payment election in the manner provided in paragraph (b) of 
this section for applicable credits determined with respect to the 
applicable credit property held directly by the disregarded entity.
    (v) Undivided ownership interests. If an electing taxpayer is a co-
owner in an applicable credit property through an arrangement properly 
treated as a tenancy-in-common for Federal income tax purposes, or 
through an organization that has made a valid election under section 
761(a) of the Code to be excluded from the application of subchapter K, 
then the electing taxpayer's undivided ownership interest in or share 
of the applicable credit property will be treated as a separate 
applicable credit property owned by such electing taxpayer, and the 
electing taxpayer may make an elective payment election in the manner 
provided in paragraph (b) of this section for the applicable credits 
determined with respect to such applicable credit property.
    (vi) Members of a consolidated group. A member of a consolidated 
group may make an elective payment election with respect to applicable 
credits determined with respect to the member. See Sec.  1.1502-77 
(providing rules regarding the status of the common parent as agent for 
its members).
    (3) Special rules for certain credits--(i) Renewable electricity 
production credit. Any election under this paragraph (a) with respect 
to a section 45 credit--
    (A) Applies separately with respect to each qualified facility;
    (B) Must be made in the manner provided in paragraph (b) of this 
section for the taxable year in which such qualified facility is 
originally placed in service; and
    (C) Applies to such taxable year and to any subsequent taxable year 
that is within the period described in section 45(a)(2)(A)(ii) with 
respect to such qualified facility.
    (ii) Credit for carbon oxide sequestration. Except as provided in 
Sec.  1.6417-3(c), which provides a special rule for electing 
taxpayers, any election under this paragraph (a) with respect to a 
section 45Q credit--
    (A) Applies separately with respect to the carbon capture equipment 
originally placed in service by the applicable entity during a taxable 
year;
    (B) Must be made in the manner provided in paragraph (b) of this 
section for the taxable year in which such qualified facility is 
originally placed in service; and
    (C) Applies to such taxable year and to any subsequent taxable year 
that is within the period described in section 45Q(3)(A) or (4)(A) with 
respect to such equipment.
    (iii) Credit for production of clean hydrogen. Except as provided 
in Sec.  1.6417-3(b), which provides a special rule for electing 
taxpayers, any election under this paragraph (a) with respect to a 
section 45V credit--
    (A) Applies separately with respect to each qualified clean 
hydrogen production facility;
    (B) Must be made in the manner provided in paragraph (b) of this 
section for the taxable year in which such facility is placed in 
service (or within the 1-year period after August 16, 2022, for 
facilities placed in service before December 31, 2022); and
    (C) Applies to such taxable year and all subsequent taxable years 
with respect to such facility.
    (iv) Clean electricity production credit. Any elective payment 
election with respect to a section 45Y credit--
    (A) Applies separately with respect to each qualified facility;
    (B) Must be made in the manner provided in paragraph (b) of this 
section for the taxable year in which such facility is placed in 
service; and
    (C) Applies to such taxable year and to any subsequent taxable year 
which is within the period described in section 45Y(b)(1)(B) with 
respect to such facility.
    (v) Advanced manufacturing production credit. Any elective payment 
election with respect to a section 45X credit applies separately with 
respect to each facility (whether the facility existed on or before, or 
after, December 31, 2022) at which a taxpayer produces, after December 
31, 2022, eligible components (as defined in section 45X(c)(1)) during 
the taxable year.
    (b) Manner of making election--(1) In general--(i) Election is made 
on the annual tax return. An elective payment election is made on the 
annual tax return, as defined in Sec.  1.6417-1(b), in the manner 
prescribed by the IRS in guidance, along with any required completed 
source credit form(s) with respect to the applicable credit property, a 
completed Form 3800, General Business Credit, (or its successor), and 
any additional information, including supporting calculations, required 
in instructions.
    (ii) Election must be made on original return. An election must be 
made on an original return (including any revisions on a superseding 
return) filed not later than the due date (including extensions of 
time) for the original return for the taxable year for which the 
applicable credit is determined. No elective payment election may be 
made or revised on an amended return or by filing an administrative 
adjustment request under section 6227 of the Code. There is no relief 
available under Sec. Sec.  301.9100-1 through 301.9100-3 of this 
chapter for an elective payment election that is not timely filed.
    (2) Pre-filing registration required. Pre-filing registration in 
accordance with Sec.  1.6417-5 is a condition for making an elective 
payment election. An elective payment election will not be effective 
with respect to credits determined with respect to an applicable credit 
property unless the applicable entity or electing taxpayer received a 
valid registration number for the applicable credit property in 
accordance with Sec.  1.6417-5(c) and provided the registration number 
for each applicable credit property on its Form 3800 (or its successor) 
attached to the tax return, in accordance with guidance.
    (3) Due date for making the election. To be effective, an elective 
payment election must be made no later than:
    (i) In the case of any taxpayer for which no Federal income tax 
return is required under sections 6011 or 6033(a) of the Code, the due 
date (including an extension of time) for the original return that 
would be due under section 6033(a) if such applicable entity were 
described in that section. Under section 6072(e), that date is the 15th 
day of the fifth month after the taxable year determined by section 441 
of the Code. Subject to issuance of guidance that specifies the manner 
in which an entity for which no Federal income tax return is required 
under sections 6011 or 6033(a) of the Code could request an extension 
of time to file, an automatic paperless six-month extension from the 
original due date is deemed to be allowed.

[[Page 40551]]

    (ii) In the case of any taxpayer that is not normally required to 
file an annual tax return with the IRS (such as taxpayers located in 
the U.S. territories), the due date (including extensions of time) that 
would apply if the taxpayer was located in the United States.
    (iii) In any other case, the due date (including extensions of 
time) for the original return for the taxable year for which the 
election is made, but in no event earlier than February 13, 2023.
    (4) Election is not revocable--(i) In general. Except as provided 
in subparagraphs (ii) and (iii) of this paragraph, any elective payment 
election, once made, is irrevocable and applies with respect to any 
applicable credit for the taxable year for which the election is made.
    (ii) Election lasts for a period of years for certain credits. For 
elective payment elections with respect to section 45 credits described 
in Sec.  1.6417-1(d)(2) or section 45Y credits described in Sec.  
1.6417-1(d)(8), the election applies to each taxable year in the 10-
year period provided in section 45(a)(2)(A)(ii) or 45Y(b)(1)(B), 
respectively, beginning on the date the facility was originally placed 
in service. For elective payment elections with respect to section 45Q 
credits described in Sec.  1.6417-1(d)(3), the election applies to each 
taxable year in the 12-year period provided in section 45Q(a)(3)(A) or 
(4)(A) beginning on the date the carbon capture equipment was 
originally placed in service. For elective payment elections with 
respect to section 45V credits described in Sec.  1.6417-1(d)(5), the 
election applies to the taxable year in which the qualified clean 
hydrogen production facility was originally placed in service and all 
subsequent taxable years.
    (iii) Electing taxpayers. For electing taxpayers who make an 
elective payment election, the election applies for one five-year 
period per applicable credit property, but such election may be revoked 
once per applicable credit property, as provided in Sec.  1.6417-3.
    (5) Scope of election. An elective payment election applies to the 
entire amount of applicable credit(s) determined with respect to each 
applicable credit property that was properly registered for the taxable 
year, resulting in an elective payment amount that is the entire amount 
of applicable credit(s) determined with respect to the applicable 
entity or electing taxpayer for a taxable year.
    (c) Determination of applicable credit--(1) In general. In the case 
of any applicable entity making an elective payment election, any 
applicable credit is determined--
    (i) Without regard to section 50(b)(3) and (4)(A)(i) of the Code, 
and
    (ii) By treating any property with respect to which such credit is 
determined as used in a trade or business of the applicable entity.
    (2) Effect of trade or business rule. The trade or business rule in 
paragraph (c)(1)(ii) of this section--
    (i) Allows the applicable entity to treat an item of property as if 
it is of a character subject to an allowance of depreciation (such as 
under sections 30C and 45W); to produce items in the ordinary course of 
a trade or business of the taxpayer (such as in sections 45V and 45X); 
and to state that an item of property is one for which depreciation (or 
amortization in lieu of depreciation) is allowable (such as in sections 
48, 48C, and 48E);
    (ii) Allows the applicable entity to apply the capitalization and 
accelerated depreciation rules (such as sections 167, 168, 263, and 
263A of the Code) that apply to determining the basis and the 
depreciation allowance for property used in a trade or business;
    (iii) Makes applicable general credit limitations by those persons 
engaged in the conduct of a trade or business and to which such 
limitations apply, such as section 49 in the context of investment tax 
credits and section 469 for all applicable credits; and
    (iv) Does not create any presumption that the trade or business is 
related (or unrelated) to a tax-exempt entity's exempt purpose.
    (3) Special rule for investment-related credit property acquired 
with income, including income from certain grants and forgivable loans, 
that is exempt from taxation. For purposes of section 6417, income, 
including income from certain grants and forgivable loans, that is 
exempt from taxation under subtitle A and used to purchase, construct, 
reconstruct, erect, or otherwise acquire an applicable credit property 
described in sections 30C, 45W, 48, 48C, or 48E (investment-related 
credit property) are included in basis for purposes of computing the 
applicable credit amount determined with respect to the applicable 
credit property, regardless of whether basis is required to be reduced 
(in whole or in part) by such amounts under general tax principles. 
However, if an applicable entity receives a grant, forgivable loan, or 
other income exempt from taxation under subtitle A for the specific 
purpose of purchasing, constructing, reconstructing, erecting, or 
otherwise acquiring an investment-related credit property (Restricted 
Tax Exempt Amount), and the Restricted Tax Exempt Amount plus the 
applicable credit otherwise determined with respect to that investment-
related credit property exceeds the cost of the investment-related 
credit property, then the amount of the applicable credit is reduced so 
that the total amount of applicable credit plus the amount of any 
Restricted Tax Exempt Amount equals the cost of investment-related 
credit property.
    (4) Credits must be determined with respect to the applicable 
entity or electing taxpayer. Any credits for which an elective payment 
election is made must have been determined with respect to the 
applicable entity or electing taxpayer. An applicable credit is 
determined with respect to an applicable entity or electing taxpayer in 
cases where the applicable entity or electing taxpayer owns the 
underlying eligible credit property or, if ownership is not required, 
otherwise conducts the activities giving rise to the underlying 
eligible credit. Thus, no election may be made under this section for 
any credits purchased pursuant to section 6418, transferred pursuant to 
section 45Q(f)(3), acquired by a lessee from a lessor by means of an 
election to pass through the credit to a lessee under former section 
48(d) (pursuant to section 50(d)(5)), owned by a third party, or 
otherwise not determined with respect to the applicable entity or 
electing taxpayer.
    (5) Examples. The following examples illustrate the rules of this 
paragraph (c).
    (i) Example 1. School district A receives a tax exempt grant in the 
amount of $400,000 from the Environmental Protection Agency to purchase 
electric school bus B. A purchases B for $400,000. A's basis in B is 
$400,000. B qualifies for the maximum section 45W credit, $40,000. 
However, because the amount of the restricted tax exempt grant plus the 
amount of the section 45W credit exceeds the cost of B, A's section 45W 
credit is reduced by the amount necessary so that the total amount of 
the section 45W credit plus the restricted tax exempt amount equals the 
cost of B. A's section 45W credit is therefore reduced by $40,000 to 
zero.
    (ii) Example 2. Assume the same facts as in paragraph (c)(5)(i) of 
this section (Example 1), except that the grant is in the amount of 
$300,000. A purchases B using the grant and $100,000 of A's 
unrestricted funds. A's basis in B is $400,000 and A's section 45W 
credit is $40,000. Since the amount of the restricted tax exempt grant 
plus the amount of the section 45W credit ($340,000) is less than the 
cost of B, A's 45W credit under section 6417(b)(6) is not reduced.

[[Page 40552]]

    (iii) Example 3. Public charity B receives a $60,000 grant from a 
private foundation to build energy property, P, a qualified investment 
credit property that costs $80,000. B uses $20,000 of its own funds 
plus the $60,000 grant to build P. B's basis in P is $80,000. Based 
upon acquisition cost, B can earn a section 48 investment credit (with 
bonus credit amounts) of $40,000 (50% of basis). However, because the 
amount of the restricted tax exempt grant ($60,000) plus the section 48 
credit ($40,000) exceeds P's cost by $20,000, B's section 48 applicable 
credit is reduced by $20,000 so that the total amount of the section 48 
investment credit plus the restricted tax exempt grant equals the cost 
of P.
    (iv) Example 4. Taxpayer Q is engaged in the business of capturing 
carbon oxide. Q properly elects to be treated as an applicable entity 
with respect to the section 45Q credit determined with respect to 
single process trains A, B, and C for 2024. In the same year, Q also 
purchases section 45Q credits under section 6418 from an unrelated 
taxpayer and has section 45Q credits transferred to itself pursuant to 
section 45Q(f)(3). Q can make an elective payment election only with 
respect to section 45Q applicable credits determined with respect to A, 
B, and C. Q cannot make an elective payment election with respect to 
any credits transferred to Q pursuant to sections 6418 and 45Q(f)(3).
    (d) Timing of payment. Except as provided in Sec.  1.6417-4(d) 
(relating to payments to partnerships and S corporations), the elective 
payment amount will be treated as made--
    (1) In the case of any taxpayer for which no return is required 
under sections 6011 or 6033(a), on the later of--
    (i) The date that a return would be due under section 6033(a) 
(determined without regard to extensions) if the taxpayer were 
described in that section, or
    (ii) The date on which such taxpayer submits a claim for credit or 
refund in accordance with paragraph (b) of this section.
    (2) In any other case, on the later of--
    (i) The due date (determined without regard to extensions) of the 
return for the taxable year, or
    (ii) The date on which such return is filed.
    (e) Denial of double benefit--(1) In general. Under section 
6417(e), in the case of an applicable entity or electing taxpayer 
making an elective payment election with respect to an applicable 
credit, such credit is reduced to zero and is, for any other purposes 
of the Code, deemed to have been allowed as a credit to such entity or 
taxpayer for such taxable year. Paragraphs (e)(2) and (e)(3) of this 
section explain the application of the section 6417(e) denial of double 
benefit rule to an applicable entity or electing taxpayer (other than a 
partnership or S corporation). The application of section 6417(e) for 
an electing taxpayer that is a partnership or S corporation is provided 
in Sec.  1.6417-4(c)(1)(ii).
    (2) Application of the Denial of Double Benefit Rule. An applicable 
entity or electing taxpayer (other than an electing taxpayer that is a 
partnership or S corporation) making an elective payment election 
applies section 6417(e) by taking the following steps:
    (i) Compute the amount of the Federal income tax liability (if any) 
for the taxable year, without regard to the GBC, that is payable on the 
due date of the return (without regard to extensions), and the amount 
of the Federal income tax liability that may be offset by GBCs pursuant 
to the limitation based on amount of tax under section 38.
    (ii) Compute the allowed amount of GBC carryforwards carried to the 
taxable year plus the amount of current year GBCs (including current 
applicable credits) allowed for the taxable year under section 38 
(including, for clarity purposes, the ordering rules in section 38(d)). 
Because the election is made on an original return for the taxable year 
for which the applicable credit is determined, any business credit 
carrybacks are not considered when determining the elective payment 
amount for the taxable year.
    (iii) Apply the GBCs allowed for the taxable year as computed under 
paragraph (e)(2)(ii) of this section, including those attributable to 
applicable credits as GBCs, against the tax liability computed in 
paragraph (e)(2)(i) of this section.
    (iv) Identify the amount of any excess or unused current year GBC, 
as defined under section 39, attributable to current year applicable 
credit(s) for which the applicable entity is making an elective payment 
election. Treat the amount of such unused applicable credits as a 
payment against the tax imposed by subtitle A for the taxable year with 
respect to which such credits are determined (rather than having them 
available for carryback or carryover) (net elective payment amount).
    (v) Reduce the applicable credits for which an elective payment 
election is made by the amount (if any) allowed as a GBC under section 
38 for the taxable year, as provided in paragraph (e)(2)(iii) of this 
section, and by the net elective payment amount (if any) that is 
treated as a payment against tax, as provided in paragraph (e)(2)(iv) 
of this section, which results in the applicable credits being reduced 
to zero.
    (3) Use of applicable credit for other purposes. The full amount of 
the applicable credits for which an elective payment election is made 
is deemed to have been allowed for all other purposes of the Code, 
including, but not limited to, the basis reduction and recapture rules 
imposed by section 50 and calculation of any underpayment of estimated 
tax under sections 6654 and 6655 of the Code.
    (4) Examples. The following examples illustrate the rules of this 
paragraph (e).
    (i) Example 1. U is a tax-exempt university described in section 
501(c)(3) whose fiscal year runs from July 1 to June 30. U places in 
service P, energy property eligible for a section 48 credit, in June 
2024. P is an asset used in connection with its unrelated business. U 
completes the pre-filing registration in accordance with Sec.  1.6417-5 
as an applicable entity that has placed P into service and intends to 
make an elective payment election with respect to section 48 credits 
determined with respect to P. U timely files its 2024 Form 990-T on 
November 15, 2024. On its return, U properly determines that it has 
$500,000 of Unrelated Business Income Tax (UBIT) under section 512. On 
its Form 3800 attached to its return, U calculates its limitation of 
GBC under section 38(c) (simplified) is $375,000 (paragraph (e)(2)(i) 
of this section). U attaches Form 3468 to claim a section 48 credit of 
$100,000 with respect to P (its GBC for the taxable year) (paragraph 
(e)(2)(ii) of this section). Under paragraph (e)(2)(iii) of this 
section, the section 48 credit reduces U's UBIT liability to $400,000. 
U pays its $400,000 tax liability on November 15, 2024. Because there 
is no unused current year applicable credit, paragraph (e)(2)(iv) of 
this section does not apply. Under paragraph (e)(2)(v) of this section, 
the $100,000 of section 48 credit is reduced by the $100,000 of 
applicable credits claimed as GBCs for the taxable year, which results 
in the applicable credits being reduced to zero. However, the $100,000 
of current year section 48 credit is deemed to have been allowed to U 
for 2024 for all other purposes of the Code (paragraph (e)(3) of this 
section).
    (ii) Example 2. Assume the same facts as in paragraph (e)(4)(i) of 
this section (Example 1), except that U has $80,000 of Unrelated 
Business Income Tax (UBIT) under section 512, and calculates its 
limitation of GBC under section 38(c) (simplified) is $60,000 
(paragraph (e)(2)(i) of this section). U uses $60,000 of its $100,000 
of section

[[Page 40553]]

48 credit against its tax liability (paragraph (e)(2)(iii) of this 
section). U's net elective payment amount is $40,000 (paragraph 
(e)(2)(iv) of this section). U reduces its applicable credit by the 
$60,000 claimed against tax in paragraph (e)(2)(iii) of this section 
and by the $40,000 net elective payment amount determined in paragraph 
(e)(2)(iv) of this section, resulting in the applicable credit being 
reduced to zero (paragraph (e)(2)(v) of this section). When the IRS 
processes U's 2024 Form 990-T, the net elective payment amount results 
in a $40,000 refund to U. However, for other purposes of the Code, the 
$100,000 section 48 credit is deemed to have been allowed to U for 2024 
(paragraph (e)(3) of this section).
    (iii) Example 3. V is a city located in the United States that 
never has Federal income tax liability, so paragraph (e)(2)(i) of this 
section does not apply. V timely completes pre-filing registration in 
accordance with Sec.  1.6417-5 as an applicable entity that will be 
eligible to make an elective payment election, with regard to its 
annual accounting period ending in 2024, for the credit determined 
under section 30C(a) from properties A, B, and C; the credit determined 
under section 45(a) for facility D; the credit determined under section 
45U(a) for facility E; the credit determined under section 45W(a) with 
respect to vehicles F, G, and H; and the credit determined under 
section 48(a) with respect to property I and J. V timely files its 2024 
Form 990-T. V properly completes and attaches the relevant source 
credit forms and Form 3800 with registration numbers and all required 
information in the instructions, properly making the elective payment 
election for all of the credits, and properly determining that the 
amount of applicable credits determined with respect to A, B, C, D, E, 
F, G, H, I, and J is $500,000 (its GBC for the taxable year) (paragraph 
(e)(2)(ii) of this section). Paragraph (e)(2)(iii) of this section does 
not apply. Under paragraph (e)(2)(iv) of this section, the entire 
$500,000 is a net elective payment amount. When the IRS processes V's 
2024 Form 990-T, the net elective payment amount results in a $500,000 
refund to V. V's elective payment amount is reduced by the net elective 
payment amount, so all applicable credits for 2024 are reduced to zero. 
However, for other purposes of the Code, the $500,000 of applicable 
credits are deemed to have been allowed to V for its annual accounting 
period ending in 2024 (paragraph (e)(3) of this section).
    (iv) Example 4. W is a business taxpayer engaged in the 
manufacturing of components, including eligible components as defined 
in section 45X(c)(1) at facility F. W completes pre-filing registration 
in accordance with Sec.  1.6417-5 stating that it intends to elect to 
be treated as an applicable entity with respect to eligible components 
produced at F in 2024. In 2024, W timely files its 2024 return electing 
to be treated as an applicable entity, calculating its federal income 
tax before GBCs of $125,000 and that its limitation of GBC under 
section 38(c) (simplified) is $100,000 (paragraph (e)(2)(i) of this 
section). W attaches Form 7207 to claim a current section 45X credit of 
$50,000 with respect to eligible components produced at F (its 
applicable credits). W also attaches Form 5884 to claim a current work 
opportunity tax credit (WOTC) of $50,000 (WOTC is not an applicable 
credit). W also completes and attaches Form 3800 which shows the amount 
of each current credit, including current section 45X credit with 
registration number, and business credit carryforwards of $25,000 (its 
GBC for the taxable year) (paragraph (e)(2)(ii) of this section). Using 
the ordering rules in sections 38(d), W is allowed $25,000 of the 
carryforwards, $50,000 of WOTC plus only $25,000 of section 45X credit 
against net income tax, as defined under section 38(c)(1)(B), leaving 
$25,000 of tax liability (paragraph (e)(2)(iii) of this section). The 
$25,000 of unused section 45X credit is the net elective payment amount 
that results in a $25,000 payment against tax by W (paragraph 
(e)(2)(iv) of this section). On its return, W shows net tax liability 
of $25,000 ($125,000-$100,000 allowed GBC) and the net elective payment 
of $25,000 which W applied to net tax liability, resulting in zero tax 
owed on the return. Under paragraph (e)(2)(v) of this section, W's 
applicable credit is reduced by the $25,000 of section 45X credit 
claimed as a GBC for the taxable year, as provided in paragraph 
(e)(2)(iii) of this section, as well as by the $25,000 net elective 
payment amount determined in paragraph (e)(2)(iv) of this section, 
resulting in the $50,000 of applicable credit being reduced to zero. 
However, for all other purposes of the Code, the $50,000 of 45X 
applicable credits are deemed to have been allowed to W for 2024 
(paragraph (e)(3) of this section).
    (v) Example 5. Assume the same facts as in paragraph (e)(4)(iv) of 
this section (Example 4), except W filed the return on a timely filed 
extension after the due date of the return (without extensions). Even 
though W did not owe tax after applying the net elective payment amount 
against its net tax liability, W may be subject to the section 6655 
penalty for failure to pay estimated income tax. The net elective 
payment is not an estimated tax installment, rather, it is treated as a 
payment made at the filing of the return.
    (f) Applicability date. This section applies to taxable years 
ending on or after date of publication of final rule.


Sec.  1.6417-3  Special rules for electing taxpayers.

    (a) In general. This section relates to the election available to 
electing taxpayers. An electing taxpayer that makes an elective payment 
election in accordance with this section is treated as an applicable 
entity for the duration of the election period, but only with respect 
to the applicable credit property described in proposed Sec.  1.6417-
1(e)(3), (5), or (7), respectively, that is the subject of the 
election. See paragraphs (b), (c), and (d) of this section for the 
specific rules regarding taxpayers making an election under section 
6417(d)(1)(B), (C), or (D), respectively. See paragraph (e) for rules 
relating to the making the election. See Sec.  1.6417-4 for special 
rules related to electing taxpayers that are partnerships or S 
corporations.
    (b) Elections with respect to the credit for production of clean 
hydrogen. An electing taxpayer that has placed in service applicable 
credit property described in Sec.  1.6417-1(e)(5) (in other words, a 
qualified clean hydrogen production facility as defined in section 
45V(c)(3)) during the taxable year may make an elective payment 
election for such taxable year (or by August 16, 2023, in the case of 
facilities placed in service before December 31, 2022), but only with 
respect to the qualified clean hydrogen production facility, only with 
respect to the applicable credit described in Sec.  1.6417-1(d)(5) (in 
other words, the section 45V credit), and only if the pre-filing 
registration required by Sec.  1.6417-5 was properly completed. An 
electing taxpayer that elects to treat qualified property that is part 
of a specified clean hydrogen production facility as energy property 
under section 48(a)(15) may not make an elective payment election with 
respect to such facility.
    (c) Election with respect to the credit for carbon oxide 
sequestration. An electing taxpayer that has, after December 31, 2022, 
placed in service applicable credit property described in Sec.  1.6417-
1(e)(3) (in other words, a single process train described in Sec.  
1.45Q-2(c)(3) at a qualified facility (as defined in section 45Q(d)) 
during the taxable year may make an elective payment election for such 
taxable year, but only with respect to the single process train,

[[Page 40554]]

only with respect to the applicable credit described in Sec.  1.6417-
1(d)(3) (in other words, the section 45Q credit), and only if the pre-
filing registration required by Sec.  1.6417-5 was properly completed.
    (d) Election with respect to the advanced manufacturing production 
credit. An electing taxpayer that produces, after December 31, 2022, 
eligible components (as defined in section 45X(c)(1)) at an applicable 
credit property described in Sec.  1.6417-1(e)(7) during the taxable 
year (whether the facility existed on or before, or after, December 31, 
2022) may make an elective payment election for such taxable year, but 
only with respect to the facility at which the eligible components are 
produced by the electing taxpayer in that year, only with respect to 
the applicable credit described in Sec.  1.6417-1(d)(7) (in other 
words, the section 45X credit), and only if the pre-filing registration 
required by Sec.  1.6417-5 was properly completed.
    (e) Election for electing taxpayers--(1) In general. If an electing 
taxpayer makes an elective payment election under 1.6417-2(b) with 
respect to any taxable year in which the electing taxpayer places in 
service a qualified clean hydrogen production facility for which a 
section 45V credit is determined, places in service a single process 
train at a qualified facility for which a section 45Q credit is 
determined, or produces, after December 31, 2022, eligible components 
(as defined in section 45X(c)(1)) at a facility, respectively, the 
electing taxpayer will be treated as an applicable entity for purposes 
of making an elective payment election for such taxable year and during 
the election period described in paragraph (e)(3) of this section, but 
only with respect to the applicable credit property described in Sec.  
1.6417-1(e)(3), (5), or (7), as applicable, that is the subject of the 
election. The taxpayer must otherwise meet all requirements to earn the 
credit in the electing year and in each succeeding year during the 
election period described in paragraph (e)(3) of this section.
    (2) Election is per applicable credit property. An elective payment 
election under Sec.  1.6417-2(b) is made separately for each applicable 
credit property, which is, respectively, a qualified clean hydrogen 
production facility placed in service for which a section 45V credit is 
determined, a single process train placed in service at a qualified 
facility for which a section 45Q credit is determined, or a facility at 
which eligible components are produced for which a section 45X credit 
is determined. Only one election may be made with respect to any 
specific applicable credit property.
    (3) Election period--(i) In general. Except as provided in 
paragraph (e)(3)(ii) of this section, if an electing taxpayer makes an 
elective payment election under Sec.  1.6417-2(b) with respect to 
applicable credit property described in Sec.  1.6417-1(e)(3), (5), or 
(7) for which an applicable credit is determined under Sec.  1.6417-
1(d)(3), (5), or (7), the election period during which such election 
applies includes the taxable year in which the election is made and 
each of the four subsequent taxable years that end before January 1, 
2033. The election period cannot be less than a taxable year but may be 
made for a taxable period of less than 12 months within the meaning of 
section 443 of the Code.
    (ii) Revocation of election. An electing taxpayer may, during a 
subsequent year of the election period described in paragraph (e)(3)(i) 
of this section, revoke the elective payment election with respect to 
an applicable credit property described in Sec.  1.6417-1(e)(3), (5), 
or (7), in accordance with forms and instructions. See Sec.  601.602 of 
this chapter. Any such revocation, if made, applies to the taxable year 
in which the revocation is made (which cannot be less than a taxable 
year but may be made for a taxable period of less than 12 months as 
described in section 443 of the Code) and each subsequent taxable year 
within the election period. Any such revocation may not be subsequently 
revoked.
    (4) No transfer election under section 6418(a) permitted while an 
elective payment election is in effect. No transfer election under 
section 6418(a) may be made by an electing taxpayer with respect to any 
applicable credit under Sec.  1.6417-1(d)(3), (5), or (7) determined 
with respect to applicable credit property described in Sec.  1.6417-
1(e)(3), (5), or (7) during the election period for that applicable 
credit property. However, if the election period is no longer in effect 
with respect to an applicable credit property, any credit determined 
with respect to such applicable credit property can be transferred 
pursuant to a transfer election under section 6418(a), as long as the 
taxpayer meets the requirements of section 6418 and the 6418 
regulations.
    (f) Applicability date. This section applies to taxable years 
ending on or after date of publication of final rule.


Sec.  1.6417-4  Elective payment election for electing taxpayers that 
are partnerships or S corporations.

    (a) In general. In the case of any applicable credit determined 
with respect to any applicable credit property described in Sec.  
1.6417-1(e)(3), (5), or (7) that is held directly (or treated as held 
directly because it is held by a disregarded entity) by an electing 
taxpayer that is a partnership or S corporation, any elective payment 
election under Sec.  1.6417-2(b) must be made by the partnership or S 
corporation.
    (b) Elections. If an electing taxpayer that is a partnership or S 
corporation makes an elective payment election under Sec.  1.6417-2(b) 
with respect to any taxable year in which the electing taxpayer places 
in service applicable credit property described in Sec.  1.6417-1(e)(3) 
or (5), or produces, after December 31, 2022, eligible components (as 
defined in section 45X(c)(1)) at an applicable credit property 
described in Sec.  1.6417-1(e)(7), the electing taxpayer will be 
treated as an applicable entity for purposes of making an elective 
payment election for such taxable year and during the election period 
described in Sec.  1.6417-3(e)(3), but only with respect to the 
applicable credit property described in Sec.  1.6417-1(e)(3), (5), or 
(7), respectively, that is the subject of the election. In addition, 
the taxpayer must otherwise meet all requirements to earn the credit in 
the electing year and in each succeeding year during the election 
period described in Sec.  1.6417-3(e)(3).
    (c) Effect of election--(1) In general. If a partnership or S 
corporation electing taxpayer makes an elective payment election, with 
respect to the section 45V, 45Q, or 45X credit--
    (i) The Internal Revenue Service will make a payment to such 
partnership or S corporation equal to the amount of such credit, 
determined in accordance with paragraph (d) of this section (unless the 
partnership or S corporation owes a Federal tax liability, in which 
case the payment may be reduced by such tax liability);
    (ii) Before determining any partner's distributive share, or S 
corporation shareholder's pro rata share, of such credit, such credit 
is reduced to zero and is, for any other purposes under the Code, 
deemed to have been allowed solely to such entity (and not allocated or 
otherwise allowed to its partners or shareholders) for such taxable 
year;
    (iii) Any amount with respect to which such election is made is 
treated as tax exempt income for purposes of sections 705 and 1366 of 
the Code;

[[Page 40555]]

    (iv) A partner's distributive share of such tax exempt income is 
equal to such partner's distributive share of the otherwise applicable 
credit for each taxable year, as determined under Sec.  1.704-
1(b)(4)(ii);
    (v) An S corporation shareholder's pro rata share (as determined 
under section 1377(a) of the Code) of such tax exempt income for each 
taxable year (as determined under sections 444 and 1378(b) of the Code) 
is equal to the S corporation shareholder's pro rata share (as 
determined under section 1377(a)) of the otherwise applicable credit 
for each taxable year; and
    (vi) Such tax exempt income resulting from such election is treated 
as received or accrued, including for purposes of sections 705 and 1366 
of the Code, as of the date the applicable credit is determined with 
respect to the partnership or S corporation. (such as, for investment 
credit property, the date the property is placed in service).
    (2) Electing partnerships in tiered structures. If a partnership 
(upper-tier partnership) is a direct or indirect partner of a 
partnership that makes an elective payment election (electing 
partnership) and directly or indirectly receives an allocation of tax 
exempt income resulting from the elective payment election made by the 
electing partnership, the upper-tier partnership must determine its 
partners' distributive shares of such tax exempt income in proportion 
to the partners' distributive shares of the otherwise applicable credit 
as provided in paragraph (c)(1)(iv) of this section.
    (3) Character of tax exempt income. Tax exempt income resulting 
from an elective payment election by an S corporation or a partnership 
is treated as arising from an investment activity and not from the 
conduct of a trade or business within the meaning of section 
469(c)(1)(A). As such, the tax exempt income is not treated as passive 
income to any partners or shareholders who do not materially 
participate within the meaning of section 469(c)(1)(B).
    (d) Determination of amount of the credit--(1) In general. In 
determining the amount of an applicable credit that will result in a 
payment under paragraph (c)(1)(i) of this section, the partnership or S 
corporation must compute the amount of the applicable credit allowable 
as if an elective payment election were not made. Because a partnership 
or S corporation is not subject to sections 38(b) and (c) and 469 (that 
is, those sections apply at the partner or S corporation shareholder 
level), the amount of applicable credit determined by a partnership or 
S corporation is not subject to limitation by those sections. In 
addition, because the only applicable credits with respect to which a 
partnership or S corporation may make an elective payment election are 
not investment credits under section 46, sections 49 and 50 do not 
apply to limit the amount of the applicable credits.
    (2) Example. The rules of this paragraph (d) are illustrated in the 
following example. A and B each contributed cash to P, a calendar-year 
partnership, for the purpose of manufacturing clean hydrogen at V, a 
qualified clean hydrogen facility that meets the definition of section 
45V(c)(3). The partnership agreement provides that A and B share 
equally in all items of income, gain, loss, deduction and credit of P. 
P completes the pre-filing registration process with respect to the 
section 45V credit at V for 2023 in accordance Sec.  1.6417-5. P places 
V in service in 2023. P timely files its 2023 Form 1065 and properly 
makes the elective payment election in accordance with Sec. Sec.  
1.6417-2(b),1.6417-3, and 1.6417-4. On its Form 1065, P properly 
determined that the amount of the section 45V credit with respect to 
the clean hydrogen produced at V for 2023 is $100,000. The IRS 
processes P's return and makes a $100,000 payment to P. Before 
determining A's and B's distributive shares, P reduces the credit to 
zero. While the $100,000 section 45V credit is deemed to have been 
allowed to P for 2023 for any other purpose under this title, the 
credit is not allocated or otherwise allowed to its partners. The 
$100,000 is treated as tax exempt income for purposes of section 705, 
and is treated as arising from an investment activity and not from the 
conduct of a trade or business within the meaning of section 
469(c)(1)(A). P allocates the tax exempt income from the elective 
payment election proportionately among the partners based on each 
partner's distributive share of the otherwise eligible section 45V 
credit as determined under Sec.  1.704-1(b)(4)(ii). Under that section, 
if partnership receipts or expenditures give rise to a credit, the 
partner's interest in the partnership with respect to such credit is in 
the same proportion as such partners' distributive shares of such 
receipt, loss, or deduction. Section 45V credits arise based on the 
amount of clean hydrogen produced at a facility. Under the partnership 
agreement, A and B share all items equally. Thus, A and B will each be 
allocated $50,000 of tax exempt income for 2023. P will continue to be 
treated as an applicable entity with respect to V for taxable years 
2024-2027 unless P revokes its election in accordance with Sec.  
1.6417-3(e)(3)(ii). At the end of 2023, A and B increase their 
respective tax bases in their partnership interest and capital accounts 
by $50,000 each (that is, their share of the $100,000 of tax exempt 
income).
    (e) Partnerships subject to subchapter C of chapter 63. For the 
application of subchapter C of chapter 63 of the Code to section 6417, 
see Sec.  301.6241-7 of this chapter.
    (f) Applicability date. This section applies to taxable years 
ending on or after date of publication of final rule.


Sec.  1.6417-5  Additional information and registration.

    (a) Pre-filing registration and election. An applicable entity or 
electing taxpayer is required to satisfy the pre-filing registration 
requirements in paragraph (b) of this section as a condition of, and 
prior to, making an elective payment election. An applicable entity or 
electing taxpayer must use the pre-filing registration process to 
register itself as intending to make the elective payment election, to 
list all applicable credits it intends to claim, and to list each 
applicable credit property that contributed to the determination of 
such credits as part of the pre-filing submission (or amended 
submission). An applicable entity or electing taxpayer that does not 
obtain a registration number under paragraph (c)(1) of this section or 
report the registration number on its annual tax return, as defined in 
Sec.  1.6417-1(b), pursuant to paragraph (c)(5) of this section with 
respect to an otherwise applicable credit property, is ineligible to 
receive any elective payment amount with respect to the amount of any 
credit determined with respect to that applicable credit property. 
However, completion of the pre-filing registration requirements and 
receipt of a registration number does not, by itself, mean the 
applicable entity or electing taxpayer is eligible to receive a payment 
with respect to the applicable credits determined with respect to the 
applicable credit property.
    (b) Pre-filing registration requirements--(1) Manner of pre-filing 
registration. Unless otherwise provided in guidance, an applicable 
entity or electing taxpayer must complete the pre-filing registration 
process electronically through the IRS electronic portal and in 
accordance with the instructions provided therein.
    (2) Pre-filing registration and election for members of a 
consolidated group. A member of a consolidated group is required to 
complete pre-filing registration as a condition of, and prior

[[Page 40556]]

to, making an elective payment election. See Sec.  1.1502-77 (providing 
rules regarding the status of the common parent as agent for its 
members).
    (3) Timing of pre-filing registration. An applicable entity or 
electing taxpayer must satisfy the pre-filing registration requirements 
of this paragraph (b) and receive a registration number under paragraph 
(c) of this section prior to making an elective payment election under 
Sec.  1.6417-2(b) on the applicable entity's or electing taxpayer's 
annual tax return for the taxable year at issue.
    (4) Each applicable credit property must have its own registration 
number. An applicable entity or electing taxpayer must obtain a 
registration number for each applicable credit property with respect to 
which it intends to make an elective payment election.
    (5) Information required to complete the pre-filing registration 
process. Unless modified in future guidance, an applicable entity or 
electing taxpayer must provide the following information to the IRS to 
complete the pre-filing registration process:
    (i) The applicable entity's or electing taxpayer's general 
information, including its name, address, taxpayer identification 
number, and type of legal entity.
    (ii) Any additional information required by the IRS electronic 
portal, such as information regarding the taxpayer's exempt status 
under section 501(a) of the Code; that the applicable entity is a 
political subdivision of a State, the District of Columbia, an Indian 
Tribal government, or a U.S. territory; or that the applicable entity 
is an agency or instrumentality of a State, the District of Columbia, 
an Indian Tribal government, or a U.S. territory.
    (iii) The taxpayer's taxable year, as determined under section 441 
of the Code.
    (iv) The type of annual tax return(s) normally filed by the 
applicable entity or electing taxpayer, or that the applicable entity 
or electing taxpayer does not normally file an annual tax return with 
the IRS.
    (v) The type of applicable credit(s) for which the applicable 
entity or electing taxpayer intends to make an elective payment 
election.
    (vi) For each applicable credit, each applicable credit property 
that the applicable entity or electing taxpayer intends to use to 
determine the credit for which the applicable entity or electing 
taxpayer intends to make an elective payment election.
    (vii) For each applicable credit property listed in paragraph 
(b)(4)(vi) of this section, any further information required by the IRS 
electronic portal, such as--
    (A) The type of applicable credit property;
    (B) Physical location (that is, address and coordinates (longitude 
and latitude) of the applicable credit property);
    (C) Any supporting documentation relating to the construction or 
acquisition of the applicable credit property (such as State, District 
of Columbia, Indian Tribal, U.S. territorial, or local government 
permits to operate the applicable credit property; certifications; 
evidence of ownership that ties to a land deed, lease, or other 
documented right to use and access any land or facility upon which the 
applicable credit property is constructed or housed; U.S. Coast Guard 
registration numbers for offshore wind vessels; and the vehicle 
identification number of an eligible clean vehicle with respect to 
which a section 45W credit is determined);
    (D) The beginning of construction date and the placed in service 
date of the applicable credit property.
    (E) If an investment-related credit property (as defined Sec.  
1.6417-2(c)(3)), the source of funds the taxpayer used to acquire the 
property; and
    (F) Any other information that the applicable entity or electing 
taxpayer believes will help the IRS evaluate the registration request.
    (viii) The name of a contact person for the applicable entity or 
electing taxpayer. The contact person is the person whom the IRS may 
contact if there is an issue with the registration. The contact person 
must either (1) possess legal authority to bind the applicable entity 
or electing taxpayer or (2) must provide a properly executed power of 
attorney on Form 2848, Power of Attorney and Declaration of 
Representative.
    (ix) A penalties of perjury statement, effective for all 
information submitted as a complete application, and signed by a person 
with personal knowledge of the relevant facts that is authorized to 
bind the registrant.
    (x) Any other information the IRS deems necessary for purposes of 
preventing duplication, fraud, improper payments, or excessive payments 
under this section that is provided in guidance.
    (c) Registration number--(1) In general. The IRS will review the 
information provided and will issue a separate registration number for 
each applicable credit property for which the applicable entity or 
electing taxpayer provided sufficient verifiable information.
    (2) Registration number is only valid for one taxable year. A 
registration number is valid only with respect to the applicable entity 
or electing taxpayer that obtained the registration number under this 
section and only for the taxable year for which it is obtained.
    (3) Renewing registration numbers. If an elective payment election 
will be made with respect to an applicable credit property for a 
taxable year after a registration number under this section has been 
obtained, the applicable entity or electing taxpayer must renew the 
registration for that subsequent taxable year in accordance with 
applicable guidance, including attesting that all the facts previously 
provided are still correct or updating any facts.
    (4) Amendment of previously submitted registration information if a 
change occurs before the registration number is used. As provided in 
instructions to the pre-filing registration portal, if specified 
changes occur with respect to one or more applicable credit properties 
for which a registration number has been previously obtained but not 
yet used, an applicable entity or electing taxpayer must amend the 
registration (or may need to submit a new registration) to reflect 
these new facts. For example, if the owner of a facility previously 
registered for an elective payment election for applicable credits 
determined with respect to that facility and the facility undergoes a 
change of ownership (incident to a corporate reorganization or an asset 
sale) such that the new owner has a different employer identification 
number (EIN) than the owner who obtained the original registration, the 
original owner of the facility must amend the original registration to 
disassociate its EIN from the applicable credit property and the new 
owner must submit separately an original registration (or if the new 
owner previously registered other credit properties, must amend its 
original registration) to associate the new owner's EIN with the 
previously registered applicable credit property.
    (5) Registration number is required to be reported on the return 
for the taxable year of the elective payment election. The applicable 
entity or electing taxpayer must include the registration number of the 
applicable credit property on its annual tax return as provided in 
Sec.  1.6417-2(b) for the taxable year. The IRS will treat an elective 
payment election as ineffective with respect to an applicable credit 
determined with respect to an applicable credit property for which the 
applicable entity or electing taxpayer does not include a

[[Page 40557]]

valid registration number on the annual tax return.
    (d) Applicability date. This section applies to taxable years 
ending on or after date of publication of final rule.


Sec.  1.6417-6   Special rules.

    (a) Excessive payment--(1) In general. In the case of any elective 
payment amount which the IRS determines constitutes an excessive 
payment, the tax imposed on such entity by chapter 1, regardless of 
whether such entity or taxpayer would otherwise be subject to chapter 1 
tax, for the taxable year in which such determination is made will be 
increased by an amount equal to the sum of--
    (i) The amount of such excessive payment, plus
    (ii) An amount equal to 20 percent of such excessive payment.
    (2) Reasonable cause. The amount described in paragraph (a)(1)(ii) 
of this section will not apply to an applicable entity or electing 
taxpayer if the applicable entity or electing taxpayer demonstrates to 
the satisfaction of the IRS that the excessive payment resulted from 
reasonable cause.
    (3) Excessive payment defined. For purposes of this section, the 
term excessive payment means, with respect to an applicable credit 
property for which an elective payment election is made under Sec.  
1.6417-2(b) for any taxable year, an amount equal to the excess of--
    (i) The amount treated as a payment under Sec.  1.6417-2(a)(1)(i) 
or (a)(2)(i), or the amount of the payment made pursuant to Sec.  
1.6417-2(a)(2)(ii), with respect to such applicable credit property for 
such taxable year, over
    (ii) The amount of the credit which, without application of this 
section, would be otherwise allowable under the Code (as determined 
pursuant to Sec.  1.6417-2(c) and (e) or Sec.  1.6417-4(d)(1) and (3), 
and without regard to the limitation based on tax in section 38(c)) 
with respect to such applicable credit property for such taxable year.
    (4) Example. This example illustrates the principles of this 
paragraph (a). B, an instrumentality of state M, places in service in 
2023 facility F, which is eligible for the energy credit determined 
under section 48. B properly completes the pre-filing registration as 
an applicable entity that will earn the energy credit from F in 
accordance with Sec.  1.6417-5, and receives a registration number for 
F. B timely files its 2023 Form 990-T, properly providing the 
registration number for F and otherwise complying with Sec.  1.6417-
2(b). On its Form 990-T, B calculates that the amount of energy credit 
determined with respect to F is $100,000 and that the net elective 
payment amount is $100,000. B receives a refund in the amount of 
$100,000. In 2025, the IRS determines that the amount of energy credit 
properly allowable to B in 2023 with respect to F (as determined 
pursuant to Sec.  1.6417-2(c) and (e) and without regard to the 
limitation based on tax in section 38(c)) was $60,000. B is unable to 
show reasonable cause for the difference. The excessive payment amount 
is $40,000 ($100,000 treated as a payment--$60,000 allowable amount). 
In 2025, the tax imposed under chapter 1 on B is increased in the 
amount of $48,000 ($40,000 + (20% * $40,000).)
    (b) Basis reduction and recapture--(1) In general. Rules similar to 
the rules of section 50 (without regard to section 50(b)(3) and 
(4)(A)(i)) apply for purposes of this section.
    (2) Reporting recapture. Any reporting of recapture is made on the 
annual tax return of the applicable entity or electing taxpayer in the 
manner prescribed by the IRS in any guidance, along with supplemental 
forms such as Form 4255, Recapture of Investment Credit.
    (3) Example. This example illustrates the principles of this 
paragraph (b). In December 2023, G, a government entity, places in 
service P, which is energy property eligible for the energy credit 
determined under section 48 (section 48 credit). G properly completes 
the pre-filing registration in accordance with Sec.  1.6417-5 as an 
applicable entity to make an election under section 6417 for 2023. G 
timely files its 2023 Form 990-T in 2024, properly making the elective 
payment election in accordance with Sec.  1.6417-2 for a section 48 
energy credit determined with respect to P. On its Form 990-T, G 
properly determines that the amount of section 48 credit determined 
with respect P is $100,000 and that its net elective payment amount is 
$100,000. The IRS sends G a $100,000 refund. Pursuant to section 50(c), 
G reduces its basis in P by $50,000. In July 2025, P ceases to be 
investment credit property with respect to G. Because this occurs 
before the close of the recapture period set forth in section 50, 
section 50(a)(1)(A) provides that the tax under chapter 1 for 2025 is 
increased by the recapture percentage of the aggregate decrease in the 
credits allowed under section 38 for all prior taxable years which 
would have resulted solely from reducing to zero any credit determined 
under subpart E of part IV of subchapter A of chapter 1 with respect to 
such property. Because P ceased to be investment credit property within 
2 full years after P was placed in service, section 50(a)(1)(B) 
provides that the recapture percentage is 80%. G must properly report 
the recapture event in 2025, paying an $80,000 tax. Because G is a 
government entity, G reports the recapture event on a Form 990-T or any 
Form provided in further guidance, along with supplemental forms such 
as Form 4255, Recapture of Investment Credit. G's basis in P is 
increased by $40,000.
    (c) Mirror code territories. Pursuant to section 6417(f) of the 
Code, section 6417 and the section 6417 regulations are not treated as 
part of the income tax laws of the United States for purposes of 
determining the income tax law of any U.S. territory with a mirror code 
tax system (as defined in section 24(k) of the Code), unless such U.S. 
territory elects to have section 6417 and the section 6417 regulations 
be so treated. The applicable territory tax authority for a U.S. 
territory determines whether such an election has been made.
    (d) Partnerships subject to subchapter C of chapter 63 of the Code. 
See Sec.  301.6241-7(j) of this chapter for rules applicable to 
payments made to partnerships subject to subchapter C of chapter 63 of 
the Code for a partnership taxable year.
    (e) Applicability date. This section applies to taxable years 
ending on or after date of publication of final rule.

PART 301--PROCEDURE AND ADMINISTRATION

0
Par. 3. The authority citation for part 301 is amended by adding 
entries in numerical order for Sec. Sec.  301.6241-1 and 301.6241-7 to 
read in part as follows:

    Authority:  26 U.S.C. 7805.
* * * * *
    Section 301.6241-1 also issued under sections 48D(d), 6241, and 
6417.
* * * * *
    Section 301.6241-7 also issued under sections 48D(d), 6241, and 
6417.
* * * * *
0
Par. 4. Section 301.6241-1 is amended by:
0
1. Adding a sentence after the second sentence of paragraph 
(a)(6)(iii); and
0
2. Adding a sentence to the end to the end of paragraph (b)(1).
    The additions and revisions read as follows:


Sec.  301.6241-1  Definitions

    (a) * * *
    (6) * * *
    (iii) * * * Notwithstanding the previous two sentences, any tax, 
penalty, addition to tax, or additional amount imposed on the 
partnership under chapter 1 is an item or amount with respect to the 
partnership. * * *
    (b) * * *

[[Page 40558]]

    (1) * * * The third sentence of paragraph (a)(6)(iii) applies to 
partnership taxable years ending on or after June 21, 2023. * * *
* * * * *
0
Par. 5. Section 6241-7 is amended by:
0
1. Redesignating paragraph (j) as paragraph (k);
0
2. Adding new paragraph (j);
0
3. Revising the first sentence of newly redesignated paragraph (k)(1); 
and
0
4. Adding paragraph (k)(3).
    The additions and revisions read as follows:


Sec.  301.6241-7  Treatment of special enforcement matters

* * * * *
    (j) Elections resulting in payments to a partnership. The IRS may 
adjust any election that results or could result in a payment to the 
partnership in lieu of a Federal tax credit or deduction without regard 
to subchapter C of chapter 63. The IRS may also make determinations, 
without regard to subchapter C of chapter 63, about the payment itself 
as well as any partnership-related item relevant to adjusting the 
election or the payment.
* * * * *
    (k) Applicability date--(1) In general. Except as provided in 
paragraph (k)(2) (relating to paragraph (b) of this section) and 
paragraph (k)(3) of this section (relating to paragraph (j) of this 
section), this section applies to partnership taxable years ending on 
or after November 20, 2020. * * *
* * * * *
    (3) Elections resulting in payments to a partnership. Paragraph (j) 
of this section applies to taxable years ending on or after June 21, 
2023.

Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2023-12798 Filed 6-14-23; 11:15 am]
BILLING CODE 4830-01-P