[Federal Register Volume 89, Number 48 (Monday, March 11, 2024)]
[Proposed Rules]
[Pages 17613-17619]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-04606]



  Federal Register / Vol. 89 , No. 48 / Monday, March 11, 2024 / 
Proposed Rules  

[[Page 17613]]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-101552-24]
RIN 1545-BR09


Election To Exclude Certain Unincorporated Organizations Owned by 
Applicable Entities From Application of the Rules on Partners and 
Partnerships

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 that would modify 
existing regulations to allow certain unincorporated organizations that 
are organized exclusively to produce electricity from certain property 
to be excluded from the application of partnership tax rules. These 
proposed regulations would affect unincorporated organizations and 
their members, including tax-exempt organizations, the District of 
Columbia, State and local governments, Indian Tribal governments, 
Alaska Native Corporations, the Tennessee Valley Authority, rural 
electric cooperatives, and certain agencies and instrumentalities. The 
proposed regulations would also update certain outdated language in the 
existing regulations. This document also provides a notice of public 
hearing on these proposed regulations.

DATES: Written or electronic comments must be received by May 10, 2024. 
A public hearing on these proposed regulations has been scheduled for 
May 20, 2024, at 10 a.m. ET. Requests to speak and outlines of topics 
to be discussed at the public hearing must be received by May 10, 2024. 
If no outlines are received by May 10, 2024, the public hearing will be 
cancelled.

ADDRESSES: Commenters are strongly encouraged to submit public comments 
electronically via the Federal eRulemaking Portal at https://www.regulations.gov (indicate IRS and REG-101552-24) by following the 
online instructions for submitting comments. Requests for a public 
hearing must be submitted as prescribed in the ``Comments and Public 
Hearing'' section. Once submitted to the Federal eRulemaking Portal, 
comments cannot be edited or withdrawn. The Department of Treasury 
(Treasury Department) and the IRS will publish for public availability 
any comments submitted to the IRS's public docket.
    Send paper submissions to: CC:PA:01:PR (REG-101552-24), Room 5203, 
Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
contact Cameron Williamson at (202) 317-6684 (not a toll-free number); 
and concerning submissions of comments and requests for a public 
hearing, contact Vivian Hayes at (202) 317-6901 (not a toll-free 
number) or by email to [email protected] (preferred).

SUPPLEMENTARY INFORMATION: 

Background

    This document contains proposed amendments to the Income Tax 
Regulations (26 CFR part 1) under section 761(a) of the Internal 
Revenue Code (Code) to carry out the purposes of section 6417 of the 
Code (proposed regulations). This document also provides notice of a 
public hearing on the proposed regulations.

I. Elective payment of applicable credits

    Section 6417 was added to the Code by section 13801(a) of Public 
Law 117-169, 136 Stat. 1818, 2003 (August 16, 2022), commonly referred 
to as the Inflation Reduction Act of 2022 (IRA). Section 6417 allows an 
``applicable entity'' (including tax-exempt organizations, the District 
of Columbia, State and local governments, Indian Tribal governments, 
Alaska Native Corporations, the Tennessee Valley Authority, rural 
electric cooperatives, and certain agencies and instrumentalities) to 
make an election to treat an ``applicable credit'' (as defined in 
section 6417(b)) determined with respect to such entity as making a 
payment by such entity against the tax imposed by subtitle A of the 
Code, for the taxable year with respect to which such credit is 
determined, equal to the amount of such credit. Section 6417 also 
provides special rules relating to partnerships and directs the 
Secretary of the Treasury or her delegate (Secretary) to provide rules 
for making elections under section 6417. Section 6417(h) requires the 
Secretary to issue regulations or other guidance as may be necessary to 
carry out the purposes of section 6417. Generally, this includes 
issuing guidance to ensure that applicable entities that comply with 
the terms of section 6417 can benefit from its provisions. Section 
13801(g) of the IRA provides that section 6417 applies to taxable years 
beginning after December 31, 2022.
    On June 21, 2023, the Treasury Department and the IRS published in 
the Federal Register (88 FR 40528) proposed regulations (REG-101607-23) 
providing guidance on the section 6417 elective payment election 
(section 6417 proposed regulations). Proposed Sec.  1.6417-2(a)(1)(iv) 
provided that partnerships are not applicable entities described in 
section 6417(d)(1)(A) or proposed Sec.  1.6417-1(c), regardless of how 
many of their partners are themselves applicable entities. Accordingly, 
any partnership making an elective payment election must be an electing 
taxpayer (as defined in proposed Sec.  1.6417-1(g)), and, as such, the 
only applicable credits with respect to which the partnership could 
make an elective payment election would be credits determined under 
sections 45Q, 45V, and 45X for the time periods allowed in section 
6417(d). However, proposed Sec.  1.6417-2(a)(1)(iii) provided that if 
an applicable entity is a co-owner in an applicable credit property 
through an organization that has made a valid election under section 
761(a) to be excluded from the application of the partnership tax rules 
of subchapter K of chapter 1 of the Code (subchapter K), then the 
applicable entity's undivided ownership share of the applicable credit 
property would be treated as a separate applicable credit property 
owned by such applicable entity. As a result, the applicable entity may 
make an elective payment election for the applicable credit(s) 
determined with respect to such share of the applicable credit 
property.
    Comments were received in response to the section 6417 proposed 
regulations requesting that the Treasury Department and the IRS provide 
additional guidance as to the types of applicable credit property co-
ownership arrangements that could validly elect under section 761(a) to 
be excluded from the application of subchapter K. Specifically, 
stakeholders stated that certain facts and circumstances common to 
jointly owned and operated renewable energy projects appear to violate 
certain provisions of Sec.  1.761-2(a). Stakeholders requested that the 
Treasury Department and the IRS provide that applicable credit property 
indirectly owned via ownership of an interest in an entity (other than 
an entity required to be treated as a corporation under the Code) would 
still be considered owned as co-owners for purposes of Sec.  1.761-
2(a)(3)(i). Stakeholders also requested that parties to a joint 
ownership arrangement of applicable credit property producing 
electricity be permitted to delegate the

[[Page 17614]]

authority to enter into multi-year power purchase agreements (PPAs).

II. Overview of section 761(a) and Sec.  1.761-2(a)(3)

    Section 761(a) provides, in part, that under regulations the 
Secretary may, at the election of all of the members of an 
unincorporated organization, exclude such organization from the 
application of all or part of subchapter K if the income of the members 
of the organization may be adequately determined without the 
computation of partnership taxable income and the organization is 
availed of: (1) for investment purposes only and not for the active 
conduct of a business, (2) for the joint production, extraction, or use 
of property, but not for the purpose of selling services or property 
produced or extracted, or (3) by dealers in securities for a short 
period for the purpose of underwriting, selling, or distributing a 
particular issue of securities.
    The Treasury Department and the IRS understand that unincorporated 
organizations seeking to be excluded from the application of subchapter 
K so that one or more of their members can make an election under 
section 6417 are likely to be formed for the joint production of 
property, but not for the purpose of jointly selling services or 
property produced or extracted. Section 1.761-2(a)(3) provides 
additional requirements for such unincorporated organizations to elect 
to be excluded from the application of subchapter K. These additional 
requirements include that the participants in such unincorporated 
organizations: (1) own the property as co-owners, either in fee or 
under lease or other form of contract granting exclusive operating 
rights (co-ownership requirement), (2) reserve the right separately to 
take in kind or dispose of their shares of any property produced, 
extracted, or used (severance requirement), and (3) do not jointly sell 
services or the property produced or extracted (joint marketing 
requirement), although each separate participant may delegate authority 
to sell the participant's share of the property produced or extracted 
for the time being for the participant's account, but not for a period 
of time in excess of the minimum needs of the industry, and in no event 
for more than one year. When an electing organization is no longer 
eligible to elect to be excluded from subchapter K, its existing 
election automatically terminates, and the organization must begin 
complying with the requirements of subchapter K.

III. Reason for Proposed Regulations

A. Co-Ownership and Severance Requirements
    Under the current regulations, the requirements of Sec.  1.761-
2(a)(3) are met only in situations in which interests in the property 
of an electing unincorporated organization are owned directly by its 
members, rather than indirectly through ownership of interests in an 
entity that would otherwise be treated as a partnership under section 
7701 and Sec.  301.7701-3 (for example, a limited liability company 
with multiple owners).
    Stakeholders have requested that co-ownership arrangements of 
applicable credit property through an entity (other than one required 
to be treated as a corporation under the Code) be treated as satisfying 
the co-ownership and severance requirements. As support for this 
request, stakeholders have pointed out that pre-IRA guidance allowing 
for the use of partnership structures is widely used as a basis for 
structuring projects within the renewable energy industry and is well 
understood by all parties involved in the industry. However, direct co-
ownership of renewable energy projects that meet the co-ownership and 
severance requirements is generally limited to projects directly 
including a utility or an off-taker as a co-owner. Stakeholders have 
argued that requiring renewable energy investments to be made directly, 
rather than through an entity, will make it more difficult for parties 
to such arrangements to obtain financing with respect to the 
investments or negotiate contracts.
    In response to the concerns raised by stakeholders, the Treasury 
Department and the IRS agree that ownership of certain applicable 
credit property through an entity (other than one required to be 
treated as a corporation under the Code) is appropriate for purposes of 
satisfying the co-ownership and severance requirements in the context 
of an entity owned by one or more applicable entities seeking to make 
elections under section 6417; provided that, the other requirements of 
section 761(a) and Sec.  1.761-2, as it would be modified by these 
proposed regulations, are met. As previously described, arrangements 
treated as partnerships for Federal income tax purposes are not treated 
as applicable entities and cannot make elective payment elections 
except in the case of credits determined under sections 45V, 45Q, and 
45X. Thus, the Treasury Department and the IRS agree with stakeholders 
that to further the intent of Congress to encourage applicable entities 
to build, operate, and own renewable energy projects, it is necessary 
to expand the circumstances in which joint ownership arrangements of 
applicable credit property can be excluded from the application of 
subchapter K.
B. Joint Marketing Requirement
    Under the current regulations, the joint marketing requirement 
provides that members of an unincorporated organization making an 
election under section 761(a) may not jointly sell services or the 
property produced or extracted by the unincorporated organization, 
except that each separate participant may delegate authority to sell 
the participant's share of the property produced or extracted for the 
time being for the participant's account, but not for a period of time 
in excess of the minimum needs of the industry, and in no event for 
more than one year.
    Some stakeholders have requested that the current regulations under 
section 761(a) be modified to provide that multi-year PPAs entered into 
alongside other members of an unincorporated organization will not 
violate the joint marketing requirement. In support of this position, 
stakeholders have raised that utilities and other potential 
counterparties may be averse to negotiating with multiple owners of a 
single renewable energy project, especially if any such owners lack 
relevant renewable energy expertise. If applicable entities are at a 
disadvantage to negotiating with utilities and other potential 
counterparties because of the requirements under section 761(a)(2) and 
Sec.  1.761-2, investments in applicable credit property are unlikely 
to materialize in the manner intended by Congress. Likewise, if 
applicable entities cannot delegate authority to conduct such 
negotiations with respect to long-term projects--as is anticipated to 
be necessary for PPAs and similar arrangements--investments in 
applicable credit property are unlikely to materialize in the manner 
intended by Congress.

Explanation of Provisions

    To carry out the purposes of section 6417 as intended by Congress, 
the proposed regulations contained in this notice of proposed 
rulemaking would amend the regulations under section 761(a) to provide 
an exception to certain rules in Sec.  1.761-2(a)(3) in the case of an 
unincorporated organization that meets four requirements. First, the 
unincorporated organization must be owned, in part or in full, by one 
or more applicable entities (as defined in section 6417(d)(1) and Sec.  
1.6417-1(c)). Second, the unincorporated organization's

[[Page 17615]]

members must enter into a joint operating agreement with respect to the 
applicable credit property in which the members reserve the right 
separately to take in kind or dispose of their pro rata shares of the 
electricity produced, extracted, or used, or any associated renewable 
energy credits or similar credits. Third, the unincorporated 
organization must, pursuant to a joint operating agreement, be 
organized exclusively to jointly produce electricity from its 
applicable credit property (as defined in Sec.  1.6417-1(e)) and for 
which one or more of the applicable credits listed in section 
6417(b)(2), (4), (8), (10), and (12) is determined. This requirement 
may be satisfied prior to the applicable credit property being placed 
in service (if necessary), provided the unincorporated organization is 
in the process of completing the applicable credit property and will 
operate the applicable credit property once it is placed in service. 
Fourth, one or more of the applicable entities will make an elective 
payment election under section 6417(a) for the applicable credits 
determined with respect to its share of the applicable credit property.
    Solely for purposes of an election under section 761(a) by an 
unincorporated organization meeting those four requirements as well as 
the other requirements applicable under Sec.  1.761-2 (an applicable 
unincorporated organization), the proposed regulations would modify the 
co-ownership and joint marketing requirements under Sec.  1.761-2(a)(3) 
as follows.
    The proposed regulations would modify the co-ownership requirement 
in Sec.  1.761-2(a)(3)(i) to permit the participants in the 
unincorporated organization to own the applicable credit property 
through an organization that is an entity (other than an entity that is 
required to be treated as a corporation under the Code).
    The proposed regulations would modify the joint marketing 
requirement in Sec.  1.761-2(a)(3)(iii) to provide that a delegation of 
authority to sell the participant's share of the property produced may 
allow the delegee to enter into contacts that exceed the minimum needs 
of the industry and may be for longer than one year, provided that the 
delegation of authority to act on behalf of the participant may not be 
for a period of time that exceeds the minimum needs of the industry, 
and in no event for more than one year. In other words, a participant 
would not be permitted to enter into an agreement binding the 
participant to an agency relationship for longer than one year, but an 
agent of a participant may enter into a PPA that binds a participant to 
sell electricity generated by the participant's share of the applicable 
credit property for longer than one year. The proposed regulations 
would include an example illustrating this proposed rule.
    The proposed regulations would also update certain outdated 
references to Sec.  1.6031-1 and internal revenue officers. The 
Treasury Department and the IRS are considering additional updates to 
modernize the section 761(a) regulations, including rules addressing 
section 761(a) elections made by dealers in securities described in 
section 761(a)(3). The Treasury Department and the IRS are also 
considering changes to the revocation procedures described in Sec.  
1.761-2(b)(3). Comments are requested regarding these considerations 
and any other potential updates to the section 761(a) regulations.
    Comments are requested regarding the scope and requirements of 
these proposed regulations, including whether similar exceptions are 
necessary for applicable entities that own applicable credit properties 
that do not produce electricity. The Treasury Department and the IRS 
are considering a rule that would terminate a section 761(a) election 
made by an applicable unincorporated organization relying on an 
exception in proposed Sec.  1.761-2(a)(4)(iii) if any interest in the 
applicable unincorporated organization is sold or exchanged unless the 
resulting members in the unincorporated organization make a new section 
761(a) election within a specified time period. In addition, the 
Treasury Department and the IRS are considering a rule that would 
prevent the deemed election rules in Sec.  1.761-2(b)(2)(ii) from 
applying to any unincorporated organization relying on an exception in 
proposed Sec.  1.761-2(a)(4)(iii). Comments are requested regarding 
these considerations and other potential means of preventing abuse of 
the exceptions in proposed Sec.  1.761-2(a)(4)(iii).

Proposed Applicability Dates

    Proposed Sec.  1.761-2(a)(4), which would be applicable to 
elections under section 761(a) by applicable unincorporated 
organizations to be excluded from the application of all of subchapter 
K, is 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) 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.
    This proposed regulation mentions reporting and recordkeeping 
requirements that must be satisfied for unincorporated organizations to 
elect out of subchapter K. These collections of information are 
generally used by the IRS for tax compliance purposes and by taxpayers 
to facilitate proper reporting and recordkeeping. The likely 
respondents to these collections are businesses and tax-exempt 
organizations.
    Unincorporated entities meeting the requirements outlined in Sec.  
1.761-2(a)(4) of this proposed regulation satisfy relevant reporting 
requirements by submitting a statement attached to, or incorporated in, 
a properly executed partnership return, Form 1065, containing, in lieu 
of the information required by Form 1065 and by the instructions 
relating thereto, only the name or other identification and the address 
of the organization together with information on the return, or in the 
statement attached to the return, showing the names, addresses, and 
identification numbers of all the members of the organization; a 
statement that the organization qualifies under paragraphs (1) and 
either (2) or (3) of paragraph (a) of this section; a statement that 
all of the members of the organization elect that it be excluded from 
all of subchapter K; and a statement indicating where a copy of the 
agreement under which the organization operates is available (or if the 
agreement is oral, from whom the provisions of the agreement may be 
obtained). These requirements and associated forms are already approved 
by OMB under 1545-0123 for business filers. These proposed regulations 
are not changing or creating new collection requirements not already 
approved by OMB.
    The recordkeeping requirements mentioned in this proposed 
regulation are considered general tax records under Sec.  1.6001-1(e). 
These records are required for the IRS to validate that electing 
taxpayers have consistently met

[[Page 17616]]

the regulatory requirements outlined in Sec.  1.761-2. For PRA 
purposes, general tax records are already approved by OMB under 1545-
0123 for business filers and 1545-0047 for tax-exempt organizations.

II. Regulatory Flexibility Act

    The Secretary of the Treasury hereby certifies that the proposed 
regulations will not have a significant economic impact on a 
substantial number of small entities pursuant to the Regulatory 
Flexibility Act (5 U.S.C. chapter 6).
    These proposed regulations would affect unincorporated 
organizations that elect out of subchapter K in connection with an 
election under section 6417, as well as the members of such 
organizations.
    Data is not readily available about these organizations. Such 
organizations could not have made an election out of subchapter K under 
the current regulations, so information about existing organizations 
that have made section 761(a) elections is not instructive.
    Even if these proposed regulations affect a substantial number of 
small entities, such impact will not be significant. The proposed 
regulations do not make it more costly to make or maintain an election 
under section 761(a).
    These proposed regulations do not change the procedural 
requirements under current Sec.  1.761-2(b) for making an election 
under section 761(a). Other than to conform to modern formatting 
conventions, the proposed regulations would amend Sec.  1.761-2(b) only 
by adding a parenthetical to clarify that in making a valid section 761 
election, which requires attaching certain statements to a Form 1065 as 
required in accordance with the current regulations, proposed Sec.  
1.761-2(a)(4) should be taken into account, as applicable, with regard 
to the required statement that the organization qualifies under Sec.  
1.761-2(a)(1) and either Sec.  1.761-2(a)(2) or (a)(3) ``(taking into 
account Sec.  1.761-2(a)(4), as applicable)''. Otherwise, an 
unincorporated organization making an election under these proposed 
regulations would not be required to submit anything additional or 
different than required under current Sec.  1.761-2(b).
    These proposed regulations impose no new ongoing compliance costs. 
Though any unincorporated organization that has made an election under 
section 761(a) should ensure that it remains qualified under Sec.  
1.761-2(a)(1) and either Sec.  1.761-2(a)(2) or (3) (taking into 
account proposed Sec.  1.761-2(a)(4), as applicable), the proposed 
regulations do not add to this obligation. In fact, these proposed 
regulations could make it simpler for certain unincorporated 
organizations to stay qualified, given their joint operating agreements 
that satisfy the modified co-ownership and severance requirements and 
multi-year PPAs that satisfy the modified joint marketing requirement.
    For the reasons stated, a regulatory flexibility analysis under the 
Regulatory Flexibility Act is not required. The Treasury Department and 
the IRS invite comments on the number of entities affected and the 
impact of the proposed regulations on small entities.
    Pursuant to section 7805(f), this notice of proposed rulemaking has 
been submitted to the Chief Counsel for the Office of Advocacy of the 
Small Business Administration for comment on its impact on small 
business.

III. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandate 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 Tribal government, in the aggregate, or by the private 
sector, of $100 million (updated annually for inflation). These 
proposed regulations do not include any Federal mandate that may result 
in expenditures by State, local, or Tribal governments or by the 
private sector in excess of that threshold.

IV. 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. These proposed regulations do not 
have federalism implications and do not impose substantial, direct 
compliance costs on State and local governments or preempt State law 
within the meaning of the Executive order.

V. 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 July 17, 2023, the Treasury Department and the IRS 
held a consultation with Tribal leaders requesting assistance in 
addressing questions related to the section 6417 proposed rules 
published on June 14, 2023, which informed the development of these 
proposed regulations.

VI. 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 regulations are adopted as final regulations, 
consideration will be given to comments regarding the notice of 
proposed rulemaking that are submitted timely to the IRS as prescribed 
in the preamble under the ADDRESSES section. The Treasury Department 
and the IRS request comments on all aspects of the proposed 
regulations. All comments will be made available at https://www.regulations.gov. Once submitted to the Federal eRulemaking Portal, 
comments cannot be edited or withdrawn.
    A public hearing has been scheduled for May 20, 2024, beginning at 
10:00 a.m. ET, in the Auditorium at the Internal Revenue Building, 1111 
Constitution Avenue NW, Washington, DC. 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. Participants may alternatively attend the public 
hearing by telephone.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who 
wish to present oral comments at the hearing must submit an outline of 
the topics to be discussed and the time to be devoted to each topic by 
May 10, 2024. A period

[[Page 17617]]

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 available free of charge at the hearing. If no outline 
of the topics to be discussed at the hearing is received by May 10, 
2024, the public hearing will be cancelled. If the public hearing is 
cancelled, a notice of cancellation of the public hearing will be 
published in the Federal Register.
    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-101552-24 and the language ``TESTIFY In 
Person.'' For example, the subject line may say: Request to TESTIFY In 
Person at Hearing for REG-101552-24.
    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-101552-24 and the language 
``TESTIFY Telephonically.'' For example, the subject line may say: 
Request to TESTIFY Telephonically at Hearing for REG-101552-24.
    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-101552-24 and the language 
``ATTEND In Person.'' For example, the subject line may say: Request to 
ATTEND Hearing In Person for REG-101552-24. Requests to attend the 
public hearing must be received by 5:00 p.m. ET on May 16, 2024.
    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-
101552-24 and the language ``ATTEND Hearing Telephonically.'' For 
example, the subject line may say: Request to ATTEND Hearing 
Telephonically for REG-101552-24. Requests to attend the public hearing 
must be received by 5:00 p.m. ET on May 16, 2024.
    Hearings will be made accessible to people with disabilities. To 
request special assistance during a hearing please contact the 
Publications and Regulations Section 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) by May 15, 2024.

Statement of Availability of IRS Documents

    IRS notices and other guidance cited in this preamble are published 
in the Internal Revenue Bulletin (or Cumulative Bulletin) and are 
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 author of these proposed regulations is Cameron 
Williamson. However, other personnel from the Treasury Department and 
the IRS participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

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

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by revising 
the entry for Sec.  1.761-2 to read in part as follows:

    Authority:  26 U.S.C. 7805 * * *
* * * * *
    Section 1.761-2 also issued under 26 U.S.C. 6417(h).
* * * * *
0
Par. 2. Section 1.761-2 is amended by:
0
a. Revising and republishing paragraphs (a)(1), (a)(2)(i), and 
(a)(3)(i);
0
b. Adding paragraph (a)(4);
0
c. Revising and republishing paragraphs (b)(1), (b)(2)(i) and (ii), 
(b)(3)(i), (c), and (e); and
0
d. Adding paragraph (f).
    The revisions and additions read as follows:


Sec.  1.761-2   Exclusion of certain unincorporated organizations from 
the application of all or part of subchapter K of chapter 1 of the 
Internal Revenue Code.

    (a) * * *
    (1) In general. Under conditions set forth in this section, an 
unincorporated organization described in paragraph (a)(2) or (3) of 
this section (taking into account paragraph (a)(4) of this section, as 
applicable) may be excluded from the application of all or a part of 
the provisions of subchapter K of chapter 1 of the Code. Such 
organization must be availed of (i) for investment purposes only and 
not for the active conduct of a business, or (ii) for the joint 
production, extraction, or use of property, but not for the purpose of 
selling services or property produced or extracted. The members of such 
organization must be able to compute their income without the necessity 
of computing partnership taxable income. Any syndicate, group, pool, or 
joint venture which is classifiable as an association, or any group 
operating under an agreement which creates an organization classifiable 
as an association, does not fall within these provisions.
    (2) * * *
    (i) Own the property as co-owners,
* * * * *
    (3) * * *
    (i) Own the property as co-owners, either in fee or under lease or 
other form of contract granting exclusive operating rights, and
* * * * *
    (4) Exception for certain joint ownership arrangements of 
applicable credit property--(i) Scope. Paragraph (a)(4)(iii) of this 
section provides certain exceptions to specified rules in paragraph 
(a)(3) of this section in the case of an applicable unincorporated 
organization meeting the requirements of paragraph (a)(4)(ii) of this 
section.
    (ii) Applicable unincorporated organization. For purposes of this 
section, an applicable unincorporated organization is an unincorporated 
organization described in paragraph (a)(1) of this section:
    (A) That is owned, in part or in whole, by one or more applicable 
entities, as defined in section 6417(d)(1) and Sec.  1.6417-1(c),
    (B) The members of which enter into a joint operating agreement in 
which the members reserve the right separately to take in kind or 
dispose of their pro rata shares of the electricity produced, 
extracted, or used, or any associated renewable energy credits or 
similar credits,
    (C) That, pursuant to the joint operating agreement, is organized 
exclusively to produce electricity from its applicable credit property 
(as defined in Sec.  1.6417-1(e)) and with respect to which one or more 
of the applicable credits listed in section 6417(b)(2), (4), (8), (10), 
and (12) is determined, and
    (D) For which one or more of the applicable entities will make an 
elective payment election under section 6417(a)

[[Page 17618]]

for the applicable credits determined with respect to its share of the 
applicable credit property.
    (iii) Specified exceptions for applicable unincorporated 
organizations. Solely for purposes of an election under section 761(a) 
by an applicable unincorporated organization that meets the 
requirements of paragraphs (b) and (e) of this section:
    (A) The requirement in paragraph (a)(3)(i) of this section is 
modified such that the participants are permitted to own the applicable 
credit property through an unincorporated organization that is an 
entity, other than one required to be treated as a corporation under 
any provision of the Code; and
    (B) The requirement in paragraph (a)(3)(iii) of this section is 
modified such that the delegation of authority to sell the 
participant's share of the property produced may allow the delegee to 
enter into contracts the duration of which exceeds the minimum needs of 
the industry and may be for more than one year, provided that the 
delegation of authority to act on behalf of the participant may not be 
for a period of time that exceeds the minimum needs of the industry, 
and in no event for more than one year.
    (vi) Example. This example illustrates the application of the 
specified exceptions for applicable unincorporated organizations 
described in paragraph (a)(4) of this section.
    (A) Facts. T is an Indian tribal government as defined in Sec.  
1.6417-1(c) and an applicable entity, and T and Y own an applicable 
credit property that will produce electricity through a limited 
liability company organized under T's tribal law (TLLC). No election 
under Sec.  301.7701-3 of this chapter has been made to treat TLLC as 
an association for Federal tax purposes. T and Y enter into a joint 
operating agreement with respect to the ownership and operation of the 
applicable credit property in which each of T and Y reserve the right 
separately to take in kind or dispose of their pro rata shares of the 
electricity produced and any associated renewable energy credits or 
similar credits. On January 1st of year 1, T and Y enter into 
delegation agreements with Q that delegate T's and Y's authority to Q 
to sell electricity generated by T's and Y's shares of the applicable 
credit property. The term of the delegation agreements is one year, 
which does not exceed the minimum needs of the industry. On June 1st of 
year 1, Q enters into a power purchase agreement with Utility on T's 
and Y's behalf that commits T and Y to sell the electricity produced 
from their shares of the applicable credit property to Utility for a 
term of 15 years. At the end of the day on December 31st of year 1, the 
delegation agreements terminate.
    (B) Analysis. Because T and Y did not delegate authority for a 
period of more than one year to sell the electricity produced from 
their shares of the applicable credit property, the requirements of 
paragraph (a)(4)(iii)(B) of this section are met. Assuming that TLLC 
otherwise meets the requirements of paragraphs (a)(1) and (a)(4)(ii) of 
this section, TLLC is an organization described in paragraph 
(a)(4)(iii)(A) of this section and can make an election under 
paragraphs (b) and (e) of this section to be excluded from the 
application of all of subchapter K under section 761(a). As such, T can 
make an elective payment election for the applicable credits determined 
with respect to its share of the applicable credit property held by 
TLLC, assuming the requirements of section 6417 are otherwise met. The 
analysis in this example would be the same whether Y is also an Indian 
tribal government, another applicable entity, or some other person.
    (b) * * *
    (1) Time for making election for exclusion. Any unincorporated 
organization described in paragraph (a)(1) of this section and either 
paragraph (a)(2) or (3) of this section (taking into account paragraph 
(a)(4) of this section, as applicable) which wishes to be excluded from 
all of subchapter K must make the election provided in section 761(a) 
not later than the time prescribed by paragraph (e) of Sec.  1.6031(a)-
1 (including extensions thereof) for filing the partnership return for 
the first taxable year for which exclusion from subchapter K is 
desired. Notwithstanding the prior sentence such organization may be 
deemed to have made the election in the manner prescribed in paragraph 
(b)(2)(ii) of this section.
    (2) Method of making election. (i) Except as provided in paragraph 
(b)(2)(ii) of this section, any unincorporated organization described 
in paragraph (a)(1) of this section and either paragraph (a)(2) or (3) 
of this section (taking into account paragraph (a)(4) of this section, 
as applicable) which wishes to be excluded from all of subchapter K 
must make the election provided in section 761(a) in a statement 
attached to, or incorporated in, a properly executed partnership 
return, Form 1065, which shall contain the information required in this 
paragraph (b)(2)(i). Such return must be filed with the Internal 
Revenue Service Center where the partnership return, Form 1065, would 
be required to be filed if no election were made. To determine the 
appropriate Internal Revenue Service Center, the principal office or 
place of business of the person filing the return will be considered 
the principal office or place of business of the organization. The 
partnership return must be filed not later than the time prescribed by 
paragraph (e) of Sec.  1.6031(a)-1 (including extensions thereof) for 
filing the partnership return with respect to the first taxable year 
for which exclusion from subchapter K is desired. Such partnership 
return shall contain, in lieu of the information required by Form 1065 
and by the instructions relating thereto, only the name or other 
identification and the address of the organization together with 
information on the return, or in the statement attached to the return, 
showing the names, addresses, and identification numbers of all the 
members of the organization; a statement that the organization 
qualifies under paragraph (a)(1) of this section and either paragraph 
(a)(2) or (3) of this section (taking into account paragraph (a)(4) of 
this section, as applicable); a statement that all of the members of 
the organization elect that it be excluded from all of subchapter K; 
and a statement indicating where a copy of the agreement under which 
the organization operates is available (or if the agreement is oral, 
from whom the provisions of the agreement may be obtained).
    (ii) If an unincorporated organization described in paragraph 
(a)(1) of this section and either paragraph (a)(2) or (3) of this 
section (taking into account paragraph (a)(4) of this section, as 
applicable) does not make the election provided in section 761(a) in 
the manner prescribed by paragraph (b)(2)(i) of this section, it shall 
nevertheless be deemed to have made the election if it can be shown 
from all the surrounding facts and circumstances that it was the 
intention of the members of such organization at the time of its 
formation to secure exclusion from all of subchapter K beginning with 
the first taxable year of the organization. Although the following 
facts are not exclusive, either one of such facts may indicate the 
requisite intent:
    (A) At the time of the formation of the organization there is an 
agreement among the members that the organization be excluded from 
subchapter K beginning with the first taxable year of the organization, 
or
    (B) The members of the organization owning substantially all of the 
capital interests report their respective shares of the items of 
income, deductions, and credits of the organization on their respective 
returns (making such

[[Page 17619]]

elections as to individual items as may be appropriate) in a manner 
consistent with the exclusion of the organization from subchapter K 
beginning with the first taxable year of the organization.
    (3) Effect of election--(i) In general. An election under this 
section to be excluded will be effective unless within 90 days after 
the formation of the organization (or by October 15, 1956, whichever is 
later) any member of the organization notifies the Commissioner that 
the member desires subchapter K to apply to such organization, and also 
advises the Commissioner that the member has so notified all other 
members of the organization by registered or certified mail. Such 
election is irrevocable as long as the organization remains qualified 
under paragraph (a)(1) of this section and either paragraph (a)(2) or 
(3) of this section (taking into account paragraph (a)(4) of this 
section, as applicable), or unless approval of revocation of the 
election is secured from the Commissioner. Application for permission 
to revoke the election must be submitted to the Commissioner of 
Internal Revenue, Attention: T:I, Washington, DC 20224, no later than 
30 days after the beginning of the first taxable year to which the 
revocation is to apply.
* * * * *
    (c) Partial exclusion from subchapter K. An unincorporated 
organization which wishes to be excluded from only certain sections of 
subchapter K must submit to the Commissioner, no later than 90 days 
after the beginning of the first taxable year for which partial 
exclusion is desired, a request for permission to be excluded from 
certain provisions of subchapter K. The request shall set forth the 
sections of subchapter K from which exclusion is sought and shall state 
that such organization qualifies under paragraph (a)(1) of this section 
and either paragraph (a)(2) or (3) of this section (taking into account 
paragraph (a)(4) of this section, as applicable), and that the members 
of the organization elect to be excluded to the extent indicated. Such 
exclusion shall be effective only upon approval of the election by the 
Commissioner and subject to the conditions the Commissioner may impose.
* * * * *
    (e) Cross reference. For requirements with respect to the filing of 
a return on Form 1065 by a partnership, see Sec.  1.6031(a)-1.
* * * * *
    (f) Applicability date. Except as provided in paragraph (d) of this 
section, this section applies to taxable years ending on or after March 
11, 2024.

Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2024-04606 Filed 3-5-24; 8:45 am]
 BILLING CODE 4830-01-P