The Internal Revenue Service announced that qualifying businesses, tax-exempt organizations or entities such as state, local and Indian tribal governments can register using the new IRA/CHIPS Pre-filing Registration Tool, available free from the IRS so they can take advantage of the elective payment or transfer of credits.
Credit: Quanta Services
The Inflation Reduction Act and the Creating Helpful Incentives to Produce Semiconductors Act, known as CHIPS, allows taxpayers to take advantage of certain manufacturing investment, clean energy investment and production tax credits through elective pay or transfer.
Elective payment and the transfer election create alternative ways for applicable entities and eligible taxpayers who have earned one of the IRA clean energy or the CHIPS credits to get the benefit of the credit even if the taxpayer cannot use the credit to offset their tax liability.
Taxpayers who intend to make an elective payment or credit transfer election must earn the credit, which means they must make a tax credit investment or undertake tax credit production activities to earn a credit that qualifies for the elective payment election or can be transferred.
The taxpayer must complete the pre-file registration process to receive a registration number. The registration number must be included on the taxpayer’s annual return as part of making a valid election. To facilitate this, the IRS has created the IRA/CHIPS Pre-filing Registration Tool.
Interested taxpayers should complete and submit the pre-filing registration request no earlier than the beginning of the tax year in which the taxpayer they will earn the credit it wishes to monetize with an elective payment election or transfer election.
Even though registration is not possible prior to the beginning of the tax year in which the credit will be earned, the IRS recommends that taxpayers register as soon as reasonably practicable during the tax year. The current recommendation is to submit the pre-filing registration at least 120 days prior to when the organization or entity plans to file its tax return on which it will make its election. This should allow time for IRS review, and for the taxpayer to respond if the IRS requires additional information before issuing the registration numbers.
If the elective payment amount, together with other tax payments and refundable credits, exceeds the taxpayer’s income tax liability, it will be treated as an overpayment of tax, which can be refunded or credited to estimated tax for the next tax year.
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