Challenges with Direct Pay for Tax-Exempt Entities
- Timing and Cash Flow:
- Direct pay reimbursements are issued only after a qualifying investment enters service, which can be challenging for entities lacking sufficient funding to cover upfront costs.
- Projects may require grant funding, bond issues, or other financing sources due to the delay in reimbursement.
- Learning Curve and Complexity:
- The process involves new tax procedures that may be unfamiliar to smaller or resource-constrained organizations. This includes understanding and complying with IRS regulations.
- The need to navigate a “whole new set of learning curves” can be daunting for smaller entities.
- Pre-Filing and Registration Requirements:
- Entities must pre-register each property separately to claim credits, which can be time-consuming for those with multiple eligible assets.
- Ensuring compliance with IRS requirements for registration and filing can be complex for entities without experience in dealing with such tax provisions.
- Ownership Requirements:
- To benefit from direct pay, entities must own the property, which can limit participation if entities only use but do not own the renewable energy installations.
- Taxable Year and Filing Needs:
- Entities that do not regularly file tax returns need to file a Form 990-T to claim direct pay, which may require additional administrative steps.
Despite these challenges, the direct pay mechanism offers significant opportunities for tax-exempt entities to invest in clean energy by providing cash for credits that would otherwise be unusable due to lack of taxable income.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/are-there-any-specific-challenges-tax-exempt-entities-face-when-using-direct-pay/
