The Internal Revenue Service (IRS) has unveiled a new Pre-filing Registration Tool designed to assist qualifying businesses, tax-exempt organizations, and governmental entities in leveraging the elective payment or transfer of credits. The tool is in response to provisions allowed under the Inflation Reduction Act (IRA) and the Creating Helpful Incentives to Produce Semiconductors Act, also known as CHIPS.
The IRA and CHIPS acts permit taxpayers to maximize certain manufacturing investment, clean energy investment, and production tax credits through elective pay or transfer. These elective payment and transfer elections provide alternative avenues for applicable entities and eligible taxpayers who have earned one of the IRA clean energy or CHIPS credits to gain the benefit of the credit, even if they cannot use the credit to offset their tax liability.
However, to make an elective payment or credit transfer election, taxpayers must first earn the credit. This means they must engage in 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 IRS’s new IRA/CHIPS Pre-filing Registration Tool is designed to streamline this process. Before making a valid election, taxpayers must complete the pre-file registration process to receive a registration number which must be included on their annual return.
Taxpayers are advised to complete and submit the pre-filing registration request no earlier than the start of the tax year in which they will earn the credit they wish to monetize with an elective payment election or transfer election. While registration prior to the beginning of the tax year in which the credit will be earned is not possible, the IRS recommends that taxpayers register as soon as reasonably practicable during the tax year.
The agency suggests submitting the pre-filing registration at least 120 days before the organization or entity plans to file its tax return on which it will make its election. This timeline should provide sufficient time for the IRS to review the registration and for the taxpayer to respond if the IRS requires additional information before issuing the registration numbers.
If the elective payment amount, combined with other tax payments and refundable credits, exceeds the taxpayer’s income tax liability, it will be treated as an overpayment of tax. This overpayment can then be refunded or credited towards the estimated tax for the next tax year.
The IRS has also indicated that it will soon expand the functionality of the IRA/CHIPS Pre-filing Registration Tool to allow for additional authorized users and broaden the entity type drop-down menu. This enhancement is part of the agency’s ongoing effort to simplify and streamline the tax filing process for taxpayers across the country.
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