IRS Updates June 29 2023 by Paul Davis
Guidance Released on Credits, Elective Payments
The IRS has issued proposed regulations and FAQs (frequently asked questions) on rules for entities that earn certain clean energy credits and choose to make an elective payment election, and rules for those that elect to transfer certain credits to unrelated parties. As part of the Inflation Reduction Act, applicable entities (generally tax-exempt organizations, state, local, or tribal governments) can choose to make an elective payment election, which will treat certain credits as a payment against their federal tax due, with any excess refunded. Certain eligible taxpayers (generally not the applicable entities above) can opt to transfer all or a portion of an eligible credit to unrelated taxpayers for cash payments. The unrelated taxpayers may then claim the credits on their tax return. The cash payments are not counted as gross income of the taxpayer and are not deductible by the unrelated taxpayers.
Guidance for Manufacturing Credit
The IRS has issued proposed regulations providing guidance regarding the implementation of the elective payment provisions of the Advanced Manufacturing Investment Credit, established by the Creating Helpful Incentives to Produce Semiconductors Act of 2022 (CHIPS Act). This credit will incentivize the manufacture of semiconductors and manufacturing equipment within the US. The proposed regulations describe how an entity can receive the credit as an elective payment, offsetting their tax liability. Special rules apply to partnerships and S corporations, basis reduction and recapture. Public comments are being sought.
Energy Community Credits, Updated
The IRS has issued Notice 2023-45, updating Notice 2023-29, describing forthcoming proposed regulations for determining what constitutes an energy community for the production and investment tax credits. FAQs have been posted relating to the credit increase, qualifications, how to determine whether a project is in an energy community, and more. Notice 2023-47 has been released, publishing information that may be used to determine whether taxpayers meet certain requirements under the Statistical Area Category or the Coal Closure Category in Notice 2023-29 for purposes of qualifying for energy community bonus credit. More information can be found on the Inflation Reduction Act of 2022 page.
Taxpayer Advocate Report Issued
The mandated National Taxpayer Advocate midyear report to congress has been released. The report states that this year’s filing season generally ran smoothly but urges the IRS to prioritize a broad array of technology upgrades. The backlog of paper-filed returns was reduced, refunds issued quickly, and phone call wait times were shorter. Key objectives set forth for the future include protecting taxpayer rights, improving correspondence audit processes, and providing first-time penalty abatement to more qualified taxpayers.